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spk09: Good morning, and thank you for standing by. Welcome to the first quarter 2024 Humanetics Corporation's earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olga Gayet, Senior Director, Investor Relations, Treasury. Please go ahead.
spk10: Good morning, everyone. Thank you for joining us for Humanetics' first quarter fiscal 24 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 24 results to our Investor Relations website, along with our updated fiscal 24 guidance. Before we begin, just a quick reminder that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuation. We'll also refer to other non-GAAP financial measures to help investors understand Humanetics' ongoing business performance. Please note that these measures exclude certain charges and income items. For a full list of excluded items, reconciliations to our GAAP results, and comparisons with the prior year periods, please refer to our first quarter fiscal 24 earnings release available on our website. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's release and in our other SSE filings. We do not undertake an obligation to update this forward-looking statement. And now I'd like to turn it over to Chris.
spk03: Thanks, Olga. Good morning and thank you all for joining. Today we reported first quarter organic revenue growth of 21% and adjusted earnings per diluted share of $1.05, 81% growth over prior year. It was a particularly strong start to the year. with market-leading performance across our businesses, delivering revenue growth and adjusted operating margin expansion, while advancing meaningful innovation and commercial milestones. Our Operational Excellence Program improves productivity and strengthens risk management, enabling us to fulfill customers' demands, expand our margins, and invest in opportunities for further growth and value creation. We are pleased that Diane Bryant has joined Humanetics Board of Directors. She brings more than 30 years of leadership experience with top global technology organizations, including Google, Intel, and NovaSignal. We welcome her counsel and expertise in technology solutions and healthcare information management. Turning now to our business unit results, plasma revenue grew 35% in the first quarter. North America disposables grew 41%. disproportionately driven by strong momentum in U.S. collections and price. Additionally, our first quarter plasma revenue growth rate benefited from unfavorable order timing in the first quarter of fiscal 23. In the U.S., this was the seventh consecutive quarter of volume growth exceeding historical seasonality. We also saw strong high single-digit collections growth in Europe. Our Nexus plasma collection system stands apart for offering 9% to 12% additional plasma yield, impeccable safety, connectivity, and a superior donor experience backed by real-world evidence from tens of millions of collections. We are bringing powerful innovation with FDA clearance of a redesigned bowl and the Express Plus software to shorten average collection time, optimize plasma center efficiency, and reduce cost per liter. This technology is expected to enable an average procedure time of 33 to 38 minutes, approximately a 20% reduction from the current procedure times on the Nexus PCS system. This is additive to the existing 16-minute reduction in door-to-door time, with a significant portion of this improvement occurring pre- and post-procedure, enabled by the seamless bidirectional communication between the Nexus PCS device and our NextLink DMS software. The launch of these new enhancements has been met with great enthusiasm from customers and we are working with them on a timely rollout while ensuring no interruption to plasma center operations. We are encouraged by our first quarter results and we are well positioned to capitalize on positive macroeconomic trends that support rising collection volumes. We are increasing our full year plasma organic revenue growth guidance from 3% to 6%, up to 8% to 11%. Moving to hospital, revenue increased 14% in the first quarter. North America performance was particularly strong, supported by improved procedure volume and staffing levels at US hospitals. Vascular closure revenue grew 27% in the first quarter, with a disproportionate contribution from new account openings, both in electrophysiology and interventional cardiology. We also continue to see higher utilization rates driven by our clinical efforts and increased procedure volumes in U.S. hospitals. Commercial efforts remain focused on increasing our share of the approximately $2.5 billion global TAM. We are making significant progress establishing our leadership in the top 600 U.S. EP hospitals responsible for nearly 90% of procedures. International expansion is on track and this quarter we received approval for Vascaid MVP in Japan and initiated clinical use of our vascular closure products in key accounts in Germany and Italy. The early feedback is very positive and confirms the important role our products play in improving the standards of care. Hemostasis management grew 14% in the quarter. North America, our largest market, grew 23%, driven by increased utilization of TEG, benefits from pricing, and strong capital sales. International growth was mixed, but all of our key markets in Europe delivered strong double-digit growth in the quarter. Strong performance in transfusion management was driven by market share gains in North America and Europe with the help of our recent agreement with EPIC, to offer SafeTrace TX to their global network of hospital customers. Cell salvage also had a strong quarter in North America as we capitalized on increased utilization in U.S. hospitals. These benefits were more than offset by unfavorable order timing among distributors outside the U.S. We are pleased with hospital's performance. We are ahead of schedule on our regulatory and commercial milestones and capitalizing on improving trends in hospitals worldwide to drive additional growth. With the launch of our vascular closure products in Europe and Japan, we are establishing new foundations for growth in the coming years. We affirm our fiscal 24 organic revenue growth guidance in the range of 16% to 18%. Blood center revenue grew 6% in the first quarter. Apheresis revenue grew 7%, driven by strong collections, particularly in plasma, coupled with favorable order timing among distributors. Capital was down slightly due to prior year share gains in Egypt as we partnered with a global plasma customer to expand a network of collection centers with Nexus PCS devices. Whole blood revenue grew 4% in the quarter as we benefited from the opportunity to serve competitors' customers in need. We are pleased with the first quarter results of our blood center business. However, near term we face a difficult external environment a voluntary product recall in our whole blood business, and the timing of some commercial opportunities that may take longer to realize. We now anticipate an organic revenue decline of minus two to minus 6% compared with our previous guidance of zero to minus 2%. In summary, momentum continues to build as we increase contribution and scale of higher growth, higher margin products, We are delivering sustained transformational growth and advancing our market leadership. Accordingly, we are raising our fiscal 2024 total company organic revenue growth guidance from 5% to 8% up to 7% to 10%. I'll now turn the call over to James to discuss the rest of our fiscal first quarter results and FY24 guidance. James? Thank you, Chris, and good morning, everyone.
spk22: In the first quarter of fiscal 24, our business demonstrated continued strength. First quarter adjusted gross margin was 54.2%, 100 basis points lower than in the same period of the prior year. Our adjusted gross margins benefited from price, volume, and favorable geographic and product mix as we continued to experience strong momentum in plasma and hospital, particularly in the U.S., and benefited from favorable order timing in blood center. These benefits were more than offset by a $3.4 million inventory reserve due to a voluntary product recall in our whole blood business. Upfront investments and operations to meet the unprecedented demand for our products and higher depreciation expense. Adjusted operating expenses in the first quarter were $98.5 million. flat compared with the first quarter of the prior year. We benefited from additional savings from the Operational Excellence Program and improving logistics costs that fully funded additional growth investments in the quarter. As a percentage of revenue, adjusted operating expenses were 31.7% in the first quarter of fiscal 24 compared with 38.1% in the same period of the prior year. Our first quarter adjusted operating income was $70.2 million, an increase of $25 million, or 56%. As a percentage of revenue, adjusted operating margin was 22.6% in the first quarter, up 540 basis points compared with the same period in fiscal 23. The expansion in the adjusted operating margin was driven by higher operating leverage, from our business and improving macroeconomic trends. The operating leverage we experienced in our quarter was ahead of our expectations, particularly due to stronger than anticipated momentum in plasma, favorable order timing in blood center, and improved logistics costs. As we look at the remainder of the year, we acknowledge a challenging macro environment and anticipated impact from changes in geographic and product mix. We affirm our adjusted operating margin guidance in the range of 20 to 21%. Our adjusted operating margin guidance also includes $20 million in target gross savings from the Operational Excellence Program that are expected to drop through at approximately 30% to our adjusted operating income generating additional efficiency across our business. In the first quarter of fiscal 24, the adjusted income tax rate was 21%, down from 24% in the first quarter of fiscal 23. Our first quarter fiscal 24 adjusted income tax rate benefited from share vestings and option exercises that were larger than the corresponding benefits recognized in the first quarter of the prior year. Share vestings and option exercises are usually front-end loaded. and our expectation for the fiscal 24 adjusted income tax rate remains unchanged at approximately 23%. First quarter adjusted net income was $53.7 million, up $24 million, or 78%, and adjusted earnings per diluted share was $1.05, up 81% when compared with the first quarter of fiscal 23. Changes in the adjusted income tax rate, interest expense, and share count resulted in approximately $0.09 benefit to our adjusted earnings per diluted share, which was partially offset by approximately $0.06 negative impact from FX. We updated our fiscal 24 adjusted earnings per diluted share guidance to be in the range of $3.60 to $3.90. The midpoint of our updated guidance includes an additional 10 cents headwind from fluctuations related to foreign exchange. Moving now to balance sheet and cash flow. Cash on hand at the end of the first quarter was $285.7 million, up $1.3 million since the end of last fiscal year. Free cash flow before restructuring and restructuring-related costs was $12 million. compared with $5 million in the first quarter of fiscal 23. The main drivers are significantly higher net income, partially offset by increased inventory due to a ramp-up in the production of Nexus PCS devices in the U.S. to support plasma customer growth requirements. We expect these trends to continue for the remainder of the year and update our guidance for free cash flow before restructuring and restructuring related costs for Fiscal 24 to be in the range of $85 million to $105 million, compared with $80 million to $100 million previously. In summary, I would like to highlight a few key messages that I hope you take away from today's call. Our first quarter results were a strong start to our Fiscal 24. with all of our businesses contributing to growth and margin expansion. In plasma, we continue to benefit from the strong collections momentum and technology that stands apart for yield, efficiency, and cost-per-liter improvements unmatched in the plasma industry. The benefits of our new bowl and Express Plus technology are largely additive to the 16-minute reduction in door-to-door time on average further optimizing plasma center efficiency and reducing cost to collect. In hospital, we are ahead of schedule with our commercial milestones, driving additional leverage in our business and capitalizing on improving trends in hospitals across the world. With the launch of our vascular closure products in Europe and Japan, we are establishing a new foundation for growth in the coming years. The expansion in adjusted operating margins in the first quarter provides a glimpse of what we can continue to deliver with the ongoing transformation of our product portfolio, increased efficiencies in the hospital business, and additional relief from macroeconomic pressures. While there is more work to do, we feel confident in our ability to further expand our margins in the coming years. And lastly, We remain committed to value creation for all our stakeholders. As our capital capacity continues to grow, we plan to put it to good use throughout our long-range plan to accelerate top and bottom line growth through M&A, additional organic growth investments, and opportunistic share buybacks. Thank you. And now, I would like to open the line for Q&A.
spk09: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Anthony Patron with Mizuho Americas. Your line is open.
spk15: Thanks, and good morning, everyone. Congratulations on a strong start to the fiscal year. Maybe a couple for Chris on plasma, and then I'll follow up with Jim on margins. Maybe, Chris, just kind of the experience in the quarter here. You mentioned, obviously, volumes are still running ahead of the historical collection trend, but maybe just where do you think we are in the inventory replenishment cycle amongst the fractionators? And then maybe a couple of follow-ups on Express plus tech. Just maybe a little bit on what is the upgrade path? Is it a pure software upgrade or is there a capital component to that as well? And then I'll have the follow-up for Jim.
spk03: Good morning, Anthony. Thanks for joining and thanks for the question. Yeah, this is our seventh consecutive quarter where the actual demand for plasma, plasma collections has outpaced the historical growth clearly our best first quarter for plasma on record. Usually that's our softest quarter for the year just due to some seasonal factors, and we'll see how that plays out over the course of the year. We think we're still in the early stages of this recovery. When we do our back-of-the-envelope estimates around inventory levels, we think there is a meaningful way to go to get to pre-pandemic levels, which would be safe, and given the challenges that our customers experienced meeting customer needs and the criticality of meeting those needs. We think that the robustness that we're seeing will continue, which is what gave us confidence to raise our guidance for the year in plasma after only one quarter. But we feel quite good about it. We think that from the conversations we're having with customers, we think this trend will continue strongly. In terms of the new enhancements, Really excited by able to get this together and get the approval, the release from FDA. It is a combination of software in the device itself, change in the disposables, and then some engineering around that. It's not a particularly complicated upgrade with regards to capital or the outlay. It is meaningful for the centers. It will require some change in SOP. And given the speed with which we are now moving, We want to be thoughtful about this. So we're talking about a limited market release, working hand-in-hand with a small group of customers, collect some real-world data, further validate the claims we're making, and then move to full market release later this fiscal year. But we're going to do so without disruption. We're going to do so jointly with our customers. And as always, we will go as fast as they're prepared to go on this.
spk15: That's helpful. And then, Jim, maybe just a little bit on the gross margin jump sequentially you know how much of that was you know a runoff of higher cost inventories and and price was mentioned a few times here in the press release prepared remarks just maybe a recap of where price is coming in these days and again congratulations on the quarter yeah thanks uh thanks anthony yeah um so yes uh price uh did did help us um
spk22: and I'm comparing now to the first quarter of 23. That was a nice bump up for us, as well as mix really helped us on the gross margin line. Everything seemed to go in the right direction for us mix-wise. We sold more in the U.S., and that bumped up our gross margin. But taking us back the other way, you saw that we had the filter recall And we still have some of those lingering inefficiencies that I spoke about quite often last fiscal year from the run-up in volumes. We'll start to see those peel away as the year continues. But overall, it was a very good start for us margin-wise. And as those gross margin goes up, it drops down to the operating margin for us as well. And that's why you saw such an excellent print there this quarter.
spk15: Thanks again.
spk09: Thank you. One moment for our next question. Our next question will come from Mike Madsen with Needham & Company. Your line is open.
spk05: Yeah, thanks. You know, great quarter, obviously, but I guess I'm just wondering, you know, why you're not raising the guidance more? I mean, you beat consensus by 32 cents. I know you don't give quarterly guidance, but massive EPS growth versus last year. You're only raising the guidance range by about 15 cents. You had tremendous operating leverage. Is there something there that, you know, you don't expect to continue for the rest of the year?
spk03: Mike, let me start. Chris, let me start on revenue, and then I'll ask James to comment on the margin expansion. So I think the first point I'd make is our first quarter was really a complete effort, probably our best quarter to date, and we do think it's a preview of things to come as we actualize our LRP. We benefited significantly from strong volume in the U.S. from really the triple hit of Nexus with Persona, those customers outpaced the rest of the field and grew disproportionately in the quarter. TAG, which had high 20s growth in the quarter, which was outstanding, and then Vascave, which was right there as well. So that trifecta helps us a lot. We do expect international growth going forward. Some of that will come at a lower gross margin. We need to be mindful of that. We talk about the macro trends. We benefit it. from some lower costs, but also from reduced expediting as we had a better handle on the forecast and a better ability to meet demand. And there are some below the line tailwinds that I'll let James speak to. It isn't that there's anything, you know, ominous pending for the remainder of the year. It is our first quarter. We want to be thoughtful about that. There are some things that we called out in our prepared remarks, for example, around blood center order timing and the uncertainty with the newly updated Russian sanctions, and our whole blood filter recall that we just need to be mindful of. And then, as we've talked in the past, we do expect some customer transition in the second half of the year in plasma that we need to be mindful of. Very difficult to anticipate the exact timing or the extent of that, and therefore, we're just going to be cautious as we forecast forward. James?
spk22: Yeah. So, yeah, it's like it's kind of early, so it's the first quarter, and I echo Chris's comment on being somewhat cautious before. We would have let all that drop down in terms of the overperformance drop down through on the quarter. We also have some additional headwinds coming in from FX. We expect that to, assuming the current rates stay where they are, that's another 10 cents for the rest of the year. And then also, if you notice, our tax rate in the first quarter was a bit lower for the reasons I mentioned earlier. And that will flip around on us for the back part of the year. We'll get back up to our normal recurring rate. So when you factor all those things together, that's why the earnings guide is what you see this quarter.
spk05: Okay, I understand. And then Express Plus, I would assume that you're charging a premium for that, but I just want to make sure that was correct. So this potentially could draw another kind of wave of price uplift as customers adopt it?
spk03: Express Plus and the speed enhancements on the procedure, Mike, are really part of a holistic plan that we have to further advance nexus platform leadership in the market right we're the only ones that have the persona nomogram which is we've talked about you know nine to twelve percent yield enhancement which is unrivaled um we did already speed up the the door-to-door time what a donor ultimately cares about and this is a you know this is a a battle for donors right and so donors care about as i showed up at one time and i left at another and so if we can shave you know, 15 to 20 minutes off the door-to-door time, that's meaningful for the donor. Express Plus speeds up the procedure portion of that and is additive. So it absolutely increases our value proposition, as does the bi-directional connectivity, as does a suite of donor apps that have been really well received. We started rolling those out, you know, during the pandemic and have only accelerated into that. We think about pricing holistically, and you see that in our results, and you see that in our guidance going forward. We're not going to talk about the individual components for competitive reasons, but we feel we have an ability to continue to command a premium for what is a superior offering, and Express Plus is clearly part of that.
spk17: Okay, got it. Thank you.
spk09: Thank you. Our next question, one moment, comes from Andrew Cooper with Raymond James. Your line is open.
spk19: Hi, everybody. Thanks for the question. Maybe just first, you know, I know don't necessarily want to get into a ton of details on it, but when we think back to the prior plasma guide, the commentary was for sort of mid-teens XCSL. I was wondering if you could just give an update there as to sort of the the impact and whether their contribution is still sort of proportionally the same as it was prior. And then I have one more follow-up as well.
spk03: Yeah, I think the base demand, particularly those customers who've adopted Nexus and doubly so those who are on Nexus with Persona, are leading the charge here. Andrew, in straight numbers, we guided to the mid-teens. We would now say for those customers, we're looking at high teens through the remainder of the year. they've clearly accelerated into this opportunity as they see a bit of a benefit from some of the macroeconomic trends. Donors are showing up in large volumes and they're capitalizing on that opportunity. We don't expect that to slow down anytime soon.
spk19: Okay, great. And then kind of sticking with a similar angle here, you mentioned demand for Nexus devices as a reason for building inventory. I guess, is that coming from new centers with existing customers? Is it competitive wins where they had been using other offerings? Can you just give us a little bit of context there on sort of the nature of it, as well as maybe the magnitude of new center openings, if that is the case, versus sort of the traditional historical patterns that we've seen before?
spk03: Yeah, it's predominantly new center openings. Andrew, there's, you know, We have share gains as well built into our plans, but it's predominantly new center openings to meet this uptick in demand.
spk19: Okay. And new centers have continued to behave kind of as they have pre-pandemic in terms of ramp. I know that's been a topic we've talked about before.
spk03: Yes. I think what's embedded in our guidance is very historical uptake across the new centers, those that were open three years ago and those that are open today and everything in between. We are also seeing some improvement in the mature centers. That's been on again, off again. In the fourth quarter of last year, we saw some meaningful inroads. That's continued through the first quarter of this year. That's a bit harder to predict, but our customers are working hard to get all of their centers full. And that includes the mature centers that have made meaningful improvements here in the first quarter.
spk20: Great. I'll stop there. Thank you. Thank you.
spk09: Thank you. Our next question comes from Joanne Wench with Citi. Your line is open.
spk08: Good morning and nice quarter. A couple of questions. SG&A as a percentage of revenue came down a lot year over year. And I'm just curious if this is a new go forward run rate, if there was something in there that helped that metric or how to think about that.
spk03: Yeah, Joanna, I'll start and then offer, if James want to add more to it. You know, we continue to make investments. We are quite disciplined about breaking out our OpEx into really multiple categories. We look at sales and marketing separate from G&A, separate from R&D, and separate from freight, which is a bit of an artifact. And what we saw in the quarter, we continue to invest meaningfully, building out particularly our sales capabilities as we take VASCADE global. So you're going to see that, but we do that with a demand for operating leverage. We've largely held the inherent G&A costs flat, which is part of our LRP and part of the margin expansion. You see the meaningful drop off in the first quarter. That's just an artifact of paying our annual bonus and, you know, monies that were accrued for that. And then it kind of washes through. Given the outperformance that we experienced last year, we paid a very upper end of our pay for performance programs. And, you know, we have a good forecast going into the year. So the accrual is just at a different level. That's really the bulk of the change.
spk07: Thank you. And then I, go ahead.
spk22: The freight costs as well were beneficial as those have come down. But I think the first quarter, you know, I wouldn't say that it'll be a due normal. I think it'll rise from here as we go throughout the year.
spk08: Thank you. My second question has to do with the Cardeva launches outside the United States. Can you just sort of give us an update on our State of the Union, if you will, on where you are in Europe and Japan? Thanks. Yep.
spk03: Thanks, Joanne. So in Europe, we had gotten the approval almost a year ago now, a good bit ahead of schedule. That enabled us to really accelerate our launch plans. We are building that out. It's a hybrid model. We're going to go direct where the economics of those markets and the demand clearly support that. and we'll go through distribution elsewhere. And I think the nice thing about the Vascaid family of products, initially at least, it can be supported by third-party distributors, right? We'll lean in heavily in terms of training and development and work directly with the various clinicians to get them signed on. That's already begun in places like Germany, which is a direct market for us, Italy, which will be more of a hybrid. That's the early uptake we saw. customer feedback and collision and their staff has been outstanding. So we're excited there and we're going to accelerate into that as the plan progresses. The approval in Japan is a positive development. We need to now secure reimbursement. We think that'll happen here this quarter, with any luck. And we'll move with a hybrid model in Japan. We've already entered into a distributor arrangement. with someone who we think is a good partner to work with long-term for the Japanese market. And again, we think the Vascaid family of products, right, they're highly efficacious, but they're also quite safe. And we know they lower the cost of care by getting patients home the same day and frequently. So we think it's a very good fit for the European and the Japanese market. The PAM there is less, but... But it's a good opportunity. It's a good chance for us to globalize our efforts, although that does require investment, and that's what you see flowing through our P&L.
spk08: If I can sneak one more in. Did you quantify the timing of the OUS order, the unfavorable order that you called out?
spk02: The unfavorable OUS order. Okay.
spk08: To quantify the order of timing, I guess it was, I have an unfavorable note, but I also, you had some one-time timing benefits, maybe?
spk03: Yeah, there were two factors, Joanne, sorry for the confusion on our end. So we felt like the plasma, particularly the U.S. plasma comp year over year, was a relatively easier comp because one of our large customers in the U.S. did a large one-time buy in the fourth quarter of fiscal 22. So there was less ordering in fiscal 23, which is why you see such a robust quarter-on-quarter growth rate. Outside the U.S. in blood center, we kind of had the opposite occur, right? And so while we had a very good first quarter in blood center, particularly in apheresis, we don't expect that to continue, particularly in our second quarter. And some of that is just the normal order timing. That business tends to be lumpy. But another part of it that's quite important for that business, at least, is Russia. And with the sanctions being rolled out, we got some pre-orders, particularly for platelet apheresis that we were able to meet. It's a good margin business in plasma, a good margin business in blood center. That probably won't repeat throughout the year and we're working hard to get our licenses. We think it's important to take our products to those markets, but we're working obviously within the sanctions to get that sorted and it's just too early to tell how it's going to play forward.
spk09: Thank you. Thank you. One moment for our next question. It comes from Michael. Patusky with Barrington Research. Your line is open.
spk12: Hey, good morning. I don't think this was addressed, but I just want to ask, and forgive me if it was, but was any aspect of the plasma number in Q1 sort of augmented by maybe the cadence of CSL orders sort of being front-end loaded?
spk03: No, just literally the only effect was that order timing, Mike, which we had mentioned, and that was a fiscal 22 order that lowered the fiscal 23 first quarter demand. There was no order timing for this year, so just on a comparative basis, this first quarter is the last of the easy comps, I guess, as they say. Okay.
spk12: Okay. All right. And then I just want to, I guess, sort of switch over real quick to Cardiva. Is there any way for you guys to quantify how much of the 27.2 was Europe, or is it just completely immaterial, that figure?
spk03: It's really immaterial, Mike, at this stage. We have bold plans, but at this stage, it was really immaterial. The The reality is, and I think this is one of the things that's important to highlight, you know, on the strength of the first quarter and why we think it's, you know, a sneak peek, if you will, of the LRP to come. Both VASCADE and TAG will crest $150 million in annualized revenue this year. In the first quarter, both of them grew in the 20s, right? TAG in the low to mid-20s and VASCADE in the high 20s. And so... We'll see how that plays out, but that was disproportionately driven by the U.S., which, as it is for most medical device companies, is our highest gross margin business. So the one-two combination in the hospital business was really powerful and drove both margin and total revenue growth for us. We're excited about that. We are demanding that our international business deliver its fair share, and that may have a dilutive effect on margins as the year progresses. But we really benefited by it in the first quarter, and I think that's evidence of what those two workhorse product families can do for this company.
spk12: And then just one tiny clarification. I just want to make sure I understand. When you talk about hybrid in Italy and then in the future in Japan, are you talking about using both? distributors and direct sales, or are you just talking about using distributors in those markets?
spk03: For some products, yes, Mike, that's exactly right. And we'll grow. We're really nascent in those markets today. And so I think we'll look at this and look at opportunities to scale the business. It is one of the biggest drivers of our operating leverage and our margin expansion over time is getting to scale in those markets. If we can use distributors to help either on a permanent basis or on a transitional basis. That's what's built into the plan.
spk12: Yeah, sorry, Chris, let me just be slow on the uptake. So are you using any direct sales in Italy or no?
spk03: Yes, a small team where we have privileged account relationships.
spk12: Okay, perfect. Thanks, great quarter. Thank you.
spk03: Thank you, Mike.
spk09: Thank you. Our next question. We'll come from Larry Solo from CJS Securities. Your line is open.
spk04: Great, thanks. Good morning, guys. And I echo the congrats and the good start to the year. Just any thoughts, Chris? I'm not sure if he touches, and I missed the beginning of the call. You probably haven't touched on it. But just your thoughts or commentary on the FCRN receptor space and obviously some data early on. I guess in July on CBP. Any just thoughts on that and how that could impact overall plasma growth? Obviously not near term, but as we look out over the mid to long term.
spk03: Yeah, Larry, thanks for the question. We have not talked about it. So the anti-FCRN entree more broadly into the autoimmune space is something we're watching closely. I should caveat that we don't have proprietary insight, right? We talk to all of our customers who are in these end markets. We talk to key opinion leaders. We read everything that is written about it, but we don't have proprietary insight. I would echo what I think you're hearing from our customers, which is with the ADHERE trial readout, it was, you know, congratulations to Argenix. It was a successful trial. That's a good thing for patients, particularly given the inherent growth in demand for IG across primary, secondary, and autoimmune diseases. So we'll watch this carefully. We don't believe at this time that there's any reason to change the underlying forecast for growth in demand for IG, given that there are 8,000 IG-based trials underway for those indications. So we think it will clearly play a role, but it's unlikely to meaningfully cannibalize or compress the ultimate demand, certainly in the near to intermediate term. But we'll watch and we'll update as we learn more. But from this point, we think it was useful to get the adhered data out there. Congratulations for that accomplishment. It's a good thing for patients, but we don't think it's going to have a disruptive effect on our trajectory. Got it. Great.
spk04: And then just a question just for James. So it sounds like certainly the lower SG&A certainly benefit from some timing. I know you don't maybe guide on gross margin specifically, but a pretty nice sequential improvement. I know it was down year over year. Should we view this number as a good starting point as we look out for the rest of the year? Any color on that would be great. Thanks again.
spk22: Yeah, I would say it's a fair starting point. a lot of ins and outs as well. It was also affected by the recall that we spoke about. We have the lingering temporary inefficiencies, which I had been previously talking about, but offsetting that, we had some very favorable mix and some improvement in price. So we had a lot of ins and outs, but I think it's a pretty fair representation for the year. Great. Thanks, guys. I appreciate it.
spk09: Thank you. Our next question comes from Dave Turkoli with JMP Securities. Your line is open.
spk13: Hey, good morning, and congrats. Just wanted to follow up on the hemostasis. I think you mentioned price in there. I don't really recall that in the past, but I know you had the 6S device, but is there anything new there? Is there anything coming that we should be looking for And I guess color around the pricing comment would be great. Thank you.
spk03: Hey, Dave. Thanks. With regards to hemostasis management, particularly here in the U.S., we have a robust portfolio of additional indications, additional cartridges to really tap into that broader total addressable market. And so you see some of that benefit coming through You know, the first quarter was both equipment and disposables, but disproportionately disposables. Clearly, our margins on disposables are more favorable, so that's part of the pricing benefit. And then, you know, we will continue to introduce, and we'll have more to say as the year progresses, new cartridges and new indications to broaden our leadership in that area. That's an area that we enjoy doing. clear leadership market share, and we intend to build and expand upon it. It will help price, but it will also help overall volume, too.
spk14: Thank you.
spk09: Thank you. And there are no other questions in the queue. This does conclude today's conference call. Thank you for participating. You may now disconnect. Music Thank you. So, Thank you. you you Good morning and thank you for standing by. Welcome to the first quarter 2024 Humanetics Corporation's earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. to withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olga Gayet, Senior Director, Investor Relations, Treasury. Please go ahead.
spk10: Good morning, everyone. Thank you for joining us for Humanetics First Quarter Fiscal 24 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 24 results to our Investor Relations website, along with our updated fiscal 24 guidance. Before we begin, just a quick reminder that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuation. We'll also refer to other non-GAAP financial measures to help investors understand Humanetics' ongoing business performance. Please note that these measures exclude certain charges and income items. For a full list of excluded items, reconciliations to our GAAP results, and comparisons with the prior year periods, please refer to our first quarter fiscal 24 earnings release available on our website. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's release and in our other SSE filings. We do not undertake an obligation to update this forward-looking statement. And now I'd like to turn it over to Chris.
spk03: Thanks, Olga. Good morning and thank you all for joining. Today we reported first quarter organic revenue growth of 21% and adjusted earnings per diluted share of $1.05, 81% growth over prior year. It was a particularly strong start to the year. with market-leading performance across our businesses, delivering revenue growth and adjusted operating margin expansion, while advancing meaningful innovation and commercial milestones. Our Operational Excellence Program improves productivity and strengthens risk management, enabling us to fulfill customers' demands, expand our margins, and invest in opportunities for further growth and value creation. We are pleased that Diane Bryan has joined Humanetics Board of Directors. She brings more than 30 years of leadership experience with top global technology organizations, including Google, Intel, and NovaSignal. We welcome her counsel and expertise in technology solutions and healthcare information management. Turning now to our business unit results, plasma revenue grew 35% in the first quarter. North America disposables grew 41%. disproportionately driven by strong momentum in US collections and price. Additionally, our first quarter plasma revenue growth rate benefited from unfavorable order timing in the first quarter of fiscal 23. In the US, this was the seventh consecutive quarter of volume growth exceeding historical seasonality. We also saw strong high single-digit collections growth in Europe. Our Nexus plasma collection system stands apart for offering 9% to 12% additional plasma yield, impeccable safety, connectivity, and a superior donor experience backed by real-world evidence from tens of millions of collections. We are bringing powerful innovation with FDA clearance of a redesigned bowl and the Express Plus software to shorten average collection time, optimize plasma center efficiency, and reduce cost per liter. This technology is expected to enable an average procedure time of 33 to 38 minutes, approximately a 20% reduction from the current procedure times on the Nexus PCS system. This is additive to the existing 16-minute reduction in door-to-door time, with a significant portion of this improvement occurring pre- and post-procedure, enabled by the seamless bidirectional communication between the Nexus PCS device and our NextLink DMS software. The launch of these new enhancements has been met with great enthusiasm from customers and we are working with them on a timely rollout while ensuring no interruption to plasma center operations. We are encouraged by our first quarter results and we are well positioned to capitalize on positive macroeconomic trends that support rising collection volumes. We are increasing our full year plasma organic revenue growth guidance from 3% to 6%, up to 8% to 11%. Moving to hospital, revenue increased 14% in the first quarter. North America performance was particularly strong, supported by improved procedure volume and staffing levels at US hospitals. Vascular closure revenue grew 27% in the first quarter, with a disproportionate contribution from new account openings, both in electrophysiology and interventional cardiology. We also continue to see higher utilization rates driven by our clinical efforts and increased procedure volumes in U.S. hospitals. Commercial efforts remain focused on increasing our share of the approximately $2.5 billion global TAM. We are making significant progress establishing our leadership in the top 600 U.S. EP hospitals responsible for nearly 90% of procedures. International expansion is on track and this quarter we received approval for Vascaid MVP in Japan and initiated clinical use of our vascular closure products in key accounts in Germany and Italy. The early feedback is very positive and confirms the important role our products play in improving the standards of care. Hemostasis management grew 14% in the quarter. North America, our largest market, grew 23%, driven by increased utilization of TEG, benefits from pricing, and strong capital sales. International growth was mixed, but all of our key markets in Europe delivered strong double-digit growth in the quarter. Strong performance in transfusion management was driven by market share gains in North America and Europe with the help of our recent agreement with EPIC, to offer SafeTrace TX to their global network of hospital customers. Cell salvage also had a strong quarter in North America as we capitalized on increased utilization in U.S. hospitals. These benefits were more than offset by unfavorable order timing among distributors outside the U.S. We are pleased with hospital's performance. We are ahead of schedule on our regulatory and commercial milestones and capitalizing on improving trends in hospitals worldwide to drive additional growth. With the launch of our vascular closure products in Europe and Japan, we are establishing new foundations for growth in the coming years. We affirm our fiscal 24 organic revenue growth guidance in the range of 16% to 18%. Blood center revenue grew 6% in the first quarter. Apheresis revenue grew 7%, driven by strong collections, particularly in plasma, coupled with favorable order timing among distributors. Capital was down slightly due to prior year share gains in Egypt as we partnered with a global plasma customer to expand a network of collection centers with Nexus PCS devices. Whole blood revenue grew 4% in the quarter as we benefited from the opportunity to serve competitors, customers in need. We are pleased with the first quarter results of our blood center business. However, near term we face a difficult external environment a voluntary product recall in our whole blood business, and the timing of some commercial opportunities that may take longer to realize. We now anticipate an organic revenue decline of minus two to minus six percent compared with our previous guidance of zero to minus two percent. In summary, momentum continues to build as we increase contribution and scale of higher growth, higher margin products, We are delivering sustained transformational growth and advancing our market leadership. Accordingly, we are raising our fiscal 2024 total company organic revenue growth guidance from five to 8% up to seven to 10%. I'll now turn the call over to James to discuss the rest of our fiscal first quarter results and FY24 guidance. James. Thank you, Chris. And good morning, everyone.
spk22: In the first quarter of fiscal 24, our business demonstrated continued strength. First quarter adjusted gross margin was 54.2%, 100 basis points lower than in the same period of the prior year. Our adjusted gross margins benefited from price, volume, and favorable geographic and product mix as we continued to experience strong momentum in plasma and hospital, particularly in the U.S., and benefited from favorable order timing in blood center. These benefits were more than offset by a $3.4 million inventory reserve due to a voluntary product recall in our whole blood business. Upfront investments and operations to meet the unprecedented demand for our products and higher depreciation expense. Adjusted operating expenses in the first quarter were $98.5 million. flat compared with the first quarter of the prior year. We benefited from additional savings from the Operational Excellence Program and improving logistics costs that fully funded additional growth investments in the quarter. As a percentage of revenue, adjusted operating expenses were 31.7% in the first quarter of fiscal 24 compared with 38.1% in the same period of the prior year. Our first quarter adjusted operating income was $70.2 million, an increase of $25 million, or 56%. As a percentage of revenue, adjusted operating margin was 22.6% in the first quarter, up 540 basis points compared with the same period in fiscal 23. The expansion in the adjusted operating margin was driven by higher operating leverage from our business and improving macroeconomic trends. The operating leverage we experienced in our quarter was ahead of our expectations, particularly due to stronger than anticipated momentum in plasma, favorable order timing in blood center, and improved logistics costs. As we look at the remainder of the year, we acknowledge a challenging macro environment and anticipated impact from changes in geographic and product mix. We affirm our adjusted operating margin guidance in the range of 20 to 21%. Our adjusted operating margin guidance also includes $20 million in target gross savings from the Operational Excellence Program that are expected to drop through at approximately 30% to our adjusted operating income generating additional efficiency across our business. In the first quarter of fiscal 24, the adjusted income tax rate was 21%, down from 24% in the first quarter of fiscal 23. Our first quarter fiscal 24 adjusted income tax rate benefited from share vestings and option exercises that were larger than the corresponding benefits recognized in the first quarter of the prior year. Share vestings and option exercises are usually front-end loaded. and our expectation for the fiscal 24 adjusted income tax rate remains unchanged at approximately 23%. First quarter adjusted net income was $53.7 million, up $24 million, or 78%, and adjusted earnings per diluted share was $1.05, up 81% when compared with the first quarter of fiscal 23. Changes in the adjusted income tax rate, interest expense, and share count resulted in approximately $0.09 benefit to our adjusted earnings per diluted share, which was partially offset by approximately $0.06 negative impact from FX. We updated our fiscal 24 adjusted earnings per diluted share guidance to be in the range of $3.60 to $3.90. The midpoint of our updated guidance includes an additional 10 cents headwind from fluctuations related to foreign exchange. Moving now to balance sheet and cash flow. Cash on hand at the end of the first quarter was $285.7 million, up $1.3 million since the end of last fiscal year. Free cash flow before restructuring and restructuring-related costs was $12 million. compared with $5 million in the first quarter of fiscal 23. The main drivers are significantly higher net income, partially offset by increased inventory due to a ramp-up in the production of Nexus PCS devices in the U.S. to support plasma customer growth requirements. We expect these trends to continue for the remainder of the year and update our guidance for free cash flow before restructuring and restructuring related costs for Fiscal 24 to be in the range of $85 million to $105 million, compared with $80 million to $100 million previously. In summary, I would like to highlight a few key messages that I hope you take away from today's call. Our first quarter results were a strong start to our Fiscal 24. with all of our businesses contributing to growth and margin expansion. In plasma, we continue to benefit from the strong collections momentum and technology that stands apart for yield, efficiency, and cost per liter improvements unmatched in the plasma industry. The benefits of our new bowl and Express Plus technology are largely additive to the 16-minute reduction in door-to-door time on average further optimizing plasma center efficiency and reducing cost to collect. In hospital, we are ahead of schedule with our commercial milestones, driving additional leverage in our business and capitalizing on improving trends in hospitals across the world. With the launch of our vascular closure products in Europe and Japan, we are establishing a new foundation for growth in the coming years. The expansion in adjusted operating margins in the first quarter provides a glimpse of what we can continue to deliver with the ongoing transformation of our product portfolio, increased efficiencies in the hospital business, and additional relief from macroeconomic pressures. While there is more work to do, we feel confident in our ability to further expand our margins in the coming years. And lastly, We remain committed to value creation for all our stakeholders. As our capital capacity continues to grow, we plan to put it to good use throughout our long-range plan to accelerate top and bottom line growth through M&A, additional organic growth investments, and opportunistic share buybacks. Thank you. And now, I would like to open the line for Q&A.
spk09: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Anthony Patron with Mizuho Americas. Your line is open.
spk15: Thanks, and good morning, everyone. Congratulations on a strong start to the fiscal year. Maybe a couple for Chris on plasma, and then I'll follow up with Jim on margins. Maybe, Chris, just kind of the experience in the quarter here. You mentioned, obviously, volumes are still running ahead of the historical collection trend, but maybe just where do you think we are in the inventory replenishment cycle amongst the fractionators? And then maybe a couple of follow-ups on Express plus tech. Just maybe a little bit on what is the upgrade path? Is it a pure software upgrade, or is there a capital component to that as well? And then I'll have the follow-up for Jim.
spk03: Good morning, Anthony. Thanks for joining, and thanks for the question. Yeah, this is our seventh consecutive quarter where the actual demand for plasma, plasma collections, has outpaced the historical growth clearly our best first quarter for plasma on record. Usually that's our softest quarter for the year just due to some seasonal factors, and we'll see how that plays out over the course of the year. We think we're still in the early stages of this recovery. When we do our back-of-the-envelope estimates around inventory levels, we think there is a meaningful way to go to get to pre-pandemic levels, which would be safe, and given the challenges that our customers experienced meeting customer needs and the criticality of meeting those needs, we think that the robustness that we're seeing will continue, which is what gave us confidence to raise our guidance for the year in plasma after only one quarter. But we feel quite good about it. We think that from the conversations we're having with customers, we think this trend will continue strongly. In terms of the new enhancements, Really excited by able to get this together and get the approval, the release from FDA. It is a combination of software in the device itself, change in the disposables, and then some engineering around that. It's not a particularly complicated upgrade with regards to capital or the outlay. It is meaningful for the centers. It will require some change in SOP. And given the speed with which we are now moving, We want to be thoughtful about this. So we're talking about a limited market release, working hand in hand with a small group of customers, collect some real world data, further validate the claims we're making, and then move to full market release later this fiscal year. But we're going to do so without disruption. We're going to do so jointly with our customers. And as always, we will go as fast as they're prepared to go on this.
spk15: That's helpful. And then, Jim, maybe just a little bit on the gross margin jump sequentially. How much of that was a runoff of higher cost inventories? And price was mentioned a few times here in the press release, prepared remarks. Just maybe a recap of where price is coming in these days. And again, congratulations on the quarter.
spk22: Yeah, thanks. Thanks, Anthony. So yes, price did help us. and I'm comparing now to the first quarter of 23. That was a nice bump up for us, as well as mix really helped us on the gross margin line. Everything seemed to go in the right direction for us mix-wise. We sold more in the U.S., and that bumped up our gross margin. But taking us back the other way, you know, you saw that we have the filter recall, and we still have some of those lingering inefficiencies that I spoke about quite often last fiscal year from the run-up in volumes. You know, we'll start to see those peel away as, you know, as the year continues. But overall, it was a very good start for us margin-wise and you know as those gross margin goes it drops down to the operating margin for us as well and that's why you saw such a an excellent print there this quarter thanks again thank you one moment for our next question our next question will come from
spk09: Mike Mattson with Needham & Company. Your line is open.
spk05: Yeah, thanks. You know, great quarter, obviously. But I guess I'm just wondering, you know, why you're not raising the guidance more. I mean, you beat consensus by 32 cents. I know you don't give quarterly guidance, but massive EPS growth versus last year. You're only raising the guidance range by about 15 cents. You had tremendous operating leverage. Is there something there that you don't expect to continue for the rest of the year?
spk03: Chris, let me start on revenue, and then I'll ask James to comment on the margin expansion. So I think the first point I'd make is our first quarter was really a complete effort, probably our best quarter to date, and we do think it's a preview of of things to come as we actualize our LRP. We benefited significantly from strong volume in the U.S. from really the triple hit of Nexus with Persona. Those customers outpaced the rest of the field and grew disproportionately in the quarter. TAG, which had high 20s growth in the quarter, which was outstanding, and then Vascave, which was right there as well. So that trifecta helps us a lot. We do expect international growth going forward. Some of that will come at a lower gross margin. We need to be mindful of that. We talk about the macro trends. We benefit it from some lower costs, but also from reduced expediting as we had a better handle on the forecast and a better ability to meet demand. And there are some below-the-line tailwinds that I'll let James speak to. It isn't that there's anything, you know, ominous, pending for the remainder of the year. It is our first quarter. We want to be thoughtful about that. There are some things that we called out in our prepared remarks, for example, around blood center order timing, the uncertainty with the newly updated Russian sanctions, and our whole blood filter recall that we just need to be mindful of. And then, as we've talked in the past, we do expect some customer transition in the second half of the year in plasma that we need to be mindful of. Very difficult to anticipate the exact timing or the extent of that, and therefore we're just going to be cautious as we forecast forward. James?
spk22: Yeah, so yeah, it's kind of early, so it's the first quarter, and I echo Chris's comment on being somewhat cautious before. We would have let all that drop down in terms of the overperformance drop down through on the quarter. We also have some additional headwinds coming in from FX. We expect that to, assuming the current rates stay where they are, that's another $0.10 for the rest of the year. And then also, if you noticed, our tax rate in the first quarter was a bit lower for the reasons I mentioned earlier, and that will flip around on us for the back part of the year. We'll get back up to our normal recurring rate. So when you factor all those things together, that's why the earnings guide is what you see this quarter.
spk05: Okay, I understand. And then Express Plus, I would assume that you're charging a premium for that, but I just want to make sure that that was correct. So this potentially could draw another kind of wave of price uplift as customers adopt it.
spk03: Yeah, Express Plus and the speed enhancements on the procedure, Mike, are really part of a holistic plan that we have to further advance Nexus platform leadership in the market, right? We're the only ones that have the persona nomogram, which is we've talked about, you know, 9% to 12% yield enhancement, which is unrivaled. We did already speed up the door-to-door time, what a donor ultimately cares about. And this is a, you know, this is a battle for donors, right? And so donors care about it. I showed up at one time and I left at another. And so if we can shave you know, 15 to 20 minutes off the door-to-door time, that's meaningful for the donor. Express Plus speeds up the procedure portion of that and is additive. So it absolutely increases our value proposition, as does the bi-directional connectivity, as does a suite of donor apps that have been really well received. We started rolling those out, you know, during the pandemic and have only accelerated into that. We think about pricing holistically, and you see that in our results, and you see that in our guidance going forward. We're not going to talk about the individual components for competitive reasons, but we feel we have an ability to continue to command a premium for what is a superior offering, and Express Plus is clearly part of that.
spk17: Okay, got it. Thank you.
spk09: Thank you. Our next question, one moment, comes from Andrew Cooper with Raymond James. Your line is open.
spk19: Hi, everybody. Thanks for the question. Maybe just first, you know, I know don't necessarily want to get into a ton of details on it, but when we think back to the prior plasma guide, the commentary was for sort of mid-teens XCSL. I was wondering if you could just give an update there as to sort of the the impact and whether their contribution is still sort of proportionally the same as it was prior. And then I have one more follow-up as well.
spk03: Yeah, I think the base demand, particularly those customers who've adopted Nexus and doubly so those who are on Nexus with Persona, are leading the charge here. Andrew, in straight numbers, we guided to the mid-teens. We would now say for those customers, we're looking at high teens through the remainder of the year. they've clearly accelerated into this opportunity as they see a bit of a benefit from some of the macroeconomic trends. Donors are showing up in large volumes and they're capitalizing on that opportunity. We don't expect that to slow down anytime soon.
spk19: Okay, great. And then kind of sticking with a similar angle here, you mentioned demand for Nexus devices as a reason for building inventory. I guess, is that coming from new centers with existing customers? Is it competitive wins where they had been using other offerings? Can you just give us a little bit of context there on sort of the nature of it, as well as maybe the magnitude of new center openings, if that is the case, versus sort of the traditional historical patterns that we've seen before?
spk03: Yeah, it's predominantly new center openings. Andrew, there's, you know, We have share gains as well built into our plans, but it's predominantly new center openings to meet this uptick in demand.
spk19: Okay. And new centers have continued to behave kind of as they have pre-pandemic in terms of ramp. I know that's been a topic we've talked about before.
spk03: Yes. I think what's embedded in our guidance is very historical uptake across the new centers, those that were open three years ago and those that are open today and everything in between. We are also seeing some improvement in the mature centers. That's been on again, off again. In the fourth quarter of last year, we saw some meaningful inroads. That's continued through the first quarter of this year. That's a bit harder to predict, but our customers are working hard to get all of their centers full. And that includes the mature centers that have made meaningful improvements here in the first quarter.
spk20: Great. I'll stop there. Thank you. Thank you.
spk09: Thank you. Our next question comes from Joanne Wench with Citi. Your line is open.
spk08: Good morning and nice quarter. A couple of questions. SG&A as a percentage of revenue came down a lot year over year. And I'm just curious if this is a new go-forward run rate, if there was something in there that helped that metric or how to think about that.
spk03: Yeah, Joanne, I'll start and then offer if James want to add more to it. You know, we continue to make investments. We are quite disciplined about breaking out our OPEX into really multiple categories. We look at sales and marketing separate from G&A, separate from R&D, and separate from freight, which is a bit of an artifact. And what we saw in the quarter, we continue to invest meaningfully, building out particularly our sales capabilities as we take VASCADE global. So you're going to see that, but we do that with a demand for operating leverage. We've largely held the inherent G&A costs flat, which is part of our LRP and part of the margin expansion. You see the meaningful drop off in the first quarter. That's just an artifact of paying our annual bonus and, you know, monies that were accrued for that. And then it kind of washes through. Given the outperformance that we experienced last year, we paid the very upper end of our pay for performance programs. And, you know, we have a good forecast going into the year. So the accrual is just at a different level. That's really the bulk of the change.
spk07: Thank you. And then I, go ahead.
spk22: The freight costs as well were beneficial as those have come down. But I think the first quarter, you know, I wouldn't say that'll be a due normal. I think it'll rise from here as we go throughout the year.
spk08: Thank you. My second question has to do with the Cardeva launches outside the United States. Can you just sort of give us an update on our State of the Union, if you will, on where you are in Europe and Japan? Thanks. Yep.
spk03: Thanks, Joanne. So in Europe, we had gotten the approval almost a year ago now, a good bit ahead of schedule. That enabled us to really accelerate our launch plans. We are building that out. It's a hybrid model. We're going to go direct where the economics of those markets and the demand clearly support that. and we'll go through distribution elsewhere. And I think the nice thing about the Vascaid family of products, initially at least, it can be supported by third-party distributors, right? We'll lean in heavily in terms of training and development and work directly with the various clinicians to get them signed on. That's already begun in places like Germany, which is a direct market for us, Italy, which will be more of a hybrid. That's the early uptake we saw. Customer feedback and collision and their staff has been outstanding so that's we're excited there and we're going to accelerate into that as as the plan progresses. The approval in Japan is a positive development, we need to now secure reimbursement we think that'll happen here this quarter with any luck. And we'll move with a hybrid model in Japan we've already entered into a distributor arrangement. with someone who we think is a good partner to work with long-term for the Japanese market. And again, we think the Vascaid family of products, right, they're highly efficacious, but they're also quite safe. And we know they lower the cost of care by getting patients home the same day and frequently. So we think it's a very good fit for the European and the Japanese market. The PAM there is less, but... But it's a good opportunity. It's a good chance for us to globalize our efforts, although that does require investment, and that's what you see flowing through our P&L.
spk08: If I can sneak one more in. Did you quantify the timing of the OUS order, the unfavorable order that you called out?
spk02: The unfavorable OUS order. Okay.
spk08: To quantify the order of timing, I guess it was, I have an unfavorable note, but I also, you had some one-time timing benefits, maybe?
spk03: Yeah, there were two factors, Joanne. Sorry for the confusion on our end. So we felt like the plasma, particularly the U.S. plasma comp year over year, was a relatively easier comp because one of our large customers in the U.S. did a large one-time buy in the fourth quarter of fiscal 22. So there was less ordering in fiscal 23, which is why you see such a robust quarter-on-quarter growth rate. Outside the U.S. in blood center, we kind of had the opposite occur, right? And so while we had a very good first quarter in blood center, particularly in apheresis, we don't expect that to continue, particularly in our second quarter. And some of that is just the normal order timing. That business tends to be lumpy. But another part of it that's quite important for that business, at least, is Russia. And with the sanctions being rolled out, we got some pre-orders, particularly for platelet apheresis, that we were able to meet. It's a good margin business in plasma, a good margin business in blood center. That probably won't repeat throughout the year and we're working hard to get our licenses. We think it's important to take our products to those markets, but we're working obviously within the sanctions to get that sorted and it's just too early to tell how it's going to play forward.
spk09: Thank you. Thank you. One moment for our next question. It comes from Michael. Patusky with Barrington Research. Your line is open.
spk12: Hey, good morning. I don't think this was addressed, but I just want to ask, and forgive me if it was, but was any aspect of the plasma number in Q1 sort of augmented by maybe the cadence of CSL orders sort of being front-end loaded?
spk03: No, just literally the only effect was that order timing, Mike, which we had mentioned, and that was a fiscal 22 order that lowered the fiscal 23 first quarter demand. There was no order timing for this year, so just on a comparative basis, this first quarter is the last of the easy comps, I guess, as they say.
spk12: Okay. Okay. All right. And then I just want to, I guess, sort of switch over real quick to Cardiva. Is there any way for you guys to quantify, you know, how much of the 27.2 was Europe, or is it just completely immaterial, that figure?
spk03: It's really immaterial, Mike, at this stage. You know, we have bold plans, but at this stage, it was really immaterial. The The reality is, and I think this is one of the things that's important to highlight, you know, on the strength of the first quarter and why we think it's, you know, a sneak peek, if you will, of the LRP to come. Both Vascaid and TAG will crest $150 million in annualized revenue this year. In the first quarter, both of them grew in the 20s, right? TAG in the low to mid-20s and Vascaid in the high 20s. And so... We'll see how that plays out, but that was disproportionately driven by the U.S., which, as it is for most medical device companies, is our highest gross margin business. So the one-two combination in the hospital business was really powerful and drove both margin and total revenue growth for us. We're excited about that. We are demanding that our international business deliver its fair share, and that may have a dilutive effect on margins as the year progresses. But we really benefited by it in the first quarter, and I think that's evidence of what those two workhorse product families can do for this company.
spk12: And then just one tiny clarification. I just want to make sure I understand. When you talk about hybrid in Italy and then in the future in Japan, are you talking about using both? distributors and direct sales, or are you just talking about using distributors in those markets?
spk03: For some products, yes, Mike, that's exactly right. And we'll grow. We're really nascent in those markets today. And so I think we'll look at this and look at opportunities to scale the business. It is one of the biggest drivers of our operating leverage and our margin expansion over time is getting to scale in those markets. If we can use distributors to help either on a permanent basis or on a transitional basis. That's what's built into the plan.
spk12: Yeah, sorry, Chris. Let me just be slow on the uptake. So are you using any direct sales in Italy or no?
spk03: Yes, a small team where we have privileged account relationships.
spk12: Okay, perfect. Thanks. Great quarter. Thank you.
spk03: Thank you, Mike.
spk09: Thank you. Our next question. We'll come from Larry Solo from CJS Securities. Your line is open.
spk04: Great, thanks. Good morning, guys. And I echo the congrats and the good start to the year. Just any thoughts, Chris? I'm not sure if he touches, and I missed the beginning of the call. You probably haven't touched on it. But just your thoughts or commentary on the FCRN receptor space and obviously some data early on. I guess in July on CBP. Any just thoughts on that and how that could impact overall plasma growth? Obviously not near term, but as we look out over the mid to long term.
spk03: Yeah, Larry, thanks for the question. We have not talked about it. So the anti-FCRN entree more broadly into the autoimmune space is something we're watching closely. I should caveat that we don't have proprietary insight, right? We talk to all of our customers who are in these end markets. We talk to key opinion leaders. We read everything that is written about it, but we don't have proprietary insight. I would echo what I think you're hearing from our customers, which is with the adhere trial readout. It was, you know, congratulations to Argenix. It was a successful trial. That's a good thing for patients, particularly given the inherent growth in demand for IG across primary, secondary, and autoimmune diseases. So we'll watch this carefully. We don't believe at this time that there's any reason to change the underlying forecast for growth in demand for IG, given that there are 8,000 IG-based trials underway for those indications. So we think it will clearly play a role, but it's unlikely to meaningfully cannibalize or compress the ultimate demand, certainly in the near to intermediate term. But we'll watch and we'll update as we learn more. But from this point, we think it was useful to get the adhered data out there. Congratulations for that accomplishment. It's a good thing for patients, but we don't think it's going to have a disruptive effect on our trajectory. Got it. Great.
spk04: And then just a question just for James. So it sounds like certainly the lower SG&A certainly benefit from some time and I know you don't maybe guide on gross margin specifically, but a pretty nice sequential improvement. I know it was down year over year. Should we view this number as a good starting point as we look out for the rest of the year? Any color on that would be great. Thanks again.
spk22: Yeah, I would say it's a fair starting point. a lot of ins and outs as well. It was also affected by the recall that we spoke about. We have the lingering temporary inefficiencies, which I had been previously talking about, but offsetting that, we had some very favorable mix and some improvement in price. So we had a lot of ins and outs, but I think it's a pretty fair representation for the year. Great. Thanks, guys. I appreciate it.
spk09: Thank you. Our next question comes from Dave Turkoli with JMP Securities. Your line is open.
spk13: Hey, good morning, and congrats. Just wanted to follow up on the hemostasis. I think you mentioned price in there. I don't really recall that in the past, but I know you had the 6S device, but is there anything new there? Is there anything coming that we should be looking for And I guess color around the pricing comment would be great. Thank you.
spk03: Hey, Dave. Thanks. With regards to hemostasis management, particularly here in the U.S., we have a robust portfolio of additional indications, additional cartridges to really tap into that broader total addressable market. And so you see some of that benefit coming through. You know, the first quarter was both equipment and disposables, but disproportionately disposables. Clearly, our margins on disposables are more favorable, so that's part of the pricing benefit. And then, you know, we will continue to introduce, and we'll have more to say as the year progresses, new cartridges and new indications to broaden our leadership in that area. That's an area that we enjoy doing. clear leadership market share, and we intend to build and expand upon it. It will help price, but it will also help overall volume, too.
spk14: Thank you.
spk09: Thank you. And there are no other questions in the queue. This does conclude today's conference call. Thank you for participating. You may now disconnect.
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