Haemonetics Corporation

Good day, ladies and gentlemen, and welcome to the Humanetics fourth quarter and fiscal year 20 conference call and webcast. At this time, all participants' lines are in a listen-only mode. 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 then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Ms. Olga Zayet. Ma'am, you may begin.

Thank you. Good morning, everyone. Thank you for joining us for Humanetics' fourth quarter and fiscal year 20 conference call and webcast. I'm joined today by Chris Simon, our CEO, and Bill Burke, our CFO. This morning, we posted our fourth quarter and fiscal year 20 results to our Investor Relations website, including the analytical tables with information we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows, as well as reconciliations of our GAAP to non-GAAP financial results. Before we get started, unless noted otherwise, all revenue growth rates discussed today are on an organic basis and exclude impacts from currency, product and supply decisions, strategic access of our plasma liquid solutions business, and divestitures. As in the past, we'll refer to non-GAAP financial measures to help investors understand Humanetics' ongoing business performance. Please note that these measures exclude certain charges and income items. Clues refer to this morning's earnings release for details and excluded items, including comparisons with the same periods of fiscal year 19 and a reconciliation to our gap results. Our remarks today include forward-looking statements and our actual results may differ materially from the anticipated results. Humanetics cautions that these forward-looking statements are subject to risks and uncertainties, including the potential impacts from the COVID-19 pandemic on our results and other factors referenced in the safe and harbor statements in our earnings release and in our filings with the FCC. We do not undertake any obligation to update this forward-looking statement. And now I'd like to turn it over to Chris.

Thank you, and good morning. Our thoughts are with those around the world affected by the coronavirus outbreak, which is first and foremost a human tragedy. We know the pandemic is top of mind. I want to begin by thanking our 3,000 employees worldwide who have risen to the challenge of battling this virus. especially our manufacturing, supply chain, customer service, and technical support teams on the front lines. They've worked tirelessly to support our customers. Three broad objectives guide our response to the crisis. Our first priority is business continuity and employee health and safety. All of our plants and distribution centers are open and operational with enhanced safety protocols, and we are committed to high service levels as our teams drive supply chain resilience. With a few exceptions, the vast majority of our products continue to be shipped on time, and we have ample inventory to meet our commitments. Our second priority is preserving cash. We are making pragmatic decisions around contingencies and expense controls for what could be a protracted recovery. Our strong balance sheet allows us to fund important programs. Our third priority is driving growth with a through-cycle mindset. We are building critical capabilities and looking for new opportunities. Last month, we welcomed Anila Lingamneni as Chief Technology Officer to lead our innovation agenda, and we added Mike Coyle to our board, a proven executive with extensive global med tech expertise. The Operational Excellence Program remains essential to our turnaround, and progress to date has equipped our manufacturing and supply teams to overcome the challenges of the pandemic. These objectives guide our planning across three time horizons. In the immediate situation, we are focused on continuity. We created an integrated nerve center to manage day-to-day and make targeted interventions. We are prioritizing employee safety with remote work and travel restrictions and limiting exposure for manufacturing and field service teams. We've taken steps to provide supply chain continuity by optimizing production, distribution, and logistics, with increased emphasis on inventory planning and supplier engagement, all to ensure supply and services for our healthcare customers. Our technology is being used to fight the virus head-on. The BUs have launched segment and geography-specific initiatives in response to the crisis, and we are leveraging digital channels for training and implementation to shrink the distance between us and our customers during lockdown. The company is also supporting frontline health workers, first responders, and families through philanthropic donations. Our product segments are shifting to recovery, with markets in Asia and parts of North America and Europe reopening, but recovery could be protracted and disrupted with resurgences and lockdowns. We are scenario planning to identify milestones and market indicators to procedures and collections in our product segments and geographies. Demand for our products is highly resilient, but may fluctuate as the situation evolves. In the new normal, there will be opportunity for strong players. Our value drivers are enduring and will enable us to thrive. We are exploring potential risk and opportunities from reforms and market restructuring to understand how our customers, healthcare, and society will change. Our robust product portfolio and strong financial health position us to adapt to the changing market conditions, drive results, complete our turnaround, and accelerate transformational growth. Today, we reported organic revenue growth of 0.7% in the fourth quarter and 6.3% for fiscal 20. Adjusted earnings per share were up 13% in the quarter and 38% for the year. COVID-19 had a limited effect on our fiscal 20 performance, up to two months in China and parts of Asia and two weeks elsewhere, including the U.S. and Europe. The positive finish to fiscal 20 is evidence that the steps we have taken over the past four years have strengthened humanetics to improve our trajectory. Turning now to our business units. Plasma revenue grew 11.7 percent in the quarter and 13.8 percent in fiscal 20, roughly the midpoint of our 13 to 15 percent guidance. North America accounts for 93 percent of plasma revenue and grew 12.5 percent in the quarter, and 14.4% in fiscal 20 on favorable volume and price. Collection volume increased in line with our expectation of high single-digit growth in the second half. COVID-19 impact was limited to disposable sales in the final two weeks of the quarter in North America and Europe. Our liquid solution sales were impacted by customers transitioning to alternative sources of supply and is excluded from organic revenue results given our decision to exit the business. Software revenue was flat in the quarter, but helped our full-year growth rate by 100 basis points due to next link conversions and contract amendments in previous quarters. Nearly 10 million YES collections have yielded 230,000 incremental liters of plasma. The value proposition of increased plasma yield, center efficiency, donor safety and satisfaction is proven and more relevant than ever as customers seek productivity and enhanced safety. Our customers want to increase collections to keep pace with global demand for plasma-derived products, and we are confident in the projected 8% to 10% long-term growth rate. During the COVID-19 lockdown in April, our collections were 25% to 30% below prior year, stay-at-home orders and donor safety concerns, combined with reduced donor collection capacity due to shutdowns and social distancing requirements, the closing of college campuses, restricted border travel, and less availability of public transportation impeded collections. Our customers are responding. We are now in what we expect will be a protracted recovery period. The recovery will be characterized by ongoing improvement in the factors that impacted our April results, including recessionary pressures that have historically contributed to greater donor availability. Post-recovery, the new normal will be different, and we look forward to being able to help our customers accelerate their collections to replenish depleted plasma inventories. Moving to hospital, revenue was up 0.3% in the quarter and 7.5% in fiscal 20, below our guidance range of 11 to 13%. After strong sequential performance throughout the year, growth was impacted in the fourth quarter by COVID-19-related declines in procedures, restricted access for sales teams, and reallocation of funds to critical ICU needs within hospitals. The impact was felt mostly in China, where revenue declined by approximately 50% in the quarter due to the effects of the outbreak beginning in early February. The COVID-19 impact in our western markets occurred later in the quarter and therefore was not as pronounced. Excluding the estimated impact of COVID-19, hospital delivered strong growth driven by new product launches and strong sales execution that was in line with our expectations for the year. Hemostasis management revenue was up 2.8% in the quarter and 13.5% in fiscal 20, below our guidance range of 16% due to COVID-19 impacts. North America, the biggest market for hemostasis management, grew 20% in the quarter, and we are very encouraged by the contribution from our launches and the overall demand for visoelastic testing. We will continue to invest in this business to drive expanded use in different hospital and outpatient settings. In April, we acquired Anacor and their Clot Pro technology to strengthen our offering across lab-based and site-of-care testing. Clot Pro has more assays than any other visoelastic device on the market and a proprietary active tip technology that eliminates reagent handling to reduce the potential for error. It is currently available in select European and Asia-Pacific markets. We believe Clot Pro will strengthen our leadership in markets we serve. Cell salvage and transfusion management were down 1.8% in the quarter and up 2.4% for the year. Transfusion management demonstrated strong performance, with mid-teens growth in both the quarter and the year on strong growth from both BloodTrack and SafeTrace TX. including a record quarter for bookings in North America. Relative to our other product lines, the COVID impact was smaller as we currently don't offer these products in China. We continue to be encouraged by customer enthusiasm and the market opportunity for our next-generation software. Cell salvage continued to be challenged throughout the year. The business was down by double digits in the quarter, mostly due to COVID-19-related declines in elective procedures and reduced capital sales in China. The COVID impact compounded ongoing competitive challenges and an unfavorable capital cycle for the business, leading to single-digit decline for fiscal 20. Regarding the effect of COVID-19 in April, across the three hospital product lines, we saw a range of 10 to 30 percent revenue decline. There was a difference between disposables, capital, and the different geographies, which make it difficult to extrapolate these figures to any one pattern. Self-saver is more subject to procedure declines, whereas TAG shortfalls as a result of procedure declines have been partially offset by utilization in critical care diagnostic procedures. We believe both TAG and CellSaver disposable volume will track to the recovery of elective procedures. In addition, capital equipment is subject to purchasing cycles, but we have seen early demand for TAG in the West, and we are seeing some recovery for CellSaver in Asia. Transfusion management has a more consistent revenue stream. but the sales and installation process is more difficult to do without access to the hospitals. Despite these temporary challenges, we view the TEG business as a growth engine for humanetics long-term and have robust plans to expand our presence. We believe the COVID-19 impact will continue to be fluid as we work through recovery, but the end market for our hospital portfolio is inherently strong and will normalize as hospitals address the backlog of elective procedures coupled with the return of non-elective procedures to pre-COVID levels. We are assisting researchers in the investigation of COVID-19 associated coagulopathy and its thrombotic complications. BloodTrack software is deployed in several remote hospital sites to ensure blood products are distributed safely. While in the U.S., SafeTrace TX is used to manage convalescent plasma as an inventory item in addition to its core use to manage blood bank inventory. Blood center was down 10 percent in the quarter and 3 percent in fiscal 20, above our guidance range of negative 4 to 6 percent. We have a strong presence in Asia and Europe where the net impact on our fourth quarter results from the coronavirus outbreak was minimal. After initial disruption in a handful of highly impacted areas, we experienced a rapid spike in demand as blood collectors sought to replenish their blood product inventories and safety stocks. Apheresis revenue was down 8% in the quarter, primarily due to unfavorable order timing and competitive losses that we called out last quarter. We expect this business loss to result in a $17 million revenue headwind in fiscal 21. Japan experienced another quarter of growth due to strong sales of our plasma products as we increased and maintained share due to technological issues with a competitor device, partially offset by continuous shift towards double-dose platelet collections. Fiscal 20 apheresis revenue was flat as strength in Japan partially offset some weaknesses caused by order timing and customer transitions. Whole blood revenue was down 12% in the quarter on unfavorable order timing among our distributors. The 6% decline in fiscal 20 includes previously discontinued customer contracts and ongoing declines in blood utilization rates. Software revenue was down double digits in the quarter in fiscal 20, primarily due to previously discontinued customer contracts. In response to the pandemic, we are engaging with blood center customers in more than 20 countries to help them collect convalescent plasma to treat COVID-19. While this is unlikely to be a significant commercial opportunity for us, given the limited pool of donors and a tight window for recovered donor eligibility, we will continue to prioritize these efforts as our MCS Plus and PCS devices are the standard for plasma apheresis. As the year progresses, we could experience a greater overall impact on blood center revenue caused by imbalances in the supply and demand for blood products. However, we expect the demand for blood will normalize to procedure volume. Blood centers will continue to be challenged on price and utilization rates. However, our customer-focused innovation, SKU rationalization, and the early successes of our operational excellence program support our aspiration of stable operating income contribution from this business. I'll now turn the call over to Bill.