Haemonetics Corporation

Good day and welcome to the Humanetics third quarter fiscal year 2025 conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Olga Gayet, Vice President of Investor Relations and Treasury. Please go ahead.

Good morning, everyone. Thank you for joining us for Humanetics' third quarter fiscal year 2025 conference call and webcast. I'm joined today by Chris Simon, our CEO, and James Durecka, our CFO. This morning, we posted our third quarter and year-to-date fiscal year 2025 results to our Investor Relations website, along with our updated fiscal year 2025 guidance. As usual, a quick reminder that all revenue growth rates discussed today are organic and unless specified otherwise, and exclude the impact of currency fluctuation, acquisitions, and divestitures. 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 third quarter fiscal year 2025 earnings release available on our website. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause our results to differ include those referenced in the Safe Harbor Statement in today's earnings release and in our usual SEC filings. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn it over to Chris.

Thanks, Olga. Good morning, and thank you all for joining. Today, we reported third quarter revenue of $349 million, growth of 4% on a reported basis and flat organically. Third quarter adjusted earnings per share were up 14% at $1.19. Our third quarter results reflect the positive effects of our long range plan with another quarter of meaningful earnings growth and margin expansion. In hospital, we continue to strengthen our ability to compete in attractive high growth markets with differentiated enabling technology. In plasma, we are gaining share both in the US and globally by providing customers with best in class solutions for safely lowering costs per liter. The divestiture of our whole blood business helps align our resources to higher margin, higher growth opportunities. We are achieving significant milestones in the evolution of our business, driving improved profitability and growth momentum as we navigate external market challenges, including the temporary pullback in plasma collections, difficult market conditions in China, and rapidly evolving trends in electrophysiology. We are increasingly confident in the foundation we are building for outsized transformational growth, with all parts of our company contributing to sustainable and profitable long-term success. Turning to our business unit results, starting with what is now our largest business, hospital. Revenue grew 24% on a reported basis in the third quarter and 28% year to date with organic growth of 12% and 14% respectively. In blood management technologies, our largest hospital franchise, Revenue grew 10% in the quarter and 11% year-to-date, driven by sustained market growth, share gains, and price benefits across the portfolio. Hemostasis management had another impressive quarter with 26% revenue growth in the U.S. after growing 35% last quarter. Growth was driven by improvement in device utilization, and a growing install base of our TAG 6S devices in the US with new and existing customers following the launch of our global hemostasis heparinase neutralization assay cartridge. EMEA followed closely with strong growth across all key countries helping offset continued market challenges in China. Transfusion management achieved double digit growth both in the quarter and year to date driven by new account openings in North America and EMEA, as well as ongoing customer upgrades to the latest version of SafeTrace TX. Self-salvage growth was driven by competitive wins in capital sales as we migrate customers to a higher margin product offering with enhanced features and utility to clinicians. Interventional technologies grew 47% in the third quarter and 58% year-to-date on a reported basis, with 16% organic growth in the third quarter and 18% growth year to date. Growth in vascular closure was driven by our leadership in electrophysiology, where revenue from VASCADE MVP and VASCADE MVP XL grew in the mid-20s, both in the quarter and year to date. We made additional progress in acquiring new accounts and enhancing utilization within existing accounts, including accounts utilizing pulse field ablation technology. BASCADE MVP XL is a game changer, allowing us to capitalize on emerging catheter-based ablation technologies and expand our share in LAAC procedures. With the EP market opportunity remaining only halfway penetrated, we are confident we will continue to gain share. Continued competition in coronary and peripheral procedures lowered our growth in small bore arterial closure and weighed on our overall VC growth rate. This is a mature market with low single-digit growth. It contributes less than 15% of our VC revenue, and we are now taking steps to improve our performance and drive more favorable results. Revenue from sensor-guided technologies and esophageal cooling contributed 12% to hospital-reported revenue in the quarter, and 15% year to date. While we're making progress in these markets, we acknowledge that we are falling short of our own ambitious targets owing in part to external market disruptions. We remain confident in the potential of these products and we are committed to realizing their commercial and financial benefits. We see significant market opportunities and expect robust growth in this business driven by our leadership in EP with MVP and MVP Excel and continued momentum with TAG 6S. However, we need to further strengthen our commercial and clinical capabilities to establish our leadership across the newly acquired products. Accordingly, we are updating our hospital revenue guidance to a new range of 24 to 26% on a reported basis and 12 to 14% on an organic basis. Moving to plasma and blood center. Due to the planned CSL transition, plasma revenue declined 9% in the quarter and 5% year-to-date, with North America disposables revenue down 11% in the quarter and 6% year-to-date. Excluding CSL, U.S. disposables revenue grew in the quarter, driven by premium pricing from technology upgrades, share gains, and collections growth. After a slight decline in Q2, U.S. collections volumes, excluding CSL and share gains, grew low single digits for the third quarter and 4% sequentially, in line with historical seasonality as our customers focus on reducing cost per liter and benefit from increased center efficiency and 9% to 12% higher plasma yield as they transition to our latest technologies. Revenue growth in Europe was in the double digits driven by both share gains and robust collections environment. It is important to note that the CSL transition is for U.S. disposables and equipment. We continue to supply all of CSL's DMS software in the U.S. and all of their equipment and disposables in Europe. We are excited to announce that we have signed new long-term agreements with BioLife and with Griffles reinforcing our continued close partnership and highlighting our ability to bring innovation to plasma collections. Both agreements are centered around gaining market share through adoption of our winning technology, both in the U.S. and globally, and collaborating on innovation over the coming years. We made meaningful progress transitioning both customers to Persona and Express Plus in the third quarter. Our technologies offer unmatched opportunities for cost reduction throughout the Plasma Collection Center while maintaining the highest standards of donor safety. With over 90 million collections on Nexus PCS, 40 million on Persona, and now over a million on Express Plus, we are establishing real-world evidence that sets us apart from our competition. Our innovation is transforming the EBITDA profile of our collections business. making it significantly more profitable and well-positioned to contribute to ongoing company-wide margin expansion. We remain confident in the long-term sustainable revenue and earnings growth contribution from our plasma business. End market demand for plasma-derived therapies is strong, and we see high single-digit compound annual growth in fractionation capacity through 2032. As customer yield benefits annualize and productivity takes effect, we expect collection volumes to fully recover. We are well positioned to outperform the growth of the plasma collections market by gaining share and expanding margins through innovation that helps customers safely reduce costs and improve donor satisfaction. We are updating our organic plasma revenue guidance to a 5% to 7% decline, inclusive of approximately $100 million from CSL US disposables. Blood center revenue declined 3% in the third quarter and 2% year to date, primarily due to the whole blood portfolio rationalization. Apheresis revenue grew 5% in the quarter and 3% year to date, driven by global plasma share gains and strong US red cell collections, partially offset by fewer capital sales. International demand for source plasma is expanding. Following an in-depth head-to-head competitive evaluation in our third quarter, we were selected as the exclusive supplier of plasma collection solutions to our largest customer outside the US, the Japanese Red Cross. This competitive win underscores the competitive strength of our Nexus PCS technology offering. Combined with the divestiture of the whole blood business, this positions us to meaningfully improve long-term revenue and margin growth for this business. Accounting for the impact of the whole blood divestiture in our fourth quarter, we are updating our reported revenue guidance to a decline of seven to 9% while reducing organic decline to two to 4%. Before I hand over the call to James, I'd like to offer a few additional remarks. While we revised our revenue guidance to three to 5% growth on a reported basis and flat to 3% organic, we remain confident in the steps we are taking to ensure sustainable long-term growth at attractive margins. Our record third quarter margins demonstrate that our strategy is working and we expect further margin expansion over the remainder of our long range plan. This year has presented significant external challenges. but we take pride in how we've responded. We don't control external market disruptions. However, we've consistently found ways to adapt and drive progress. As plasma collection slowed, we accelerated technology adoption and gained market share. We launched new assays and bolstered our performance with TAG6S to mitigate shortfalls in China. In vascular closure, we introduced Fascade MVP XL to help enable emerging ablation trends enhancing both our product relevance and commercial capabilities. Throughout, we've remained focused on innovation, ensuring strong results and long-term success. We are confident in our ability to drive profitable growth and value creation, and we're excited about the opportunities ahead as we execute our vision in FY26 and beyond. Now, over to you, James. Thank you, Chris, and good morning, everyone. Chris has already discussed our business units, and company revenue, so now I'll discuss the rest of our financial results and updates to fiscal 2025 guidance. In the third quarter, our adjusted gross margin was 57.7 percent, an increase of 240 basis points compared to the prior year, driven by favorable volume growth in hospital, improving portfolio mix, and pricing across all business units, partially offset by a 30 basis point impact from foreign exchange. Year to date, our adjusted gross margin was 56.6 percent, reflecting a 210 basis point improvement year over year, with the same growth drivers as in the quarter, but a slightly higher impact from FX at approximately 70 basis points. Our portfolio transformation is delivering the expected impact on our margins. We anticipate continued improvement for the remainder of this fiscal year and beyond, supported by momentum in the hospital business, improving profitability of our plasma business, and the divestiture of the previously margin-dilutive whole blood franchise. Adjusted operating expenses in the third quarter were $111.5 million, an increase of $1.2 million or 1 percent compared with the third quarter of the prior year. As a percentage of revenue, adjusted operating expenses were at 32 percent, down 150 basis points when compared with the same period last year, as additional growth investments were more than offset by increasing operating leverage and lower performance-based compensation. Adjusted operating expenses year-to-date were $338.7 million, an increase of $23.9 million, or 8% compared with the prior year, and 32.9% of revenue. The dollar increase in adjusted operating expenses was primarily due to the acquisitions of Offsense and Attune Medical, as well as additional investments to support growth. As a percentage of revenue, adjusted operating expenses remained relatively flat compared to the same period last year. Adjusted operating income for the third quarter was $89.4 million, a $16.1 million increase, or 25.7 percent of revenue, a new company record. This reflects 150 basis point sequential expansion from the prior quarter, and a 390 basis point increase year-over-year, including a 40 basis point impact from FX. Year-to-date adjusted operating income was $244 million, up $32 million, or 23.7 percent of revenue, an increase of 180 basis points compared to the same period last year. Key drivers included a higher margin portfolio increased leverage as we scale and accelerate growth and lower performance-based compensation. We are confident in our ability to deliver continued margin expansion, and we are updating our fiscal 25 adjusted operating margin guidance to the high end of our previous range at approximately 24%. With stronger margins anticipated in the fourth quarter, this sets the foundation for ongoing margin growth into fiscal 26 as we work toward achieving our target of high 20s adjusted operating margins outlined at our 2022 investor day. The adjusted income tax rates were 25 percent in the third quarter and 24 percent year-to-date, compared with 25 percent and 23 percent in the corresponding periods last year. we anticipate our full-year adjusted income tax rate to be approximately 23 percent. Third quarter fiscal 25 adjusted net income was $60.3 million, up $7 million, or 13 percent, and adjusted earnings per diluted share was $1.19, up 14 percent when compared with the same period of fiscal 24. Year-to-date adjusted net income was $169.9 million, up $12.3 million, or 8%, and adjusted earnings for diluted share was $3.32, up 8% when compared with the same period in fiscal 24. The combination of the adjusted income tax rate, interest expense, net of interest income, changes in the share count, and FX, had a 13-cent unfavorable impact in the third quarter and a 33-cent unfavorable impact year-to-date when compared with the prior year. Despite some changes to our revenue guidance, we anticipate strong earnings performance to continue as we tighten our adjusted EPS guidance range to $4.50 to $4.70. Before discussing the balance sheet, I'd like to provide additional context on the recent sale of our Whole Blood franchise. This strategic divestiture helps us better align our portfolio with our focus on winning markets, leading positions, and strong financial performance, and we expect it to positively impact revenue growth and margin expansion while enabling our teams to fully focus on high growth opportunities in line with our long-term vision. We believe GVS is a natural owner of this business, and we look forward to collaborating with them throughout the transition and beyond. Our guidance includes approximately $49 million in revenue from whole blood, reflecting a 32% decline compared to the prior year on a reported basis, with no impact on adjusted EPS as we expect to fully offset the impact of this divestiture with additional planned savings in fiscal 25 and fiscal 26. Moving to balance sheet and cash flow. In the first nine months of fiscal 25, we recorded cash provided by operating activities of $65.2 million. down from $117.7 million in the same period last year, and free cash flow of $49.7 million compared with $62.3 million in the same period of fiscal 24. This decline was driven by an increase in working capital, largely due to higher inventory levels, digital transformation costs, and the timing of certain payments that occurred in our fiscal first quarter. Despite lower cash flow year-to-date, we expect to finish fiscal 25 with strong free cash flow, and we have updated our guidance to a new range of $120 million to $140 million. Cash on hand at the end of the quarter was $320.8 million. up $142 million since the beginning of this fiscal year, primarily due to our recently completed debt transactions and partially offset by our acquisition of Attune Medical and Share Buybacks. There were no changes to our debt structure in the quarter and no outstanding borrowings on the revolving credit facility, resulting in a net leverage ratio of approximately 2.42 times EBITDA, as defined by our credit agreement. In closing, I'd like to reiterate that we are in a stronger portfolio position than ever, with every business contributing toward margin expansion and accelerating revenue growth in years to come. In fact, all three of our business units are expected to exit fiscal 25 at improved margins, with further opportunities for growth ahead. The underlying markets are strong, and we expect growth in U.S. plasma collections to fully recover to a historical average growth rate in the high single digits. In vascular closure, we expect PFA to have a net positive impact on our business as growth in the treatment of atrial fibrillation procedures more than offset any changes in the number of access points. We are winning with our technology. including leading in head-to-head competition in plasma, accelerating our success in vascular closure with MVP and MVP Excel, and changing the standard of care in viscoelastic testing with our point-of-care system, TEG6S. And finally, with an existing capacity of nearly $1 billion and a strong balance sheet, we will remain opportunistic in capital allocation focusing on value creation, including organic growth, synergistic tuck-ins, and share repurchases. M&A is key to our long-term success, and we are committed to capitalizing on the benefits of newly acquired products and future strategic tuck-ins in our pipeline. We are excited about the future and remain focused on delivering long-term value for our shareholders. Thank you. And we are now ready to open the call for Q&A.