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spk03: Good day and thank you for standing by. Welcome to the Haymonetics first quarter fiscal 2022 conference call and webcast. At this time, all participants 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 1 on your telephone. Please be advised that this conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Olga Goyet. Please go ahead.
spk00: Thank you. Good morning, everyone. Thank you for joining us for Humanetics' first quarter fiscal 22 conference call and webcast. I'm joined today by Chris Simon, our CEO, and Bill Burke, our CFO. This morning, we posted our first quarter fiscal 22 results to our Investor Relations website, along with our updated fiscal 22 guidance and the analytical tables with the information that we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows, as well as reconciliations of our GAAP to non-GAAP financial results and guidance. Before we get started, unless otherwise noted, all revenue growth rates discussed today are on an organic basis and exclude the impact of currency fluctuation, 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 call 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 with the same periods of fiscal 21 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 the potential impacts from the pandemic on our results and other factors referenced in the Safe Harbor Statement in our earnings release and in our filings with the SEC. We do not undertake any obligation to update this forward-looking statement. And now, I'd like to turn it over to Chris.
spk07: Thank you, Olga. Good morning, everyone, and thank you all for joining. Today, we reported organic revenue growth of 6% and adjusted earnings per share of 50 cents, up 4 cents, or 9%, compared with the first quarter of the prior year. We are encouraged by our overall performance despite the impact of the COVID pandemic. We are trending favorably and anticipate continued improvements in plasma collection volumes. Strong procedure recovery is fueling outsized growth in our hospital segments and the blood center market is resilient. I want to share some updates about how we are evolving our approach to managing the businesses to meet our growth commitments. Chad Nichol has been named President, Global Plasma and Blood Center Businesses. Chad is a business builder who has been an integral part of Humanetics for 12 years. His vast knowledge of our products and our markets across the globe make him uniquely qualified to lead this business. Under Chad's leadership, we can leverage our expertise in collection and donor management to achieve a broader global footprint. David Wilson will be leaving Humanetics, and I would like to thank him for helping us build a world-class team that will continue to deliver excellence to our customers. Two years ago, we unveiled our operational excellence program to improve quality and service by transforming the way we source, make, and deliver products. Our goal was to achieve 80 to 90 million in gross savings by the end of fiscal 23. I am proud to share that despite the headwinds of the past two years, we are planning to meet our savings target and save an additional 35 million by extending this program through the end of fiscal 25. This will further strengthen our financial health and help offset losses from the anticipated transition of CSL in fiscal 23. rising inflationary pressures, and the effects of the pandemic. Expanding the program allows us to take a fresh look at our operations, identify new opportunities, and make new investments in sustainable solutions that will have a positive impact on our daily operations, customer support, and longer-term financial performance. We look forward to sharing more insight into our long-term plans at our Virtual Investor Day later this year. Finally, we announced earlier this week Lloyd Johnson has joined our board of directors. Lloyd brings significant financial management, international operations, and business development insight. Additionally, Ellen Zane has been elected chair of our board. These updates reflect Hamanetics' ongoing commitment to refreshment, diversity, and augmenting our experience base. Now on to the business units. Plasma revenue increased 6% in the quarter as the pandemic and the associated government subsidies continued to have a pronounced effect on the U.S. source plasma donor pool. North America disposables revenue increased 3% in the quarter, driven by improvement in collections volume, partially offset by price adjustments, including the expiration of fixed-term pricing on a historical PCS2 technology enhancement. Sequentially, U.S. source plasma collection volumes declined 6%. compared with about 6% seasonal improvement historically as additional economic stimulus hindered recovery. Plasma collections in Europe showed continued recovery in the first quarter, specifically in the Czech Republic and Hungary, driven by fewer COVID-related restrictions and plasma center growth. We had double-digit growth in our plasma software revenue in the quarter, supported by additional recovery in plasma collection volumes and our Donor360 app. which enables Plasma donors to register at home and streamline the pre-collection process with enhanced safety, efficiency, and convenience. Software is a strategic lever for our customers, and we continue to invest in value-adding innovation to support their recovery and growth. NextLink is a key enabler and differentiator for Nexus, and we believe our combined technologies offer the most benefit to our Plasma customers through improved collection yield, faster and more efficient center operations, improve compliance and donor satisfaction. As we emerge from the pandemic, the sustained increases in available donors, the operational benefits of Nexus PCS integrated with NexLink DMS will be a valuable tool to help collection centers accommodate greater donor traffic. Collection center conversions are on track as we plan to upgrade our customers to the latest version of NexLink DMS software later this year and complete the transition of our major customers to Nexus PCS devices by mid-fiscal 23. We've made significant progress with our persona technology, and early adopters are benefiting from an additional 9 to 12 percent plasma yield per donation. Their positive feedback and real-world data validate the value proposition of our technology and confirm that there is no impact on repeat donations and donor deferral rates. We anticipate additional persona conversions in the second half of our fiscal 22. The demand for plasma-derived medicines remains strong, and our customers continue to take steps to recruit and retain donors. As the industry recovers from the pandemic, we expect a return to the long-term 8% to 10% growth of U.S.-sourced plasma collections, and we see potential to grow in excess of that as customers strive to replenish depleted plasma inventories. As we approach the midpoint of our second quarter, Collections have improved 21% compared with a 14% improvement in the first quarter. This increased growth is consistent with the high end of our fiscal 22 plasma guidance. We remain vigilant about potential disruptions caused by new COVID variants and recent reinforcement of the U.S. border policy, but we anticipate strong plasma collection recoveries in the second half of the year and a firm fiscal 22 organic revenue growth of 15% to 25%. Moving to hospital, revenue grew 26% in the quarter, primarily due to continued improvements in hospital procedures driving increased utilization of disposables, strong capital sales in North America, and new business opportunities in Europe. We saw continued recovery across all of our key markets, although recovery trends outside of the U.S. were uneven due to concerns about new COVID variants and slower vaccine distributions. Hemostasis management revenue grew 31% in the quarter. U.S. led the charge with growth in the adoption and utilization of Teg disposables and strong instrument placements. We also increased market share in Europe, including the award of a new tender for the use of our Clot Pro technology acquired in fiscal 21. Cell salvage revenue was up 27% in the quarter with double-digit growth across all of our key markets. Growth was supported by continuous recovery in procedure volumes, and capital sales as we continue to upgrade our customers to our latest technology. Transfusion management grew 11% in the quarter, primarily driven by strong growth in SafeTrace TX as we completed new account installations in the U.S. BloodTrack also shows significant growth in the U.S. with a slight decline in international markets as new COVID concerns delayed implementation. We affirm our expectation for 15% to 20% organic revenue growth in hospitals. including hemostasis management organic revenue growth in the mid-20s. This growth rate assumes hospital procedures continue to improve throughout the year and will be fully recovered across all geographies by the end of fiscal 2022. Our newly acquired Vascaid vascular closure business delivered $22 million of revenue in the first quarter, exceeding our expectations. Both FastGate products delivered meaningful results through accelerated penetration into new accounts and increased utilization within existing accounts. We are enthusiastic about the continued growth of this business, supported by greater procedure volumes, higher diagnosis rates, increased hospital efficiency, and an overall move to standard of care. We are also expanding internationally by securing regulatory approvals and developing go-to-market strategies for faster and broader penetration. We are increasing our fiscal 22 revenue guidance from $65 to $75 million to $75 to $85 million as we look to accelerate additional growth through further investments. Blood Center revenue declined 6% in the first quarter. Apheresis revenue declined 3% in the quarter was impacted by unfavorable order timing and lost revenue from the previously announced customer loss included in our first quarter fiscal 21 results. We are encouraged by the resilience of this business and the altruistic nature of blood donors. Platelet collections in Japan fully recovered, although that growth was partially offset by a reduction in plasma collections due to prolonged COVID-related state of emergency. We also experienced strong market demand for platelets in China, driven by our expansion in Tier 2 markets. Whole blood revenue declined 14% driven by lower collection volumes and discontinued customer contracts in North America. Our expectations for the Buzz Center business are unchanged, and our fiscal 22 revenue guidance is a decline of 6 to 8 percent. I'll now turn the call over to Bill.
spk08: Thank you, Chris, and good morning, everyone. Chris has already discussed revenue, so I will start with adjusted gross margin, which was 54.7 percent in the first quarter, an increase of 750 basis points compared with the first quarter of the prior year. Our adjusted gross margin benefited from the addition of vascular closure devices from the Cardiva Medical Acquisition, as well as favorable mix from our remaining product portfolio, as our businesses continue to recover from the effects of the pandemic. In manufacturing and supply chain, we had improved operating efficiency due to higher volume and lower expenses related to the pandemic. We also continue to drive savings from the Operational Excellence Program, These benefits were partially offset by previous divestitures and price adjustments. Adjusted operating expenses in the first quarter were $87.1 million, an increase of $23.4 million, or 37% when compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 550 basis points and were at 38%. The acquisition of Cardiva had the largest impact on the increase in adjusted operating expenses. Also affecting the increase were higher variable compensation, spending beginning to return to normal levels, an increase in freight costs, and higher research and development expenses to strengthen our technology. Our first quarter adjusted operating income was $37.9 million, an increase of $9.4 million, or 33% compared with the prior year. This improvement in adjusted operating income was driven by higher adjusted gross margin, partially offset by the increase in adjusted operating expenses. Our adjusted operating margin was 16.6% in the first quarter, an increase of 200 basis points compared with the same period in fiscal 21. As our business continues to recover from the pandemic and we continue to generate additional savings through the Operational Excellence Program, We anticipate increased leverage in adjusted operating margin. We affirm adjusted operating margin guidance of fiscal 22 to be in the range of 19 to 20%. Our adjusted income tax rate was 24% in the first quarter compared with 4% in the same period of fiscal 21. The adjusted income tax rate in the first quarter of fiscal 21 was abnormally low due to the benefit of higher performance share vestings. we now expect our fiscal 22 adjusted tax rate to be 22%. First quarter adjusted net income was $25.4 million, up $1.7 million, or 7%, and adjusted earnings per diluted share was 50 cents, up 9% when compared to the first quarter of fiscal 21. The adjusted income tax rate in the first quarter of fiscal 22 had a 13-cent downward impact on adjusted earnings per diluted share when compared with the prior year. Our vascular closure business is exceeding original expectations, and we expect this business to be net neutral to adjusted earnings per diluted share in fiscal 22, compared with our original expectation of 15 to 20 cent dilution in the first year following the acquisition. We expect this overperformance will be driven by stronger commercial execution and difference in capital structure when compared with the original deal model and will allow us to generate additional resources to fund growth investments across the company. Today we announced the revised operational excellence program with total growth savings of $115 million to $125 million that will deliver $80 to $90 million in growth savings by the end of fiscal 23. which is in line with our original expectations, with an additional $35 million in savings by the end of fiscal 25, with the return of volume back to pre-pandemic levels. We expect the majority of the savings realized to benefit adjusted operating income by the end of fiscal 23, and about half of the total savings passing through by the completion of this program in fiscal 25. The exact pace of the Operational Excellence Program savings and net impact on adjusted results will be communicated with our guidance for each fiscal year. Additionally, we expect to incur $95 million to $105 million in restructuring and restructuring-related costs over the course of this program. In addition to updating the total estimated gross savings for this program, we accelerated the pace of these savings in fiscal 22 and now expect this program to deliver gross savings of approximately $33 million, an increase of $11 million, or 50%, when compared with our previous guidance. Due to increasing inflationary pressures and investments in manufacturing, we anticipate about 25% of these savings will benefit adjusted operating income in fiscal 22. We expect fiscal 22 adjusted earnings per diluted share to be in the range of $2.60 to $3. Cash on hand at the end of the first quarter was $173 million, a decrease of $19 million since the beginning of the fiscal year. Free cash flow before restructuring and turnaround costs was $2 million, compared with $11 million in the same quarter of the prior year. The lower free cash flow before restructuring and turnaround costs in fiscal 22 was due to higher accounts receivable as our revenue continued to recover from the pandemic, and higher capital expenses primarily related to the Operational Excellence Program, partially offset by lower inventory growth. We affirm our previous guidance and continue to expect free cash flow before restructuring our turnaround expenses in fiscal 22 to be $135 million to $155 million. Our capital allocation priorities remain unchanged, and we continue to prioritize organic growth, followed by inorganic opportunities and share buybacks. In the short term, we will focus on investments into core capabilities and technology that make our products distinctive. Before we open the call up to Q&A, I want to reiterate the key points that we hope you take away from today's call. First quarter results show encouraging performance across our business supported by strong procedure recovery in our hospital business, resilience of blood donors in blood centers, and initial rollouts of our persona technology and plasma. We believe there are no structural changes in the underlying demand for our products, and we continue to anticipate full recovery across all of our businesses by the end of fiscal 22. But the exact pace of the recovery, particularly in plasma, remains the biggest variable included within our firm guidance. The recently acquired VASCADE vascular closure technology is exceeding our expectations with strong revenue growth and increased leverage, delivering no dilution to adjusted earnings per diluted share one year ahead of the original deal model. This business strengthens our market position, expands the market opportunity, and further enables our portfolio to capitalize on the market recovery ahead. We remain committed to delivering value for our customers and our shareholders as we pursue growth strategies to maintain market leadership, to develop innovative products in partnership with our customers, and to drive productivity and efficiency of scale with an expanded operational excellence program. And lastly, our team's been working diligently on updating our long-range plan and we are looking forward to sharing it at our virtual investor day expected near the end of this calendar year. Thank you, and now I'd like to turn the call back to the operator for Q&A.
spk04: Thank you. As a reminder, to ask a question, you will need to press star on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question. comes from the line of Anthony Patron with Jefferies. Your line is open.
spk05: Thanks. Good morning, everyone. A couple of questions on plasma and the guidance, and then I'll have follow-up on Cardiva. On some of the plasma data points that are baked in the guidance as well as the performance in the quarter, maybe just a little bit more detail on what is baked in there for specifically volume recoveries, And then any thoughts on how you're reflecting the restrictions at the U.S.-Mexico border? Just an update there would be helpful. And then I'll have a few follow-ups.
spk07: Thanks, Anthony. Appreciate the question. With regards to performance and how it tracks to our guidance, we're bang on for what we expected to see. year to date. We had 14% volume growth in the first quarter. We've seen 21% through, you know, as of the end of last week, so almost 40% of the way through our second quarter. And that's really what we anticipated. We're now at a point where we're tracking to the high end of that 15% to 25% range, and that's because we're experiencing more of the recovery now. Of course, we're vigilant as our customers with regards to new COVID variants with regards to any further concerns that might lead to anything that would tamp down demand. You mentioned the situation at the Mexico border. The enforcement of that policy is definitely a detractor to collections there. For us, in aggregate, it's probably not more than a point of growth, 100 basis points, if you will, across our growth trajectory. So it's not zero, but it's not a major factor for us. And we're watching the situation carefully. But we feel like what's happening in the environment, what our customers are doing to re-recruit their donors is all very powerful and gives us grounds for cautious optimism.
spk05: And so just to be clear, the bridge between the sort of 6% organic in fiscal 1Q and then trending toward the higher end of the 25, you certainly have a view for continued volume improvements, which it sounds like you're seeing in July. But also on the upgrade front, you know, is there anything baked in there as well? Last quarter you mentioned there is an upgrade cycle, obviously, for both NextLink and Nexus. So just kind of as we trend toward that higher end of the 15% to 25% range, just the complexion of continued volume improvements versus upgrades. Yeah, you're exactly right.
spk07: We have a lot of growth loaded into the second half of this year, so it's ambitious in that regard, but that tracks our models and what we see with the waning stimulus effect, etc., Upgrades are part of that forecast, and we're seeing that really across all three of our offerings as we communicated in prepared remarks. Good continued progress on NextLink. NextLink and software in general was a real plus for us and continues to be year-to-date in terms of the volume recovery there. Nexus PCS on track despite the challenges of doing this all in the context of a pandemic, and particularly where some of our most High volume geographies are getting hard hit by the Delta variant with COVID. Nonetheless, we've been able to keep our people safe and work closely with customers to do the upgrade cycle. And we're excited about what persona means here and have factored that in to the growth over the second half of the year as well. So nothing simple or straightforward about it, Anthony, but we feel quite good about what we're able to do jointly with customers to keep that progress.
spk05: I'll sneak the last one in on Cardiva, ahead of expectations there, and just wondering the complexion between just general EP volume improvements versus the original forecast versus, say, just expansion of the Vascaid franchise into new centers. Thanks again. I'll get back in queue.
spk07: Yeah, thanks, Anthony. Yeah, we're very, very excited about that. Cardiva and Baskade, both Baskade and MVP, exceeding expectations. This is a product line that did mid-40s last year, last calendar year with Cardiva. We were able to collectively deliver $22 million in revenue in our first quarter alone. So we are very excited about the recovery and the trajectory and what that team has been able to do And it is just hyper-focused on our largest customers here in North America. And what we're seeing is both penetration into new customer accounts, new hospitals, and increased utilization in our existing customers. And the combination of those two across Baskade and MVP is what's driving the performance. So we're excited. It's allowed us to make additional investments in the product, and we think that will continue to bear fruit as Baskade the product progresses. Thanks again.
spk04: Thank you. Our next question comes from Joanne Winch with Citi. Your line is open.
spk02: Hey, this is Anthony. I'm for Joanne. Thanks for taking our questions. I have two. My first, hemostasis management had a strong quarter. This quarter, can you sort of parse out where that strength is coming from? Is it still sort of these research hospitals and labs are buying tech to study COVID patients, or is that increasing utilization?
spk07: Yeah, hemostasis management grew 31% in the first quarter. It's a truly outstanding growth. A lot of that is benefiting from the increased procedure volume, no doubt. Juneteq's an essential product in that regard. U.S. is disproportionately driving that growth, although we've had growth in every geographic segment. And it's a combination of new device sales as well as much higher utilization per device. And I'm sure there is some testing still going on related to coagulation in COVID patients, but the vast majority of the growth is just core treatment for all of our indications. It's a combination of cardiac surgery and cardiology more broadly. It's trauma. And increasingly, it'll be interventional cardiology as we push into that front. So strength across the board, certainly driven by the U.S. first and foremost.
spk02: Great. Helpful. And then my second on CardioVac. What has surprised you either positive or negatively about Uptake? And then could you just give some more commentary on how the integration is going? Thanks.
spk07: Yeah, I'll start with the integration because I think that's the real success story here. To be able to bring that team on board and assimilate them in, preserving everything that they're doing, have been doing exceptionally well. John Russell and that group built a really high-performing team, and we're benefiting from that leadership. We brought them in, and I think we feel quite good we've been able to do so without disrupting so that team hasn't missed a beat. And now what we're doing is leaning in and helping them focus and make the investments that are necessary to drive sustained growth going forward. So we watched this. We got word yesterday, actually, from FDA that we're now approved for same-day discharge for atrial fibs. which just adds more fuel to that fire and will allow us to continue that growth trajectory going forward. So they've done a lot of things right. We are benefiting from that. I think the smooth and rapid integration, as it were, has really helped. We're also pushing hard outside the U.S. now to get the registrations in place and to build the go-to-market models that will enable us to replicate that performance in other markets around the globe. So we're excited about it, for sure. Thanks.
spk04: Thank you. As a reminder, to ask a question at this time, please press star then 1 on your touchtone telephone. Our next question comes from Mike Madsen with Needham & Company. Your line is open.
spk06: Yeah, thanks for taking my questions. I wanted to ask about the cash flow. So just given... the decline compared to the first quarter last year. What's your confidence level in the guidance? And is it more realistic to now to expect to be at the lower end of the guidance range for the year? No. Hi, Mike. It's Bill.
spk08: So on free cash flow, no, we're confident that we will be within that $135 million to $155 million guidance that we've put out there. The cash flow is down a little bit from from last year and it's a combination of, you know, we have higher accounts receivable than we did last year as our revenue has begun to return. So it, I mean, it's good news, right? But you are going to see an increase in your balance sheet and that accounts in inventory. We have actually seen a lower growth in the inventory in our first quarter this year than last year. And then the last element that's really affecting that lower cash flow is our capital expenditures have begun to return to normal levels here in the first quarter. But again, you know, we're confident we wouldn't have put the 135 to 155 out there. I'm not going to say specifically where we're going to fall within that range, but we feel good about it.
spk06: Okay, thanks. And then I don't know if you've given us any guidance on, you know, on a gap basis, if you include all the restructuring and kind of one-time stuff in there, but do you expect free cash flow to be positive once you, you know, I guess on a gap basis, not excluding that sort of stuff? For the year? Yeah, for the year, sorry. We would expect it to be positive for the year, yes. Okay. All right, and then, you know, one of the things I've heard some of your larger customers talking about is trying to collect more plasma outside the U.S. over time. You know, I'd imagine you still have an opportunity to capture that business. But I just wanted to get your thoughts on that, see if there's, you know, what that means to humanetics, if anything, if that does, in fact, increase.
spk07: Yeah, Mike, it's Chris. You know, that's a perennial discussion topic. I think it's gained more momentum in the COVID period. One of the things we communicated previously is that we've helped more than 25 countries around the globe over the last year step up the collection of convalescent plasma initially in response to COVID and then more broadly for just general medical self-sufficiency. And I think that's really opened a number of these markets up and kind of drawn attention to the over-dependence as the industry describes it on the U.S. market specifically. There are still only five places outside the U.S. where donors are remunerated for their plasma collection, and that's a challenge. There are legislative challenges as well, but as our customers lean into that and help local markets open up, we take pride in being right there to work with them. One of the benefits of combining our blood center and plasma operations in the way that we have is we're more attuned to those opportunities. We're better able to coordinate internally in response to customer requests, and I think the international growth is a real opportunity for us going forward in an area where we can continue to grow and surprise positively.
spk06: Okay, great. Thank you.
spk04: Thank you. Once again, as a reminder, to ask a question at this time, please press star then one on your touchtone phone. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.
spk01: Hi. Good morning, Chris and Bill. Thanks for taking the question. Just on the quarter here, I think you grew 6% organic in plasma, and I think I heard you mention collections grew 14%. So I'm just trying to better understand kind of the delta there between the two numbers. Was that price, but would love some more color there. Thank you.
spk07: Yeah, Drew, there's a range of factors. Obviously, we're talking about comparisons over prior periods. We did call out price adjustments, and we talked specifically about those in the prepared remarks. There's a combination of legacy agreements, you know, including you know, for the PCS2 technology where we had a specific operation that had been priced into a contract that was time-bound and expired. The other thing we're experiencing is, which is quite a positive, as volumes return, a number of our contracts are volume price-specific. So if the volume increased, there's a slight decrease in the pricing. It's a good thing, but you see those variability on a quarter-on-quarter basis. So none of it's pertaining to the new technology or new contracts. It all has to do with those prior agreements.
spk01: Okay. Understood. Thank you. And then just on the Nexus conversion by mid-fiscal 23, is there any way that you can, and maybe you don't want to discuss this, but frame that in terms of your overall installed base? Because it just mentions, or you mentioned you expect the complete transition of your major customers, but just trying to get a better sense of how we should think about the ramp in terms of your installed base versus customers. Thank you.
spk07: Yes, I appreciate the question, and I know you want to drill down on that. For reasons of customer confidentiality, we prefer not to talk about the specifics beyond what we've already guided to. Thanks.
spk01: Thanks, Chris.
spk04: Thank you, and I'm currently showing further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
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