Haemonetics Corporation

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2026 Humanetics Corporation Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message of us and your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Olga Gaiat, Vice President, Investor Relations and Treasury. Please go ahead.

Good morning, and thank you for joining us for Humanetics Third Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO and and James Derecka, our CFO. This morning, we released our third quarter and year-to-date fiscal 2026 results and updated full-year fiscal 2026 guidance. The materials, including our earnings release, forms and queue, and the supplemental earnings presentation, are available on our Investor Relations website and in this morning's press release. Before we begin, I'd like to remind everyone that we will use both reported and organic revenue growth rates that exclude the impact of effects, the divestiture of the whole blood product line, and the exit of certain liquid solution products. Organic Growth Act CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. 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 earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that might cause our results to differ include those referenced in the Safe Harbor Statement in today's release and in our other SSC filings. We do not undertake an 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 for joining us today. We delivered a strong quarter, and we are raising our full-year revenue, earnings, and free cash flow guidance. Nexus and TAG delivered outsized growth driven by sustained share gains, innovation-based pricing, and durable end-market demand, demonstrating the strength and resilience of these core products and our increasingly productive operating model. Third quarter revenue was $339 million, bringing year-to-date revenue to $988 million. Reported revenue reflects the $153 million impact of last year's portfolio transitions. Allowing for these non-recurring items, underlying performance remains strong, with organic growth ex-CSL of 8% in the quarter and 10% year to date. Adjusted earnings per share increased 10% in the quarter and 11% year to date to $1.31 and $3.67 per share respectively, underscoring both the quality and the durability of our earnings. With that context, let's review our businesses in more detail. Hospital revenue was $144 million in the third quarter and $429 million year to date. down 1% in the quarter and up 2% year-to-date organically, as strong performance in blood management technologies offset softness in interventional technologies. Blood management technologies delivered solid growth, up 8% in the quarter and 11% year-to-date, driven by sustained double-digit growth in hemostasis management. Momentum was fueled by TAG6S disposable sales and rapid adoption of a global heparinase neutralization cartridge, which continues to accelerate account conversions and penetration. We have significant runway to upgrade legacy TAG5000 systems, increase TAG6S device sales and utilization, and expand share within current indications. The launch of the HN cartridge in EMEA and Japan further strengthens our global leadership and adds international growth factors to the $400 million plus serviceable market. Growth elsewhere in BMT was modest with transfusion management gains largely offset by a decline in cell salvage driven by a tough comp following last year's customer migration to higher margin technology offerings. Interventional technology revenue declined 12% in the quarter and 8% year to date driven primarily by softness and esophageal cooling amid accelerating PFA adoption and OEM-related headwinds in sensor-guided technologies, which together accounted for most of the year-over-year quarterly decline. Vascular closure revenue declined 4% in the quarter, reflecting a 3% decline in MBP and MBPXL in electrophysiology, and softness in vascade in lower growth coronary and peripheral procedures. Performance in electrophysiology was influenced by prior share loss, order timing in several of our largest accounts in December, and ongoing shifts in the procedural dynamics that temporarily impact the growth of our addressable market. Our confidence in IVT franchise is unchanged. We believe in the clinical and the economic differentiation of our product portfolio, and we are enthusiastic about the anticipated MVP XL label expansion and the US launch of Percocil Elite. The vascular closure sales force is asserting itself and taking targeted actions to strengthen execution. These commercial initiatives are gaining traction, and we expect interventional technologies will return to growth in FY27. Accordingly, we now expect the hospital business to deliver reported and organic growth of approximately 4% at the low end of our prior 4% to 7% range. Moving to plasma and blood center, plasma performance continues to accelerate with another quarter of growth driven by our category leadership and superior innovation. Notably, the franchise has returned to growth with revenue of $139 million, up 3% on a reported basis. despite the last remnants of customer transition headwinds. Organic growth excluding CSL was 20% in the quarter and 22% year to date, with approximately half of quarterly growth driven by share gains and the remainder from collection volume and the full annualization of innovation benefits. Plasma fundamentals remain attractive, underpinned by durable immunoglobulin demand across a broad spectrum of indications. That strength is evident in the market as U.S. plasma collections grew in the low double digits in the third quarter. With approximately 50% global market share and a differentiated, integrated platform, we operate from a position of strength and expect upcoming innovation in FY27 to further advance our competitive advantage. Given year-to-date performance, we are raising our full-year reported revenue guidance to a decline of 2% to 4% from a decline of 4% to 7% previously, and organic revenue guidance, XCSL, to growth of 17% to 19% from 14% to 17% previously. Blood center revenue was $57 million in the quarter and $165 million year-to-date growing 3% in the quarter and 4% year-to-date organically, driven primarily by international plasma demand and market leadership, partially offset by order timing and continued portfolio rationalization. We are raising full-year blood center reported revenue guidance to a decline of 16% to 18% from 17% to 19%, inclusive of the whole blood divestiture, and increasing organic growth to 1% to 3%, from flat as international plasma demand is expected to more than offset ongoing portfolio rationalization. Sustained strength across plasma, blood center, and blood management technologies has improved our total company outlook. Accordingly, we are increasing our full year reported revenue guidance to a decline of 1 to 3% from 1 to 4% previously, reflecting the impact of last year's portfolio transitions the majority of which are now behind us and fully reflected in our year-to-date results. This translates to raising our organic revenue guidance XCSL by 50 basis points at the midpoint to a range of 8% to 10%, up from 7% to 10% previously. Over to you, James. Thank you, Chris, and good morning, everyone. We delivered another quarter of strong financial performance marked by sustained margin expansion and improving cash flow. While we continue to take steps to recapture growth momentum in interventional technologies, our results highlight the benefits of our portfolio transformation, structural improvements supporting profitability, and the multiple performance levers supporting continued progress toward our long-range plan objectives. Adjusted gross margin was 60.2% in the third quarter, and 60.5% year-to-date, representing increases of 250 and 390 basis points, respectively. Similar to the prior quarters, margin expansion was driven by the adoption of Nexus with Persona technology, the vestiture of the whole blood business and blood center, and our expanding share in both plasma and blood management technologies. These same drivers are expected to support similar gross margins for the remainder of the year. Adjusted operating expenses in the third quarter were $115 million, up 3 million or 3%, primarily reflecting adjustments in performance-based compensation due to continued outperformance across the consolidated results. We have also remained deliberate in prioritizing targeted investments in R&D and innovation to support long-term growth. Year-to-date, adjusted operating expenses were $343 million, modestly above $339 million last year, largely due to the same factors impacting the third quarter. Adjusted operating income was flat versus the prior year in the third quarter at $89 million, and adjusted operating margin expanded 60 basis points year over year to 26.3%. In the third quarter, operating margin expansion was driven primarily by the improved margin profile of our plasma and blood center businesses. supported by share gains on Nexus PCS with Persona and the divestiture of the whole blood business. This was partially offset by modest margin pressure in hospital, reflecting continued softness in interventional technologies and the resulting impact on operating leverage. On a year-to-date basis, all segments contributed to adjusted operating margin expansion, despite some volatility in the quarterly segment performance. For the total company, adjusted operating income increased 4% year to date to $254 million, with adjusted operating margin expanding 200 basis points to 25.7%. Based on performance to date and continued margin tailwinds across the portfolio, we continue to expect approximately 26 to 27% in adjusted operating margin for the full year. Updated guidance also includes modest near-term dilution from the VivaSure acquisition as we invest ahead of a planned commercial launch in fiscal 27. The adjusted tax rate was 24.9% for the quarter and 24.8% year to date. We anticipate a slight step up in the adjusted income tax rate in the fourth quarter and expect to finish the year with an adjusted tax rate of approximately 25%. Adjusted net income increased 2% to $61 million in the third quarter and 3% year to date to $175 million. Adjusted EPS rose 10% to $1.31 in the quarter and 11% year-to-date to $3.67, which included benefits from recent share buybacks and FX. In the fourth quarter, we expect interest and tax to be a headwind, reflecting a lower tax rate in the prior year and incremental interest expense related to the repayment of $300 million of zero coupon convertible notes. We now expect our adjusted EPS for fiscal 26 to be in the range of $4.90 to $5 a share, which reflects our strong performance to date, coupled with the acquisition of VivaSure. Turning to cash flow and the balance sheet, Cash generation has reemerged as a defining strength of Hamanetics and a core source of strategic flexibility. With our major device build-out complete and a series of company-wide productivity initiatives now largely behind us, the business has returned to the robust cash flow profile that it's historically been known for. In the third quarter, we generated $74 million of free cash flow bringing year-to-date free cash flow to $165 million, driven by $94 million of operating cash flow in the quarter and $222 million year-to-date. This represents more than a three-fold increase versus the prior year period, reflecting both the normalization of capital intensity and continued discipline in working capital management. Free cash flow conversion reached 121% of adjusted net income in the third quarter and 95% year to date, reinforcing our ability to convert earnings into cash. As a result, we are raising our fiscal year 26 free cash flow guidance to $200 to $220 million from $170 million to $210 million previously. and now expect full-year free cash flow conversion to exceed 80%, positioning us with significant flexibility to deploy capital in a balanced fashion. Cash on hand at the end of the third quarter was up 18% to $363 million since the start of this fiscal year, despite deploying $75 million towards share repurchases earlier in the year and making additional strategic investments. Subsequent to quarter end, we also invested $61 million to acquire Vivashore, further strengthening our interventional technologies portfolio and repurchased approximately 360,000 shares of Hamanetic stock for $25 million. Our capital structure remained unchanged at the end of the third quarter, with total debt of approximately $1.2 billion and no borrowings under our $750 million revolving credit facility with a net leverage ratio as defined in our credit agreement at 2.37 times EBITDA. Back to you, Chris, for closing comments. Thanks, James. Before we open the line for questions, I want to share a few summary thoughts. We are executing with discipline. delivering solid revenue performance, expanding margins, growing earnings, and generating strong cash flow while advancing our strategic priorities and transforming our operating model. Year-to-date, our results are anchored by strong execution across two of our three growth engines, plasma and our hospital-based blood management technologies. These businesses are delivering consistent sales growth, continued share gains and increasing profitability. That strength provides both stability and flexibility as we take targeted actions to strengthen the interventional technologies franchise. We remain firmly committed to returning this franchise to sustainable growth in fiscal 2027. The actions required to restore growth momentum are fully funded and largely within our control. As comparisons improve, and our commercial organization rallies, the targeted actions underway will translate into stronger results, supported by the anticipated MVP XL label expansion and the US launch of Percocel Elite. We expect this business to drive growth and operating leverage while strengthening its competitive advantage. Looking beyond revenue, our portfolio transformation continues to deliver meaningful results across the P&L. Since the start of this transformation, nearly four years ago now, we have expanded adjusted operating margins by 770 basis points, including 200 basis points year to date, enabling earnings growth despite the non-recurring plasma and divested blood center revenue. This earnings leverage reflects a structurally improved business model and it is both durable and scalable, positioning us to continue generating earnings growth ahead of revenue well into the future. Lastly, our strong and consistent free cash flow conversion supports a resilient balance sheet and long-term value creation. Our capital allocation priorities remain unchanged, investing in organic growth, meeting upcoming debt obligations, and opportunistically returning cash to shareholders while preserving balance sheet flexibility.