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spk05: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk04: Good day and welcome to Hayman Addicts Corporation's first quarter fiscal 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would like to turn the call over to Olga Gayet, Senior Director of Investor Relations and Treasury.
spk03: You may begin. Good morning, everyone.
spk05: Thank you for joining us for Humanetics first quarter fiscal 23 conference call and webcast. I'm joined today by Chris Simon, our CEO, and James Durecka, our CFO. This morning, we posted our first quarter fiscal 23 results to our investor relations website, along with updates to our fiscal 23 guidance and analytical tables with information that we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows, as well as reconciliations of our GAAP to non-GAAP financial results and guidance. Before we get started, unless otherwise noted, all revenue growth rates discussed today are on an organic basis and exclude the impacts of currency fluctuation and strategic access of product lines. As in the past, we'll refer to non-GAAP financial measures 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 2022 and a reconciliation to our 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 impacts from the pandemic on our results and other factors referenced in the Safe Harbor Statement in our earnings release and our filings with the SBC. We do not undertake any obligation to update these forward-looking statements. Additionally, in order to protect customer confidentiality, we will not be able to discuss any customer-specific details except as disclosed previously. And now, I'd like to turn it over to Chris.
spk08: Thanks, Olga. Good morning, everyone, and thank you for joining. Today, we reported first quarter organic revenue growth of 17% and adjusted earnings per diluted share of 58 cents, an increase of 16% compared to the first quarter of the prior year. Building on our successful fourth quarter, our results affirm our strategy and updated long-range plan for transformational growth. We are accelerating our momentum to advance our market leadership and deliver robust revenue and adjusted EPS growth over the next several years. Plasma recovery is underway. As the established leader in the $800 million source plasma collections market, we are confident in our ability to achieve substantial growth and increase our gross margins as we help collectors replenish their depleted inventories. We are also investing in further advancements to distinguish our technologies and create new opportunities for customers. Hospital is increasingly playing an outsized role in our growth. Our products are helping hospitals raise the standard of care and improve health economics. Vascular closure led the way with another record quarter as we strengthen our leadership in the attractive and growing electrophysiology and interventional cardiology markets. Our work to build an agile and resilient global manufacturing and supply network enabled us to serve customers reliably without disruption. During the first quarter, we completed the move to our new manufacturing center of excellence in Clinton, Pennsylvania. It exemplifies our commitment to continuous innovation, network optimization, regionalization, and business continuity. And now, onto our business unit results and guidance. Plasma revenue increased 44% in the first quarter, with 47% growth in North America, our largest market representing more than 90% of our total plasma revenue. Revenue growth in North America was driven by meaningful contributions from both volume and price. Excluding CSL, U.S. plasma collection volume grew 40% versus prior year and 12% sequentially, which compares favorably to historical seasonal growth of about 6%. This is the third consecutive quarter of non-CSL volume growth meaningfully exceeding normal seasonality. We saw robust growth in collections across most centers, including mature centers that have seen only limited recovery previously. We also saw strong double-digit collections growth in Europe this quarter. Our technology plays an important role in enabling our customers to recruit and retain donors and improve plasma center operations to safely reduce collection costs. We have the only fully integrated solution that addresses all of collectors' critical needs, including our unique persona yield enhancing solution that is now delivering at scale in the U.S. Our distinctive value proposition is backed by real world evidence from tens of millions of plasma collections. We are on track to transition the remainder of our U.S. customers to our fully integrated, bi-directional Nexus platform by the end of our second quarter. We continue to deliver new, innovative solutions to extend the benefits of our platform. We are advancing our devices, disposables, and software to drive even higher plasma yield, faster procedure and door-to-door time, enhanced compliance, and improved donor recruitment and satisfaction. We are encouraged by our first quarter results And we are nearly doubling our full year plasma organic revenue growth guidance from 7 to 12% to 15 to 20%, primarily due to the growth in volume. Moving to hospital, revenue increased 15% in the first quarter, despite staffing shortages and budgetary constraints in US hospitals and lockdowns in China. Vascular closure revenue grew 36% this quarter, The business continues to outperform as we open new accounts and penetrate deeper into the top US ET hospitals. With its $2.8 billion TAM, vascular closure represents our largest hospital growth opportunity. We are pursuing this opportunity by accelerating our penetration in the US, pursuing regulatory approvals to drive international expansion, and strengthening our product portfolio through both pipeline innovation and inorganic investments. Hemostasis management revenue grew 6% in the first quarter. North America, our largest market, grew 11% due to increased utilization of our TEG technology and some benefits in pricing. First quarter growth in hemostasis management reflected a challenging comp, particularly in Europe, where we won a national tender and made shipments of capital and disposables for our CLOP Pro technology in the first quarter of fiscal 22. Transfusion management revenue grew 21% in the quarter, driven by continuous market share expansion in North America and execution of software and hardware installations that were postponed from the fourth quarter of last year. Lastly, self-salvage revenue was flat in the quarter, as strong disposable sales in EMEA helped overcome a tough comp in the U.S., driven by strong procedure recovery and capital upgrades in the first quarter of the prior year. We are excited about hospitals' performance and opportunities. Our fastest growing business will also become our largest business over the long range plan. We are raising our full year hospital organic revenue growth guidance from 16 to 19% to 19 to 22%, primarily due to continued strength in vascular closure. Blood center revenue declined 7% in the first quarter. Apheresis revenue declined 13% due to unfavorable order timing, lower revenue from convalescent plasma, collection center staffing shortages in the U.S., and geopolitical risk. Whole blood revenue grew 7% driven by favorable order timing among distributors in Asia Pacific and EMEA and additional opportunities in North America as our supply chain resilience enabled us to serve customers in need. We are proud of the durability of our blood center business in the face of blood shortages in a difficult collections environment. We are updating our full year blood center organic revenue guidance from a 4 to 7% decline to a 2 to 5% decline. The strength of our businesses now and over time due to our innovation pipeline coupled with our resilience and productivity gains will generate robust revenue growth, margin expansion, and free cash flow. Successful execution of our plan is anticipated to drive a five-fold increase in capital capacity up to approximately $2.1 billion by the end of fiscal 2026. This will enable us to accelerate the rate of organic growth investments, strengthen our portfolio through targeted M&A, and return capital to our shareholders as appropriate. This morning, we announced a new three-year, $300 million share repurchase authorization. This authorization will help offset shareholder dilution and is consistent with our value creation strategy to generate additional shareholder returns. I'll now turn the call over to James to discuss the rest of our first quarter financial results and fiscal 2023 guidance. James?
spk09: Thank you, Chris, and good morning, everyone. Let's discuss our business results and additional updates to fiscal 23 guidance. Our results for the first quarter of fiscal 23 show continued strength across the business, starting with a new record adjusted gross margin of 55.2%, which beat our previous record from the third quarter of the prior year and delivers additional adjusted gross margin expansion both year on year and sequentially This 50 basis point margin expansion, when compared with the same period of the prior year, was primarily driven by volume and mix, particularly due to strong volume growth in plasma and hospital, price, and additional savings from our operational excellence program. These adjusted gross margin benefits were partially offset by inflationary pressures, higher depreciation expense, primarily related to the increasing install base of our Nexus devices in the U.S. and some of the recent investments in our manufacturing network. Adjusted operating expenses in the first quarter were $99.5 million, an increase of $12.4 million, or 14%, compared with the first quarter of the prior year. As a percentage of revenue, adjusted operating expenses remain flat. at 38.1% when compared with the first quarter of fiscal 22. The increase in adjusted operating expenses was primarily driven by higher freight due to a combination of higher volume and increased freight costs, continued growth investments, and a return to normal spending levels partially offset by productivity savings from the Operational Excellence Program. Our first quarter adjusted operating income was $44.9 million, an increase of $7 million, or 18%. As a percentage of revenue, adjusted operating margin was 17.2% in the first quarter, up 60 basis points compared with the same period in fiscal 22. Our operational excellence program is slightly ahead of schedule. and we now expect this program to deliver additional gross savings of approximately $26 million in fiscal 23, with total cumulative savings reaching $96 million by the end of this fiscal year. 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. The challenging macroeconomic environment continues to put downward pressure on our adjusted gross and operating margins. In the first quarter of fiscal 23, the impact experienced from macroeconomic factors was broad-based and included inflation, foreign exchange, and geopolitical risk. We remain confident in our ability to grow our business and deliver consistent margin expansion driven by our existing product portfolio, additional growth investments, and the operational excellence program. In the near term, however, we expect these macroeconomic headwinds will continue to put pressure on our margins. We affirm our adjusted operating margin guidance in the range of 18 to 19%. The midpoint of our adjusted operating margin guidance includes higher performance-based compensation, and about 250 basis points of impact from macroeconomic headwinds. The adjusted income tax rate was 24 percent in the first quarters of both fiscal 23 and fiscal 22. We expect our fiscal 23 adjusted income tax rate to be approximately 23 percent. First quarter adjusted net income was $30.2 million. up $5 million, or 19%, and adjusted earnings per diluted share was 58 cents, up 16% when compared with the first quarter of fiscal 22. The combination of our adjusted income tax rate, share count, and FX had a net neutral impact on our adjusted earnings per diluted share in the first quarter. when compared with the same period in fiscal 22. We updated our fiscal 23 adjusted earnings per diluted share guidance to be in the range of $2.60 to $2.90. The midpoint of our adjusted earnings per diluted share guidance includes about a 13 cent headwind from fluctuations at foreign exchange, share count, and adjusted income tax. Cash on hand at the end of the first quarter was $214.9 million, down $44.5 million since the beginning of fiscal year, primarily due to earn-out payments related to acquisitions. Free cash flow before restructuring and restructuring-related costs was $5 million, compared with $2 million in the first quarter of fiscal 22. The higher free cash flow before restructuring and restructuring related costs was mainly due to higher cash flow from operating activities. These include higher net income, lower accounts receivable, and inventory partially offset by higher capital expenses as we continued to convert our US plasma customers to our latest Nexus plasma collection technology and improve our manufacturing footprint. with additional investments, including our new facility in Clinton, Pennsylvania. Our guidance for free cash flow before restructuring and restructuring related expenses for fiscal 23 remains unchanged in the range of $100 to $130 million. In the beginning of our second quarter, we refinanced our existing credit facilities and extended their maturity date through mid-June 2025. Our new unsecured facilities include a $280 million term loan and a $420 million revolving line of credit. We also have two interest rate swap agreements in place to help offset the impact of rising interest rates. As a result of the interest rate swaps, 70% of the notional value of the unsecured term loan is fixed at 2.8%. The interest rate swaps mature, in June of 2023, at which point we will seek to establish additional interest rate protection as necessary. In summary, I'd like to conclude that we are encouraged by our first quarter results. Plasma collections are recovering and all of our customers in the U.S. will be on the latest NexSys, PCS, and NexLink DMS platform before the end of our second quarter. The hospital business continues to deliver mid-teens growth despite the ongoing challenges in U.S. hospitals and geopolitical risk. Our vascular closure and hemostasis management products continue to penetrate the market and gain share. The Operational Excellence Program is fully on track. This program is critical in establishing efficient, resilient, and agile operations. and has enabled us to have an uninterrupted supply of our products despite global supply chain pressures. The savings from this program are real, and once the macroeconomic headwinds subside, we will continue to benefit from the efficiencies that have been put in place. Our capital allocation priorities remain focused on creating value for all of our stakeholders. Our long-range plan is anticipated to drive expansion and capacity up to approximately $2.1 billion by the end of fiscal 26, including our recent $300 million share repurchase authorization. We plan to utilize this capital capacity throughout our long-range plan to accelerate growth both on the top and the bottom line. Thank you. And now I would like to open the line for Q&A.
spk04: As a reminder, to ask a question, please press star 1-1. Our first question comes from Larry Solo with CGS Securities. Your line is open.
spk02: Great. Good morning. Thanks for taking the questions. Chris, maybe you could just give us a little more color on the, obviously, the plasma growth was the highlight of the quarter and I think a key thing you mentioned about some of the mature centers that have been laggards starting to improve. Can you just give us a little more flavor on that and hopefully that's a sign that on the economy, obviously not being great, but a lot of those signs, the economy and other things should start favoring you guys in that sense for collections. So maybe you can just give us a little more color there.
spk08: Yeah, Larry, thanks for the question. So from our vantage point, You know, what we're looking at, we obviously take our customers' forecast into account and work closely with them on this. We listen to what the experts are saying across, you know, PPTA and MRB. The numbers that we've looked at that are proving predictive are measuring for the donor demographic what's going on with real wages, what's going on with real savings rates and amounts, And then we've added in a third metric around consumer sentiment. And when we look at those things, they're all pointing in a favorable direction for accelerated recovery. And as we said in the prepared remarks, this quarter, I do think we've had three sequential quarters of growth above historical averages. So that's a positive trend. is mostly driven by the pace and the uptake in new centers. The first quarter of this year marked the change where actually the growth in mature centers was greater than the new center openings. New center openings kept their pace, but mature centers really moved in the quarter, and that's with no activity on the southern border. So we look at that, and we want to be conservative about this. We've had false dawns in the past, right? Second quarter of last year, third quarter of the year prior. So we want to be thoughtful about that. But what we're observing is meaningfully different and give us the confidence to raise our revenue guidance in the way we did. Okay.
spk02: Oh, great. And then maybe just switching gears, a quick question for James. Just on the guidance from a high level, just obviously you've raised your sales guidance pretty significantly. And just on the EPS, free cash flow, relatively the same, I realize you narrowed your EPS upward a little bit. Is that just from a high level, obviously, more inflationary pressures, more FX impact? What's sort of the spread there, the difference there? Thanks.
spk09: Yeah, thanks for the question, Larry. Yeah, I think you're onto it. So I would say the biggest headwind that's impacting our leverage in fiscal 23 is macroeconomic. You know, the inflation is still there and present. You know, perhaps it's beginning to plateau. We'll see in the remainder of the year. But you hit upon another one, FX as well, you know, affects us too on the bottom line. And really the third point is our performance-based compensation increases as well. As you can see, we're doing well on revenue. It's a good thing. Our teams are working hard. We're happy to see the performance-based comp go up because we're doing well. So when you take all that into consideration and then thinking about what Chris had just said, given some of the false thorns that we may have had in the past. We felt like taking up that low end of the EPS guidance by 10 cents was prudent and appropriate at this point of the year.
spk02: Fair enough. I appreciate the thoughts.
spk09: Thanks.
spk04: Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.
spk14: Hi, Chris and James. Thanks for taking the question. Just maybe to go back to the plasma guidance for a moment, but just to get it through my skull, the increase that you're seeing in organic guidance for the year, this is predominantly driven by market recovery and not pricing. Is that the right way that we should be kind of thinking about that? And next persona could be in addition to the guidance.
spk08: No, so both the results in the quarter and our guidance include meaningful contribution, Drew, from volume, first and foremost, but also from price, right? And the pricing is the ongoing rollout of Nexus to customers that hadn't yet converted and upgrades to Persona. So the results from those have been fantastic, and I think we feel great about the work we're doing with customers We are fully on track, probably a little ahead of schedule, to complete the nexus upgrade cycle this quarter, second quarter, and then we're in discussions. We haven't included any additional persona contracts that aren't already agreed to in the updated guidance. We've looked at what we have today. We're going to complete the upgrade cycle. That's what's factored in.
spk14: Got it. Thank you. Maybe just on the quarter's hospital performance, I just wanted to maybe dissect that a little bit more. Vascular closure, transfusion kind of came in above our expectations, hemostasis a little bit behind, but could you maybe go into that segment a bit more? You talk about utilization and tagging pricing being better in North America, but you had a challenging European comp, but maybe just parse out what that national tender might have cost in terms of growth.
spk08: Sure. So to start with the overall view, this business continues to deliver. We grew 15% in aggregate in the quarter. It's quite powerful and a nice trend line that's now got some longevity to it, which gave us confidence in terms of raising the guidance for the year. When we look at it, there are four product segments comprised here. Vascular closure, by far the fastest growing, as I said in the preparer remarks. nearly a $3 billion TAM, and all that performance today is driving deeper penetration into our existing U.S. hospitals and enrolling new hospitals in our program, and we've made meaningful investments in fellows programs and the like really starting to pay off, so we feel quite good about that. That's the primary driver of our increased revenue guidance for the year. In terms of hemostasis management, tough comp in the first quarter, right? We knew that going in. That is both the European tender, as you rightfully called out, but also capital sales. And that's probably one of the areas I think we've fared better than some other med tech, med surge companies with regards to procedure rates and staffing of hospitals. We've been in a good place there for the most part. Where we are dealing with some challenges is the overall capital appropriations process. And it's not because our equipment is breaking the bank. It's just a complicated process right now for most of these hospitals as they try to sort their way through the macro environment. So, you know, we're there. But, you know, when you're looking at a product that's in that range, you know, a few million of capital sales delaying from one quarter to the next creates an even greater challenge. They've got ground to cover this year, but we feel very confident that hemostasis management will cover it. And then, you know, sell-saver was flat. That market's fully recovered. We'd grow with the market, and we'll obviously look for opportunities to do better than that in terms of take and share. But it's a more mature play. Transfusion, interestingly enough, in terms of, you know, order timing, et cetera, benefited by some things that didn't get done in fourth quarter. So for them to notch a 20% or 21% growth, We feel very good about that, and they have an ambitious goal for the year they're going to deliver against. It's a good news story there, and it's nice to have them adding to the participation. So, you know, high aspirations. We feel like we're off to a good start. There's puts and takes, but in aggregate, we feel quite good about where we're going there.
spk14: Great, thanks. And just to maybe go back to your commentary out of the analyst, I mean, Chris, you were very adamant that you're going to see growth in fiscal 2024 on the top and bottom line. Your guidance for this year is going up. Do you feel confident or even more confident that you'll be able to grow next year given kind of the higher base for 2023? Thank you.
spk08: Yeah, thanks, Drew. When we look at that collectively, We are essentially measuring the non-CSL plasma growth rates, the trends we're now experiencing. If we continue those, that's even better than we had thought about in terms of earlier attainment of some of the long-range plan goals, which is great and will certainly help 24. Hospital continuing to do what it does as it advances as not only the fastest growing but soon to be the largest business within humanetics. is a real positive as well. And then we can't control the macroeconomic factors, so that's going to be what it's going to be. But we continue to invest in our operational excellence program. That's creating meaningful improvements in our productivity. A lot of that is getting invested back in the business. But we are looking at those investments this year over the remaining three quarters with an eye towards accelerating those things, those investments that can help us come out of the gate even stronger in FY24. So in short, yeah, I think we are every bit as confident, maybe more so, in our ability to grow each year, top and bottom line, over the life of this plan. Great. Thanks, Chris.
spk04: Our next question comes from Andrew Cooper with Raymond James. Your line is open.
spk12: Hey, everyone. Thanks for the questions. Maybe first, just back on plasma and sort of the expectations through the course of the year. I think in the past, you've historically said the seasonal move from 1Q to 2Q was in that sort of high single digit, maybe 8% type range. Just curious what you're thinking there and how we should be thinking about the pacing of CSL potentially having an impact versus what we would normally see in the U.S. plasma market. the seasonal move from 1Q to 2Q was in that sort of high single digit, maybe 8% type range. Just curious what you're thinking there and how we should be thinking about the pacing of CSL potentially having an impact versus what we would normally see in the U.S. plasma market.
spk08: There are clearly big shifts underway. The pace of new center openings and the uptake of those centers. The pace is unprecedented, and that's where our customers have been highly consistent. If they tell us they're going to open a dozen new centers, they open a dozen, maybe 13 or 14. But they've really done a fantastic job of leaning in and hitting their mark in terms of those centers. And interestingly, even through the worst of the pandemic, the new center uptake pretty much fits the model that we've developed with our customers in terms of year one, year two, and year three growth on their way to maturity. So that's all there. It's just a much larger portion of the total volume now because they're opening more new centers and have for the last two and a half, now three years. So that piece is a little different structurally, but exciting. We think in terms of the mature centers and the relative seasonality, that'll continue. And our guidance reflects what our customers, including CSL, have told us about their internal plans and transition, et cetera. So that's factored in, and that hasn't changed from what we talked about last quarter, which was a good quarter for plasma as well, or at our investor day in terms of our expectations about transition, et cetera.
spk12: Okay, great. Super helpful. Maybe just one more on plasma. You mentioned you're not including anything beyond what's already signed or contracted for persona. Can you give us a sense for, for what proportion of us install base you have, I guess, already on persona, what proportion you have agreements for and how we should think about the pacing of rollout in terms of that tool throughout the year and in the 24 as well.
spk08: Yeah. As we've said previously, persona is a game changer. We're talking about 10, to 12% additional plasma yield on average for a collection which is based on an algorithm that ties to the individual donor's percent plasma available. We're building a robust database, certainly now more than 5 million collections on persona, real world evidence that we believe over time will show that it's not only a step change improvement in yield, but also a safer collection for all donors involved. And we'll build that database one collection at a time. But we think, based on the scientific reviews that we've done and done with our customers, there's a strong case to be made there. In terms of where we are on the rollout, I'd rather not go through the specifics of it. Andrew, I know you can appreciate that. We're rapidly approaching a point where more than half of the collections that we're experiencing in the U.S., it is unique to the U.S. market, but more than half of those collections will be done on Persona, and that's included in our guidance for the year.
spk12: Great. I appreciate the questions. I'll jump back in the queue.
spk04: Our next question comes from Mike Madsen with Needham & Company. Your line is open.
spk07: Yeah, good morning. Thanks for taking my questions. So I suspect you're not going to break out the amount of sales that went to CSL in the quarter, but was there any sort of bolus out of that $88 million in the first quarter, and how should we expect that to kind of be spread out to the remaining quarters? Is it going to be pretty even throughout the year?
spk08: Yeah, Mike, and I know you know the sensitivity on that. I appreciate you acknowledging it up front. No, CSL has done a good job of forecasting their demand through the first quarter. So the performance in the first quarter was exactly what we anticipated from CSL. There's some vagaries because of prior buy-ins, et cetera, but it's exactly what they forecasted. In our revenue guidance for the year, we've made no change to the previously communicated $88 million in revenue. That's the minimum commitment from CSL. So that's where we stand as of now.
spk07: Okay, got it. And then, you know, just from a high level, you know, you obviously have great revenue growth and the earnings growth, you know, came or I guess EPS came in ahead of expectations. But there wasn't a ton of leverage in the quarter considering how much you beat on the top line by. I assume that that's really due to these macro headwinds. But I just wanted to kind of run that by you and see if that's the right way of looking at it.
spk08: Yeah, I'll give you my take on this. James walked through the mechanics of our P&L and the obvious challenges associated with inflation, FX, which is new and different and powerful here from our original guidance, and then obviously some of the pressures, including good things like performance comp. When we step back and look at this, we clearly aspire to both accelerated revenue growth, you're now seeing that, and operating income margin expansion. However, And we want to be mindful of both macroeconomic factors, as James walked through. I could throw in supply chain disruptions. We've managed to navigate those exceptionally well, but it's not without cost. And geopolitical risk, which we clearly have no control over. And for us... China and Russia loom large as markets for our blood center business. So that's all in the mix as well as the marketplace factors, right? We don't run the collection centers and we don't hospitals drive procedures based on patient availability. So that's all out there. We don't control that. Our teams have risen to the challenge. They'll continue to rise to the challenge, feel great about the additional performance-based comp that we're paying out as a result of it, But given what we experienced throughout the pandemic, Mike, I think you'll agree and maybe forgive us if we're reluctant to call the turn just yet in terms of what ultimately passes through.
spk07: Yeah, no, that's very helpful. Just on the performance comp, I mean, is that something that, you know, would continue, you know, if you continue to have strong performance, would that, you know, continue to flow through in every quarter? Is it kind of more loaded into the first quarter or?
spk09: No, it would flow through somewhat ratably over the remaining quarters is the way the accounting works for it.
spk08: It's an interesting dynamic on that, Mike. Our expenses are pretty evenly balanced throughout the year. However, due to seasonality and the fact that we're experiencing such meaningful growth now on the collection business as well as the hospital procedure business, as that revenue grows, you get more pass-through on a fairly constant cost base, right? And then There's some nuances in terms of, you know, what we pay off of. We have tweaked our comp as part of our long-range plan so that we overweight revenue versus profit. They're both factored in for the short term, and then obviously the long term is tightly aligned with shareholder returns. But that has an effect as well, and that's fine. We're not going to hold our working teams accountable for FX or below-the-line adjustments, you know, to EPS. they're delivering and we're happy to compensate them for it.
spk07: Okay. Got it. And then, um, just one final one on the hospital business. I think everyone kind of understands what's going on with pricing in the plasma business, but you know, I want to ask about pricing and in your hospital business. Um, you know, I think you called out, you were getting your favorable pricing there, but, You know, are you able to get, you know, any additional pricing given, you know, what's happening with inflation and the fact that you're virtually everything, you know, prices are going up across the board and hospitals are probably a little more accustomed to that these days?
spk08: Yeah, you're exactly right, Mike. We are looking carefully at that. And we factored some of that into our original guidance. We've revised some of that based on what we now are experiencing in the market and You know, there's challenges associated with it. And what I would say is, you know, the hospital business, like plasma, is benefiting from mix. So, you know, more very high gross margin Vascaid, for example, and hemostasis. They're the big growth drivers. And then also the benefits of operational excellence, where we have made strides to lower our cost of goods sold and benefits from, you know, the pricing, as you outlined. On the other side of it, we continue to invest, and we made investments last year that still haven't annualized. So that cost base, particularly on the sales side, will go up, and we're okay about that. We're investing meaningfully. The Operational Excellence Program is freeing up funds to let us do the R&D and the Salesforce expansion that we think is critical to drive growth over time. And we're experiencing some of it now. It'll only get better from here. Okay, great. Thank you.
spk04: Our next question comes from Joanne Wunsch with Citi. Your line is open.
spk11: Good morning. This is Anthony for Joanne. Thanks for taking our question. Just circling back to hospital, with the updated guidance, does that include maybe any new indications either for TEG or VASC-A this year? Or are you hitting that just with for deeper utilization and penetration. Thanks.
spk08: Anthony, the primary drivers are, as we said, it really is Vascaid, and I'm saying Vascaid for shorthand. It's mostly Vascaid MVP in the electrophysiology space, right? And that growth, what we are factoring in is exclusively U.S. new and existing accounts adopting the therapy. We are aggressively pursuing additional indications. We're aggressively pursuing market expansion into Europe and parts of Asia as well. So more about that when it comes. We tend to be pretty conservative about not factoring those items in because we don't control them. If they are meaningful, we'll talk about that at the time. But for what we've guided Across all four segments, as I outlined earlier, it's really what we have in hand and what we believe we can deliver from where we sit with the normal puts and takes around procedure volume and challenges in China, for example, with lockdowns and such. But all in all, we feel good with what we can see and what we can deliver against that. Great. Thank you.
spk04: Our next question comes from Michael Patesky with Barrington Research. Your line is open.
spk10: Hey, good morning. Great pivot from Investor Day to such a great quarter. Congrats. So a quick question going back to plasma. Do you guys have an assessment or do the plasma fractionators have an assessment of sort of how badly sort of the college student donation situation you know, part of their business lag for the past couple of years. I'm just wondering if there's an opportunity with students going back here the next couple of weeks, if there's an opportunity, you know, sort of incremental that people aren't maybe completely thinking about. I suspect college is basically completely normalized at this point relative to the past couple of years. I know it certainly improved last year, but any thoughts on that?
spk08: Good morning, Mike. Thanks for the question. Thoughtful as always. You know, college is one of a half a dozen colleges sub-segments we look at, right? We talk about borders. We talk about large urban centers. We talk about smaller metropolitan areas. We talk about suburban areas. We talk about military installations close to a military base. Across the board, they are in recovery. Colleges certainly participated. They are not back to where they were pre-pandemic. And college is closer than some other segments, but they're not leading the way, and they're not there yet. We do think, as we talk to customers extensively about their forecast, that the recovery in college is factored in, but it's a modest segment relative to the total, and it is underway, but I think it's going to take a bit longer to get back to pre-pandemic levels in those mature centers.
spk10: And just, I guess, another one then on Plasma. And I felt like you really spoke to this well at the investor day, but I'm not sure, you know, this is a concern we hear constantly. And I'd love for you to sort of just speak to this on this conference call. In terms of the potential competitor, Chris, can you just talk about at a high level, you know, what you think your ability in terms of being able to compete going forward with a potential competitor in the market and just any thoughts around that? because that is probably the number one thing that we hear as far as concerns around this company as an investment idea.
spk08: It's completely understandable, Mike. I think there is an overhang from two years of pandemic and then prior share shifts. When we work backwards against our aspirations in plasma, we talk about three factors, volume, share, and gross margin expansion. And in terms of volume, I think we broke that out quite explicitly here in the quarter and our go-forward guidance. You see the gross margin at the corporate level. We don't break that out or guide to it at the company level or by individual business unit. But you don't put up a record gross margin in the quarter without having what is currently your largest business contributing fully there. So that's a reflection that there's real value there. in our technology and a lot of excitement about adopting that and making that part of what our customers are aspiring to in terms of growing volumes and replenishing their depleted inventories. When you cycle back to share, I think what we try to say at our investor day is we're the industry leader today and we'll be the industry leader in a market share base the day the last shipment rolls to CSL, whenever that is. We intend to defend that leadership, and our primary focus in doing so is the duality of exquisite customer service and support. We have not missed a single order to our plasma customers throughout all the ups and downs of this pandemic cycle and continuing to advance our innovation agenda. And anybody who listened in heard Anila talk about the four dimensions that, based on extensive voice of customer research, yields, speed, compliance, and donor set, we are a moving target to say the least, right? We have the best technology, and we are doing what we can to meaningfully advance that leadership. And customers are recognizing it and valuing it, and we think that bodes well for our ability to expand share over our long-range plan, and that's what we aspire to do, both here in the U.S. and outside the U.S. as well. Perfect.
spk10: Thank you.
spk04: Our next question comes from Dave Turkley with J&P Securities. Your line is open.
spk13: Hey, good morning, Chris. Maybe just a quick one on the buyback. It seems like a sizable one. I think it might give you the shot of buying back 10% of the company over time based on where we sit today. But I'd love your thoughts on capital allocation, stock under 70 here, what you should think about sort of from a timing standpoint.
spk09: Yeah, thanks. Thanks for the question, Dave. Yes, it is, we think, a substantial buyback and commitment that we're making. When we think about it in the overall context of what we talked about at Investor Day, we talked about generating capital in the range of $2.1 billion over our projection period. So it does represent a significant chunk. But it still allows for us to focus really what we think are our two main drivers, organic growth for sure and investing in some of the technologies that we're developing right now. And then secondly, of course, inorganic growth, M&A. So this was basically a balancing act. We felt like where the price is today and given some of the dilution that we've had over the past – a couple of years that made a lot of sense to allocate some portion of our capital capacity to buying back shares. In terms of timing, it's a three-year period that we have, and we'll be opportunistic. We'll look to see where our stock price is and also compare that to other opportunities that we have. and proceed accordingly.
spk13: Thank you for that. One other one, I think at the analyst day you mentioned sort of the capacity investments. I think you said something like 5X increase, or that's what you're looking for in the out years. And you mentioned a new, I think a new Pennsylvania facility. But when we think about those numbers, I mean, this is so a hospital can address its TAM. Is that what we're thinking about with sort of that investment? given that it's so under-penetrated today?
spk08: There's a couple parts to it, Dave. Let me clarify the 5X. So today, based on our cash on hand and free cash flow and et cetera, we have about $400 million of capacity to put to work however we choose to. Over the life of this LRP, the long-range plan, the next four years, That increases five-fold to the $2.1 billion that James just highlighted. And we assume within that that we're going to fund all of our organic growth, which includes not only increasing our footprint on the commercial front here in the U.S. and internationally, hospitals are a big part of that, but also our R&D projects and the things we're really excited in terms of advancing our leadership. And yes, we've meaningfully invested in our global manufacturing and supply network. The new facility in Pittsburgh, it's actually in Clinton, Pennsylvania, is part of that. We initiated full operations this past quarter. It is state of the art, 200,000 square foot facility. And we think it will be an important part of driving further increases in product quality as well as capacity to meet the growth that comes. That capacity is both plasma and hospital. And we continue to invest against them to make sure we can be the business partner that we are and aspire to be over time with our customers in terms of reliability and the resilience, right? For the longest while, it was lean, lean, lean. I think we may have been a little bit ahead of the curve in emphasizing agility and resilience, and we're seeing the benefits in our current performance as a result.
spk12: Great. Thank you.
spk04: Our next question comes from Anthony Patron with Mizuho. Your line is open.
spk00: Thanks, and congrats on a good quarter here. I'll have a couple on plasma and follow up with hospital. And so, Chris, on plasma, you mentioned the border centers. Just maybe a quick update there. And as we look at the long-range plan, is it safe to assume that for the bulk of the long-range plan, the border centers will know potentially be at a steep discount um you know for for the good part of that horizon and then the follow-up on plasma would be when you look at sort of the performance the past couple of quarters you know how much of what we're seeing is is fractionators meeting real-time demand versus building safety stock and i'll have a couple of follow-ups so anthony welcome back great to have you in the conversation and in terms of
spk08: The plasma collections along the border, we're not directly involved in that. Some of our largest customers make up the predominant number of those centers, and they have, as you could expect, their legal and regulatory teams working hard against it. They're cautiously optimistic, maybe more on the optimistic side of that. So we'll be there to supply them if and when the borders begin to join the recovery. That really hasn't happened yet. And, you know, when we look at it, you know, things in this market don't move quite that quickly, right? This will be that they've largely been out of the market, so they're going to have to re-recruit those donors. Now, you know, the economic conditions, as I highlighted to an earlier question, are very favorable for that, but it takes time. So, you know, as our customers update, their forecast will factor that in. We did not assume a meaningful recovery along the border in this fiscal year. As it pertains to the plasma volumes, we don't have full visibility. We study at heart, and I think there's pretty good evidence in the public domain that through the trough of the pandemic, our customers need it to meaningfully tap their existing frozen plasma inventories to keep their fractionation and their customers supplied. So I think they've done everything they can do there, and I think we will be for some extended period. What our long-range plan assumes is is really over a multi-year period they will work to drive the recovery. And from our conversations with them, we don't see them pulling off of the accelerated compensation to donors and the new center openings anytime soon. So that's part of what gives us confidence that this recovery will be different than some of the false recoveries that we highlighted earlier with regards to gaining momentum over the life of the recovery. But they've got a long way to go to build back inventories. And I think a black swan event like the pandemic leaves its mark. And I think all of us will think differently about what are appropriate levels of inventory to supply our customers consistently going forward.
spk00: That's helpful. And the follow-ups will be one on hospital, and then I'll actually have one for Jim on margins. On hospital, Chris, at the analyst day, there was the commercial effort. highlighted 600 key accounts in the U.S. I'm just wondering, you know, if there's an update on how many of those targeted 600 are active users of MVP and or VASCADE. So that would be the first question. And then second for Jim, when you look at the adjusted operating margin target for 2026 high 20s from where we are currently around 17%, you know, to what extent was is the persistence in inflation and perhaps even an adverse currency environment baked into that outlook. Thanks.
spk08: Let me start with the targeting for BASC-AID and MVP. So MVP is the undisputed answer in electrophysiology. You are right. Stu talked about 600 accounts. We started the year roughly midway through that list, and we are aggressively working to add new accounts. There's an intelligent Pareto within that, so we've made a real effort to go to the largest and most influential accounts first, but we're working hard to enroll the bottom half of that list, if you will. and MVP is really driving the charge there and we feel great about it. Clearly, the bigger performance driver in the near term is getting greater utilization, right? And it's one of these ones where you're bringing clearly a marquee offering to the market, you'll want to have the sustainability and the repeat use. We are seeing that. That's the biggest driver, and that's what gives us confidence to raise the guidance. Now, interestingly, when we are in there with the VASC-AID MVP team, that's the same team, both sales reps and clinical support, that is having the conversations in interventional cardiology where VAScAID plays the lead role. And perhaps one of the areas of pleasant outperformance that we've realized is because of the capacity, because of the expansion we've done with that sales force, individual reps have more time to talk to interventional cardiologists and their teams. So VAScAID is benefiting as well. There are some issues in the quarter with contrast media that affects the number of procedures that interventionists were able to get done. That's largely been resolved. It's not fully resolved, but it's largely been resolved. So we expect Fascade in interventional cardiology to join the party at an increasing rate as the year progresses. James?
spk09: Yeah. Hi, Anthony. And on your question on the operating margin, so let's take inflation first. So we don't assume that prices come back down to the levels that they were pre-pandemic. In fact, what we do is we assume that we continue this higher price level for the next couple of years. And then in the back part of our plan in 25 and 26, we have them moderating by 10% a year. So, you know, We're assuming that the high price environment pretty much is here to stay during the projection period with maybe some moderation over time. I think the second question was on FX. On FX, what's built into our plan are the rates that were prevailing at the beginning of this calendar year. The dollar really strengthened quite a bit over the first calendar quarter of the year, and it was a large move in a short amount of time in that first quarter. Um, so our rates are kind of frozen in time back from that, uh, the first, you know, the beginning part of this year. So to the extent that rates, uh, you know, the dollar, um, improves in that regard, um, you know, that'll help on the, uh, on the operating margin. And, um, if it gets a lot worse from here, that could, you know, that could, uh, that could penalize it. Although I think we've seen some support for, uh, some of these foreign currencies vis-a-vis the dollar here more recently. So, um, That's where it stands right now. And, of course, once we go through our process for this year, our strategic planning process will update all the rates and make any changes accordingly.
spk00: Thank you.
spk04: There are no further questions. I'd like to thank you.
spk01: Accordingly.
spk04: This is the program, and you may now disconnect. Everyone, have a great day.
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