Q3 2021 Haemonetics Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Human Medics Corporation Q3, 'twenty 'twenty One earnings conference call. At this time all participants are in a listen only mode. After the speaker presence.
Jason There will be a question and answer session.
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I would now like to hand, the conference to your speaker today.
Good day yet.
Relations. Please go ahead ma'am.
Thank you good morning, everyone. Thank you for joining us for human genetics third quarter fiscal 'twenty, One conference call and webcast I'm joined today by Chris Simon Our CEO, George Chong President of the hospital business unit and Bill Burke, our CFO Chris.
Morning, we posted our third quarter and year to date fiscal 'twenty, one results to our Investor relations website, including the analytical tables with information that we'll refer to on this call.
In an investor presentation on the pending crazy, but transaction.
Additionally, we provided a complete P&L balance sheet summary statement of cash flows as well as reconciliations of our GAAP to non-GAAP adjusted results.
Before we get started unless otherwise noted total revenue growth rates discussed today are on an organic basis and exclude the impact of currency fluctuation strategic exit the product line acquisitions and divestitures.
As in the past, we will refer to non-GAAP financial measures throughout this call to help investors understand human medics ongoing business performance.
Please note that these measures exclude certain charges in income items.
Please refer to this morning's earnings release for a detailed an excluded item, including comparisons with the same periods of fiscal 'twenty and a reconciliation to our GAAP results.
Our remarks today include forward looking statements and our actual results may differ materially from the anticipated results.
Human medics cautions that these forward looking statements are subject to risks and uncertainties, including the potential impacts from the COVID-19 pandemic with our results.
Related to the proposed acquisition cause even medical and other factors referenced in the Safe Harbor statements in our earnings release and in our filings with the SEC we.
We do not undertake any obligation to update the forward looking statements.
And now I'd like to turn it over to Chris.
Thank you Olga.
Good morning, everyone.
Our improved third quarter results are evidence of the strength of our strategy and our progress transitioning to transformational growth.
Do you have a lot to discuss the day, let me start by highlighting five key themes.
Revenue improved sequentially in all three business units as our markets are recovering from the pandemic.
Productivity from the operational excellence program and cost management helped to improve our profitability.
We are making meaningful progress with Nexus adoption.
Our innovation agenda continues to propel organic growth.
And the car Diva acquisition will help us diversify grow and create shareholder value.
Moving to our results organic revenue was down 6% in the quarter and 12% and year to date as the impacts of the pandemic continued to affect our business.
Third quarter adjusted earnings per diluted share was 81 cents down 14% from the prior year quarter and down 28% year to date.
While our results were below our pre pandemic fiscal 'twenty third quarter.
We did see a 14% sequential improvement in revenue driven by all three business units and our adjusted earnings per diluted share was up 31% from second quarter.
Plasma revenue declined 13% in the third quarter and 26% year to date is dependent it continued to have a pronounced effect on the U S sourced plasma donor pool.
Revenue declines were partially offset by a $6 million, one time safety stock order of plasma disposables.
Sequentially North America collection volume improved 29%, excluding the effect of the safety stock order to put this in perspective, we typically have a 3% to 5% seasonal increase in the third quarter.
Our customers have taken extensive donor safety measures and launched a myriad of promotional campaigns to encourage donations heightened safety protocols and compelling financial incentives along with Wayne and government stimulus contributed to 10 consecutive weeks of volume recovery.
Nexus platform adoption is progressing and we are confident that it will supplant P. C S too as the standard for source plasma collection worldwide.
We are on track to upgrade all U S customers to our next linked the Mes software by the end of the calendar year.
All major customers have agreed to adopt Nexus P. C. S devices somewhere in their network. This bodes well for eventual broad based implementation because history shows that firsthand user experience leads to adoption.
Rollout will not be immediate as there is an important planning and support work to be done and near term human ethics, and our customers' primary focus is on driving a robust recovery in collections.
Our innovation agenda continues to propel organic growth.
Someone is individualized donor specific approach is expected to yield an incremental 9% to 12%.
Plasma per collection.
Texas early adopters are validating the new normal for Ams impact on immuno globulin levels and implementing logistics changes needed to support the new procedure, including accommodating a collection bottle that is a third larger.
The real world data being collected will strengthen the nexus offering and inform ongoing innovation in our proprietary collection technology, including safely advancing additional personalization and further yield enhancements.
Meanwhile, we continue to do everything we can to support our customers and we remain cautiously optimistic about the timing and pace of recovery the third quarter highlights the critical role that donor economics play in plasma collections collection volumes weakened over the last few weeks, which we believe was driven by donor response.
The new government stimulus.
Nonetheless, our customers are ramping up to support end market growth and although forecasting remains difficult in this environment. Once the pandemic subsides subsides, we expect to see 8% to 10% collections growth over the long term and the potential to grow in excess of that as customers replenish their inventories.
Blood Center revenue declined one 4% in the third quarter and two 6% year to date the business continues to outperform as our continuity and responsiveness enable us to supply blood bankers around the world. She can expand its safety stocks. We also continue to support customers.
Globally in collecting convalescent plasma.
We had strong capital sales both in the third quarter and year to date as our apheresis devices continue to play an important role in helping to provide essential blood products to our customers. We believe the increased installed base should provide longer term benefits to our disposable sales.
<unk> revenue was up 6% in the third quarter and one 8% year to date continued plasma growth and favorable order timing among distributors in both periods was partially offset by the impact of a previously disclosed customer loss of about $4 million in the quarter and $12 million year to.
We did not see distributor stocking water reversals in the third quarter.
Whole blood revenue declined 19% in the quarter and 11% year to date, driven by lower than usual procedure volumes due to COVID-19, previously discontinued customer contracts and overall declines in blood utilization rates. Additionally, whole blood revenue in the third quarter was impacted by unfavorable <unk>.
Order timing among distributors our recent efforts to optimize this portfolio has allowed our team to focus on <unk> devices, and disposables, which is driving performance.
Before I turn the call to Stu to talk about hospital business unit results and the car D. The integration I want to reiterate our rationale for the deal.
<unk> is a leader in vascular closure and underdeveloped segment with significant potential.
<unk> is a leading product with strong tailwind and the card Iva team is talented and highly motivated to deliver with focus and support we can accelerate growth, especially in electrophysiology, where basket N V. P is uniquely positioned for use with cardiac ablation procedures.
This is a revenue deal.
With added scale. There will also be increased operating leverage we avoid the G&A cost part D, but would've incurred to operate as a public company. We can use our infrastructure to support U S expansion and our international commercial organization can help the launch fast gate outside the U S. Together, we can improve our global reach and <unk>.
<unk> investments in sales and clinical reps as well as clinical medical and health economics capabilities will benefit both portfolios and I see an E P.
Our tagged long range plan is anchored in interventional cardiology with further opportunity in electrophysiology.
Women at a hospital B you can learn from card D and over time, there may be commercial <unk> clinical call point synergies.
We value diversification and growth our diva diversifies, our product offerings and catapult us into I C E P and vascular closure attractive near Adjacencies that can fuel accelerated growth.
Our focus has shifted to integration and execution is now our top priority over to you Stu.
Thank you, Chris and good morning, everyone I would like to reiterate my excitement about card. Neither the acquisition is on track to close this quarter detailed integration planning is underway and we're squarely focused on driving revenue growth.
We're supporting the cardio teams strategy and their commercial product innovation and manufacturing plans, while working on G&A integration.
Now moving to our results.
Hospital revenue increased 5% in the third quarter and 1% year to date. Our hospital business has seen continued sequential improvement over the course of the fiscal year and our third quarter growth was driven by our direct markets across the globe and in particular, our top two markets North America and China.
Hemostasis management revenue was up 11% in the third quarter and 6% year to date compared with the prior year driven by strong sales of TEG disposables in the U S and capital sales in Europe.
The pandemic continue to partially offset the strength of this business both in the quarter and year to date.
We are excited to share that the FDA has issued guidance on the use of viscoelastic testing in patients suspected of COVID-19, Quaggy logothete, and we're working to update our indications in line with the guidance.
The use of TEG analyzers for hyper coagulate patients has already been discussed in a number of scientific publications and updated indications will give us the opportunity to be proactive in deploying this technology to help advance COVID-19 patient management.
In parallel we're driving our go to market strategies, We recently signed an agreement in China to manufacture locally designed and made viscoelastic testing analyzers and locally manufactured reagents to expand our product offering to meet the unique needs of the Chinese market.
Bottom line, we'll focus on automation high throughput and easy customer interface as we build a market specific platform with further innovation in the pipeline.
Transfusion management was up 7% in the third quarter and 9% year to date, primarily driven by strong growth in blood track through new accounts in several key geographies. Our teams have implemented alternative methods to advance installation and utilization and customer environments, where access.
<unk> continues to be restricted.
So salvage revenue declined 6% in the third quarter and 11% year to date, primarily driven by declines in disposable usage sequentially cell salvage revenue was up 1% in the third quarter as additional recovery in procedure volumes plateaued towards the end of the quarter.
The pandemic continues to validate the essential role our technologies play in assessing bleeding and thrombosis risks autologous blood transfusions, and effectively managing blood supply recovery has been very encouraging, but we're cautious about the near term forecast as procedure volumes have leveled off over the past.
Last four weeks driven by a global resurgence of Covid cases that may prolong the recovery work.
Confident in the hospital business units long term value to our customers and their patients and our significant opportunity for growth and expansion and now I will turn the call over to bill.
Thank you Sue and good morning, everyone. Chris has already discussed revenue. So I will start with adjusted gross margin, which was 51.4% net third quarter.
A decline of 70 basis points compared with the third quarter of the prior year.
Adjusted gross margin year to date was 54%.
A decline of 160 basis points compared with the first nine months of the prior year.
The primary drivers of the declines in both the third quarter and year to date were impacts from higher cost, including an inventory charge in the third quarter.
Cost of Covid, 19, protective measures and lower volume.
There was also some unfavourably due to product mix.
These downward effect on gross margin were partially offset by productivity savings realized from the ongoing strength in our operational excellence program and lower depreciation expense as our Pcs two devices were mostly depreciated by the end of the prior fiscal year.
Additionally, the combination of our recent divestitures and our strategic exit of the liquid solution business resulted in a net negative impact on our third quarter.
It about neutral impact on our year to date adjusted gross margin.
We continue to successfully execute inappropriate balance of cost control measures and investments without disrupting our growth objectives.
Adjusted operating expenses in the third quarter were $71 million, a decrease of $2.4 million or 3% compared with the third quarter of the prior year.
Adjusted operating expenses year to date were $201 $1 million, a decrease of $19 $1 million or 9% compared with the first nine months of the prior year.
Lower adjusted operating expenses, both in the third quarter and year to date were due to a combination of ongoing productivity savings related to our operational excellence program.
And cost containment measures implemented to help offset the negative effects of COVID-19.
Partially offsetting these savings were ongoing investments in key growth areas of the business.
As a result of the performance in adjusted gross margin and adjusted operating expenses. The third quarter. Adjusted operating income was $52 $6 million, a decrease of $9 million or 15%.
And adjusted operating income year to date was $124 $1 million, a decrease of $46 $7 million or 27% compared with the same periods in fiscal 'twenty.
As our business continued to recover from the pandemic, we have seen significant progress in the sequential quarterly improvement of our adjusted operating margin throughout the fiscal year.
We continue to expect adjusted operating margin to improve to levels above fiscal 'twenty once the pandemic fully subsides.
Adjusted operating margin was 21, 9% net third quarter, and 19, 2% year to date down 190 basis points, and 350 basis points, respectively, compared with the same periods in fiscal 'twenty.
For both periods the lost leverage from revenue declines outpaced the impacts of cost mitigation efforts.
The adjusted income tax rate was 16% in the third quarter and 15% in the first nine months of the fiscal year compared with 17% in the third quarter and 14% in the first nine months of the prior year.
Third quarter adjusted net income was $41 4 million down $7 1 million or 15% and adjusted earnings per diluted share with 81 cents down 14% when compared with the third quarter of fiscal 'twenty.
Adjusted net income year to date was $96 $8 million down $39 1 million or 29%.
And adjusted earnings per diluted share was $1 89 down 28% when compared with the prior year.
Our third quarter results are encouraging and show a significant recovery from the effects of the pandemic.
In the short term. However, we continue to view the current environment is uncertain and we will not be providing guidance for the fourth quarter.
Our operational excellence program is delivering positive results and continues to drive improvements in adjusted gross margin and adjusted operating margin, we remain committed to delivering $80 million to $90 million of savings by the end of fiscal 'twenty three as part of this program, which is essential for our future growth.
The progress we have made has helped us to reduce the impacts from the pandemic.
We expect the majority of savings realized will drop through to adjusted operating income by the conclusion of the program with the return of the business back to historical levels levels.
Free cash flow before restructuring and turnaround costs was $99 million in the first nine months of fiscal 'twenty, one compared with $95 million in the prior year.
We have been able to offset the decline in earnings due to the impact of the pandemic on sales volumes, particularly in the plasma business through a combination of lower increases in inventory lower capital expenditures and improvement in accounts receivable when compared with the prior year.
Although our free cash flow for inventory is lower than the same period of the prior year the impact from lower sales volumes in plasma has resulted in a higher disposables inventory balance.
We continue to monitor our inventory levels and have seen a decrease in our disposable inventories sequentially.
Additional fluctuations in inventory may occur as we adjust our production to support customer demand and our operational excellence program initiatives.
Cash on hand at the end of the third quarter was $189 million, an increase of $52 million since the beginning of the fiscal year.
In addition to free cash flow the third quarter, ending cash balance increased $28 million from recent portfolio moves and decreased $73 $3 million due to debt repayments, including a $60 million repayment of the revolving credit line that was outstanding at the end of fiscal 'twenty.
The borrowing of $150 million under the revolving credit facility in the first quarter of this fiscal year was repaid during the third quarter and has no effect on the cash increase in this fiscal year.
Our current debt debt structure includes a $700 million credit facility that does not mature until the first quarter of fiscal 'twenty four with the majority of the principal payments weighted toward the end of day term.
At the end of the third quarter total debt outstanding under the facility included a $311 million term loan.
There were no borrowings outstanding under the existing $350 million revolving credit line at the end of the third quarter.
Following our announcement to acquire card do you have a medical we will execute additional term loan of $150 million and we will finance the remaining $325 million balance using a combination of our cash on hand, and our existing revolving credit line.
At the completion of this transaction, which is expected to occur during the fourth quarter, our EBITDA leverage ratio as calculated in accordance with debt terms set forth in the company's existing credit agreement.
Increased from 1.3 at the end of our third quarter of fiscal 'twenty, one up to about three point too.
Our capital allocation priorities are clear and remain unchanged as we continue to prioritize organic growth followed by inorganic opportunities and share repurchases.
Over the last four years put a lot of emphasis on strengthening our portfolio and funding key organic growth initiatives.
These investments have enabled us to improve our growth trajectory and will continue to fuel growth.
We have also bought back a total of $435 million or $4 $5 million of the company's shares outstanding.
And while we do not plan to make additional purchases under the current share repurchase authorization, we view share repurchases as an important driver of shareholder return.
M&A is also a critical pillar of our capital allocation and by acquiring card even medical we are adding a high growth asset, which will help us sustain future revenue growth and provide attractive financial returns.
And now I'd like to open the call for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone so let's try your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from David Lewis with Morgan Stanley. Your line is now open.
Good morning, and thanks for taking the questions just a couple for me here.
Obviously, Chris I want to start obviously with your Nexus comments, because obviously they departed from prior prior quarters. So can we take from your commentary Chris that you now have reached contractual terms with all your customers as it relates to the use of Nexus.
Short answer David is yes, but I want to qualify the answer because I think it's important not to drive undo.
Speculation.
We are very confident that nexus is well on its way to supplanting Tcs too as the standard for source plasma collection worldwide. The reason we're confident for that is because at this point substantially all of our major customers have agreed to adopt nexis.
Somewhere in their collection networks.
I want to be clear about the somewhere in their networks in some cases it is global.
With our current share in other cases, they've they've said they want it for the U S market as a starting point or another geography as a starting point.
The reason we are reacting to that development is.
Is because in the past the device.
Experience has been the key driver of adoption when customers have the opportunity to use the device experienced the benefits firsthand the integrated platform and everything it delivers in terms of work processes in terms of improved compliance and reporting capabilities.
The better donor experience, which is absolutely paramount in the current environment and of course, the yield not just the 3% that comes with Nexus piece, yes.
Properly equipped but persona to follow and the combination of those things.
A very powerful value proposition when experienced firsthand has led to broad based adoption. So what we're communicating is that we're on that path.
Okay and can you just just two quick follow ups there in terms of.
One do you believe these contracts reflect the value of persona.
And in the old days, we sort of thought that the timing from implementation to contract signing is something around six months.
Any comments on those two points.
Yeah, So I want to clarify.
The message we are delivering is specific to nexus tcs devices. They are in combination with the next link Dms software and the broader support from the package. They don't necessarily includes include persona.
The commentary we're offering today is around Mexico, I'm happy to talk about persona on where we are on that but our commentary was specific to nexus.
In terms of the adoption.
Second part of the qualifier if you will on this I think everybody's enthusiastic about what Nexus can mean for them in their network.
Overtime in a broad based way, but in the interim.
First second and third priority for human ethics, as well as our customers is helping those customers recover collection volume from the pandemic and we're pleased with third quarter results, We think Theres forces at work.
That'll continue to build there over time, but that's our focus that's our customers' focus and that that's going to be.
The primary orientation that we follow beyond that there is further work to be done on the software upgrades. There's further work to be done to plan and accommodate for Nexus and eventually for persona in the collection centers and in their fractionation network. So it's time bound we're not going to actually comment on the commentary for time.
To date, we may get into that more in may when we have more clarity, but at this point it would be premature.
Okay, and just two quick ones and I'll ask them, both the front and jump back in queue first just as I'm, sorry, Chris I had a follow up for you that I asked about persona, but.
Obviously people are focused on value either for nexus or value for persona do these contract shall terms reflect any value for Nexus and then bill just for you. This quarter is interesting leverage really inflected in the quarter you basically saw.
Profit levels, you saw back in March, but the plasma number was $10 million lower so how are we thinking about OAP here towards the end of the year and.
Frankly, what's the trajectory on margins going forward.
As we get plasma just start to continue to recover.
Thanks, so much.
Yeah. Thanks, David.
In terms of the value proposition in terms of value capture we feel very good about where we are with.
We've spent a lot of time talking about and focusing our energy on competing on innovation, we think clearly.
Nexus.
Next link Tcs the persona upgrades.
Our best in class and they define a path that we're on that we continue to improve upon.
There is the great news in all of this is the early adopters for Nexus who've been working with device over the last two years have validated that value proposition across all the dimensions that we've been talking about and what I just referenced a moment ago. So the good news there is less existing customers feel great about.
The value proposition and what they're paying for it and I think we are equally confident that the next wave of customer adoptions will bear that out further and then persona just adds to it beyond that bill.
Yes, Thanks, Chris.
So David your question on operating margin. So we've seen sequential improvement now from Q1 to Q2, and then again from Q2 to Q3, we're at almost 22% operating margins in our third quarter.
That really gets us back to the operating margin that we were at four full year FY.
FY 'twenty.
We're still below the prior year by 190 basis points in the quarter and 350 basis points.
Against the prior year on a year to date basis, but what we're seeing is you know you mentioned the operational excellence program. We are getting good savings and we continue to get traction in that program. We also have some containment cost activities that we implemented related to COVID-19, which is helping offset some of the.
Actually most of the costs related to our Covid from an expense standpoint.
And again, it's really important that as debt plasma business continues to.
Return and we eventually see it returning to pre COVID-19 levels debt add significantly to our operating margins.
And then finally longer term.
We do expect to be above where we were for FY 'twenty driven again by a combination of <unk> savings to plasma growth and the value for the innovation that we're delivering so we're really bullish on our operating margins longer term.
Great. Thanks, so much.
Thank you. Our next question comes from Larry Chris with Raymond James Your line is now open okay, great. Thank you.
Chris since you opened the door to questions around persona.
Maybe you could provide an update on <unk>.
Kind of the feedback that you're getting or you know, where you think you stand with that.
It would be would be great.
Yeah, Larry Thanks for the question persona is a game changer.
And it has been.
Viewed as such by our customers who are on the front edge of that right anybody who adopted nexus earlier in the process is eligible for pursuing it now.
What we are doing with them because it is meaningfully different than the current collections, we're talking about an additional 9% to 12%.
Yield enhancement.
They're going through the process, which was all expected to do validation of the protein concentration in the additional collected last month, so to make sure. There is no dilution we've done our own testing through the original clinical work, we're very confident in the outcomes would get too, but it's an understandable factor.
That these customers want to go through I think his 0.1 I think theres also.
What's great about the Nexus device equipped with an excellent because the ongoing tracking and monitoring donor safety right. We want to make sure that everything we are doing prioritizes donor safety enhancements of donor experience.
This as we experienced in the trial so that there's an ongoing monitoring there and then.
It sounds trivial, but it matters a lot given that we're talking about.
40, 50 60 million units a year collected.
<unk> plasma.
The logistics of handling a bottle, but as a third larger than processing that bottle into their fractionation facilities right. The laser to choose to cut the bottle. How the bottle itself is called the freezing dynamics are all important factors that need to be validated in our customers' supply chain. So.
We are going through that process, we don't anticipate any hiccups along the way, but it is a meaningful change and we're working our way through that but what is very clear in this market, perhaps even more so due to the challenges associated with collecting in the middle of a pandemic is that yield matters and.
All the enhancements there are meaningful and we intend to add to it but we're not done we're going to continue to drive.
Our innovation agenda to advance both safety and yield, which we think theres room to run there with persona.
Okay terrific.
Other two other questions.
Maybe for you Chris.
Maybe if we can peel back the.
The onion a little bit here.
And just dive into sort of what you saw with.
With plasma collections from your vantage point.
During the during the quarter you, obviously alluded to in your comments of some.
You know I guess movement backwards, a little bit here.
Recently.
So if you could sort of get to that maybe you know kind of both the U S, which I understand dominated collections, but also what youre seeing perhaps in Germany or elsewhere that might provide some.
Some color for us.
And I guess along.
So with that.
How should we be thinking about that seasonal impact in the fiscal fourth quarter, because that's clearly that tends to go the other direction on you.
So so maybe help us think about that and then I guess just quickly for bill just any plans thoughts on.
Alright, and analyst day in timing, there or updating the LRT, what what do you what do you need to to kind of see or get visibility on to be able to move forward with those two those two events. Thank you.
Alright, Thanks for the question on plasma volumes and what we are seeing so third quarter can be characterized as 10 weeks of recovery, which really started in early October.
Track multiple factors I don't think there's any mystery around us it is multifactorial, starting with donors attitudes around safety and their willingness to venture out and do donations.
What we can say is clearly the efforts our customers have taken when they've been extensive have driven home. The point that plasma donation is safe the centers themselves are socially distance, there's things we've done to help we rolled out the COVID-19.
Application, which lets you do all your screening remotely queuing up virtually et cetera, but the.
Centers are safe and fully functioning and we clearly saw the donor attitudinal response to that in the third quarter the.
The other factors really come down to just a cross play of various economics and.
This is probably less precise than any of us would like it to be but given that the human dynamic there. That's I think the reality on one hand, you have recessionary pressures, we are in a deep recession and our donor pool needs to supplement their income stream.
You couple that with a challenge and offset that comes through stimulus, which is a benefit to donors and would work negatively against collection volumes and then the counterbalancing actions that our customers have taken to further incent donation promotional efforts higher donor fees et.
Center. So you have this interplay on the economics, what we saw in the third quarter was.
The pressure of the recession, the absence of the at least the waning government stimulus and a meaningful step up in promotional remuneration from our customers to their donors led to this drive right, which was quite meaningful well above and beyond the seasonal adjustments we would expect.
We get to January and we have seen new stimulus back into the market and we're seeing some of the corresponding effects that we would have expected to see from our modeling in terms of diminished collections in the early part of the year now.
I couldn't be more stimulus to come but stimulus what ultimately will be time bound. Unfortunately, the recession will take time to correct and that's a positive effect. So we remain very confident in the long term, 8% to 10% and in fact, as we said in our prepared remarks for a period of time as we are recovering collectors will do what.
They can do to replenish their depleted reserves, which means we could grow in excess of that 8% to 10% for a period of time until the inventories are replenished as it pertains to the fourth quarter and seasonality typically our third quarter is our most robust collection volume of the year. So we tend to see a modest drop off in the fall.
Fourth quarter is kind of a bit of an aftermath of the holidays et cetera.
We would assume that but candidly, it's a it's an assumption that best given how.
Unstable this market is given the pandemic and everything else that's going on so it's an interesting dynamic we're paying close attention I think because of the hard work that we and our collector customers have done. This is really down to the economics you can watch the same factors, we arent predict accordingly.
Bill over to you.
Alright, Thanks, Chris.
So now your question on Investor Day. So obviously, we're overdue for an Investor day, we are we definitely need to have one and we want to have one.
It is important for us to be able to.
I understand exactly what's happening as you know with the financials as the pandemic eases because that recovery will obviously drive.
Our financials going forward so.
It's important to eliminate some of those questions.
You know, we're hoping summer time, we'd love to do it in person.
With a vaccine out there for.
Covid, we're hoping that has a major impact when things open back up and we can get something scheduled this summer but.
No promises may have to end up doing it virtually but we prefer to do it in person.
And does the L. R. P get tied to that analyst day, you kind of need you know the same inputs and visibility to be able to do both.
Where they are disconnected.
Well I think we'd love to showcase the innovation.
Have it all.
Full investor day focused on innovation, but I think everyone would be disappointed if we don't provide an L. R. P. At that five year debt Investor day in May you know, obviously, we did it a few years ago now I think four years ago. So we're we're long overdue I think the combination of.
Doing looking at the innovation as well as the five year LLP in that Forum is the right place to do it.
Great. Thank you.
Thank you. Our next question comes from Anthony Petrone with Jefferies. Your line is now open.
Thanks, and good morning, everyone on a couple of zone plasma and also skew quite deep.
Plasma mute, Chris can you give us an update on <unk>.
The total installed base sits in.
Maybe what percent as we sit here today is already upgraded to Nexus.
As you look ahead to persona.
And you referenced conversations you know how blood based over time do you think persona.
Upgrades will be.
Just based on your interest exiting last quarter, and then I'll have a few follow ups.
Yes, Anthony so in terms of our total install base there has not been any meaningful change in share in aggregate right. There. There's always puts and takes in any given time period, one of our customers. We will acquire somebody if they were an existing customer of ours and that customer has a split share.
There you may see a modest loss of share over time on the other hand, if the customer they acquired was not one of our customers.
Then we see the corresponding benefit but we're roughly.
Global basis, you know what this point, where we were a year ago today pre pandemic. So we haven't seen any meaningful change in the installed base and I don't expect that we will.
You know at the end of the day, we compete on innovation I think that resonates with our customers there may be some who don't value it and on the margin that'll prevent whatever challenges it presents but we're we're committed to competing on innovation.
Standing behind the value propositions that support that in terms of persona as I said, there are rate limiting factors to the pace of the rollout.
But it's it's got everybody's attention for the right reasons. It is proprietary we intend to continue to invest behind it so.
For persona is a staged rollout of course, you have to be on Nexus to benefit from the persona technology and right now I think that's that's having the desired effect in the market in terms of the overall agreements round.
This adoption.
One I didn't mention should go back to Larry's question.
The European market was more of a modest portion of our total collection volume.
European market throughout the year, our fiscal year as fared better well Mitchell back off and go from there.
In the early days, where Europe locked down.
As Europe began to reopen what we saw because the donor economics are just different there.
We've had a more robust recovery, we're actually ahead of forecast and we're actually experiencing modest year on year growth through the European collection network, it's not a material effect on our business and I don't want to overstate it but it does give us another lens through which to observe the donor attitudinal and behavioral dynamics.
But.
That are driving the U S market, which is what we're really dependent upon.
And then the follow up would be just the 9% to 12% yield benefit is is that.
Does that is that persona, whereas that for both technologies and then the bottom part D. The one quick one would be is there an update on the.
The financing mix for the 475 upfront how much of that won't be debt versus cash on hand, and then one for Stu just on on that scale.
We're up.
Maybe just.
Peter describe what the competitive sort of model.
In Europe, we're broadly in EEP.
And how long do you think that skate MVP could be any E&P market on a relatively standalone basis. Thanks again.
Yeah, So Anthony I'll take the first and then hand, it to bill and stew, respectively. One persona persona was run through the impact trial, which was done comparing.
Nexus P. C. S vs next sbcs with persona, so the 9% to 12% yield enhancement is additional to the 3% that we factor in the 'twenty three milligrams that come.
As an improvement off of the base piece, yes too.
One to Nexus and then persona is driving additional yield on top of that the reason it's ranged as because there are meaningful differences in the population and the whole concept of persona is an individualized noma Graham that is tailored to the individual donors height and weight in hematocrit essentially.
Determining how much plasma they have to give and then angling for a constant percentage there and we just see that much variability in the population, which is why it's 9% to 12% additional too.
What we do with Nexus.
Alright, Anthony on your question on cardio financials was around the $475 million upfront payment.
We have not updated from what we said on the card you have a call from.
Two weeks ago.
We are going to take out $150 million term loan and on the remaining $325 million that would be split between revolver and cash and we haven't said.
What the allocation would be there, but I did point out in the prepared remarks debt we have.
No borrowings under our existing revolving credit facility as of the end of Q3, and we have available on that line $350 million and we actually have almost $200 million of <unk>.
Cash on the balance sheet.
Okay Stu.
Thank you.
Yeah. Thanks, Anthony so.
Answer your question about the landscape in Europe.
Primarily.
In the interventional side.
Of the business for <unk>, we're looking at either a figure of eight suture or compression for closure.
That's what the vast majority of physicians are doing in Europe right now.
So as I'm sure you know in Europe every country is very different than the way they approach things, where we're looking closely at.
What the value proposition is in each of the major countries in Europe to determine what our launch strategy is there based on both cost considerations as well as clinical considerations from a value profit theres a lot of upside relative to growth of vascular closure devices being used in electrophysiology Chris.
Seizures in Europe.
To give you some sort of timeline, we're probably looking at 12 months to 24 months before we're able to enter that market, but we are looking at those options and is pursuing.
<unk> to their clinical registration for those.
In Europe.
Thank you.
Hey, Anthony let me come back to you and correct something I said right. So nexus off of a baseline of P. C. S. Two is essentially a 2% to 3% yield enhancement 23 milligrams.
If they're just using base nexus that base.
Yes to persona and the trial work. We did was another 70 milligrams plus or minus on top of that we think about that as 8% to 10% incremental therefore, the combined benefit.
For somebody who is not using nexus is the 9% to 12% we quoted in our prepared remarks I want to be clear about that so two to three on Nexus eight to 10, one persona in combination nine to 12 again, the variability driven by differences in the population.
Understood. Thank you.
Sorry about that.
Thank you. Our next question comes from Dave <unk> with JMP Securities. Your line is now open.
Great. Thanks, Chris maybe given the comments on Nexus and compete on innovation comments you've made.
I know.
<unk> was an important component of the system.
I imagine with persona, even is expected to deliver so I'd just love to get your thoughts on.
How those contracts are coming through are you.
Are you getting the price that you thought is it more or less any color would be great.
Yeah, Dave I. Appreciate the question I know this is pivotal for folks in terms of the investment thesis around plasma obviously, we get very sensitive talking about individual customers or price in any way with.
Disadvantages vis vis the competition, what I will say is we aspire to be a value added partner to the industry, we never want to put technology out there.
Priced in a way that that isn't the ultimate win win win better for donors better for collectors and better for US right and I think we have that in the case of Nexus and persona.
We have that in the case of our next link Dms. So we feel very good and more importantly.
The customers, who have adopted Nexus and had been running with it now for an extended period, who are also on the front edge of the validation and adoption of persona.
It continues to ring true to them. So it bodes well going forward beyond that I just want to you know.
Rather not give our competitors any more information than we already have accepted all we'll say that.
That innovation cycle will continue.
We're very committed to getting back in the clinic and putting more good idea is to work to help drive the recovery to help drive yields to make that donor experience that much more user friendly.
Got it and congrats again on the Cortina deal I.
If you look at the last I guess year, maybe a little more you had a bunch of sort of little transactions.
Acquisitions divestitures and the like I'm just curious.
Given the size of that and where the portfolio stands should we still expect things like that or I think pick your answer might be the debt.
There may be done for a while but what do you feel about the overall portfolio now with that in house.
I'll make some some specific commentary about the strategy and I'll ask <unk> to comment on card D var, and what that market may mean for US I think we've been on a journey over the past four and a half for five years to turn around the company and portfolio rationalization factors prominently in that right we take.
Words matter and the words, you know winning market leading position superior results are the essence of our strategy and we break that down into the six value drivers that I'm talking about for a while so.
We are committed to inorganic growth as part of that portfolio rationalization and we divested some of the.
Blood Center software business that was really tied to the RF filter business in North America, and France in parts of Europe.
Just didn't make sense for us going forward, we are hugely committed to software and ultimately digitization.
Of our platforms and our offerings, but in that sector of the business. It was neither a attractive market, nor our leading product and by divesting yet we've created greater focus you see that in some of our blood center results on equipment and disposables for car D. Var, and then I think we've said this for a while we.
Believe there's meaningful benefits to scaling and expanding our hospital business worldwide.
And we think the car D var opportunity for what it means in vascular closure electrophysiology and interventional cardiology is incredibly powerful in that regard our immediate priority as we said in our prepared remarks is properly integrating our D var into the human genetics.
Adding fuel to the fire that they've created and driving that 40% plus gross debt that is forecast for the product mix. There. So that's our.
We're hyper focused on helping make that happen.
The good news about this business, it's robust and with recovery, our cash flow returns and our EBIT expands and yeah, we'll be back in the market to take a hard look at other complementary assets that can help propel that growth story, so stu over and you could talk more there.
Yeah, I think first I'll, just say I'm really proud of what we've done with tag we've successfully penetrated into cardiovascular surgery trauma in particular.
In those settings, we've become the standard of care for identifying bleeding in from both those risks so you've done a great job there interventional cardiology and by extension EPS really the next largest area of potential use for TEG and its currently Underpenetrated. There was a big target there for us to grow the adoption of tag.
Through training and education in interventional cardiology and by extension EP. So when we look at at.
What card do you have that helps do for us on top of the value. It has as a standalone because it really enhances our penetration into the attractive.
Interventional cardiology EP markets.
It also does it in a way where we're not competing head to head with some of the major strategic in that space. So those major major strategics are driving the growth of that market through innovation and we're seeing about 13% growth of the EP space, what <unk> been able to do is carved a niche for themselves to facilitate that.
Those procedures make those procedures easier and more efficient get patients to ambulate quicker, which makes sense for everyone in the room and do it in a way that's not necessarily competing with a major strategic so we really like that simplicity of the portfolio. The way they can create efficiency in the EP lab.
We believe it's a strong value proposition when combined with what we're already doing and the space, we're already moving into with products like like Tech.
Great color. Thanks.
Thank you. Our next question comes from Mike Matson with Needham <unk> Company. Your line is now open.
Good morning, Thanks for taking my questions.
Chris I wanted to ask about your conversations with your customers customers in the plasma business.
Out there kind of safety stock inventory levels.
Do you expect them to in the long run and try to get back to the level. They were at prior to Covid.
Covid and is there any potential that given.
Kind of the shock experience of Covid that day, they might actually try to run higher inventory levels and low longer run.
Yeah, Mike I appreciate the question.
Our customers are really thoughtful about this it's you know these are world class companies with global supply chains and <unk>.
Extensive long range plans dealing with them.
This year volume of clinical trial work that they're doing to grow and expand the autoimmune neurology and <unk>.
<unk> of product offerings, so they have robust growth plans.
Clearly the pandemic was a setback.
I think depending on the company and their starting point they felt more.
Pressure than some some more than others I mean, we've seen some of that response in the market in terms of the productivity. However, I think all.
Realized this is a challenge for them and it is a very connected a logistical network. So you know a we fully expect long term growth in that 8% to 10%.
It'll ebb and flow based on new trial work competitive offerings et cetera, but we feel quite good about that number.
Tying back to an 8% gross and demand for our Jeep.
We do expect that they will want to replenish their safety stocks, they're thoughtful they have the ability, it's very long shelf life for frozen.
Source plasma so I think we would be fully expecting that over time, they will build back those inventory levels and I think candidly there's been some lessons learned for us in that process. When we were collecting at 15 or 20% with individual customers and the prior three years pre COVID-19.
No.
We need to pay more attention to how much of that is there organic growth, which was in many cases versus their building safety stocks for you know for some eventuality, which unfortunately has been COVID-19, so, but I think theyre thoughtful about it we need to be thoughtful about it as well I fully expect in the year to come they will total DAU.
<unk> on a new center openings, they've opened many centers through the pandemic and I think that'll be back on track fully to do so in calendar 'twenty one.
As Bill said, you know once the vaccine rolls out and you see that they are doing what they can to drive the remuneration and then obviously, we think that our technology helps take that all to another level. So it bodes well for a robust recovery on the other side of the pandemic it won't be linear there's going to be fits and starts we're seeing you know in the current environment.
But long term, we feel quite good about it and we think they'll do the right things in terms of non.
During they have supply.
Okay. Thanks, and then just regarding this FDA guidance around tech testing for Covid.
Have you seen any sort of measurable benefit to that business from COVID-19 to date and.
Does this guidance.
The probability that you could see a benefit going forward at least until COVID-19 rates kind of come down.
I'll, let stew answer your question directly I think one of the things that we're excited by as you know this is an ongoing dialogue that we're having with the medical community.
With our scientific Advisory Committee in the K O L base on patient blood management, and ultimately with the regulators and what we're excited by is obviously to be able to play a role.
And in New York snaps horrific set of conditions here around COVID-19.
But also what it bodes well for with regards to a broader based view of patient blood management.
Hemostasis and cause so elastic testing and the role that it plays in and kind of working across different disease states different procedures. I think is an interesting area of scientific advancements that we've been championing for awhile, but still maybe you should comment on the specifics.
Yeah, Mike we haven't seen any material.
Difference made by this announcement and keep in mind. This just happened over the last.
A couple of weeks, but what we do think as to sort of reiterate what Chris said is it opens the dialogue.
For conversations around and particularly the thrombosis in the diagnosed diagnosis of potentially hyper coagulate patients that have COVID-19.
And that conversation happening and departments that were typically not.
And as I, just mentioned a moment ago cardiovascular surgery trauma, those settings, where typically in and have a good footprint in hospitals. This is actually opening the aperture a little bit more to have those discussions and other departments as well around that.
Hyper Quaggy both state that these patients are in so we think there is opportunity to further educate around the use of TEG down the road as a result of this guidance.
Okay, great. Thank you.
Thank you and our last question comes from Larry Solow with CGS Securities. Your line is now open.
Great. Thanks, and good morning, guys. Thanks for taking the question just a couple of just clarification or follow ups just on the on the Chris you mentioned, there hasn't been any meaningful change in the in the installed base, which sounds like.
Your announcement. This morning that you have some planned initial placements or placements at some of your.
Larger collectors, who maybe not have adopted it just the language is a little bit different I'm, just trying to figure out.
Private placement debt customers saw they start with an initial base and then expand.
Or I'm just trying to figure out is this any different than how you've done prior placement in realizing that some of the the two largest collectors out there had not really adopted yet so maybe it's a little bit different when you are looking at a much larger network versus a small network at some of your smaller customers can you maybe clarify on that.
Yes, I appreciate the question all each customer is different because they each have different starting points.
My comments earlier around the install base.
We haven't seen meaningful change in share it can happen, there's obviously different and important dynamics in the marketplace. We do have competitors customers.
Our free to change from what we have found is customers prefer.
With them whenever the base, whether the share is 100% or 10% or anything in between they tend to like <unk>.
Continuity and consistency, it's very rare to have a center that will operate more than one device right.
If it's a Pcs two center or it's one of our competitors center or at the Nexus Center. They tend to want to have a single standard operating procedure and protocol across the center.
Similarly, when they adopt a new standard operating procedure as they need to for example to upgrade to the next link D. M. S. They typically want to do that across their entire network. It will be staged in with software. The staging is longer by necessity because of the amount of changes required with Nexus piece, yes.
We've talked in the past, we can change the center out overnight.
Can't change your entire network overnight and in this case what.
What we're trying to be clear about is.
We have meaningfully advanced the discussions we've gotten two agreements we're not getting into how many centers have they changed et cetera.
It doesn't help us or our customers to talk about that we will factor that into our growth plans going forward of course, but what we're trying to communicate is that the nature of the discussions has evolved and has progressed and that progression gives us renewed confidence in the longer term the actual pace.
Et cetera. This has to be staged and it is gonna be staged as part of an largely behind the recovery from the pandemic that is the first second and third priority as I said earlier, and we're not going to do anything to disrupt the momentum that our customers are creating with regards to the.
Recovery now as that happens. We then can further this and as we complete the next link software upgrades as we get them ready to go kind of trained and equipped or as they experience. It maybe they've taken in a different market not the U S market, but somewhere else in the world at scale, they're going to get that experience.
And we're confident that as they have that experience they'll get increasingly excited about not only the value proposition as we've talked about but also our ability to convert them right so and we.
We are confident in our ability to do that even in the height of the pandemic.
Had some of those experiences this past year, so I think it bodes well, but it will be staged and it will likely be measured over an extended period of time.
That's the nature of the environment that we and our customers operate them.
And I suppose of course interest persona and just the onset of Covid has obviously helped accelerate these conversations certainly with new customers or customers that haven't converted how about existing customers that are already on nexus.
I assume and system persona is probably pretty high have you can you speak qualitatively any conversions yet.
Logistically, how that process would work.
Customers, who are already running nexis, our first up in the queue for the upgrade to persona folks are very excited by it and we are neck deep in that validation process that I referenced earlier, making sure there's no debt.
Gradation in the Iga concentration we are confident there is not but it's something that needs to be tested and validated in our and our customers' network.
It's the ongoing safety monitoring to make sure there's no adverse events with owners again high level of confidence there, but we want to continue to monitor this as we go forward at scale and then the logistics, depending on the supply chain and the fractionation process.
Front end right, how does that frozen block of source plasma get processed in for production.
<unk> from from one customer to the next and we need to help them.
Adapt their systems and their supply to be able to handle a bottle, but so many of the larger.
Have any customers adopt the persona on a commercial level without getting into details just qualitatively can you.
Firm guidance.
It's work in progress. So it's it is underway, but I don't want to get into the nuances of the difference between validation are validation that scale versus full rollout is underway and I can confirm that those conversations have been very positive across the entire installed base of Nexus.
Fair enough just a quick question for Bill Bill just on the operational excellence nothing new on that in terms of that the $80 million to $90 million.
Cost savings productivity gains in the majority.
Falling to the bottom line I think you said by fiscal 'twenty three.
That does assume that debt that was an initial sort of target.
Built on a growth assumption right. So I assume if we're not GAAP or.
Covid is still impacting us and we're not.
That level that you were a revenue level that you had assumed in that analysis, we won't quite get to that number by the end of or by fiscal 'twenty three until we're until revenue sort of reaches that target correct.
So overall the operational excellence program is going really well, Larry I mean, we're making good traction.
Good projects going on.
We do expect volumes to return here eventually and we still feel comfortable at this point debt.
FY 'twenty three we'll see those savings but.
Yes, it is dependent on at some point getting back to the normal levels of revenue that we've experienced historically with growth.
Right and the cardiovascular hitting I know you know I think the.
Yes.
Obviously that was more on that.
The revenue growth potential, but I got to imagine as you roll that into your network there'll be some.
Potential savings coming out of that too inevitably on the cross sell of course of course, there are always synergies right, but again just to reiterate what Stuart Chris said like the deal is built on <unk>.
Revenue growth, but soon absolutely.
A natural part of our M&A.
M&A.
Great. Okay, great guys I appreciate it thanks.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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