Q2 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Haemonetics second quarter 2020 conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star then one on your telephone.

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I'd now like to hand, the conference over to your Speaker today, Oh go Guy yet Investor Relations. Please go ahead.

Good morning.

Thanks for joining us for Haemonetics second quarter keeps cooks money constant going back and.

I'm joined today, but create Simon our steel and Bill Burke our CFO .

Today, well discuss our second quarter in first half these costs money result.

Oh revenue growth rates earned their guinea pieces and exclude impact from currency chronic inside decisions and divestitures.

Our remarks today will include forward looking statements in their actual results may differ materially from anticipate it resolved.

Information concerning factors that could cause results to differ is available in the form 8-K with both today and agree Arctic filings that we make with the FCC.

This morning, we posted their second quarter in first half discussing results are investor Relations website.

Included updated fiscal 2000 garden and posted in the Lake with people would be information well refer to on this call.

I would like to remind everyone that consistent with our best practices have excluded certain charges in income items from the adjusted financial result in garden.

Detailed and excluded items, including comparisons to the same period. The fiscal 19 I provided within form 8-K and have been posted strong investor Relations website.

Additionally, our press release and website include a complete CNO balance sheet summary statement of cash flows as one reconciliations of our reported and adjusted result.

And now I'd like to turn it over to Greg.

Thank you older and good morning, everyone.

Haemonetics delivered strong second quarter results in a pauses or first half fiscal 20 performance as we continue to accelerate revenue growth and improved profitability.

Our teams grew revenue by 8.6% in second quarter, and 8.3% year to date.

Innovation agenda is propelling us with the launches with Nexus the TEG success trauma indication platelet mapping cartridge and Safetrace TX today, we are reaffirming total company organic revenue guidance of 6% to 8%.

Improvement in operating leverage led to second quarter adjusted earnings per share of 87 cents up 55% from the prior year quarter and up 45% in the first half.

Complexity reduction operational excellence Fracing and the transformation of our product portfolio are driving higher margins.

Adjusted operating income margin expanded by an additional 530 basis points year to date due to improvements in our business and disciplined spending.

Bill will provide more detail, but overall, we are proud to work for teams are doing to strengthen our trajectory and we are increasing our adjusted EPS and adjusted operating margin guidance based on our positive first half performance.

Let's talk about our business unit results and trajectory starting with plasma revenue grew 14.6% in the second quarter and 15.4% in the first half North America accounts for about 93% of our plasma business and drives the majority of the growth even north of.

America, we grew 14.7% in the second quarter and 16% in the first half with contributions from volume mix and pricing.

North America collection volume grew in the mid single digits, and we were aided by Nexus P.C.S. device premiums pricing initiatives within our liquid solutions business and discrete items in software.

Based on conversations with our customers input from the recent the P.P.T.A. industry Forum, we forecast collection volume to increase to approximately 10% in the second half.

Nexus is performing exceptionally well nearly 7 million, yes collections, averaging 23 additional milliliters per collection have resulted in an estimated 160000 more leaders of plasma collected.

The benefits are clear yield enhancement collection efficiency and donor safety and satisfaction.

We are busy innovating the platform BCS devices, Vms software disposables and surface to further strengthen our value proposition to safely and efficiently collect more plasma to meet the strong market demand for IBG.

As noted software it was a positive contributor for US again this quarter, we have leading Dms marketshare and continue to convert an upgrade customers to next like we're excited about software's role in helping customers realize the full potential of Nexus and software strategic value for the plasma business.

We also Benetton first benefited in the first half from price and volume increases in our liquids business. However, as expected. This business is under pressure from high volume low cost liquids providers with aggressive pricing strategies.

On an as needed basis, we will continue to offer like which to our customers as part of a full plasma athree says offering what we expect our volumes to decline in this rapidly commoditizing market.

We are bullish about the prospects for plasma and we remain confident in our fiscal 2020 plasma growth guidance of 13% to 15%.

Moving to our hospital Bu revenue was up 10.1% in the second quarter and 9.2% in the first half.

Hey continues to be the primary growth driver in our hospital business growing 16% in both the quarter and in the first half.

The early stages of our tag six S.U.S. trauma launch has been encouraging with positive customer feedback and increased adoption.

We continue to build clinical evidence and scientific exchange around our technologies. We recently share the results of the tech trauma comparisons Saudi that led to our FDA clearance.

Senior experts at the American Association for the surgery trauma meeting the manuscript has been accepted for publication in the journal trauma.

Take was recently featured in a Jama surgical innovation review, which notes that the technology could become part of routine practice to treat trauma induced coagulopathy.

The second quarter, we also launched a TEG success for channel platelet mapping cartridge, enabling us to offer hospitals, one device for both overall hemostasis and platelet function analysis at the site of care.

The cell salvage market continues to experience downward pressure from declining transfusion rates and competitive pricing against this backdrop cell saver had low single digit revenue growth in second quarter, which while modest was an improvement over first quarter results with increasing focus we expect performance.

To strengthen.

Transfusion management grew robustly in the first half despite an uneven demand cycle for hospital management information systems.

We are encouraged by the market opportunity in customer enthusiasm for our new product line, we are strengthening our sales execution capability I expect double digit growth powered by the recent full market launch of the next generation of Safetrace, TX <unk> product, we expect to become the standard in hospital.

Blood lab management information systems.

We continue to see hospital wasn't growth engine for Haemonetics, our new Global Hospital precedent Stewart strong is committed to tapping this market potential we anticipate improved second half performance and we expect to deliver hospital full year revenue growth in the 11% to 13% range.

In Blood Center, we saw a slight revenue increase of 0.2% in the quarter and a 1% decline in the first half eight for resets grew 4.7% in the quarter and 1.9% in the first half performance was particularly strong as we benefited from favorable order timing and the.

A long anticipated stabilizing of double dose collection rates in Japan. However, the benefit of order timing will likely reversed in the back half of the year.

Our blood center, a for reasons business continues to experience pricing pressure and as such we anticipate revenue declines beginning in the second half of fiscal 2020 as certain customers convert to alternate sources of supply we are assessing the situation and taking action to compete effectively while maintaining our March.

Second objectives.

Whole blood was down 5.7% in the quarter and 4.9% in the first half as transfusion rates continue to decline compounded by pricing pressure.

We anticipate these factors to continue in the second half with additional impact from previously exited unprofitable business. In addition, blood Center software remains a challenging segment largely tied to whole blood collections.

We expect a full year revenue decline for blood center of minus 4% to 6%.

In summary, we are pleased with our strong fiscal 20 year to date results and the momentum our employees have generated the company is fully on track and powering through its multi year turnaround, we remain committed to driving profitable growth and to create enduring long term value.

We expect to deliver our fiscal 21 aspiration of doubling fiscal 16, adjusted operating income and quadrupling fiscal 16 free cash flow before restructuring and turnaround. Thank you I'll now turn it over to bill.

Good morning, everyone. Chris has already discussed revenue so I will start with adjusted gross margin, which was 52.6% in the second quarter.

Improving 440 basis points over the second quarter fiscal 19.

This expansion reflects benefits from improved product mix pricing and productivity savings related to both our complexity reduction initiative.

And operational Excellence program.

We continue to have higher depreciation related to both nexus device placements and expansion of our classman production capacity that offset some of the improvements.

Adjusted gross margin in the first half of fiscal 2000 was 51.9% improving 420 basis points from the prior year first half with essentially the same factors influencing results as in the second quarter.

Adjusted operating expenses in the second quarter fiscal 20 were $75 million, a decrease of $2 million for 3% compared with the prior year second quarter.

We continued to realize productivity savings and had lower research and development costs, which were partially offset by investments in sales and marketing, particularly at a hospital segment as it continues to expand our sales organization.

Adjusted operating expenses in the first half of fiscal 20 were $147 million, an increase of $2 million or about 1% compared with the prior year first half as sales and marketing investments and higher performance based compensation was partially offset by productivity savings and while our research and development.

Cost.

As a percentage of revenue adjusted operating expenses, both in the second quarter and in the first half of fiscal 20, or 29.8% of revenue down 230, and a 100 basis points respectively.

Second quarter fiscal 20, adjusted operating income of $58 million increased by $19 million for 49% compared with the prior year second quarter.

In the first half of fiscal 20, adjusted operating income of $109 million increased by $30 million was 37% compared with the first half of fiscal 19.

Adjusted operating margins were 22.9% in the second quarter and 22.2% in the first half of fiscal 2000 and expansion of 680 and 530 basis points respectively.

This expansion primarily came from a combination of improvements in pricing product mix and savings realized within our cost of goods sold.

We remain confident in our company wide efforts to improve operating performance and raise our adjusted operating margins margin guidance for fiscal 2000 to a range of 21% to 22%.

The tax rate contributed favorably to our second quarter fiscal 2000 results as our adjusted income tax was 14.7% or 270 basis points lower than the second quarter fiscal 19.

The first half fiscal 20 adjusted income tax rate was 12.7% of 500 basis points lower and the same period in the prior year and was due to higher share best things at auction exercises.

Our second half adjusted income tax rate will be less impacted by these benefits and is expected to be similar to the full year adjusted income tax rate from fiscal 19.

Our second quarter fiscal 2000 adjusted earnings per diluted share was 87 cents compared with 56 cents in the prior year second quarter, an increase of 31 cents or 55%.

First half fiscal 2000 adjusted earnings per diluted share was $1.67 compared with $1.15 in the prior year, an increase of 52 cents or 45%.

Our adjusted earnings per diluted share included two said net benefits in the second quarter and a seven cents benefit in the first half of fiscal 20 from the lower adjusted income tax rate.

And reduced share count, partially offset by higher interest expense.

This net benefit is not expected to repeat in the second half of fiscal 2000.

Based on this strong performance in the first half of fiscal 20, we're raising our full year fiscal 2000 adjusted earnings per diluted share from our previous guidance range of $2.95 to three all 15 cents.

To be in the range of $3.10 to $3.20.

Given this revised fiscal 2000 guidance implied adjusted EPS growth in the second half will be in the range of 15% to 23%.

In the second half of fiscal point, we anticipate accelerating revenue growth in our hospital business driven by new product launches in tech and transportation management and the completion of our latest Salesforce expansion.

We expect total company revenue and earnings growth to be lower in the second half of fiscal 20 as compared to the first half of fiscal 20, largely impacted by four factors first based on the assumptions included revenue guidance, the nexus pricing premiums as well as software pricing.

Fully anniversary in the second half of fiscal 2000, and therefore will have a lower impact on our year over year growth rate. This also implies a majority of the plasma revenue growth in the second half will be driven by improvements in volume as forecasted growth in North America collection volume improves to approximately 10 per.

Thanks.

Second we expect to see declines in our liquid solutions business. Later this year as we made a strategic decision not to compete on price with low cost high volume providers in a rapidly commoditizing market.

Third our blood center business benefited from favorable order timing and pricing initiatives within our after recent portfolio that limited the first half revenue declined to 1%. These benefits will likely reversed in the second half and growth will also be impacted as a few of our customers convert to alternate sources of supply.

And finally, we had a 10 cents favorable impact from our income tax rate as we realized benefits from increased share best things and option exercises, which are not expected to repeat in the second half of fiscal 20.

[noise] inline with our revenue guidance that Chris reaffirmed this morning, we're on track for another year strong organic growth and income performance.

Free cash flow before restructuring in turnaround costs was $31 million in the first half of fiscal 20, compared with $21 million in the first half of fiscal 19.

We had a working capital cash outflow of $29 million mid second quarter and $92 million in the first half of fiscal 20.

Contributing to the increase in working capital was higher inventory, which included the continued manufacturing of Nexus devices and to build in our disposable safety stock levels.

We also had a decrease in accrued liabilities related to the performance based bonus the timing of payments to our offshore service provider and other miscellaneous items, such as accounts payable and Prepaids.

Offsetting these two increases was a decrease in accounts receivable receivable driven by collection timing.

In the second quarter fiscal 20, we entered into an accelerated share repurchase agreement to buy back approximately 400000 shares for $50 million.

Coupled with the buyback we did in the first quarter fiscal 20, we have purchased over 1 million shares for $125 million at an average price of $119 per share under the current share repurchase authorization.

We finished our first half of fiscal 20 was $112 million of cash on hand, a decrease of about $57 million from fiscal 19 year end.

We are pleased with results in the first half of fiscal 20, we continue to allocate resources into growth areas of our business and the investments made are generating appropriate returns, while our productivity programs are enabling expansion of our margins.

Increasing leverage has enabled us to update our adjusted operating margin and adjusted EPS guidance for fiscal 2000, and now I'd like to turn the call back to the operator.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish her movie yourself from the Q. Please press the pound team once again to ask a question. Please press star and then one now.

And our first question comes from Anthony Petrone from Jefferies. Your line is open.

Hi, good morning, Thanks, and congratulations on a strong quarter here.

Going to begin with a few on on plasma and then I'll shift over to cost.

In terms of plasma Chris and Bill you mentioned is 10% growth rate actually accelerating into the second half and maybe just to sort of clarify.

How that comes about at the plasma business Forum, our understanding it's it's a long run average that the industry you know sort of commits to just based on.

They're forecasting so maybe just a little bit of clarity around.

That that second half outlook and all of a couple of follow ups.

Sure and its Chris Thanks for the question.

So as we called out in our prepared remarks first half collection demand was mid single digits.

The team working hard with a combination of liquids and software to close the gap for our original forecast and we did that quite well, which contributed to the strong first half we anticipate based on the long term modeling that we've done and going back and look at this now over.

The course of a decade.

As well as the conversations we had with each of our customers as recently as two weeks ago at the Ppt a forum.

World needs more plasma or amping up their collection activities. They work against some challenges in the marketplace in terms of our strong economy that make it difficult to get donors through the door, but they are taking the actions they need to take and we'll be ready to commit that which is why we think the second half will trend more towards that 10% collection.

Volume.

You know they follow ups here would be all of the collectors have committed to new center construction.

And those are coming online and various different rates. So maybe just the what do you see in terms of New center construction what is the haemonetics win rate that there's those new centers.

To what extend his nexus being placed.

Those new centers and then the last one will be on cost.

So on on the New center rates vary from one customer to the next phase have different priorities. Some have chosen to grow through acquisition other froze strictly through organic and there's lots of combinations there in what.

I think a 10% rate is consistent in terms of the number of new centers. So if you think we're in.

800, plus centers now you're going to see something in excess of 50, new centers opening this year could be as many as 100, just depending on how quickly they can get their plans together.

With regards to the new centers in all of our contracts. They are governed by the existing agreements or where we have exclusivity all the new centers are up and today, if thats with Nexus they opened with Nexus, if it's that BCS too they open with BCS twos.

Okay. That's helpful unless just on cost obviously, the margin better sequentially better year over year, there's now to.

Cost reduction programs <unk> mill can you just clarify.

The savings we're seeing so far is this still the first program or are you starting to see the second program actually roll in as well. Thanks again, yes. Thanks ramping so on a cost programs. We are on the comfort on the first program, which was the complexity reduction initiative, we are committed to $25 million to $30 million of additional savings this year with.

The third of those savings dropping through to operating income.

And we are we're seeing that we are achieving those numbers. So yes, it's part of the operating margin expansion at two to that and then last quarter, we announced the operational excellence program and we are seeing some early savings related to to that program to say, both contributing nicely to our overall margin expansion.

Thanks.

Thank you. Our next question comes from David Lewis from Morgan Stanley . Your line is open.

Good morning, just a few questions from me, maybe you'll just starting with you picking up on margins. Obviously, another second quarter of kind of significant margin improvement if I think about the guidance into the back half operating margin guidance step down steps down almost two points second half versus first half just trying understand.

Why a what it sort of the drivers sort of behind that as we think about the back half here.

So our year our year to date operating margin.

Is that 22.2% or guiding.

21 to 22, so on an average basis for those for six months were pretty close to to the range, but we are seeing we are anticipating that in the second half will might revert a little bit close the way, we walk where in the first quarter.

But there is no there's no overall deterioration longer term, we still see these individual programs that were running contributing to the expansion.

Okay, but just to know discrete spending items, you can sort of address in the back half that would drive that well. We have we continue to invest in the hospital salesforce and during the first half of this year, we were ramping up the salesforce and in the back half of the year, we have that that entire.

Expansion complete so we do see it a little bit more spending in the second half related to the expansion.

Okay.

Chris I wanted to come back to plaza market growth, because sort of the commentary and making sure. The stands a slightly different than what sort of sort of larger plasma players are saying in terms of what they're seeing in their core businesses. We've seen basi acceleration add of CSL and grapples here and then the most recent period, so which is going to flush out a little more what you're specifically you are saying obviously there.

As a book to bill or a lag time between sort of finished product and collected product are you talking about sort of the difference is two things because it shouldn't be very clear about what you're saying about collections versus what they're saying about demand and finished product growth.

I appreciate the question. It is a complicated supply chain that passes from collection cold storage to fractionation refinement and ultimate.

Distribution to then sockets and there's meaningful lags over that that process, which can be in excess of a year from start to finish what we are seeing we fully.

I understand and buy into the long term market demand and we just take those projections directly from our customers. We've had we've retained 100% of our share in the North American source flatten market Theres no no change in share or a portion meant there what we are seeing is a reflection.

But as they expand to new centers, new centers are less productive for a period of time as they grow through acquisition you have your normal integration challenges and the unevenness in collection volumes, there and I think they face the additional headwind.

A very robust economy, which as I said makes it more challenging to get the owners through the door.

In the conversations we've had when they lay out their supply chain for us and and they need to collect more plasma and thats why we see the the uptick in the second half of the year.

Okay, and then the the hospital business than your biggest acceleration this quarter was in segments of the hospital business any onetime dynamics you'd call out there, Chris and just come just curious the sustainability of that kind of improvement in hospital into the back half the year. Thanks, so much.

Sure.

We're very bullish on hospital, and we actually see hospital accelerating over the next several quarters driven primarily by TEG. We've had the benefit now some real success with our innovation agenda in R&D, we have TEG success trauma indication in the U.S., which is.

Can you too quickly and is less some real uptake there. It has us quite bullish we have a platelet mapping cartridge fourth channel cartridge, which lets us compete broadly on the site of care, which is the only product that can do that worsened in the benefits.

And we're rolling guest that we have the benefit of the Salesforce expansion, which is really started to come into its own. The combination of those factors are driving peg. We also see with Safetrace, TX and blood track or transfusion management software services offering in hospital blood banking, we're having.

Real uptake there hospitals are going through a meaningful overhaul of their enterprise support systems, we're participating nicely on that I think that we'll continue to accelerate its chunky, because it's tied to capital expenditures and such but.

It doesn't matter capabilities, and I think that will propel us cell salvage was a little bit of a lagger on that regard thankfully we've got it back on the positive this quarter, we looked at that business and we look at what we're doing there and we think again purposeful execution can can drive acceleration in the back half of the year National account.

Thank you.

Our next question comes from Laurents close from Raymond James Your line is open.

Good morning. This is John on for for Larry.

If we could start on Nexus.

Chris perhaps you can give us update on the real world data on the use of Nexus supporting the the economic argument just.

An update there would be great.

Yes, thanks, John so rapidly approaching 7 million collections and.

The basic math on that and what we said in his prepared remarks at on average 23.1 milliliters per collection, there's a range obviously going to 18 up to 30 additional per depending on the weight of the donor but on average 23.1 multiply that out we're pressing a 160000 additional.

Leaders provided for the customers using Nexus, that's really the first dimension of that value proposition yield.

Those customers have set up they are doing faster turns per device or beds per day, that's great because improving their their collection capacity as a result.

We know because of the paperless interface that these collections are more compliant and it's more easy.

Easier excuse me and demonstrate that compliance to the regulatory authorities or to your own teams. So it is.

Better and safer and we're hearing that from donors in terms of.

Ongoing exit surveys is they enjoyed experiences its just a better environment to donate plasma and so we feel very confident that with 7 million collections.

Proposition has been reaffirmed.

Great and then just on the I'd you shortage specifically in the U.S. in your viewpoint, we've heard different things is it a fractionation capacity issue or is it more of a collection issue or are there. Some other factors we should consider.

We don't have any reason to believe it's a collection issue what we observe in the market and that is more of an observation because we don't participate directly on this aspect. The supply chain is very much at the end of the chain and that has to do with contracts and individual business being won or lost and having some imbalances.

Supply across supply chain or cross manufacturers and this long history of is playing out in the industry. When there's just this higher level of demand, there's always going to be some frictional.

Gaps that they need to be covered in the industry has done a great job would respond to those in the past I'm sure they'll do so here.

Yeah.

And then last one for me just on on whole blood you know that business is just a little bit better than we were expecting in the quarter. Its also our sense in talking to industry experts in that space that the transfusion right in the U.S. is starting to stabilize maybe a little bit more than than even a previously so what's your viewpoint there.

I think fundamentally our viewpoint is unchanged.

We observe that same flat towing again, you have variability east coast West coast, It becomes actually quite local and quite specific to the individual markets in terms of.

Blood supply and availabilities that said, we look at the U.S. at roughly 33 or 34 transfusions per thousand the population in comparison to Canada to Europe .

What we see in Japan, or Australia, and we see.

The rate's going to continue to come down the market will be continue to challenge. We're we're pleased with where our team's doing to hold their own there, but we don't we don't see a reversal in the long term systemic decline in the rate of transfusion and therefore, the price pressures and that compression overall that market is going to experience.

Okay, great. Thank you so much.

Thank you.

Next question comes from Dave Turkaly from JMP Securities. Your line is open.

Great. Thanks, you mentioned the Salesforce expansion Haas, but I was wondering if you could put that into context, how big that forces and how many you're adding or maybe a percent that you're increasing.

And I know in the past we've talked about.

Capacity to do acquisitions there.

I'm wondering if that's still the case, maybe an update on.

If there is something that that could you could add to that portfolio as well.

Yes, Dave it's Chris Thanks for the question in terms of the Salesforce expansion I feel quite good about what we're doing there that's roughly 50% expansion off the current base and it comes in different flavors. We have both your traditional sales reps, we call them sales managers, we've built that base out some feel I have a good.

Overall coverage now of the target market in North America, and we are still building out behind them with our clinical representatives, who.

Basically our India accounts once capitals been placed.

Educating and advancing the state of care in terms of the use the actual TEG devices. So that expansion is still underway, we still hiring out and I think for us, particularly with a new global Hospital business unit, President and Stuart strong I think we now have the ability to apply.

By the learnings from North America, It will look different country by country throughout the world, but we do have a broad spectrum reviews for tag and I think what we've learned about this model and it's it's advancement here in U.S. will apply.

In variations of course, but we'll apply more globally. We're excited about getting after that here in the second half of this year and beyond.

The M&A acquisition agenda will also fall not only to myself, but the stew and together, we intend to get after that to help build out this portfolio and stay relevant.

Got it and then I missed the some of the early part of the cost I apologize. If you discussed this but you know were two quarters into this fiscal year, you've raised your guidance twice.

And I know you had said that guidance is based on contracts signed to date.

I mean, there were looking at some of the cost savings in the benefits coming through but can you comment I mean, it have we seen significant new.

Customers come onboard or is this kind of more than your programs coming through driving the upside and those are still largely to comp.

Yes, there's there's been no new contracts and we don't we haven't changed our position that we won't include.

Yes contracts.

Until.

Yes.

But what we prepare okay.

Yes.

When.

Got the class.

Collection, Lexington software and produce.

We see a return to robust collection rate in the second half of the year that will allow us to stay within our guidance range.

In terms of the actual customers and conversion what I would say is still page from from loop in our bills talk track on this.

He's come up with our own version of the four piece, which is priorities proof price and a paradigm shift in terms of priorities. We said from the outset that we will move at the pace that our customers are ready to move they have competing priorities and we meet them and work through that in terms of proof is what I said earlier on this call. The 7 million collections, we have a.

Very strong reference case library now its and Bill we think we can answer any questions that exist around the economic value proposition for Nexus in full platform.

For price, we need to command a premium for the value can pay and that gets into the paradigm shift which is.

Historically on the collection side. This is not been and industry. That's that's valued innovation or pay for innovation, we're working with our customers to explain our view and drive that paradigm shifts. So it will take on we know that will be patient and I think will be successful.

Thanks, a lot.

Thank you and again, ladies and gentlemen to ask a question. Please press star and then one now.

And our next question comes from Larry Solow from CJS Securities. Your line is open.

Great. Thanks.

To follow US most my questions, but answered just one on that last point Chris.

So you had a nice bolus of early adopters last year.

Do you have contracts that are expiring over the next.

612 months, where customers can actually stay on the old plasm machine or is there some type of.

Yeah, It does that cannot be.

Stimulus to care for conversion.

Yes, I don't want to get into specifics with individual customers, what I will say as it's actually quite.

Complicated structure right, we have contracts with the devices and disposables, they're separate contracts for software this contracts for liquids et cetera. So they all have different durations different expertise.

We're at the table, having the right conversations with all of our customers and I remain optimistic on on the pace of change here.

In terms of the gross margin improvement, obviously, driven by a lot of factors.

So fair to say that does.

The cost cutting on their productivity gains or more than half of that and driving the majority of that mix and pricing helping on the top.

Yes the.

Those cost programs that definitely helping I want to quantify the third or half, but the combination of.

The pricing the mix and those savings programs I definitely all contributing to the.

The margin.

The margin increase and.

We continue to see benefits in those programs and.

Anticipating margins to continuing to improve over the long term.

Right and then on the on a free cash flow guidance, maybe the second quarter in a row, where you see increases net income guidance, but not free cash flow is there any reason to.

Oh, yes in my in my prepared remarks, we do talk about an increase in our overall working capital related to inventories and some other items.

We're at.

We still intend to get to the range and cash flow. If you look at where we stand a year to date base will definitely pickup in the second half.

Just last question you know more of a global longer term question any any thoughts I think you guys have spoken about this before but on the VF CRN antagonists any thoughts of them potentially taking some of the plasma Ross pharmaceutical market.

We monitored closely Larry as a as to our customers what the what we read in the literature and what our scientific Advisory Committee informs us on is.

Any time.

Basic economics anytime you have a 20 billion dollar market with significant unmet need and this growth rate you're going to have a bunch of folks on the periphery working to innovate New York from a healthcare and public health and patient perspective, I hope they're successful when we look at the timeline and what that will light.

Actually mean, we see it.

Ideally is complimentary therapy and the time horizons are much longer than I think.

Young biotechs would otherwise want them to be but thats just for the reality of the site. So five to 10 years best case scenario and even then probably adjunctive not not the fully disruptive here.

Okay, great. Thanks, I appreciate that.

Thank you and I am showing no further questions from our phone lines I don't like to turn the conference back over to Chris Simon for any closing remarks.

Thank you operator, and thank all of you for your third question non violent.

A lot of information out this morning between our downloads in the prepared remarks here, let me just at the risk of being repetitive I'll give you a quick summary, which is.

We had a really strong first half propelled by revenue growth from our product launches Nexus TEG success, and Safetrace, TX coupled with increased productivity primarily from our complexity reduction.

As we highlighted there are challenges second half revenue growth rate that we're calling out we of course will do what we can do to address it that those challenges remain.

We are reaffirming our EFT why 21 aspiration of doubling operating income and quadrupling free cash flow and our long term value drivers will continue to propel us plasma hospital innovation and operational excellence, leading to significant expanded capacity and long term value.

Creation.

Thanks for listening in today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.