Good day and thank you for standing by. Welcome to the Haemonetics First Quarter Fiscal 2022 Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised today's conference is being recorded.

[Operator Instructions]. I would now like to hand the conference over to your speaker today, Olga Guyette. Please go ahead..

Thank you. Good morning, everyone. Thank you for joining us for Haemonetics first quarter fiscal 2022 conference call and webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO.

This morning, we posted our first quarter fiscal 2022 results to our Investor Relations Web site along with our updated fiscal 2022 guidance and 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 and guidance.

Before we get started, unless otherwise noted, all revenue growth rates discussed today are on an organic basis and exclude the impact of currency fluctuations, strategic actions of product lines, acquisitions and divestitures and the impact of the 53rd week in fiscal '21.

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 in excluded items, including comparisons with the same periods of fiscal '21 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 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 over to Chris..

Thank you, Olga. Good morning everyone and thank you all for joining. Today, we reported organic revenue growth of 6% and adjusted earnings per share of $0.50, up $0.04 or 9% compared with the first quarter of the prior year. We are encouraged by our overall performance, despite the impact of the COVID pandemic.

We are trending favorably and anticipate continued improvements in plasma collection volumes, strong procedure recovery is fueling outsized growth in our hospital segments, and the Blood Center market is resilient. I want to share some updates about how we are evolving our approach to managing the businesses to meet our growth commitments.

Chad Nikel has been named President, Global Plasma and Blood Center. Chad is a business builder who has been an integral part of Haemonetics for 12 years. His vast knowledge of our products and our markets across the globe make him uniquely qualified to lead this business.

Under Chad's leadership, we can leverage our expertise in collection and donor management to achieve a broader global footprint. David Wilson will be leaving Haemonetics and I would like to thank him for helping us build a world class team that will continue to deliver excellence to our customers.

Two years ago, we unveiled our Operational Excellence Program to improve quality and service by transforming the way we source, make and deliver products. Our goal was to achieve 80 million to 90 million in gross savings by the end of fiscal '23.

I am proud to share that despite the headwinds in the past two years, we are planning to meet our savings target and save an additional 35 million by extending this program through the end of fiscal '25.

This will further strengthen our financial health and help offset losses from the anticipated transition of CSL in fiscal '23, rising inflationary pressures and the effects of the pandemic.

Expanding the program allows us to take a fresh look at our operations, identify new opportunities and make new investments in sustainable solutions that will have a positive impact on our daily operations, customer support and longer-term financial performance.

We look forward to sharing more insight into our long-term plans at our virtual Investor Day later this year. Finally, we announced earlier this week, Lloyd Johnson has joined our Board of Directors. Lloyd brings significant financial management, international operations and business development insight.

Additionally, Ellen Zane has been elected Chair of our Board. These updates reflect Haemonetics' ongoing commitment to refreshment, diversity and augmenting our experience base. Now on to the business units.

Plasma revenue increased 6% in the quarter as the pandemic and the associated government subsidies continued to have a pronounced effect on the U.S.-sourced plasma donor pool.

North America disposables revenue increased 3% in the quarter driven by improvement in collections volume, partially offset by price adjustments, including the expiration of fixed term pricing on historical PCS2 technology enhancement.

Sequentially, U.S.-sourced plasma collection volumes declined 6% compared with about 6% seasonal improvement historically, as additional economic stimulus hindered recovery.

Plasma collections in Europe showed continued recovery in the first quarter, specifically in the Czech Republic and Hungary, driven by fewer COVID-related restrictions and plasma center growth.

We had double digit growth in our plasma software revenue in the quarter supported by additional recovery in plasma collection volumes and our Donor360 app, which enables plasma donors to register at home and streamline the pre-collection process with enhanced safety, efficiency and convenience.

Software is a strategic lever for our customers and we continue to invest in value-adding innovation to support their recovery and growth.

NexLynk is a key enabler and differentiator for NexSys, and we believe our combined technologies offer the most benefit to our plasma customers through improved collection yield, faster and more efficient center operations, improved compliance and donor satisfaction.

As we emerge from the pandemic, the sustained increases in available donors, the operational benefits of NexSys PCS integrated with NexLynk DMS will be a valuable tool to help collection centers accommodate greater donor traffic.

Collection center conversions are on track as we plan to upgrade our customers to the latest version of NexLynk DMS software later this year, and complete the transition of our major customers to NexSys PCS devices by mid fiscal '23.

We've made significant progress with our Persona technology and early adopters are benefiting from an additional 9% to 12% plasma yield per donation. Their positive feedback and real world data validate the value proposition of our technology and confirm that there is no impact on repeat donations and donor deferral rates.

We anticipate additional Persona conversions in the second half of our fiscal '22. The demand for plasma-derived medicines remains strong and our customers continue to take steps to recruit and retain donors. As the industry recovers from the pandemic, we expect a return to the long-term 8% to 10% growth of U.S.-sourced plasma collections.

And we see potential to grow in excess of that as customers strive to replenish depleted plasma inventories. As we approach the midpoint of our second quarter, collections have improved 21% compared with the 14% improvement in the first quarter. This increased growth is consistent with the high end of our fiscal '22 plasma guidance.

We remain vigilant about potential disruptions caused by new COVID variant and recent reinforcement of the U.S. border policy. But we anticipate strong plasma collection recoveries in the second half of the year, and a firm fiscal '22 organic revenue growth of 15% to 25%.

Moving to hospital, revenue grew 26% in the quarter primarily due to continued improvements in hospital procedures driving increased utilization of disposables, strong capital sales in North America, and new business opportunities in Europe. We saw continued recovery across all of our key markets, although recovery trends outside of the U.S.

were uneven due to concerns about new COVID variant and slower vaccine distribution. Hemostasis Management revenue grew 31% in the quarter. U.S. led the charge with growth in the adoption and utilization of PEG disposables and strong instrument placements.

We also increased market share in Europe, including the award of a new tender for the use of our ClotPro technology acquired in fiscal '21. Cell salvage revenue was up 27% in the quarter with double digit growth across all of our key markets.

Growth was supported by continuous recovery in procedure volumes and capital sales as we continue to upgrade our customers to our latest technology. Transfusion management grew 11% in the quarter primarily driven by strong growth in SafeTrace Tx as we completed new account installations in the U.S. BloodTrack also shows significant growth in the U.S.

with a slight decline in international markets as new COVID concerns delayed implementation. We affirm our expectation for 15% to 20% organic revenue growth in hospital, including Hemostasis Management organic revenue growth in the mid 20s.

This growth rate assumes hospital procedures continue to improve throughout the year, and will be fully recovered across all geographies by the end of fiscal 2022. Our newly acquired VASCADE Vascular Closure business delivered $22 million in revenue in the first quarter, exceeding our expectations.

Both VASCADE products delivered meaningful results through accelerated penetration of new accounts and increased utilization within existing accounts. We are enthusiastic about the continued growth of this business supported by greater procedure volumes, higher diagnosis rates, increased hospital efficiency and an overall move to standard of care.

We are also expanding internationally by securing regulatory approvals and developing go-to-market strategies for faster and broader penetration. We are increasing our fiscal '22 revenue guidance from $65 million to $75 million to $75 million to $85 million, as we look to accelerate additional growth through further investments.

Blood Center revenue declined 6% in the first quarter. Apheresis revenue declined 3% in the quarter, was impacted by unfavorable order timing and lost revenue from the previously announced customer loss included in our first quarter fiscal '21 results. We are encouraged by the resilience of this business and the altruistic nature of blood donors.

Platelet collections in Japan fully recovered, although that growth was partially offset by a reduction in plasma collections due to prolonged COVID-related state of emergency. We also experienced strong market demand for platelets in China, driven by our expansion in Tier 2 markets.

Whole blood revenue declined 14% driven by lower collection volumes and discontinued customer contracts in North America. Our expectations for the Blood Center business are unchanged and our fiscal '22 revenue guidance is a decline of 6% to 8%. I'll now turn the call over to Bill. .

Thank you, Chris, and good morning, everyone. Chris has already discussed revenue, so I will start with adjusted gross margin, which was 54.7% in the first quarter, an increase of 750 basis points compared to the first quarter of the prior year.

Our adjusted gross margin benefited from the addition of Vascular Closure devices from the Cardiva Medical acquisition as well as favorable mix from our remaining product portfolio, as our businesses continued to recover from the effects of the pandemic.

In manufacturing and supply chain, we had improved operating efficiency due to higher volume and lower expenses related to the pandemic. We also continue to drive savings from the Operational Excellence Program. These benefits were partially offset by previous divestitures and price adjustments.

Adjusted operating expenses in the first quarter were $87.1 million, an increase of $23.4 million or 37% when compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 550 basis points and were at 38%. The acquisition of Cardiva had the largest impact on the increase in adjusted operating expenses.

Also affecting the increase were higher variable compensation, spending beginning to return to normal levels, an increase in freight costs and higher research and development expenses to strengthen our technology. Our first quarter adjusted operating income was $37.9 million, an increase of $9.4 million, or 33% compared with the prior year.

This improvement in adjusted operating income was driven by higher adjusted gross margin, partially offset by the increase in adjusted operating expenses. Our adjusted operating margin was 16.6% in the first quarter, an increase of 200 basis points compared with the same period in fiscal '21.

As our business continues to recover from the pandemic, we continue to generate additional savings through the Operational Excellence Program. We anticipate increased leverage in adjusted operating margin. We affirm adjusted operating margin guidance of fiscal '22 to be in the range of 19% to 20%.

Our adjusted income tax rate was 24% in the first quarter compared with 4% in the same period of fiscal '21. The adjusted income tax rate in the first quarter of fiscal '21 was abnormally low due to the benefit of higher performance share vestings. We now expect our fiscal '22 adjusted tax rate to be 22%.

First quarter adjusted net income was $25.4 million, up $1.7 million or 7% and adjusted earnings per diluted share was $0.50, up 9% when compared to the first quarter of fiscal '21. The adjusted income tax rate in the first quarter of fiscal '22 had a $0.13 downward impact on adjusted earnings per diluted share when compared with the prior year.

Our Vascular Closure business is exceeding original expectations, and we expect this business to be net neutral to adjusted earnings per diluted share in fiscal '22 compared with our original expectation of $0.15 to $0.20 dilution in the first year following the acquisition.

We expect this performance will be driven by stronger commercial execution and difference in capital structure when compared with the original deal model, and will allow us to generate additional resources to fund growth investments across the company.

Today, we announced the revised Operational Excellence Program with total gross savings of $115 million to $125 million that will deliver $80 million to $90 million in gross savings by the end of fiscal '23, which is in line with our original expectations with an additional $35 million in savings by the end of fiscal '25 with the return of volume back to pre-pandemic levels.

We expect the majority of the savings realized to benefit adjusted operating income by the end of fiscal '23, and about half of the total savings passing through by the completion of this program in fiscal '25.

The exact pace of the Operational Excellence Program savings and net impact on adjusted results will be communicated with our guidance for each fiscal year. Additionally, we expect to incur $95 million to $105 million in restructuring and restructuring-related costs over the course of this program.

In addition to updating the total estimated gross savings for this program, we accelerated the pace of these savings in fiscal '22 and now expect this program to deliver gross savings of approximately $33 million, an increase of $11 million or 50% when compared with our previous guidance.

Due to increasing inflationary pressures and investments in manufacturing, we anticipate about 25% of these savings will benefit adjusted operating income in fiscal '22. We expect fiscal '22 adjusted earnings per diluted share to be in the range of $2.60 to $3.00.

Cash on hand at the end of the first quarter was $173 million, a decrease of $19 million since the beginning of the fiscal year. Free cash flow before restructuring and turnaround costs was $2 million compared with $11 million in the same quarter of the prior year.

The lower free cash flow before restructuring and turnaround costs in fiscal '22 was due to higher accounts receivable as our revenue continued to recover from the pandemic and higher capital expenses, primarily related to the Operational Excellence Program, partially offset by lower inventory growth.

We affirm our previous guidance and continue to expect free cash flow before restructuring and turnaround expenses in fiscal '22 to be $135 million to $155 million. Our capital allocation priorities remain unchanged. And we continue to prioritize organic growth, followed by inorganic opportunities and share buybacks.

In the short term, we will focus on investments into core capabilities and technology that make our products distinctive. Before we open the call up to Q&A, I want to reiterate the key points that we hope you take away from today's call.

First quarter results show encouraging performance across our business supported by strong procedure recovery in our hospital business, resilience of blood donors in Blood Centers, and initial rollouts of our Persona technology in plasma. We believe there are no structural changes in the underlying demand for our products.

And we continue to anticipate full recovery across all of our businesses by the end of fiscal '22. But the exact pace of their recovery, particularly in plasma, remains the biggest variable included within our affirm guidance.

The recently acquired VASCADE Vascular Closure technology is exceeding our expectations with strong revenue growth and increased leverage, delivering no dilution to adjusted earnings per diluted share one year ahead of the original deal model.

This business strengthens our market position, expands the market opportunity, and further enables our portfolio to capitalize on the market recovery ahead.

We remain committed to delivering value for our customers and our shareholders as we pursue growth strategies to maintain market leadership, to develop innovative products in partnership with our customers, and to drive productivity and efficiency of scale with an expanded Operational Excellence Program.

And lastly, our team's been working diligently on updating our long range plan. And we are looking forward to sharing it at our virtual Investor Day expected near the end of this calendar year. Thank you. And now I'd like to turn the call back to the operator for Q&A..

Thank you. [Operator Instructions]. Our first question comes from the line of Anthony Petrone with Jefferies. Your line is open..

Thanks. Good morning, everyone. A couple of questions on plasma in the guidance and then I'll have follow up on Cardiva.

On some of the plasma data points that are baked in the guidance as well as the performance in the quarter, maybe just a little bit more detail on what is baked in there for specifically volume recoveries? And then any thoughts on how you're reflecting the restrictions at the U.S.-Mexico border, just an update there would be helpful? And then I'll have a few follow ups..

Yes. Thanks, Anthony. Appreciate the question. With regards to performance and how it tracks to our guidance, we're bang on for what we expected to see year-to-date. We had 14% volume growth in the first quarter. We've seen 21% as of the end of last week, so almost 40% of the way through our second quarter and that's really what we anticipated.

We're now at a point where we're tracking to the high end of that 15% to 25% range and that's because we're experiencing more of the recovery now. Of course, we're vigilant with our customers with regards to new COVID variants, with regards to any further concerns that might lead to anything that could tap down demand.

You mentioned the situation at the Mexico border, the enforcement of that policy is definitely a detractor to collections there. For us in aggregate, it's probably not more than 1 point of growth, 100 basis points, if you will, across our growth trajectory.

So it's not zero, but it's not a major factor for us and we're watching the situation carefully. But we feel like what's happening in the environment, what our customers are doing to re-recruit their donors is all very powerful and gives us grounds for cautious optimism..

And so just to be clear, the bridge between the sort of 6% organic in fiscal 1Q and then trending toward the higher end of the '25, you certainly have a view for continued volume improvements, which it sounds like you're seeing in July, but also on the upgrade front, is there anything baked in there as well? Last quarter you mentioned there is an upgrade cycle obviously for both NexLynk and NexSys.

So just kind of, as we trend toward that higher end of the 15% to 25% range, just the complexion of continued volume improvements versus upgrades?.

Yes, you're exactly right. We have a lot of growth loaded into the second half of this year. So it's ambitious in that regard, but that tracks our models and what we see with the waning stimulus effect, et cetera.

Upgrades are part of that forecast and we're seeing that really across all three of our offerings, as we communicated in the prepared remarks. Good continued progress on NexLynk. NexLynk and software in general was a real plus for us and continues to be year-to-date in terms of the volume recovery there.

NexSys PCS on track despite the challenges of doing this all in the context of a pandemic and particularly where some of our most high volume geographies are getting hard hit by the Delta variant and COVID.

Nonetheless, we've been able to keep our people safe and work closely with customers to do the upgrade cycle and we're excited about what Persona means here and have factored that in to the growth over the second half of the year as well.

So nothing simple or straightforward about it, Anthony, but we feel quite good about what we're able to do jointly with customers to keep that progress..

I'll sneak the last one in on Cardiva, ahead of expectations there and just wondering the complexion between just general EP volume improvements versus the original forecast versus say just expansion of the VASCADE franchise into new centers? Thanks again. I'll get back in queue..

Yes. Thanks, Anthony. We're very, very excited about Cardiva and VASCADE, both VASCADE and MVP exceeding expectations. This is a product line that did mid 40s last calendar year with Cardiva. We were able to collectively deliver 22 million in revenue in our first quarter alone.

So we are very excited about the recovery and the trajectory and what that team has been able to do and just hyper-focused on our largest customers here in North America and what we're seeing is both penetration into new customer accounts, new hospitals and increased utilization in our existing customers.

And the combination of those two across VASCADE and MVP is what's driving the performance. So we're excited. It's allowed us to make additional investments in the product, and we think that will continue to bear fruit as that product progresses..

Thanks again..

Thank you. Our next question comes from Joanne Wuensch with Citi. Your line is open..

Hi. This is Anthony [ph] on for Joanne. Thanks for taking our questions. I have two. My first, Hemostasis Management had a strong quarter this quarter.

Can you sort of parse out where that strength is coming from? Is it still sort of these research hospitals and labs are buying TEG to study COVID patients, or is that increasing utilization?.

Yes. Hemostasis Management grew 31% in the first quarter. It's a truly outstanding growth. A lot of that is benefiting from the increased procedure volume, no doubt. TEG is an essential product in that regard. U.S.

is disproportionately driving that growth, although we've had growth in every geographic segment and it's a combination of new device sales as well as much higher utilization per device.

And I'm sure there is some testing still going on related to coagulation in COVID patients, but the vast majority of the growth is just core treatment for all of our indications. It's a combination of cardiac surgery and cardiology more broadly, it's trauma. And increasingly, it will be interventional cardiology as we push into that front.

So strength across the board certainly driven by the U.S., first and foremost..

Great, helpful. And then my second on Cardiva. What has surprised you either positive or negatively about uptake? And then could you just give some more commentary on how the integration is going? Thanks..

Yes, I'll start with the integration because I think that's the real success story here. To be able to bring that team onboard and assimilate them in preserving everything that they're doing, have been doing exceptionally well. John Russell and that group built a really high performing team and we're benefiting from that leadership.

So we brought them in and I think we feel quite good. We've been able to do so without disrupting. So that team hasn't missed a beat. And now what we're doing is leaning in and helping them focus and make the investments that are necessary to drive sustained growth going forward. So we watch this.

We got word yesterday actually from FDA that we're now approved for same-day discharge for atrial fib which just adds more fuel to that fire and will now allow us to continue that growth trajectory going forward. So we've done a lot of things right. We are benefiting from that. I think the smooth and rapid integration as it were has really helped.

We're also pushing hard outside the U.S. now to get the registrations in place and to build go-to-market models that will enable us to replicate that performance in other markets around the globe. So we're excited about it for sure..

Thanks..

[Operator Instructions]. Our next question comes from Mike Matson with Needham & Company. Your line is open..

Yes. Thanks for taking my questions. Wanted to ask about free cash flow.

So just given the decline compared to the first quarter last year, what's your confidence level in the guidance? And is it more realistic now to expect to be at the lower end of the guidance range for the year?.

Hi, Mike. It's Bill. So on free cash flow, we're confident that we will be within that 135 million to 155 million guidance that we put out there. The cash flow is down a little bit from last year, and it's a combination of -- we have higher accounts receivable than we did last year as our revenue has begun to return.

So it's good news, right, but you are going to see an increase in your balance sheet in net accounts. In inventory, we have actually seen lower growth in the inventory in our first quarter of this year than last year.

And then the last element that's really affecting that lower cash flow is our capital expenditures have begun to return to normal levels here in the first quarter. But again, we are confident. We wouldn't have put the 135 million to 155 million out there.

I'm not going to say specifically where we're going to fall within that range, but we feel good about it..

Okay. Thanks.

And then, I don't know if you've given us any guidance on a GAAP basis, if you include all the restructuring and kind of one-time stuff in there, but do you expect free cash flow to be positive once you -- I guess on a GAAP basis, not excluding that sort of stuff?.

For the year?.

Yes, for the year. Sorry..

We would expect it to be positive for the year, yes..

Okay, all right. And then one of the things I've heard some of your larger customers talking about is trying to collect more plasma outside the U.S. over time.

I'd imagine you saw the opportunity to capture that business, but I just wanted to get your thoughts on that and see if there is -- what that means to Haemonetics if anything, if that does in fact increase?.

Yes, Mike. It's Chris. That's a perennial discussion topic. I think it's gained more momentum in the COVID period.

One of the things we communicated previously is that we've helped more than 25 countries around the globe over the last year step-up the collection of convalescent plasma initially in response to COVID and then more broadly for just general medical self-sufficiency, and I think that's really opened a number of these markets up and kind of drawn attention to the overdependence as the industry describes it on the U.S.

market specifically. There are still only five places outside the U.S. where donors are remunerated for their plasma collection and that's a challenge. There are legislative challenges as well. But as our customers lean into that and help local markets open up, we take pride in being right there to work with them.

One of the benefits of combining our Blood Center and plasma operations in the way that we have is we're more attuned to those opportunities.

We're better able to coordinate internally in response to customer request, and I think the international growth is a real opportunity for us going forward and an area where we can continue to grow and surprise positively..

Okay, great. Thank you..

Thank you. [Operator Instructions]. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open..

Hi. Good morning, Chris and Bill. Thanks for taking the question. Just on the quarter here, I think you grew 6% organic in plasma and I think I heard you mention collections grew 14%. So I'm just trying to better understand kind of the delta there between the two numbers. Was that price, but would love some more color there. Thank you..

Yes, Drew. There is a range of factors. Obviously, we're talking about comparisons over prior periods. We did call out price adjustments and we've talked specifically about those in the prepared remarks.

It's a combination of legacy agreements including for the PCS2 technology where we had a specific acquisition that had been priced into a contract that was time bound and expired. The other thing we're experiencing is, which is quite a positive, as volumes return, a number of our contracts are volume price specific.

So as the volume increase, there is a slight decrease in the pricing. So it's a good thing, but you see there’s variability on a quarter-on-quarter basis. So none of it is pertaining to the new technology or new contracts at all, it has to do with those prior agreements..

Okay, understood. Thank you. And then just on the NexSys conversion by mid fiscal '23.

Is there any way that you can, and maybe you don't want to discuss this, but frame that in terms of your overall installed base because it just mentions or you mentioned you expect to complete transition of your major customers, but just trying to get a better sense of how we should think about the ramp in terms of your installed base versus customers? Thank you..

Yes, Drew, I appreciate the question and I know you want to drill down on that. But for reasons of customer confidentiality, we'd prefer not to talk about the specifics beyond what we've already guided to. Thanks..

Thanks, Chris..

Thank you. And I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect..