This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Good morning, ladies and gentlemen. Thank you for standing by and welcome to Humanetics Corporation fourth quarter fiscal 2022 earnings conference call. At this time, all participants are in a listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star then the one key on your touch-tone telephone. Please be advised that today's conference is being recorded. If you require operator assistance, please press star then zero. I would now like to hand the conference over to your speaker host for today, Olga Gayet, Senior Director of Investor Relations and Treasury. Please go ahead.
spk08: Good morning, everyone. Thank you for joining us for Humanetics' fourth quarter Fiscal 22 conference call and webcast. I'm joined today by Chris Simon, our CEO, and James Durecka, our CFO. This morning, we posted our fourth quarter Fiscal 22 results to our Investor Relations website, along with our Fiscal 23 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 access to product lines, acquisitions and investitures, 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 impact from the pandemic on our results and other factors referenced in the safe harbor statement in our earnings release and 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.
spk06: Thanks, Olga, and thank you all for joining our earnings call. Today we reported organic revenue growth of 19% in the fourth quarter and 7% in fiscal 22 and an adjusted earnings per diluted share of 65 cents in the fourth quarter and $2.58 in fiscal 22, an increase of 41% versus the prior year fourth quarter and an increase of 10% versus the prior fiscal year. The past year was a challenging one, but we are proud of how our people have responded. Our fourth quarter performance reflects our resilience and our commitment to meet the needs of our customers and deliver on our purpose of improving standards of care. Our agility and perseverance helped us achieve growth in all businesses, and we continue to distinguish Humanetics for the meaningful value we are creating across our markets. As the industry leader, we delivered integrated solutions to help our plasma customers realize much needed growth in the volume of collections. In the face of unprecedented blood shortages, our blood center products help maximize the impact of donations and attract and retain donors. Hospital, including vascular closure, continued to exceed expectations and was our fastest growing business in fiscal 22, helping customers improve patient care and outcomes at less cost. As we evolve our portfolio and we expand our reach and relevance, hospital will increasingly drive our growth and diversification. Our operational excellence program proved fundamental to our resilience and ability to quickly address supply chain disruptions and serve all who depend on us. It will continue to play a critical role in sustaining our success. enabling us to be a more agile, efficient, and productive company, creating lasting cost savings and freeing resources to fund investments. Turning now to our business unit results, plasma revenue increased 31% in the fourth quarter, driven by a 12% increase in U.S. plasma volume, price benefits, and a $6 million stocking order. Excluding the stocking order, U.S. plasma volume declined 4% sequentially, which compares favorably to a typical seasonal decline of about 7% in the fourth quarter, and last year's fourth quarter decline of 13%. In fiscal 22, plasma revenue grew 10%, driven by growth in volume. We remain committed to enabling our customers to improve donor satisfaction, maximize plasma volume, and lower cost per liter collected. Our technology and ongoing product development are essential to helping our customers meet these critical needs. Nearly all of our major customers in the U.S. are now experiencing the full value of our technology through a network of bi-directionally connected Nexus PCS devices with NexLink DMS and Donor360 apps. Working closely with our customers, we have designed Nexus to streamline the collection process, These advances have proven especially important at a time when our customers are facing unprecedented staffing challenges. Our fully integrated system plays a vital role in a positive donor experience and collection center productivity. From instant check-in upon arrival through streamlined donation and expedited payment, Nexus contributes to a demonstrated 16-minute reduction in average donor door-to-door times. improved compliance, including a 98% elimination of documentation errors, and increased donor satisfaction. Our customers are also collecting an additional 9% to 12% of plasma yield on average on Nexus with Persona, enabling them to both increase plasma supply and reduce the average cost per liter. We are leveraging extensive customer experience and real-world data from nearly 30 million Nexus collections to focus our ongoing innovation agenda. Our product development efforts continue to help customers improve center operations by driving growth in collections and improving plasma volume output while increasing donor retention and satisfaction. We look forward to sharing more about these programs at our Investor Day in June. the patient need for plasma-derived pharmaceuticals has never been greater. We continue to see long-term plasma market collections demand of 8% to 10%, and we expect to see volume growth in excess of that as fractionators strive to replenish depleted plasma inventories. Moving to hospital, revenue increased 19% in the fourth quarter and 16% in fiscal 22%. All four of our product lines grew this year, despite the challenges posed by the Omicron variant outbreaks, hospital staffing shortages, and COVID-19 related lockdowns in China. Hemostasis management delivered 12% revenue growth in the quarter and 20% revenue growth in fiscal 22. In the U.S., our largest market, TAG delivered robust growth both in the quarter and in fiscal 22. We also benefited from strong growth in Europe, primarily driven by successful market penetration with our Clot Pro, the SoElastic diagnostic device, which was acquired in April of 2020. Growth in the U.S. and Europe was partially offset by weaker sales in China. As you will hear during our investor day, we remain enthusiastic about our ability to grow organically and inorganically and in what we estimate is a $700 million global market. Transfusion management revenue grew 18% in the fourth quarter and 11% in fiscal 22 and was equally strong for BloodTrack and for SafeTrace TX as we completed a series of new account installations. Our fourth quarter results also benefited from a catch-up in software implementations in the U.S., after a few months of delay due to Omicron. Self-salvage revenue increased 17% in the quarter and 8% in fiscal 22, driven by procedure recovery and strong capital sales. Growth in the quarter also benefited from backorder relief from the temporary supply chain constraints we experienced in the third quarter. Vascular closure continues to excel. delivering a record $27 million of revenue in the fourth quarter and $94 million in fiscal 22. With the integration of this business essentially complete, our focus is on accelerating our penetration into the $2.8 billion underpenetrated market, while advancing our product portfolio to continue strengthening the role of our hospital business as a growth engine for Humanetics. Blood center revenue grew 7% in the fourth quarter and declined 1% in fiscal 22. Apheresis revenue declined 1% in the quarter and fiscal 22 as the strong recovery in platelet collections in Japan was offset by lower revenue from convalescent plasma and staffing shortages that affected collection centers across the U.S., Whole blood grew 26 percent in the quarter, driven by favorable order timing among distributors in the MEA and additional opportunities in North America. Our supply chain resilience enabled us to serve customers in need. For the full year, whole blood revenue declined 3 percent, driven by blood center staffing shortages and previously discontinued customer contracts in North America. To carry our momentum into fiscal 23 and beyond, Humanetics is set for robust, transformational growth, propelled by investments in the advancement of our technologies and expansion of our global commercial capabilities. We look forward to sharing our updated long-range plans, key business initiatives, innovation agenda, and revised financial outlook at our Investor Day on Wednesday, June 29th at 10 a.m. Eastern Time. And we invite you to join us either in person, in Boston, or virtually. I'll now turn the call over to James DiRecca and take this opportunity to welcome him as our new Executive Vice President and Chief Financial Officer. James brings to Humanetics substantial experience in financial leadership from prominent global healthcare organizations, and I look forward to working together to support our company's growth, resource allocation, and long-term value creation. James?
spk02: Thank you, Chris, and good morning, everyone. I'd like to begin by saying how excited I am to be part of Hamanetics. Tomorrow will mark one month since I joined the company, and as I onboard, I'm incredibly impressed with our people, our leadership, and the exciting possibilities ahead of us. I very much look forward to being part of this journey and applying my experience towards growth and value creation. Now let's discuss our business results and Fiscal 23 guidance. Our results for the fourth quarter and fiscal 22 show continued resilience across the business. Chris already discussed our revenue results, so I will focus on the rest of the financials. Our adjusted gross margin was 53.6% in the fourth quarter and 53.9% in fiscal 22, an increase of 360 basis points when compared with the same periods of the prior year. The adjusted gross margin expansion was driven by the addition of the vascular closure business and benefits from the Operational Excellence Program. These benefits were partially offset by inflationary pressures in our supply chain and manufacturing, including freight, labor, and raw material costs, as well as higher depreciation costs primarily related to the increasing installed base of our Nexus devices in the U.S. Price had a positive impact on the fourth quarter results, but a limited impact on our fiscal 22, since price adjustments in our plasma business in the first nine months of the year largely offset price benefits from Nexus and Persona conversions in the second half of fiscal 22. As a reminder, these price adjustments were related to the expiration of fixed-term pricing on historical PCS2 technology and were fully annualized at the end of the third quarter of fiscal 22. Adjusted operating expenses in the fourth quarter were $95.4 million, an increase of $13.4 million, or 16%, compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 40 basis points to 36%. Adjusted operating expenses in the fourth quarter included a ramp-up in investments that were delayed earlier in fiscal 22. Adjusted operating expenses for fiscal 22 were $348.6 million, an increase of $65.6 million, or 23%, compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 260 basis points to 35.1%. Vascular closure had the largest impact on adjusted operating expenses in the quarter and in fiscal 22. Additionally, we had higher investments, higher outbound freight costs, and increases in other expenses associated with the return to normal spending levels. Contributions from our productivity savings, lower variable compensation, and the impact of the 53rd week in fiscal 21 helped offset some of the cost increases both in the quarter and in fiscal 22. As a result of changes in our adjusted gross margin and adjusted operating expenses, fourth quarter adjusted operating income was $46.6 million, an increase of $16.1 million, or 53%. And adjusted operating income for fiscal 22 was $187.1 million, an increase of $32.6 million, or 21 percent compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.6 percent in the fourth quarter and 18.8 percent in fiscal 22, up 410 basis points and 100 basis points, respectively, compared with the same periods in fiscal 21. The macroeconomics-driven inflationary environment continues to be challenging. The impacts in fiscal 22 have been broad-based, including freight, raw materials, and labor. We estimate an approximately 300 basis point impact from inflationary pressures on our adjusted operating income margin. Our operational excellence program is an important lever in making us more efficient and agile. especially during periods of high macroeconomic uncertainty. In our fiscal 22, this program delivered $37 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $71 million in cumulative gross savings, slightly ahead of our plan. We also had positive contributions from vascular closure. This business continues to exceed our expectations, and within the first year of our ownership of this business, it has delivered a robust revenue growth and positive contribution to our adjusted earnings per diluted share, compared with 15 to 20 cents of dilution we had originally guided to in the first year following the acquisition. We are excited about the opportunities in vascular closure and will continue to allocate investments to fund its growth. The adjusted income tax rate was 22% for both the fourth quarter and fiscal 22 compared with 12% and 14% respectively for the same periods of the prior year. The adjusted income tax rate in fiscal 21 was lower than fiscal 22 due to the benefit of higher share vesting and option exercises in fiscal 21, which did not recur in fiscal 22. Fourth quarter adjusted net income was $33.5 million, up $9.6 million, or 40%, and adjusted earnings per diluted share was 65 cents, up 41% when compared with the fourth quarter of fiscal 21. Adjusted net income for fiscal 22 was $132.6 million, up $11.9 million, or 10%, and adjusted earnings per diluted share was $2.58, up 10% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense, and FX had a negative 10 cents impact on the fourth quarter and a negative 31 cents impact on the full year adjusted earnings per diluted share when compared with the prior year. Cash on hand at the end of the fourth quarter was $259 million, up $67 million since the beginning of the year. Free cash flow before restructuring and restructuring related costs was $117 million compared with $99 million at the end of the last fiscal year. The higher free cash flow before restructuring and restructuring related costs in fiscal 22 was mainly due to lower accounts payable, largely due to a $54 million payment for a compensation related liability as part of the Cardiva medical acquisition in fiscal 21. We also had higher accounts receivable as revenue continued to recover from the effects of the pandemic and higher capital expenses, primarily related to Nexus upgrades and the operational excellence program, partially offset by a decrease in inventory. We have enough Nexus PCS devices in the U.S. inventory to convert the remainder of our major customers with no impact to future cash flow. Our current debt structure includes a $700 million credit facility that matures in June 2023 with balloon payments starting in September 2022. At the end of the fourth quarter, total debt outstanding under the facility was $284 million. with no borrowings outstanding under the $350 million revolving credit line at the end of fiscal 22. We plan to refinance our credit facility before the balloon payments are due. Additionally, we have $500 million in convertible notes that expire in March of 2026. Our EBITDA leverage ratio, as calculated in accordance with the terms set forth in the company's existing credit agreement, was 3.08, at the end of fiscal 22. Now let's move on to our guidance. We expect total organic revenue growth of 6 to 10 percent in fiscal 23. We remain confident in our plasma business and expect plasma revenue to grow 7 to 12 percent in fiscal 23 with price and volume both contributing meaningfully. Additionally, our guidance includes an $88 million minimum purchase commitment from CSL, compared with $102 million of revenue in fiscal 22. We are excited about the opportunity in our hospital business. Our go-to market strategies are working, and we're looking forward to another year of strong commercial performance. In fiscal 23, we expect the hospital business to deliver revenue growth of 16% to 19%, driven by continued robust growth in hemostasis management and vascular closure. Our blood center revenue guidance is a year-over-year decline of 4% to 7% and reflects additional geopolitical risk and an unfavorable impact from distributor order timing when compared with fiscal 22. We expect fiscal 23 adjusted operating margins in the range of 18% to 19%. Our adjusted operating margin guidance includes higher operating expenses driven by continuous investments into our business as we broaden our product portfolio to strengthen our technology and expand our commercial footprint and a return to normalized spending levels. Our adjusted operating income margin also includes about 250 basis points of additional headwinds due to inflation and geopolitical risk. We expect our operational excellence program to deliver additional gross savings of approximately $22 million, with total cumulative savings reaching $93 million by the end of our fiscal 23. About half of these savings will be in cost of goods sold, with the rest in operating expenses, helping us generate additional efficiency across our business. Our adjusted earnings for diluted share guidance for fiscal 23 is a range of $2.50 to $2.90. The midpoint of our adjusted earnings per diluted share guidance includes about $0.09 headwind from FX and share count. Additionally, consistent with our fiscal 22 results, we expect our adjusted earnings per diluted share to be higher in the second half of fiscal 23. And lastly, our free cash flow before restructuring and turnaround expenses in fiscal 23 is expected to be $100 to $130 million. Our capital allocation priorities remain unchanged and we will continue to allocate capital to prioritize organic investments, followed by inorganic opportunities and share repurchases. Before we open the call up for Q&A, I wanted to reiterate the key points that we hope you take away from today's call. First, we continue to strengthen and grow our business despite the continued challenges caused by the pandemic. The end market demand, particularly for our plasma and hospital products, is strong, and we're focused on maintaining an uninterrupted supply of our products. Second, our product portfolio continues to evolve and increase our reach within large underserved, and fast-growing markets. The acquisition of Cardiva Medical was an important step in our transformational growth journey. We remain focused on further optimizing our portfolio and accelerating our growth. Third, our operational excellence program improves our operating performance, enabling us to respond quickly to supply chain disruptions. We made significant progress by achieving more than half of the target program gross savings by the end of fiscal 22, while managing through a series of macroeconomic driven headwinds. We plan to achieve the remaining 44 to 54 million in target savings by the end of fiscal 25. This program is essential for our ongoing transformation, and once the macro environment stabilizes, these efficiency benefits will continue to expand our margins. And finally, we remain committed to driving value for our customers and our shareholders. We are proud of the work we've done to meet the challenges over the past few years. We recognize more challenges are ahead, and we remain committed to taking action, implementing necessary changes, and mitigating impacts without compromising growth of our business. We look forward to sharing more detail about our plans to deliver value at our investor day. Thank you. And now, I would like to open the line for Q&A.
spk07: Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press the start and the one key on your touch-tone telephone. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Larry Seller with CJS Securities, your line is open.
spk03: Good morning, and welcome, James, to Humanetics. First question, I guess, just on the guidance range, it's a fairly wide range, just trying to decipher the major disparities, sort of not everything, probably a long list, but sort of between the low end and the high end, how we just sort of get to that $290,000 versus that $250,000.
spk06: Hey, it's Chris. Let me get us started, and I'll invite James to comment as well. You know, first and foremost, it has to do with revenue, right? And we are dependent upon our customers who are doing everything within their power to drive both donations and procedures. We saw meaningful recovery in the fourth quarter of our fiscal year. We expect that to continue through the year, but it's, you know, as you can appreciate, the last eight quarters, particularly in plasma and blood center, have been difficult to forecast. So we want to be cautious there. There's also a series of macro challenges that James had highlighted in the prepared remarks. We look at a combination of inflation, supply chain disruption potentially, and then geopolitical risk, particularly in markets like China and Russia, as potential headwinds in the overlay effects and some other factors. It's a It's a turbulent environment, and we just want to be mindful of that and reflect that with a wider range that we obviously will look forward to narrowing as we get further in the year and some of these externalities play out.
spk03: Okay. And just in terms of your operating margin, it looks like relatively flat year over year in terms Can we speak sort of just the moving parts to that? A couple of questions there. Gross margin is that, you know, it's been trending upwards. It doesn't sound like you're losing a lot of this to CSL revenue this year. So I guess maybe you'll have to absorb that next year. How do you view sort of gross margin? I know there's a lot of, you know, a lot of moving parts, inflation, maybe getting a little bit worse for you guys. And then you also mentioned, Just part two of that question on the Operational Excellence Program, $22 million in savings, half of that going back into gross margin. Are you spending the other half in operating expenses? Is that what I heard, or will some of that actually flow to the bottom line?
spk02: Thanks. Yeah, thanks, Larry. So, yeah, on the gross margins, we do expect those – you know, to improve slightly, you know, what's benefiting them. I think you brought it up, is price and mix, of course, you know, to Cardiva, as well as our operational excellence programs. What takes it back the other way, however, but not as much, is depreciation from the nexus systems, as well as, you know, the inflationary headwinds that we've spoken about along with some negative FX in there. So those would be sort of the levers that we're looking at to affect gross margins. And then, you know, that obviously has an impact on operating margin as well. Yeah, so you're right on the $22 million. It's roughly half to – to cost of goods savings, the other half going to OPEX. In terms of we will be making some investments next year on the S&M line and the R&D line, so not all that drops through, and we're also keeping a careful eye on the geopolitical risk as well as inflation. So I think, you know, once you net through all of that, you know, that's how the operating margins are essentially flat, and it could skew either way based on, you know, where the world turns as we go through the remainder of 22 into 23.
spk03: Yeah, guys, there's certainly a lot of moving parts. Okay, great. I appreciate all that call, guys. Thank you.
spk07: Our next question coming from the line up, Drew Renier with Morgan Stanley. Yolanda, it's open.
spk04: Hi, thanks, Chris. Thanks for taking the question. Maybe just first on VASC-AID, you've had the asset for a year now. Just curious how you're thinking about maybe the growth opportunity here in front of you, if you could lay out a number. I mean, it looks like hospital pre-VASC-AID might have been growing high single digits, so is the right way to think about VASC-AID as adding maybe 10 points to your hospital growth? Just any help would be appreciated. Thank you.
spk06: Yeah, Drew, appreciate the question. We're excited by what hospital as a business is contributing and will continue to contribute. As a business, we're forecasting high teens, 16% to 19%, which is a continuation of where the combined business was in FY22. Obviously, the two big drivers there are hemostasis management, the TAG franchise, And VASCADE, as you highlight, we expect hemostasis management's performance to rival what it did in 22, which is great given the larger base. And then VASCADE, you know, VASCADE's exciting, right? We've continued to focus primarily on the U.S. market. We're building out our plans for international expansion, both clinically from a regulatory perspective and our sales presence. But this year, FY23, again, will be defined by further penetration into those top 500 or 600 electrophysiology hospitals here in the U.S.
spk04: Got it. Thank you. And then just... Maybe on plasma recovery, can you give a little bit more details on what you're seeing in the market just as customers are trying to work through costs for donor fees, just maybe what you're seeing? And then with just the CSL revenue, I think I heard you say $88 million for fiscal 2023. Just curious about the cadence there. Should that be kind of a ratable basis across the quarters, or is there any weighting that we should be thinking about? Thanks for taking the questions.
spk06: Yeah, thanks, Joe. So clearly, plasma's in recovery. It's been long coming, but I think you hear that from our customers as they're speaking publicly about this. We certainly saw that in our fourth quarter. Typically, the fiscal fourth quarter is the weakest quarter of the year in total collection volumes, just given a bunch of seasonality. We expect to build from that, and that's what's reflected in our guidance, essentially building throughout the course of the year, culminating in you know, with the winter holidays. So we feel good about that. Clearly, it looks different than it has historically, more coming from new center openings, you know, a disproportionate share of that growth. And that's a testament to the hard work that our customers are doing. They haven't backed off. Their pace of new center openings is as fast as it has ever been, and they continue to do what they can to recruit and retain their donor base. So We stand ready to serve them. The great news is we have the devices. They're ready to go, and we're well on track for our conversions both to Nexus and to Persona. So we feel quite good about it. Obviously, there's factors that, you know, FY22 is challenging in that regard. We think 23 will be different and better, but we want to be cautious, which I know you can appreciate. After eight quarters of trying to forecast this, probably cautions the operative term here.
spk07: Our next question coming from the lineup, Andrew Cooper with Raymond James. Your line is open.
spk01: Hi. Thanks for the questions, everybody. Maybe first, I just want to get a better sense when we think about the plasma guide. Can you give us a little bit more flavor of how the comment on the fractionator's time to make up some of that safety stock and maybe growing volumes faster than 8% to 10% in the near term? What's really reflected in the guidance there? That would be the first one, and then I'll ask one more after that. Yep.
spk06: Andrew, it's Chris. So what we experienced in our fiscal 22 was essentially 10% growth across the network, maybe a touch higher than that in North America and a touch below that outside the U.S. So if you think about that 10% growth in volume, we expect, you know, 23 will at the high end of our range, we'll replicate that. There's things that can be done above and beyond that. We made comments in my prepared remarks that we still see the underlying demand for IG at unprecedented levels. So think 6% to 8% demand for IG. That translates due to a number of factors we've outlined in the past to 8% to 10% long-term growth in collections. And we know that our customers, and we are committed to helping them you know, gain inventory to get off of this, you know, incredibly low base that they're operating at today. So we would expect double-digit growth on top of that, and we just need, you know, for the various economic and societal factors to line up to enable them to do that. But we're in a good position to support it, and we think it grows over the course of the year. We'll look forward to, you know, updating and focusing that guidance as we watch the recovery unfold.
spk01: Okay, helpful. And then maybe just to sneak two in together here, but can you give us a better sense for sort of where specifically you are in the rollout of Nexus and Persona in terms of, you know, how many of the folks that are adding Nexus either have or are planning to add Persona and how we should think about that? And then lastly, you made a comment about broadening the portfolio and talked about innovation. So, Anything you can kind of give us some hints towards as to, you know, where new products might be and how the portfolio might expand would be helpful as well.
spk06: Yeah. So, you know, as we think about, you know, kind of the build-out and where we're going with, you know, collection volumes, you know, I – It's something that we'll see unfold. I think it's a combination, as I've said before, about new center openings and recovery, hopefully in the existing centers. That builds gradually over the course of the year. For us, we've got essentially everything contracted at this point, and we still believe we will have completed the Nexus PCS device rollout by the middle of our fiscal 23, so end of summer or early fall. In terms of persona, what's included in our guidance is the pricing benefits of everything that is already contracted. So we're not introducing any risk in terms of contracts beyond where we are. Obviously, it's a very powerful technology, 9% to 12% yield. It's the only thing like it in the market today. And we think when we look at the early adopters of the Nexus platform, so they've got NextLink, they have the PCS device, and then they also have Persona. Those customers in our fiscal fourth quarter collected more plasma than they had in any other prior quarter. And I'm talking now back prior to the pandemic. It's a powerful enabler. of what they're very keen to do in terms of accelerating their growth rate. So we think that will build, but it comes with some challenges. It's a larger model. They have to make logistical changes. Some of our customers are feeling compelled to validate the protein concentration, which we'll work with them to do clinically, as we have in our regulatory filings. So, you know, it takes a bit of time, and, you know, hopefully get more clarity as the year goes forward. But it's an exciting technology, and we're seeing that in the marketplace. You asked about portfolio evolution. I think, as we've said, right, our capital allocation priorities really focus primarily on growth, both organic and inorganic. We've seen the additions we've made to the hospital portfolio. We now feel very good about our focus in cardiovascular, specifically electrophysiology and interventional cardiology. There's good convergence there. We think it's a target-rich opportunity set for us, and we're you know, hopefully have a chance to talk more about it at the investor day in June, where we'll outline our priorities and how we're pursuing it. Okay. Thanks. I'll stop there.
spk07: And as a reminder, ladies and gentlemen, to ask a question, please press star one. Now, our next question coming from the lineup, Mike Madsen with meet him in company. Yeah, thanks.
spk05: Thanks for taking my question. Um, so I appreciate you breaking out the, uh, the CSL revenue that you're expecting in 23. Um, you know, what, what should we be assuming in, if any, in 24, should we assume that it's largely done, um, heading into fiscal 24?
spk06: Yeah, Mike, I, we're not in a, we, we, I think, you know, we've been, we've just given the guides in the last hour on 23. I'm going to reserve comment on 24 till we get a little closer. Um, But obviously, we stand ready to serve all of our customers. We did think the breakout is helpful, just so you could see it, 22 versus FY23. And then when we talk more at Investor Day, we'll be very clear over the next four or five years how that growth trend line continues. And I think you'll be appropriately impressed with the organic capability of that business to scale and grow profitably.
spk05: Yeah, sorry, I guess I was talking specifically about CSL within the plasma business. I mean, if you're not willing to answer, I understand, because it is more than a year away.
spk06: Yeah, I think as we get closer, there's a bunch of things we don't have visibility into or don't control. Obviously, we'll serve CSL and all of our customers to the best of our ability within the existing agreements, which do go out in CSL's case through December of 23. Okay, all right.
spk05: Um, and then I wanted to ask about this, um, debt refinancing. Um, you went through it kind of quickly. So I just want to make sure I understand, um, the timing, the amount, and, you know, is there a risk here that that results in higher interest expense just given that rates have, you know, surged lately?
spk02: Yeah. So thanks, uh, Mike. Uh, Yeah, the debt will be – we'll look to refinance the debt in some way, you know, over the next quarter or so. I think it will look an awful lot like it – the end result of that will look an awful lot like it does today. With regards to interest rates, we do have interest rate swap coverage on 70% of the debt, which is now – you know, it's floating rate debt. It's been swapped to fixed. And we're covered there to 4% all the way through June of 23. So at that point in time, which seems a long time away, we'll see where the rates are and we'll look to see whether or not we want to re-up. But at the moment, we are not forecasting any increase in interest expense related to our refi activities.
spk05: Okay, got it. And then just on the operational excellence savings, the $37 million of gross savings, I think that was for last fiscal year. What was the net savings if it was $37 million gross?
spk02: Yes, so we don't break out gross versus net savings. We've, you know, on the... To get to those, to just give you some color, you know, we certainly had made some investments in the business. Plus, you know, there was some offsets during the year because of the inflationary headwinds, which took back some of that. And as we move forward, I think, you know, we'll see some of the same things, you know, as we – our guidance assumes – an additional, you know, savings next year. But then, as I talked about earlier with regard to operating margins, you know, there's some pieces that take it back as we, you know, make investments in S&M and R&D as we move forward.
spk05: Okay, got it. Thank you.
spk07: And our next question coming from the lineup, Dave Ticali from JMP Securities. Your line is open.
spk09: Great. Thanks. Good morning. I apologize. I was jumping on a couple calls. But, Chris, I wanted to see if you – did you guys make any comments about the Terumo device? I know it's still very early. I don't know if it's out anywhere. But any of the features are, you know, obviously we know CSL is there. But I kind of looked at your device thinking, hey, you know, you can't really – You can't really collect too much more from somebody or do it faster, so I'd just love to get your thoughts on sort of what it is or if anyone has seen it or where it kind of stands today.
spk06: Yeah, Mike, Dave, I appreciate the question. You know, I think folks are a little surprised how little information is out there, right? Obviously, we pay close attention to this. My understanding, having studied with our teams, the publications on the .gov site, they got the device approved with a trial size of 124 donations. And kind of hard to draw a bunch of conclusions from that. We did over 20,000 donations to get Fursona approved two years ago. They didn't publish anything on yield. We kind of pieced together the metrics we assume, and it's an assumption, that it was approximately 830 milliliters per collection. Obviously, we're well above that, right? And we've now got, as we mentioned on the call, you know, 30 million, you know, nearly 30 million Nexus donations, right? We stand behind the value proposition on the integrated Nexus platform. It is easy to use and set up. and that leads to a safe collection as evidenced by the 98% elimination of documentation errors and an impeccable safety record. Donors like the device. They express a 93% affinity for Nexus. Donor satisfaction leads to more frequent donations and greater retention, which is absolutely key to the recovery we've been talking about. And then we've got good quantifiable evidence created with real-world work with our existing customers that Nexus lowers the cost to collect their liter of plasma. And that's a combination of the 9% to 12% yield coupled with speeding up door-to-door time, 16 minutes on average in our work with Nexus in the base configuration. So it's a good value proposition. We are building on that value proposition. I encourage you to come talk to the team here in Boston when We do the Investor Day in June because we're going to unveil additional aspects of our innovation agenda where we will further improve upon every one of those dimensions going forward. So we're excited. It's our platform, and it's doing good things with customers to support their growth aspirations. So feel good about it. I appreciate that.
spk09: And maybe just as a quick follow-up, I know Blood Center, certainly not a growth driver or a super important sort of part of probably the future of humanetics, but, you know, a decent quarter. I'd love to just get your thoughts on does that bottom at some point? Is it something that strategically is still an important part of sort of the go-forward plans? Or, you know, could it flatten out? Or, I mean, I know your guidance is calling for another, you know, whatever, mid-single-digit decline, but does that stop at some point?
spk06: Yeah. Dave, we care deeply about our blood center business and the customers we serve there. And, yes, they had a very good quarter. In fact, they had a very good year overall relative to our initial expectations. And no small part of that was because our teams were able to step up, aided by our operational excellence program. We talk about the gross to net savings, and that's important. We want to free up resources to reinvest in growth, typically in other franchises. But, Dave, What we also get from that OEP program is meaningful agility and resilience, not to mention the highest possible levels of product quality. We benefited in the quarter and in the year in that blood center business. We were able to step in and meet customer demands, you know, large stocking orders in some cases as a contingency, and other cases where maybe their existing source of supply had let them down. So we were able to step in and fill that, and that bodes well. The guidance we gave, fairly wide range and down, again, reflects disproportionately geopolitical risk. and some potential headwinds in FX. That business is concentrated outside the U.S., and we have some exposure there that we have to be mindful of. But we think it's actually increasingly stable and a good source of continued EBITDA for the company. Thank you.
spk07: Thank you. And I'm not showing anyone else in queue at this time. Ladies and gentlemen, that does conclude our conference for today. And thank you for your participation. You may now disconnect. Everyone have a great day.
Disclaimer