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spk02: Good day, and thank you for standing by. Welcome to the Humanetics Corporation's third quarter fiscal 2022 earnings call. At this time, all participants are in 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 today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olga Gayet, Director, Investment Relations.
spk00: Please go ahead. Thank you, and good morning, everyone. Thank you for joining us for Humanetics' third 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 third quarter fiscal 22 results to our Investor Relations website, along with our updated fiscal 22 guidance and the analytical tables with the 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 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 assets 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 to help 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 these forward-looking statements. And now, I'd like to turn it over to Chris.
spk05: Thanks, Olga. Good morning, everyone, and thank you for joining. Third quarter revenue was $260 million, an increase of 8 percent in reported dollars and an organic revenue decline of 1 percent. Year-to-date revenue was $728 million, an increase of 13 percent in reported dollars and an organic revenue growth of 3 percent versus prior year. Third quarter adjusted earnings per diluted share was 84 cents, an increase of 4 percent and year-to-date adjusted diluted EPS was $1.93, an increase of 2% when compared with the prior year. Our third quarter performance exemplifies our agility and resilience as we navigated the pandemic headwinds, keeping our people safe while providing our customers the solutions and support they depend on. U.S. blood and plasma collections in some hospital product lines were disrupted by the impact of the Omicron variant. but we believe those effects are transitory. Meanwhile, our hospital business continues to excel, with hemostasis management and vascular closure achieving record high quarterly sales. We made significant progress with our Nexus and Persona conversions, which support increased plasma volumes. We met critical R&D milestones and expanded our global commercial capabilities. and we delivered additional savings from our operational excellence program that are partially offsetting inflationary pressures and supply chain disruptions and freeing up resources to fund growth. As we will discuss, these accomplishments have contributed to our increasingly strong adjusted gross and operating margins. Moving on to our business unit results. Plasma revenue decreased 2 percent in the third quarter, primarily driven by disruption from Omicron, and a $6 million stocking order in the prior year. Excluding the stocking order, U.S. plasma collections volume improved 2 percent on top of the strong growth we experienced in the same quarter last year and grew 9 percent sequentially compared with a historical seasonal improvement of 3 to 5 percent. Year to date, plasma revenue improved 3 percent compared with the prior year and was largely driven by 11 percent growth in U.S. collections. partially offset by the one-time stocking order and prior price adjustments, which have now fully annualized. Additionally, we have amended our agreement with CSL Plasma to allow them to use our PCS2 devices and purchase disposables through December of 2023. This extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and we are working with them to quantify their volume requirements over the life of the agreement. We are meeting our Nexus rollout milestones. We have completed the majority of customer upgrades to NexLink DMS, and we are transitioning the remainder of our major customers to Nexus PCS. We have already successfully converted several hundred plasma centers to our Nexus platform without interruption to their daily collections. and we have the Nexus PCS devices available here in the U.S. to ensure timely conversion of the remainder of our major customers by mid-fiscal 23. We are also pressing forward to upgrade customers to our persona technology and expect more plasma centers to be using our personalized nomogram by the end of this fiscal. The pandemic continues to highlight the critical role our Nexus system plays in donor recruitment and retention and collection center productivity. Our technology and our teams are making outsized contributions to help customers accelerate recovery. A fully integrated Nexus platform consisting of the Nexus PCS device, NexLink DMS software, and our Donor360 app is enabling our customers to benefit from faster procedure time, contributing to a 16-minute reduction in average donor door-to-door time. improved compliance, including up to 98% elimination of documentation errors, as well as increased donor satisfaction. Our in-market results demonstrate donor affinity from a 93% donor preference for Nexus PCS over the prior generation device. And with our persona technology, Nexus customers can also benefit from an additional 9% to 12% average plasma yield per donation. The breadth of our technology and its impact touches every step of Plasma Center operations. Remote donor check-in, registration and screening, the plasma collection process, issuing donor payments and processing, testing, and shipping samples. Close partnerships with our customers and years of experience have given us deep expertise and understanding of what drives value in the industry we serve. And we will continue to use this knowledge to develop new products and software applications. We are looking forward to providing additional details about our innovation during our Virtual Investor Day later this year. On a macro level, we continue to believe that the pandemic's negative effects on collection volumes are transitory, and we remain optimistic about U.S. source plasma. Predicting the exact pace of the recovery remains difficult due to COVID's multifactorial impacts, including the new Omicron variant. Accordingly, we are updating our fiscal 22 plasma revenue growth guidance to 8% to 10% compared with our previous guidance of 10% to 20% to reflect the protracted pace of collections recovery through the end of our third quarter. The end market demand for plasma-derived therapies is robust, and our customers continue to ramp up to support this demand by investing in R&D, expanding their manufacturing capacity, and opening new plasma collection centers. As the industry recovers from the pandemic, we believe U.S. source plasma collections will return to a historical growth rate of 8 to 10 percent, with the potential to grow in excess of that as customers replenish depleted inventories. Moving to hospital, revenue increased 11 percent in the third quarter, driven by continued procedure recovery, despite challenges posed by hospital staffing shortages and supply chain disruptions in Asia-Pacific. The encouraging procedure recovery trend from September continued through most of the third quarter, waning in mid-December with a rapid rise in COVID cases, coupled with increased pressure from staffing shortages in U.S. hospitals. Nonetheless, year to date, hospital revenue increased by 15%, primarily due to use of disposables from continued improvements in hospital procedure volumes across most geographies. Strong capital sales in North America and new business opportunities in Europe. We are excited about our growth and expansion in hemostasis management, our largest hospital product line. Hemostasis management revenue grew 18% in the third quarter and 23% year-to-date, primarily due to adoption of our TAG6S devices and increased utilization of cartridges in North America, where we experienced three consecutive quarters of strong capital sales. We also benefited from sales growth in Europe, where the Clot Pro visceral elastic diagnostic device drove disproportionate growth in our third quarter and year-to-date results. We are excited to increase our footprint in underserved markets through capital sales and to drive utilization and adoption of our testing protocols and existing counts globally. Self-salvage revenue declined 2% in the quarter as Omicron dampened procedure volumes in the U.S., and disrupted supply chains in Asia Pacific. Year-to-date, revenue grew 5% driven by higher hospital procedure volumes and strong capital sales as we upgrade customers to our latest cell saver technology. Transfusion management revenue grew 8% in the third quarter and year-to-date driven by both blood track and safe trace TX. Omicron impeded our ability to implement new hospital conversions, but we anticipate this will correct going forward. We remain enthusiastic about the performance and potential of our hospital business and update fiscal 22 revenue guidance to 16% to 18% growth, including mid-20s hemostasis management growth. We are approaching the first anniversary of our acquisition of Cardiva Medical. Early results have surpassed our expectations, and with the integration essentially complete, we are progressing ahead of schedule on all critical milestones. We had another record sales quarter in vascular closure, delivering $24 million of revenue in the third quarter and $67 million year-to-date. Both Vascaid products delivered meaningful results through accelerated penetration into new accounts and increased utilization within existing accounts. The performance of our Vascaid MVP product in electrophysiology was particularly strong, aided by the recently granted FDA indication for same-day discharge following atrial fibrillation ablation procedures. We are increasingly confident about this business and increase our fiscal 22 guidance range to $90 to $95 million, nearly double the revenue generated in the 12 months prior to the acquisition. Blood center revenue declined 7 percent in the quarter and 4 percent year to date as Omicron disrupted U.S. blood collections. Apheresis revenue declined 7 percent in the quarter, driven by staffing shortages in U.S. blood centers and unfavorable order timing among distributors when compared with the prior year, affecting both capital and disposable sales. Year to date, apheresis revenue declined 1 percent as first half growth from a strong recovery of platelet collections in Asia Pacific and the winning of several new tenders in EMEA was offset by third quarter revenue declines. Whole blood revenue declined 9% in the quarter and 11% year to date, driven by lower transfusions due to reduced hospital procedures, collection center staffing shortages, and previously discontinued customer contracts in North America. Overall, we are confident about the performance in our blood center business and reaffirm our revenue guidance of a 3 to 5 percent decline in fiscal 22. Before I turn the call over to Bill to review our financial results, I want to reiterate that despite the COVID-related challenges of the quarter and over the past two years, our teams remain committed and focused as we continue to build a foundation for transformational growth.
spk04: Bill? Thank you, Chris, and good morning, everyone. As Chris discussed, our results today showed continued resilience in the business as strong revenue performance in hospitals, specifically in hemostasis management and vascular closure, helped to mitigate the impact of a prolonged recovery in plasma volumes. In addition, our operational excellence program, combined with other cost mitigation efforts, partially offset inflationary pressures and allowed us to continue to fund investments for long-term growth. In the third quarter, we reported our highest adjusted gross margin in company history of 54.9 percent, an increase of 350 basis points compared with the third quarter of the prior year. The adjusted gross margin year to date was 54.1 percent, an increase of 370 basis points compared with the first nine months of the prior year. In both periods, Adjusted gross margin benefited from the addition of the vascular closure business, incremental gross savings from our operational excellence program, and favorable product mix due to a higher proportion of our revenue coming from the high margin and fast-growing hospital business. These benefits were partially offset by inflationary pressures in the global manufacturing and supply chains. including freight and raw material costs, previous divestitures, and price adjustments. Price had a positive impact on third quarter results, as we recognized additional benefits from upgrading customers to our latest Nexus PCS and Persona technologies, and fully annualized previously announced price adjustments in plasma, including the expiration of fixed-term pricing on a historical PCS2 technology. Adjusted operating expenses in the third quarter were $83.8 million, an increase of $12.8 million, or 18 percent compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 280 basis points and were at 32.3 percent. Adjusted operating expenses year to date were $253.2 million, an increase of $52.2 million, or 26 percent compared with the prior year. As a percentage of revenue, adjusted operating expenses year-to-date increased by 360 basis points and were at 34.8 percent. The acquisition of the vascular closure business had the largest impact on the increase in adjusted operating expenses in the third quarter and year-to-date. Adjusted operating expenses year-to-date were also higher due to freight costs and additional investments in research and development as we broaden the project portfolio to strengthen our technology. Third quarter adjusted operating income was $58.8 million, an increase of $6.2 million, or 12 percent. And year-to-date adjusted operating income was $140.5 million, an increase of $16.4 million, or 13 percent, compared with the same periods in fiscal 21. Adjusted operating margin was 22.6 percent in the third quarter and 19.3 percent year-to-date, representing increases of 70 basis points and 10 basis points, respectively, compared with the same periods in fiscal 21. The improvement in adjusted operating margin in both periods was driven by higher adjusted gross margin, including our ability to mitigate inflationary pressures partially offset by higher adjusted operating expenses. We affirm our adjusted operating income margin guidance to be in the range of 18 to 19 percent in fiscal 22. We are seeing early signs of stabilization in freight and raw material costs. However, these expenses remain above historical levels, and we expect continued inflationary pressure into fiscal 23, along with rising labor costs. we remain confident in continuing to generate additional growth savings with our Operational Excellence Program. The success of this initiative has largely offset near-term cost pressures. We expect our Operational Excellence Program to generate $33 million in growth savings during fiscal 22, resulting in $67 million in savings during the first two and a half years of this program. While savings from this program will continue to generate ongoing efficiency, and further benefit our margins. We expect these savings in fiscal 22 to offset inflationary pressures and increasing labor costs. The vascular closure business continues to exceed our expectations. This business is on track to deliver revenue in the range of $90 to $95 million, exceeding our original expectation of $65 to $75 million. Operating income is expected to be accretive to our business this fiscal year compared to 15 to 20 cents dilution we originally expected in the first year following the acquisition. This overachievement continues to be driven by strong commercial execution across the vascular closure portfolio and lower interest expense when compared with the original deal model. With the first year anniversary of the acquisition in March, we will begin to report revenue from this business in our organic revenue growth rates. The adjusted income tax rate was 21% in the third quarter and 22% year-to-date, compared with 16% and 15% in the same periods of fiscal 21, respectively. The adjusted income tax rate in fiscal 21 was lower than fiscal 22 due to the benefit of higher share vestings and option exercises. We expect our fiscal 22 adjusted tax rate to be approximately 22%. Third quarter adjusted net income was $42.9 million, an increase of $1.5 million, or 4 percent. And adjusted earnings per diluted share was 84 cents, an increase of 4 percent when compared with the third quarter of fiscal 21. Year-to-date adjusted net income was $99 million, an increase of $2.2 million, or 2 percent. And adjusted earnings per diluted share was $1.93. an increase of 2 percent when compared with the first nine months of fiscal 21. The higher adjusted income tax rate in fiscal 22 had a 20-cent downward impact on adjusted earnings per diluted share on a year-to-date basis when compared with the prior year. We remain confident in our ability to deliver mid- to high-single-digit growth in adjusted earnings per diluted share, and we are tightening our guidance range for fiscal 22 to $2.45 to $2.55, compared with the previous guidance of $2.40 to $2.65. Cash on hand at the end of the third quarter was $237 million, up $45 million since the beginning of the fiscal year. Free cash flow before restructuring and restructuring-related costs was $76 million, compared with $99 million in the first nine months of the prior year. The lower free cash flow before restructuring and restructuring-related costs in fiscal 22 was mainly due to higher accounts receivable as revenue continues to recover from the pandemic. Higher capital expenses were offset by lower inventory as we continued to upgrade our plasma customers. We have a sufficient quantity of Nexus PCS devices in the U.S. to complete the conversion of the remaining major customers with no impact to future cash flow. We have revised fiscal 22 guidance for free cash flow before restructuring and restructuring related costs to a range of $110 million to $120 million, compared with the prior guidance range of $115 to $135 million to account for the reduction in fiscal 22 revenue guidance in plasma. Before we open the call up to Q&A, I'd like to highlight a few key takeaways from today's call. Our business continues to demonstrate resilience and delivered record adjusted gross margin and strong adjusted operating margin, despite the challenging macro environment. Recovery and plasma collections continued, but was more protracted than originally anticipated due to the Omicron outbreak. As the effects of the pandemic subside, We believe strong demand for plasma-derived therapies and capital investments by our customers will help plasma collections recover. The hospital business continues to deliver double-digit growth, led by hemostasis management overcoming staffing shortages and uneven procedure volumes in U.S. hospitals. The vascular closure business is on track to nearly double its revenue when compared with the 12 months preceding the acquisition. We are excited about the future prospects of this business and the associated benefit to organic revenue growth and adjusted gross margin. The implementation of our operational excellence program is on track and plays a critical role in improving efficiency and helping us mitigate the impact of inflationary pressures in the near term. And lastly, we are looking forward to hosting our investor day in a virtual format shortly after we issue fiscal 22 results and fiscal 23 guidance. Thank you, and now I'd like to turn the call back to the operator for Q&A.
spk02: Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Zach Weiner with Jefferies. Your line is open.
spk01: Hey, thanks for taking the question. Two for us, can you provide some color on pricing, plasma pricing through the quarter, and then just going forward with the extension of the CSL contract, can you give some color on the expected pricing there? Is it kind of in line with historical, or is there a premium for that last extension? Thanks.
spk05: Yeah. Hey, Zach, it's Chris Simon. Thanks. With regards to pricing in the quarter, what we've been calling out all year is that we had some legacy pricing, one on a specific technology regarding PCS2 collections that the contract itself is more than six years old. It expired and we had the effect of that. That is fully annualized. We also had some legacy PCS2 disposable pricing. same as annualized. What you're seeing now as a positive and what we're calling out going forward is that pricing will be a decided benefit because more collections are being done on the Nexus technologies. We're rapidly converting all of our remaining customers to Nexus, and we've also begun the process and are pressing forward with Persona, which is that much more incremental. A headwind through much of the first three quarters, some net positive this past quarter, decidedly a benefit for us going forward. In terms of the CSL contract, I don't want to comment on individual customers just out of respect for their confidentiality. What I can say about the agreement, just to reiterate what was in our prepared remarks, is effectively it is an 18-month extension of through December of 2023. It's non-exclusive after the current agreement terminates in June and we'll get commitment from them on volumes in advance and work to supply them. We're very confident in our ability to do so as we're confident in our ability to convert the rest of our customer base to Nexus. In fact, the good thing about the Nexus conversions is you know, we have all of the devices we need to drive the conversions. We're actively doing so now, which is, you know, kind of a part of the pricing question. And we expect to be complete with the Nexus upgrade cycle, both the software and the devices, by the middle of our fiscal 23. And we still hold to that projected timing, given the progress we're making.
spk01: Got it. That's helpful. And then just one quick follow-up. The CSL, there's Are they fully in PCS2, and they will not have any hardware upgrades? I just want to confirm that.
spk05: Yeah, the U.S. supply to CSL is all PCS2-based. We have converted the entirety of CSL's business that we have with them in Europe to Nexus. That was done earlier this year, first half of this year.
spk01: Got it. Thanks so much.
spk05: Thank you.
spk02: Thank you. Our next question comes from Andrew Cooper with Raymond James.
spk03: Hi, thanks. Just wanted to make sure I had my mute off. Thanks for the questions. Maybe first, just in terms of some of the spend and OEP dynamics, OpEx was a little lighter than we had thought, which obviously is a good thing, but was there anything timing-related to call out there, especially when we think about sort of the implied earnings guide for the fourth quarter, anything in particular you'd point to?
spk04: Yes, I can take that one, Andrew. So our spending in our third quarter was a little light. We were very judicious in our investment opportunities, you know, as we started to see the impacts of Omicron on our plasma collections. But our intent in the fourth quarter is to drive that investment spending back to the levels that, you know, are respectable for us. And those investments will be both on the commercial side and in R&D. Our portfolio is evolving. You saw the solid gross margin that we delivered in the quarter. A lot of that is the result of favorable product mix that's coming from our hospital business, particularly in vascular closure and hemostasis management. We want to make sure that we address the opportunities in those businesses that are ripe for us to go after and continue growth. And we want to be aggressive in our investments. So that's the primary reason. And then you did mention something on OEP. OEP was another driver of our operational, sorry, of our gross margin improvement. And we've been fortunate enough to really run a very successful program that is helping us offset the inflationary pressures that we're seeing in the business.
spk03: Great. Maybe just to follow up on that last piece, on the last earnings call, you had called out that 33 pretty much dropping down to an even offset versus inflationary costs. Is that still what you're expecting? I know you reiterated the 33, but I just wanted to make sure in terms of sort of drop through if anything's changed.
spk04: Yes, that's correct. It's the same comment as we had last quarter.
spk03: Okay, great. And then maybe just, you know, one more on plasma as we continue to see kind of the impact. The conversations you're having around these conversions, obviously you're talking about contracting and thinking about what volumes may look like. Has anything changed in terms of what your customers are looking at? You know, we hear different things on donor fees and things like that. So just want to get kind of the latest and greatest from you for both the near term and then ultimately, you know, long term. I think you already said your expectation to get back to the 8 to 10, but would love any additional color from the quarter.
spk05: Yeah, Andrew, happy to do so. You know, I think, you know, when we look at it, there's clearly a disconnect between revenue and collection volumes here. Revenue was down 2% in Q3. Collection volumes were actually up 2%. And that's, again, a very challenging comp from the third quarter of last year. And I think it is important to be cognizant of what's going on in the macro environment. Relative to third quarter of last year, there's probably three or four factors that are relative and important here. In the third quarter of last year, the volume from collections in college towns was a new positive. Thankfully, that segment has stayed active and really very little change. It continues to do favorably, but it's on a year-on-year basis. The comparator is not the same left. Conversely, the southern border situation is difficult, and enforcement of preexisting policy there has largely been kept those centers at a small percentage of what they contributed previously. The numbers have gotten worse, not better, and our customers are working hard to address that, but there's been very little progress. I think the underlying economics are still a big factor here with government assistance. What we track to is where is average household income and savings rates, and how is that trending? We don't foresee any additional stimulus, and we're watching those numbers. They've already plateaued. We expect that they'll continue to trend downward, particularly in an inflationary environment. That's typically a favorable set of conditions for plasma collections. And then I'd be remiss if I didn't mention Omicron as it affected the collections environment, both the psychology of donors staying home to avoid infection and but also just labor shortages, whether it's backfilling in the centers or absenteeism due to phlebotomists and center operators getting sick. So same challenges we're seeing across the rest of med tech. Our customers are working through it. A bunch of things we're doing with our software and our remote technology help, and we're cautiously optimistic going forward. But they're the factors, and that certainly – influences our guidance. Our view going forward, the 8% to 10% is a long-term growth in collection volumes. We have no qualms about that. We think it will be higher than that as our customers work to replenish their inventories, and we stand ready to help them with the integrated Nexus platform.
spk03: Perfect. And then if I can sneak in maybe just one last one. I think early on, There was mention of some R&D milestones and sort of progress there. And in the answer to a previous question, we talked about investments in R&D. So can you give us a little bit of a flavor for where some of that's going and what maybe in particular those milestones might have been just so we can kind of have a roadmap for what's to come?
spk05: Sure. Yeah, we're very enthusiastic about our portfolio and the pipeline that we're generating and We're working hard to broaden the shoulders with new applications, new indications across all three of our primary growth drivers, that being plasma, BCV, the Nexus platform, that being hemostasis, both TEG and ClotPro, and also with regards to vascular closure and everything we're doing for Vascaid and Vascaid MBP. So our spend is heavily concentrated in those three product areas, and we see very significant good progress with regards to taking the Nexus platform to the next level. It's the only integrated offering of software and hardware, and now we have an increasing suite of digital applications, which will take us into the next generation. We'll talk a lot more about the hospital business when we get together for our investor day, but we're really enthusiastic about our ability to accelerate that growth and defend our position where we have leading positions, both for vascular closure and for hemostasis. more to come, but we're excited about what we're doing now.
spk03: Great. I'll stop there. Thanks again for the question.
spk02: Thank you. Our next question comes from Mike Benson with Needham company. Your line is open.
spk07: Yeah, thanks. Um, so question on, on the plasma guidance, it seems like it implies kind of high single digit sequential, um, growth to get to the midpoint. Um, So, you know, just with this normal seasonality and kind of Omicron continuing into the March quarter, you know, is that mainly going to be coming from pricing then to drive the growth?
spk05: Yeah, Mike, you're right to pick up on the difference in trajectory in the fourth quarter. The reality is we typically see volume declines in the fourth quarter, our fiscal fourth quarter, just given the seasonality of the business. Typically, From third quarter to fourth quarter, you'd see a downward trend of 7% to 8%. Last year, that decline was actually double digits, 12%. So admittedly, a soft comp. We think this year will be very different based on our implied guidance, which pushes us into the mid-20s and beyond in terms of quarter-on-quarter growth. We think there's a couple things, just to reiterate. We see... stabilizing household income and saving rates. Last year, in December, there was $900 billion of new stimulus. Again, in March, there was $1.9 trillion of new stimulus. We don't anticipate that repeating this year. That's probably the biggest point. Yes, to your question, we clearly see price benefits, as we called out earlier, as we upgrade all of our customers to the Nexus platform and press forward with Persona as well. So those things clearly help us as well as the annualization that we already called out of prior PCS2 discounts. And then there are a certain level of volume commitments that we know at this point with third of the way through the quarter. So we feel reasonably confident that you're going to see meaningful improvement quarter over quarter. And I think we're watching carefully as we and our customers respond to the you know peaking of the omicron variant and how to help get those collection centers up and as productive as possible so more to come um forecasting this environment remains very difficult but we feel good about where we sit now and how we'll close the year okay great and then i just wanted to ask another one on the csl amendment so
spk07: It sounds like what you're saying is that they're going to come back to you with some kind of forecast or commitment to a certain amount of volume. So when do you expect to have that information, and is that something you'll be able to factor into your 23 guidance when you report your fourth quarter? And, you know, just I guess as a follow-up, you know, what should we – how should we handle this from a modeling perspective when we're looking at 23 – Should we just assume for now that they're out of the picture just to be conservative or, you know, I'm not sure what's going on.
spk05: It's a dynamic situation, to be clear, Mike, and I want to be respectful of customer confidentiality. We're in close conversation with all of our customers, you know, almost real time, right? And so we get rolling forecast, et cetera. The CSL situation is more dynamic for obvious reasons. You know, we will – know in advance of our guidance for FY23 where we stand with them. Obviously, it can continue to change and evolve, and I expect it will. We'll include whatever committed volumes we have in our FY23 guidance and our intention, because shortly thereafter, we're hoping to get together virtually for an investor day. We'll talk about the long-range plan, and in that long-range plan, we'll give you a clear picture without any it will include customer commitments longer term, including those that are out. So it will be a cleaner picture. 23 will be mixed for obvious reasons, and I just want to be very careful about what we can say and when we can say it. And at this point, we stand ready to serve all of our customers. We get the forecast and the updates. It's been challenging in this environment for sure, and I think it will be even more so for them going forward. Okay, I understand. Thank you.
spk02: Thank you. We have a question from Drew Ranieri with Morgan Stanley. Your line is open.
spk08: Hi, Chris. Thanks for taking the questions. Just on CSL, I appreciate you can't provide much detail, but could you maybe talk about what you're kind of thinking about in terms of dropping through that revenue bolus that maybe the street hasn't expected in their 2023 numbers? Just curious as to what you're thinking, whether you're going to really reinvest that or let it drop through, especially given your comment about building a foundation for transformational growth. Thank you.
spk05: Yeah, Drew, thanks. I appreciate the question, as you can appreciate. We're not going to comment on 23 at this point beyond what we think is the ongoing recovery, which is clearly underway in plasma collection volumes. I think for us as a company, we think about Our value proposition, our growth drivers, we're going to continue to view this from a through-cycle mindset and make the investments. We're the market share leader in plasma today. We intend to remain the market share leader in plasma going forward. We'll do what we can to help our customers recover in the near term because they need the plasma to meet the end market demand. We're going to fight for what's rightfully ours on share, and we're very confident, as you heard in the prepared remarks, about the differential value proposition of the integrated Nexus platform. So that all requires investment. Any, you know, upside around, you know, our revenue and the pass through EBITDA is just more fuel for that fire. I think the thing we don't talk a lot about in these conversations is what's happening with that hospital business. And we now have these dual pillars of growth in, you know, hemostasis management, you know, set of products that have been around for several decades that are now growing in the mid-20s, right, in terms of a percentage basis. We're 80 share leader in that market, and we intend to continue to grow that aggressively. When we think about Basquet being added to the mix, there's even higher growth potential around that product as we annualize the acquisition and kind of move forward together with those. We have other smaller products in the hospital business that are contributing favorably as well, but those two pillars really drive us. It shouldn't be lost on anybody that when we created the hospital business, whatever that was, three and a half or four years ago, it was roughly $100 million in revenue, and it wasn't growing. Today, it's worth $300 million in revenue collectively and growing in the mid-teens. We're excited about the investments there. Clearly, as we're calling out in our fourth quarter and through FY23, there will need to be investments in those businesses. But the return on that investment is quite exciting, and we'll talk more about that in our investor day. Bill highlighted portfolio evolution. I think portfolio evolution is something that needs to be talked more about as you think about the investment thesis and hemostasis in Vascular as well. And then maybe more broadly on OEP, where the gains you're seeing this quarter in our gross margins are sustainable. They reflect the product mix. They reflect OEP. They reflect the good work that our teams are doing to serve our customers consistently well. And I think there's an opportunity to build on that going forward.
spk09: Great. Thanks for taking the question.
spk02: Thank you. As a reminder, if you would like to ask a question, press the star, then the one key on your touchtone telephone. We have a question from Larry Solow with CJS Securities. Your line is open.
spk06: Great. Good morning, guys. Thanks for taking the questions. Just a follow-up on the hospital business, really encouraged by the growth there and the outlook. Can you just remind us the gross margin on those products? Obviously, with the vascular closure, it has really been improved. But even with that vascular closure, the gross margin on those products, I think, is – pretty significantly north of the corporate average. Is that fair to say?
spk04: Yeah, Larry, they are.
spk05: You want to answer that though?
spk04: No, I can. Yeah. So, so Larry, those, those project products, sorry, um, are definitely higher than the corporate average, right? And it's driving, uh, a lot of the benefits that we're receiving in our, uh, we're seeing in our gross margin and our operating margin. And that, Those higher – we're fortunate enough that those higher margin businesses are the fastest growing businesses that we have in the company, right? So we should continue to see these improvements or these benefits in both operating and gross margins.
spk06: Right. And I didn't catch it on the plasma side, the planned conversion to Nexus. Has that changed at all or, you know, any update on that for the rest of your customers?
spk05: Now, what we've called out, Larry, is we've substantially completed all of the NextLink donor management software upgrades. That's largely done. We are neck deep in rolling out across collection centers for multiple customers, essentially all of our remaining major customers. And we have the devices, FDA approved, up to their station here in the U.S. and ready for deployment. So, we'll battle the pandemic like our customers are day in and day out, and we obviously don't want to cause any disruption. We've been quite successful in avoiding that. So our current plans have us completing that conversion by the middle of fiscal 23. Okay, so that really hasn't changed there.
spk06: Okay, and then just lastly, I guess on pricing, I assume, you know, I know you can't really talk too much about this, but we should assume pricing is your mix on Plasma just in general should be getting better, right? I mean, you should be getting some price on Nexus, and then as more customers adopt Persona, I suppose that should be the case as well, right? So by fiscal 24, you should have some excess CSL side of it. Your pricing should be pretty, you know, should be meaningfully higher than it is today. Is that a fair statement? Yeah.
spk05: It is a fair statement, Larry. We spend a lot of time in conversations with customers through our trial work and through ongoing monitoring which is readily available with the Nextlink system. We know the effects we're having on lowering cost per writer connected with Nexus and with Persona. And we reflect that in the pricing. We reflect it in the value proposition. I think our converted customers feel quite good about the exchange there. And, yes, that would benefit our gross margins going forward, as Bill highlighted.
spk06: And just a last question on CSI to beat this subject, but I don't think you can comment, but maybe you did. Just on pricing, do we assume that that pricing, is that agreement just extended? from where that pricing was, or can you speak to that at all? Was there a change?
spk05: Yeah, it's not. The vagaries of individual contracts is something I don't want to get into, Larry, for reasons I know you can appreciate. It's a good agreement for them. It's a good agreement for us.
spk06: Fair enough. I can appreciate that. Okay, great. Thank you for taking the questions. I appreciate it.
spk02: Thank you. And that's all the questions we've had. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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