Earnings Call: Q4 2021

May 13, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2021 Haemonetics Corporation Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Olga Gayet, Investor Relations. Thank you. Please go ahead. Thank you. Good morning, everyone. Thank you for joining us for Haemonetics' 4th quarter fiscal 2021 conference call and webcast. I'm joined today by Chris Simon, our CEO and Bill Burke, our CFO. This morning, we posted our 4th quarter and fiscal '21 results to our Investor Relations website along with our fiscal 'twenty two guidance in analytical tables with the information that we'll refer to on this call. Additionally, we provided a complete P and 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 exits of product lines, acquisitions and divestitures and the impact of the 53rd week in fiscal 2021. 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 detailed and excluded items, including comparisons of the same periods of fiscal 2020 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 in the potential impact from the COVID-nineteen pandemic on our results and other factors referenced in the safe harbor statements 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 the call over to Chris. Good morning, everyone, and thank you for joining today. Before I get into our results, I want to review the news we announced a few weeks ago. In April, CSL Plasma notified us that they do not intend to renew their U. S. Supply agreement for the use of our PCS to plasma collection system equipment and the purchase of plasma disposables that expires in June of 2022. We were informed that CSL decision was not based on the level of service or quality of our products, but rather reflects a change in internal strategy that was made some time ago, presumably before they had experience with Nexus and Persona. We are disappointed by CSL's decision, but it does not change our commitment to the plasma market and our technology to improve collections. The Nexus and Persona value propositions are strong, supported by real world data and real time customer feedback, And we are excited about what this platform means for our customers. We are taking a comprehensive approach to address the impact CSL transition we'll have in fiscal 2023. We are acting with urgency, but we are being thoughtful and balanced in our planning. Our ability to respond is enhanced by the steps we have taken these past few years to strengthen our financial health, Improve productivity, drive innovation, reshape our portfolio and build a collaborative performance driven culture. We are well positioned to navigate this change. We are focused on driving value for customers and shareholders and our decision making is guided by a through cycle mindset. We will continue to pursue growth strategies to maintain our market leadership, including developing innovation in partnership with our customers. We also remain committed to productivity and being good stewards of the company's resources. We will provide more details Today, we reported organic revenue decline of 14% in the 4th quarter and 13% for fiscal 2021 And adjusted earnings per share of $0.46 down 33% in the quarter and down 29% to $2.35 for the year. Fiscal 2021 was a difficult year for Haemonetics as the pandemic had varying effects across our businesses and their respective customers. Despite the challenges, we made progress to build a stronger Haemonetics. We divested non performing assets like the Fajardo blood filter manufacturing operations, blood center donor management software in the U. S. And in log SAS, blood bank and hospital software in Europe. We made organic and inorganic investments in attractive and growing markets, including the launch of Persona and the Donor360 app and the acquisitions of Clockpro and Cardiva Medical. We modified our capital structure for financial flexibility and remain diligent with cost containment while continuing to fund growth. We made significant changes to the way we source and make our products as part of our operational excellence program. While we cannot control the pandemic's impact on our Customers businesses, we met every challenge, keeping our employees safe and our plants operational with high levels of service and customer support. Early fiscal 2022 will continue to be challenging, but we expect the pace of recovery to accelerate over the year. The end market demand for our products remains strong and we do not see structural or other changes from the pandemic that would impact the need We have healthy and viable businesses delivering exceptional value adding technology. We have proven our resilience Our ability to drive growth and productivity and we will do so again as our markets recover from the pandemic. Turning now to our business units. Plasma revenues declined 28% in the 4th quarter and 26% in fiscal 2021 as the pandemic continued to have a pronounced effect on the U. S. Sourced plasma donor pool. We saw lingering effects beyond Q4 into April. North America disposables declined by 31% in the 4th quarter, primarily driven by declines in volume and a negative impact from the expiration of pricing on technology enhancement with one of our customers. Sequentially, plasma collection volumes declined by 13% compared with Fiscal 2021 was an especially difficult year for plasma collections given the interplay of different factors affecting donor behavior. Our customers have taken extensive measures to ensure the health and safety of donors and to launch a myriad of promotional campaigns to encourage plasma donations. Our teams have remained focused on ensuring no disruptions to our supply, service and support. Despite the environment, we advanced Our innovation agenda with the FDA clearance of Persona, which safely yield an additional 9% to 12% of plasma on average per collection. We extended the reach of our customers to donors via a Donor360 app, which allows donors to engage with centers before in person visits, Decreasing door to door time and improving the overall donor experience. Given the pandemic's negative effect on collections, Increased yield is more important than ever and feedback from NexSys customers operating with YES technology or Persona continues to be positive. We believe they were able to offset some of the headwinds from the pandemic because they benefited from safe, Higher plasma yield per donor, bidirectional paperless connectivity and increased donor satisfaction. NexLink DMS rollouts continue on pace and the software continues to be a key enabler and differentiator for NexSys. All of our major customers have agreed to adopt NEXUS somewhere in their collection network and we anticipate that by mid fiscal 2023, the majority of our customers, excluding CSL, will be on Nexus in the U. S. Or globally. As we emerge from the pandemic and see future Sustained increases in available donors, the operational efficiency benefits of Nexus integrated with NexLink DMS will be an increasingly valuable tool to support greater donor traffic. We anticipate initial Persona rollouts this fiscal year As we strive to move in sync with our customers and pace our technology implementations to meet their individual needs, We are committed to advancing our innovation agenda across devices, disposables and software to develop products that create long term Sustainable value for our customers. We continue to do everything we can to support our customers, and we remain cautiously optimistic about the Timing and pace of recovery. The demand for plasma derived medicines remains strong and our customers are doing what they can to recruit and retain donors. Unfortunately, donor economics play a critical role in plasma collections, and we expect collections will be muted until government stimulus wanes. Beyond stimulus, we expect a return to the long term 8% to 10% growth of the U. S. Source plasma collections market, and we see potential to grow in of that as customers strive to replenish depleted plasma inventories. Hospital revenue increased 12% in the 4th quarter 4% in fiscal 2021. Our hospital business experienced continued sequential improvement over the 1st 9 months of the fiscal year. 4th quarter recovery was uneven as we saw another spike in COVID cases early in the quarter followed by material improvement in February March, coupled with the anniversary of the previous year impact of COVID-nineteen in China and other geographies that were affected earliest by the pandemic. Hemostasis management revenue was up 19% in the 4th quarter and 9% in fiscal 2021. North America, our largest market showed sequential growth Throughout the 1st 9 months of the year and despite a spike in COVID cases early in Q4, the business exited in a strong position, including additional penetration into new accounts. China, our 2nd largest market, benefited from a lower comparator in the prior year Q4 due to the early onset of COVID-nineteen. Strong capital sales in North America and EMEA have also contributed favorably to our Q4 fiscal 2021 results. We continue to drive our go to market strategies for visoelastic testing to meet the unique needs of our regional markets. We are executing on the Chinese market introduction of our locally designed and manufactured visoelastic testing technology that expands our product offering to meet the needs of that geography. Transfusion management was up 9% in the 4th quarter fiscal 2021, primarily driven by strong growth in BloodTrack through new accounts and geographic expansion of SafeTrace Tx. Our teams have used remote tools to advance installations and utilization in customer environments where access continues to be restricted. Cell salvage revenue grew 2% in the 4th quarter and declined 8% in fiscal 2021. Our cell salvage results in the quarter benefited from the easy comparison with Prior year quarter in China and 80% growth in capital sales as we continue to upgrade our customers to the latest technology. Partially offsetting these benefits in the Q4 was overall lower procedure volume due to COVID-nineteen. The integration of Cardiva Medical is going well and the performance of the business is exceeding expectations. The Bascade proprietary vascular closure technology on driving the strategy underlying this acquisition. Although excluded from our organic revenue results, Cardiva added close to $8,000,000 Revenue in March as our teams continue to drive penetration in the top hospital accounts for interventional procedures in the U. S. Additionally, as U. S. Procedure volume continues to improve, we've seen increasing benefit from product utilization among existing accounts. Our long term outlook for this business is strong as our combined product development and regulatory teams work closely together on OUS registrations and driving additional product innovation. Overall, the pandemic has validated the essential role of our technologies in We have demonstrated our ability to safely and effectively sell, including to new and existing accounts, Install and service our equipment despite limited access to hospitals. Blood center revenue declined 10% in the 4th quarter and 4% in fiscal 2021. Apheresis revenue declined 3% in the 4th quarter and grew nearly 1% in fiscal 2021. 4th quarter Apheresis results were impacted by unfavorable distributor order timing in EMEA and a competitive loss partially offset by Strong capital sales. Order timing was overall a benefit to our full year fiscal 2021 results as distributors made large stocking orders in response The pandemic, particularly in Europe and the Middle East. We also benefited from strong capital sales as we continue to support our customers in the collection of convalescent plasma. These benefits were partially offset by the previously disclosed competitive loss that had a $17,000,000 impact on our full year results. Excluding this loss, overall blood center revenue actually grew in fiscal 2021. Whole blood revenue declined 24% in the 4th quarter and 14% in fiscal 2021 driven by lower collection volumes Due to COVID-nineteen and discontinued customer contracts in North America, we remain committed to supporting enhanced product quality and services for our blood center customers, while preserving cash generation and exploring portfolio rationalization as appropriate. I'll now turn the call over to Bill. Thank you, Chris, and good morning, everyone. I will begin by discussing our fiscal 'twenty one actual results followed by our fiscal 'twenty two guidance. Chris has already discussed revenue, so I will start with adjusted gross margin, which was 50% in the 4th quarter, a decline of 30 basis points compared with the 4th quarter the prior year. Adjusted gross margin year to date was 50.3%, a decline of 130 basis points compared with the prior year. On the positive side, we continue to benefit from productivity savings realized from our operational excellence program and lower depreciation expense related to our PCS2 devices, which were mostly depreciated by the end of the prior fiscal year. We also saw benefits from the recent acquisition of Cardiva Medical. The primary drivers of the adjusted gross margin Decline or unfavorable pricing and product mix, mainly due to the impact of COVID-nineteen, higher inventory related charges and the impact of recent divestitures. These inventory related charges, which relate to CSL's intent not to renew the U. S. Plasma disposable Supply agreement had about 220 basis points impact on our 4th quarter and about 60 basis points impact on our fiscal 'twenty one results. The combination of our recent divestitures and our strategic decision to exit the liquid solution business resulted in a net negative impact of 70 basis points on our 4th quarter and about neutral impact on our fiscal 2021 adjusted gross margin. Adjusted operating expenses in the 4th quarter were $81,900,000 an increase of $9,200,000 were 13% compared with the Q4 of the prior year. Adjusted operating expenses for fiscal 2021 were $283,000,000 a decrease of $9,800,000 or 3% compared with the prior year. Adjusted operating expenses both in the Q4 and fiscal 2021 were impacted by higher variable compensation, the acquisition of Cardiva Medical and the impact from the 53rd week. Contributions from our productivity savings and cost containment efforts that were put in place earlier in the pandemic helped to offset some of the impacts and allowed us to make additional growth investments into our business. As a result of the performance in adjusted gross margin and adjusted operating expenses, 4th quarter adjusted operating income was $30,500,000 a decrease of $16,800,000 or 35 percent And adjusted operating income for fiscal 2021 was $154,600,000 a decrease of $63,400,000 were 29% compared with the prior year. Adjusted operating margin was 13.5% in the 4th quarter and 17.8% in fiscal 2021, down 630 basis points and 4.20 basis points, respectively, compared with the same periods in fiscal 2020. For both periods, the loss leverage from revenue, coupled with the inventory related charges, Higher variable compensation and impacts from portfolio changes outpaced the impact of cost mitigation efforts and productivity savings. These inventory related charges and higher variable compensation put downward pressure on operating margins by approximately 500 basis points in the 4th quarter and approximately 100 basis points in fiscal 2021. The variable compensation incentives we established during the pandemic and the one time inventory related charge due to the recent customer announcement are not expected to affect future operating margins. The adjusted income tax rate was 12% in the 4th quarter and 14% in fiscal 2021 compared with 18% 15%, respectively, for the same periods of the prior year. 4th quarter adjusted net income was $23,900,000 down $11,500,000 or 33 percent, and adjusted earnings per diluted share was $0.46 down 33% when compared with the Q4 of fiscal 2020. Adjusted net income for fiscal 2021 was $120,700,000 down $50,600,000 or 30 percent, and adjusted earnings per diluted share was 2.35 cents, down 29% when compared with the prior year. The inventory related charges and higher variable compensation had a downward impact on adjusted earnings per diluted share of $0.18 in the 4th quarter and $0.12 in fiscal 'twenty one. Our operational excellence program continued to deliver positive results and drive improvements in adjusted gross and adjusted operating margins. This program has also enabled us to offset some of the challenges resulting from the pandemic. During fiscal years 202021, The program to date gross savings are approximately $34,000,000 with the majority of those savings dropping through to adjusted operating income. Cash on hand at the end of the Q4 was $192,000,000 an increase of $55,000,000 since the beginning of the fiscal year. Free cash flow before restructuring and turnaround costs was $99,000,000 in fiscal 2021 compared with $139,000,000 in the prior year. Fiscal 'twenty one included a $54,300,000 payment for a compensation related liability as part of the Cardiva Medical acquisition. The total purchase price paid for Cardiva Medical was reduced by the amount of this liability. Lower increases in inventory, lower capital expenditures and improvement in accounts receivable compared when compared with the prior year have benefited fiscal 'twenty one. Although the free cash outflow for inventory is lower than in the prior year, The impact from lower sales volume in plasma has resulted in a higher disposables inventory balance. We will continue to monitor our inventory levels and expect inventory fluctuations to continue as we adjust our production to support customer demand and our operational excellence program initiatives. In addition to free cash flow, The 4th quarter ending cash balance benefited from the completion of a $500,000,000 convertible debt offering, which resulted in a net cash inflow of $439,000,000 Offsetting the cash inflow during fiscal 2021 was $390,000,000 of net cash spent on recent portfolio moves and $82,000,000 of debt repayments, including a $60,000,000 repayment of the revolving credit line that was outstanding at the end of fiscal 'twenty. Our current debt structure includes a $700,000,000 credit facility that does not mature until the Q1 of fiscal 2024 with the majority of the principal payments weighted toward the end of the term. At the end of the 4th quarter, total debt outstanding under was $302,000,000 There were no borrowings outstanding under the $350,000,000 revolving credit line at the end of fiscal 2021. During the Q4, we completed a $500,000,000 convertible debt offering. Our EBITDA leverage ratio, as calculated in accordance with the terms set forth in the company's existing credit agreement, is $3,400,000 at the end of fiscal 2021. The existing $500,000,000 share repurchase authorization will expire at the end of May 2021 with $325,000,000 remaining on the authorization. We will update our capital allocation priorities in the next few quarters as we continue to develop our long range plan. Now I will turn to our fiscal 'twenty two guidance. Our business continues to be impacted by the pandemic. Therefore, our fiscal 'twenty two guidance includes throughout the year. Our fiscal 'twenty two organic revenue growth is expected to be in the range of 8% to 12%. We remain confident in the continued market growth underlying the commercial plasma business and anticipate plasma revenue growth of 15% to 25% in fiscal 2022. At the low end of our guidance range, we assume that the second and third rounds of economic Stimulus will continue to impact plasma collections through the first half of fiscal 'twenty two with stronger collection volumes in the second half of fiscal 'twenty two. At the higher end of our guidance range, we assume that recovery will begin mid second quarter with additional acceleration toward the end of the fiscal year as customers begin to replenish safety stock levels. In both cases, We expect the run rate for plasma collections to be at or above fiscal 'twenty levels at the end of the fiscal year. Disposable revenue related to CSL collection volume is included in the guidance for 12 months. In fiscal 2021, we recognized disposable revenue in the U. S. From CSL of approximately $89,000,000 This plasma revenue guidance also includes the net impact of initial rollouts of Persona and Nexus adoption With whom we have agreements with the majority of the benefit towards the end of the fiscal year. These benefits are partially offset by price adjustments, including the expiration of fixed term pricing on a historical PCS II technology enhancement and a one time safety stockholder in fiscal 2021. We expect 15% to 20 will continue to improve throughout the year and will be close to fully recovered across all geographies by the end of our fiscal 'twenty two. Our hospital revenue guidance includes hemostasis management revenue growth in the mid-20s. The Cardiva Medical acquisition is anticipated to deliver $65,000,000 to $75,000,000 of revenue and is excluded from organic revenue growth until the anniversary of the acquisition date. Our fiscal 'twenty two guidance for Blood Center revenue is a year over year decline of 6% to 8%. The anticipated revenue decline in Blood Center reflects the annualization of business exits, primarily within North America Whole Blood. The non repeating revenue related to convalescent plasma in fiscal 2021 and the effects of order timing, which favorably impacted fiscal 2021. We expect fiscal 'twenty two adjusted operating margins in the range of 19% to 20% and adjusted earnings per diluted share in the range of $2.60 to $3 Our adjusted earnings per diluted share guidance includes an adjusted income tax rate of approximately 21%. In fiscal 'twenty two, We expect our operational excellence program to deliver gross savings of approximately $22,000,000 with less than The program began in fiscal 2020. And by the end of fiscal 2022, we anticipate achieving approximately $56,000,000 of gross savings with about 60% of those savings benefiting adjusted operating income. The remaining year of the operational excellence program is being updated as part of our comprehensive effort to address the impacts from the anticipated customer loss in early fiscal 'twenty three. We intend to communicate the updated operational excellence program as part of our longer range plan. We also expect our free cash flow before restructuring and turnaround expenses in fiscal 'twenty 2 I want to reiterate the key points that we hope you take away from today's call. 1st, while the pandemic continued to impact our business, We don't believe it has caused any structural changes to the end market demand for our products. By the end of our fiscal 'twenty two, we full recovery across all of our businesses, but the exact pace of the recovery is the biggest variable included within our guidance. 2nd, we believe our product portfolio strongly positions us to capitalize on the market recovery ahead. Despite the challenges put in front of us, our teams remain focused on rationalizing our product portfolio to emphasize the products and markets that meet our 3rd, our operational excellence program continues to drive transformation primarily in our manufacturing and supply chain as we become more agile and flexible. We made significant progress to date, which has allowed us to offset some of the headwinds due to the pandemic, And we expect to have close to 60% to 70% of the program completed by the end of our fiscal 'twenty two, with the majority of those savings benefiting our adjusted operating income. And finally, we have a proven, Dedicated team committed to driving value for our customers and our shareholders. We are proud of the way our teams have risen to meet the challenges over the past year. We recognize more challenges ahead, including difficult donor economics and the eventual loss of CSL in plasma. We are committed to taking action, managing costs and mitigating the impact without compromising future growth of our business. And while we have a lot of work to do in the coming quarters, we're confident that our team's experience, resilience and agility will ensure that Haamanetics has a bright future. With that, I will turn the call back to the operator for Q and A. Thank you. Our first question comes from Anthony Petrone with Jefferies. Your line is open. Thank you. And a couple of questions to start on guidance and then I'll shift to plasma. Maybe starting with earnings guidance Out of the gate, maybe just a recap of what is baked in for the Cardiva dilution To the earnings line in fiscal 2022, that would be the first question. And then offsetting that, how much Gain are you getting from the restructuring? And then perhaps maybe to round out the earnings question, you referenced price several times. So how much price erosion is baked into the earnings line? And then I'll have a couple more on plasma. Hi, Anthony. It's Bill. I can take your first one there. So on the guidance, your first question was on Cardiva. We have $65,000,000 to $75,000,000 of Cardiva revenue in the guidance. It's in line with what we had in the deal model. It is There is dilution included in the EPS numbers. We haven't disclosed exactly what that's going to be and we're going to stay away from the exact dilution that's in there. But it is slightly dilutive both on the operating income level and in EPS. Your second part of the question, I think it was related to The Yes, at the earnings line, how much is baked in for restructuring gains and then offsetting that to what extent is Price impacting earnings. Yes. So our let me just give you an overview of our operational excellence program. So Through the end of fiscal 2021, we recognized $34,000,000 in gross savings with about half of that dropping through to adjusted operating In FY 2022, we're anticipating an additional $22,000,000 of gross savings and we've Stated that about less than half of that is dropped through adjusted operating income because there's inflationary pressures and some investments in manufacturing That we've netted into the or against the gross savings. But in total, the $56,000,000 of Gross savings will be 60% to 70% of the overall program savings through the end of FY 'twenty 2. Okay. And then just pivoting to plasma, maybe a little bit on the 15% to 25% organic guide. Just to splice out what's in there for COVID headwind, it sounds like that's still lingering certainly through the first half. We also referenced last quarter contract wins as well as in today's prepared remarks. So how much headwind is baked in there From a basis point standpoint offset by contract gains and I'll just go to the last one in for Chris. Just maybe high level on the strategic Sort of comments today, we have a new competitor coming in Terumo. I'm just wondering if you could provide a little bit more detail on kind of the Strategic thoughts that are going on internally and some potential countermeasures, at least as you look at how the landscape is shifting here early on? Thanks. Yes. Anthony, you want to start, Duff? Yes. I'll take the plasma Guidance question. So the range that we provided was 15% to 25%. And what's included in the range there And it's most impactful in the guidance is the pace of the recovery related to the pandemic. And Coming out of Q4, we still have seen some weakness. Chris mentioned it in his remarks that we haven't seen Really a recovery coming out of the Q4. So through this through our Q1 and FY 'twenty two so far, The volumes have still been down versus the prior year. So that's reflected in our guidance. And at the low and high end of the There are just slightly different assumptions on the recovery. So at the low end of the guidance, we have Recovery not beginning until late in the second quarter and then accelerating throughout the back half of the year. In the high end of the guidance, we're a bit more optimistic and we are assuming that we see volumes recover earlier in the second quarter. In both cases though, we do expect that coming out of FY 'twenty two on a run rate basis that we would be at or above the volumes that we And then, one other thing that is affecting the guidance range, early in the year in FY 2021, we referred to A stocking order of about $6,000,000 and that stocking order has about a 3% or 4% impact, A downward impact on the guidance range this year. Okay. Okay. Yes. Thank you. Yes. So Anthony, on your questions regarding a longer term perspective, we remain very bullish on 8% to 10% growth in collection volumes to meet the demand for IG worldwide. Clearly, The pandemic has depleted inventories, so we fully expect as they are our collection customers to drive Higher volumes of collection as they did in prior years pre COVID to make up for that gap. So We don't see any structural change. We're excited about this. The actual recovery in the Q3 of last year is a good reference point in that regard. When we look at that recovery, clearly stimulus is the single largest factor. And as Bill has just articulated, It's just difficult to know exactly when the influence of stimulus is going to wane. So what we're forecasting is that Mid to latter part of our second quarter with robust recovery into the latter part of the year, probably offsetting seasonality or any other changes you would So we fully anticipate, but we think it's going to be delayed. We overlay on top of that What we're doing with our portfolio, which we remain very confident in the value proposition of that portfolio, the next link BMS conversions We expect to have that completed by year end. As I mentioned in the prepared remarks, that is for most of our Customers a precursor to NEXUS. All of those customers are have agreed to adopt NEXUS either U. S. Or globally With the exception of CSL, so those conversions are underway. They begin increasing earnest on the other side Next link, and we expect to have our existing base convert it to Nexus By mid year 2023, right? So we're enthusiastic about that and we are overlaying Persona With its 9% to 12% yield on top of that, which again, we described previously is a game changer in terms of excitement within the industry. From our vantage point, we double down on technology and innovation and drive that adoption through the market. Paced by our customers whose first, second and third priority understandably is recovery from the pandemic. I'll get back in queue. Thanks. Thank you. Our next question comes from Larry Keusch with Raymond James. Your line is open. Great. Thanks. Good morning, everyone. I guess I have two questions here. First for Chris. Look, Chris, I think Part of what's reflected in the stock price is concerns from investors that you sort of got blindsided by what CSL wound up doing with its contract and the potential for other customers to move In that direction. So I'm just curious as to your thoughts as to, again, How you fit into the equation here? And what can you tell us, I guess, Specifically about the contracts and perhaps some longevity that could give people some comfort that this can't necessarily change 3 months from now? Yes, Larry. So we're in constant dialogue with our customers, conducting business reviews, planning for recovery. All of those customers, as we've said, with the exception of CSL, although CSL has agreed to adopt in Europe and that's underway, all of those customers Have agreed to adopt Nexus, right, in the U. S. Or globally. And the conversations we're having with them is about How to make that rollout as minimally disruptive as possible to their ongoing business given the heightened urgency around recovery. So we're under contract. We feel great about what the competitive position of the product and what it means for them. They're excited about the adoption and that's what our conversations are focused on. And Chris, just a quick follow-up on that. When you talk about deployment of NEXUS into your customers, can you help us understand sort of How broad that is within those customers in terms of the agreements and the deployment there? And can you Even provide any sort of even at a high level some thoughts on the longevity of your contracts to help give There's some comfort that there's some runway here. Yes. I want to stay Larry, I want to stay away from specific conversations around customer contracts. It's confidential and proprietary and candidly in a tightly contested market like this, it's just not helpful, right? So As a general course, we don't talk about individual customers. We're not going to talk about the details of those contracts. What I can tell you is The change out of a network is no small feat for us, for our customers. So the agreements we have in place Cover all of the existing PCS2 devices and the associated disposables in the U. S. Or globally as mentioned. I don't think we or our customers take those change out slightly. It's predicated upon a belief on the value proposition of the product 1st and foremost, and how it will enhance their collection capabilities, the yield, the cycle time, the connectivity And the donor satisfaction. And then I think increasingly it's predicated upon our commitment to innovation and technology. We're not In any way, shape or form, resting on our laurels. Through the pandemic, we introduced not only Persona, but the Donor360 app that's having meaningful benefit all of our customers in the gold industry wide, we're not backing off of our technology. We'll double down and we have through the pandemic and beyond. Okay. That's really helpful. And then I guess for Bill, just trying to again Wrap my arms around the guidance for fiscal 2022. I'm wondering, Bill, if you can Just sort of help bridge the operating margin assumption that you've got in the guide at 2019 to 2020 versus The 2020 operating margin, which was closer to 22%, just trying to understand the downward pressures there from what you 2020 to the guide for 2022. Yes. Thanks, Larry. So the largest contributors Of the difference between FY 2020 and our guidance for this year would be the 1st and foremost is the plasma volume, Right. We all know that plasma volume is highly leveraged at The operating margin level. Okay. So when plasma is off, we're not we said we would be at the end of FY Pressure on the operating margins. The second piece is the Cardiva dilution. And then Our operating expenses are, I would call it neutral, and I want to say that because we are in the process of Getting back our operating expenses to levels where they were in FY 2020 after being significantly down in FY 2021 because of our cost containment efforts. Okay. And just as we try to dial in the right operating expenses here, can you help us think a little bit about, Bill, again, I know you said that Cardiva would be dilutive, but can you help us think a little bit about the incremental OpEx that's coming through on that acquisition? Thanks. Yes. So I would when you look at our Q4 in FY 2021, that could Your starting point for expenses, give or take. And then when you look at Cardiva, right, we know we said $65,000,000 to $75,000,000 of revenue, so use a midpoint, Apply somewhere in the 75% margin range. And if we're negative on the operating income line, you can Back into an expense amount that gives you an idea of where you should be. Great. Thanks very much. Appreciate it. Yes. You got it. Thank you. Our next question comes from Larry Solow with CJS Securities. Your line is open. Great. Good morning. Thanks for taking the question. Just a couple of follow ups on the Cartiva piece first. I thought when you guys made that acquisition, It was going to be sort of, I think, $0.10 to $0.20 dilutive in the year, is that in the 1st year? And most of that I anticipate at the time was going to be interest expense, which was before you did the convert. So can you help me just bridge that? Has that changed at all? I guess you're not I gather you're no longer giving that guidance, you're not giving specific guidance on Cordova. So it seems like the Operating expenses are higher than initially thought or can you just give a couple more color on that? So, Larry, the revenue range is Similar to what we provided and you're correct on the EPS range of what we gave initially. We have done the convertible debt offering, which did remove some of the interest Expense related to that. But still on the operating income line, we are Negative. We're anticipating the amount on operating income to be negative. But we'd probably be at the on an EPS basis, We'd be at the lower end of the range that we had provided before on the EPS line. Okay. And then just to clarify on Plasma. So Chris, it sounds like you're pretty confident that by the end of fiscal 2023, the majority, if not all of your customers will have converted to NEXUS With the exception of CSL, who in theory wouldn't be a customer then anyhow, in the U. S. At least, I should say. Is that correct? Yes, with your clarification that we are under contract with CSL for Europe and that conversion has already begun and we intend both You communicated their intent to honor the contract, which is a long term agreement. And the numbers this year, it sounds like you probably Timing wise, maybe you get some conversions at year end, but I guess and you mentioned in guidance, maybe at the high end of that plasma range, you're putting in a little bit of conversion there. Is that Yes, that's exactly right, Larry. We've got to continue to power through, which is challenging in a pandemic environment, the NexSys, NexLink, DMS software upgrades, we've done well with that. We continue to do well with that. We anticipate completion as scheduled By the end of this year, for anybody who's converted, we are actively moving on the NexSys PCS. And the pace of that conversion is really, as it has been from the outset, Dictated by our customers. We stand ready to go and they need the plasma. So anything we can do to pull that forward, we'll take advantage of. But our guidance reflects likelihood that both the recovery itself and the conversions are a second half event and into 2023. Okay. And then just shifting gears lastly, just on the cost structure. And I know you're not ready to sort of give your outlook for fiscal 'twenty three. But Chris, obviously, you've done a great job in rightsizing the Since you came 5 or 6 years ago. Just from a high level, I guess it's a 2 part question. On the operational excellence program, Getting that remaining $25,000,000 to $35,000,000 target savings, which maybe is a little bit lower now because of inflation, is that going to be an achievable number still? Because I know part of that Sort of $80,000,000 $90,000,000 was predicated on volume gains in plasma. So clearly, you're not going to get the yes, go ahead. What I would say about the program Larry is, we're really proud of what that team has Don, it's not just global manufacturing and supply. It's R and D. It's quality assurance. It's our business services. Collectively, They've made tremendous strides despite whatever the world's thrown at them. We did take a view at that, which said we're going to capitalize on High volume and throughput businesses. That's changed somewhat as a result of CSL's decision. So that team is in the process of Re examining what are the levers that we can pull intelligently, the first priority of that initiative is to ensure continued world class Quality and we're not going to compromise that. The second priority is world class customer service. We're not going to compromise that. We then look at the savings, what we've Signed up for to date in the pass throughs, etcetera, that's hardwired. What we intend to do and what Bill explained, I think, in his prepared remarks is We will now step back with the adjusted volume that will begin in our FY 2023 with the loss of CSL's U. S. PCS II When we look at that, we'll figure out what OEP needs to become as a result of it. And as you said, I think this is a team through complexity reduction, through OEP, through the cost management during the pandemic That's demonstrated their commitment to being good stewards financially, and we're going to continue to do so here. But we're not going to do it in a way That's going to compromise our leadership position in the markets where we compete. Absolutely. Okay, great. Fair enough. I appreciate the color. Thanks so much. Thanks. Thank you. Our next question comes from Mike So with regard to the Nexus upgrades, you're saying you Expect those to be completed by mid, I think, fiscal 2023. And so is that right? And What is your expectation around Persona? Is that going to be kind of beyond that? Is that like another upgrade on top of Nexus, I assume? Yes, Mike, you have it exactly right. It's mid-twenty 3 fiscal 2023 and the Persona discussions are going great. We're having those in parallel. I think different customers will view the upgrade to Persona differently. There's a series of Clarifications, tests, etcetera, given the magnitude of the change for them. So we're working our way through that. What's reflected in our guidance is the contracts we've already reached. And as we get closure and pull some of the additional opportunity in, We'll communicate through our guidance accordingly. Okay, thanks. And then, I don't know if you know the answer to this, but just with regard to the stimulus program, I mean, there's the cash payments, but there's also Extended unemployment that I think goes through September. So do you have a feel for whether it's just the cash one time Stimulus payments versus the added unemployment payments that have caused the pressure on the collection volumes and Because if it is unemployment, I mean, we're looking at like September timeframe, but if it was the stimulus then could occur earlier, maybe that's why Your guidance is so wide and you're uncertain about the timing. Yes, Mike. It's that is a driver of the 15% to 25% range on our guidance for growth in revenue on plasma. And it's really a function of When does that kick in? And you are right, there are multiple components of this, whether we're looking at the federal dollars or the state dollars, whether we're talking about One time payments, whether we're talking about the weekly unemployment, additional subsidies. There's even provisions for Tax credits that get factored in beginning mid year, calendar year. So it's a complicated Confluence of different factors. We've worked hard to model that. We're having conversations obviously with our customers about that to understand their perspective And how much of that's reflected in the forecast they submit to us? At the end of the day, what we're trying to get to is what is disposable income? What is Household savings rates net of all this. And I think we had some good learnings from the past year. And while I think we struggle to be precise in the forecasting of it, in both directions candidly. I think we've learned a bunch and That's reflected in the range that we put forth. Okay, thanks. And then I just had One clarification question on the this PCS2 tech enhancement pricing issue. Can you maybe elaborate on that a little? I didn't understand what that was. It sounds like it's some sort of headwind on pricing on the legacy PCS-two units or something? Yes, there is a it's a legacy agreement, long dated agreement that was sunset here just recently And it's just a change to there was an enhancement we made. We got price for it at the time years ago. It was a time bound agreement and the agreements expired. Okay. And is that all the customers or just one customer or? It was with one customer. Okay, got it. Thanks. Thank you. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open. Hi, Chris. So you've talked before about your focus on M and A to really diversify the portfolio. You've also completed several divestitures, strategic exits to just get out of lower growth, lower margin businesses. So as you kind of look ahead and I know there's still a lot of unknowns But do you feel more compelled to prune the portfolio in greater magnitude, just give yourself maybe more flexibility or to drive further growth and profitability enhancements? Yes. Drew, I appreciate the question. From our vantage point, at one level, this doesn't change anything, right? We are focused On growth, organic, inorganic, shareholder value creation long term. We still have aspects of this portfolio that are Probably not part of the future of this company. And intelligently and thoughtfully, when we can do In transactions that are value creating, we'll address that, right? In the interim, we are highly focused on delivering full value for our Customers across all of our customer base. So I'm impressed and pleased by what the team was able to get done this year, the divestitures that we Called out in terms of very antiquated software in our U. S. Blood center donor market and some stuff that was very isolated for Europe. Just we are highly committed to software as a growth lever for the company as our customers demand it, but those programs were Just not that, right? They're very antiquated. I think similarly, the divestiture of the Farhato manufacturing facility for whole blood filters, We were able to transition that to a world class supplier who will do great things with this and we got back operating agility in our manufacturing network. We'll continue to look for those type of opportunities for sure. In terms of the acquisitions, we've been busy, right? And we've done a bunch of things culminating in Cardiva. There was a discussion earlier about Cardiva and what I think could potentially get lost in all of this because of our reporting. We are very pleased with the work so far to integrate and assimilate, right. We closed the transaction in March And we have been full steam ahead. We've gone out of our way to avoid any disruption to that business. And the results that we have seen through the first 3 months of the year clearly are evidence of that. This is an exciting opportunity. It's a jolt of energy, not only to the Cardiva team, But also to our own hospital business unit. And I think you're seeing that in our results in terms of the pace of recovery and The growth therein. So electrophysiology, intervention cardiology, exciting growth segments for us. And Yes, we really like our chances of what's happening with the Baskayne portfolio. Got it. Thank you. And actually on that topic, Just touching on your outlook for Cardiva for fiscal 2022, I see your guidance is $65,000,000 to 75,000,000 I know you mentioned that they did about $8,000,000 in March given your financials, but I just kind of want to better understand kind of the run rate there. I mean, it sounds like it's over a $20,000,000 quarterly run rate. So you can just help us better understand That in the context of your $65,000,000 to $75,000,000 guidance. And then is fiscal 2022, is it more focused on kind of going deeper in existing Sure. I understand the question. From our vantage point, right, we've We spent a lot of time and diligence. We put together what we think is a very robust deal model, the $65,000,000 to $75,000,000 is a direct take from that. And it's early days. We're excited by what we see. We understand if you annualize that March number, you get to a different place. We're not ready to do that yet, right? This is a rapidly growing product. It grew 50% year over year last year under Cardiva's leadership. And we need to spend a little bit more time with it to truly understand the forecast and the growth potential. As we learn more, We'll share more and if need be adjust accordingly. From what we're seeing, the primary benefit is Twofold. We are yes, that team is hyper focused on driving penetration in the top 600 U. S. Based interventional cardiology and electrophysiology hospitals, right? And there's some back and forth around us and geographic But the bottom line is that team is executing in a very powerful way against the opportunity that's right in front of And we see a lot of excitement there. In parallel, we are looking for opportunities to augment that and pull aspects of the That's something we're going to be talking about more in the coming months across our entire portfolio in part in response to changes in the plasma landscape. So we will seek out opportunities to do more and to do it sooner and Cardiva will be a place that we look for that type of opportunity. What we're excited about is what they're doing with the resources they have. We think we can do more with additional resources. What you don't see in the results, but is equally important is the investments that Combined teams are making clinically and more broadly to build out our footprint and our potential outside the U. S. So I think that will come to fruition when we have a chance to sit down and talk more broadly about the portfolio. We'll provide additional clarity, that's result of the diligence and the early work together with the Cartiva team. But it's exciting. We're delighted to have them on board and they're delivering accordingly. Thanks for taking the questions. Thank you. Our next question is a follow-up from Anthony Petrone with Jefferies. Your line is open. Thanks. Just a couple of quick follow ups on Cadence and Plasma. First would be just On CSL, they have the 1 year option extension to June 23. I'm just trying to kind of run through that scenario. When would they have to sort of Indicate to the company that they would have to sign on for that. And maybe what are your thoughts on the probability that they re sign for 2023? And then the last one on Persona. It sounds like discussions are ongoing. I mean, when we think about Upgrades to Persona and timing, is there the potential for any in fiscal 2022 or do you think that's a beyond fiscal 2023 event? Thanks again. Yes. Thanks, Anthony. In terms of the agreement with CSL, We communicated a lot about that. So I'll stay on that because we have spoken about it. The agreement has One additional extension that is at CSL's discretion, they would need to notify us in writing By the 31st December of this year, if they intend to go beyond June of next year, And they have one more of those extension periods available. In terms of likelihood of that, it's a question best directed at CSO. In terms of Persona, we have included a handful of signed agreements and planned rollouts, of which have already happened, some of which will happen over the course of the year. We are obviously in discussion with others and we would We'd be excited to pull those forward. In some cases, it's very straightforward. In other cases, there's important underlying science in terms of handling a bottle That is a third larger understanding, the implications for fractionation given the higher yields and Testing, which we've done, but the customers need to do because of their fractionation formulas with regards to the What is the protein concentration? We are working collaborative with our customers through all that. The pace of it makes it a little difficult to predict. But as we Reach closure on those and pull them in, some of which we would hope will happen in FY 2022. That's what pushes us towards 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.