Q4 2021 Haemonetics Corp Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 human that ex Corporation earnings conference call and webcast.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
Ask the question during the session you will need the press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to Olga Guyette Investor Relations. Thank you. Please go ahead.
Thank you good morning, everyone. Thank you for joining us for human ex fourth quarter fiscal 'twenty, One conference call on webcast.
I'm joined today by Chris Simon, our CEO and Bill Burke, our CFO Chris.
The posted our fourth quarter and fiscal 'twenty, one results for Investor Relations website, along with our fiscal 'twenty two guidance and an analytical tables with information of the Waterford to on this call.
Additionally, we provided the complete P&L balance sheet summary statement of cash flow as well as reconciliations of our GAAP to non-GAAP financial results and guidance.
Before we get started unless otherwise noted all 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 and the impact of the 53rd week in fiscal 'twenty one.
As in the past Waterford to non-GAAP financial measures for how this call to help investors understand human that exist ongoing business performance.
Please note that these measures exclude certain charges in income items.
Is your parts of this morning's earnings release for detailed of an excluded items, including comparisons of the same periods of fiscal 'twenty and a reconciliation of 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 uncertainty, including the potential impact on the COVID-19 pandemic on our results 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 these forward looking statements.
Now I'd like to turn the call over to Chris.
Good morning, everyone and thank you for joining us today before I get into our results I want to review the news, we announced a few weeks ago.
In April of CSL plasma notified us that they do not intend to renew the U S supply agreement for the use of our P. C. S. Two plasma collection system equipment on the purchase of plasma disposables the expires in June of 'twenty 'twenty two.
We were informed the C. S. L decision was not based on the level of service or quality of our products, but rather reflects the change in internal strategy. It was made some time ago, presumably before they had experience with nexus and persona.
We're disappointed by Csl's decision, but it does not change our commitment to the plasma market and our technology to improve collections, the nexus and persona value propositions of strong support of by real World data and real time customer feedback and we are excited about what this platform means for our customers.
We're taking a comprehensive approach to address the impact of the C. S. L transition will have in fiscal 'twenty three.
We are acting with urgency, but we are being thoughtful and balanced in our planning on.
The ability to respond is enhanced by the steps we have taken these past few years to strengthen our financial health improve productivity drive innovation reshape our portfolio and build a collaborative performance driven culture, we are well positioned to navigate this change we are focused on driving value for customers.
And shareholders and our decision making is guided by a through cycle mindset. We will continue to pursue growth strategies to maintain our market leadership, including developing innovation in partnership with our customers. We also remain committed to productivity and being good stewards of the company's resources, we will provide more detail.
<unk> on the path forward as our plans take shape with that let me turn to our results for the quarter and the fiscal year.
Today, we reported organic revenue decline of 14% in the fourth quarter and 13 per cent for fiscal 'twenty. One on adjusted earnings per share of 46 cents down 33% in the quarter and down 29% to $2 35 for the year.
Fiscal 2021 was a difficult year for human ethics, as the pandemic had varying effects across our businesses and their respective customers.
Despite the challenges we made progress to build a stronger human medics, we divested nonperforming assets like the for heart of blood filter manufacturing operations Blood Center donor management software in the U S and in-laws S. A S blood bank and the hospital software in Europe.
We made organic and inorganic investments in attractive and growing markets, including the launch of persona and the donor $3 60 up and the acquisitions of clock pro and part D of of medical.
We modified our capital structure for the financial flexibility and remain diligent with cost containment, while continuing to fund growth.
We made significant changes to the way, we source and make our products as part of our operational excellence program, while we cannot control of the pandemic impact on our customers' businesses. We met every challenge keeping our employees safe on our plants operational with high levels of service and customer support.
Early fiscal 'twenty, two will continue to be challenging, but we expect the pace of recovery to accelerate over the year the.
End market demand for our products remains strong and we do not see structural or other changes from the pandemic that would impact the need for lifesaving plasma based medicines for hospital devices for critical areas of medic medicine, like trauma, interventional cardiology and electrophysiology.
We have healthy and viable businesses delivering exceptional value, adding technology, we have proven our resilience and our ability to drive growth and productivity and we will do so again as our markets recover from the pandemic.
Turning now to our business units.
On the revenues declined 28 per cent in the fourth quarter and 26% in fiscal 'twenty one as the pandemic continued to have a pronounced effect on the U S sourced plasma donor pool we.
We saw lingering effects beyond fourth quarter into April.
North American disposables declined by 31 per cent in the fourth quarter, primarily driven by declines in volume and the negative impact from the exploration of pricing on a historical technology enhancement with one of our customers sequentially plasma collection volumes declined by 13% compared with historical average seasonal.
Clines of about 7% as additional economic stimulus hindered recovery.
Fiscal 'twenty, one was an especially difficult year for plasma collections, given the interplay of different factors affecting donor behavior. Our customers have taken extensive measures to ensure the health and safety of donors and the launch a myriad of promotional campaigns to encourage plasma donations. Our teams have remained focus on ensuring no.
Disruptions to our supply of service and support the <unk>.
The environment, we advanced our innovation agenda with the FDA clearance of persona, which safely yield an additional nine to 12 per cent of plasma on average per collection.
We extended the reach of our customers to donors via a donor of 360, App, which allows donors to engage with centers before in person visits decreasing door to door time and improving the overall donor experience.
Given the pandemic negative effect on collections increased shield is more important than ever and feedback from Nexus customers operating with yes technology or per tone persona continues to be positive.
We believe they were able to offset some of the headwinds from the pandemic because they benefited benefited from safe higher plasma yield per donor bidirectional paperless connectivity and increased donor satisfaction.
Next linked the EMS Rollouts continue on pace on the software continues to be a key enabler and differentiator for Nexus.
All of our major customers have agreed to adopt next of somewhere in the collection of network and we anticipate that by mid fiscal 'twenty three of the majority of our customers. Excluding the S. L will be on Nexus in the U S for globally.
As we emerge from the pandemic and see future sustained increases in available donors the operational efficiency benefits of Max's integrated with next link the EMS will be an increasingly valuable tool to support the greater donor traffic.
We anticipate initial persona rollouts this fiscal year as we strive to move in sync with our customers and pace of our technology implementations to meet their individual needs. We are committed to advancing our innovation agenda across devices disposables and software to develop products that create long term.
Stable value for our customers. We continue to do everything we can to support our customers and we remain cautiously optimistic about the timing and pace of recovery the.
Demand for plasma derived medicines remains strong and our customers are doing what they can to recruit and retain donors. Unfortunately donor economics play a critical role on plasma collections and we export we expect collections will be muted until government stimulus wage beyond stimulus, we expect a return to the long term.
8% to 10% growth of the U S sourced plasma collections market and we see potential to grow in excess of that as customers strive to replenish depleted plasma inventories.
Hospital revenue increased 12% in the fourth quarter and 4% in fiscal 'twenty, one our hospital business experienced the continued sequential improvement over the first nine months of the fiscal year.
Fourth quarter recovery was uneven as we saw another spike in COVID-19 cases early in the quarter followed by material improvement in February and March coupled with the anniversary of the previous year impact of COVID-19 in China and other geographies that were affected earliest by the pandemic.
Hemostasis management revenue was up 19% in the fourth quarter and 9% in fiscal 'twenty one.
North America, our largest market showed sequential growth throughout the first nine months of the year and despite of Spike in COVID-19 cases early in the fourth quarter the business exited in a strong position, including additional penetration into new accounts, China, our second largest market benefited from a lower comparator in the prior year of fourth quarter.
Due to the early onset of COVID-19 strong capital sales in North America, and EMEA have also contributed favorably to our fourth quarter and fiscal 'twenty one results.
We continued to drive our go to market strategies for viscoelastic testing to meet the unique needs of our regional markets. We are executing on the Chinese market introduction of our locally designed and manufactured missile of elastic testing technology that expands our product offering to meet the needs of that geography true.
Transfusion management was up 9% in the fourth quarter and fiscal 'twenty, one primarily driven by strong growth in blood track through new accounts and geographic extension of safe trace TX our teams of use remote tools to advance installations and utilization and customer environments, where access continues to be.
It.
Cell salvage revenue grew 2% in the fourth quarter and declined 8% in fiscal 'twenty, one our cell salvage results in the quarter benefited from the easy comparison with the prior year quarter in China, and 80% growth in capital sales as we continue to upgrade our customers to the latest technology, partially offsetting these benefits.
It's in the fourth quarter was overall lower procedure volume due to COVID-19.
The integration of cards, even medical is going well and the performance of the business is exceeding expectations. The bascay proprietary vascular closure technology strengthens our hospital of portfolio and the attractive interventional cardiology and electrophysiology markets and the team is focused on driving the strategy underlying the.
The acquisition.
Although excluded from our organic revenue results cardiac of added close to $8 million revenue in March as our teams continue to drive penetration in the top hospital accounts for interventional procedures in the U S. Additionally, ex U S procedure volume continues to improve we've seen increasing benefit from product.
The among existing accounts.
Our long term outlook for this business is strong as our combined product development and regulatory teams work closely together on O U S registration and driving additional product innovation.
Overall, the pandemic has validated the of central role of our technologies in the hospital, we have demonstrated our ability to safely and effectively sell including to new and existing accounts install on service our equipment. Despite limited access to hospitals.
Blood Center revenue declined 10% in the fourth quarter and 4% in fiscal 'twenty one.
<unk> revenue declined 3% in the fourth quarter and grew nearly 1% in fiscal 'twenty, one fourth quarter Apheresis results were impacted by unfavorable distributor order timing in the EMEA and a competitive loss, partially offset by strong capital sales order timing was overall a benefit to our full year of it.
Fiscal 'twenty one results as distributors made large stocking orders in response to the pandemic, particularly in Europe and the middle East.
We also benefited from strong capital sales as we continue to support our customers and the collection of convalescent plasma. These benefits were partially offset by the previously disclosed competitive losses that had a 17 million dollar impact on our full year results. Excluding this loss overall blood center revenue actually.
True in fiscal 'twenty one.
Whole blood revenue declined 24% in the fourth quarter and 14% in fiscal 'twenty, one driven by lower collection volumes due to COVID-19, and discontinued customer contracts in North America, we remain committed to supporting enhanced product quality and services for our blood center customers, while preserving cash generation and explore.
The portfolio rationalization as appropriate.
Now I'll turn the call over to Bill.
Thank you, Chris and good morning, everyone.
Ill begin by discussing our fiscal 'twenty one actual results followed by our fiscal 'twenty two guidance.
Chris has already discussed revenue so I will start with adjusted gross margin, which was 50% in the fourth quarter of decline of 30 basis points compared with the fourth quarter of the prior year.
Adjusted gross margin year to date was 53% of decline of 130 basis points compared with the prior year.
On the positive side, we continue to benefit from productivity savings realized from our operational excellence program.
Lower depreciation expense related to our P. C. S. Two devices, which were mostly depreciated by the end of the prior fiscal year.
We also saw benefits from the recent acquisition of cardiac the medical.
The primary drivers of the adjusted gross margin decline were unfavorable pricing and product mix, mainly due to the impact of COVID-19, higher inventory related charges and the impact of recent divestitures.
These inventory related charges, which relate to csl's intent not to renew the U S. Plasma disposables supply agreement had about 220 basis points impact on our fourth quarter and about 60 basis points impact on our fiscal 'twenty one results.
The combination of our recent divestitures and our strategic decision to exit the liquid solution business resulted in a net negative impact of 70 basis points on our fourth quarter and about neutral impact on our fiscal 'twenty one adjusted gross margin.
Adjusted operating expenses in the fourth quarter were $81 $9 million, an increase of $9 $2 million 13 per cent compared with the fourth quarter of the prior year.
Adjusted operating expenses for fiscal 'twenty, one or $283 million.
A decrease of $9 $8 million for 3% compared with the prior year.
Adjusted operating expenses, both on the fourth quarter and fiscal 'twenty, one were impacted by higher variable compensation and the acquisition of Kerr deep of medical and the impact from the 50 <unk> week.
Contributions from our productivity savings and cost containment efforts that were put in place earlier in the pandemic helped to offset some of the impacts and allowed us to make additional growth investments into our business.
As a result of the performance in adjusted gross margin and adjusted operating expenses fourth quarter adjusted operating income was $35 million.
A decrease of $16 $8 million with 35 per cent.
And adjusted operating income for fiscal 'twenty, One was 154 of point $6 million, a decrease of $63 $4 million or 29% compared with the prior year.
Adjusted operating margin was 13, 5% in the fourth quarter and 17, 8% in fiscal 'twenty One day.
630 basis points, and 420 basis points, respectively, compared with the same periods in fiscal 'twenty.
For both periods the loss leverage from revenue coupled with the inventory related charges higher variable compensation.
And impacts from portfolio changes.
The pace the impact of cost mitigation efforts and productivity savings.
These inventory related charges and higher variable compensation put downward pressure operating margins by approximately 500 basis points in the fourth quarter and approximately 100 basis points in fiscal 'twenty one.
The variable compensation incentives, we established during the pandemic and the one time inventory related charge due to the recent customer announcements are not expected to affect the future operating margins.
The adjusted income tax rate was 12% in the fourth quarter and 14% in fiscal 'twenty, one compared with 18% and 15% respectively for the same periods of the prior year.
Fourth quarter adjusted net income was $23 9 million down $11.5 million for 33% and adjusted earnings per diluted share was <unk> 46 cents down 33% when compared with the fourth quarter of fiscal 'twenty.
Adjusted net income for fiscal 'twenty, one was $127 million down $56 million or 30% and adjusted earnings per diluted share was $2.35 down 29% when compared with the prior year.
The inventory related charges and higher variable compensation had a downward impact on adjusted earnings per diluted share of <unk> 18 cents in the fourth quarter and 12 cents in fiscal 'twenty one.
Our operational excellence program continues to deliver positive results and drive improvements in adjusted gross and adjusted operating margins. This program has also enabled us to offset some of the challenges resulting from the pandemic.
During fiscal years, 2020 one the program to date gross savings are approximately $34 million with the majority.
You're already of those savings dropping through to adjusted operating income.
Cash on hand at the end of the fourth quarter was $192 million, an increase of $55 million since the beginning of the fiscal year.
Free cash flow before restructuring and turnaround costs was $99 million in fiscal 'twenty one.
Paired with $139 million on the prior year.
Fiscal 'twenty, one included a $54 $3 million payment for our compensation related liability as part of the card even medical acquisition the <unk>.
Total purchase price paid per card gave of medical was reduced by the amount of this liability.
Lower increases in inventory lower capital expenditures and improvement in accounts receivable compared when compared with the prior year had benefited fiscal 'twenty one.
Although the free cash outflow for inventory is lower than the prior year the impact from lower sales volume and plasma has resulted in a higher disposables inventory balance we will continue to monitor our inventory levels and expect inventory fluctuations to continue as we adjust out.
Production to support customer demand.
And our operational excellence program initiatives.
In addition to free cash flow the <unk>.
Fourth quarter, ending cash balance benefited from the completion of a 500 million dollar convertible debt offering which resulted in a net cash inflow of $439 million.
Offsetting the cash inflow during fiscal 'twenty, one was $390 million of net cash spent on recent portfolio moves.
And $82 million of debt repayments, including a $60 million repayment of the revolving credit line that was outstanding at the end of fiscal 'twenty.
Yeah.
Our current debt structure includes a $700 million credit facility that does not mature until the first quarter of fiscal 'twenty for with the majority of the principal payments weighted toward the end of the term.
At the end of the fourth quarter total debt outstanding under the facility was $302 million. There were no borrowings outstanding under the $350 million revolving credit line at the end of fiscal 'twenty one.
During the fourth quarter, we completed a $500 billion convertible debt offering.
Our EBITDA leverage ratio as calculated in accordance with the terms set forth on the company's existing credit agreement is three point for at the end of fiscal 'twenty one.
The existing $500 million share repurchase authorization will expire at the end of May 2021, with $325 million remaining on the authorization.
We will update our capital allocation priorities in the next few quarters as we continue to develop our long range plan.
Now I will turn to our fiscal 'twenty two guidance.
Our business continues to be impacted by the pandemic there for fiscal 'twenty. Two guidance includes wired the unusual rages that reflect the uncertainty of the pace of the continuing recovery we.
We will narrow or update our guidance as necessary throughout the year.
Our fiscal 'twenty two organic revenue growth is expected to be in the range of 8% to 12%.
We remain confident in the continued market growth underlying the commercial plasma business and anticipate plasma revenue growth of 15% to 25% in fiscal 'twenty two.
At the low end of our guidance range, we assumed that the second and third rounds of economic stimulus will continue to impact plasma collections through the first half of fiscal 'twenty, two with stronger collection volumes in the second half of fiscal 'twenty two.
At the higher end of our guidance range, we assume that recovery will begin mid second quarter with additional acceleration towards the end of the fiscal year as customers begin to replenish safety stock levels in.
In both cases, we expect the run rate for plasma collections to be at or above fiscal 'twenty levels at the end of the fiscal year.
Disposable revenue related to C. S. L collection volume is included in the guidance for 12 months.
In fiscal 'twenty, one we recognize disposable revenue in the U S from C. S L of approximately $89 million.
This plasma revenue guidance also includes the net impact of initial rollouts of persona and nexis adoption for customers with whom we have agreements with the majority of the benefit towards the end of the fiscal year the.
These benefits of partially offset by price adjustments, including the expiration of fixed term pricing on a historical P. C. S. Two technology enhancement.
And of one time safety stock order in fiscal 'twenty one.
We expect 15% to 20% organic revenue growth in our hospital business in fiscal 'twenty to.
This growth rate assumes the recovery of hospital procedures will continue to improve throughout the year.
And we'll be close to fully recovered across all geographies by the end of our fiscal 'twenty two.
Our hospital revenue guidance includes hemostasis management revenue growth in the mid twenties.
The card Diva medical acquisition is anticipated to deliver $65 million to $75 million of revenue.
And as the excluded from organic revenue growth until the anniversary of the acquisition date.
Our fiscal 'twenty two guidance for blood Center revenue is the year over year decline of 6% to 8%.
The anticipated revenue decline in blood center reflects the annualized <unk> of business exits, primarily within North America of whole blood.
The non repeating revenue related to congregate convalescent plasma in fiscal 'twenty one.
And the effects of order timing, which favorably impacted fiscal 'twenty one.
We expect fiscal 'twenty to adjusted operating margins in the range of 19% to 20% and adjusted earnings per diluted share in the range of $2 60 to.
The $3.
Our adjusted earnings per diluted share guidance includes an adjusted income tax rate of approximately 21%.
In fiscal 'twenty, two we expect our operational excellence program to deliver gross savings of approximately $22 million with less than half benefiting adjusted operating income due to inflationary pressures and investments in manufacturing.
The program began in fiscal 'twenty and by the end of fiscal 'twenty, two we anticipate achieving approximately $56 million of gross savings with about 60% of those savings benefiting adjusted operating income.
The remaining year of the operational excellence program is being updated as part of our comprehensive effort to address the impacts from the anticipated customer loss in early fiscal 'twenty three.
We intend to communicate the updated <unk> operational excellence program as part of our longer range plan.
We also expect our free cash flow before restructuring and turnaround expenses in fiscal 'twenty, two to be of $135 million to $155 million.
Before we open the call up for Q&A I want to reiterate the key points that we hope you take away from today's call.
First while.
While the pandemic continues to impact our business. We don't believe it has caused any structural changes to the end market demand for our products.
By the end of our fiscal 'twenty, two we expect full recovery across all of our businesses, but the exact pace of the recovery is the biggest variable included within our guidance.
Second we believe our product portfolio strongly positions us to capitalize on the market recovery ahead.
Despite the challenges put in front of US our team remains focused on rationalizing our product portfolio to emphasize the products and markets that meet our strategic goals prioritizing investment and allocating capital to strengthen the core capabilities and technology that make us distinctive.
Third our operational Excellence program continues to drive transformation, primarily in our manufacturing and supply chain as we become more agile and flexible.
We made significant progress to date, which has allowed us to offset some of the headwinds due to the pandemic and we expect to have close to 60% to 70% of the program completed by the end of our fiscal 'twenty two with the majority of those savings benefiting our adjusted operating income.
And finally, we have a proven dedicated team committed to driving value for our customers and our shareholders. We are proud of the way our teams have risen to meet the challenges over the past year.
We recognize more challenges or head, including difficult the owner economics, and the eventual loss of C. S. L in plasma.
We are committed to taking action managing costs and mitigating the impact without compromising compromising future growth of our business.
And while we have a lot of work to do in the coming quarters, we're confident that our teams experience resilience and agility will ensure that hey, magnetics has a bright future.
With that I will turn the call back to the operator for Q&A.
Thank you Andrew of minor task of the question you would need the press star one on your telephone.
Draw your question press the pound key Lisa.
Please stand by while we compile the Q&A roster.
Our first question comes from Anthony Petrone with Jefferies. Your line is open.
Yes.
Thank you and a couple of questions to start on guidance and then I'll shift to two plasma.
Starting with earnings guidance.
Out of the gate, maybe just a recap of what is baked in for the car David the dilution.
To the earnings line in fiscal 'twenty, two that would be the first question and then offsetting that.
How much.
Gain of you're getting from the restructuring.
And then perhaps maybe to round out the earnings question you referenced price several times. So how much price erosion is baked into the earnings line and then all of a couple of more on plasma.
Hi, Anthony It's Bill I can take I can take your first one there so on on the guidance.
Your first question was on car Diva.
We have 65% to $75 million of card you have of revenue.
In the guidance it's in line with what we had in the deal model.
It is there is dilution included.
In the EPS numbers.
It's we haven't disclosed exactly what that's going to be and we're going to stay away from the exact dilution that's in there.
But it is it is the slightly dilutive both on the operating income level and in.
And the EPS.
Your second part of the question I think it was related to.
The at the.
Yeah at the net earnings.
How much is baked in or restructuring gains and then offsetting that.
To what extent is price impacting earnings.
Yeah, So our our Oh, let me just give you an overview of the operational excellence program so through.
Through the end of fiscal 'twenty one.
We recognized $34 million of gross savings of about half of that dropping through to adjusted operating income in FY 'twenty two we're anticipating an additional $22 million of gross savings.
And we.
<unk> stated that about less than half of that will drop through the just the adjusted operating income because there's inflationary pressures into investments in manufacturing that we've netted into the or against the gross savings.
But in total the $56 million of gross savings will be.
60% to 70% of the overall program savings through the end of FY 'twenty two.
Okay, and then just pivoting to plasma maybe a little bit on the 15% to 25% organic guide just displace debt what's in there for COVID-19 headwind it sounds like that's still lingering certainly through the first half for.
But you also referenced last quarter contract wins as well as in today's prepared remarks, so how much headwind is baked in there.
From a basis point standpoint, offset by contract gains and I'll just go to the last one in for Chris just maybe high level on the strategic.
Sort of comments today, we have a new competitor coming into the room of I'm. Just wondering if you can provide a little bit more detail on kind of the strategic thoughts that are going on.
Internally and some potential countermeasures.
Lisa do you look at how the landscape of shifting your early on thanks.
So Andy why don't you want to start though.
Yeah, I'll take the plasma.
The guidance question. So the the range that we provided was 15 to 25 per cent and.
What's included in the range there and the most impactful in the guidance is the pace of the recovery related to.
The pandemic and coming out of Q4, we still have seen some weakness.
Chris mentioned it in his.
His remarks that we haven't seen really a recovery coming out of the fourth quarter. So through this throughout Q1 and FY 'twenty two so far the volumes have still been down versus the versus the prior year. So that's reflected in our in our guidance and.
At the low and high end of the guidance there just slightly different assumptions on the recovery. So at the at the low end of the guidance, we have a recovery not beginning until late in the second quarter and then accelerating throughout the back half of the year.
In the high end of the guidance were a bit more optimistic and we are assuming that we see volumes recover.
Earlier in the second quarter in both cases, though we do expect debt coming out of FY 'twenty two on a run rate basis that we would be at or above the volumes that we were experiencing back in fiscal 'twenty.
And then one of the thing that is affecting the guidance range early in the in the year in FY 'twenty, one we referred to a stocking order of about $6 million and that stocking order has about a three of 4% impact.
The downward impact on the guidance range this year.
Okay. Okay.
Yes. Thank you.
So Anthony on on your questions regarding the longer term perspective.
We remain very bullish on 8% to 10% growth in collection volumes to meet the demand for I G worldwide clearly the pandemic has depleted inventories. So we fully expect as they are on.
Our collection customers to drive higher volumes of collections as they did in prior years pre COVID-19 to.
To make up for that GAAP. So you know we.
We don't see any structural change we're excited about this the actual recovery in the third quarter of last year is because of good reference point in that regard when we look at that recovery clearly stimulus is the single largest factor and as Bill just articulated it's just.
Difficult to know exactly when the influence of the stimulus is going to win them. So what we're forecasting is that.
Mid to latter part of our second quarter with robust recovery until the latter part of the year, probably offsetting seasonality or any other changes you would otherwise expect so we fully anticipate but we think it's going to be delayed.
We overlay on top of that what we're doing with our portfolio, which we remain very confident in the value proposition of that portfolio. The next link the EMS conversions continue full stride, we expect to have that completed by year end as I mentioned in the prepared remarks that is for most of our customers the precursor.
The two nexis all of those customers or have agreed to adopt nexus either U S for globally with the exception of C. S. L. So those those conversions are underway. They begin of really no increase in earnest on the other side of the next link and.
And we expect to have our existing base converted to nexis by midyear 2023, right. So we're enthusiastic about that and we are overlaying persona with it's 9% to 12% yield on top of that which again we've described previously.
Players the game changer in terms of excitement within the industry. So you know.
Our vantage point, we double down on technology, and innovation and drive that adoption through the market paced by our customers, whose first second and third priority understandably is recovering from the pandemic.
I'll get back in queue. Thanks.
Thank you. Our next question comes from Larry Tisch with Raymond James Your line is open.
Oh, great. Thanks, good morning, everyone.
I guess I have two questions here first for Chris.
Well, Chris I think you know part of whats reflected in the stock prices.
Service from investors that.
You sort of got blindsided by what CSL wound up doing with its contract and.
The potential for other customers to moving in that direction. So I'm just curious as to your thoughts as to you know.
Again.
How do you fit into the equation here.
And what can you tell us.
I guess, specifically about the the contracts and perhaps some longevity of that could give people some comfort that the.
On today's can't necessarily change.
Three months from now.
Yeah. So we're in constant dialogue with our customers conducting business reviews planning for recovery.
All of those customers as we've said with the exception of C. S. L. E. S. L has agreed to adopt in Europe, and that's underway all of those customers of agreed to adopt mexes right in the U S or globally on the conversations we're having with them.
How about what makes that rollout is.
As you know minimally disruptive as possible for their ongoing business given the heightened urgency around recoveries.
So.
Yeah.
We're under contract we feel great about what the competitive position of the product on what it means for them, they're excited about the adoption and that's what all the conversations we're focused on.
And Chris just a quick follow up on that.
When you when you talk about deployment of of Nexus into your customers.
Can you can you help us understand sort of how broad that is with within those those customers in terms of the agreements and the deployment there and can you.
Even provide any sort of even at a high level. Some thoughts on the longevity of of your contracts to to help give investors some comfort that there's some runway here.
Yeah, I I wanted to stay.
Larry I want to stay away from specific conversations around customer contracts, it's it's confidential and proprietary and candidly in it.
Tightly.
Contested market like that it's just not helpful. Right. So that's a general course, we don't talk about individual customers went off on I'm talking about the details of those contracts what I can tell you is.
But the change out of on network is no small feat for us for our customers. So the agreements we have in place cover all of the existing piece, yes, two devices and the associated of disposables in the U S for globally as mentioned.
Don't think we or our customers take those change outs lightly it's predicated upon a belief on the value proposition of the product first and foremost on how it will enhance the collection capabilities the yield for the cycle time, the connectivity and the donor satisfaction and then I think increasingly it's predicated upon arc.
The innovation and technology, we're not in any way shape or form resting on our laws through the pandemic, we introduced not only persona, but the donor $3 60 assets, having meaningful benefit for all of our customers from the gold of all industry wide, we're not backing off of our technology, we'll double down and we have through the pandemic.
To be on.
Okay. That's that's that's really helpful and then I guess for Bill.
Just trying to again.
Got my arms around the the guidance for fiscal 'twenty, two I'm wondering bill if you can.
Just sort of help bridge the operating margin assumption that you have got in the guide that 19% to 20 versus the the 2020 operating margin, which was closer to 22% just trying to understand the downward pressures there for.
What you achieved in 2022 the guide for 2022.
Yep, Thanks, Larry the.
The largest contributors of the difference between FY 'twenty and our guidance for this year would be the first and foremost is the plasma volume right. We all know that plasma volume is highly leveraged at the operating margin level based on.
When plasmas path, we're not we weren't.
We said we would be at the end of FY 'twenty, two run rates equal to FY 'twenty, but we still for the year be down and that's putting pressure on the operating margins for the second piece is the car do you buy of dilution.
And then our.
Our operating expenses are I would call it neutral and I want to say that because we are in the process of getting back our operating expenses to levels, where they were in FY 'twenty after being significantly down in FY 'twenty, one because of our cost containment efforts.
Okay, and just as we try to dial in the the right operating expenses here.
Can you help us think of a little bit about Bill again, I know you said that car day, but would be dilutive, but can you can you help us think of little bit about the incremental opex debt, that's coming through on that acquisition.
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Yeah. So I would when you look at our Q4 and FY 'twenty, one that could essentially be your starting point for expenses.
Give or take and then.
When you look at car D var, right, we know we.
We said $65 million to $75 million of revenue. So I use the midpoint apply somewhere in the 75 per cent margin range and.
If were negative on the operating income line you can back into an expense of mouth. That's.
It.
It gives you an idea of where you should be.
Great. Thanks, very much appreciate it yes, you got it.
Thank you. Our next question comes from Larry Solow with CJS Securities. Your line is one of things.
Great. Good morning, Thanks for taking the questions just a couple of follow ups on the part D. The piece first I thought when you made that acquisition.
It was going to be you know sort of I think 10 to 20 cents dilutive.
In the year is that in the first year and most of that I anticipate at the time was going to be interest expense, which was before you did the convert.
So.
Can you help me just bridge that has that changed at all I guess youre not I gather you're no longer giving that guidance on.
Giving specific guidance on could you give us so it seems like the operating expenses or higher than initially thought or can you just give them a couple more color on that.
So Larry the the revenue range is similar to what we provided and Youre correct Ryan on the EPS range of what we.
What we gave initially we subsequently have done the convertible debt offering which did remove.
Some of the interest expense related to that but for my skill on the operating income line. We are we are negative or anticipating the amount on operating income to be negative.
But we'd probably be at the on an EPS basis, we'd be at the lower end of the range that.
We have provided before on the EPS line.
Okay, and then just to clarify on on plasma.
Chris It sounds like Youre pretty confident that by the the end of fiscal 'twenty three.
The majority if not all of your customers will have converted to nexus with the exception of <unk>.
All of them in theory wouldn't be of customer then anyhow on in the U S. L. A fish test.
Is that correct.
Yeah. What was your clarification that we are under contract for T. S. L for Europe and that conversion has already begun and we intend on both parties have been communicated their intent to honor the contract which is the long term agreement.
And then the number of this year it sounds like you're probably.
Simon was maybe you get some conversions at year end, but I guess when you mentioned the guidance maybe at the high end of the plasma range youre, putting in a little bit of conversion. There is the sort of yes. That's exactly right now we've got to continue to power through which is challenging in a pandemic environment. The.
The Nexus next link Dms software upgrades, you've done well with that we continue to do well with that we anticipate completion as scheduled by the end of this year for anybody who's convert it we're actively moving on the Mexico piece, yes from the.
The pace of that conversion is really as it has been on from the outset dictated by our customers, we stand ready to go and they need the plasma. So anything we can do the pull that forward, we'll take advantage of for our guidance reflects the likelihood that most of the recovery of itself on the conversions are of second half event and then to twice a day.
Right. Okay, and then just shifting gears a lot. So just on the cost structure and I know, you're not ready to sort of.
It gives you the outlook for fiscal 'twenty, three but Chris obviously, you've done a great job on in right sizing. The company since you came in five or six years ago.
Just from a high level I guess at the two part question on the on the operation operational Excellence program.
Getting that remaining 25 for $35 million targeted savings, which maybe is a little bit lower now because of inflation.
Is that going to be an achievable number still because I know part of that sort of $80 million to $90 million was predicated on volume gains in plasma so.
Clearly, we're not kind of get the cash.
Okay.
What I would say about the program. Larry is we're really proud of what that team has done is not just global manufacturing and supply its R&D its quality assurance to our business services collectively they've made tremendous strides despite whatever the world's thrown at them.
Did take a view of that which said we're going to capitalize on.
High volume and throughput businesses, that's changed somewhat as a result of let's see ourselves decision. So that team is in the process of reexamining what are the levers that we can pull intelligently. The first priority of that initiative is to ensure continued world class product quality and we're not going.
The compromise that the second priority is world class customer service, we're not going to compromise that we then look at the savings what we've signed up for to date and the then the pass throughs et cetera, that's hard wired what we intend to do on what Bill explained I think in his prepared remarks is we will now step back with the adjusted volume that'll be.
Again, you know our FY 'twenty three with the loss of C. S. L. U S. P. C S to supply agreement when we look at that we'll figure out what OE T needs to become as a result of it and as you said.
This is the team through complexity reduction through OE P through the cost management during the pandemic that's demonstrated their commitment to being good stewards of financially and we're going to continue to do so here, but we're not going to do it in a way that's going to compromise our leadership position in the markets, where we compete.
Absolutely Okay, great fair enough I appreciate the color. Thanks, so much.
Thanks.
Thank you. Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.
Yes. Thanks.
So with regard to the next upgrades, you're saying you expect those to be completed by mid <unk>.
I think fiscal 'twenty, three and if so is that right and then what is what is your expectation around the persona is that going to be kind of beyond that.
Another upgrade on top of Nexus I assume.
Yeah, Mike do you have it exactly right. It's mid 'twenty three the fiscal 'twenty three and.
The persona of discussions are going great, where we're having those in parallel I think different customers, who will view the up.
Great for showing up differently on the series of.
The clarifications tests et cetera, given the the magnitude of the change for them. So we're working our way through that what's reflected on our guidance as the contracts, we've already reached and as we get closure and pull some of the additional opportunity and we'll we'll communicate the.
Through our guidance accordingly.
Okay. Thanks, and then.
You know I don't know if you know the answer to this but just with regard to the stimulus the stimulus program I mean, there's the cash payments, but there's also the extended unemployment that I think it goes through September. So do you have a feel for whether it's the just the the cash we have one time stimulus payments versus the added unemployment paint.
Payments that have caused the.
Pressure on the collection volumes and because of it is the unemployment I mean, we're looking at like September timeframe, but if it was the the stimulus then could occur earlier, maybe that's why you're the guy so wide and you're uncertain about the timing.
Yeah, Mike it's.
That is the driver of the 15 to 25 per cent range on on our guidance for growth in revenue on plasma and it's really a function of when does that kick in and you are right. There are multiple components of this whether we're looking at the federal dollars or the state dollars, whether we're talking about one time payments, whether we're talking about.
The the weekly unemployment additional subsidies, there's even the provisions for for tax credit to get factored in beginning mid year calendar year. So it's a complicated a confluence of different factors. We've worked hard to model that we're having conversations obviously with.
Our customers about that to understand their perspective, and how much of that is reflected in the forecast they submit to us.
You know at the end of the day of what we're trying to get to is what is disposable income what is household savings rates net of all of this and I think we had some good learnings from the past year and you know while I think we struggled to be precise in the forecasting of it in both directions candidly.
You know I think we've learned a bunch and that's that's reflected in the range that we put forth.
Okay. Thanks, and then I just had one clarification question on the <unk> Pcs two tech enhancement pricing issue can you maybe elaborate on the little I didn't understand what that was it sounds like it's some sort of headwind on pricing on the legacy piece, yes, two units or something.
Yeah, there is a it's a legacy agreement.
The long days of agreement that was sunset here, just recently and it's just the change to the there was an enhancement we made we got price for it at the time years ago. It was the time bound agreement on on the agreement expired.
Okay, and that's without the all of the customers are just one customer it was with one customer.
Got it thanks.
Thank you of our next question comes from drew Ranieri with Morgan Stanley. Your line is open.
Hi, Chris So you've talked before about your focus on the M&A to really diversify the portfolio of you've also completed several divestitures strategic because it just got out of lower growth lower margin businesses. So as you kind of look ahead and I know, there's still a lot of unknowns here, but do you feel more compelled the pruning the portfolio.
And greater magnitude just give yourself, maybe more flexibility or to drive further growth of profitability enhancements.
Yeah, Joe appreciate the question, but from our vantage 0.1 level. This doesn't change anything right. We are focused on growth organic inorganic shareholder.
The value creation of long term, we still have aspects of this portfolio that are probably not part of the future of this company and intelligently and thoughtfully when we can do so.
Transactions other value, creating will address that right in the interim we are highly focused on delivering full value for our customers across all of our customer base. So I'm I'm impressed and pleased by what the team was able to get done this year. The divestitures that we called out in terms of very antiquated software.
U S blood center of donor market.
It was very isolated for Europe.
We are highly committed for software as a growth lever for the company as our customers demand it.
It was for those programs.
Just not that right, they're very antiquated I think similarly, the divestiture of the Fahad on manufacturing facility for whole blood filters, we were able to transition that to a world class supplier, who will do great things of this and we got back on operating agility in our manufacturing network. We will continue to look for those type of opportunities for sure.
In terms of the acquisitions, we've been busy right and you've done a bunch of things, culminating in part D of up there.
There was a discussion earlier about car D button.
Think could potentially get lost in all of this because of our reporting.
We are very pleased with the the work so far to integrate and assimilate right. We closed the transaction in March and we have been full steam ahead, we've gone out of our way to avoid any disruption to that business and the the results we've seen through the first three months of the year.
Clearly are evidence of that the this is an exciting opportunity. It's a jolt of energy not only to the card D. The team, but also to our own our hospital business unit and I think you're seeing that in our results in terms of the pace of recovery and the growth there and so on electrophysiology of intervention cardiology.
Exciting growth segments for us.
We really like our chances of what's happening with the Bascay portfolio.
Kind of think of it and actually on the topic just just touching on your outlook for Carter vivo for fiscal 2022, I see your guidance of $65 million to $75 million.
I know you mentioned that they did about 8 million in mid March given your financials, but I'm just kind of one of better understand kind of the run rate. There I mean, it sounds like its over $20 million quarterly run rate. So you can just help us better understand that in the context of your $65 million to $75 million on the guidance.
And that is fiscal 'twenty, two or is it more focused on kind of going deeper in existing accounts with the part D. The or are you thinking more of commercialization of across a broader account that is just getting trying to get a better sense of the commercial investments and as the year. Thank you sure I understand the question the from our vantage point right.
He spent a lot of time and diligence we put together, what we think of a very.
Robust deal model of 65 to 75 is the direct take from that and it's early days. We're excited by what we see we understand you know if you annualize that the March number you would get to a different place we're not ready to do that yet right. This is a this is a rapidly growing product of grew 50% year over.
A year last year under car D of his leadership and.
And you know we need to spend a little bit more time with them to truly understand the forecast and the growth potential as we learn more we'll share more and the snoopy adjust accordingly.
What we're seeing the.
Primary benefit is twofold. We are of that team is hyper focused on driving penetration in the top 600 U S based intervention of cardiology in electrophysiology hospitals, right and this in the back and forth around us and geographic expansion, but the bottom line is that that team is.
Executing on.
And a very powerful way against the opportunity of its right in front of it and when we see a lot of excitement there in parallel.
We are looking for opportunities to augment that and Paul aspects of the plan forward for that presents itself. That's something we're going to be talking about more on the coming months across our entire portfolio in part with the in response to changes in the plasma landscape. So we will seek out opportunities to do more and to do it sooner and.
Or leave it won't be a place that we look for that type of opportunity, but what we're excited about is what they're doing with the resources. They have we think we can do more with additional resources. What you don't see in the results, but it is equally important for the investments that our combined teams are making clinically and more broadly to build out of footprint and a potential outside.
The U S. So I think that will come to fruition when we have a chance to sit down and talk more broadly about the portfolio will provide additional clarity on the resolve of diligence and the only worked together for the car T, but the name, but it's exciting we're.
The have them on board and deliver on accordingly.
Thanks for taking the questions.
Thank you. Our next question is some of them Anthony the channel with Jefferies. Your line is open.
Thanks, just a couple of quick follow ups on on cadence and plasma the.
First would be just go on on CSL. They have the one year option extension.
The June 23 in the China.
You know kind of run through that scenario, one would they have to sort of indicate to the company that they would have to sign on for that and maybe what of your thoughts on the probability that the re signed for 23 of them in the last one on on persona. It sounds like discussions are ongoing I mean, when we think about.
Upgrade the persona and timing is there the potential for any in fiscal 'twenty. Two do you or do you think that say beyond fiscal 'twenty three of them. Thanks again.
Yeah. Thanks, Anthony in terms of the agreement with CSL, we communicated a lot about that so I'll stay on that because we have spoken about the agreement has one additional extension that is lets see ourselves discretion, they wouldn't need to notify us in writing by the 30 <unk> of December of this.
This year, if they intend to go beyond June of next year.
And they have one more of those extension periods of available in terms of the likelihood of that that's the question best director of its yeah. So.
In terms of persona, we have included a handful of signed agreements and planned rollout some of which have already happened some of which will happen over the course of the year.
We are obviously in discussion with them, but we are.
We're in discussions with others and we would be obviously, we'd be excited.
To pull those forward in some cases, it's very straightforward and other cases, there's important underlying science in terms of handling of bottle that is the third larger understanding the implications for fractionation given the the higher yields and testing, which we've done but what the customers need to do because of their fractionally.
Fractionation.
Formula with regards to the higher you know what what is the protein concentration we are working collaboratively on our customers through all of that the pace of it makes it a little difficult to predict but as as we reached closure on those and pull them in.
Some of which we would hope will happen in FY 'twenty, two that's what pushes us towards the upside of our guidance and if it goes beyond that with the talks about that for them.
Thank you.
Thank you and I'm currently showing no further questions. At this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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