Q1 2023 Haemonetics Corp Earnings Call

August 10, 2022

The conference will begin shortly.

As Johan during Q&A, you can dial star one one.

[music].

Good day and welcome to Hey, My Name's Corporation's first quarter fiscal 2023 earnings call. At this time, all participants are in listen only mode.

After the Speakers' presentation there'll be a question answer session. As a reminder, this call's being recorded.

I would like to turn the call over to Olga Guyette.

Your director of Investor Relations and Treasury you may begin.

Good morning, everyone. Thank you for joining us for human ethics first quarter fiscal 'twenty three conference call and webcast.

I'm joined today by Chris Simon, our CEO and James Director our CFO .

This morning, we posted our first quarter fiscal 'twenty results or Investor Relations website, along without Easter fiscal 'twenty, three guidance and 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 and strategic exits of product line.

As in the past, we'll refer to non-GAAP financial measures to help investors understand human that is ongoing.

Boardroom.

Please note that these measures exclude certain charges and income items.

Please refer to this mornings earnings release for details on excluded items, including comparisons with the same periods of fiscal 'twenty, two and a reconciliation to our GAAP results.

Our remarks today include forward looking statements and our actual results may differ materially from anticipated results.

Human genetics cautions that these forward looking statements are subject to risks and uncertainties, including the potential impacts from the pandemic on our results and other factors referenced in the Safe Harbor statement in our earnings release, and our filings with the SEC.

We do not undertake any obligation to update these forward looking statements.

Additionally, in order to protect customer confidentiality, but will not be able to discuss any customer specific detail, except as disclosed previously.

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

Thanks, Olga good morning, everyone and thank you for joining.

Today, we reported first quarter organic revenue growth of 17% and.

And adjusted earnings per diluted share of 58 cents, an increase of 16% compared to the first quarter of the prior year.

Building on our successful fourth quarter, our results affirm our strategy and updated long range plan for transformational growth.

We are accelerating our momentum to advance our market leadership and deliver robust revenue and adjusted EPS growth over the next several years.

Plasma recovery is underway.

The established leader in the $800 million source plasma collections market, we are confident in our ability to achieve substantial growth and increase our gross margins as we help collectors replenish their depleted inventories.

We are also investing in further advancements to distinguish our technologies and create new opportunities for customers.

Hospitals increasingly playing an outsized role in our growth.

Our products are helping hospitals raise the standard of care and improve health economics.

Vascular closure led the way with another record quarter as we strengthen our leadership in the attractive and growing electrophysiology and interventional cardiology markets.

Our work to build an agile and resilient global manufacturing and supply network enabled us to serve customers reliably without disruption.

During the first quarter, we completed the move to our new manufacturing center of excellence.

Linton, Pennsylvania.

Exemplifies our commitment to continuous innovation network optimization regionalization and business continuity.

And now onto our business unit results and guidance.

Plasma revenue increased 44% in the first quarter with 47% growth in North America, our largest market representing more than 90% of our total plasma revenue.

Revenue growth in North America was driven by meaningful contributions from both volume and price excluding CSL U S. Plasma collection volume grew 40% versus prior year, and 12% sequentially, which compares favorably to historical seasonal growth of about 6%.

This is the third consecutive quarter of non CSL volume growth meaningfully exceeding normal seasonality.

We saw robust growth in collections across most centers, including mature centers that have seen only limited recovery. Previously we also saw strong double digit collections growth in Europe this quarter.

Our technology plays an important role in enabling our customers to recruit and retain donors and improved plasma center operations to safely reduce collection costs.

We have the only fully integrated solution that addresses all of collectors critical needs, including our unique persona yield enhancing solution that is now delivering at scale in the U S.

Our distinctive value proposition is backed by real world evidence from tens of millions of plasma collections.

We're on track to transform transition the remainder of our U S customers to a fully integrated bidirectional Nexus platform by the end of our second quarter.

We continue to deliver new innovative solutions to extend the benefits of our platform. We are advancing our devices disposables and software to drive even higher plasma yield faster procedure and door to door time enhanced compliance and improved donor recruitment and satisfaction.

We are encouraged by our first quarter results and we are nearly doubling our full year plasma organic revenue growth guidance from 7% to 12% to 15% to 20% primarily due to the growth in volumes.

Moving to hospital revenue increased 15% in the first quarter, despite staffing shortages and budgetary constraints in U S hospitals and Lockdowns in China.

Vascular closure revenue grew 36% this quarter.

The business continues to outperform as we open new accounts and penetrate deeper into the top U S E T hospitals.

With its $2 $8 billion Tam vascular closure represents our largest hospital growth opportunity. We are pursuing this opportunity by accelerating our penetration in the U S pursuing regulatory approvals to drive international expansion and strengthening our product portfolio through both pipeline innovation and.

<unk> investments.

Hemostasis management revenue grew 6% in the first quarter.

North America, our largest market grew 11% due to increased utilization of our TEG technology and some benefits from pricing.

First quarter growth in Hemostasis management reflected a challenging comp, particularly in Europe , where we want a national tender and made shipments of capital and disposables for our <unk> Pro technology in the first quarter of fiscal 'twenty two.

Transfusion management revenue grew 21% in the quarter driven by continuous market share expansion in North America and execution of software and hardware installations that were postponed from the fourth quarter of last year.

Lastly cell salvage revenue was flat in the quarter, a strong disposable sales in EMEA helped overcome a tough comp in the U S driven by strong procedure recovery and capital upgrades in the first quarter of the prior year.

We are excited about hospitals performance and opportunities our fastest growing business will also become our largest business over the long range plan.

We're raising our full year hospital organic revenue growth guidance from 16% to 19% to 19% to 22% primarily due to continued strength in vascular closure.

<unk> Center revenue declined 7% in the first quarter <unk> revenue declined 13% due to unfavorable order timing lower revenue from convalescent plasma collection center staffing shortages in the U S and geopolitical risk.

Whole blood revenue grew 7% driven by favorable order timing among distributors in Asia Pacific and EMEA and additional opportunities in North America as our supply chain resilience enabled us to serve customers in need.

We are proud of the durability of our blood center business in the face of blood shortages and a difficult collections environment. We are updating our full year blood center organic revenue guidance from a 4% to 7% decline to a 2% to 5% decline.

The strength of our businesses now and over time due to our innovation pipeline, coupled with our resilience and productivity gains will generate robust revenue growth margin expansion and free cash flow successful execution of our plan is anticipated to drive a five fold increase in <unk>.

Capital capacity up to approximately $2 $1 billion by the end of fiscal 2026.

This will enable us to accelerate the rate of organic growth investments strengthen our portfolio through targeted M&A and return capital to our shareholders as appropriate.

This morning, we announced a new three year $300 million share repurchase authorization. This authorization will help offset shareholder dilution and is consistent with our value creation strategy to generate additional shareholder returns.

I'll now turn the call over to James to discuss the rest of our first quarter financial results and fiscal 2023 guidance.

Thanks.

Thank you, Chris and good morning, everyone.

Let's discuss our business results and additional updates to fiscal 'twenty three guidance.

Our results for the first quarter of fiscal 2003 show continued strength across the business starting with a new record adjusted gross margin of 55, 2%, which beat our previous record from the third quarter of the prior year and delivers additional adjusted gross margin expansion both.

Year on year and sequentially.

This 50 basis point margin expansion when compared with the same period of the prior year was primarily driven by volume and mix, particularly due to strong volume growth in plasma and hospital.

And additional savings from our operational excellence program.

These adjusted gross margin benefits were partially offset by inflationary pressures higher depreciation expense primarily related to the increasing installed base of our nexus devices in the U S and some of the recent investments in our manufacturing network.

Adjusted operating expenses in the first quarter were $99 $5 million, an increase of $12 4 million or.

Or 14% compared with the first quarter of the prior year.

As a percentage of revenue adjusted operating expenses remained flat at 38, 1%.

When compared with the first quarter of fiscal 'twenty two.

The increase in adjusted operating expenses was primarily driven by higher freight due to a combination of higher volume and increased freight costs.

<unk> growth investments and a return to normal spending levels, partially offset by productivity savings from the operational excellence program.

Our first quarter adjusted operating income was $44 9 million, an increase of $7 million or 18% as.

As a percentage of revenue adjusted operating margin was 17, 2% in the first quarter up 60 basis points compared with the same period in fiscal 'twenty two.

Our operational Excellence program is slightly ahead of schedule and we now expect this program to deliver additional gross savings of approximately $26 million in fiscal 'twenty three.

With total cumulative savings, reaching $96 million by the end of this fiscal year.

About half of these savings will be in cost of goods sold with the rest and operating expenses, helping us generate additional efficiency across our business.

The challenging macroeconomic environment continues to put downward pressure on our adjusted gross and operating margins in.

In the first quarter of fiscal 'twenty three the impact experienced from macroeconomic factors was broad based and included inflation foreign exchange and geopolitical risk.

We remain confident in our ability to grow our business and deliver consistent margin expansion driven by our existing product portfolio additional growth investments and the operational excellence program.

In the near term. However, we expect these macroeconomic headwinds will continue to put pressure on our margins, we affirm our adjusted operating margin guidance in the range of 18% to 19%.

The midpoint of our adjusted operating margin guidance includes higher performance based compensation and.

And about 250 basis points of impact from macroeconomic headwinds.

The adjusted income tax rate was 24% in the first quarters of both fiscal 'twenty three and fiscal 'twenty two.

We expect our fiscal 'twenty three adjusted income tax rate to be approximately 23%.

First quarter adjusted net income was $32 million.

Up $5 million.

Or 19%.

And adjusted earnings per diluted share was <unk> 58.

Up 16% when compared with the first quarter of fiscal 'twenty two.

The combination of our adjusted income tax rate share count and FX had a net neutral impact on our adjusted earnings per diluted share in the first quarter.

When compared with the same period in fiscal 'twenty two.

We updated our fiscal 'twenty three adjusted earnings per diluted share guidance to be in the range of $2 60.

The $2 90.

The midpoint of our adjusted earnings per diluted share guidance includes about a 13% headwind from fluctuations in foreign exchange share count and adjusted income tax.

Cash on hand at the end of the first quarter was $214 9 million.

Down $44 5 million since the beginning of fiscal year, primarily due to earn out payments related to acquisitions.

Free cash flow before restructuring and restructuring related costs was $5 million compared with $2 million in the first quarter of fiscal 'twenty two.

The higher free cash flow before restructuring and restructuring related costs was mainly due to higher cash flow from operating activities.

These include higher net income.

Accounts receivable and inventory, partially offset by higher capital expenses as we continued to convert our U S plasma customers to our latest Nexus plasma collection technology and improve our manufacturing footprint with additional investments.

Our new facility in Clinton, Pennsylvania.

Our guidance for free cash flow before restructuring and restructuring related expenses for fiscal 'twenty three remains unchanged in the range of $100 million to $130 million.

And at the beginning of our second quarter, we refinanced our existing credit facilities and extended their maturity date through mid June 2025.

Our new unsecured facilities include a $280 million term loan and a $420 million revolving line of credit.

We also have two interest rate swap agreements in place to help offset the impact of rising interest rates.

As a result of the interest rate swaps, 70% of the notional value of the unsecured term loan is fixed at two 8%.

The interest rate swaps mature in June of 2023 at which point, we will seek to establish additional interest rate protection as necessary.

In summary.

I would like to conclude that we are encouraged by our first quarter results.

<unk> collections are recovering and all of our customers in the U S will be on the latest nexis PCF and next link Dms platform before the end of our second quarter.

The hospital business continues to deliver mid teens growth. Despite the ongoing challenges in U S hospitals and geopolitical risk.

Our vascular closure and hemostasis management products continue to penetrate the market and gain share.

The operational Excellence program is fully on track. This program is critical in establishing efficient resilient and agile operations and has enabled us to have an uninterrupted supply of our products Despite global supply chain pressures.

Savings from this program are real and once the macroeconomic headwinds subside, we will continue to benefit from the efficiencies that have been put in place.

Our capital allocation priorities remain focused on creating value for all of our stakeholders. Our long range plan is anticipated to drive expansion in capacity up to approximately $2 1 billion.

By the end of fiscal 'twenty, six, including our recent $300 million share repurchase authorization.

We plan to utilize this capital capacity throughout our long range plan to accelerate growth both on the top and bottom line.

Thank you and now I would like to open the line for Q&A.

As a reminder to ask a question. Please press star one.

Our first question comes from Larry Solow with CGS Securities. Your line is open.

Great. Good morning, Thanks for taking the questions Chris maybe if you could just give us a little more color on the obviously the plasma growth was the highlight of the quarter and I think a key thing you mentioned about some of the mature centers that had been laggards are starting to improve.

Can you just give us any more little more flavor on that.

Hopefully thats a sign that.

On the economy, obviously, not been great, but a lot of those signs the economy and other things should start favoring you guys in that sense for collection. So maybe you could just give us a little more color there.

Yes, alright, thanks for the question so from our vantage point.

What we're looking at we obviously take our customers' forecast into account and work closely with them on this we listened to what the experts are saying across PPA in MRV.

The numbers that we've looked at that are proving predictive or.

Measuring for the donor demographic, what's going on with real wages, what's going on with real savings rate and amounts and then we've added a third metric around consumer sentiment and when we look at those things. They are all pointing in a favorable direction for.

Accelerated recovery and as we said in the prepared remarks, this quarter and I do think we've had three sequential quarters of growth above historical averages. So that's that's a positive trend.

It's mostly driven by the pace and the uptake in new centers. The first quarter of this year, Mark the change where actually the growth in mature centers was greater than the new center openings, New center openings kept their pace, but mature centers really moved in the quarter and that's with no activity on the southern border. So.

We look at that and we want to be.

Conservative about this we've had false dawns in the past <unk> second quarter of last year third quarter of the year. Prior so we want to be thoughtful about that but what we're observing.

Is meaningfully different and give us the confidence to raise our revenue guidance and the way we did.

Okay, Great and then maybe just switching gears a quick question for James just on the on the guidance from a high level.

Obviously, you've raised your sales guidance pretty significantly.

And.

Just on the EPS free cash flow relatively the same I realize you narrowed your EPS upward a little bit is that just from a high level, obviously more inflationary pressures more FX impact.

What's sort of the.

Spread on the difference there.

Thanks.

Yes. Thanks, so thanks for the question Larry.

Yes, I think you're onto it.

So I would say that yes.

Biggest headwind that's impacting our leverage in fiscal 'twenty three.

Macroeconomic.

The inflation.

It's still there present, perhaps it's beginning to plateau, we'll see.

The remainder of the year.

But you hit you hit upon another one FX as well.

Affects us too on the bottom line and really the third point is.

Performance.

Based compensation increases as well as as you can see we're <unk>.

Well on revenue, it's a good thing I think they are working hard.

We were happy to see the performance based comp.

I will go up because we're doing we're doing well so when you take all of that into consideration and then thinking about what Chris just said.

Given some of the.

False dawns that we may have had in the past we felt like taking up that low end of the EPS guidance by <unk> 10 cents was prudent and appropriate at this point of the year.

Fair enough I appreciate the thoughts thanks.

Our next.

<unk> comes from drew Ranieri with Morgan Stanley Your line is open.

Hi, Chris and James Thanks for taking the question.

Just maybe to go back to the plasma guidance for a moment.

But just to get it through my skull.

The increase that Youre seeing in our guidance for the year. This is predominantly driven by market recovery and not pricing is that the right way, we should be kind of thinking about that or.

Next person it could be in addition to.

To the guidance.

So both both the results in the quarter and our guidance include meaningful contribution drew from volume first and foremost, but also from price right and the pricing is the ongoing rollout of nexus to customers that hadn't yet converted and upgrades to <unk>.

Persona. So the results from those have been fantastic and I think we feel great about the work we're doing with customers. We are fully on track probably a little ahead of schedule to complete the nexis upgrade cycle. This quarter second quarter and then we're in discussions we haven't included any additional for selling our contracts that arent already agree.

<unk> two and the updated guidance, we look at what we have today, we're going to complete the upgrade cycle.

That's what's factored in.

Got it thank you.

Maybe just on the quarter's hospital performance.

I just wanted to maybe dissect that a little bit more.

Ocular closure transfusion kind of came in above our expectations hemostasis, a little bit behind but could you maybe go into that segment a bit more.

You talked about utilization and taken pricing being better said in North America.

But you had a challenging European comp maybe just.

Yeah.

Parse out what's that.

National tender might've cost in terms of growth.

Sure.

So I'll just start with the overall view right.

This business continues to deliver we grew 15% in aggregate in the quarter.

Quite powerful and a nice trend line. That's now got some longevity to it which gave us confidence in terms of raising the guidance for the year. When we look at it the four product segments.

Brian <unk> vascular closure by far the fastest growing as I said in the prepared remarks, nearly a $3 billion Tam and all of that performance today is driving deeper penetration into our existing U S hospitals and enrolling new hospitals in our program and we've made meaningful investments in fellows.

Programs and the like really starting to pay off so we feel quite good about that that's the primary driver of our increased revenue guidance for the year.

In terms of Hemostasis management tough comp in the first quarter and we knew that going in.

That is both the European tender as you rightfully called out but also.

Capital sales and Thats, probably one of the areas I think we have fared better than some other.

Med Tech Med search companies with regards to procedure rates and staffing of hospitals, we have been in a good place there for the most part where we are dealing with some challenges as the overall capital appropriations process and it's not because our equipment is breaking the bank. It's just a complicated process.

Now for most of these hospitals as they tried to short the way through the macro environment. So we're there.

There but.

When you're looking at a product that is in that range a few million dollars of capital sales delaying from one quarter to the next creates an even greater challenge Dave they've got ground to cover this year, but we feel very confident that hemostasis management will cover it and then cell saver was flat that market's fully recovered we would grow with the market and while there.

Look for opportunities to do better than that in terms of taking share, but it's a more mature play transfusion interestingly enough in terms of order timing et cetera benefitted by some things that didn't get done in fourth quarter. So for them to notch 20, or 21% growth, we feel very good about that and they have an ambitious goal for the year.

They're going to deliver against it it's a good news story, there and it's nice to have them, adding to the participation. So.

Hi, aspirations, we feel like we're off to a good start.

There's puts and takes but in aggregate, we feel quite good about where we're going there.

Great. Thanks, and just to maybe go back to your your commentary out of the analyst day, I mean, Chris you were very adamant that youre going to see growth.

In fiscal 2024 on the top and bottom line.

Your guidance for this year, it's going up do you feel confident are even more confident that youll be able to grow next year, given kind of a higher base for 2023. Thank you.

Yes, Thanks, Joe.

We look at that collectively.

We are essentially measuring the non CSL plasma growth rates the trends. We're now experiencing if we continue those that's even better than we had thought about in terms of earlier attainment of some of the long range plan goals, which is great and will certainly help 'twenty four.

Hospital, continuing to do what it does as it advances as not only the fastest growing but soon to be the largest business within <unk> is a real positive as well and then.

We can't control the macroeconomic factors, so thats going to be what it's going to be but we continue to invest in.

Our operational excellence program, that's creating meaningful.

Improvements in our productivity a lot of that is getting invest it back in the business, but we are looking at those investments this year over the remaining three quarters with an eye towards accelerating those things those investments that can help us come out of the gate, even stronger in FY 'twenty for us. So in short, yes, I think we are every bit as.

Confident maybe more so in our ability to grow each year.

And bottom line over the life of this plan.

Great. Thanks, Chris.

Our next question comes from Andrew Cooper with Raymond James Your line is open.

Hey, everyone. Thanks for the question.

Maybe first just back on plasma and so theres your expectations through the course of the year and I think in the past you've historically said the seasonal move from <unk> to <unk> within that sort of high single digit maybe 8% type range, just curious what youre thinking there and how we should be thinking about the pacing of <unk>.

CSN will potentially having an impact versus what we would normally see in the U S plasma Mike.

This seasonal move from from <unk> was in that sort of high single digit maybe 8% type range, just curious what youre thinking there and how we should be thinking about the pacing of <unk>.

CSL potentially having an impact versus what we would normally see in the U S plasma Mark there are clearly big shifts underway.

Pace of New center openings and the uptake of those centers that pace is unprecedented and that's where our customers have been highly consistent if they tell us they're going to open a dozen new centers. They opened a dozen maybe 13 or 14, right and but they've really done a fantastic job of leaning in.

Hitting the Mark in terms of those centers and interestingly, even through the worst of the pandemic the new center uptake pretty much fits the model that we've developed with our customers in terms of year, one year, two and year three growth on their way to maturity. So that's all there. It's just a much larger portion of the toll.

It'll volume now because they are opening more new centers and have for the last two and a half now three years. So that piece is a little different structurally but exciting we think in terms of the mature centers and the relative seasonality.

That will continue.

Our guidance reflects what our customers, including CSL have told us about their internal plans and transition et cetera. So so that's factored in and that Hasnt changed from what we talked about last quarter, which was a good quarter for plasma as well or at our Investor day in terms of our expectations about transition et cetera.

Okay, Great Super helpful. Maybe just one more on plasma.

You mentioned youre, not including anything beyond what's already signed or contracted for persona can you give us a sense for what proportion of the U S. Install base you have.

I guess already on persona, what proportion you have agreements for and how we should think about the.

Pacing of rollout in terms of that tool throughout the year and into 'twenty four as well.

Yes, as we've said.

Ed previously persona is a game changer, we're talking about 10% to 12% additional plasma yield on average for a collection, which is based on an algorithm that ties to the individual donors percent plasma available we're building a robust day.

Debase, certainly now more than 5 million collections on persona real world evidence that we believe over time will show that it's not only a step change improvement in yield, but also a safer collection for all donors involved and we'll build that database one collection at a time, but we think based on.

On the scientific reviews that we've done and done with our customers.

Drawn case to be made there in terms of where we are on the rollout I would rather not go through the specifics of it Andrew I know you can appreciate that but.

We're rapidly approaching a point where more than half of the collections that we're experiencing in the U S. It is unique to the U S market, but more than half of those collections will be done on persona and thats included in our guidance for the year.

Great I appreciate the questions and ill jump back in the queue.

Okay.

Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.

Yes. Good morning, Thanks for taking my questions.

So.

I suspect youre not going to break out the amount of.

That went to CSL in the quarter, but was there any sort of ball with out of that $88 million in the first quarter and how should we expect that to kind of be spread out for the remaining quarters is it going to be pretty even throughout the year.

Yes, Mike I know you know the sensitivity on that I appreciate you acknowledging it upfront.

<unk> done a good job of forecasting their demand through the first quarter. So the performance in the first quarter was exactly what we anticipated from CSL, there's some vagaries because of prior buy ins et cetera, but it's exactly what they forecast it in our revenue guidance for the year. We've made no change to the previously communicated 80.

$8 million in revenue Thats the minimum commitment.

Commitment from CSL, So thats, where we stand as of now.

Okay got it.

And then.

Just from a high level.

You, obviously have great revenue growth the earnings growth.

I guess EPS came in ahead of expectations, but there wasn't a ton of leverage in the quarter considering how much you beat on the top line by I assume that that's really due to the.

Macro headwinds, but I just wanted to kind of run that by you and see if that's the right way of looking at it.

Yeah, I'll give you my take on this James walk through the mechanics of our P&L.

<unk> challenges associated with inflation, FX, which is new and different and powerful here from our original guidance and then obviously some of the.

The pressures, including good things like performance comp when we step back and look at this we clearly aspire to both accelerated revenue growth Youre now seeing that and operating income margin expansion. However.

And we want to be mindful of both macroeconomic factors as James walked through I could throw in supply chain disruptions, we've managed to navigate those exceptionally well, but it's not without cost and geopolitical risks, which we clearly have no control over them for us.

China, and Russia loom large as markets for our blood Center business. So that's all in the mix as well as the marketplace factors right. If we don't run the collection centers and we don't hospitals drive procedures based on yes.

Patient availability. So that's all out there we don't we don't control that our teams have risen to the challenge they'll continue to rise to the challenge feel great about the additional performance based comp that we're paying out as a result of it.

But given what we experienced throughout the pandemic, Mike I think youll agree and maybe forgive us if we're reluctant to call to turn just yet in terms of what ultimately fastest through.

Yes, that's very helpful. Just on the performance comp I mean is that something that.

Would continue if you continue to have strong performance with that continue to flow through it every quarter or is it kind of more loaded into the first quarter.

No it would flow through.

Somewhat ratably over the remaining quarters as the way the accounting works for us.

Yes interesting.

It's an interesting dynamic on that Mike our expenses are pretty evenly balanced throughout the year. However, due to seasonality and the fact that we're experiencing such meaningful growth now on the collection business as well as the hospital procedure business.

As that revenue grows you get more pass through on a fairly constant cost base right and then there are some nuances in terms of.

What we pay off of we have tweaked our comp as part of our long range plan. So that we overweight revenue versus profit, but theyre both factored in for the short term and then obviously the long term is tightly aligned with shareholder returns but.

That has an effect as well and Thats fine we are not going to hold our working teams accountable for FX or below the line adjustments.

Fit to EPS.

They are delivering and we're happy to compensate them for it.

Okay got it and then just one final one on the hospital business I think everyone kind of understands what's going on with pricing in the.

The plasma business, but I wanted to ask about pricing in your hospital business.

I think you called out you were getting favorable pricing there but.

Are you able to get any additional pricing given what's happening with inflation and the fact that you virtually everything that prices are going up across the board from hospitals are probably a little more accustomed to that these days.

Yes, Youre exactly right, Mike we are looking carefully at that and we factored some of that into our original.

Guidance, we have revised some of that based on what we now are experiencing in the market.

Yes, theres challenges associated with it and what I would say is the hospital business like plasma has been are fading from mix. So more very high gross margin vast gate for example in hemostasis. They are the big growth drivers, but.

And then also the benefits of operational excellence, where we have made strides to lower our cost of goods sold and and benefits from the pricing as you outlined on the other side of it we continue to invest and we made investments last year that still have an annualized so that cost base, particularly on the sales.

Syed will go up and we're okay about that.

We're investing meaningfully.

The operational excellence program is freeing up funds to let us do the R&D and the sales force expansion that we think is critical to drive growth over time, and we're experiencing a it now it will only get better from here.

Okay, great. Thank you.

Our next question comes from Joanne Wuensch with Citi. Your line is open.

Good morning. This is Anthony on for Joanne. Thanks for taking our question just circling back to hospital with the updated guidance does that include maybe any new indications either.

Tag or vast scale. This year or is that are you thinking that just a blip.

Sort of deeper utilization and penetration.

Anthony the primary drivers are as we said, it's it really is <unk> and I am saying vast gave for shorthand, it's mostly vast gate MVP in the electrophysiology space right and that growth what we're factoring in as exclusively U S new and.

Existing accounts adopting the therapy.

We are.

Aggressively pursuing additional indications we're aggressively pursuing.

Market expansion into Europe , and parts of Asia as well so.

More about that when it comes we tend to be pretty conservative about not factoring in those items and because we don't control them.

If they are meaningful, but we'll talk about that at the time, but for what we guide it across all four segments as I outlined earlier, it's really what we have in hand, and what we believe we can deliver from from where we sit with the normal puts and takes around procedure volume and challenges in China for example, with Lockdowns and such but.

All in all we feel good with what we can see and what we can deliver against that.

Great. Thank you.

Thanks.

Our next question comes from Michael Pitofsky with Barrington Research. Your line is open.

Hey, good morning.

Pivot from Investor day too.

A great quarter congrats.

So a quick question going back to plasma.

Do you guys have an assessment or does the plasma fractionator is have an assessment of sort of how badly.

The college student donation.

Part of their business lagged for the past couple of years I'm, just wondering if there's an opportunity with students going back here in the next couple of weeks if there is an opportunity.

Sort of incremental that people arent, maybe completely thinking about I suspect colleagues basically completely normalized at this point relative to the past couple of years I know it certainly improved last year, but any thoughts on that.

Good morning, Mike. Thanks for the question thoughtful as always college is one of a half a dozen sub segments. We look at we talked about the borders we talk about.

Large urban centers, we talk about smaller metropolitan areas, we're talking about suburban areas, we talked about military.

Installation is close to a military base.

Across the board. They are in recovery College has certainly participated they are not back to where they were pre pandemic.

In college is closer than some other segments, but but theyre not leading the way and they're not there yet we do think as we talk to customers extensively about their forecast that the recovery in college is factored in but.

It's a modest segment relative to the total and it is underway, but I think it's going to take a bit longer to get back to pre pandemic levels in those mature centers.

Okay.

Just I guess another one then on Plaza and <unk>.

I felt like you really spoke to as well at the Investor day, but I'm not sure.

This is a concern we hear constantly and I'd love for you to sort of.

Speak to this on this conference call in terms of the potential competitor, Chris can you just talk about at a high level.

What you think your ability in terms of being able to compete going forward with the potential competitor in the market and just any thoughts around that because that is probably the number one thing that we hear as far as concerns around China.

This company as an investment.

It's completely understandable, Mike I think there is an overhang from two years of pandemic and then.

Share shifts.

We work backwards against our aspirations and plasma we talk about three factors volume share and gross margin expansion in terms of volume I think we broke that out.

Quite explicitly here in the quarter and our go forward guidance you see the gross margin at the corporate level, we don't break that out or guide to it.

At the company level or by by individual.

Business unit, but.

You don't put up a record gross margin in the quarter without having what is your current.

Currently our largest business contributing fully there. So that's a reflection that there is real value in our technology and a lot of excitement about adopting that and making that part of what.

What our customers are aspiring to in terms of growing volumes and.

And replenishing their depleted inventories when you cycle back to share I think what we tried to say at our Investor day is where.

Where the industry later today and will be the industry leader in our market share base. The day the last shipment roles to CSL whenever that is we intend to defend that leadership and our primary focus in doing so.

Is the duality of exquisite customer service and support we have not missed a single order to our plasma customers throughout all the ups and downs of this pandemic cycle and continuing to advance our innovation agenda and everybody who listened in her to mill I'll talk about the four dimensions that based on <unk>.

Stenseth customer voice of customer research yields speed compliance and donor sat.

We're a moving target to say the least right. We have the best technology and we are doing what we can to meaningfully advance that leadership and customers are recognizing and valuing it and we think that bodes well for our ability to expand share over our long range plan and that's what we aspire to do both here in the U S and outside the U S as well.

Perfect. Thank you.

Our next question comes from Dave <unk> with JMP Securities. Your line is open hey, good morning.

Maybe just a quick one on the buyback.

Looks like a sizable one I think it might give you a shot at it.

Buying back 10% of the company over time based on where we sit today, but I'd love your thoughts on.

Capital allocation stock under 70 here.

Think about sort of from a timing standpoint.

Yes.

Yeah. Thanks, Thanks for the question Dave So.

Yes. It is.

A substantial.

Buyback.

And commitment that we're that we're making when we think about it in the overall context of what we talked about at Investor Day, we talked about generating cash.

Capital.

In the range of $2 1 billion over our projected periods. So it does represent a significant chunk, but it still allows for us to focus really what we think are our two main drivers.

Organic growth for sure and investing in some of the.

Technologies that we that we're developing right now and then secondly of course.

The organic growth M&A. So there is.

This was a this was basically a balancing act we felt like.

Where the prices today and given some of the dilution that we've had over the past.

Couple of years that made a lot of sense to allocate some portion of <unk>.

Our capital capacity too.

Two to buying back shares in terms of timing.

It's a three year period that we have.

And we'll be opportunistic with it.

Look to see.

Where our stock price is and also compare that to other opportunities.

That we have and and proceed accordingly.

Alright, thank you for that.

One other one I think at the end.

You mentioned, the sort of the capacity investments.

I think you said something like five X increase if thats, what youre looking for in the out years.

Do I think our new Pennsylvania facility.

When we think about those numbers I mean this is so.

Hospital can address its Tam is that what we're thinking about sort of that investment.

That is so underpenetrated today.

Thank you Andrew.

There's a couple of parts to it Dave Let me, let me clarify the five X. So today based on our.

Our cash on hand, and free cash flow and et cetera, we have about $400 million of capacity to put to work. However, we choose to over the life of this <unk>. The long range plan in the next four years that increased five fold to the $2 1 billion that James just highlight them and we.

We assume within that that we're going to fund all of our organic growth, which includes not only.

Increasing our footprint on the commercial front here in the U S and internationally hospital is a big part of that.

But also our R&D projects and the things we're really excited in terms of advancing our leadership and yes, we have meaningfully invested in our global manufacturing and supply network. The new facility in Pittsburgh is actually in Clinton, Pennsylvania as part of that we initiate at full operations. This path.

Last quarter. It is state of the art 200000 square foot facility, and we think it'll be an important part of driving further increases in product quality as well as capacity to meet the growth that comes that capacity is both plasma and hospital and we continue to invest against them to make sure we can be the business partner that.

We are and aspire to be over time with our customers in terms of reliability and the resilience for longest while it was lean lean lean I think we may have been a little bit ahead of the curve and emphasizing agility and resilience and we are seeing the benefits in our current performance as a result.

Great. Thank you.

Yes.

Our next question comes from Anthony Petrone with Mizuho. Your line is open.

Thanks, and congrats on a good quarter here I'll have a couple on plasma and follow up with the hospital.

So Chris on plasma and you mentioned the border centers, just maybe a quick update there and as we look at the long range plan is it safe to assume that for.

The bulk of the long range plan and the border centers will.

Essentially be at a steep discount.

For the good part of that Horizon and then.

Follow up on plasma would be when you look at sort of the performance of the past couple of quarters.

How much of what we're seeing is fractionator is meeting real time demand versus building safety stock and I'll add a couple of follow ups.

So Anthony welcome back Great to have you in the conversation in terms of the plasma collections along the border. We're not directly involved in that some of our largest customers make up the predominant number of those centers and they have as you could expect their legal and regulatory.

Cory teams working hard against it there they're cautiously optimistic maybe more on the optimistic side of that right and so we'll be there to supply them, if and when the borders begin to join the recovery that really hasnt happened yet.

And when we look at things in this market don't move.

Quite that quickly right. This will be that they've largely been out of the market. So theyre going to have to re recruit those owners now.

The economic conditions as I highlighted to an earlier question are very favorable for that but it takes time, so as our customers update the forecast will factor that in we did not assume a meaningful recovery along the border in this fiscal year.

As it pertains to the plasma volumes, we don't have full visibility we study it hard and I think there's pretty good evidence in the public domain that.

Through the trough of the pandemic, our customers need it to meaningfully tap their existing frozen plasma inventories to keep their fractionation and their customers supplied so I think they have done everything they can do there.

We will be for some extended period, what our long range plan assumes is really over a multi year period. They will work to drive the recovery and from our conversations with them, we don't see them pulling off of the accelerated.

Compensation to donors and the new center openings anytime soon so that's part of what gives us confidence that this recovery will be different than some of the false recoveries that we highlighted earlier with regards to gaining momentum over the life of the recovery.

<unk> got a long way to go to build back inventories and I think.

A black Swan event like the pandemic.

It's mark and I think all of US will think differently about what our appropriate levels of inventory to supply our customers consistently going forward.

That's helpful and the follow ups will be one on hospital and then actually I have one for Jim on margins on hospital, Chris at the Analyst day, there was the commercial effort.

Highlighted 600 key accounts in the U S. I'm just wondering.

If theres an update on how many of those targeted 600 are active users.

MVP <unk>, so that would be the first question and then second for Jim.

When you look at the adjusted operating margin target for 2026 high twenties.

From where we are currently around 17%.

To what extent was.

Is the persistence and inflation.

And perhaps even in adverse.

Currency environment baked into that outlook.

Okay, Let me start with the targeting for <unk> and MVP So MVP.

As the undisputed <unk>.

Answer in Electrophysiology, you are right, Steve talked about 600 accounts, we start at the year roughly midway through that list and we are aggressively working to add new accounts, there's an intelligent paredo within that so we have.

Made a real effort to go to the largest and most influential accounts first but.

We're working hard to enroll the bottom half of that list if you will.

And MVP is really driving the charge there and we feel great about it clearly the bigger performance driver in the near term is getting greater utilization rate and it's one of those ones, where you're bringing a.

Clearly, our mark key offering to the market you want to have the sustainability and the repeat use we are seeing that thats. The biggest driver and that's what gives us confidence to raise the guidance now interestingly when we are in there with the vast gade MVP team. That's the same team both sales reps and clinical support.

That is having the conversations in interventional cardiology, where bascay place to lead role and perhaps one of the areas of pleasant.

Pleasant outperformance that we've realized is because of the capacity because of the expansion. We've done with that sales force individual reps have more time to talk to interventional cardiologists and their teams. So vast gate is benefiting as well there were some issues in the quarter with contrast media that affects the number of procedures that interventional we're able to.

Don that's largely been resolved.

Fully resolved, but it's largely been resolved. So we expect vast scale in interventional cardiology to <unk>.

Joining the party at an increasing rate as the year progresses.

James Yes, Hi, Anthony.

And on your question on the operating margin so.

So let's take inflation first so we don't we don't assume that.

Prices come back down to the levels that they were pre.

<unk>.

Pandemic in fact, what we do is we assume that we continue these this higher price level for.

For the next couple of years and then.

In the back part of our our plan and 25 and 26, we have them.

Moderating by 10.

10% a year so.

Yes.

We're assuming that the high price environment pretty much is here to stay during the projection period with maybe some moderation.

Over time.

And I think the second question was on FX and.

So on FX what.

What's built into our plan are the rates that were prevailing at the beginning of this calendar year. So.

The dollar really strengthened quite a bit over the over the first calendar quarter of the year and it was.

It was.

It was a large move in a short amount of time in that.

In that first quarter.

So our rates are kind of frozen in time back from that the first the beginning part of this year so to the extent that rates.

Dollar improves.

Improves in that regard.

That will help on the on the operating margin.

If it gets a lot worse from here that could that could that can penalize. It. Although I think we've seen some support for some of these foreign currencies vis vis the dollar here more recently so.

That's where that's where it stands right now and of course once we go through our process for <unk>.

This year, our strategy strategic planning process, we'll update all the rates and.

And <unk>.

Make any changes accordingly.

Thank you.

There are no further questions I'd like to thank accordingly.

Program and you may now disconnect everyone have a great day.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good day and welcome to <unk> Corporation's first quarter fiscal 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. As a reminder, this call is being recorded I would now like to turn the call over to Olga Guyette senior director of it.

Relations and Treasury you may begin.

Good morning, everyone. Thank you for joining us for <unk> first quarter fiscal 'twenty three conference call and webcast.

I'm joined today by Chris Simon our CEO and teams direct that our CFO .

This morning, we posted our first quarter fiscal 'twenty results during Investor Relations Web site, along with updates to our fiscal 'twenty three guidance and 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 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 and strategic adhesive product lines.

As in the past, we will refer to non-GAAP financial measures to help investors understand human that is ongoing.

No.

Please note that these measures exclude certain charges and income on it.

Please refer to this morning earnings release for details on excluded items, including comparisons with the same periods of fiscal 'twenty, two and a reconciliation to our GAAP results.

Our remarks today include forward looking statements.

Actual results may differ materially from anticipated results.

<unk> cautions that these forward looking statements are subject to risks and uncertainties, including the potential impacts from the pandemic on our results and other factors referenced in the Safe Harbor statement in our earnings release, and our filings with the SEC.

We do not undertake any obligation to update these forward looking statements.

Additionally, in order to protect customer confidentiality, but we will not be able to discuss any customer specific details.

As disclosed previously.

And now I would like to turn it over to Craig.

Thanks, Olga good morning, everyone and thank you for joining.

Today, we reported first quarter organic revenue growth of 17%.

And adjusted earnings per diluted share of <unk> 58.

An increase of 16% compared to the first quarter of the prior year.

Building on our successful fourth quarter, our results affirm our strategy and updated long range plan for transformational growth.

We are accelerating our momentum to advance our market leadership and deliver robust revenue and adjusted EPS growth over the next several years.

Klausner recovery is underway as the established leader in the $800 million source plasma collections market. We are confident in our ability to achieve substantial growth and increase our gross margins as we help collectors replenish their depleted inventories.

We are also investing in further advancements to distinguish our technologies and create new opportunities for customers.

Hospital is increasingly playing an outsized role in our growth our.

Our products are helping hospitals raise the standard of care and improve health economics.

Vascular closure led the way with another record quarter as we strengthen our leadership in the attractive and growing electrophysiology and interventional cardiology markets.

Our work to build an agile and resilient global manufacturing and supply network enabled us to serve customers reliably without disruption.

During the first quarter, we completed the move to our new manufacturing center of Excellence and Clinton, Pennsylvania.

It exemplifies our commitment to continuous innovation network optimization regionalization and business continuity.