Q3 2024 Haemonetics Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to Haemonetics Corporation's third quarter fiscal 2024 earnings conference call. At this time, all participants are in the listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising you how your question was made. Please note that this conference is being recorded. I will now hand the conference over to your speaker host, Olga Guyette, Senior Director of Investor Relations and Treasury.

Good day and thank you for standing by welcome gentlemen that ex Corporation third quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen only mode.

Olga Guyette: Good morning, everyone. Thank you for joining us for Haemonetics' third quarter fiscal year 2024 conference call and web chat. I'm joined today by Chris Pyman, our CEO, and James Zareka, our TFO. This morning, we posted our third quarter fiscal year 2024 results on our Investor Relations website, along with our updated Fiscal 24 Guidance. Before we begin, just a quick reminder that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuations and the recently completed acquisition of options. We will also refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items.

After the Speakers' presentation, there'll be a question and answer session.

Ask a question during the session you wanted the best Dog one one on your telephone.

I'll, then hand automatic message advising you had in this space.

Please note that today's conference is being recorded.

I will now hand, the conference over to your Speaker House, Olga Guyette Senior director of Investor Relations and Treasury. Please go ahead.

Good morning, everyone. Thank you for joining us for human genetics third quarter fiscal year 2024 conference call and webcast I'm joined today by Chris Simon Our CEO and James Director.

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This morning, we posted our third quarter fiscal year 'twenty 'twenty four results, our Investor Relations website, along with our updated fiscal 'twenty for guidance.

Olga Guyette: For a full list of excluded items, reconciliations to our GAP results, and comparisons with the prior year period, please refer to our third quarter fiscal year 2024 earnings release, available on our website. Our remarks today include forward-looking statements, and our actual results may differ materially from those anticipated. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in our other SEC filings. We do not undertake any obligation to update this forward-looking statement. And now, I'd like to turn it over to Chris.

Before we begin just a quick reminder, that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuation in our recently completed acquisition of option.

Well also refer to other non-GAAP financial measures to help investors understand human ethics online business performance.

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

For a full list of excluded items reconciliations to our GAAP results and comparisons with the prior year period. Please refer to our third quarter of fiscal year 'twenty 'twenty four earnings release available on our website.

Chris Pyman: Thanks, Olga. Good morning, and thank you all for joining us. Today, we reported third-quarter revenue of $336 million, growth of 10% on a reported and organic basis, and adjusted earnings per diluted share of $1.04, 22% growth over the prior year. Our results underscore our success in driving above-market growth while we are achieving critical milestones in our long-range plan to fuel the transformation of our company. Margin expansion through FY24 foreshadows the compounding impact of changes in volume and mix coupled with productivity and operating leverage. We are proud of our accomplishments and enthusiastic about the many opportunities to grow our business moving forward. Through portfolio evolution, operational excellence, and resource allocation, we've strengthened our leadership in plasma while building our high-growth, high-margin hospital segment to expand our scale and leverage.

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

Factors that may cause our results to differ include those referenced in our safe Harbor statement in today's earnings release.

And in our other SEC filings we.

We do not undertake any obligation to update these forward looking statements and now I'd like to turn it over to Chris. Thanks.

Thanks, Olga good morning, and thank you all for joining us.

Today, we reported third quarter revenue $336 million growth of 10% on a reported and organic basis and adjusted earnings per diluted share of $1, 422% growth over prior year.

Our results underscore our success in driving above market growth, while we are achieving critical milestones in our long range plan to fuel the transformation of our company.

Margin expansion through FY 'twenty, four foreshadows, the compounding impact of changes in volume and mix, coupled with productivity and operating leverage.

Chris Pyman: Looking at our business unit results, plasma revenue grew 8% in the third quarter and 17% year-to-date, driven primarily by volume. Our collections environment in the U.S. continues to be favorable, with disposables growing 7% in the quarter and 17% year-to-date. With robust recovery continuing, our Operational Excellence Program helped us ensure delivery for our customers as they continue to collect historically high volumes, further highlighting the need for reliability, donor safety, and yield-enhancing solutions. We are working in close collaboration with our customers to provide solutions that further distinguish Haemonetics as the undisputed industry leader in plasma innovation. The rollout of Persona, our proprietary technology proven to increase yield 9-12% on average, continues to gain momentum with more than 25 million collections. The limited market release of our new Express Plus technology has been encouraging. We have performed over 50,000 collections that have demonstrated a significant reduction in procedure times, and we remain on track for full market release in early Fiscal 25. Advances in NextLink DMS, our bi-directional connectivity software, are improving cycle times, reducing errors, and allowing staff to focus on taking care of donors and reducing door-to-door time, a key determinant of donor satisfaction.

We are proud of our accomplishments and enthusiastic about the many opportunities to grow our business moving forward.

Through portfolio evolution operational excellence and resource allocation, we've strengthened our leadership in plasma while building our high growth high margin hospital segment to expand our scale and leverage.

Looking at our business unit results plasma revenue grew 8% in the third quarter and 17% year to date, driven primarily by volume.

Our collections environment in the U S continued to be favorable in disposables with disposables growing 7% in the quarter and 17% year to date.

With robust recovery, continuing our operational excellence program helped us ensure delivery for our customers as they continue to collect historically high volumes further highlighting the need for reliability donor safety and yield enhancing solutions.

We are working in close collaboration with our customers to provide solutions that further distinguish <unk> as the undisputed industry leader in plasma innovation.

The rollout of persona, our proprietary technology proven to increase yield 9% to 12% on average continues to gain momentum with more than $25 million collections.

The limited market release of our New Express plus technology has been encouraging.

Chris Pyman: The combination of Persona, Express Plus, and Nexlink sets a new industry standard for center throughput, cost per liter, and donor satisfaction. Due to strong year-to-date results, we are increasing our plasma guidance from 10-12% to 11-13%. You remain bullish on Plasma longer term, and we are confident in our ability to maintain leading market share while continuing to migrate customers to our latest technology. Love Center revenue declined 3% in the third quarter and 1% year-to-date; aparesis revenue was down 1% in the quarter, but grew 2% year-to-date.

We have performed over 50000 collections that have demonstrated a significant reduction in procedure times and we remain on track for full market release in early fiscal 'twenty five.

Advancing <unk> and X linked Dms are bidirectional connectivity software are improving cycle times, reducing errors and allowing staff to focus on taking care of donors and reducing door to door time, a key determinant of donor satisfaction.

The combination of persona Express plus and next link sets a new industry standard for center throughput cost per liter and donor satisfaction.

Due to strong year to date results, we are increasing our plasma guidance from 10% to 12% to 11% to 13%.

Chris Pyman: Both in the quarter and year-to-date, we continue to benefit from increasing blood center plasma collections, particularly within newly established plasma centers in Egypt, and strong efforts to increase the collection of red cell units in the U.S. These trends were partially offset by the strong growth we experienced last year and order timing among distributors, particularly in our third quarter. Whole blood revenue declined 6% in the quarter and 9% year-to-date, predominantly driven by lower volumes associated with our decision to rationalize parts of this business, partially offset by benefits from last-time buys.

We remain bullish on plasma longer term and we are confident in our ability to maintain leading market share while continuing to migrate customers to our latest technology.

Blood Center revenue declined 3% in the third quarter and 1% year to date.

<unk> revenue was down 1% in the quarter, but grew 2% year to date, both in the quarter and year to date, we continue to benefit from increasing blood center plasma collections, particularly with our newly established plasma centers in Egypt and strong efforts to increase the collection of Red cell units in the U S. These.

Chris Pyman: The Portfolio and Manufacturing Network Rationalization initiatives we introduced in November are critical for preserving blood centers' ability to generate strong epitopes, as we continue to work with our customers to migrate them to alternative quality. Due to price benefits and early success with customer migration, we are increasing our revenue growth guidance from a range of minus 4% to minus 2% to a range of minus 2% to flat. Our hospital business had an especially strong third quarter with revenue growth of 22% as all of our products grew double digits, year-to-date hospital group 17% driven by the continued success of vascular closure and hemostasis management. In interventional technologies, which includes vascular closure and opt-sense products, vascular closure grew 28% in the third quarter and 29% year-to-date, driven by continued momentum with new account openings and improving This footprint will also provide the foundation for future growth, particularly as we realize opportunities through our innovation and M&A pipeline, and internationally apply for gain recognition, contributing approximately 200 basis points of growth in the third quarter. We completed the OptiSense acquisition on December 12th.

These trends were partially offset by the strong growth, we experienced last year and order timing among distributors, particularly in our third quarter.

Whole blood revenue declined 6% in the quarter and 9% year to date predominantly driven by lower volumes associated with our decision to rationalize parts of this business, partially offset by benefits from last time buys.

Our portfolio and manufacturing network rationalization initiatives. We introduced in November are critical for preserving blood centers ability to generate strong EBITDA.

As we continue to work with our customers to migrate them to alternative products do.

Due to price benefits and early success with customer migration, we are increasing our revenue growth guidance from a range of minus 4% to minus 2%.

To a range of minus 2% to flat.

Our hospital business had an especially strong third quarter with revenue growth of 22% as all of our products grew double digits.

Year to date hospital grew 17% driven by the continued success of vascular closure in Hemostasis management.

In interventional technologies, which includes vascular closure and <unk> products vascular closure grew 28% in the third quarter and 29% year to date, driven by continued momentum with new account openings and improving utilization throughout the U S. We are.

We're on track to be in 80% of the target top 600 U S Hospital accounts by the end of this fiscal year, providing us access to the vast majority of addressable procedures in this market.

Chris Pyman: This is an exciting milestone for us as we continue to expand our hospital business with procedure-enabling technologies in high-growth areas. The integration is underway, and we plan to launch both SavvyWire and OptiWire sensor-guided technologies with our U.S. commercial team in April. These products are highly synergistic with our vascular closure products and are immediately accretive to revenue and adjusted earnings for diluted share growth with an expected three-year ROIC in excess of 10%. Now moving to blood management technologies, which include hemostasis management and our Legacy Hospital products. Hemostasis management revenue grew 18% in the third quarter and 14% year-to-date, driven by increased capital sales and utilization of tagged disposables in the U.S. and China. Gross margin in China rebounded in the third quarter, more than offsetting previous underperformance in that market earlier this year.

This footprint will also provide the foundation for future growth, particularly as we realize opportunities through our innovation and M&A pipeline.

Internationally, our products are gaining recognition contributing approximately 200 basis points of growth in the third quarter.

We completed the <unk> acquisition on December 12. This is an exciting milestone for us as we continue to expand our hospital business with procedure, enabling technologies in high growth areas. The integration is underway and we plan to launch both savvy wire and <unk> sensor guided technologies with our U S commercial team in April.

These products are highly synergistic with our vascular closure products and are immediately accretive to revenue and adjusted earnings per diluted share growth with an expected three year ROIC in excess of 10%.

Chris Pyman: We anticipate sustaining our growth momentum as we capitalize on our significantly expanded R&D and clinical capabilities to further develop new and existing products and commercial infrastructure to cover the majority of our strategic accounts in the $700 million underpenetrated total addressable market. The rest of the Blood Management Technologies portfolio, which includes transfusion management and cell salvage, grew 18% in the third quarter and 6% year-to-date. Transfusion management was up significantly year-over-year due to the completion of customer implementations for both FaceTrace TX and BloodTrack, as well as growth in recurring maintenance revenue for both products. Protein cell salvage was driven by strong utilization of disposable kits, both in the U.S. and China.

Now moving to blood management technologies, which includes hemostasis management and our legacy Hospital products Hemostasis management revenue grew 18% in the third quarter and 14% year to date, driven by increased capital sales and utilization of TEG disposables in the U S and China.

Growth in China rebounded in the third quarter more than offsetting previous underperformance in that market earlier this fiscal.

We anticipate sustaining our growth momentum as we capitalize on our significantly expanded R&D and clinical capabilities to further develop new and existing products and commercial infrastructure that cover the majority of our strategic accounts and the $700 million are underpenetrated total addressable market.

The rest of the blood management technologies portfolio, which includes transfusion management and cell salvage grew 18% in the third quarter and 6% year to date trend.

Chris Pyman: In hospitals, we expect continued revenue growth acceleration and reaffirm our previous guidance range of 16-18%, which is on top of the strong revenue growth we experienced in the prior two years. Our transformational growth plans are working across our business. And we are raising our total company revenue guidance by 200 million dollars to a new range of 10-12% to better reflect the year-to-date momentum in plasma and our success mitigating challenges in our blood center vision. Now I'll hand it over to James to discuss the rest of our third quarter results and updated FY24 guidance. Okay, James?

Infusion management was up significantly year over year due to the completion of customer implementations for both safe trace TX and blood track as well as growth in recurring maintenance revenue for both products.

Both in cell salvage was driven by strong utilization of disposable kits, both in the U S and China.

In hospital, we expect continued revenue growth acceleration and reaffirm our previous guidance range of 16% to 18%, which is on top of the strong revenue growth we experienced in prior two years.

James Sidoti: Thank you, Chris, and good morning, everyone. I'll begin with our business results and some additional updates to our fiscal 2024 guidance. Third quarter adjusted gross margins were 55.3%, an increase of 280 basis points compared with the third quarter of the prior year. Adjusted gross margin year-to-date was 54.5%, an increase of 80 basis points compared with the prior year. Both the third quarter and year-to-date adjusted gross margins benefited from price, volume, and a favorable mix driven by strong sales in hospitals and continued momentum in plastics. However, these benefits were somewhat offset by increased depreciation, impacts from foreign exchange, and $6.8 million in cumulative year-to-date charges related to a voluntary product recall in our whole blood business, which was announced earlier in Fiscal 24. Adjusted operating expenses in the third quarter were $112.7 million, an increase of $11 million, or 11%, compared with the third quarter of the prior year. As a percentage of revenue, adjusted operating expenses were at 33.5%.

Our transformational growth plans are working across our businesses and we are raising our total company revenue guidance by 200 basis points to a new range of 10% to 12% to better reflect the year to date momentum in plasma and our success mitigating challenges in our blood Center business now I'll hand, it over to James.

To discuss the rest of our third quarter results and updated FY 'twenty four guidance James.

Thank you, Chris and good morning, everyone.

We begin with our business results and some additional updates to our fiscal 2020 for guidance.

Third quarter adjusted gross margin was 55, 3% an increase of 280 basis points compared with the third quarter of the prior year.

Adjusted gross margin year to date was 54, 5% an increase of 80 basis points compared with the prior year.

Both the third quarter and year to date adjusted gross margins benefited from price.

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These benefits were somewhat offset by increased depreciation impacts from foreign exchange and a $6 $8 million in cumulative year to date charges related to a voluntary product recall in our whole blood business, which was announced earlier in fiscal 2004.

James Sidoti: The increase in adjusted operating expenses in the third quarter was due to higher growth investments, higher performance-based compensation, and, to a lesser extent, higher freight costs. Adjusted operating expenses to date were $314.9 million at 32.6% of revenue, compared to last year's $299.9 million at 34.7% of revenue. The decrease in adjusted operating expenses as a percentage of revenue is driven by growing operating momentum, which more than offsets continued investments in our business. Most of these investments were directed toward advancing our innovation pipeline and amplifying market share in our hospital business. We anticipate that the investments we are making today will continue to expand our operating leverage over the next several years. Adjusted operating income was $73.4 million in the third quarter and $211.9 million year-to-date, representing increases of $14 million and $47 million, respectively.

Adjusted operating expenses in the third quarter were $112 7 million.

An increase of $11 million or 11% compared with the third quarter of the prior year.

As a percentage of revenue adjusted operating expenses were at 33, 5%.

The increase in adjusted operating expenses in the third quarter was due to higher growth investments higher performance based compensation and to a lesser extent higher freight costs.

Adjusted operating expenses year to date were $314 9 million at 32, 6% of revenue compared to last year's $299 $9 million at 34, 7% of revenue.

The decrease in adjusted operating expenses as a percentage of revenue is driven by growing operating momentum, which more than offset continued investments in our business.

Most of these investments were directed toward advancing our innovation pipeline and amplifying market share in our hospital business.

James Sidoti: As a percentage of revenue, the adjusted operating margin was 21.8% in the third quarter and 21.9% year-to-date, up 250 basis points and 290 basis points, respectively, when compared with the same period in the fiscal year 2023. We remain confident in our ability to expand our margins. Our fiscal year 2024 Adjusted Operating Margin guidance remains unchanged at approximately 21% and includes the expected contribution from Opsense, which we anticipate to be slightly diluted to our adjusted operating margin in the near term. As you heard from Chris, we have big plans for this business and expect it to become increasingly accretive throughout our adjusted P&L in the next several years, particularly as we begin to realize synergies and improve scale. Our guidance also includes $20 million in target growth savings from the Operational Excellence Program, or about $6 million in net savings, helping to generate additional efficiency and free up resources that can be reallocated to drive growth. We are one year ahead of schedule to complete our OEP and deliver $116 million of gross target cumulative savings by the end of this fiscal year, with about 30% of these savings directly benefiting our bottom line.

We anticipate that the investments we are making today will continue to expand our operating leverage over the next several years.

Adjusted operating income was $73 4 million in the third quarter and $211 $9 million year to date, representing increases of $14 million and $47 million respectively.

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As a percentage of revenue the adjusted operating margin was 21, 8% in the third quarter and 21, 9% year to date up 250 basis points, and 290 basis points, respectively, when compared with the same periods in fiscal year 2020.

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We remain confident in our ability to expand our margins our fiscal year 2024, adjusted operating margin guidance remains unchanged at approximately 21% and includes the expected contribution from <unk>, which we anticipate to be slightly dilutive to our adjusted.

Operating margin in the near term.

As you heard from Chris we have big plans for this business and expect it to become increasingly accretive throughout our adjusted P&L in the next several years, particularly as we begin to realize synergies and improved scale.

Our guidance also includes $20 million and targeted gross savings from the operational excellence program or about $6 million and net savings helping to generate additional efficiency and free up resources that can be reallocated to drive growth.

James Sidoti: This program helps us drive renewed efficiencies and strengthen our supply chain. Beyond this program, we will continue to pursue additional opportunities to reduce our costs and further improve efficiency. The Portfolio and Manufacturing Network Rationalization Initiatives announced in November are just a few examples of our stewardship. The adjusted income tax rate was 25% in the third quarter, the same as in the third quarter of last year, and the adjusted income tax rate year-to-date was 23% and 24% in fiscal years 2024 and 2023, respectively.

We are one year ahead of schedule to complete our ODP and deliver $116 million of gross target cumulative savings by the end of this fiscal year with about 30% of these savings directly benefiting our bottom line.

This program helped us drive renewed efficiencies and strengthen our supply chain.

Beyond this program, we will continue to pursue additional opportunities to reduce our costs and further improve efficiency.

The portfolio and manufacturing network rationalization initiatives announced in November are just a few examples of our stewardship.

James Sidoti: Third-quarter adjusted income was $53.3 million, up $9.7 million, or 22%, and adjusted earnings for diluted share was $1.04, also up 22% when compared with the third quarter of fiscal 2023. Year-to-date adjusted net income was $157.6 million, up $41.1 million, or 35%, and adjusted earnings per diluted share was $3.07, up 36% when compared with fiscal 2023. The combination of the adjusted interest expense, fluctuations in FX, and adjusted income tax had about a $0.09 unfavorable impact in the third quarter and about $0.02 unfavorable impact year-to-date when compared with the prior year.

The adjusted income tax rate was 25% in the third quarter. The same as in the third quarter of last year and the adjusted income tax rate year to date was 23% and 24% in fiscal years 2024, and 2023, respectively.

Third quarter adjusted net income was $53 3 million up $9 7 million or 22% and adjusted earnings per diluted share was $1 <unk> also up 22% when compared with the third quarter of fiscal 2023.

Year to date, adjusted net income was $157 $6 million.

Up $41 1 million.

Or 35% and adjusted earnings per diluted share was $3 seven.

James Sidoti: We are updating our fiscal 2024 adjusted earnings per diluted share guidance to be in the range of $3.90 to $4, or approximately 30% growth in our adjusted EPS at the midpoint of our guidance range to better reflect strong year-to-date momentum. Turning now to select balance sheet and cash flow highlights. In our third quarter, cash outflow from operating activities was $0.5 million, and free cash outflow before restructuring and restructuring-related costs was $20.3 million, primarily due to the timing of disbursements, collection delays which temporarily increased accounts receivable, and increased inventory balances. Cash flow from operations for the nine months was $118 million, primarily due to higher net income, partially offset by higher inventory levels, which are expected to increase throughout fiscal 2024 as After taking into account $55 million in TAPEX and net of proceeds from the sale of property, plant, and equipment, we had $68 million of pre-cash flow before restructuring and restructuring-related costs.

Up 36% when compared with fiscal 2023.

The combination of the adjusted interest expense fluctuations in FX and adjusted income tax had about a <unk> <unk> unfavorable impact in the third quarter and about <unk> <unk> unfavorable impact year to date when compared with the prior year.

We are updating our fiscal 2024 adjusted earnings per diluted share guidance to be in the range of $3 90.

To $4 or approximately 30% growth in our adjusted EPS at the midpoint of our guidance range to better reflect strong year to date momentum.

Turning now to select balance sheet and cash flow highlights.

And our third quarter cash outflow from operating activities was <unk> 5 million.

And free cash outflow before restructuring and restructuring related cost was $23 million.

Primarily due to the timing of disbursements collection delays, which temporarily increased accounts receivable and increased inventory balances.

Cash flow from operations for the nine months was $118 million, primarily attributed to higher net income partially offset by higher inventory levels, which are expected to increase throughout fiscal 2024, as we replenish our inventory of the Nexus PCI.

James Sidoti: We are confident in our ability to generate strong free cash flow, and we are updating our expectations for free cash flow before restructuring and restructuring-related costs to be in the range of $160 to $180 million in fiscal 2024. Our financial position continues to provide us with flexibility to operate our business and execute our disciplined capital allocation strategy. At the end of our third quarter, we had $194 million of cash on hand, down $90 million since the beginning of our fiscal year 2024.

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After taking into account $55 million in Capex and net of proceeds from the sale of property plant and equipment, we had $68 million of free cash flow before restructuring and restructuring related costs.

We are confident in our ability to generate strong free cash flow and we are updating our expectations for free cash flow before restructuring and restructuring related costs to be in the range of $160 million to $180 million in fiscal 2024.

James Sidoti: In December 2023, we used a combination of $145 million of cash on hand and $110 million of the revolving credit facility to fund the acquisition of OpSense. Our net leverage ratio at the end of the third quarter was approximately 2.4 times EBITDA, leaving us ample room to continue our growth agenda, including additional M&A and organic investments both in the short term and in the long run. And now, I'd like to turn the call back over to Chris for a few closing remarks. Thanks, James.

Our financial position continues to provide us flexibility to operate our business and execute our disciplined capital allocation strategy.

At the end of our third quarter, we had $194 million of cash on hand down $90 million since the beginning of our fiscal year 2024.

In December 2023, we used the combination of $145 million of cash on hand, and $110 million of the revolving credit facility to fund the acquisition of <unk>.

Chris Pyman: As I reflect on the quarter and where we are in our journey, I'd like to reiterate a few points. As we approach the end of fiscal 24 and the midpoint of our LRP, we are tracking ahead of our growth goals of high single-digit organic revenue and mid-team adjusted EPS growth rates. This year, we expect to deliver at least 200 basis points of adjusted operating margin expansion despite more than 700 basis points of inflationary impacts and heightened freight costs needed to help combat continued supply chain inefficiencies when compared with fiscal 22, the starting point for our long-range plan.

Our net leverage ratio at the end of the third quarter was approximately two four times EBITDA, leaving us ample room to continue our growth agenda, including additional M&A and organic investments both in the short term and in the long run.

And now I'd like to turn the call back over to Chris for a few closing remarks, Chris.

Thanks, James So I reflect on the quarter and where we are in our journey I'd like to reiterate a few points.

As we approach the end of our fiscal 'twenty four and the midpoint of our RFP. We are tracking ahead of our growth goals of high single digit organic revenue and mid teens adjusted EPS growth rates. This year, we expect to deliver at least 200 basis points of adjusted operating margin.

Chris Pyman: We remain committed to our LRP, and as we scale our plasma business, execute the Portfolio Rationalizations Initiative, and drive commercial execution in hospitals, we expect to see continued expansion in our adjusted operating margins consistent with our long-range plan. In plasma, we are the company our customers know and trust. We will continue to strengthen our leadership through our value-adding technology, continuously setting new industry standards for cost-per-liter improvement and donor satisfaction. In the hospital, we expect to more than double our revenue at the end of this fiscal year when compared with three years ago.

Spansion, despite more than 700 basis points of inflationary impacts and heightened freight cost needed to help combat continued supply chain inefficiencies when compared with fiscal 'twenty two so starting point for our long range plan.

We remain committed to our SRP.

And as we scale, our plasma business execute portfolio rationalization initiatives and drive commercial execution and hospital, we expect to see continued expansion in our adjusted operating margins consistent with our long range plan.

Chris Pyman: Subsequently, our goal is to double this revenue again within the next four years, positioning it as the largest segment in our portfolio, comparing favorably with the top quartile Med Surge sector revenue growth and margin profile. We are optimizing capital allocation and value creation while driving what will be a five-fold increase in capacity to $2 billion by the end of fiscal year 2026. We are making strategic acquisitions and building an M&A pipeline to sustain our momentum and expand leverage. With a disciplined strategy and a high bar for expected returns, we expect to accelerate our portfolio transformation as we launch new products, improve existing product features, and further augment our growth with highly synergistic M&A over the next two years. This isn't just a portfolio transformation; it's a company transformation. A journey consisting of a set of evolutionary steps to deliver revolutionary results.

In plasma we are the company our customers know and trust, we will continue to strengthen our leadership through our value, adding technology continuously setting new industry standards for cost per liter improvements and donor satisfaction.

In hospital, we expect to more than double our revenue at the end of this fiscal year when compared with three years ago.

Subsequently our goal is to double this revenue again within the next four years positioning it as the largest segment in our portfolio comparing favorably with the top quartile med surge sector revenue growth and margin profile.

We are optimizing capital allocation and value creation, while driving what will be a fivefold increase in capacity to $2 billion by the end of fiscal year 2026.

We are making strategic acquisitions in building, an M&A pipeline to sustain our momentum and expand leverage with a disciplined strategy and a high bar for expected returns, we expect to accelerate our portfolio transformation as we launch new products improve existing product features and further.

Chris Pyman: I'm confident that we have the right plan, the right resources, and the right focus to deliver value creation in the next several years and beyond. We are excited about the next phase of our growth. Thank you. We now would like to open the line for Q&A. Please send your questions. To ask a question, you will need to press star, 1-1 on your telephone and wait for your name to be announced.

<unk> our growth with highly synergistic M&A over the next two years.

This isn't just a portfolio transformation, it's a company transformation journey, consisting of a set of evolutionary steps to deliver revolutionary results.

Operator: If you have a question, you can press 511 again. Please stand by while we compile the Q&A box. And our first question comes from the line of Anthony Chung with Mizzou Home Group. You're on the sub. Thanks, and congratulations on a strong quarter here for the team. Maybe, Chris, I'll start with a couple on plasma and then I'll go to Jim on margins. On plasma, maybe just a state of the union here for a little bit on... You know, where do you see underlying demand from donors on the one hand, but where do your customers sit, the fractionators? Just on replenishing their inventories. And there may be a comment just on how we should be thinking about CXL from a things-out standpoint, just from the competitor update this week. And then I'll have a follow-up for you... Thanks, Anthony. I appreciate it.

I am confident that we have the right plan the right resources and the right focus to deliver value creation in the next several years and beyond we are excited about the next phase of our growth.

Speaker Change: Thank you, we now would like to open the line for Q&A.

Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and we're planning to be announced to withdraw. Your question you May Press Star one again, please standby, while we compile the Q&A roster.

And first question coming from the line of Anthony Petrone with Mizuho. Your line is open.

Thanks, and congratulations on a strong quarter here to the team.

Maybe Chris I'll start with a couple of implies MA and then I'll go to Jim on margins.

On plasma and maybe just.

State of the Union here, a little bit on.

Chris Pyman: So, the state of the market, right? I think the supply-demand equation in Source Plasma remains quite robust. From a fractionator perspective, they're continuing to work hard to meet growing end-market demand and replenish their inventories, and there's still a good way to go on both sides of that. So, we don't see any abatement in their desire to continue to accelerate collections, and what they're doing with their centers is really quite powerful, and we're delighted to be a part of helping enable that with our technology. On the donor side, we see no slowdown in donor traffic into the centers. A big chunk of that is obviously economic. For the donor demographic, they're still struggling quite heavily in this marketplace, unfortunately for them, so it does lead to a stronger desire to augment their disposable income, and we don't, again, we don't see any abatement there.

Anthony Petrone: Where do you see underlying demand from donors on one end, but where do the what are your customer set the fractionator.

Just on replenishing their inventories.

And then maybe a comment just on on how we should be thinking about CSL from from phase out standpoint, just from competitor update this week and then I'll have a follow up for Jim.

Yes, Thanks, Anthony I appreciate it.

So.

State of the market right I think the supply demand equation in source plasma remains quite robust from a fractionator perspective.

We're continuing to work hard to meet growing end market demand and replenish their inventories and there is still a good way to go really on both sides of that so we don't see any abatement in their desire to continue to accelerate collections and what theyre doing with their centers.

It's really quite powerful and we're delighted to be a part of helping enable that with our technology on the donor side, we see no slowdown in donor traffic into the centers.

Chris Pyman: I have read folks talking about the performance of the economy. We're hoping the economy strengthens as well, but we fully expect to collect high volumes of plasma in good markets and in more challenging markets. In fact, go back in time to 2018 and 2019, two very good years for the macroeconomy.

A good chunk of that is economic obviously for the donor demographic, they're still struggling quite.

Heavily in this marketplace. Unfortunately for them. So it does lead to a stronger desire to augment their disposable income.

Chris Pyman: Prior to this most recent robust recovery, they were the highest volume years we had ever experienced. So, we can collect plasma in good markets and in bad ones. Our customers are doing their part to make that a reality, so we feel quite good about that. With regard to CSL, you know, we've orchestrated through the various amendments what will be a smooth and somewhat lengthy transition, and that's good for both parties, and so we're going to continue to execute fully against that as we do with all of our customers to make sure that they have the supply they need into the future, and I think that will enable us to orchestrate a smooth landing while we continue to do the other things that ensure continued So is this kind of where we are from a percentage of total revenue standpoint for Total Outback? Is there leverage in OPEX, or does OPEX grow a little bit more from here? Thanks again, and congrats.

We don't again, we don't see any abatement, there I have read folks talking about the.

The performance of the economy.

Hoping the economy strengthens as well but.

Anthony Petrone: We fully expect to collect high volumes of plasma in good markets and in more challenging markets. In fact ill go back in time to 2018 in 2019, two very good years for the macro economy. Prior to this most recent robust recovery. They were the highest volume years, we had ever experienced so we can.

Plasma in good markets and bad our customers are doing their part to make that a reality. So we feel quite good about that with regards to CSL.

We've orchestrated through the various amendments what will be a smooth and somewhat lengthy transition and that's good for both parties and so we're going to continue to execute fully against that as.

As we do with all of our customers to make sure. They have the supply they need into the future and I think that will enable us to orchestrate a smooth landing while we continue to do the other things that ensure continued growth in our plasma business.

Helpful and then Jim on margins, maybe revisit on on the LLP Bridge.

Jim: Just taken into consideration the complexion in the quarter. So there.

James Sidoti: Yeah, thanks for the question, Anthony. Yeah, on that margin, you know, we still see a nice path to our high 20s that we initially came out with back when we unveiled our LRP last year. And that's really going to be driven by three main factors. One is that the hospital business really begins to scale, right? And we're going to gain leverage there because we're going to be increasing sales with just a very modest growth in the cost base. So that addresses, I think, your question about OPEC. Will it grow a bit?

A nice jump in gross margin ahead of expectations.

But overall Opex did tick up here beyond at least our model.

So is this kind of where we are from a percentage of total revenue standpoint for total Opex is.

Jim: Is there leverage in Opex or does opex grow a little bit more from here.

Thanks, again and congrats.

Yes, thanks for the question Anthony.

Yes on op margin.

Speaker Change: We still see a nice path to our.

James Sidoti: Yes, but not nearly as quickly as we plan on growing sales. So that will be the biggest factor that helps drive us there. But there are two other really important points as well.

Hi, <unk> that we initially.

Came out with back when we unveiled our LLP last.

Last year.

And that's really going to be driven by three main factors. One is as the hospital business really begins to scale right and we're going to gain leverage there because we're going to be increasing sales with just very modest growth in the cost base. So that addresses I think your question on an opex will grow.

James Sidoti: The second one is mix on the gross margin line. We're going to end up in a position here where we have favorability from more sales from higher-margin hospital products. So that will hopefully drop down to the bottom line. And then, finally, to get there, we also need to work on our manufacturing costs. And we'll do that in two ways. One with higher volumes, and we'll gain better absorption from that.

A bit yes, but not nearly as quickly as we plan on growing sales. So that will be the biggest factor that helps drive us there, but there's two other really important points as well.

The second one is <unk>.

Speaker Change: Mix on the gross margin line, we're going to end up in a position here, where we have.

James Sidoti: But secondly, we need to continue our operational excellence initiative that you've heard us talk so much about here over the past couple of years. That doesn't end when the program ends. That continues, and we take the learnings from that, and we continue to apply that to reducing manufacturing costs. So those three factors really are what's going to get us there. Thanks. For our next question, coming from the line of Larry Solow with CJF Securities, your line is open. Great, thank you, and good morning.

Speaker Change: Favorability from more sales from higher margin.

Hospital products, so that will.

Speaker Change: That will hopefully.

We dropped down to the bottom line and then finally to get there we also need to work on our <unk>.

Manufacturing cost and we will do that in two ways, one with the higher volumes and more gain better absorption from that but but secondly.

We need to continue our operational excellence initiatives that you've heard us talk so much about here over the prior couple of years that doesn't end when the program and that continues and we take the learnings from that and we continue to apply that to reduce manufacturing costs. So those three factors really.

What's going to get us there.

Operator: Just a follow-up on Andy's question, just on the plasma growth and CSL. Again, I don't know how specific you can get, but just in terms of it does look like you're done and still kind of incorporated, and the group. Larry, I appreciate the question. Again, we see robust growth across the board, and CSL is participating in that along with all of our other customers. The highest growth that we are experiencing is actually from our customers who were the early adopters of Persona because of the yield benefits as well as the gain in productivity from the integrated system. They are by far driving this, and we don't see any meaningful slowdown there. Normal historic seasonal averages, we're getting back to that, and that's as expected.

Thanks, I'll hop back in the queue. Thank you.

Speaker Change: Thank you.

Our next question coming from the line of Larry Solow with CJS Securities. Your line is now open.

Great. Thank you and good morning.

A follow up on Andy's question.

Just on the plasma growth.

CSL.

Again.

I don't know how specific you can get but just in terms of it doesn't look like your guidance still kind of incorporates a.

A little bit of a downturn in Q4.

And then I know, we were kind of expecting or the market, while discussing a little bit of a acceleration sort of a transition that CSL, so that kind of dictate a vault.

Speaker Change: And I know they have a sales minimums. So does that is that Congress.

Burnt off Cambridge.

Could you give us any kind of color on that.

Yes, Larry I appreciate the question.

Again, we see robust growth across the board CSL is participating in that along with all of our other customers the highest growth that we are experiencing.

Chris Pyman: The guidance, we've raised guidance again in the fourth quarter for Plasma, and that does reflect seasonality as well as the anticipated ongoing CSL transition, and that's both factored into the guide. But again, we entered into this agreement with them because it works for both parties. It gives us that gradual soft landing, if you will, coupled with the ability to expand our share and market presence elsewhere, and that's what we're working hard to achieve simultaneously. Okay, and what about in terms of just, you mentioned sort of gaining some momentum, momentum on Percona continues, and you're going to be rolling out Express Park. Bigger Way sounds like it is coming up in the next few quarters.

From our customers, who are the adopters of persona because of the yield benefits as well as the gain in productivity from the integrated system. They are by far driving this and we don't see any meaningful slowdown there normal historic seasonal averages were getting back to that and thats as expected.

Guidance, we've raised guidance again.

In the fourth quarter for plasma and that does reflect seasonality as well as the anticipated ongoing CSL transition that's both factored into the guide but again.

We entered into this agreement with them because it works for both parties. It gives us that gradual soft landing if you will coupled with the ability to expand our share and market presence elsewhere and that's that's what we're working hard to achieve simultaneously.

Chris Pyman: Do you expect to kind of get some more pricing as you go forward as Percona continues to roll out and as Express Bus gets into the market? The fundamental aspects of our plans are, you know, continued market leadership, strengthened market leadership in plasma. We're absolutely committed to that. That's what we're experiencing. I'll give you two stats, $25 million and $50,000. $25 million persona collections, right?

Okay.

Speaker Change: What about in terms of just you mentioned sort of some moment momentum.

Speaker Change: Good news.

I'm going to be rolling out at X plus plus.

<unk> it sounds like coming up.

Quarters.

Chris Pyman: We've demonstrated the safety, the reliability, and the performance of that system, 9 to 12 percent yield enhancement on average. That's an answer for all of our collectors in this environment to their productivity challenges. So, and we do anticipate, you know, an appropriate premium for our technology. Express Plus is performing exactly as we expect.

Do you expect to kind of get some more pricing as you go forward.

Persona continues to rollout an ASIC.

Speaker Change: Plus plus.

Speaker Change: It gets into the market.

Final fundamental aspect of our plans are.

Speaker Change: Continued market leadership strengthened market leadership in the plasma we're absolutely committed to that that's what we're experiencing.

Speaker Change: Give you two stats $25 million and 52 5 million persona collections, we've demonstrated the safety and the reliability and the performance of that system, 9% to 12% yield enhancement on average that's an answer for all of our collectors in this environment to their productivity challenges.

Chris Pyman: And, you know, just as soon as we have finalized our limited market release and have worked out all the remaining questions, which are few at this point, right? We feel great about it. The customer feedback has been outstanding.

Chris Pyman: And we'll look to flip the switch in early fiscal 25 and roll that across the field. We're not going to talk about specific pricing given the competitive environment, but we remain committed to growing share and improving our margins as a result of technological advancements that have unrivaled value propositions. Great, and just lastly, if I may just slip a question in on the opt-in, the acquisition a few weeks ago, hasn't been under the hood too long, but maybe you could just speak about just, you know, the expansion opportunities under your umbrella. I know that there are two lead products, I guess they're a lead products, OptoWire and then the Satellite you mentioned.

<unk>.

No.

Speaker Change: We do anticipate an appropriate premium for our technology Express plus is performing exactly to our expectations and.

Just as soon as we have finalized our limited market release and I've worked out all the remaining questions, which are few at this point, we feel great about it the customer feedback has been outstanding and we will look to flick the switch and early fiscal 'twenty five and rolled out across the field, we're not going to talk about specific pricing given the competitive environment, but.

Speaker Change: We remain committed to growing share and improving our margins as a result of technological advancements that have unrivaled value propositions.

Chris Pyman: I guess they're both now going to be under a much larger sales force. So just speak to, you know, the limitations they had, you know, previously, or just maybe that significant opportunity under your roof. Yeah. Thanks for the question. We are really excited to welcome OpSense as part of our company going forward, so shout out to those employees. We've spent a lot of time with them over the past six weeks now and have really gotten to know them, understand and appreciate their work ethic and their commitment to advancing patient care. So it fits hand in glove with what we're doing, with what we're now referring to as interventional technology. So it's our vascular closure, and it's sensor-guided technology that we've acquired.

Speaker Change: Yeah.

Speaker Change: Great.

Speaker Change: Lastly, if I may just slip a question then just on the <unk>.

Obviously, you closed the acquisition.

You would start.

Speaker Change: <unk> been too long, but but maybe you could just speak about just.

Speaker Change: The expense opportunities under your umbrella.

Re product or I guess their lead product.

Speaker Change: Because up to wire then this otherwise you mentioned I guess, the bulk now going to be under a much larger sales force can you just speak to the limitations. They had previously or just maybe that's significant opportunity.

Luke.

Scott. Thanks for the question sorry, we are really excited to welcome <unk>.

Speaker Change: As part of our company going forward, so shout out to those employees. We've spent a lot of time with them over the prior.

Chris Pyman: So yes, we will put that directly in. In fact, the training is underway. Our sales force is being trained on the guide wires, and their sales force is being trained on vascular closure. We expect to have completed the majority of that training this quarter, the fourth quarter, fiscal 24, such that we launch together in April for fiscal 25. And, you know, the camaraderie, the esprit, the collaboration has been really excellent. And so we're quite optimistic about what we can do together to advance that product. And I thank you.

Six weeks now and have really gotten to know them no I understand and appreciate their work ethic and their commitment to advancing patient care. So it fits hand in glove with what we're doing with what we are now referring to as interventional technology. So it's our vascular closure and.

Sensor guided technology that we've acquired so yes, we will put that directly and in fact the training.

Is underway our sales force being trained on the guide wires and their salesforce being trained on vascular closure, we expect to have completed the bolus of that training this quarter fourth quarter fiscal.

Chris Pyman: Some of what you talked about, some of the OpEx expansion you've seen over the last two quarters is us preparing to make sure that these products can live up to their full potential as part of our portfolio. So stay tuned for more, but we're very optimistic about what we can do together here. Thank you.

Speaker Change: 24, such that we launched together in April with fiscal 'twenty five.

The camaraderie the osprey.

The collaboration has been really excellent and so we were quite optimistic about what we can do together to advance that product and I think some of them.

Operator: I appreciate it. Our next question, coming from the line-up, is from Andrew Cooper with NETNC and Lawrence Keusch. Hey everybody, thanks for the time.

Chris Pyman: I'll save my CSL questions for offline, but maybe shifting to VASTAGE International, you called out the 200 bits of incremental growth there, just a little bit of help on sort of the trajectory you expect from there. You know, is that the first bullet and it's a gradual pacing, or is there a potential for sort of an inflection here now that you're out in the market in some of these other geographies? Yeah, thanks, Andrew. So, you know, the way we think about the expansion and vascular closure, we're going to, where appropriate, replicate the playbook that served us so well in the U.S. And so, you know, there aren't 600 accounts in Europe, for example. There are 250 or 260.

You talked about some of the Opex expansion, you'll see over the last two quarters is us preparing to make sure that these products can live up to their full potential as part of our portfolio. So stay tuned for more but we're very optimistic about what we can do together here.

Great. Thank you I appreciate the thoughts.

Thank you.

Next question coming from the line of Andrew Cooper with Raymond James Your line is open.

Hey, everybody. Thanks for the time I'll save my at CSL.

Question for offline, but maybe.

Maybe shifting the Baskin International you called out the 200 bps incremental growth there just a little bit of help on sort of the trajectory you expect from there.

Chris Pyman: And we use a combination of direct and distributor approaches to fully realize that potential. So it'll be mixed in that regard, and appropriately so. We think it's more economical and feasible as we scale. A lot of the lift experience in the third quarter was specifically from Japan, right?

First of all if and it's a gradual pacing or is there potential for sort of an inflection here now that you're out in the market.

Some of these other geographies.

Yes, thanks, Andrew So the way, we think about the expansion in vascular closure, we're going to where appropriate replicate the playbook that has served us so well in the U S and so there arent 600 accounts in Europe. For example, there is 250 or 260, but and we will use a combination.

Chris Pyman: So, like most companies, we're using a distributor model in Japan. There were, you know, the initial buy-ins that came with that, and you see that coming forward. What we really like, and this is true in Europe, and it's especially true in Japan, and we were able to secure a very favorable reimbursement in Japan to reflect this. You know, this is a safety-first market, and this is a safety-first product, and we have exceptionally good data in support of that.

<unk> of direct and distributor approaches to fully.

Realize that potential so it'll be it'll be mixed in that regard and appropriately. So we think it's more economical and feasible as we scale a lot of the lift that you experienced in the third quarter was specifically from Japan right. So like most companies, we're using a distributor model in Japan there was.

Chris Pyman: And so, we think it's an outstanding fit for markets that are looking for a better answer on closure but want to put a premium on, you know, safety, productivity, and patient satisfaction, all of which come with the vascular closure pipeline. So, you know, more to come, but we were optimistic about the growth trajectory internationally. It's starting, essentially, from ground zero. It's a zero base, but we look forward to continued robust uptake. Okay, great.

Speaker Change: The initial buy ins that came with that and you see that come forward, what we really like and this is true in Europe, and it's especially true in Japan, and we were able to secure a very favorable reimbursement in Japan to reflect this.

<unk>.

This is a safety first market and this is a safety first product and we have exceptionally good data in support of that and so we think it's an outstanding fit for markets that are looking for a better answer on closure, but want to put a premium on safety and productivity and patient.

James Sidoti: And then maybe shifting a little bit to costs and cash flows, just, you mentioned freight costs rising again. A little bit more detail there would maybe be helpful. You know, are we back on the upswing? Any signs of any kind of stabilization there? It's been sort of noisy through the pandemic, but it felt like we had gotten a little bit more normal. And then I just would love a little bit more color on some of the collections, the ways you called out in terms of cash flow. I think with the guide, it sounds like it's maybe more timing than it is an actual fundamental shift.

Satisfaction, all of which come with the vascular closure pipeline so more to come but we are.

Speaker Change: We're optimistic about the growth trajectory of international it starting essentially from from ground zero with zero base, but.

Speaker Change: But we look forward to continued robust uptake.

James Sidoti: But just thinking about that, and regulatory balance, just a little bit of sense for how you think about cash flows, maybe beyond fiscal 24, and whether anything's changed. Hi Andrew, thanks for the question. So on the freight cost, what we've seen there in terms of higher freight, mostly a good story there just because it's been more volume-based. The more volume we have, we have to pay more freight, and you see that in our cost line. That's the good news part of it. We are watching the events unfolding in the Red Sea.

Speaker Change: Okay, Great and then maybe shifting a little bit.

Speaker Change: Costs in the cash flows.

Speaker Change: Just you mentioned freight cost rising again, a little bit more detail there would maybe be helpful.

Speaker Change: Back on the upswing any signs of stabilization there, it's been sort of noisy through the pandemic, but felt like we had gotten a little bit more normal and then just would love a little bit more color on some of the collection delays you called out in terms of cash flow I think with the guide it sounds like it maybe more timing than it is an actual fundamental shift, but just thinking about that in the inventory.

Speaker Change: Just a little bit of a sense for how you think about cash flows maybe beyond fiscal 'twenty, four and whether anything has changed.

James Sidoti: That has created some additional costs. We're looking to manage that as best we can and figure out ways to absorb that. But overall, the big picture on freight, apart from what's going on in the Red Sea, I think it's a good story overall. The rates have certainly come back down from their peak a year or so ago. On the cash flow side, there were some collection delays that I mentioned earlier. That has mostly resolved itself, and it really was more of a timing issue around year-end with certain collections.

Speaker Change: Hi, Andrew Thanks for the question.

Andrew: So on the on the freight costs, what we've seen there.

Andrew: Terms of higher freight.

Speaker Change: Mostly a good story there just because it's been more volume based.

Andrew: The more volume we have we have.

Andrew: Pay more freight and that's you see that in our.

Andrew: And our cost line.

Andrew: The good news part of it we are watching.

Andrew: The events unfolding in the Red Sea.

Andrew: That has created some additional cost.

Andrew: We're looking to manage that as best we can and figure out ways to to absorb that but overall big picture landscape on freight apart from what's going on.

James Sidoti: And then we had some turnover on our staff, which led to a bit of an uptick. We've seen a lot of that now come back, and we should see that normalize here very shortly. And the story for the future in terms of overall cash flow is still a very good one. This business generates a lot of cash, and we expect it to continue to do so. You heard Chris remark at the end there we're going to have about $2 billion in capacity by the end of 2026 to continue our M&A agenda. Great, I appreciate it. I'll hop back in a few.

Andrew: In the Red Sea I think that's it's a good story overall the rates have certainly come back down from.

Andrew: From their peaks.

Andrew: Back a year or so ago.

Andrew: On the cash flow side, there were some collection delays that I mentioned earlier.

Andrew: That is mostly resolved itself and it really was more of a more of a timing issue around year end.

Andrew: With certain collections and then we had some turnover on our staff, which.

Andrew: Which led to a bit of an uptick we've seen a lot of that now come back and we should see that normalize here.

Operator: Thank you. And our next question, coming from the line of Joanne Wuensch, with City, Yelena Sokolov. Morning, this is actually Anthony. I'm for Joanne.

Andrew: Very shortly and the story for the for.

Andrew: For the future in terms of overall cash flow is still a very good one.

Andrew: Business generates a lot of cash and we expect it to continue to do so you heard Chris remark at the end there, where we're going to have about $2 billion in capacity by the end of 2026 to continue down our our M&A agenda.

Operator: Thank you for taking our questions. First, going back to that, can you share or remind us just where you think your share is in the U.S. in those small and mid-bore procedures? And then is the increment opportunity here really more shared in or market growth? Anthony, so I appreciate the question.

Speaker Change: Great I appreciate.

Speaker Change: I'll hop back in the queue. Thank you.

Speaker Change: Thank you and our next.

Speaker Change: Next question coming from the line of Joanne Wuensch with Citi. Your line is now open.

Chris Pyman: The shared question is not as simple and straightforward as we might like, because really what we're doing here is driving advancement in medical therapy. Disproportionately, our competition, particularly in the small and mid-bore areas that you called out, is manual compression, clearly a suboptimal therapy, or suturing, typically via a figure of eight. So, we're actively transitioning jointly with the medical community's advancements there. What we think about it is that we've identified these top 600 hospitals. They represent more than 90% of the ablation procedures, and for those hospitals, we will be in fully 500 of them by the end of this fiscal year, so another month and a half.

Speaker Change: Good morning. This is actually Anthony on for Joanne. Thank you for taking our questions.

Anthony Petrone: First going back to the basket can you share or remind us where you think your share is in the U S.

Anthony Petrone: And those small and mid <unk> procedures.

Anthony Petrone: And then this is the incremental opportunity here really more share gain or market growth.

Speaker Change: He Anthony so appreciate the question.

Anthony Petrone: Sure question is not as simple and straightforward as we might like because really what we're doing here is driving advancement in medical therapy disproportionately our competition, particularly in the small and mid <unk> areas that you called out is manual compression clearly a suboptimal therapy or suturing.

Chris Pyman: The disproportionate source of growth for us is the already converted hospitals driving significantly higher levels of utilization. When we sat down and worked through with CARDEVA at the time what we thought would be an appropriate level of utilization, we were targeting numbers that were 35 to 45%. What we are seeing in our most established accounts now are numbers well worth, you know, north of 50%, 65, 75% in some cases. It's really good technology, and it's being broadly adopted, so it tells us there's significantly more upside, and there's a lot of stickiness to the product. That's what's driving the uptake, and that's true in ablation as well.

Anthony Petrone: We are figure of eight and so we're actively transitioning jointly with the medical community.

Speaker Change: Advancements there and what we think about it is we've identified these top 600 hospitals, they represent more than 90% of the ablation procedures and for those hospitals, we will be in fully 500 of them.

Speaker Change: By the end of this fiscal so another month and a half and that disproportionate source of growth for US is the already converted hospitals driving significantly higher levels of utilization when we sat down and worked through with cardiac at the time, what we thought would be an appropriate level of utilization.

Chris Pyman: It's also true in interventional technologies with PCI, so there's a lot more room to run with that product here in the U.S. and internationally. And then you just mentioned the two billion in capacity, talking about M&A. Can you share maybe what other adjacencies you'd be interested in when it comes to inorganic opportunities in hospitals? I appreciate the question, Nancy.

Speaker Change: <unk>, we were targeting numbers that were $35 to 45% what we are seeing in our most established accounts now our numbers well worth north of 50% and 65, 75% in some cases, it's really good technology and it is being broadly adopted so.

Speaker Change: Tells us they're significantly more upside and there's a lot of stickiness to the product that's what's driving.

Speaker Change: The uptake that is true and ablation. It is also true.

Chris Pyman: Well, for us, you know, our first priority for capital allocation will be organic, right? Whether that is building a fit-for-task commercial force or strengthening our clinical and our data and analytic capabilities. We feel quite good about what we've done there in R&D. It's about additional indications. It's about new product offerings on the same existing product families and further build out there in terms of registration and such.

Speaker Change: In interventional technologies with PCI so.

Speaker Change: There's a lot more room to run with that product.

Speaker Change: Here in the U S and internationally.

Speaker Change: Got it that's helpful. And then you just mentioned the $2 billion in capacity talking about M&A can.

Speaker Change: Can you share maybe what other Adjacencies you would be interested in when it comes to inorganic opportunities in the hospital segment.

Chris Pyman: In terms of M&A, our clear, close second priority, we think there's significantly more room to run with what we're now calling interventional technologies. So, really, anything in the EP and IT suite, our game plan hasn't changed. We want enabling technologies. We're not looking to drive the core therapeutics.

Speaker Change: Yeah. Appreciate the question and answer for US our first priority for capital allocation will be organic whether that is building a fit for task commercial force are strengthening our clinical and our data and analytic capabilities, we feel quite good about what we've done there in R&D, it's about additional indications.

Chris Pyman: We're going to rely on other larger companies that are, you know, better equipped to do that. But we make the procedure better, and that can be access, that can be closure, that can be monitoring, protection, you know, that full suite. So, and we are typically agnostic as to which therapeutic choice the clinician is using.

Speaker Change: It's about new new product offerings on the same existing product families and further build out there in terms of registration and such in terms of M&A are clear close second priority. We think there is significantly more room to run with what we're now calling interventional technologies, so really anything in the EP.

Chris Pyman: We want to help all of them, and that gives us unfettered access and generally enables us to punch above our weight for a company of our size. And then, you know, we think we bring real value. And when we're talking to our options colleagues or the prior CARDEVA team, it's about being well enough resourced to be able to deliver the growth that they maybe weren't able to achieve as standalone entities but still of a size and a scale where we focus on and out-execute, right? So, that's our mantra. We think there's more room to run in interventional technologies, so that's the primary focus. Eventually, we'll step out to the next adjacency, but I don't see that in the near term. And our next question, coming from the line of Mike Matson with Github and company, let us know. Yeah, thanks. So I just wanted to ask one in the options field.

Speaker Change: And ICEE suite, our game plan Hasnt changed we want enabling technologies, we're not looking to drive the core therapeutics, we are going to rely on other larger companies that are.

Speaker Change: Better equipped to do that but we make the procedure better.

Speaker Change: And that can be accessed that can be closure that can be monitoring protection that full suite. So and we are typically agnostic as to which therapeutic choice. The collection is using we want to help all of them and that gives us unfettered access and candidly enables us to punch above our weight for <unk>.

Speaker Change: Any of our size and then.

Speaker Change: We think we bring real value and when we're talking to our ops ends call laser the prior cardiome team, it's about being well enough resource to be able to deliver the growth that they maybe werent able to achieve as standalone entities, but still of a size and a scale, where we focus and out execute right. That's our <unk>.

Chris Pyman: So, you know, I think everyone kind of understands SFR, you know, and PCI, but just in terms of the TAVR opportunity there with the SavvyWire product, can you just talk about, you know, kind of the advantages and the reasons that the cardiologist should use SavvyWire in those procedures? Keep in mind, I don't think there are any other companies targeting that opportunity, but just remind us if We think Savvy Wire in TAVAR is the shining gem, if you will, in a good portfolio.

Speaker Change: Mantra, we think theres more room to run in interventional technologies. That's the primary focus eventually we'll step out to the next adjacency, but I don't see that in the near term.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and our next question coming from the line of.

Speaker Change: Mike Matson with Needham <unk> Company. Your line is open.

Mike Matson: Yes. Thanks.

Mike Matson: I just wanted to ask one.

Mike Matson: On the Optum deal so.

Mike Matson: I think everyone kind of understand fr and PCI, but just in terms of the tower opportunity there with the savvy wire products can you just talk about kind of the.

Chris Pyman: OptiWire and some of the OEM work that we're doing at OpSense is valuable, but Savvy Wire is really the growth engine as we see it going forward, and to your point, it will be disproportionately in TAVAR as those procedures continue to expand double-digit, right? So we are displacing essentially three other technologies, right, with an all-in-one offering that does the monitoring and the pressure sensing and the guides all together. And so we think that it is a meaningful advancement. I point to some of the most recent trial work, including work that was done by the leading therapeutics companies where they used Savvy Wire, and the commentary that we heard back from the key opinion leaders that were overseeing that is, to do these procedures without Savvy Wire is borderline malpractice, which is just that much better in terms of the outcomes they believe they're able to achieve and the technology support that was gained.

Mike Matson: The cardiologists should new Savi wire in those procedures.

Mike Matson: Can you remind us I don't think theres any other companies targeting that that opportunity, but just remind us if theres any competitors there.

Speaker Change: Yes, Thanks, Mike, We think Savi wire and Teva is the shining Jim if you will and a good portfolio off the wire and some of the OEM work that.

Speaker Change: We're doing it off census, valuable, but savi wire is really the growth engine as we see it going forward and to your point it will be disproportionately and <unk> as those procedures continued to expand double digit right. So.

Mike Matson: We are displacing essentially three other technologies right with an all in one offering that does the monitoring and the pressure sensing in the guide altogether and so.

Chris Pyman: So we'll continue to work on and expand that. We think that it paves the way for some of our additional product and portfolio expansion elsewhere in interventional technologies, and we're proud to have a product of Savvy Wire's prowess to be able to do that on the back of. So stay tuned for more about that. We do have competition there, but we just think the opportunity to displace the existing suboptimal standard of care with an all-in-one product that really delivers, was designed by clinicians for clinicians, is the right way to go here. Okay, thanks.

Mike Matson: We think that it is meaningful advancement.

Mike Matson: Point to some of the most recent trial work, including work that was done by the leading therapeutics companies, where they use savvy wire in the commentary that we heard back from the key opinion leaders that were overseeing that is to do these procedures without savvy wire is borderline malpractice. This is just that much better in terms of the outcomes. They believe they are able.

Mike Matson: To achieve and the technology support that was gains. So we will continue to work and expand that we think that.

Mike Matson: That paves the way for some of our additional product and portfolio expansion elsewhere, and interventional technologies and we're proud to have a product of savvy wires.

James Sidoti: And then just, I guess just sort of reiterating the..., high 20 operating margin target from investor day 2022. So one of the things that you called out was the operational excellence program. Does it end with the end of the program? I guess, but, you know, I've been wondering, you know, do you need to do kind of another, you know, formal sort of restructuring program to get you there? Or can you, do you think you can do it, you know, without doing that, you know, once Operation Excellence ends? Yeah, Mike, thanks for the question. I want to start; I'll let James weigh in on this, but I just want to be crystal clear, right?

Mike Matson: Prowess to be able to do that on the backup so stay tuned for more about that we do have competition there, but we just think the opportunity to displace the existing sub optimal standard of care with an all in one product that really delivers was designed by collections for clinicians is the right way to go here.

Speaker Change: Okay. Thanks, and then just.

Mike Matson: I guess, you're sort of reiterating the.

Mike Matson: Hi, <unk> operating margin target from the Investor day in 2022.

Mike Matson: So one of the things that you called out.

Mike Matson: Was that the <unk>.

Mike Matson: Operational excellence program.

Chris Pyman: We came out with those targets in June of 2022. We remain committed to those. They're not aspirational. They're not, you know, kind of some, you know, intangible things.

Mike Matson: Does it end at the end of the program I guess, but.

Mike Matson: I've been wondering do you.

Mike Matson: Do you need to do kind of another formal sort of restructuring program.

Chris Pyman: We believe that as we transition and evolve this portfolio, it absolutely has the capability to deliver, you know, the revenue growth and the margin expansion that we highlighted. And, you know, James touched upon that. I tried to highlight a few of those things in my prepared remark. It is the combination of volume, mix, and price, driven disproportionately by advanced technologies and the multiplicative effect that then has on, you know, productivity, to your point, and operating leverage more broadly.

Mike Matson: There or can you think you can do it without without doing that operational.

Mike Matson: Operational excellence.

Speaker Change: Yes, Mike. Thanks for the question I wanted to start I'll, let James weigh in on this but I just want to be Crystal clear right. We came out with those targets in June of 2022, we remain committed to those they're not aspirational theyre not kind of some intangible thing we.

Mike Matson: Believe that as we transition and evolve this portfolio.

James Sidoti: So, we're excited about where that goes there. There will be fits and starts along the way. It won't be fully linear, but we really like the progress we're making there. As I said, I'll let James weigh in, but operational excellence is as much a mindset as it is a program, and we're not going to back off of that in the spirit of advancing our own productivity. Yeah, and I was just going to say that, you know, as I mentioned earlier, it becomes part of who we are, right? If we're going to be a company that's high volume with disposables, that has to be, you know, a constant objective here is to figure out a way to even reduce costs by a small amount that has a big effect over time. Okay, I got it.

Mike Matson: Absolutely has the capability to deliver the revenue growth and the margin expansion that we've highlighted.

Mike Matson: James touched upon that I tried to highlight a few of those things in my prepared remarks. It is a combination of volume and mix and price driven disproportionately by the advanced technologies and the multiplicative effect that then has on productivity to your point and operating leverage more broadly so.

Mike Matson: We're excited about where that goes there.

Mike Matson: There'll be fits and starts along the way it won't be fully linear, but but we really like the progress we're making there and.

Mike Matson: Instead, I'll, let James weigh in but operational excellence is as much a mindset as it is a program and we're not going to back off of that in the spirit of advancing our own productivity.

Chris Pyman: And then just one final one. So on the TAG business, or the human-faced business, can you just give us an update on where things stand with regard to the installed base versus, you know, existing utilization of the units that are out there? So, in other words, like, you know, is this both driving growth, you know, replacing new units, or is it more about driving more volume utilization through the ones that are out there? It is absolutely both.

James: Yes, and I was just going to say just that.

James: As I mentioned earlier it just becomes part of who we are right. If we're going to be a company. That's high volume with with disposables that has to be a constant objective here is to figure out a way to EBIT EBIT, even reduce cost in a small amount it has a big effect over time.

Speaker Change: Okay got it.

James: And then just one final one on the TEG business.

James: Our haemostasis business.

Chris Pyman: We had a record quarter per tag. We expected it. That was the plan this year. We knew kind of where we were coming out of it.

James: Can you just give us an update on kind of where things stand with regard to the installed base versus.

Chris Pyman: Where we were surprised favorably was the robustness of equipment sales, and that bodes extremely well for the future because we see hospitals embracing the technology, scaling the technology, adding additional tags to their arsenal. So that bodes well for future growth. Obviously, that won't happen if we don't continue to drive utilization. So, in this case, it was both record new equipment placement and continued uptick in utilization. Absolutely led by the U.S., but also complemented by an uptick in China, which may be a bit counterintuitive, given the broader challenges that MedTech is facing there, but in our case, coming off of a relatively modest performance, particularly this time last year, we saw a meaningful uptick there, and that was predominantly utilization.

James: Listing utilization.

James: The units that are out there so.

Speaker Change: In other words Blake.

Speaker Change: Both that's driving the growth youre, placing new units or is it more about driving more.

Speaker Change: Quality of utilization through the ones that are out there.

Blake: Yeah, Mike It is absolutely both right we had a record quarter for TEG, we expected it right that was the plan. This year, we knew kind of where we were coming out of it where we were surprised favorably was the robustness of equipment sales and that bodes extremely well for the future because we see hospitals embracing the technology.

Speaker Change: Scaling the technology, adding additional tags to their to their arsenal. So.

Speaker Change: That bodes well for the future growth, obviously that doesn't happen. If we don't continue to drive utilization. So in this case. It was both record new equipment placements and continued uptick in utilization absolutely led by the U S.

Chris Pyman: So, Mike won two combos, a record quarter for TAG, and I think it hopefully answers any questions about the robustness and the growth of that platform going forward. Yeah, great. Thank you. Our next question, coming from the line of David Turkaly with JMP Securities, is... Hey, good morning. Just a quick follow-up on the operating margin, you know, you go to 250 dips year over year, and it sounds like you're saying that's just sustainable or maybe the Fed can even accelerate. I know you didn't have options when you mentioned that, but what should we think? I mean, is that 250? Something in that range, you know, with two years left in the LRP, about what we should expect a year. I know you said non-linear, but something to that magnitude or more.

Speaker Change: But also complemented by an uptick in China, which maybe a bit counterintuitive given the broader challenges that med tech is facing there but in our case.

Speaker Change: Coming off of a relatively modest performance, particularly this time last year, we saw meaningful uptick there and that was predominantly utilization. So nice one two combo record quarter for TEG.

Speaker Change: I think hopefully answers any questions about the robustness and the growth of that platform going forward.

Speaker Change: Yeah, great. Thank you.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of Davidson <unk> with JMP Securities. Your line is open.

Davidson: Hey, good morning.

Davidson: Just a quick follow up on the operating margin.

James Sidoti: Yeah, I think, you know, something to that magnitude, we have to get to the, to the high 20s, you know, and we want to make it, you know, I don't want to get too far ahead of our guidance that's going to come out in May, but we have to make a meaningful step next year, or we're not going to hit it, right? So we're working on that right now. And we'll, we'll have more to say on that when we come give our annual guidance for, for our fiscal, for fiscal 25. But there'll be, you know, with that, there'll be a nice indication of how we're going to get there for 26 as well.

Davidson: And then grew at 250 bps year over year, and it sounds like Youre, saying.

Davidson: Sustainable or maybe is it that can even accelerate I know you didn't have options.

Davidson: When you mentioned that but.

Davidson: How should we think I mean is that $2 50.

Davidson: In that range with two years left in the <unk> about what we should expect a year I know you said non linear but.

Davidson: Something to that magnitude or more.

Speaker Change: Yeah I think.

Speaker Change: Subject to that to that magnitude, but we have to get to the to the high twenty's.

Speaker Change: And we want to make I don't want to get too far ahead of our guidance thats going to come out in may, but we have to make a meaningful step next year or we're not going to hit it right. So we're working on that right now and we'll have more to say on that when we come give our annual guidance for.

Operator: Thank you. And at this time, we have no further questions in this room. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: For our fiscal.

Speaker Change: For our fiscal 25, but there'll be.

Speaker Change: With that there'll be a nice indication of how we're going to get there for 2006 as well.

Speaker Change: Thank you.

Speaker Change: Thanks, Jeff.

Speaker Change: And at this time, we have no further questions ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect.

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