Halyard Health, Inc.

Halyard Health, Inc. Announces Third Quarter 2016 Results,

Raises Its Full-Year 2016 Outlook

ALPHARETTA, Nov. 2, 2016/PRNewswire/ -- Halyard Health, Inc. (NYSE: HYH) today reported third quarter 2016 results and raised its full-year 2016 adjusted diluted earnings per share outlook.

quarter of 2015, which was impacted by a non-cash impairment charge taken in respect to the company's Surgical and Infection Prevention (S&IP) segment. Third quarter adjusted net income was $23 million compared to $24 million in the prior year.

"We delivered another solid quarter fueled by organic growth in Medical Devices and contributions from our recent CORPAK acquisition. I am pleased with our integration progress and we have realized synergies earlier than expected. As a result, we are raising our full-year adjusted diluted earnings outlook," said Robert Abernathy, Halyard chairman and CEO. "We are advancing Halyard's transformation into a leading medical devices company and our strong financial profile leaves us well-positioned for future growth."

Third Quarter 2016 Operating Results

Net sales of $398 million increased 2 percent compared to the prior year, including the CORPAK acquisition that contributed 3 percent of the growth. On a constant currency basis, sales increased 1 percent. Excluding expected lower Corporate and Other Sales and the CORPAK acquisition, volumes were flat compared to the prior year and net selling prices were lower by 2 percent.

Operating profit was $21 million in the third quarter of 2016 versus a net loss of $(461) million in 2015. On an adjusted basis, operating profit was $43 million compared to $46 million in the prior year. Volume growth in Medical Devices, including CORPAK, and manufacturing cost savings were offset by lower selling prices in S&IP and higher selling, general and administrative expenses.

Adjusted operating profit for the third quarter 2016 excludes $7 million spin-related transition charges, $4 million

for acquisition-related charges, $5 million for litigation matters and $6 million for intangible amortization expense.

Adjusted EBITDA for the third quarter, excluding spin-related charges, acquisition-related charges and litigation expenses was $53 million compared to $56 million in the prior year.

Third Quarter 2016 Business Segment Results

Net sales of Medical Devices in the third quarter increased 15 percent to $145 million compared to the third

quarter 2015, driven by a 4 percent increase in organic sales volumes and 11 percent growth attributed to the CORPAK acquisition. Performance was driven by volume growth across all product categories and 1 percent favorable currency exchange rates.

Operating profit for Medical Devices was $32 million compared to $29 million in the third quarter 2015. Results were driven by higher sales volumes and manufacturing cost savings, which were partially offset by planned higher selling and research and development expense to help drive future growth.

Surgical and Infection Prevention

S&IP net sales were $249 million, down 3 percent compared to the third quarter of 2015. On a constant currency basis, net sales decreased 4 percent. Excluding sales to Kimberly-Clark, volumes were down 2 percent, as continued robust demand in exam gloves was offset by lower volume in surgical drapes and gowns and sterilization. Selling prices were lower by 3 percent, concentrated in exam gloves and sterilization.

S&IP operating profit for the quarter was $22 million compared to $26 million in the third quarter of 2015.

Performance was impacted by lower net selling prices and volumes that were partially offset by manufacturing cost savings and favorable currency exchange rates.

Year-To-Date Results

In the first nine months of 2016, net sales of Medical Devices were $413 million, up 10 percent compared to

the comparable period in 2015. Organic sales volumes increased 4 percent and growth attributable to the CORPAK

acquisition was 6 percent. Performance was driven by growth in each product category, in line with expectations.

Through nine months, operating profit for Medical Devices was $91 million, compared to $87 million in the first nine months of 2015. Results were driven by higher volumes and favorable currency exchange rates partially offset by higher research and development spending, and selling and marketing expense to help drive growth.

Surgical and Infection Prevention

In the first nine months of 2016, S&IP net sales totaled $760 million, a 1 percent decline compared to the first nine months of 2015. Sales volumes increased 2 percent, driven by continued strong demand for exam gloves, which was offset by 3 percent lower selling prices, primarily in exam gloves and sterilization.

Year-to-date S&IP operating profit was $72 million compared to $71 million in the same period last year. Performance for the first nine months was driven by higher sales volumes, favorable currency exchange rates and manufacturing cost savings partially offset by lower selling prices.

Balance Sheet and Cash Flow

Total debt at the end of the third quarter 2016 was $589 million, consisting of a secured term loan, unsecured

notes and net borrowing on the revolver to fund the CORPAK acquisition, compared to total debt of $578 million at the end of 2015.

Cash from operations for the for the third quarter was $50 million compared to $19 million a year ago. Capital spending for the third quarter totaled $8 million compared to $19 million in 2015. The decrease in capital spending for the quarter was attributed to higher spending for spin-related items in the prior year. The company's cash balance was $87 million at the end of the third quarter.

2016 Outlook and Key Planning Assumptions

The company is revising its previously announced full-year 2016 outlook.

Based on current trends, the company is updating one of its key planning assumptions, as described below.

Non-GAAP Financial Measures

This press release and the accompanying tables include the following financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures:

These non-GAAP financial measures exclude the following items, as applicable, for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures:

The company provides these non-GAAP financial measures as supplemental information to our GAAP financial measures. Management and the company's Board of Directors use net sales on a constant currency basis, adjusted net income, adjusted diluted earnings per share, adjusted operating profit, adjusted EBITDA, and free cash flow to (a) evaluate the company's historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources and (c) measure the operational performance of the company's business units and their managers. Management also believes that the use of an adjusted effective tax rate provides improved insight into the tax effects of our ongoing business operations.

Additionally, the Compensation Committee of the company's Board of Directors will use certain of the non-GAAP financial measures when setting and assessing achievement of incentive compensation goals. These goals are based, in part, on the company's net sales on a constant currency basis, adjusted diluted earnings per share and adjusted EBITDA which will be determined by excluding certain items that are used in calculating these non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the attached financial tables.

Halyard Health, Inc. will host a conference call today at 9 a.m. ET. The conference call can be accessed live over the internet at https://halyardhealth.investorroom.com or via telephone by dialing 877.240.5772 in the United States. A replay of the call will be available at noon ET today by calling 877.344.7529 in the United States and entering passcode 10094658. A webcast of the call will also be archived in the Investors section on the Halyard website.

About Halyard Health

Halyard Health (NYSE: HYH) is a medical technology company focused on preventing infection, eliminating pain and speeding recovery for healthcare providers and their patients. Headquartered in Alpharetta, Georgia, Halyard is committed to addressing some of today's most important healthcare needs, such as preventing healthcare-associated infections and reducing the use of narcotics while helping patients move from surgery to recovery. Halyard's business segments - Surgical and Infection Prevention (S&IP) and Medical Devices - develop, manufacture and market clinically superior solutions that improve medical outcomes and business performance in more than 100 countries. For more information, visit www.halyardhealth.com.

Forward-Looking Statements

This press release contains information that includes or is based on "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the current plans and expectations of management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may", "believe", "will", "expect", "project", " estimate", "anticipate", "plan", or "continue" and similar expressions, among others. Such factors include, but are not limited to: weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the impact of investigative and legal proceedings and compliance risks; the impact of the federal legislation to reform the United States healthcare system; changes in financial markets; and changes in the competitive environment. Additional information concerning these and other factors that may impact future results is contained in our filings with the U.S. Securities and Exchange Commission, including our most recent Form 10-K and Quarterly Reports on Form 10-Q.

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CONDENSED CONSOLIDATED INCOME STATEMENT

(in millions, except per share amounts)

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NON-GAAP RECONCILIATIONS

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NON-GAAP RECONCILIATIONS

(in millions, except per share amounts)

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NON-GAAP RECONCILIATIONS

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CONDENSED CONSOLIDATED BALANCE SHEET

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CONDENSED CONSOLIDATED CASH FLOW STATEMENT

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SELECTED BUSINESS SEGMENT DATA

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N.M. - not meaningful

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(a) Volume excludes changes in sales volume to Kimberly-Clark.

(b) Other includes Corpak net sales, changes in sales volume to Kimberly-Clark and rounding.