Q1 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to the Haemonetics first quarter fiscal year 2000 conference call and webcast. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call may be recorded.
I would now like to introduce your host for today's conference Ms. Olga loss, Nova Investor Relations Ma'am you may begin.
Good morning.
Thank you for joining us for Haemonetics first quarter fiscal year 20 conference call and webcast.
I'm joined today by Chris Simon, our CEO and Bill Burke our CFO .
Before we begin I would like to remind everyone that on July 22nd the company announced changes reportable segments.
We also realigned previously reported business units to align with the internal management structure of the business unit.
To help with this transition we have provided two years of historical revenues in fiscal 20 revenue guidance and the new business unit structure.
All documents are available in Investor Relations web site under the guidance and analytical tables.
Today, we will discuss our first quarter fiscal two ends the result in the new segment structure, all revenue growth rates are and they're getting thesis and exclude impacts from currency product and slide decision and divestitures.
Adjusted earnings per share is calculated using weighted average diluted shares outstanding of 52.3 million, which represents basic shares outstanding plus the dilutive effect of stock Awards.
Our remarks today will include forward looking statements and our actual results may differ materially from anticipated results information concerning factors that could cause results to differ is available in the form 8-K, we filed today and periodic filings, we make with the exit fee.
This morning, we posted our first quarter fiscal plans results or Investor Relations website. We included a beat its difficult when think guidance and posted analytical tables with information that we'll refer to on this call.
I would like to remind everyone that is consistent with our past practices, we have excluded certain charges and income item from the adjusted financial results and guidance.
Detailed and excluded items, including comparisons with the same period of fiscal 19 I provided within the form 8-K and have been posted to our Investor Relations website.
Additionally, our press release and website include a complete CNL balance sheet summary statement of cash flows as well as reconciliations of our reported and adjusted results.
And now I'd like to turn it over to Chris.
Thanks, Good morning, and welcome to todays call.
We benefited from solid execution across all businesses to grow organic revenue, 8% in the fiscal first quarter.
Adjusted gross margin improved 400 basis points to 51.2% adjusted operating margin was up 360 basis points to 21.4% and adjusted earnings per share grew 37% to 81 cents per share.
The positive start to the year confirms that our strategy is working our value drivers are propelling us forward and we continue to make meaningful progress on our multiyear turnaround.
Turning to the three business units plasma our largest bu grew 16% with a 17% increase in North America, driven by price volume and mix.
We have completed more than 5 million, yes procedures, resulting in more than 115000 incremental leers of plasma collected.
Nexus BCS and next link Dms or complementary interconnected offerings designed to work together seamlessly haemonetics is the only company to offer both and together they enable increased yield and greater collection center capacity.
Nexus safely delivers up to 31 milliliters of additional plasma per donation for high hematocrit large volume donors.
Beyond increased volume per donation Nexus enables more collections per center in a more positive predictable donor experience. These factors decreased the overall cost to collect by approximately 10%.
A July report from the American Society of Health system pharmacists outlines a shortage across the number of IBG drugs. Our customers are taking action to increase collection volumes and we are responding the nexus value proposition has never been more relevant we are engaging with all of our customers on the tangible benefits of the fully integrated bidirectional technology that is unique to Nexus upgrading collection Center software has become a primary focus for most of our customers and next link Dms has emerged as the preferred solution.
The Nexus value proposition is supported by a growing body of real world evidence customers, who have converted are realizing the value and this gives us added confidence in the superiority of our platform.
Moving to hospital revenue grew 8.3% and we are on track to deliver our plans for the year Hemostasis management grew nearly 16% year on year after double digit growth last year led by strong performance in the USA and China.
We are encouraged by customers enthusiasm in the early stages of the US launch of our new indication for TEG success, which is the only site of care device, specifically clear for adult trauma surgeons anesthesiologists and nurses are eager to have a hemostasis testing device that they can use in critical care areas. While lab personnel are pleased that TEG manager software helps manage testing and compliance.
Some hospital customers have expressed interest in a comprehensive program now that both cardiac and trauma indications are cleared in the U.S.
Cell salvage was challenged this quarter by pockets of weakness, especially in Europe . We completed the Orthopat end of life program and we are turning our attention to opportunities to improve performance on the remaining cell saver line.
The phased launch of Safetrace, TX software that protects patients from transfusion mistakes is progressing ahead of schedule.
We have a robust pipeline of willing early adopters that is enabling us to accelerate rollout.
Adoption of blood track software, which delivers information at the bedside, we will continue to grow globally as hospital seek increased efficiencies in transfusion services, particularly in the us and the UK.
Across hospital, we see positive impact from pricing and sales force expansion. The talent infusion is helping strengthen our competitiveness R&D projects are progressing as scheduled including the planned global launch of a four channel platelet mapping cartridge. Later this year, we continue to have high expectations for all three of our hospital segments as we refine our portfolio and focus our efforts on the products that help improve the standard of care, while lowering health care costs.
Blood Center revenue was down 2% in the quarter transfusion rates continue to decline driving down whole blood collection volume.
Our team is working diligently amid a difficult price sensitive market consistent with our stabilization strategy for blood Center, we're making every effort to be successful in areas, where our product offerings our differentiated.
We will continue to evaluate each contract to balance the value it brings to our customers and to haemonetics, including foregoing unprofitable business in order to stay competitive.
In January we outlined six long term value drivers that underpin our corporate strategy.
We have been implementing the complexity reduction initiative to revamp our operating model and reduced spending, particularly operating expenses and administrative costs. We are on track to deliver more than $80 million of savings by the end of fiscal 20.
Complexity reduction has helped catalyze cultural change of Haemonetics, and we will continue to seek ways to reduce complexity to free up resources.
Today, we announced a new multi year operational excellence program designed to deliver 80 to 90 million of annualized savings by transforming the way, we source make and deliver our products. It builds on the complexity reduction initiative, but it is different in that it focuses on our operating functions first and foremost the program will strengthen our performance by further improving quality. This is our top priority and our success depends on it.
The program will also enhance sustainability and scalability and will amplify efficiency by reducing unproductive cost and processes, while investing and effective solutions.
The centerpiece of the program is transforming our global manufacturing and supply chain organization for more modern flexible and efficient end to end production.
Strategic sourcing is a top priority as we fundamentally rethink what we make versus what we buy.
We will improved plant performance by implementing lean six Sigma and we will optimize our network by automating and Rightsizing capacity for the future.
The divestiture of our Union South Carolina facility in May was part of this asset light approach to improve ROI SEC.
The program timing is strategic and purposeful as we have laid the foundation for operational excellence, we are launching from a position of strength with the right leadership, the REIT fact base and momentum in our operating results to effectively execute these changes there is a lot of energy behind our efforts to build an agile and lean organization. The savings will not only strengthen our financial health, but also free up additional resources to invest in innovation and growth.
We are committed to delivering near term results, while also taking actions and making investments to strengthen our growth trajectory strong first quarter performance and the anticipated early benefits from operational excellence give us confidence to increase our fiscal 20, adjusted EPS guidance range to $2 and 95% to $3.15 and adjusted operating margin expectations to approximately 21%.
We also remain confident that we can meet our previously communicated fiscal 21 aspirations for operating income and free cash flow.
Before I turn the call over to Bill I want to thank our customers who put their trust in us and also our employees, who make it possible by living our values everyday.
It's an exciting time to be at Haemonetics.
Thank you, Chris and good morning, everyone before I begin I'd like to remind you that the revenue growth rates I will discuss are on an organic basis.
On that basis in the first quarter of fiscal 20, we had 8% growth in revenue for the total company.
Plasma revenue was up 16.1% in the first quarter, North America plasma, which accounts for about 93% of the total plasma business grew 17.4% in the first quarter.
The majority of the growth was driven by higher collection volumes pricing benefits from Nexus device conversions in the prior fiscal year and contain pricing initiatives within our liquid solutions business.
Additionally, we had a one time item in software, which had a favorable impact on the plasma growth rate of approximately 2% in the first quarter.
We remain confident in the continued growth of our plasma business and affirm our fiscal 20 revenue guidance of 13% to 15%.
In North America plasma guidance of 14% to 16%.
Hospital revenue grew 8.3% in the first quarter, which was in line with our internal expectations, implying an acceleration of growth throughout the remainder of the year to achieve our annual guidance range of 11% to 13%.
Within hospital Hemostasis management grew 15.7% in the first quarter.
Commercial execution, including leverage from our sales force expansion.
And new pricing strategies are driving growth in TEG disposables, and we delivered double digit growth for both TEG 5000, and TEG success.
Our allocation our investments to fund growth specifically in the Salesforce and product portfolio expansion continues to support the growth profile of the business.
Also within hospital cell salvage and transfusion management grew 1.9% in the first quarter driven by strong growth in transfusion management, particularly within North America as we continue to develop our markets and gain share.
Early results from the limited release of Safetrace, TX version four.
Also positively contributed to our first quarter results.
Partly offsetting these benefits and transfusion management was performance in cell salvage which was below our internal expectations in the first quarter due to increasing competitive pressures order timing related to a large distributor in Europe and capital sales and North America.
We affirm our fiscal 20 hospital revenue guidance of third 11% to 13%, including growth and Hemostasis management consistent with the revenue growth rate, we achieved in fiscal 19.
Blood Center revenue declined by 2.3% in the first quarter.
After recess revenue accounts for about two thirds of blood Center revenue is comprised of platelet red cell and plasma disposables as well as the associated capital equipment.
After recess declined by 1.1% in the first quarter.
The main driver of the decline was the increasing share of double dose platelet collections in Japan.
Whole blood revenue declined by 4.1% due to continued slowing transfusion rates and unfavorable order timing when compared with the first quarter fiscal 19.
Overall, we are on track to meet our full year expectations and we affirm our fiscal 20 guidance in the range of a decline of 4% to 6%.
We continue to transform our portfolio and expand gross margins adjusted gross margin was 51.2% an increase of 400 basis points compared with the same quarter in the prior year.
This expansion in adjusted gross margin, primarily reflects pricing benefits improved product mix. The divestiture of the Union South Carolina facility and additional benefits from the complexity reduction program.
Partly offsetting these improvements was additional depreciation from both Nexus device placements.
And the expansion of our plasma disposables production capacity.
Adjusted operating expenses increased $3.9 million compared with the first quarter of fiscal 19 and were higher by 30 basis points at 29.8% of revenue.
This increase was primarily due to additional investments and take sales and marketing and higher performance based compensation.
Partially offset by savings from our complexity reduction initiative.
Adjusted operating income was $51.4 million in the first quarter $10.7 million or 26.3% higher than the first quarter fiscal 19.
Adjusted operating margin of 21.4% was up 360 basis points compared to the same period of fiscal 19 as the benefits from improved mix implementation of pricing strategies complexity reduction and the union divestiture outweigh increased depreciation and additional investments.
We remain confident in our company wide efforts to improve our operating performance and we anticipate our adjusted operating income margin for fiscal 20.
We'll be at the high end of our previously issued guidance or approximately 21%.
Our income tax provision on adjusted earnings was 10.4% in the first quarter fiscal 20 significantly lower than 17.9% in the first quarter of the prior year.
This lower tax rate was due to higher share vestings and increased option exercises.
Based on the benefits, we are seeing from equity investing and option exercises. We now expect a first half tax rate to be a low teens percentage of adjusted income before taxes, and our second half tax rate to be in line with the full year income tax rate for fiscal 19.
Adjusted earnings per share came in at 81 cents was 37.3% higher than the first quarter of fiscal 19, driven by strong operating income growth.
The lower tax rate and fewer outstanding shares.
Our adjusted earnings per share reflects seven cents positive impact on a year over year basis from our tax rate.
I'd now like to provide some financial details about the operational excellence program announced this morning.
Although we have shown improvements in gross and operating margins, we have additional opportunities to improve product quality and lower our cost of goods sold.
We anticipate that this program will be substantially completed by the end of fiscal 2003.
Providing benefits beginning in the second half of fiscal 2000 and targeted to reach $80 million to $90 million in annual savings.
We estimate that the majority of the savings realized will drop to operating income by the conclusion of the program.
Additionally, this program will result in restructuring and related charges of $60 million to $70 million and additional investments of $60 million to $70 million in capital expenditures.
These expenditures will be incurred over the course of the four year program as the specific actions required to execute on these initiatives are identified and approved.
Additional details about the pacing of anticipated savings required restructuring and related charges and capital expenditures will be evaluated each year as part of our annual operating plan and will be provided with our annual guidance for each fiscal year.
In the first quarter of fiscal 20, we incurred $51 million of asset impairments and related costs associated with the disposition of the Union South Carolina facility to CSL plasma.
These charges were primarily related to the manufacturing facility, including its equipment and inventory and were excluded from our adjusted earnings.
Free cash flow before restructuring and turnaround cost was $5 million in the first quarter fiscal 20, compared with $6 million in the first quarter fiscal 19.
In the first quarter fiscal 20, we had a $63 million cash outflow related to an increase in working capital.
Which included a decrease in accounts receivable offset by three items.
First we had an increase in inventories due to a build of our safety stock levels in particular for plasma which included the continued manufacturing of Nexus devices.
Second accrued liabilities decreased as we made a payment for the fiscal 19 year end performance based bonus.
And finally, a decrease in accounts payable related to the timing of payments to one about third party service providers.
In the first quarter fiscal 20, we completed $75 million of our $500 million share repurchase program and repurchased about 645000 common shares.
As a reminder, our $500 million share repurchase authorization was issued for two years and we plan to utilize this authorization during fiscal 20 and fiscal 21 to offset historical and ongoing dilution.
We finished our first quarter fiscal 20 with $190 million of cash on hand, and increased about $21 million from fiscal 19 year end.
We are confident with our fiscal 20 expectations of 6% to 8% organic revenue growth and 24% to 32% adjusted earnings growth over the prior year.
We continue to find new revenue growth opportunities and execute on transformative initiatives.
The first quarter was a strong beginning to fiscal 2000, and we believe that the momentum created coupled with the operational excellence program sets us up to achieve our fiscal 20 guidance and helps to de risk our fiscal 21 aspirations now I'd like to turn the call back to the operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.
And our first question comes from Anthony Petrone from Jefferies. Your line is open.
Thanks, Good morning, and congrats on a strong start to the year here.
First question is going to be on on plasma and just going through the moving parts. There on on the 16% on a new reporting structure can you maybe give us a little bit of detail on.
The benefit from volumes versus price.
In the quarter or even maybe nexus kits versus the legacy but within that can can can you provide a little bit of detail on what we've been hearing all are persistent and rising shortages or by the G.
And around that what would be the impact for volumes as the year progresses, and then I'll ask one follow up on cost. Thanks.
Yes, Anthony it's Chris.
Thanks for the question with regards to plasma it is a combination of volume mix and price and I think the delineation within them gets a little bit sensitive obviously, given the competitive nature, but what we see is continued robust demand for source plasma. We clearly benefited from the conversions that we did last year to the Nexus platform and the associated premiums that come with that.
And then there's also the question of mix.
This is bill highlighted we had a very good quarter continue to have real robust demand for our next link Dms and the upgrades they are in.
As well as some of our service and support so all that contributed positively to the quarter and gives us confidence for the guidance going forward with regards to the shortages. We obviously monitor this very closely there is a lot of publication detailing exactly what's taking place in the market.
It traces back to.
As you've highlighted and just simple reality that.
These there is a continued expansion in indications in formulations and geographical reach and I think the market.
The industry continues to respond to try to meet those shortages, we think it reinforces the value proposition of our platform Baltimore and we stand ready to help the industry to respond to that increased demand.
Just a quick follow up would be is just to confirm is there any kink in the hose associated with.
Donor retention accord, attracting donors to collection sites and just on the cost program, the new one announced.
How should we think about layering that in through the fiscal 2023.
Targeted endpoint thanks again.
Yes, thanks, Anthony so with regards to donor satisfaction during a retention with traction we think thats actually the unsung.
Real benefit of Nexus, we're doing a bunch exit surveys what we hear is on spike in donor satisfaction to procedures more interactive features faster. It is more predictable and it's early so I want to be careful where we go with the data at this point, but across 5 million collections. We now have clear evidence that.
Donors donate more frequently and are willing to come back more for a longer duration of time.
In their active period of donating so we think it's an important part of the value proposition that will come to the four as we expand that reach.
With regards to the new program I think what we've said in the prepared remarks. This is very much focused on.
Improving product quality and service support it builds on the lessons learned from complexity reduction Realex deal was a huge catalyst for us culturally, but this we focused disproportionately on our cost of goods sold and improving quality and reliability in our global supply chain.
And Anthony it's bill as part of the guidance that we.
Issued.
The.
Saving any savings related to the program are included in that new guidance and with the folks of the program manufacturing it takes a little bit longer to get to the savings. Obviously, so we'll start to see those savings ramp up as we get into the flight 21 and beyond but we have included some savings.
Already into the.
Guidance that we adjusted upwards.
Thanks Shannon.
Yes.
Thanks Bill.
And our next question comes from David Lewis from Morgan Stanley . Your line is open.
Hi, This is mason on for David Thanks for taking my question.
The gross margins, obviously stepped up materially and you started mix pricing strategies and productivity any chance you can parse that out a little bit further and what was potentially the most material drivers here and then how you see the outlook from here on gross margins. Thanks.
Yes, so all those items did drive gross margin up by 400 basis points, we don't take the approach of.
Dis aggregating the exact benefits of each of the drivers and we actually don't.
Typically even guide to gross margin by quarter, but I think going forward you can see some of the.
Although the all these benefits that we spoke about in the quarter to drive margins for the rest of the year.
The one thing that was a kind of a onetime items that helped out margin the quarter, where the software. Some software contracts that we were able to recognize the revenue in the in the quarter net drove about a point of gross margin improvement, but other than that.
The the pricing strategies that we're implementing a really positive the divestiture of the Union South Carolina facility helped us out will continue to help margins throughout the.
The year and the complexity reduction program this being.
The final stage of the program. This year and also drove some benefits there may be some it's Chris let me pick up on that I do think operational excellence will further over time beyond F Y 20 over time help us improve on those gross margins that's really the focus on it with regards to reducing our cost of goods sold.
As it pertains to our operational expenses and some of our SGN a we have had meaningful reshaping of that spend it's my pet peeve around SGN, a we've actually invested pretty significantly in sales. We've done so largely keeping our opex neutral by taking cost out of the June you see that rebalancing I think that is true investment coming off of the benefits from complexity reduction and one of the things its propelled some of the topline performance.
Great Thats very helpful. And then hospital segment growth came in a little lighter than I think street estimates. This quarter I was wondering if you could touch on this a little bit more detail on if you're still comfortable with the achieve ability of fiscal 20 guidance. Thanks very much.
Thank you Miss we are comfortable with that with the five point of guidance. We've left that unchanged, we feel great about tag in particular, the early stage of the launch of adult trauma in the US is our delegates and going quite well.
We're seeing good demand in China and elsewhere for the products so tags fully on track.
At or ahead of expectations transfusion management is the other source of strength for us really doing quite well.
Smaller line of business profitable and growing rapidly. So we feel great about that we've struggled a little bit on cell salvage.
The different issues, depending on where you are probably not where it needs to be anywhere in the globe, particularly in Europe , right now mainly competitive pressures and we've just.
We made changes to our commercial team we're stepping up our competitive efforts. We have every reason to believe will regain our footing, but it was a weak spot for us in the quarter that we attempt we intend to correct for.
Great. Thank you both.
Thank you. Our next question comes from Larry Keusch from Raymond James Your line is open.
Thanks, Good morning, everyone.
Just wanted to.
Chris maybe touch on capital allocation.
Sort of a two part question here and then I had one other one.
Again sort of just.
Thoughts around M&A, and how you view the environment out there asset valuations et cetera, and then as the second part of that question.
Maybe this is for you Bill as you think about the share repurchase that you sort of have planned here over the next year in change just curious as to how we should be thinking about that yeah. You did NSR. So just trying to think through his assets are more likely to be the way that you will get this done or is that potentially a which is more open market purchases through time.
Stand, how we think about the modeling.
Glenn It's Chris Thanks for the question I think we do spend a good bit of time thinking through capital allocation and the business is increasingly robust as we expand our EBITDA margins and cash flow, which is a great challenge to think about how do we do this our priorities remain unchanged number one organic growth it's.
No it's investing in our people and expanding our product portfolio is the equipment build the plant property and equipment capacity, we need to meet this rising demand that is our first priority that's driving the organic growth of the business and something were.
His first amongst equals and that we're very proud of we do want to pursue inorganic growth to complement as you rightfully point out asset valuations in the market our high some of them have corrected a little bit year to date, but not much and so we we see ourselves as a buyer.
But we're not going to do deals that are accretive in the operating benefit that they afford us not not just because we can borrow inexpensively. So we're continuing to look hospitals. The sector that is probably going to be the beneficiary of that and as we look to complement tags in its various permutations globally and create more operating leverage in the hospital segment, but.
But we're we're in the market and we are actively looking we see some things that make sense to us we want to be prudent and thoughtful about how we do it and then.
I'll, let bill talked about Alice share repurchase factors one of them.
Hi, Larry so on the on the ANSR, Yes, we utilize the ANSR for the share repurchase that we did in the quarter. We also utilized it on prior.
Under the prior share repurchase authorization and we have all in tents purposes, and running the HSR for future programs, we see so many benefits with the asrs in terms of rate.
Early retirement of the shares the discounts, we get and the the elimination of the administrative burden we have on the company. So yes, we continue to use it and we plan on using going forward.
Okay and then.
Given the rising create tensions with China can you just remind us again of.
Your exposure.
Two two terrorists and if there was what it was in the quarter and again to the extent that there is any meaningful tariff exposure, how you plan to mitigate it. Thank you.
Yes, that's a situation we watch closely Larry the reality is.
We're excited about China, and our growth there two of our three businesses are represented both our hospital in our blood Center business, both are growing and contributing nicely to our overall performance in aggregate, though it's less than 5% of our revenue and then when you think about the portion of the product supply.
To China that comes from the US it's a much smaller fraction of that so it is not a material effect and to date at least.
Neither country has made blood or blood related products, a focus of their endeavors. So we model that we're watching it.
It's not a material factor or not not an issue. We're concerned about we do look for opportunities to expand I'd love to see our plasma business. There we've got the source locally in China and its something we will.
In the spirit of being a bit contrary and I think we'll continue to explore over the coming quarters as opportunities present themselves.
Okay very good thank you very much.
Thank you. Our next question comes from Brian Weinstein from William Blair. Your line is open.
Hi, guys. Good morning, this is actually Andrew Brackman on for Brian .
A couple questions on the 5 million collections to date, so I think thats right around $1.5 million in the quarter. So I guess first was this in line with your assumptions heading into the quarter and then as we think about sort of the remainder of the year in the guide should we assume this 1.5 million per quarter or 6 million run rate is a number of collections, which are contemplated in that guide or is that something more thanks.
Andrew its Chris so.
You are right the 5 million collections going to fully in line with what we had anticipated we were not going to guide to the individual number of collections. What we have is in our guidance and our ranges et cetera, we're assuming no new.
Substantial contracts on the disposables themselves are for new equipment. So.
We will continue to grow that we'll grow that as our customers respond to the.
Unmet need in the marketplace.
We think that we'll see an increasing benefit it is interesting if you actually work back against what that means for them right. If you think about.
115000 leaders, but those 5 million collections, reflecting year, depending on what value put on that that's worth in likelihood in excess of $20 million.
Of incremental plasma just valued at their current cost base on ignoring the 10% savings, which would be another 50 to 60 million on top of that are the foregone remuneration for donors that comes from that this is easily worth $80 million to $100 million of economics to the industry and we're delighted to be a part of that equation and helping those customers realize that it will continue to grow over the year and if we have reason to change our guidance Accordingly, we will.
Okay. Thanks for that color, Chris and then as it relates to the new restructuring plan today appreciate that but maybe on the core operating margin expansion opportunities outside of this plan how should we think about sort of areas of further expansion here and I guess, maybe what I'm getting at is over the longer term, where should we think about sort of operating margin getting to for to be cut sort of peak haemonetics operating margin. Thanks.
Yep.
Thanks, Andrew.
So on operating margins.
Three years ago operating margin was in the 13% range where guidance to approximately 21% now so we've seen significant operating margin expansion over the.
Last three years, we two years ago had said that by fiscal 21 that we would be.
Approximately 20% or just above that we havent updated any guidance related to that where.
At approximately 21% guide this year. We are ahead of what we thought for the plan, but our next.
Investor Day.
Meeting, which we don't have scheduled yet we'll start to provide guidance going forward on our operating margins.
Okay. Thanks, guys.
Welcome.
Thank you and again, ladies and gentlemen to ask a question. Please press Star and then one now and our next question comes from Dave Turkaly from JMP Securities. Your line is open.
Great. Thanks, I guess.
Sorry to start I'd say.
So what was the former management team doing.
That you're able to find another $80 million to $90 million of cost to pull out I'm teasing a little bit but.
[laughter].
After just having completed say 80 by the end of this year to find another.
85, I'm. Just curious is this is Chris is really sort of.
Your experience and background.
Your focus in the past that you're applying here to find that type of that level of savings.
Yes, it's interesting David I was reflecting this is Mike.
Three year anniversary for the first earnings call I got to ask a question I think during that call about.
The audacity of the planner or gave us confidence and I, probably didnt give a great answer the answer I would have wanted to given hindsight is any transformation like this is entirely a function of the leadership team and the team that they can recruit to do the work I think we feel so much more confident today that we actually have the right leaders across the entirety of the organization, including our operating functions, specifically manufacturing and supply.
Detailed work on quality assurance or in our design engineering.
Our global business services, and what you're observing and our ability to turn our attention towards productivity gains.
The primary focus is product quality, but the associated benefit that comes from productivity gains is a function of the leadership in those areas. It just didn't didn't exist three years ago, So having that team in place having the facts in the analytics that they now have their detail understanding.
The momentum they've created in the absence of operating penalties when I did that call three years ago. We earned a lot less per share than we do today. The difference a big part of that is complexity reduction, but another big part of that is the absence of operating penalties to credit the team and I am we're confident they're going to deliver on that a majority of those savings will will pass through in terms of our improved financial health.
Got it and then you mentioned next link well actually and on the call. You also mentioned save correct.
Trace blood track.
And the year.
Seems to be one of the only companies offering sort of these software auction. So I just wanted to get.
Your thoughts on.
What any of the competitors are doing if you think they are coming with anything in those areas and is that how big and advantage is that for you guys.
It seems like you are.
Driving results the software across several different areas.
Yes. The software is an area we are attempting to up our game, we're building out our capabilities internally and through partnership with others and.
We're confident it's going to be a huge catalyst for us going forward. When you think about next link specifically dating back to 2015 Haemonetics was largely out of the Dms software game, we left the door open for others and and suffered accordingly.
One of our customers reached out to us because they were so frustrated by the lack of support there we're getting elsewhere and pulled us back in the company responded admirably in 2017, we completed that conversion is public knowledge, we talked about it at the time, but that was a real precursor for next link we've now had multiple competitive win backs to the next link system and we're upgrading everybody who was on our legacy system. So it's a soon not so secret sauce behind the effectiveness of Nexus and it's a huge part of this and I think we have only begun to scratch the surface of what software data analytics and digital can mean for our customer base. So we're going to continue to up our game. There at the hospital is a different opportunity. Its a great. One you mentioned safetrace TX in combination with with the blood track system, we definitely have competition there but.
We're we're we're really focused on it and I think thats one of the benefits of the integrated business historically that we know something about I'll handle blood in a hospital and we're bringing that.
We're bringing that to bear and it is a proprietary advantage just like Dms the difference Dms were.
I don't know that.
I'm not sure I'd say, we're we're not just the best at what we do there we are the only ones who do what we do there.
Thank you.
Thank you.
And our next question comes from Mike Petusky from Barrington Research. Your line is open.
Hey, Good morning, guys. Just a quick one around the guide and hospital is much assume from adult drama there and I guess also just oh.
You seemed to allude that it's off to a good start could you. If there is any color you can give on that that'd be great. Thanks.
Yes on an adult trauma we.
We got the approval released earlier in the fiscal year. So we come out of the gates from the second part of the quarter trying to get moving on it and I think we'll ramp from there.
We're eagerly awaiting.
For channel option for platelet mapping cartridge, which we expect to have this year as well.
Outside the US I think we have the full spectrum of use for the TEG success. So we're just expecting.
Our salesforce investments in the go to market model step up that we've done there to begin to pay dividends and returns much like we're seeing already in the U.S. So I think the combination of those things beliefs on TEG transfusion management gives us additional upside and I think the real focus is just getting our footing back and taking back what's rightfully ours in cell saver as a market leading product and I think with the end of life complete for ortho, Pat we have the focus and the energy and we just need to execute against that but the combination of those three gives us optimism for the guide.
We will regain where we are and make up the difference by year end for hospital.
Okay. That's all I've got a great start to the year. Thanks.
Thank you.
Thank you.
And I am showing no further questions from our phone lines I would now like to turn the conference back over to Chris Simon for any closing remarks.
Thank you operator just.
Couple of quick closing comments guys interesting times for sure I think a strong start to the year as evidenced of the robustness of our long term value drivers complexity reduction as an example help catalyze both cultural change for us and lowered our operational expenses.
Operational excellence on the other hand, we will build on these learnings, but as more focus as we've said on improving quality. While also lowering our cogs were optimistic about growth and profitability such that we raised our adjusted EPS and operating margin guidance and we're confident that this strategy and our ability to accelerate growth and create long term value for our stakeholders across the board. So thanks again for joining today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a wonderful day.