Q2 2022 Haemonetics Corp Earnings Call
Good morning, ladies and gentlemen, thank you for standing by and welcome to the second quarter 2022.
<unk> Corporation earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a Q&A session to ask a question. During this session you will need to press. The Star then the one key on your Touchtone telephone.
Please be advised that today's conference maybe recorded if you recall our assistance. Please press Star then zero.
I would now like to hand, the conference over to your speaker host today, Olga Guyette director of Investor Relations. Please go ahead.
Thank you good morning, everyone. Thank you for joining us for <unk> second quarter fiscal 'twenty two conference call and webcast I'm joined today by Chris Simon Our CEO and Bill Burke our CFO.
This morning, we posted our second quarter fiscal 'twenty results to our Investor Relations website, along with our updated fiscal 'twenty guidance analytical tables with information that we'll refer to on this call.
Additionally, we provided a complete P&L balance sheet summary statement of cash flows 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 this product line acquisitions and divestitures and the impact of the 50 <unk> week in fiscal 'twenty one.
As in the past, we'll refer to non-GAAP financial measures throughout this call to help investors understand <unk> ongoing business performance.
Please note that these measures exclude certain charges in income items.
Please refer to this morning's earnings release for details on excluded items, including comparisons with the same periods in fiscal 'twenty, one and a reconciliation to GAAP results.
Our remarks today include forward looking statements and our actual results may differ materially from the anticipated results.
<unk> cautions that these forward looking statements are subject to risks and uncertainties, including the potential impact from the 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 do not undertake any obligation to update these forward looking statements.
And now I'd like to turn it over to Chris.
Thank you al good morning, everyone and welcome.
Before we discuss our second quarter results I'd like to begin with the news we announced this morning that Bill Burke has decided to retire from <unk> effective next summer.
Bill joined the company in August 2016, and has been a valuable advisor and partner to me while building human Ethics World Class Finance team.
We have directed strategic financial initiatives, enabling us to best leverage our resources for investments in the people products and processes that drove our turnaround.
In our fueling our long term growth.
I am grateful to Bill will continue to serve as CFO through the remainder of this year as we conduct a search for his successor.
He has also agreed to work closely with his successor and the finance team to affect the seamless transition.
I offer bill my sincere appreciation for his many contributions to our company.
Now on to the second quarter results.
Today, we reported organic revenue growth of 5% for our second quarter of fiscal 'twenty, two and adjusted earnings per share of <unk> 60.
Down two or 3% compared to the second quarter of the prior year.
Our performance in the quarter reflects revenue growth across all of our business units. We are encouraged by our overall positive first half fiscal 'twenty two results and the momentum we have built moving forward.
Yes.
We are enthusiastic about our success so far our teams are demonstrating strength and resiliency and we anticipate robust growth through the second half of our fiscal year, we are advancing our market leadership by driving significant value for donors collectors patients and physicians around the world, we see clear evidence of upturn in our key.
<unk>, including meaningful increases in plasma collections growth in demand for our hospital products and the performance of our blood Center for research business. However, based on the initial lag in recovery of our U S sourced plasma collections, we have reassessed our expectations and now forecast total company organic revenue growth.
Up 7% to 10%. In addition, due to uncertainties about inflationary pressures in our global supply chain, we have updated our fiscal 'twenty two adjusted earnings per diluted share guidance to $2 40 to $2 65.
Let's discuss the business units.
Plasma revenue increased 7% both in the second quarter and year to date we.
We saw important signs of recovery on a sequential basis, but the COVID-19 pandemic and associated government subsidies continued to have a dampening effect on the U S sourced owner plasma pool.
North American disposable revenue increased 10% in the second quarter, driven by a 20% improvement in U S collection volumes compared to the prior year as we observed meaningful recovery from the pandemic similar.
Similarly U S collection volumes grew 14% sequentially in the second quarter significantly outpacing the historic industry average seasonal improvement of 8%.
This represented our first quarter of sequential collection volume growth since the most recent U S government stimulus programs were implemented in late calendar 2020, and early 2021.
The improvement in collection volumes was partially offset by price adjustments, including the exploration of fixed term pricing on historical Tcs to technology. These price adjustments will annualize during the fourth quarter of fiscal 2002.
Collection Center conversions remain on track, we will complete the upgrade of our customers to the latest version of next linked Dms software later this year and transition of our major customers to Nexus PCF devices by mid fiscal 'twenty three.
Our nexus platform with its yes, and persona protocols is a powerful tool to help our plasma customers increase yield per collection ensure continued safety quality and compliance enhanced collection center productivity and provide solutions to help retain donors. We continue to receive positive feedback from Nexus.
Customers, who value the connectivity increased speed compliance and donor satisfaction.
Early adopters of our persona technology are benefiting from an additional 9% to 12% plasma yield per donation.
We anticipate additional persona conversions over the second half of fiscal 'twenty, two as our customers strive to further increase U S collection volumes to replenish depleted inventories.
The improvement in U S collections during the second quarter. Despite the continued impact of the pandemic and associated government subsidies provides evidence of recovery and momentum as we head into the second half of the year.
We expect continued improvements in U S collection volumes during the third quarter driven by the exploration of remaining economic stimulus programs. The normalization of income and savings rates and increased spending generally associated with the holiday season. This is consistent with the trends we observed in the third quarter of fiscal 'twenty one.
We continue to expect U S collection volumes will return to pre pandemic levels and grow from there. However, there is uncertainty around the timing and pace of the rate of collection volume recovery in the second half of the year, even small shifts in this timing could have a meaningful impact on our fiscal 'twenty two plasma organic revenue growth.
Therefore, while we continue to assume significant and accelerated U S collection volume recovery in the second half of fiscal 'twenty two.
We're lowering our plasma organic revenue growth guidance to 10% to 20%.
The high end of our revised revenue guidance aligns with the midpoint of our previous guidance range of 15% to 25% and assumes a significant increase in collection volume considerably higher than the 20% growth rate, we observed in the second quarter.
This trajectory assumes U S collection volumes will return to pre pandemic levels by late Q3 and continue into Q4.
The low end of our revised guidance range also assumes that second half U S collection volumes will still grow considerably but the rate of increase will be more consistent with the 20% growth. We observed in the second quarter at this lower trajectory U S collection volumes will not fully recover to pre pandemic levels before the end of fiscal 'twenty two.
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As collection volumes recover and fractionated replenished depleted plasma inventories, we are well positioned in a resilient end market at a macro level. We continue to view the impact of the pandemic is temporary the underlying demand for plasma derived medicines is strong and our customers continue to expand their collection and fractionation.
Abilities and invest in R&D.
As the industry recovers from the pandemic, we expect U S sourced plasma collections to return to 8% to 10% long term growth and we see potential to grow in excess of that as customers strive to replenish depleted inventories we are fully ready to support this growth.
Moving to hospital revenue increased 10% in the second quarter and 18% year to date, primarily due to continued improvements in hospital procedures driving increased utilization of disposables strong capital sales in North America, and new business opportunities in Europe.
During the first half of the second quarter, we saw procedure volumes normalize across most geographies with some headwinds in the second half of the quarter from the onset of the Delta variant, particularly in North America.
As the number of Covid related hospitalizations subsided, we saw additional recovery starting in mid September.
Emma Stasis management revenue grew 21% in the second quarter and 26% year to date driven by growth in utilization of our products and strong capital sales as we continued to penetrate underserved so elastic testing markets.
North America, our largest market led the charge and the adoption of our TEG success devices and increased utilization of cartridges benefiting from a second consecutive quarter of record capital sales.
We also continued to benefit from increased market share in Europe with strong sales from both TEG success and grow.
Cell salvage revenue declined 5% in the quarter as the Delta variant negatively impacted procedure volumes in the U S and Japan for part of the second quarter.
<unk> and capital both contributed equally to the decline with capital being partially due to customer order timing following two consecutive quarters of strong growth self.
Cell salvage revenue grew 9% year to date driven by recovery in procedure volumes and strong capital sales as we continue to update our latest technology.
Transfusion management revenue grew 5% in the quarter, primarily due to strong blood track growth in the UK.
8% year to date, driven by strong first quarter growth in both blood track and safe trace TX as we completed a series of new account installations in the U S. We.
We reaffirm our guidance for 15% to 20% organic revenue growth in hospital, including mid twenties Hemostasis management organic revenue growth.
This growth rate is consistent with the recovery trajectory of hospital procedures, we observed prior to the onset of the Delta variant and assumes that procedures across all geographies will be fully recovered by the end of fiscal 'twenty two.
Our recently acquired vascular closure business delivered $21 million of revenue in the second quarter and $43 million year to date doubling its revenue compared to the equivalent six month period last year.
Both Vasco products delivered meaningful results through accelerated penetration into new accounts and increased utilization within existing accounts.
Early in the quarter, we experienced the seasonal dip in elective procedures, coupled with the impact of the Delta Varian on electrophysiology and interventional cardiology procedures.
As the impact of COVID-19 began to subside, we saw noticeable improvement in procedure volumes that we expect will continue through the second half of the year. This growth will be further aided by basket MVP, earning the first ever FDA indication for same day discharge for atrial fibrillation ablation.
Procedure volume recovery higher.
Joseph rates increased hospital efficiency and an overall move to standard of care facilitated by the same day discharge indication give us greater confidence in the trajectory of that scale and we are increasing our fiscal 'twenty two guidance range to $80 million to $90 million.
Our hospital business is becoming an increasingly significant driver of our success through the strength of our diverse portfolio and our innovation agenda, we are improving patient outcomes and hospital economics.
<unk> focus on improving the standard of care has never been more critical.
Blood Center revenue increased 2% in the quarter and declined 2% year to date.
<unk> revenue grew 7% in the quarter and 2% year to date growth in <unk> in both periods was driven by a full recovery of platelet collections in Japan.
Partially offset by a reduction in plasma collections due to a prolonged COVID-19 related state of emergency. Additionally, our second quarter <unk> growth benefited from winning several new tenders in EMEA.
Which resulted in a series of initial capital device and disposal sales.
Whole blood revenue declined 11% in the quarter and 12% year to date, driven by lower than usual procedure volumes due to COVID-19, and previously discontinued customer contracts in North America.
The recovery of platelet collections in Japan, coupled with the addition of the new tenders in EMEA demonstrate the continued resiliency of our blood Center <unk> business.
Given this outperformance in the first half.
We are increasing our fiscal 'twenty two organic revenue guidance for the blood center business to a decline of 3% to 5%.
Now I'll turn the call over to Bill.
Thank you, Chris and good morning, everyone. Chris has already discussed revenue so.
I will begin with adjusted gross margin, which was 52, 6% in the second quarter at.
An increase of 40 basis points compared with the second quarter of the prior year.
Adjusted gross margin year to date was 53, 6% an increase of 380 basis points compared with the first half of the prior year.
Our adjusted gross margin benefited from the addition of our basket vascular closure business continued growth savings from our operational excellence program and favorable mix from the remaining product portfolio as that business continues to recover from the effects of the pandemic.
These benefits were partially offset by inflationary pressures in our global supply chain.
Including freight costs.
Divestitures and price adjustments. Additionally, the sequential decline in adjusted gross margin of 210 basis points in the second quarter.
It was primarily driven by inflationary pressures in our global supply chain, including freight costs.
Adjusted operating expenses in the second quarter were $82 4 million, an increase of $16 million or 24% when compared with the prior year.
As a percent of revenue adjusted operating expenses increased by 260 basis points and we are at 34, 3%.
Adjusted operating expenses in the first half were $169 5 million an increase of 39.3.
$3 million or about 30% compared with the first half of the prior year.
The acquisition of our basket vascular closure business had the largest impact on the increase in adjusted operating expenses.
Also affecting the increase were increases in freight costs and higher research and development expenses as we broaden our project portfolio to strengthen our technology.
Our second quarter adjusted operating income was $43 8 million, an increase of about $1 million or 2%.
In the first half adjusted operating income was $81 7 million, an increase of $10 2 million or 14% compared with the same periods in fiscal 'twenty one.
The increase in adjusted operating income in both periods was driven by the improvement in adjusted gross margin, partially offset by higher adjusted operating expenses.
Our adjusted operating margin was 18, 3% in the second quarter and 17, 4% in the first half representing decreases of 220 basis points and 20 basis points, respectively, compared with the same periods in fiscal 'twenty one.
Although our business continues to recover from the pandemic and we continue to generate additional savings through the operational excellence program.
We expect the inflationary pressures, we have experienced in our global supply chain to continue at least through the remainder of fiscal 'twenty two.
Accordingly, we are revising our adjusted operating margin guidance downward to fiscal 'twenty, two by 100 basis points to be in the range of 18% to 19%.
Our adjusted income tax rate in fiscal 'twenty, two was 22% in the second quarter and 23% in the first half compared with 19% and 13% in the same periods of fiscal 'twenty one.
The adjusted income tax rate in both the first quarter and second half of fiscal 'twenty, one was abnormally low to reap benefit of higher share vesting and option exercises.
Still expect our fiscal 'twenty, two adjusted tax rate to be 22%.
Second quarter, adjusted net income was $30 $7 million down about $1 million or 3% and adjusted earnings per diluted share was <unk> 60 down.
Down, 3% when compared with the second quarter of fiscal 'twenty one.
In the first half adjusted net income was $56 1 million.
Up about $1 million or 1% and adjusted earnings per diluted share was $1 nine up 1% when compared with the first half of fiscal 'twenty one.
The adjusted income tax rate in the first half of fiscal 'twenty two had a 15 downward impact on adjusted earnings per diluted share when compared with the prior year.
Our vast Gabe vascular closure business is exceeding our original expectations and we expect this business to be accretive to adjusted earnings per diluted share in fiscal 'twenty, two an improvement over our original excellent expectation of 15% to 20 dilution in the first year following the acquisition.
We expect this over performance will be driven by stronger commercial execution and improved capital structure when compared with the original deal model and will allow us to generate additional resources to fund growth investments across the company.
As we announced last quarter, we extended our operational Excellence program. This plan was launched two years ago to amplify efficiency improved product and service quality and transform the way, we make and deliver products. We continue to successfully achieve ongoing savings across the program demonstrating the organizations.
Commitment and resiliency.
We continue to expect total gross savings of $115 million to $125 million from the operational excellence program and we continue to anticipate approximately $33 million of gross savings in fiscal 'twenty two.
Additionally, we continue to expect to incur 95 million to $105 million and restructuring and restructuring related costs over the course of this program.
In the calculation of net savings in our operational Excellence program, we have included investments and inflationary pressures.
With the escalation of abnormally high inflationary pressures in our global supply chain. We now expect no operating income benefit this year.
We will update the total programs net savings when we provide guidance in fiscal 'twenty three.
The delay in the anticipated timing of recovery of plasma collection volumes combined with the inflationary pressures in our global supply chain are significant enough to revise our fiscal 'twenty two adjusted earnings per diluted share guidance to a range of $2 40 to $2 65.
<unk> to our previous guidance range of $2 60 to $3.
Cash on hand at the end of the second quarter was $192 million essentially flat since the beginning of fiscal of the fiscal year free cash flow before restructuring and restructuring related cost was $31 million.
Compared with $38 million in the first half of the prior year.
The lower free cash flow before restructuring and restructuring related costs in fiscal 'twenty. Two was due to higher accounts receivable as our revenue continues to recover from the pandemic.
And higher capital expenses, primarily related to the operational excellence program par.
Partially offset by lower inventory growth.
We have revised our fiscal 'twenty two guidance of free cash flow before restructuring and restructuring related costs to a range of $115 million to $135 million.
Compared with our prior guidance range of $135 million to a $155 million.
The lower guidance for free cash flow before restructuring and restructuring related cost is entirely due to the lowering of our adjusted earnings per diluted share guidance.
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.
Our second quarter and first half results showed continued recovery across our businesses. This improvement demonstrates the strength of.
The underlying demand for our products and services.
We continue to see an encouraging recovery in plasma collection volumes, although the pace of recovery is different than our original projections with lingering effects from the pandemic.
Plasma collection volume recovery was and continues to be the largest variable included within our guidance. We remain optimistic that a full recovery is underway and we believe there are no structural changes in the underlying market.
Our hospital business continues to grow double digits led by more than 20% growth in hemostasis. Despite challenges from their surgeons of COVID-19 in the quarter.
Vascular closure continues to excel on the strength of our market position and the opportunity created by higher diagnosis rates increased heart hospital efficiency and an overall move to standard of care.
The business is exceeding our expectations with strong revenue growth and increased leverage and is accretive to adjusted earnings per diluted share.
The implementation of our operational excellence program is continuing to reduce our cost base and is critical to help mitigate the impact of inflationary pressures in our global supply chain, particularly freight.
Lastly, our teams continue to work diligently on updating our long range plan and we're looking forward to sharing it at our virtual Investor day early next year.
Thank you and now I would like to turn the call back to the operator for Q&A.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone to withdraw your question press the pound key.
The standby, while we compile the Q&A Alaska.
Our first question coming from the line of Anthony Petrone with Jefferies. Your line is now open.
Thank you and good morning, everyone and good luck Bill as you transition into retirement.
To kick off with a few questions on plasma and guidance.
Maybe Chris Senator Bill kind of walk us through how the quarter progressed in particular.
Particularly it looked as if earlier in the quarter there were signs of.
A more sort of protracted plasma reversal improvements earlier in the quarter, which kind of gateway to some pressures towards the end of the quarter.
So maybe just a little bit on where the specific pressures, whereas the quarter evolved was it border centers was it just delta can shrink specifically.
We've been hearing a lot about hospital staffing shortages was that at play at the plasma centers in the United States. So maybe just a little bit on the ebbs and flows of the quarter and I'll have a couple of follow ups.
Anthony It's Chris Thanks for the question.
With regards to the progression right we are in the midst of recovery.
Remain optimistic about the overall recovery I think theres ongoing questions is that we will continue to be around pace and timing and candidly from our original forecast probably one to two months off of that in terms of gaining that trajectory.
I'll just take you back because we have put a bunch of numbers out.
Try to clarify where we are.
We reported 14% growth in the first quarter.
When we did our earnings call in August you said that through the month of July we had actually we're closer to 20% growth and then.
I spoke.
At Morgan Stanley Conference in September and said actually entering up towards the mid twenties.
Over the course of the remainder of the quarter. We came in as you saw from our results today at 20%, which as you head into third quarter third quarter last year, we experienced meaningful growth and we are forecasting that we all experienced meaningful growth again, this third quarter historically the business.
Ticks up on average across the industry, 3% to 5%, we did well in excess of that last year, we expect to do well in excess of that again this year, the revised guidance range of 10% to 20% on.
On the low end.
Our prepared remarks contemplates continued 20% growth very consistent with where we were in the second quarter. The high end of the range would be nearly double that at 35% and where we are today and I think lesson learned about the jump in this in this data.
We're well within that range and we feel.
And in our revised guidance as best we can given what you said, we don't control the southern border. We don't control. The Delta variant, we are working hand in hand, with our customers to make sure. The centers are fully operational that they are safe and perceived to be and I think the industry collectively has done.
Yeoman's work to drive this recovery if.
If we see the higher end of our range will be back to pre pandemic levels by our fiscal year end on the low end of the range that will carry on into FY 'twenty, but the recovery is underway. We're confident there's nothing different structurally or longer term and in fact and as I said in the prepared remarks.
As we get out ahead of this.
The opportunity to grow in excess of the 8% to 10% historical average.
In front of us and we're ready to support that given the need to replenish depleted inventories.
Just a couple of follow ups there on the outlook.
And then just safety stock levels industry wide on the outlook now plus 10% to 20% revised for plasma one of the larger fractionator as recently came out and guided plus 15% to 25, which was in line with the prior guide.
So maybe just a little bit of reconciliation there and then secondly, when you look at sort of safety stock levels I know, it's hard to to sort of.
Look beyond reported financials, but but anything you can glean as to where.
Industry wide safety stock level set heading into the back end of this year.
And of course, if they are running low that would sort of point to a need to over collect as you mentioned I'll get back in queue. Thanks.
Yes, Thanks, Anthony So as you know we won't comment on individual customers the numbers can move around a bit folks report.
They have different fiscal periods than we do which our stores you know through March 31, if someone's looking at a calendar year or mid year, it's going to be different and.
We recognize and respect that I think.
Our collectors do have other sources of plasma some of them are picking up third party plasma et cetera. So there can be reasons why the individual forecasts are going to differ from our vantage point as we said recovery is underway and we feel good about it the lag candidly was more in the summer months and maybe a one to two.
Two month delay in the trajectory that the industry is now achieving and so from our vantage point, we just have to call up based on what we saw this past summer and where we see it going forward, 10% to 20% is still robust growth and we feel confident that collectively we can deliver on that.
In terms of the inventory levels that our customers maintain a frozen plasma.
It's less than transparent and it's complicated they've done a bunch of things to expedite the release of that inventory, it's certainly had to manage and market demand.
For different indications and different formulations.
Have a lot of visibility into that we track it closely and it's one of the reasons that we're bullish that as the recovery accelerates that they'll continue to accelerate certainly beyond.
Getting us back to prior levels, because there is a need as we did probably in the three years in the run up to the pandemic to help the industry build volume.
Plasma volume storage so.
We're there we're looking forward to support it and just a question of the exact timing and pace from where we sit.
Thank you.
And our next question coming from the line of Andrew Cooper with Raymond James Your line is open.
Hi, everybody. Thanks for the questions, maybe just to follow up with one more on the plasma trajectory I know you sort of alluded to it but can you give us a little bit more specifics flavor for what you've seen through October and sort of where the growth sits today is it still consistent with that 28% or has it picked up a little bit as we move.
Beyond sort of the worst of the worst of the pandemic.
Yes, thanks for that Calvin I should say.
Yes.
Thanks for the question.
As it pertains to the Delta variant and what we're seeing on the ground in centers.
In part enabled by some of our digital applications and centers are safe and fully operational and it's been quite impressive to watch what our customers have been able to do to make it a good and rewarding donor experience. So in that regard we feel quite confident that collectively as an industry, we can manage through.
The pandemic as it migrates from becomes an endemic going forward presumably.
In terms of where we are obviously the data jumps around a bunch we know.
We see a historical 3% to 5% increase in the third quarter, that's a combination of.
Everybody being back at school gearing up for the holiday spend and some other seasonal effects.
Last year, we grew well in excess of that we anticipate in the 10% to 20% guide fully anticipates that.
We're going to grow well in excess of that we're a month into the quarter I don't want to get in the habit of kind of drilling down in the weeklies, because they've just too noisy, but we feel quite confident with the guide that we've given that from what we're seeing quarter to date we're.
Well within the range and therefore kind of okay with what we're putting forth.
Okay, Great I appreciate that and then maybe just on sort of some of the inflationary items can you give us a little bit more flavor for maybe what sprague select it shouldnt be a kind of later, but that's something we've heard a lot of folks talk about so how do we think about those two or are some of the other inputs and then whether in fiscal 'twenty, two or longer term any ability.
To start passing through some of those inflationary items to the customers or how else can you offset some of those items.
Bill you want to take a run at that.
Sure.
Hi, Andrew on the inflationary pressures.
Most of the pressures that we're seeing are freight related specifically later in the.
Second quarter.
Everybody has seen the news right we started to really see that those those freight costs go up but in addition, we are seeing slightly higher raw material costs too and that goes back even into our first quarter.
We don't in our guidance, we haven't anticipated that any of those costs will will bounce back right. We just are expecting a pretty pretty much a steady state rate through the end of this.
Full year.
And then on the second part of your question regarding the pass through of costs to customers.
I think it's just a wait and see right now we have our eye on it and it's something where we're looking at but.
I think we're just going to have to wait longer term to see what happens in regards to the cost coming down.
Back to normal.
Yes, hi, guys.
Thanks, everybody.
Sorry, if I can build on that Phil what I would say is one of the things that we are proud of and I think we've had.
A lot of.
Recognition from our customers is business continuity.
Our own employee safety and health, which is a requirement for that so we've worked very hard to keep all of our manufacturing and distribution sites fully operational.
There's been lots of challenges we've had to rejigger the international freight piece as bill highlighted.
In particular, a real headwind for us, but the reality is.
We have been able to maintain business continuity throughout and I think as we get into the winter and spring, we're having the right conversations with customers to make sure that we can ensure that our contracts are long term contracts both on the hospital side and with our collectors, but we'll continue to explore what's fair and equitable.
And in terms of what we're putting forth.
Great. Thanks again.
And our next question coming from the line of two <unk> with Morgan Stanley. Your line is open.
Hi, Thanks for taking the questions.
Sorry to go back to guidance and plasma here.
But just when we when we look at the low end high end, Chris I hear Youre your remarks, but just we're still in kind of an uncertain environment. So can you just give us.
A little bit more color on what youre seeing at the ground level at centers and really your confidence that you are able to achieve maybe at least the lower end of the guidance just maybe help US better. Appreciate how you are building up that lower end in terms of volume and pricing trends.
And then you did call out the southern border issue I know, you've previously mentioned that maybe it was like a 100 basis points.
Wind, but has that changed at all in terms of your thinking guidance. Thank you.
Yes. Thanks for the question Joe So as it plays out volume and pricing do work together here, which we've talked about the price challenges through the first part of the year. Some of those were associated with legacy Tcf's two agreements.
Things that have expired. We also have the fact that we have volumetric pricing in.
Some cases, where the utilization was down.
Challenges there so the good news is this works together, what we've guided for.
<unk> on the low end of the range that we build on the performance we've already achieved year to date in particular the 20%.
Year over year growth in the second quarter and that we continue upon that trajectory. It gets harder for sure. The third quarter last year was a meaningful uptick well beyond that 3% to 5% historical the same factors apply this year. We saw the end of the majority of the federal stimulus programs.
Back at the end of the summer kind of August into September we've had a similar dynamic here this year and we track closely savings rate in household income.
Numbers correspond with what we observed.
Last year at this time so.
There can certainly be challenges associated with your variance and we don't foresee additional stimulus there are some lingering programs.
It could have an effect, but the majority of it.
<unk> closely to what we observed previously and that gives us more confidence in this environment forecasting forward.
Where I think we see this also is the continued pressure on our customers they've done their part.
<unk> remuneration levels, they've opened new centers and they continue to invest longer term in fractionation in R&D, which gives us confidence.
Second half is no small feat from where we sit but you revise the guidance with the level of confidence that we'll deliver in that range.
Got it and then just.
Kind of the other topics.
In med tech with staffing shortages that hospitals can you give a little bit more detail on what youre seeing or what you saw in the quarter.
And how thats embedded in your guidance I mean to the vascular closure business I think continues to be a bit above our expectations, but maybe how staffing shortages could relate to that business. Thank you.
Yes, Thanks, Joe.
We compete in four distinct segments in the hospital space and.
Transfusion management business is largely a software business, it's largely a subscription revenue unaffected by this right there's a.
A little bit of movement in terms of how fast we can do installations, our teams have been creative and resilient and figure out how to take a hospital live on our software with minimally.
Minimal time on site. So no affects their cell salvage was down a bit in the quarter due to the delta variant.
Due to staffing shortage, but largely due to the delta variant.
As procedure volumes recovered the performance recovered and we feel good about that going forward. The two leading pillars of growth for us in hospital tag and escape are doing well and have not been effective.
By staffing shortages, where we see that in other sectors for sure I hear a lot about reconstructive orthopedics. For example, we're not in that space right and the name. So what we're seeing in cardiology in cardiac surgery and trauma.
Has been unaffected by staffing shortages Delta variant matters in some cases, it's a positive in other cases is the headwind.
Our physiology is we're getting to learn that space better is just more traditional seasonality and as I said in the prepared remarks.
We had a bit of a lull in the summer as everybody, including the practicing clinicians took some time off well deserved.
And then things came roaring back in September and we expect that momentum continues through the second half of the year, which was what gave us confidence to raise our guidance there.
Thanks for taking the questions.
And our next question coming from the line of Mike Matson with Needham <unk> Company. Your line is open.
Yes. Good morning, Thanks for taking my question.
I guess I'm still struggling to really understand what's going on with pricing in the plasma business.
I think you said.
The volumes were up I turned the call a little late but I think it was around 20% for the quarter, but your overall sales for the business organically. It was up about 7% is that right and 13% is that 13% all from pricing and what's driving that when will that kind of goes the other way.
Yeah, Mike I appreciate the question your numbers are right.
That's what we've put out I think the first and the largest factor is pricing is associated with legacy Tcf's two agreements. So none of this is around the new technology Nexus or persona, it's legacy Tcs twos and specifically as we've called out we had a.
Term bound agreement with one of our large customers that agreement.
At the end of that period.
And no longer continues that will annualize in our fourth quarter of this year.
There is also some effects on volume as I mentioned, just a moment ago that works against US has the volume recovers to point at 20% on the low end of the range that you just talked about we will get the benefit of that kind of passing through.
There's some smaller effects as it pertains to mix for liquids for example, where the spot buy last year in the quarter that didn't repeat obviously and that's a challenge to be pricing in Europe is different and as Europe ebbs and flows and part of our mix. It will be will be part of that but thats. They are the main factors. The good news is.
The annualized nation and the return of volume coupled with the benefit we are now receiving from the ongoing rollout of next link and Nexus and now as part of this continued rollout of persona all of which will be positive factors for us as the year progresses.
Okay. So it sounds like you had you have one large customer that you have.
<unk> had a contract with with some pricing locked in that that expired.
And then the new pricing you are getting from them is substantially lower.
Am I understanding that right.
Priced up to develop a piece of it the time, which was proprietary technology. There was a five year limit on it this contract predates Phil and I. It was a long lived thing it expired a year ago, when we kind of work through the comp that expiry.
And the pricing step down significantly after that fixed five year period was up effectively okay.
So that'll be a headwind through the end of 'twenty to fiscal 'twenty two.
Yes, okay.
Alright.
Then.
I guess the.
With regard to CSL.
Do you have any indication of whether or not they wanted to extend the contract by another year and when do you when would they have to notify you of that.
Yes, what we've communicated on CSL that agreement, which dates back to 2006 has one more.
Unilateral extension period, so if CSL chose to extend the contract beyond.
The 30 of June in 2022, they could extend that for one additional year.
It would need to notify us six months in advance of that of their intention to do so what we communicated last April was that they had come to us and said they were not going to extend beyond the current period.
And Theres been no change in that to date.
Okay got it.
My final question just on the freight costs so.
We've heard this from a lot of companies. So it's not surprising in that regard, but I was wondering if are your freight costs may be higher than normal.
Putting aside inflation.
Because of the Nexus upgrades I mean are you.
Having to ship around a lot a lot of these nexus units to the <unk>.
With vendors and things like that is that part of why it's hitting you harder maybe than some other companies.
Yes, I'll, let bill break it down for you but.
Our supply chain cost avoided any disruption.
Our factors the number one factor is international freight and yes, a large number of our devices. Both Nexus and TEG success are produced overseas and we need to get them to the U S is our largest market in both cases, that's expensive and we've taken steps to make sure. It will have the equipment here in the U S. When it is.
Anita so so thats part of the challenge there.
Another inflationary challenge are grappling with is resin.
Sure.
All of our plastic components and.
Particularly early.
In the year early in the pandemic earlier in the pandemic, we saw some real price increases we think we've managed through that but we're working through that inventory as we speak and Thats why youre seeing that pass through our P&L and waiting for us.
Okay got it thanks.
Thank you and I'm showing no further questions at this time, ladies and gentlemen that does conclude our conference for today. Thank you for your participation. You may now disconnect everyone have a great day.
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