Good day, ladies and gentlemen, and welcome to the Haemonetics Fourth Quarter and Fiscal Year 2020 Conference Call and Webcast. At this time, all participants lines are in a listen-only mode. After the speakers’ presentation, there will be question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Olga Guyette. Ma'am, you may begin..

Thank you. Good morning, everyone. Thank you for joining us for Haemonetics' fourth quarter and fiscal year 2020 conference call and webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO.

This morning, we posted our fourth quarter and fiscal year 2020 results to our Investor Relations website, including the analytical tables with the information that we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows as well as reconciliations of our GAAP to non-GAAP financial results.

Before we get started, unless noted otherwise, all revenue growth rates discussed today are on an organic basis and exclude impacts from currency, product and the slide decisions, strategic assets of our plasma liquid solutions business and divestitures.

As in the past, we'll refer to non-GAAP financial measures throughout this call to help investors understand Haemonetics ongoing business performance. Please note that these measures exclude certain charges and income items.

Please refer to this morning's earnings release for details and excluded items, including comparisons with the same periods of fiscal year 2019 and a reconciliation to our GAAP results. Our remarks today include forward-looking statements and our actual results may differ materially from the anticipated results.

Haemonetics cautions that these forward-looking statements are subject to risks and uncertainties, including the potential impacts from the COVID-19 pandemic on our results and other factors referenced in the safe harbor statement in our earnings release and in our filings with the SEC.

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, and good morning. Our thoughts are with those around the world affected by the coronavirus outbreak, which is, first and foremost, a human tragedy. We know the pandemic is top of mind.

I want to begin by thanking our 3,000 employees worldwide, who have risen to the challenge of battling this virus, especially our manufacturing, supply chain, customer service and technical support teams on the front-lines, they've worked tirelessly to support our customers. Three broad objectives guide our response to the crisis.

Our first priority is business continuity and employee health and safety. All of our plants and distribution centers are open and operational with enhanced safety protocols, and we are committed to high service levels as our teams drive supply chain resilience.

With a few exceptions, the vast majority of our products continue to be shipped on time, and we have ample inventory to meet our commitments. Our second priority is preserving cash. We are making pragmatic decisions around contingencies and expense controls for what could be a protracted recovery.

Our strong balance sheet allows us to fund important programs. Our third priority is driving growth with a through-cycle mindset. We are building critical capabilities and looking for new opportunities.

Last month, we welcomed Anila Lingamneni as Chief Technology Officer to lead our innovation agenda, and we added Mike Coyle to our Board, a proven executive with extensive global medtech expertise.

The operational excellence program remains essential to our turnaround and progress to-date has equipped our manufacturing and supply teams to overcome the challenges of the pandemic. These objectives guide are planning across three time horizons. In the immediate situation, we are focused on continuity.

We created an integrated nerve center to manage day-to-day and make targeted interventions. We are prioritizing employee safety with remote work and travel restrictions, and limiting exposure for manufacturing and field service teams.

We've taken steps to provide supply chain continuity by optimizing production, distribution and logistics with increased emphasis on inventory planning and supplier engagement, all to ensure supply and services for our health care customers. Our technology is being used to fight the virus head-on.

The BUs use have launched segment and geography-specific initiatives in response to the crisis, and we are leveraging digital channels for training and implementation to shrink the distance between us and our customers during lockdown.

The company is also supporting frontline health workers, first responders and families through philanthropic donations. Our product segments are shifting to recovery. With markets in Asia and parts of North America and Europe reopening, but recovery could be protracted and disrupted with resurgences and lockdowns.

We are scenario planning to identify milestones and market indicators to procedures and collections in our product segments and geographies. Demand for our products is highly resilient. But may fluctuate as the situation evolves. In the new normal, there will be opportunity for strong players. Our value drivers are enduring and will enable us to thrive.

We are exploring potential risk and opportunities from reforms and market restructuring to understand how our customers, health care and society will change. Our robust product portfolio and strong financial health position us to adapt to the changing market conditions, drive results, complete our turnaround and accelerate transformational growth.

Today, we reported organic revenue growth of 0.7% in the fourth quarter and 6.3% for fiscal 2020. Adjusted earnings per share were up 13% in the quarter and 38% for the year. COVID-19 had a limited effect on our fiscal 20 performance, up to two months in China and parts of Asia and two weeks elsewhere, including the U.S. and Europe.

The positive finish to fiscal 2020 is evidence that the steps we have taken over the past four years have strengthened Haemonetics to improve our trajectory. Turning now to our business units. Plasma revenue grew 11.7% in the quarter and 13.8% in fiscal 2020, roughly the midpoint of our 13% to 15% guidance.

North America accounts for 93% of plasma revenue and grew 12.5% in the quarter and 14.4% in fiscal 2020 on favorable volume and price. Collection volume increased in line with our expectation of high single-digit growth in the second half.

COVID-19 impact was limited to disposable sales in the final two weeks of the quarter in North America and Europe. Our liquids solution sales were impacted by customers transitioning to alternative sources of supply and is excluded from organic revenue results given our decision to exit the business.

Software revenue was flat in the quarter, but helped our full year growth rate by 100 basis points due to next linked conversions and contract amendments in previous quarters. Nearly 10 million YES collections have yielded 230,000 incremental leaders of plasma.

The value proposition of increased plasma yield, center efficiency, donor safety and satisfaction is proven and more relevant than ever as customers seek productivity and enhanced safety.

Our customers want to increase collections to keep pace with global demand for plasma-derived products, and we are confident in the projected 8% to 10% long-term growth rate. During the COVID-19 lockdown in April, our collections were 25% to 30% below prior year.

Stay at home orders and donor safety concerns, combined with reduced donor collection capacity due to shutdowns and social distancing requirements, the closing of college campuses, restricted border travel and less availability of public transportation impeded collections. Our customers are responding.

We are now in what we expect will be a protracted recovery period. The recovery will be characterized by ongoing improvement in the factors that impacted our April results, including recessionary pressures that have historically contributed to greater donor availability.

Post recovery, the new normal will be different, and we look forward to being able to help our customers accelerate their collections to replenish depleted plasma inventories. Moving to Hospital, revenue was up 0.3% in the quarter and 7.5% in fiscal 2020, below our guidance range of 11% to 13%.

After strong sequential performance throughout the year, growth was impacted in the fourth quarter by COVID-19-related declines in procedures, restricted access for sales teams and reallocation of funds to critical ICU needs within hospitals.

The impact was felt mostly in China where revenue declined by approximately 50% in the quarter due to the effects of the outbreak beginning in early February. The COVID-19 impact in our western markets occurred later in the quarter and therefore, is not as pronounced.

Excluding the estimated impact of COVID-19, hospital delivered strong growth driven by new product launches and strong sales execution that was in line with our expectations for the year. Hemostasis management revenue was up 2.8% in the quarter and 13.5% in fiscal 2020, below our guidance range of 16% due to COVID-19 impacts.

North America, the biggest market for hemostasis management grew 20% in the quarter, and we are very encouraged by the contribution from our launches and the overall demand for viscoelastic testing. We will continue to invest in this business to drive expanded use in different hospital and outpatient settings.

In April, we acquired enicor and their ClotPro technology to strengthen our offering across lab-based and site-of-care testing. ClotPro has more assays than any other viscoelastic device on the market and a proprietary active tip technology that eliminates reagent handling to reduce the potential for error.

It is currently available in select European and Asia Pacific markets, and we believe ClotPro will strengthen our leadership in markets we serve. Cell salvage and transfusion management were down 1.8% in the quarter and up 2.4% for the year.

Transfusion management demonstrated strong performance with mid-teens growth in both the quarter and the year on strong growth from both BloodTrack and SafeTrace Tx, including a record quarter for bookings in North America. Relative to our other product lines, the COVID impact was smaller as we currently don't offer these products in China.

We continue to be encouraged by customer enthusiasm and the market opportunity for our next-generation software. Cell salvage continued to be challenged throughout the year. The business was down by double digits in the quarter, mostly due to COVID-19-related declines in elective procedures and reduced capital sales in China.

The COVID impact compounded ongoing competitive challenges and an unfavorable capital cycle for the business, leading to single-digit decline for fiscal 2020. Regarding the effect of COVID-19 in April, across the three hospital product lines, we saw a range of 10% to 30% revenue decline.

There was a difference between disposables, capital and the different geographies, which make it difficult to extrapolate these figures to any one pattern. Cell Saver is more subject to procedure declines, whereas TEG shortfalls as a result of procedure declines have been partially offset by utilization in critical care diagnostic procedures.

We believe both TEG and Cell Saver disposable volume will track to the recovery of elective procedures. In addition, capital equipment is subject to purchasing cycles, but we have seen early demand for TEG in the West, and we are seeing some recovery for Cell Saver in Asia.

Transfusion management has a more consistent revenue stream, but the sales and installation process is more difficult to do without access to the hospitals. Despite these temporary challenges, we view the TEG business as a growth engine for Haemonetics long-term and have robust plans to expand our presence.

We believe the COVID-19 impact will continue to be fluid as we work through recovery. But the end market for our hospital portfolio is inherently strong and will normalize as hospitals address the backlog of elective procedures, coupled with return of nonelective procedures to pre-COVID levels.

We are assisting researchers in the investigation of COVID-19 associated coagulopathy and its thrombotic complications. BloodTrack software is deployed in several remote hospital sites to ensure blood products are distributed safely.

While in the U.S., SafeTrace Tx is used to manage convalescent plasma as an inventory item in addition to its core use to manage blood bank inventory. Blood center was down 10% in the quarter and 3% in fiscal 2020, above our guidance range of negative 4% to 6%.

We have a strong presence in Asia and Europe, where the net impact on our fourth quarter results from the coronavirus outbreak was minimal. After initial disruption in a handful of highly impacted areas, we experienced a rapid spike in demand as blood collectors sought to replenish their blood product inventories and safety stocks.

Apheresis revenue was down 8% in the quarter, primarily due to unfavorable order timing and competitive losses we called out last quarter. We expect this business loss to result in a $17 million revenue headwind in fiscal 2021.

Japan experienced another quarter of growth due to strong sales of our plasma products as we increased and maintained share due to technological issues with a competitor device, partially offset by continuous shift towards double dose platelet collections.

Fiscal 2020 apheresis revenue was flat as strength in Japan partially offset some weaknesses caused by order timing and customer transition. Whole blood revenue was down 12% in the quarter on unfavorable order timing among our distributors.

The 6% decline in fiscal 2020 includes previously discontinued customer contracts and ongoing declines in blood utilization rates. Software revenue was down double digits in the quarter and fiscal 20, primarily due to previously discontinued customer contracts.

In response to the pandemic, we are engaging with blood center customers in more than 20 countries to help them collect convalescent plasma to treat COVID-19.

While this is unlikely to be a significant commercial opportunity for us, given the limited pool of donors and a tight window for recovered donor eligibility, we will continue to prioritize these efforts as our MCS plus and PCS devices are the standard for plasma apheresis.

As the year progresses, we could experience a greater overall impact on blood center revenue caused by imbalances in the supply and demand for blood products. However, we expect the demand for blood will normalize to procedure volume. Blood centers will continue to be challenged on price and utilization rates.

However, our customer-focused innovation, SKU rationalization and the early successes of our operational excellence program support our aspiration of stable operating income contribution from this business. I'll now turn the call over to Bill..

Thanks, Chris, and good morning, everyone. I will begin this morning by briefly discussing our fourth quarter and fiscal 2020 results. Then I will focus on the strength of our balance sheet, our capital allocation priorities and the financial actions we are taking.

Chris has already discussed revenue, so I'll start with adjusted gross margin, which was 50.3% in the fourth quarter and 51.6% in fiscal 2020, an improvement of 320 and 410 basis points, respectively, compared with the prior year.

Consistent with the first nine months of fiscal 2020, the main drivers of this expansion were productivity savings from the complexity reduction initiative and the operational excellence program, product mix and pricing. Adjusted operating expenses in the fourth quarter were $72.7 million, a decrease of $2 million or 3% compared with the prior year.

Adjusted operating expenses for fiscal 2020 were $292.8 million, essentially flat when compared with the prior year and as a percentage of revenue were 29.6%, a decrease of 80 basis points. We continue to realize productivity savings and had lower research and development costs for the fiscal 2020 as we completed some of our clinical trials for TEG.

These lower costs were partially offset by additional investments in sales and marketing, mainly in our hospital business. Fourth quarter adjusted operating income of $47.3 million increased $4.5 million or 11% compared with the prior year. And for fiscal 2020 was $218 million, an increase of $53 million or 32%.

Adjusted operating margins were 19.8% in the fourth quarter and 22% for fiscal 2020, an expansion of 270 and 490 basis points, respectively, compared with the same periods in fiscal 2019 and in line with our guidance for the year.

Our adjusted income tax rate was 18% in the fourth quarter and 15% in fiscal 2020, compared with 22% and 18% in the same period of fiscal 2019. The lower adjusted tax rate in fiscal 2020 was due to the benefit of higher share vestings and option exercises, primarily in the first half of the fiscal year.

Our fourth quarter adjusted earnings per diluted share was $0.69 compared with $0.61 in the prior year, an increase of $0.08 or 13%. Given the timing of the COVID-19 pandemic and its progression during the fourth quarter, we experienced a limited financial impact.

Lower hospital revenue and the cost of direct actions we took to protect our customer-facing employees and those employees in our manufacturing and distribution facilities were partially offset by savings in travel and other operating expenses.

We estimate that the net impact of COVID-19 in the fourth quarter was approximately $0.06 on our adjusted earnings per diluted share, including a 70 basis point and 120 basis point impact on our adjusted gross and operating margins, respectively.

Adjusted earnings per diluted share in fiscal 2020 was $3.31 and was within our guidance range of $3.30 to $3.40. When compared with fiscal 19, our adjusted earnings per diluted share increased by $0.92 or 38%. Before I move on, I want to point out that our Complexity Reduction Initiative has been successfully completed.

As a reminder, this program was an important step in our turnaround and has contributed meaningfully to the expansion of our margins and created a more agile, performance-driven culture.

Any additional productivity savings going forward will be achieved by executing on our operational excellence program, which will continue to be primarily, but not exclusively, focused on cost of goods sold.

Free cash flow before restructuring and turnaround costs was $139 million in fiscal 2020 compared with $71 million in fiscal 2019, well within our guidance range of $125 million to $150 million.

The higher free cash flow in fiscal 2020 is a result of lower capital expenditures related to the plasma capacity expansion in the prior year, partially offset by a higher use of working capital in fiscal 2020.

The working capital cash outflow in fiscal 2020 was $85 million and was primarily related to an increase in inventory, which included continued manufacturing of NexSys devices and a build in our disposable safety stock. We have a strong balance sheet and our cash on hand at fiscal year-end was $137 million.

We have an existing credit facility of $700 million that does not mature until the first quarter of fiscal 2024. Total debt outstanding under the facility at the end of fiscal 2020 was $384 million, split between our remaining term loan balance of $324 million and borrowings under our revolving credit line of $60 million.

The majority of the principal payments are weighted towards the end of the term. In April, we drew down an additional $150 million on the revolving credit line, which bolstered our existing cash on hand to nearly $300 million. After this drawdown, we have an additional $140 million remaining on our revolving credit line.

Our EBITDA leverage ratio remains low even after the drawdown. Our capital allocation priorities are clear and remain unchanged. We will continue to invest in our business with a bias towards organic growth and innovation that will continue to expand our commercial capabilities and will remain opportunistic with M&A and share repurchases.

While our commitment to our shareholders will continue to be an important element of our capital allocation strategy in fiscal 2021, our priority will be focused on providing the appropriate levels of funding across our organization and ensuring we are well equipped to address any challenges that may arise over the course of this pandemic.

In fiscal 2020, we repurchased a total of $175 million of our shares, and we now have $325 million remaining on our current share repurchase authorization of up to $500 million. At this time, we do not foresee repurchasing shares in the first half of fiscal 2021, and we will continue to be disciplined in our approach to ensure adequate cash on hand.

Over the last three years, we have repurchased nearly 4.5 million shares, which is about 9% of our total shares outstanding. We are pleased with our financial health and our fiscal 2020 results.

However, due to the continued uncertainty caused by COVID-19, including its duration and the potential impacts on our business, we are not providing our fiscal 2021 guidance today.

Also, we are not reaffirming our previous comments on our fiscal 2021 aspiration of doubling fiscal 2016 adjusted operating income and quadrupling fiscal 2016 free cash flow before restructuring and turnaround costs. We will continue to provide additional updates as needed, and we intend to issue our fiscal 2021 guidance later in the year.

We are focused on preserving cash and have implemented a number of actions on our expenses to help protect cash flow and allocate capital. Some of these actions are focused on operating expenses and include restricting travel, reducing nonessential spending and delaying some compensation-related items.

Other actions include inventory management and reviewing capital projects and the associated costs. We remain committed to our growth objectives and have not changed our investment thesis related to our innovation agenda.

While the current environment remains uncertain, we are prudently planning for a variety of different financial scenarios related to the pandemic.

We are deeply engaged in the scenario modeling that evaluates different business impacts based on the speed of the recovery and we are prepared to implement additional measures or change the course of action on those initiated, if needed.

We are confident that our disciplined and thoughtful approach to financial decisions and capital allocation priorities coupled with our strong liquidity and balance sheet, will enable us to emerge from the current environment as a stronger company. In summary, I would like to conclude with some closing thoughts.

Our strong fourth quarter and fiscal 2020 results are evidence that our strategy is working, and we are on track to complete the turnaround this year. The fourth quarter impact of COVID-19 was minimal. However, the first quarter impact will be meaningful, but it is difficult to quantify to the uncertain nature and timing of the recovery.

Our pandemic response has been a sector and guided by business continuity, employee safety, cash preservation and a through-cycle mindset. We are scenario planning for what we believe will be a protracted recovery and intend to issue guidance later this year.

We are well positioned to adapt to changing market conditions to drive results, to complete the turnaround and to accelerate growth. Our value drivers are enduring and position us well for a new normal with renewed momentum post-recovery. And now I'd like to turn the call back to the operator for Q&A..

[Operator Instructions] And our first question comes from David Lewis from Morgan Stanley. Your line is open..

Good morning. Thanks for taking the question. Just a few for me this morning, team. So the first thing is, I appreciate the commentary around the impact in April. It does sound like you sort of bounced off the trough.

Most classic medical device companies are talking about kind of a return to normalcy, really, over the next two quarters, something around sort of the fourth calendar quarter of the year. We could see some type of normalcy. I just wondered how you would react to that kind of relative recovery? And then I had a couple of follow-ups..

David, it's Chris. Thanks for the question.

We've actually set forth two very different macro scenarios, the first of which looks a lot like what you described; a second, which factors in the possible resurgence in the fall as some experts are predicting, in kind of this episodic toggling between opening and closing of markets as we get ample testing, et cetera.

The reality is – and just take a step back and a little bit of liberty with your question. The reality is, for us, we need three things to happen. And the macro matters, but it matters much more at the segment and geographic level for us. So the first of those three things is fully 80% of our revenue is tied to collections.

Be they the $500 million that we book in plasma or the $300 million associated with our blood center business. What we need to deliver fully against that business is to have a safe collection environment where donors of all elks feel comfortable making their donation. And I feel like in many regards, we're moving rapidly into that recovery now.

We can talk more about the nuance to that. But that's the first point, and it's 80% of what we do. The remaining 20% is tied to our hospital business worldwide. And disproportionately, we, through TEG, cell salvage and transfusion management, tied to nonelective procedures. Cardiovascular and trauma are our big drivers.

And the health care systems return to some semblance of normalcy, people go and get the necessary medical care that they need. Our markets will recover rapidly associated with that. The third point, it's a bit of an overlay, but the reality is, U.S.

is 2/3 of what we do, but it is substantially 100% of our growth engine going forward, particularly plasma and TEG. And we need a healthy recovery in the U.S. It's actually disproportionately important to us returning to accelerate growth. So those three factors drive us.

And yes, I think the betting person, you can choose between the two scenarios we outlined, but we're going to work on the assumption that we're in that first scenario and then adjust accordingly..

Okay. And just two more for me, and I'll ask them upfront here.

So Chris, how do you think COVID-19 is going to impact your customers? And just curious, I want to focus on, one, just if you could touch at all seropositive COVID patients in terms of serum plasma donations, do you think that's going to be a material driver or, frankly, just not really that material? And the second, kind of, more important is, how does the COVID environment impact customers' desire to adopt NexSys? And actually like I can make a pro case and a con case for why this is a good environment for the adoption of NexSys amongst some large customers, just curious strategically on those two thoughts.

And then for Bill, thanks for the update on the CRI.

Just wondering if you can update us on the OEP plan and how – where you are on that plan and how COVID could impact that plan here over the balance of 2021?.

Thanks, David. Really, plasma plays a role – three potential roles in the treatment of COVID-19. There is ongoing trial work and some interest in just a straight application of IVIG, particularly to severe cases to just help as a spike to the immune response and to tamp down some of the over response that you see. So that's one piece.

I think there's a second piece, which has gotten a lot of press, which is the use of convalescent plasma. For us, as we noted in our prepared remarks, that's typically been done more with our blood center and a select number of hospitals. We view that initially as a philanthropic initiative.

We've made very clear our intent to help wherever and whenever we can. As we talked about it, we're an active forms of engagement in 20 different countries around the world, one convalescent plasma. I think the third piece, which is probably the most grounded scientifically is the notion of a hyperimmune globulin whereby they take convalescent plasma.

And they work through the antibodies and essentially create a drug with the human plasma and then administer that in a more targeted dosing that's – we see different press releases around that. That could be as early as mid-summer, probably the early fall is more likely. And that's probably the one that has the most scientific backing behind it.

We're happy to participate in all three. We don't think, given the restrictions around what qualifies the donor that there will be material impacts, but we're delighted to be a part of it. It's one of the ways that our technology is being used to fight virus head-on.

In terms of your question about NexSys, the NexSys value proposition now at 10 million collections, is nothing short of outstanding. We're talking about meaningful improvement in the reduction of cost per liter.

We're talking about meaningful improvement in yields, cycle time, donor satisfaction and compliance and in an environment where our collectors desperately need to increase the throughput in their centers. We think the value proposition is stronger than ever. We see that in the converted customer base and their relative performance.

So we're excited about it. Obviously, making conversions in this environment is even more challenging. However, we're doing it, and we feel good about our ability to do so in a safe and effective manner. So – but no, we intend to continue to push ahead with NexSys. And I think our value proposition just got stronger..

David, it's Bill. Just your other question on two savings programs. First, on complexity reduction. Yes, that program was completed. We haven't talked about it much in this fiscal year because most of the actions undertaken were undertaken already.

So the savings just came through as planned, and we delivered our $80 million-ish of savings that we committed to. In terms of the OEP program, we're still driving forward with all the planned initiatives related to that program. And we, still, are committed to meeting these savings as planned. If you remember, that is a four-year program overall.

I did say in my prepared remarks that we're taking some actions against expenses. We are making sure that we're not taking actions on expenses that would drive these savings going forward. Okay. And in terms of communicating the planned savings on that.

We had said it was an $80 million program with the majority of the savings dropping through to the bottom line. In – or at some point, when we issue our guidance, we will give an update of exactly what the savings are both on gross and net debt are coming through the P&L – or plan to come through the P&L for FY2021..

Great. Thanks so much..

Thanks, David..

Thank you. Our next question comes from Larry Keusch from Raymond James. Your line is open..

Thank you. Good morning, everyone. Just two for me. First, Chris, obviously, plasma collections are extremely important to the business, as you have noted. I know that Haemonetics as an organization is there and ready to be supportive of those collections and what needs to be done there.

But what do you think will be the response by the actual collectors in putting in plans to try to increase their collection volumes? Because it sounds like their inventory levels are clearly dropping.

So how do you think they respond, which ultimately translates into volumes going back up for you guys?.

Yes. Thanks, Larry, for the question. I think their response is already well underway. They need, and then we feel very good about our projection of 8% to 10% collection volume as a need to meet the ongoing demand. So anything that they don't collect here in this trough period, as you guys described it, needs to be made up going forward.

Really, there are three factors that we and they are dealing with. There is the macro environment, which is just the stay-at-home orders, the students not being in school, on college campuses, for those collection centers, restricted travel across the border, real and perceived and then the less – reduced availability of public transportation.

We see movement in all of those, and that's a positive because that creates the underlying flow. The centers themselves and how they manage their capacity. Some centers shut down in April. All are in the process of reopening at this point now in the U.S., at least. The cleaning protocols.

It's just not a big impediment, but it drives the psychological effect. Do we lose any capacity there or not? It doesn't appear so. Social distancing requirements, which are quite real. And we have centers that have taken beds out or reconfigure the beds. We're erecting partitions, et cetera. All to comply appropriately with social distancing.

The combination of those things is what drives donor psychology and a sense of safety associated with the actual donation itself, coupled with economic motivation, right? We are facing a deep recessionary period. Historically, as we said in our prepared remarks, that's driven donor propensity. And we expect that will be the case here too as well..

Okay. So I guess the punchline there is that sounds like, again, sort of probably hit the trough. And hopefully, we're starting to see all those variety of comments that you made start to move in the right direction relative to where we were..

Yes. And as all of our customers have that same bias, and we stand ready to help them do so..

Okay, great. And then just one for Bill. Recognizing that you are not providing guidance for fiscal 2021 at this point, and you certainly referenced a variety of scenarios that may play out here. What has to happen for you guys to feel comfortable in providing guidance? You clearly stated that you expect to later in the year.

But just curious what actually needs to happen for you to get that confidence to be able to provide the guidance?.

Well, I think in what Chris just talked about, Larry, it's each of those business units that we have.

We have certain guideposts or milestones or key things that we're keeping an eye on, and we need to get comfortable that the revenue that we're seeing associated with each of those milestones starts to change, right? And we're seeing that already, but we need to see some trend over time.

Now also, Chris has spoken about some of the greater macroeconomic factors, right? If the economy opens back up and some outbreak happens again with COVID-19, and that sets back the whole world, the United States, in particular. Then that would impact the guidance too.

So for me, it's more about a predictable revenue trend, right? When you're looking at doing forecast overall, predictability is most important. We don't want to guide and have this thing blow up again. So we want to be pretty comfortable with the numbers that we provide at some point..

Okay. Very good. Thank you very much..

Thank you. Our next question comes from Anthony Petrone from Jefferies. Your line is open..

Thanks. And I hope everyone's healthy stay safe. A few questions for me. One would be on – a couple on plasma and just as it relates to coronavirus. Chris, you mentioned a hyperimmune globulin.

I'm just wondering, what is the potential for that product to potentially be seasonal? And if indeed it does become a seasonal product, what do you think that does overall for plasma kit demand? So that would be the first one. And then the second one on just COVID implications, just a little bit more on the blood center side of things.

How substantial was the hit exiting March just in blood donation volumes? And where are we in April? And then I'll have one quick follow-up..

Yes. Thanks, Anthony. I hope you're well. With regards to hyperimmune, this is certainly the area that the leading plasma fractionators are most enthusiastic about. They feel like this is an area that science supports nicely.

And as I said, there's perhaps different time horizons as early as July, I think we've seen in some releases and then others saying, early fall. But what this will bring to the market, the actual size and the opportunity. It's really viewed more as a bridge to an eventual vaccine. Now lot's been published about this.

We have other coronaviruses that have been in society for a decade or longer where we do not have vaccines, the vaccine science is difficult, say the least.

So I think what I've heard to date, and it really is just us playing back our conversations with our customers and everything we try to read and how we tap our scientific advisory committee for input. What we're hearing is hyperimmune globulin largely as a bridge to vaccine.

It would be effective for moderate to severe onset, probably a hospitalized patient that's struggling. So it kind of takes you back to what do you believe about the nature of the virus and the epidemiology? And is it seasonal or not? And we don't have any extra perspective on that.

We just go by what we're hearing from customers and the external experts. But I think over the next nine to 12 months could be an exciting bridge, I guess, how we're thinking about it.

In terms of the blood center business, as you said, we have a pretty sizable business in Asia, China, Korea and Japan, particularly, and they were hit hard early on, drop in collection volumes of north of a 50%, five-zero. Most of that business, particularly in China, is done through distributors. So the onset of the Chinese New Year had an effect.

A bunch of distributors looking to buy in before they close for the Chinese New Year. So it's somewhat masked the actual impact. Japan saw a direct dip and then a rapid recovery. They were relatively COVID free at that point and the Japanese Red Cross put out a call for particularly red cells and platelets and their population responded nicely.

And that's actually what we're seeing globally. Patients – sorry, donors want to contribute, the altruistic tendency is outstanding to watch, and we see that in each and every market.

We've gone – we see a step further, which is, I think, the shock to the system, which is not a surprise, but it's intimidating when you experience it, has motivated blood collectors worldwide to up their safety stocks. So we and the other manufacturers are working through this real-time, trying to regulate how much additional supply we give.

We could actually be running significantly hotter than we are. But we don't want to completely disrupt the supply demand balance. But all of our blood center customers have now notified us that they intend to increase their blood stocks to a six-month safety supply. We'll get them there, but it will take the next two quarters to do so..

That's helpful.

And Bill, just the last one for me would be on the cost programs, maybe just an update on where we are, specifically to the second restructuring program? And just given the uncertainties out there, can any of that program be accelerated or delayed? And just maybe an update on where you are on that program and how it plays out just given the COVID impacts?.

Thanks, Anthony. Yes, on the operational excellence program, and like I said to David Lewis, we are still planning on delivering all the savings there. We started the program back in August on our journey to get to $80 million plus of savings.

Our intent is still to go as fast as possible with all the independent projects that encompass delivering a significant amount of savings. The organization is all mobilized to do this. We have no intent of pulling back on these savings.

These are key programs to continue to drive the gross margin improvements and operating margin improvements, I think that we're all expecting. Like I said, we will update again when we issue guidance at some point, we'll give specifics about what the savings would be in FY2021, and we'll go year-by-year after that.

And if we see some movement up or down, and we feel like we can change the overall guidance on the program, we'll do it at that point. But yes, we are full speed ahead with this program. We're still very optimistic about it..

Thanks again..

Thanks, Anthony..

Thank you. Our next question comes from Dave Turkaly from JMP. Your line is open..

Great. Thanks, Chris, you mentioned the acquisition.

I was wondering if you could maybe give us a little color on ClotPro and maybe how that will interact with TEG and TEG success?.

Yes. Thanks, Steve. Appreciate that. Hopeful as well. With regards to enicor and the ClotPro technology, this is an active tip product. It's essentially a really, really nice complement to our existing TEG 6s business. We imagine it over time, displacing the TEG 5000, particularly lab-based setting.

It was developed by an individual and a team that have just deep roots in viscoelastic testing. We have CE marked approval for Europe. It's in a number of important Asia-Pacific markets. We will work with that team to get the U.S. FDA approval and expand off of that base.

And we're increasingly just looking at hemostasis management and the landscape there is a real opportunity for us. We've talked in the past, we believe it's a $500 million market opportunity in total. That expands with the acquisition of our nonhospital-based rights from Coramed, the originators on TEG.

So this is kind of a one, two combination, which opens up the aperture outside the hospital for us inside of care, enicor itself brings us even more squarely into the lab space with a state-of-the-art product, it's low-cost to manufacture and has the necessary support.

So we're hopeful this is how we drive against what will be a $500 million-plus opportunity for us, and we manage it as an integrated portfolio in hospital..

Just one quick follow-up. It sounds like you don't have any supply chain issues, and I don't believe you have any facilities in China.

But I was wondering if you could just comment quickly on the big ones that you do have and maybe where capacity is at this point? Are you running at 100% or close across the globe?.

Yes. So we've – I think the progress we have made in our corporate turnaround over the last four years has equipped us to respond to this crisis as admirably as we have, tremendous respect for our global manufacturing and supply chain colleagues, our global business service colleagues. These are frontline workers who are out there.

They can't shelter in place. They're responding to the call. We have six production facilities worldwide. All six are operational. We've had our experience with COVID, and we have detailed protocols for how we address it.

So I would say if they are 100% operational, the actual capacity varies depending on – in Malaysia, where we have restrictions around how many folks we're allowed to have at work and which folks we're allowed to have, similar challenges in Tijuana. An interesting factor is between those two sites, 70% of our employment base is female.

And obviously, for pregnant women, there are specific concerns. So we're doing a bunch of monitoring and testing. We have temperature readings at all of our sites. For our three North American manufacturing sites, U.S. sites, we're in good shape, and that's where the bulk of our plasma production is coming from.

We're at full capacity, and we feel great about that. We are also able to continue our tech service and customer support, including the field-based work that we do. Our people are trained. They're equipped with PPE.

They're able to go in, and they've been given essential worker status to be able to keep our network of equipment up and operational worldwide. So it is a dailing challenge. I mentioned in the prepared remarks that we have this integrated nerve center that meets daily and reviews this.

But I've been really, really impressed, humbled by the organization's response to this. It's been nothing short of outstanding. Thanks, Dave..

Thank you. Our next question comes from Larry Solow from CJS Securities. Your line is open..

Great. Good morning and I echo the well wishes to everybody and your families as well. Most of my questions have been answered. Just a couple maybe on the plasma and hopeful of a recovery. Hopefully, as you said, it's sort of entering that stage.

Is there any – maybe a little bit of granularity regionally? Just to sort of give us a little more confidence in potential recovery? In other words, clearly, I may not want to go donate and may not have been able to donate in say, Brooklyn, New York or wherever where there's just crazy outbreaks of coronavirus going on.

But in other areas of the country where it hasn't been so bad, have things been considerably better, that gives you some confidence that as we get to – as things start to get lacked, then donor confidence improves, things will rapidly ratchet up..

Yes. Larry, thanks. Look, we segment this. It's not a segmentation that we're going to provide going forward because it gets a little too close for comfort for our customers. But we absolutely look at differences by customer, and they've taken different responses. And we look at differences by type of collection center.

There are absolutely effects as it pertains to hotspots, et cetera. The reality is the collections in the U.S. are concentrated largely South and East in the country. And to-date, at least, fortunately, have not been at the absolute hotspots. That's not entirely – it's not perfectly true but there are counties, there are cities, et cetera.

But in the main, we don't see a lot of collection in the Northeast, for example, right? What we have done is we've looked very carefully to account for this at stay-at-home orders, what's the nature of the order? What effect is it having psychologically on the donor base? Donors are exempt. They're considered essential.

And they have – we can give them letters for safe passes as can our plasma customers. So in all cases, they have the ability, but the stay-at-home order does have a psychological effect. College campuses, right? The college campuses are not in session, the students are home. Students are still here.

But their propensity to donate is less at home than it would be on campus. The collection centers are still open on those college campuses, but they're meaningfully lower capacity utilization..

Nobody around..

Yes. The border sites, right, not all, but some of our customers have meaningful sites along, for example, the Mexico border. Individuals are allowed to travel across the border and donate. However, the early interpretation of that was mixed and folks thought they were required to self quarantine. There were some challenges where certain U.S.

sites weren't accepting immigrant donors, et cetera. The vast majority of that has been corrected for, but it's a challenge. And as all these things, and on the Board of Advamed, I sit in these discussions. Each company has had to deal with this on a geographic basis, down to the local municipality in terms of determining this is essential.

And then we have rights to do this, and here's how we're going to do it in a safe and effective manner. So we've worked through that. The other factor is new centers, right. New centers that haven't yet established themselves in their local community. We see an impact on those.

So when Bill talks about scenario planning, we do think about it at the macro level, particularly on lockdown stay at home, et cetera. But we're also very micro about this. What will it mean for the individual collection centers. There are 800 collection centers in the U.S. We have them categorized as such.

It's what gives us confidence that the recovery is already underway. However, it will be step wise. And there will be setbacks, and it will be episodic, and we stand ready to help our customers manage through it. But – and when we get to the other side, candidly, it won't look like it did six months ago, right? There will be a new normal.

That will be different. As I said, I think that reinforces our value proposition to the industry. But we'll see, and we'll work our way through that..

And the centers themselves, and I realize you're not running the center, and then maybe they have to speak for themselves. But I imagine they have – it's evolving in different adaptive measures.

But I mean, I assume some of them are staying to have less donors in the facility at any given time, less employees and maybe they can even offer more – inevitably more cash payment to lure donors in. I guess these all levers that don't really concern you per se but indirectly would be of benefit..

They concern us quite a bit, right? We ourselves as partners to the industry. And the most important thing in that regard is the donor psychology. Do they feel safe and properly compensated for their donation? And I think we can help with that quite materially.

For example, software applications underway to help with – we don't – one of the ways that they practice safe social distancing is by not having a large queue of donors in their lobby. So a number of our customers, for example, who didn't previously use appointment systems, are moving to an appointment system. We have applications to help with that.

Donors who show up are asked to remain, for example, in their car or outside if they have that option. How they know and can they get called forward using digital technology to make the experience interactive, even if it's not in close physical contact.

So there's a bunch of ways to help make that happen as well as practicing social distancing within the centers, how they spread them out, et cetera, which is my reference to a new normal. I think some of that will persist right long after the world's figured out an appropriate scientific response to COVID-19, and we're working that through now.

And we're thinking about structural changes and regulatory changes that may stay beyond the actual outbreak, and how do we help our customers adapt that proactively..

Great I appreciate that. Thanks..

Thanks..

Thanks..

Thank you. Our next question comes from Mike Matson from Needham & Company. Your line is open..

Hi. Thanks for taking my questions. I guess I just wanted to start on the income statement. So I was wondering if you could help us out in terms of thinking about the impact of potentially sizable revenue declines on gross margin.

And then in addition, just when you look at your OpEx, how much of that is fixed? How much is variable?.

Okay, Mike. So it's Bill. On the revenue piece first, the largest portion of the revenue impact was in hospital, I think Chris has gone through that. What we did quantify were two things. We quantified the impact on EPS.

So EPS, overall, we said it was about a $0.06 impact that would be a combination of the gross margin drop-through from the revenue as well as some expenses that we incurred to basically keep our employees safe across the globe who are coming to work every day and keeping us up and running.

We haven't said exactly what the gross margin impact on the revenue is or what the revenue dollars are. But we did say on basis points that we had about a 70 basis point impact on gross margin in Q4 and 120 basis point impact on the operating margins when you put everything I just said together. Okay.

So I'm not going to split out specifically exactly what the costs were or what the dollar amount was. I think just looking at it from a margin percentage basis and then the impact on EPS was all we want to provide today..

Now, that's helpful.

But I guess what I was getting at is when we get into the first quarter here and potentially see a larger decline in revenue, how should we think about – think through the impact on gross margin and on your OpEx in terms of modeling? I know you're not giving guidance, but I guess anything you could say would be helpful, particularly with OpEx, like if you can even just tell us how much of it is fixed versus variable? We know those are kind of hard to define maybe, but....

Yes. Well, we said we would issue guidance in the future, and I hate to get into exactly what the quarter is. We did provide what the collection volume decline was in plasma, and we provided a range in the prepared remarks of the impact that we saw in April on the hospital business. We do believe that we've – hopefully, April is the low point.

We start to gradually trend out of those April declines. And we're running these different scenarios now with all different milestones and guideposts. And Chris just went through all those different factors in plasma, for example, that would impact the revenue. So we're looking at all of those independently.

And then we're taking appropriate action on our expense base to offset those impacts with our view of cash preservation overall for the company. But at this point, we're not going to provide particular guidance for the quarter or for the fiscal year..

Okay. Understand. And then just my final question would be, maybe this ties in to Chris' comments of kind of the new normal.

But are there any new product opportunities here around infection prevention and things like that in the plasma centers or the blood collection business?.

Yes. Thanks, Mike. I appreciate that. I'd come at it in a couple of ways because I actually think it applies across our portfolio, which we're – I think, we have the benefit of dealing with essential medical care across the board.

When I think about plasma, probably the single biggest positive I walked through the three different arms that the folks are looking at for the use of plasma, convalescent plasma, hyperimmune, et cetera.

I think one of the real positives of this is you can't turn on a news feed without hearing about plasma, which is something that a large portion of global population didn't know or understand its use, right? And now I think it's very much seen as on the forefront of fighting disease.

And I hope one of the silver linings of all of this is that it allows a reframing of the discussion around remunerated collection of plasma as a life saving, life enhancing therapy. And I think that there's momentum there that we can build upon that bodes well for donor psychology going forward.

I think equally so, we see this in our TEG business, one of the real positives that we've experienced is researchers using TEG to understand hypercoagulopathy in a thoratic response.

We now know that a large number of fatalities of COVID are associated with clotting in different factors, whether it's pulmonary embolism in the lung or stroke or cardiovascular cascade and there's something going on with the blood coagulation here.

TEG is the most sophisticated instrument to use to understand that, and we see a surge in demand for that early on that it's – again, it's yet to be determined what it might mean for us by way of use going forward. But in the near term, it's very encouraging to know that our technology can be used as part of the fight.

So we remain optimistic that as the markets move towards recovery, the essential nature of what we do will come back to the fore and we'll benefit accordingly..

Thank you..

Thank you. And that does conclude our question-and-answer session for today's conference. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day..