Baxter International Inc. (BAX) Q2 2021 Earnings Report, Transcript and Summary

Good morning and welcome to Hill-Rom’s Fiscal Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded by Hill-Rom and is copyrighted material. It cannot be recorded, rebroadcast or transmitted without Hill-Rom’s written consent. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Mary Kay Ladone, Senior Vice President, Corporate Development, Strategy and Investor Relations. Ms. Ladone, you may begin.

Good morning and thanks for joining us for our fiscal second quarter 2021 earnings conference call. Joining me today are John Groetelaars, President and Chief Executive Officer of Hill-Rom and Barbara Bodem, 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. 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 updated 2021 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. We are pleased to present our Q2 financial results, which reflected 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. Hill-Rom’s performance highlights the resilience of our diverse portfolio and our on-going 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 a more challenging environment and delivering financial results that exceeded our guidance. Q2 revenue advanced 5% was 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% versus the prior year. Barb will walk through the updated guidance, which now includes reported revenue growth of 1% to 3% and adjusted earnings of $6 to $6.10 per diluted share. This reflects solid mid-single digit top line growth and high teens EPS growth after excluding the COVID impacts in both the current and prior year. 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, 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% in Q2 exceeding $160 million. We have now launched seven new products, several of which were highlighted in today's press release that advanced our vision of connected care. We remain on track to achieve our goal of at least 10 new product launches in 2021. And despite a tougher comparison in our 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 where Hill-Rom products have received greater priority. Across other regions, there has been more variability driven by elevated COVID dynamics. In 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 a targeted go-to-market commercial strategy, on-going recovery and new opportunities, we expect China to continue to deliver strong performance in the coming years. We continue to transform our portfolio with a growth oriented strategy. As you know, we've divested approximately $300 million of low growth, non-strategic revenue over the last several years. And this quarter, we finalized the exit of our international surgical OEM business. At the same time, we've deployed capital towards six acquisitions while adhering to a disciplined approach with rigorous strategic and financial criteria. The organic growth of these completed acquisitions is expected to exceed 30% 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 5% reflects 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 purchases accounted for about half of the upside, with revenue of approximately $40 million and adjusted earnings at $0.20 per diluted share. This was the result of a steep rise in COVID hospitalizations in January and February. In March, the volume of cases began to decline. And as a result, we are not anticipating any material one time COVID purchases in the second half of our fiscal year. Now let me briefly review the performance by business at constant currency rates. First, patient support systems revenue increased 2%, which includes the one-time COVID benefits mentioned earlier. PSS performance reflects strong international growth of 12% driven by continued market expansion of med-surg and ICU bed systems across Europe and other markets. This performance is the basis of our optimism on a long term potential to expand international ICU market. In the U.S., bed purchases showed sequential improvement over the last two quarters, but were down versus the prior year. Similar to Q1, bed system rentals were very strong given the rising COVID cases, resulting in growth of more than 20% and care communications rebounded with growth of 15% 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 for a continuous monitoring technology, integrated with our centralized smart bed that helps identify clinical deterioration that can lead to improve survival, decreased costs and decreased need for ICU admissions. We have now activated early sense in over 150 hospitals, and initial feedback has been very positive. One major customer recently noted that they have experienced zero code 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 communications with several new product launches that will allow us to sustain above market growth and double digits as the recovery progresses. This includes the modernization of a traditional nurse called system and new digital patient and visa application on an iPad called Voalte Experience and the Voalte alert and alarm management solution aimed at reducing alarm fatigue, and providing real time streaming of waveforms on a physician’s mobile device to aid in clinical decision making. By expanding these capabilities within the Hill-Rom Connected Care ecosystem, we are delivering significant differentiation and addressing key customer challenges. In Front Line Care, second quarter revenue increased 8%, driven by strong demand for patient monitoring equipment, and accelerated recovery across key products as physician office visits return to pre-COVID levels. Physician based products consist of physical assessment tools, diagnostic cardiology monitors, and vision care products, including retina view for screening of diabetic retinopathy. Year-to-date, Front Line Care has led 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. We aim 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 exit of the International Surgical OEM business and a more gradual recovery in infrastructure projects due to the pandemic. Excluding the surgical OEM business revenue growth was flat to the prior year. Despite first half dynamics in surgical, we remain encouraged by the positive momentum and growth in our order book and building backlog. As 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-date, performance and the conference 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 sets a solid foundation for durable growth and other 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 healthcare 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 5%, 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 one time COVID benefits of approximately $40 million. Adjusted gross margin was 53.7% and expanded by 250 basis points versus the prior year. This was the result of favorable product mix and operational improvements. The one time COVID 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 5% 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%. Interest and other non-operating expenses for the quarter totaled $16 million, and the adjusted tax rate was 20.1%. Overall, this translates into adjusted earnings for the fiscal second quarter of $1.73 per diluted share, which is an increase of 35% from $1.28 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, a 78% increase compared to the prior year, primarily driven by higher net income and changing 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. Today, we've returned $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 a 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 Bardy diagnostics acquisition in our revised revenue guidance. However, 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 1% to 3% on a reported basis, which includes a benefit from foreign currency of approximately 100 basis points. This compares to our prior guidance of revenue growth in the 0% to 2% range. As John mentioned, we are not contemplating in a one-time COVID purchases and our current fiscal 2021 second half outlook. By business segment, at constant currency rates, we now expect patient support systems revenue to decline between 1% and 3%. Front Line care revenue to grow between 3% and 5%. And finally, we continue to expect surgical solutions revenue growth of 3% to 5%. From a profitability perspective, we now expect adjusted gross margin of approximately 52% and an operating margin of approximately 19%. We continue to expect R&D to approach 5% of sales, and SG&A to represent approximately 28% of revenue. We now expect other expense, which includes interest of approximately $16 million reflected the estimated savings related to our upcoming bond redemption and we now expect a tax rate of approximately 20%. This translates into adjusted earnings of $6 to $6.10 per diluted share for the year, which reflects earnings per share growth of 8% to 10%. Excluding the COVID impacts on 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, 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, one time COVID related revenue contributed revenue of approximately $130 million, an estimated earnings per diluted share of $0.60. As a result, we expect revenue to decline 7% 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 and the underlying business as we exit this fiscal year. The on-going scope and evolution of the pandemic remains uncertain and could present pandemic related risks or opportunities that may require 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 in our ability to support our customers during the pandemic. Our first half financial performance has been better than expected reflecting our portfolios resilience and benefits from our company's compelling transformation. Our updated financial outlook remains balanced and achievable. We remain optimistic and the returns in normalization later this year, and the tremendous opportunities afforded to Hill-Rom to improve patient outcomes and the delivery of healthcare 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 faced new realities posed by the pandemic. I'd like to take a moment to acknowledge Barb for her strength and resolve as she has been dealing with their own personal health issue over the last several months. I am pleased to share that she has now completed her treatment and 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. [Operator Instructions] Our first question comes from Rick Wise of Stifel. Your question please.

Good morning, John. Good morning, everybody. Wonderful to see another solid quarter and solid quarter of improvement. And that's sort of my first question. I feel like you were in a way seeing a stronger recovery than we've heard for from others. You know, particularly in Europe, I mean, do you think it's the unique nature of your business? Is it I'm sure it's a combination of your product offering, but maybe the new product offerings, just maybe help us better understand at a high level, what you're seeing, and how that impacts your confidence in your second half outlook?

Yes, thanks, Rick. Appreciate the question. We’re very confident and have 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 made, all around supporting connected care and category leadership, the investments we've made in emerging markets, particularly in China, and then our new products, performance has continued to exceed expectations. So all three of those growth drivers really have laid the foundation for sustained and durable top line performance. As we entered the year, we had to anticipate what was the pandemic would give us in the winter quarter. And I think we've been impressed with our overall performance, both pandemic related, but the underlying organic growth exceeded our expectations with recovery across our Care Comms business, across our physician office, businesses, and really are pleased with the speed of recovery. But it does demonstrate that the parties, the portfolio that does have CapEx exposure is prioritized. And then our customers have prioritized elements of our portfolio that improve patient monitoring, patient workflow, and, and IT investments. And that's really where our, where our current portfolio is nicely positioned. So I hope that captures the elements you're asking about Rick?

Yes, thank you. And just, maybe as I speaking two for Barb if I could, maybe help us understand where you are Barb in the business optimization, process and how much more to go And the implications of this programs Barb. And maybe on the guidance front, you can help us just more clearly understand full year guidance implies second half gross margin stepped down a bit. I think if I'm understanding it from the 53.7% in the tech world are more like 52%, if I'm my rough math is right, is that the COVID benefit? Are there other reasons, just making sure I'm understanding the cadence of gross margins in the second half. And I'm thrilled you're feeling better and doing better.

Thanks Rick. That's very kind of you. With regards to the business optimization, last year, at the end of the year, we announced a $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're seeing in the first half of the year is the first half of that 15. 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 that 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 and the guidance, you have it exactly right. But the step down is really related to a not anticipating any further expansion or benefit in gross margin, from our one time COVID sales. We don't expect that the sales are going to be significant in the second half of 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 a question. Please state your question.

Oh, great. Thanks very much. Just a couple of things I'd love to get some comments on. First, maybe Barb with the guidance, can you just kind of walk through the difference between EPS this quarter versus the guidance for next quarter? I'm sure some of that's COVID versus non-COVID. But the just love to understand the kind 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 significant comp to overcome from last year. So in Q3 of 2020, we had approximately $130 million of onetime COVID revenue and a $0.60 benefit from that. As we think about our Q2 2021, if you talked about the results this year, at the 173, we're still getting about a $0.20 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 continue to one time COVID benefit. We're going to see more of the underlying business and the recovered curves as we improve in the latter half. And that's really what is driving the comparison on EPS from quarter-to-quarter and year-over-year.

Okay. Great. I just wanted to ask also, John one other question. I guess two things. One, first, just give us any thoughts on Bardy and just kind of maybe some thoughts on next steps from here or catalysts for timelines that we should be aware of? And then secondly, also just want to ask kind of a longer term question, a year from now; hopefully, we'll have some cleaner year-over-year growth rates to look at. And, 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 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 you're making, making currently in the in the underlying business?

Yes, sure Bob. Let me take that last question first. As it relates to guidance and looking around the corner into 22. Let me talk about the exit for this year first, and then come around to that. If you take the underlying revenue growth and exclude the COVID impact, our second half top line performance is actually double digits at 10% approximately constant currency growth rate compared to a first half of 2021 that was flat, if you exclude the COVID impact and looking at constant currency rates. So we see a really nice acceleration, first half to second half, removing all the noise of the COVID benefit from last year and this year. And then looking around the corner to 2022, although we're not giving guidance here, we do remain committed to what we've said many times that mid-single digit top line and a double digit EPS growth is something we remain committed to. And excluding the COVID benefit, we feel we can deliver that with confidence. So that's, that's the first question. As it relates to Bardy so obviously, as we're in the middle of litigation. So my, my comments need to be very limited. But I would say, first of all, we do believe and reaffirm our position that our company material adverse effect has occurred, or Mac, and therefore the polling conditions have not been satisfied. We've said this consistently. And although we're not going to speculate on the outcome, we have high conviction and confidence in our case. And that trial will begin next week, starting on May 5, and we would expect a ruling sometime in mid to late June. So I thought I could really save both Bardy this time as far as I’ve said in your prepared comments we looked at all the various scenarios for Bardy and incorporated any potential impact in our guidance with respect to EPS.

That's great, really helpful. Thanks very much.

Thank you.

Larry Kirsch of Raymond James is on the line with a question. Please state your question.

Great. Thanks. Good morning, everyone. I guess this may be partially for Barb, partially for John, the leverage Barbara; you've talked about now around 2.1 times. I would have to believe that's probably at the low end of your target zone. So, how should we be thinking about, M&A and maybe just a little bit of a refresh on the M&A strategy would be helpful?

Yes, maybe I'll start out with the M&A strategy. We remain busy here, Larry, with a lot of activity going on as normal. And we're pleased with the progress of, of the opportunities in our pipeline will remain focused on shareholder value creation and our financial criteria, as well as strategic fit. But we like what we see there. And then hopefully, in the coming quarters that’s some worth talking about. I'll turn it over to Barb for the remainder of the question.

So Larry, 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 do have for additional M&A. Our capital allocation priority has remained the same. So we're going to continue to focus on M&A and where can we continue to grow the business to dividends remains the same. We announced a 9% increase in our dividend earlier in the year that marked the 11th consecutive year of increases so that that approach to dividends is going to be unchanged. We're going to continue to look at repurchases as an opportunity to offset dilution. And then, any excess cash was going to use it to pay down debt and create more capacity for more M&A when the right deals come along.

Yes, no, that's great. Thank you. And then I guess, second question here, just I guess it's kind of a two part. First, John how you thinking about, the OUS Patient Support business in the second half of the year, and sort of then longer term? And then the second part of the question is, I was really intrigued by early sense now, as you indicated in 150 hospitals, and it made me start to think about, how do you how do you monetize all of this connected care? Maybe you can just kind of refresh us on how you're actually getting paid for these various feature sets that you've got out there?

Yes, sure. I figure to answer that question. So on the international front, first of all, our first half overall international performances now 12%, because of challenging comps in the second half and, and an anticipated slowing of some COVID related purchases around ICU expansion in our PSS, we do expect that to moderate in the second half, as the U.S. begins to pick up steam, and Asia-Pac begins to pick up steam, so all-in-all, that's kind of the way that we see things playing out. We do believe there's still an ICU expansion opportunity, internationally as we've mentioned before, I see capacity as severely limited in many countries across Europe and Canada. And we’ve seen in the last several quarters a spike in that demand and we don’t think it’s just a onetime thing, it’s going to be on-going acceleration of demand and we paid around $200 million in incremental opportunity over the years to come. I’m glad you asked the question on the connected care piece, Larry, because as we think about cancer 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 you might be surprised to learn that the over 20% 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 underlying performance there. It's closely linked in 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 investments that are taking place both organically and inorganically are really driving towards the strategy of advancing connected care having a meaningful and material impact to our top line.

Terrific. That, that's super helpful. Thank you very much.

Thank you.

Matt Taylor of UBS is online with a question. Please state your question.

Hi, thank you for taking the question. And Barb, glad that you're doing well. That's good to hear. So I just wanted to ask Barb's question in a slightly different way. I guess if I strip out all the COVID benefits to EPS, if you look at the forecast for next quarter, in terms of the relationship to 2019 it’s growing about 9% I think versus last quarter if I strip that out it would be more like 30%, so can you just talk about the difference in the phasing there if there’s underlying doses between the quarters that are driving that for spending. Can you help us bridge that a little bit better?

Matt, it’s a great question. I’m glad you gave me an opportunity to come back to the question Bob asked earlier. I think the key difference that you want to think about in both year-over-year on Q3 is really around SG&A spend. So in Q3 of 2020 it would have been very much surprised because we are in the height of the pandemic and activities were all surfaced 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 what we were anticipating for the remainder of the year. And that really is a reflection of two things; one is the normalization of some of the activity and getting back to normal and the fact that we’ve turned on significant investments as we’ve looked at our opportunities to continue to show [ph] top line growth going forward. So as we talked about Q2 performance, in our Q2 performance we showed both the contribution from our business optimization which was about 150 basis point, but that was more than offset by the investments that we are making and best thing and where we want to go going forward. Our commitment around delivering the double-digit earnings per share growth remained strong and we just are looking for those opportunities where our performance on the top line is allowing us to bring investment as they are in. So as you think about that sequential and you think about the year-over-year guidance that SG&A investment is – to the equation for you.

Okay. Great. That makes sense. And then as we think about the second half outlook, you got another COVID benefit deal with purchasing of beds in this quarter, but you’re not forecasting much or any going forward. Are you finally seeing [Indiscernible] now kind of caught up to where they want to be in the short run around being able to manage COVID patients or is it possible that some orders come in this quarter that you are not anticipating in to get more upside I guess towards the end of the quarter when capital typically comes in.

Certainly in the U.S. John, if you’d like to go ahead.

No, I think we’re there. I think we are seeing normalization. We don’t have any additional upside anticipated in our rental fleet or any surge demand from international that we did see in Q1 and Q2. Now that was anticipated nor put into our guidance for the rest of the year.

Okay, great. Thanks a lot for the color.

Thank you.

Michael Polark of Baird is on the line with a question. Please state your question.

Good morning. Two from me please. Care communications appreciate the update there in the evolution of the portfolio highlighted some inhibitions as it relates to both. I heard a comment on revenue performance in the quarter, I didn’t hear a comment on bookings or pipeline how that is trending. I recall last quarter, you called out the largest win, in this platform history, curious for any press comments on how the March quarter was from a booking standpoint or how the pipeline looks, next couple of quarters for care communications.

Yes. Hey, Mike, thanks for the question. 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 actually happening next year, on that large deal. But we're seeing a very nice recovery. As we said, in our prepared comments, we saw about 15% growth. In the quarter, we expect that to accelerate as we get to the second half of the year, and are very pleased with our performance there in Care Comm. And, the whole portfolio, as you know, between our Nurse Call business, our mobile phone business, the enhancements we've made to a couple of acquisitions, with enhanced alert and alarm management, and now a real time waveforms really provide a such a comprehensive and integrated communication platform, that we're really pleased with how we're positioned in the marketplace.

Shifting gears. Do you see business in India, we see that headline, and they're heart-breaking. COVID really taking its toll. Do you have a business there? Number one? And if not, is there there an easy on ramp to do business there to, help that country deal with the stresses and strains that are quite severe at the moment?

Yes, Mike, we do a small amount of business there. In fact, it's not been a strategic focus for us over the last couple of years, just our product mix and the market opportunity we did 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 now, we have not been called to duty, so to speak, to really help out in the crisis.

Okay, thank you very much.

Thank you.

[Indiscernible] of Morgan Stanley is on the line with a question. Please state your question.

Hi, John. And I just wanted to kind of go back to CareCom for a second. So you were just mentioning the comprehensive portfolio, 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 to add existing hospitals to upsell the entire portfolio versus just entering new accounts? Just kind of want to get the magnitude of the opportunity at existing accounts versus what you could even go with for new accounts coming up?

Yes, 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, medical device integration, opportunity. And, and our installed base 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 a competitor, it's really enhancing 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 healthcare system, which, which is why it's so well positioned in the, in the current environment, especially on a kind of post event analysis, or post mortem analysis of COVID and the stresses and strains that put on the acute care systems. How can they do more with the same resources? And as hospital volumes ramp up in a post COVID environment? So we're like, I think Mary Kay might have a comment she wants to add to that, but I think that's, how I would answer it.

Yes, Drew, the total market as we look at it is about a $2 billion market from a mobile platform perspective, and that's less than 25% penetrated today. So as John mentioned, it's more about penetration and increasing penetration versus, competitive games.

And one final comment Drew, you made that investors may not be aware of this, but it's mandatory that Nurse Call systems are installed in every hospital, right. So by virtue of that, we have a nice footprint already because we're a leader in the Nurse Call business. So we have a natural opportunity to upsell, both, our next generation Nurse Call system, which we just announced, as well as cross sell into mobile platforms.

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 you're seeing in 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 Breathe the acquisition made a couple of years ago, but besides you're looking to get past COVID, can you just talk about any investment and or development plan you have for Breathe to bring it to the home? Thank you.

Yes, okay. So on frontline care, or specifically, in the physician offices, we're pretty close to pre-COVID levels right now. It’s 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, that's very positive. And, the second half year of comps for our frontline care division has the Breathe or non-invasive ventilation comp in there, and that was $30 million last year. So from a full year growth perspective, we expect 3% to 5% growth. But if you exclude the stockpiling orders, we're 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 our Front Line Care business, first half and second half as we look at the total portfolio. With respect to Breathe, the opportunity there was is primarily in the home and in a non-acute environment, and taking ventilation into the home, and, and allowing patients who have COPD or other chronic conditions, to avoid hospitalization, and to get their ventilation therapy has been home, and to be mobile and ambulatory, in the process. So we would like we continue to like that opportunity. We're seeing that underlying prescription volume grow for the Breathe device. And we would expect it to be a 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 Mishan of KeyBanc is on the line with a question. Please state your question.

Thank you for taking the question. Hey, John can you give us an update on that you roll out where you are with a large retail pharmacy partner you talked about last quarter?

Yes, we're excited about it. Matt it's really in the early phases of rollout. The equipment's being placed in various locations in a retail environment. Shipments began for that in Q2. And we would expect as those get connected and training occurs that the recurring revenue portion of that begins to occur late this year and into next year. So everything's on track, very pleased with the way it's rolling out, exceeding our expectations and exceeding, I think creating delight in the eyes of our retail partner there.

Okay, can you can you name the retail partner yet?

No, it's still waiting to do a bigger announcement later this year, but there'll be a similar name.

And then, you mentioned digital capture images for the new physical assessment tools that get the center specialist. I mean, maybe speculate a little bit. Are you contemplating the strategy with those tools, your own network of specialists?

That is one of the potential opportunities there. They're probably a little longer term, Matt in the near term. I mean, the ability to this is such an exciting product. I mean, we all know, we use physical assessment tools. We've had over scripts and family skills news on all of us in our kids, many, many times. But this is the first time we're able to first of all, get a better image, we've actually made improvements to the lighting and the image quality itself. But now we're going to actually capture it digitally. And by doing that, we can we can archive it, we can share it, we can get a referral. It's going to be recorded in the EMR. So you'll have a longitudinal history that's going to develop over time of these images to track the progress of ear and eye diseases. So we're excited about that and does it create an opportunity for a retina view type business. It could, it could and something will evaluate. I think importantly, also, it could help enable a further reach of telemedicine because now you can remotely capture images and share them. It doesn't need to be a synchronous telemedicine visit. But it could be an asynchronous visit where you have an image captured in a review that just like you would a lab result during a telehealth visit. So we're excited about it from many angles, first time in many, many years, if not decades, where innovations were brought to the physical assessment tool space. And as you know, we lead to a wealth challenge and are by far the market leader in that space.

That's exciting. And there's going to be one more and I just want to make sure I'm clarifying it. As you think about FY 2022, you're going to have, you're going to have the $80 million to probably $100 million in both the COVID water hurdles, you're 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're also now back to pre-COVID levels and a lot of your businesses. And that may be necessarily, an offset to that. Has to be -- there has think about that?

Matt, this is Barb. Yes, I, I think that that is I think that is how you want to look at it. John talks about how excluding the COVID benefits for 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 22 that will be, that will help be an offset to the COVID benefits that we've received so far this year.

Thank you.

As we think about, the future, continue to focus on that mid-single digit, and top line and double digit growth. And as we think about 2022 absolutely committed to delivering that excluding the COVID impacts that we we've seen in 2021.

Thank you, Barb.

Mike Matson of Needham and Co is on the line with a question. Please state your question.

Yes, thanks. Just in terms of M&A, in the Bardy deal, going to the trial and everything. I mean, is if anything contingent upon what happens with Bardy? In other words, if the deal 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 Bardy?

Yes, good question. Like it's completely independent. What go around Bardy has no impact on our ability or bandwidth to execute additional M&A.

Okay, thanks. And then just, the integrated table motions done really well, with your partnership with Intuitive. And we've got a couple 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 a high level of loyalty. So it's not something we would look to, proactively change. We do get, of course, integrated with not just robotics, but what is CT and MRI imaging systems and interoperative environment as well. So, when it comes to being a preferred partner, and having a technology and capability to integrate with various imaging or robotic modalities, we've been really well positioned with some of the top, companies you want to be aligned with. So we're pleased with that not looking for any changes. In terms of the essential products surgical, I did want to just reiterate that despite and we just exit noncore. If you look at the headwind provided, we have 100 basis point headwind, in this current year and current year guidance, we just finished the exit of our surgical OEM business, which was about $15 million in revenue this year, and $46 million last year, so it's about a 1% or 100 basis point headwind for 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 embarrass one of my colleagues who was celebrating her 100th earnings call today. Miss Mary Kay Ladone 100th earnings calls. I don't know how many other people can have that that kind of bragging rights but she carries the banner and she carries it well. I want to congratulate here on completing her 100th earnings call today.

Thank you, John. Thanks everyone. Look forward to chatting with you later today.

Thank you. Ladies and gentlemen, this concludes today’s conference call with Hill-Rom Holdings, Incorporated. Thank you for joining.