Haemonetics Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Hamanetics Corporation earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Olga Gayet, Investor Relations. Thank you. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us for Humanetics' fourth quarter fiscal 21 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 21 results to our Investor Relations website, along with our fiscal 22 guidance and analytical tables with information that we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows, as well as reconciliations of our GAAP to non-GAAP financial results and guidance. Before we get started, unless otherwise noted, all revenue growth rates discussed today are on an organic basis and exclude the impact of currency fluctuations, strategic exits of product lines, acquisitions and divestitures, and the impact of the 53rd week in fiscal 21. As in the past, we'll refer to non-GAAP financial measures throughout this poll to help investors understand Humanetics' ongoing business performance. Please note that these measures exclude certain charges and income items. Please refer to this morning's earnings release for details on excluded items, including comparisons of the same periods of fiscal 20 and a reconciliation to our GAAP 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 in the potential impact from the COVID-19 pandemic on our results and other factors referenced in the Safe Harbor Statement in our earnings release and in our filing to the SEC. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn the call over to Chris.

Good morning, everyone, and thank you for joining today. Before I get into our results, I want to review the news we announced a few weeks ago. In April, CSL Plasma notified us that they do not intend to renew their U.S. supply agreement for the use of our PCS2 plasma collection system equipment and the purchase of plasma disposables that expires in June of 2022. We were informed that CSL's decision was not based on the level of service or quality of our products, but rather reflects a change in internal strategy that was made some time ago, presumably before they had experience with Nexus and Persona. We are disappointed by CSL's decision, but it does not change our commitment to the plasma market and our technology to improve collections. The nexus and persona value propositions are strong, supported by real-world data and real-time customer feedback, and we are excited about what this platform means for our customers. We are taking a comprehensive approach to address the impact the CSL transition will have in fiscal 23. We are acting with urgency, but we are being thoughtful and balanced in our planning. Our ability to respond is enhanced by the steps we have taken these past few years to strengthen our financial health, improve productivity, drive innovation, reshape our portfolio, and build a collaborative performance-driven culture. We are well positioned to navigate this change. We are focused on driving value for customers and shareholders, and our decision making is guided by a through cycle mindset. We will continue to pursue growth strategies to maintain our market leadership, including developing innovation in partnership with our customers. We also remain committed to productivity and being good stewards of the company's resources. We will provide more details on the path forward as our plans take shape. With that, let me turn to our results for the quarter and the fiscal year. Today we reported organic revenue decline of 14% in the fourth quarter and 13% for fiscal 21 and adjusted earnings per share of 46 cents, down 33% in the quarter and down 29% to $2.35 for the year. Fiscal 2021 was a difficult year for Humanetics as the pandemic had varying effects across our businesses and their respective customers. Despite the challenges, We made progress to build a stronger humanetics. We divested non-performing assets like the Fajardo blood filter manufacturing operations, blood center donor management software in the U.S., and Inlog SAS blood bank and hospital software in Europe. We made organic and inorganic investments in attractive and growing markets, including the launch of Persona and the Donor360 app, and the acquisitions of PlotPro and Cardiva Medical. We modified our capital structure for financial flexibility and remained diligent with cost containment while continuing to fund growth. We made significant changes to the way we source and make our products as part of our operational excellence program. While we cannot control the pandemic's impact on our customers' businesses, we met every challenge, keeping our employees safe and our plants operational with high levels of service and customer support. Early fiscal 22 will continue to be challenging, but we expect the pace of recovery to accelerate over the year. The end market demand for our products remains strong, and we do not see structural or other changes from the pandemic that would impact the need for lifesaving plasma-based medicines or hospital devices for critical areas of medicine like trauma, interventional cardiology, and electrophysiology. We have healthy and viable businesses delivering exceptional value-adding technology. We have proven our resilience and our ability to drive growth and productivity, and we will do so again as our markets recover from the pandemic. Turning now to our business units. Plasma revenues declined 28% in the fourth quarter and 26% in fiscal 21 as the pandemic continued to have a pronounced effect on the U.S. sourced plasma donor pool. We saw lingering effects beyond fourth quarter into April. North America disposables declined by 31% in the fourth quarter, primarily driven by declines in volume and a negative impact from the expiration of pricing on a historical technology enhancement with one of our customers. Sequentially, plasma collection volumes declined by 13% compared with historical average seasonal declines of about 7% as additional economic stimulus hindered recovery. Fiscal 21 was an especially difficult year for plasma collections, given the interplay of different factors affecting donor behavior. Our customers have taken extensive measures to ensure the health and safety of donors and to launch a myriad of promotional campaigns to encourage plasma donations. Our teams have remained focused on ensuring no disruptions to our supply, service, and support. Despite the environment, we advanced our innovation agenda with the FDA clearance of Persona which safely yields an additional 9% to 12% of plasma on average per collection. We extended the reach of our customers to donors via a Donor360 app, which allows donors to engage with centers before in-person visits, decreasing door-to-door time and improving the overall donor experience. Given the pandemic's negative effect on collections, increased yield is more important than ever, and feedback from Nexus customers operating with Yes Technology or Persona continues to be positive. We believe they were able to offset some of the headwinds from the pandemic because they benefited from safe, higher plasma yield per donor, bidirectional paperless connectivity, and increased donor satisfaction. NextLink DMS rollouts continue on pace, and the software continues to be a key enabler and differentiator for Nexus. All of our major customers have agreed to adopt Nexus somewhere in their collection network, and we anticipate that by mid-fiscal 23, the majority of our customers, excluding CSL, will be on Nexus in the U.S. or globally. As we emerge from the pandemic and see future sustained increases in available donors, the operational efficiency benefits of Nexus, integrated with NexLink DMS, will be an increasingly valuable tool to support greater donor traffic. We anticipate initial persona rollouts this fiscal year as we strive to move in sync with our customers and pace our technology implementations to meet their individual needs. We are committed to advancing our innovation agenda across devices, disposables, and software to develop products that create long-term, sustainable value for our customers. We continue to do everything we can to support our customers and we remain cautiously optimistic about the timing and pace of recovery. The demand for plasma-derived medicines remains strong and our customers are doing what they can to recruit and retain donors. Unfortunately, donor economics play a critical role in plasma collections and we expect collections will be muted until government stimulus wanes. Beyond stimulus, we expect a return to the long-term 8% to 10% growth of the U.S. source plasma collections market, and we see potential to grow in excess of that as customers strive to replenish depleted plasma inventories. Hospital revenue increased 12% in the fourth quarter and 4% in fiscal 21. Our hospital business experienced continued sequential improvement over the first nine months of the fiscal year. Fourth quarter recovery was uneven as we saw another spike in COVID cases early in the quarter, followed by material improvement in February and March, coupled with the anniversary of the previous year impact of COVID-19 in China and other geographies that were affected earliest by the pandemic. Hemostasis management revenue was up 19% in the fourth quarter and 9% in fiscal 21. North America, our largest market, showed sequential growth throughout the first nine months of the year, and despite a spike in COVID cases early in the fourth quarter, the business exited in a strong position, including additional penetration into new accounts. China, our second largest market, benefited from a lower comparator in the prior year, fourth quarter, due to the early onset of COVID-19. Strong capital sales in North America and EMEA have also contributed favorably to our fourth quarter and fiscal 21 results. We continue to drive our go-to-market strategies for visceral elastic testing to meet the unique needs of our regional markets. We are executing on the Chinese market introduction of our locally designed and manufactured visceral elastic testing technology that expands our product offering to meet the needs of that geography. Transfusion management was up 9% in the fourth quarter and fiscal 21, primarily driven by strong growth in blood track through new accounts and geographic expansion of SafeTrace TX. Our teams have used remote tools to advance installations and utilization in customer environments where access continues to be restricted. Self-salvage revenue grew 2% in the fourth quarter and declined 8% in fiscal 21. Our self-salvage results in the quarter benefited from the easy comparison with the prior year quarter in China and 80% growth in capital sales as we continue to upgrade our customers to the latest technology. Partially offsetting these benefits in the fourth quarter was overall lower procedure volume due to COVID-19. The integration of Cardiva Medical is going well and the performance of the business is exceeding expectations. The BASC-AID proprietary vascular closure technology strengthens our hospital portfolio in the attractive interventional cardiology and electrophysiology markets, and the team is focused on driving the strategy underlying this acquisition. Although excluded from our organic revenue results, Cardiva added close to $8 million of revenue in March as our teams continue to drive penetration in the top hospital accounts for interventional procedures in the U.S., Additionally, as U.S. procedure volume continues to improve, we've seen increasing benefit from product utilization among existing accounts. Our long-term outlet for this business is strong as our combined product development and regulatory teams work closely together on OUS registrations and driving additional product innovation. Overall, the pandemic has validated the essential role of our technologies in hospital. We have demonstrated our ability to safely and effectively sell, including to new and existing accounts, install and service our equipment despite limited access to hospitals. Blood center revenue declined 10% in the fourth quarter and 4% in fiscal 21. Apheresis revenue declined 3% in the fourth quarter and grew nearly 1% in fiscal 21. Fourth quarter apheresis results were impacted by unfavorable distributor order timing in the EMEA and a competitive loss partially offset by strong capital sales. Order timing was overall a benefit to our full year fiscal 21 results as distributors made large stocking orders in response to the pandemic, particularly in Europe and the Middle East. We also benefited from strong capital sales as we continued to support our customers in the collection of convalescent plasma. These benefits were partially offset by the previously disclosed competitive loss that had a $17 million impact on our full year results. Excluding this loss, overall blood center revenue actually grew in fiscal 21. Whole blood revenue declined 24% in the fourth quarter and 14% in fiscal 21, driven by lower collection volumes due to COVID-19 and discontinued customer contracts in North America. We remain committed to supporting enhanced product quality and services for our blood center customers while preserving cash generation and exploring portfolio rationalization as appropriate.