Haemonetics Corporation

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the second quarter 2022 Humanetics Corporation Earnings Conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press the start and the 1 key on your touch-tone telephone. Please be advised that today's conference may be recorded. If you recall, our resistance is placed for a start and 0. I would now like to hand the conference over to your speaker host today, Olga Gayet, Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us for Humanetics Second 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 second quarter fiscal 22 results to our investor relations website, along with our updated fiscal 22 guidance and 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 and excluded items, including comparisons with the same periods of fiscal 21 and a reconciliation to 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 impact from the pandemic on our results and other factors referenced in the Safe and Harbor Statement in our earnings release, and in our filings with the SEC. We do not undertake any obligation to update the forward-looking statements. And now, I'd like to turn it over to Chris.

Thank you, Olga. Good morning, everyone, and welcome. Before we discuss our second quarter results, I'd like to begin with the news we announced this morning that Bill Burke has decided to retire from Hamanetics, effective next summer. Bill joined the company in August 2016. and has been a valuable advisor and partner to me while building Hemanetix's world-class finance team. Together, we have directed strategic financial initiatives, enabling us to best leverage our resources for investments in the people, products, and processes that drove our turnaround and are fueling our long-term growth. I'm grateful that Bill will continue to serve as CFO through the remainder of this year as we conduct a search for his successor. He's also agreed to work closely with his successor and the finance team to affect the seamless transition. I offer Bill my sincere appreciation for his many contributions to our company. Now onto the second quarter results. Today, we reported organic revenue growth of 5% for our second quarter of fiscal 22 and adjusted earnings per share of $0.60, down $0.02 or 3% compared with the second quarter of the prior year. Our performance in the quarter reflects revenue growth across all of our business units, and we are encouraged by our overall positive first half fiscal 22 results and the momentum we have built moving forward. We are enthusiastic about our success so far. Our teams are demonstrating strength and resiliency, and we anticipate robust growth through the second half of our fiscal year. We are advancing our market leadership by driving significant value for donors, collectors, patients, and physicians around the world. We see clear evidence of upturn in our key markets, including meaningful increases in plasma collections, growth in demand for our hospital products, and the performance of our blood center apheresis business. However, based on the initial lag and recovery of our U.S. source plasma collections, we have reassessed our expectations and now forecast total company organic revenue growth of 7% to 10%. In addition, due to uncertainties about inflationary pressures in our global supply chain, we have updated our fiscal 22 adjusted earnings per diluted share guidance to $2.40 to $2.65. Let's discuss the business units. Plasma revenue increased 7% both in the second quarter and year to date. We saw important signs of recovery on a sequential basis, but the COVID-19 pandemic and associated government subsidies continue to have a dampening effect on the U.S. source donor plasma pool. North American disposable revenue increased 10% in the second quarter, driven by a 20% improvement in U.S. collection volumes compared to the prior year as we observed meaningful recovery from the pandemic. Similarly, U.S. collection volumes grew 14 percent sequentially in the second quarter, significantly outpacing the historic industry average seasonal improvement of 8 percent. This represented our first quarter of sequential collection volume growth since the most recent U.S. government stimulus programs were implemented in late calendar 2020 and early 2021. The improvement in collection volumes was partially offset by price adjustments, including the exploration of fixed-term pricing on historical PCS2 technology. These price adjustments will annualize during the fourth quarter of fiscal 22. Collection center conversions remain on track. We will complete the upgrade of our customers to the latest version of NexLink DMS software later this year and transition our major customers to Nexus PCS devices by mid-fiscal 23. Our Nexus platform, with its YES and PERSONA protocols is a powerful tool to help our plasma customers increase yield per collection, ensure continued safety, quality, and compliance, enhance collection center productivity, and provide solutions to help retain donors. We continue to receive positive feedback from Nexus customers who value the connectivity, increased speed, compliance, and donor satisfaction. Early adopters of our persona technology are benefiting from an additional 9 to 12 percent plasma yield per donation. We anticipate additional persona conversions over the second half of fiscal 22 as our customers strive to further increase U.S. collection volumes to replenish depleted inventories. The improvement in U.S. collections during the second quarter, despite the continued impact of the pandemic and associated government subsidies, provides evidence of recovery and momentum as we head into the second half of the year. We expect continued improvements in U.S. collection volumes during the third quarter, driven by the expiration of remaining economic stimulus programs, the normalization of income and savings rates, and increased spending generally associated with the holiday season. This is consistent with the trends we observed in the third quarter of fiscal 21. We continue to expect U.S. collection volumes will return to pre-pandemic levels and grow from there. However, there is uncertainty around the timing and pace of the rate of collection volume recovery in the second half of the year. Even small shifts in this timing could have a meaningful impact on our fiscal 22 plasma organic revenue growth. Therefore, while we continue to assume significant and accelerated U.S. collection volume recovery in the second half of fiscal 22, we are lowering our plasma organic revenue growth guidance to 10 to 20 percent. The high end of our revised revenue guidance aligns with the midpoint of our previous guidance range of 15 to 25 percent and assumes a significant increase in collection volume, considerably higher than the 20 percent growth rate we observed in the second quarter. This trajectory assumes U.S. collection volumes will return to pre-pandemic levels by late Q3 and continue into Q4. The low end of our revised guidance range also assumes that second half U.S. collection volumes will still grow considerably, but the rate of increase will be more consistent with the 20 percent growth we observed in the second quarter. At this lower trajectory, U.S. collection volumes will not fully recover to pre-pandemic levels before the end of fiscal 22. As collection volumes recover and fractionators replenish their depleted plasma inventories, we are well positioned in a resilient end market. At a macro level, we continue to view the impact of the pandemic as temporary. The underlying demand for plasma-derived medicines is strong, and our customers continue to expand their collection and fractionation capabilities and invest in R&D. As the industry recovers from the pandemic, we expect U.S.-sourced plasma collections to return to 8-10% long-term growth, and we see potential to grow in excess of that as customers strive to replenish depleted inventories. We are fully ready to support this growth. Moving to hospital, revenue increased 10% in the second quarter and 18% year-to-date, 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. During the first half of the second quarter, we saw procedure volumes normalize across most geographies, with some headwinds in the second half of the quarter from the onset of the Delta variant, particularly in North America. As the number of COVID-related hospitalizations subsided, we saw additional recovery starting in mid-September. Hemostasis management revenue grew 21% in the second quarter, and 26% year-to-date, driven by growth in the utilization of our products and strong capital sales as we continue to penetrate underserved, visceral elastic testing markets. North America, our largest market, led the charge in the adoption of our TEG6S devices and increased utilization of cartridges, benefiting from a second consecutive quarter of record capital sales. We also continue to benefit from increased market share in Europe, with strong sales from both TEG6S and ClockPro. Cell salvage revenue declined 5% in the quarter as the Delta variant negatively impacted procedure volumes in the U.S. and Japan for part of the second quarter. Disposables and capital both contributed equally to the decline, with capital being partially due to customer order timing following two consecutive quarters of strong growth. Cell salvage revenue grew 9% year-to-date, driven by recovery in procedure volumes and strong capital sales as we continue to update our latest technology. Transfusion management revenue grew 5% in the quarter, primarily due to strong blood track growth in the U.K., and 8% year-to-date, driven by strong first-quarter growth in both blood track and SafeTrace TX as we completed a series of new account installations in the U.S. We reaffirm our guidance strategy for 15 to 20% organic revenue growth in hospital, including mid-20s hemostasis management organic revenue growth. This growth rate is consistent with the recovery trajectory of hospital procedures we observed prior to the onset of the Delta variant, and assumes that procedures across all geographies will be fully recovered by the end of fiscal 22. Our recently acquired vascular closure business delivered $21 million of revenue in the second quarter and $43 million year-to-date, doubling its revenue compared to the equivalent six-month period last year. Both Vascaid products delivered meaningful results through accelerated penetration into new accounts and increased utilization within existing accounts. Early in the quarter, we experienced a seasonal dip in elective procedures, coupled with the impact of the Delta variant on electrophysiology and interventional cardiology procedures. As the impact of COVID-19 began to subside, we saw noticeable improvement in procedure volumes that we expect will continue through the second half of the year. This growth will be further aided by Vascaid MVP earning the first ever FDA indication for same day discharge for atrial fibrillation ablation. Procedure volume recovery Higher diagnosis rates, increased hospital efficiency, and an overall move to standard of care facilitated by the same-day discharge indication give us greater confidence in the trajectory of ASCADE, and we are increasing our fiscal 22 guidance range to $80 to $90 million. Our hospital business is becoming an increasingly significant driver of our success. Through the strength of our diverse portfolio and our innovation agenda, We are improving patient outcomes and hospital economics. Immunetics' focus on improving the standard of care has never been more critical. Blood center revenue increased 2% in the quarter and declined 2% year to date. Apheresis revenue grew 7% in the quarter and 2% year to date. Growth in apheresis in both periods was driven by a full recovery of platelet collections in Japan, partially offset by a reduction in plasma collections due to a prolonged COVID-related state of emergency. Additionally, our second quarter apheresis growth benefited from winning several new tenders in the MEA, which resulted in a series of initial capital device and disposal sales. Whole blood revenue declined 11% in the quarter and 12% year-to-date, driven by lower-than-usual procedure volumes due to COVID-19, and previously discontinued customer contracts in North America. The recovery of platelet collections in Japan, coupled with the addition of the new tenders in EMEA, demonstrate the continued resiliency of our blood center apheresis business. Given this outperformance in the first half, we are increasing our fiscal 22 organic revenue guidance for the blood center business to a decline of 3 to 5 percent. I'll now turn the call over to Bill.