Haemonetics Corporation

Good day, and thank you for standing by. Welcome to the Q4 2025 Humanitics Corporation Earnings Conference Call. At this time, all participants are on a 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Ola Gayed, Vice President of Investor Relations and Treasury. Please go ahead.

Good morning, and thank you all for joining us for Humanetics' fourth quarter and 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 fourth quarter and fiscal year 2025 results to our investor relations website, along with additional supplemental tables that support some of the assumptions within our fiscal year 2026 guidance included in our earnings release. These supplemental tables help reconcile the projected fiscal year 2026 growth rates of electrophysiology, coronary, and peripheral procedures in the U.S. with the corresponding exercise opportunities for our vascular closure business. The exercise opportunities represent the anticipated growth of the U.S. addressable market industrial closure as incorporated in our hospital and total company revenue guidance for fiscal year 2026. Before we begin, just a quick reminder that all revenue growth rates discussed today are organic, unless specified otherwise, and exclude the impact of currency fluctuation, acquisitions, and impacts of the whole blood divestiture. 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. A full list of excluded items, reconciliations to our GAAP results, and comparisons with the prior year periods are provided in our fourth 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 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 other SSC filings. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn it over to Chris.

Thank you, Olga, and good morning, everyone. We appreciate you joining today. We delivered solid earnings growth in our fourth quarter in fiscal 2025 with robust margin expansion and strong cash flow as evidence of the health and vitality of our businesses. Our industry-leading Nexus, TAG, and VASCA technologies continue to propel our growth in attractive markets, and we are on track to deliver all of the goals of our four-year long-range plan in fiscal 2026. We reported total revenue of 1.4 billion, reflecting 4% growth on a reported basis and 1% organic. However, organic growth excluding 148 million from CSL and the whole blood divestiture was 8%, a more accurate representation of our transformed portfolio. Hospitals become our largest business with both blood management technologies and interventional technology franchises building momentum and delivering double digit growth. Expanded reach and relevance are enabling us to capitalize on key trends and drive deeper penetration in critical areas of care. In plasma, we continue to expand margins and capture share as customers adopt our next generation technologies, further reinforcing our position as the industry leader. Having divested whole blood Our attention is on the remaining high-value blood center plasma apheresis business. The operational agility of our global manufacturing and supply chain network enables us to successfully navigate ongoing macroeconomic headwinds. We've strengthened our leadership team by promoting Roy Galvin to Chief Commercial Officer and hiring Frank Chan as Chief Operating Officer. These appointments underscore our commitment to excellence and building new organizational capabilities to support scalable long-term growth, especially in our hospital businesses. Additionally, we leveraged our strong balance sheet and cash flow to execute $150 million share buyback, repurchasing approximately 2.4 million shares of Humanetics common stock. This buyback reflects our commitment to value creation and our strong conviction in Humanetics' long-term growth trajectory. turning now to our revenue results and fiscal 2026 guidance. Hospital revenue grew 12% in the quarter and 24% in fiscal 2025 on a reported basis, with organic growth of 9% and 12% respectively. In blood management technologies, our largest hospital franchise, revenue grew 6% in the quarter and 10% in fiscal 2025, driven by strong utilization, share gains, and price benefits across the portfolio. Hemostasis management delivered an impressive quarter in fiscal 25, with U.S. revenue growth of 20% and 23%, respectively. Performance was driven by the successful launch and rapid adoption of the HN cartridge, accelerating new account openings and fueling customers' transition from the lab-based TAG 5000 to our advanced point-of-care TAG 6S. The MEA followed closely with strong growth across all key markets, helping offset continued market challenges in China. This franchise also benefited from continued growth in transfusion management, strong capital sales, and competitive market share gains in cell salvage in the U.S. The Interventional Technologies franchise delivered 21% reported growth in the quarter and 46% in fiscal 25. with 12% and 16% organic growth, respectively. Growth in vascular closure was driven by our leadership in electrophysiology, where revenue from Vascade MVP and Vascade MVP XL grew 28% in the fourth quarter and 26% for the year. This performance was fueled by new account openings and increased utilization in the US, along with strong adoption of Vascade MVP in Japan which contributed approximately 900 and 700 basis points to quarterly and full-year EP revenue growth, respectively. Strong EP performance was partially offset by a decline in our legacy Vascaid business, which is primarily used in coronary and peripheral procedures. Vascaid represented less than 15% of vascular closure revenue in fiscal 25 in a market we estimate is growing at approximately 2% annually. We must capitalize on those procedures in the coming year. We are making progress across our sensor-guided technologies portfolio. We recently reorganized our U.S. sales force to allocate undivided attention to the structural heart market. The dedicated team is driving meaningful performance improvements, including steady growth in the new Savvy Wire account openings in the U.S. and nearly double the account penetration rate by year end. While OptiWire growth remains stable, it was partially offset by OEM destocking. We also continue to face pressure from pulse field ablation in our esophageal protection business. Moving to hospital guidance, we remain confident in the strong growth trajectory of our hospital business, with projected reported and organic revenue growth of 8 to 11% in fiscal 2026. This outlook assumes similar growth contributions from interventional technologies and blood management technologies. Within interventional technologies, we expect continued double-digit revenue growth in vascular closure driven by growth in procedures, share gains, and improved utilization. As outlined in the supplemental tables posted this morning, we estimate 8.6% growth in addressable access sites in EP in the U.S., We anticipate additional share gain and improved utilization of our devices across all addressable procedures. Because most key accounts are already penetrated in the US and Japan, growth will be increasingly driven by utilization, with a more modest growth contribution from Japan when compared with fiscal 25. We also expect additional improvements with sensor-guided technologies, helping offset ongoing impacts from pulse field ablation on esophageal protection. In blood management technologies, we expect double-digit growth in hemostasis management, driven by the strong performance of TAG6S, including additional TAG5000 device conversions, new account openings, and increased utilization. Transfusion management is also expected to deliver double-digit growth, partially offset by a tough comparison in CellSaver following the capital replenishment cycle last year. Moving to plasma and blood center, due to the planned CSL transition, plasma revenue declined 9% in the quarter and 6% in fiscal 25. Excluding CSL, plasma revenue grew 11% in the fourth quarter and 5% for fiscal 25, driven primarily by continued strong U.S. growth through technology adoption and share gains. In the U.S., plasma collections X share gains declined 4% in the fourth quarter and 7% sequentially, in line with typical seasonal patterns. In the full fiscal 25, U.S. collections declined 1% as collectors rebalanced inventories and prioritized cost per liter initiatives. With a persona and Express Plus upgrades substantially completed, we've equipped our customers with a significant competitive advantage, boosting donor engagement enhancing center efficiency, and lowering cost per liter. Looking ahead to fiscal 26, with the CSL transition completed, we expect plasma revenue to decline 7% to 10% on a reported basis. Organic growth, XCSL, is expected to be 11% to 14%, disproportionately driven by share gains in the U.S. and internationally and prior technology adoption. Our fiscal 26 revenue growth guidance assumes flat to low single-digit volume growth in the U.S. with a modest rebound in collections anticipated in the second half of the year as customer yield and productivity benefits annualize. We remain confident in the mid to high single-digit annual growth in demand for immunoglobulin. driven by the long-term growth in plasma-derived therapies and supported by increasing global fractionation capacity, historically a reliable predictor of accelerating plasma collection growth. Blood center revenue declined 22% in the quarter and 8% in fiscal 25 on a reported basis due to the whole blood divestiture. Organic revenue was flat in the quarter and down 2% for the year. Apheresis revenue grew 2% both in the quarter and fiscal 25, driven by global plasma share gains and strong U.S. red cell collections. Additionally, following last quarter's award of the exclusive source plasma collection contract from the Japanese Red Cross, we expanded that agreement to also become exclusive provider for fresh frozen plasma. FFP is typically used in transfusions requiring the highest medical standards and this further demonstrates the competitive strength of our technology and our position as a trusted partner. Whole blood contributed just under 2 million in the quarter and 48 million for the year, reflecting an organic decline of 16% in fiscal 25 before its divestiture in January. This divestiture represents an important milestone in our portfolio evolution, enabling us to reallocate resources towards higher growth opportunities. Due to the impacts of the whole blood divestiture and exits of the liquids business, we expect blood center revenue to decline 23 to 26% on a reported basis in fiscal 26. Organic revenue is projected to decline 4 to 6% as we further streamline the portfolio and align investments to support growth elsewhere. James, over to you. Thank you, Chris, and good morning, everyone. As we approach the final year of our current long-range plan, I'm pleased to highlight the significant progress we've made in driving profitability across our portfolio. Our financial results reflect the continued evolution of our business, and we're seeing strong momentum in margin expansion fueled by strategic actions improved operational efficiencies, and a well-executed ongoing portfolio transformation. We concluded the fourth quarter with an adjusted gross margin of 60.2%, representing an increase of 620 basis points compared to the prior year driven by volume growth in hospital and improved and reshaped product mix across our portfolio as we continue to strategically emphasize higher margin products and price benefits, including those tied to technology adoption. Our quarterly results also reflect 150 basis point benefit from the divestiture of the whole blood business and a one-time $10.6 billion shortfall payment from CSL, representing approximately 100 basis points. The adjusted gross margin for fiscal 25 was 57.4%, an increase of 300 basis points compared to the prior year, largely driven by the same factors as in the fourth quarter. We expect these trends to continue into fiscal 26, further expanding our margins. Adjusted operating expenses in the fourth quarter were $116.7 million, a decrease of $4 million or 3% compared with the prior year's fourth quarter, mainly due to lower freight costs and performance-based compensation. Adjusted operating expenses for fiscal 25 were $455.5 million, an increase of $20 million, or 5%, compared with the prior year. For the full fiscal year, 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, partially offset by lower performance-based compensation. As a percentage of revenue, adjusted operating expenses were 35.3% in the fourth quarter and 33.5% in the full fiscal year, relatively flat when compared with the same periods of last year. reflecting our disciplined resource allocation while managing portfolio transitions and investing in innovation and other drivers of sustainable long-term growth. Fourth quarter adjusted operating income grew 27% to $82.3 million for an adjusted operating margin of 24.9%, up 610 basis points from last year. For the full fiscal year, adjusted operating income grew 18% to $326.3 million and adjusted operating margin was 24%, up 290 basis points versus fiscal 24. Key drivers in the quarter and fiscal 25 included continued gross margin expansion, disciplined cost management, and incremental OEP savings that helped offset additional growth investments. Following the successful divestiture of our whole blood business, we are sharpening our focus on the geographies and markets that offer the greatest opportunities for profitable growth and advancing our innovation agenda. Our new regional and market alignment initiative is expected to further strengthen our core business while generating approximately $30 million of net savings over the next two years, helping offset the financial impacts of CSL's transition, the divestiture of the whole blood business, and additional rationalization efforts in the apheresis business. We expect about two-thirds of these savings will be realized in fiscal 26th. The adjusted income tax rate was 22% for the fourth quarter and 23% for fiscal year 25, compared with 21% and 23% for the respective periods of the prior year. Fourth quarter adjusted net income was $61.6 million, up $16 million or 34%. and adjusted earnings per diluted share was $1.24, up 39% compared with the fourth quarter of fiscal 24. Adjusted net income for fiscal year 25 was $231.5 million, up 28 million, or 14%. And adjusted earnings per diluted share was $4.57, up 15%, compared to the prior year. Below the line items, including interest expense, foreign exchange adjustments, taxes, and lower share count, added about 13 cents to the fourth quarter adjusted EPS, but created a 20 cent headwind for the year, mainly due to higher interest expense. Moving to select balance sheet and cash flow highlights. In fiscal 25, we generated $182 million in cash from operating activities, the same as in the prior year, as higher debt income was offset by the timing of certain payments, which were heavily weighted towards the beginning of our fiscal 25, and continuous efforts to rebuild the safety stock of our critical inventories. Free cash flow grew 24% to $145 million, exceeding expectations, with a free cash flow conversion ratio of 63% of adjusted net income, up from 57% last year. This increase reflects strong operating performance, coupled with the additional proceeds from the sale of one of our manufacturing facilities at the start of fiscal 25 and lower CapEx. Strong, consistent cash flow generation remains a key strength at Humanetics, and we continue to prioritize free cash flow as a strategic driver of growth and value creation. We finished our fiscal year with $307 million in cash, an increase of $128 million since the start of the fiscal year. driven by strong operating cash flow and debt transactions partially offset by the acquisition of Attune Medical and $225 million in share buybacks. There were no changes to our debt structure during the quarter, and we had no outstanding borrowings on our revolving credit facility. Our net leverage ratio stood at approximately 2.52 times EBITDA, as defined in our credit agreement, providing significant financial flexibility to support continued growth through a balanced mix of growth investments, share repurchases, and debt repayments. In alignment with our capital allocation priorities and following the successful completion of our $300 million share repurchase program, This morning, we announced that the board of directors has authorized a new program to repurchase up to $500 million of the company's common stock over the next three years. This new authorization reinforces our commitment to maximizing shareholder value and optimizing Humanetics capital structure. Moving to fiscal 26 guidance. We're entering fiscal 26 with strong momentum and a clear line of sight to our long-range plan goals. While reported revenue is expected to decline 3% to 6%, driven by the full-year impact of the whole blood divestiture, CSL's transition, and exits of the liquids business, together representing a $153 million headwind, we remain firmly on track. to deliver against every long-range plan commitment we've made. We expect organic growth, XCSL, of six to nine percent, supported by balanced contributions from our plasma and hospital businesses. Our ongoing transformation is driving meaningful margin expansion as our portfolio shifts toward higher margin, growth-oriented products. we expect adjusted operating margin to improve by two to 300 basis points, reaching 26 to 27% in fiscal 26. This improvement is supported by continued gains in adjusted gross margin, keeping us on track to achieve our long range plan targets in the high 50s to low 60s. As in the prior year, margin expansion is expected to build throughout the year. We anticipate adjusted earnings per diluted share in the range of $4.70 to $5. At the midpoint of our outlook, recent share repurchase activity is expected to offset the impact of increased interest expense. The anticipated increase in interest expense is primarily driven by lower interest income, reflecting a lower interest rate environment and the assumed use of cash to retire the remaining $300 million of our 2026 convertible securities at maturity. As we approach these maturities, we will continue to evaluate the most efficient and value enhancing options for settlement. We anticipate the adjusted tax rate to increase to approximately 24.5% in fiscal 26 compared to 23% in fiscal 25. The tariff environment remains highly dynamic. However, with the majority of our revenue concentrated in the U.S. and coming from high volume growth products like plasma, TEG, and vascular closure, primarily manufactured in the U.S. or U.S. MCA compliant regions, we believe we are in a strong position to manage the near-term risk while taking proactive steps to reduce long-term impacts. We estimate an annualized adjusted EPS impact of up to 20 cents, assuming the most recently announced tariff rates and exemptions that have been put in place for USMCA compliant products manufactured in Mexico or Canada. The midpoint of our fiscal 26 adjusted EPS guidance already reflects this impact, including the benefits from prior actions like inventory builds and supply chain diversifications. With our teams fully engaged, we are well positioned to further reduce tariff exposure beyond fiscal 26 through additional risk mitigation measures. And lastly, with heightened focus on cash flow generation throughout the organization, we expect our free cash flow in fiscal 26 to be in the range of $160 to $200 million. we expect our free cash flow to adjusted debt income conversion ratio to be in excess of 70%, a testament to our improved operational efficiency and strong financial stewardship across the organization. Thank you. And I'll now turn it back to Chris for some closing comments. Thanks, James. I'd like to offer a few reflections, if I might. In fiscal 2022, Excluding CSL, we earned $1.83 in adjusted earnings per share. We issued a new four-year LRP with ambitious targets, including low double-digit compounded annual growth in revenue and mid-20s adjusted EPS compound annual growth rate, excluding CSL. We targeted adjusted operating margin expansion into the high 20s in fiscal 26, and cumulative free cash flow generation of $600 to $700 million. The dialogue at the time was mostly about CSLs and pending transition, the growth of our hospital franchises, and our projected margin expansion. Despite the challenges of the past year, we remain confident in our strategy and our ability to deliver these goals. Nearly 85% of our revenue is now generated by high growth high margin products driving accelerated growth and profitability. At the midpoint of our FY26 guidance range, we expect approximately 1.3 billion in revenue, representing a 10% compound annual growth rate, and about $4.85 in adjusted earnings per diluted share, more than $3 greater than our FY22 results. It's a 28% compound annual growth rate in earnings from a significantly more profitable, diversified, and sustainable portfolio. We have a clear path forward with interventional technologies, having realigned our sales organization and invested in new clinical evidence to drive momentum. TAG 6S continues to propel growth, driving device conversions and increased utilization as we migrate customers to our point-of-care visceral elastic testing system. Technology upgrades and competitive wins in plasma are fueling revenue growth and strengthening our leadership in the US and internationally. Margin expansion is progressing as planned, and we are well positioned to sustain and build upon this momentum. We have a renewed emphasis on free cash flow generation, a strong capital position, and the capacity to fund additional growth. Our near-term priorities are organic growth, debt repayments, and opportunistic buybacks. We are executing effectively, evolving strategically, and creating significant value for customers and shareholders. We are confident that we are positioning the company for continued profitable growth and long-term value creation. Thank you again. Operator, please open the line for questions.