Earnings Call: Q4 2020

May 5, 2020

day, ladies and gentlemen, and welcome to the Haemonetics 4th 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 a question and answer session. Please be advised that today's conference maybe recorded. I would now like to hand the conference over to your speaker today, Ms. Olga Zayed. Ma'am, you may begin. Thank you. Good morning, everyone. Thank you for joining us for Haemonetics' 4th quarter 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 Q4 fiscal year 2020 results to our Investor Relations website, including the analytical tables with the information 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. 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 flight 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. Qimetics cautions that these forward looking statements are subject to risks and uncertainties, including the potential impacts from the COVID-nineteen pandemic on our results and other factors referenced in the Safe and 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, 1st 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. 3 broad objectives guide 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 3rd priority is driving growth with a through cycle mindset. We are building critical capabilities and looking for new opportunities. Last month, we welcomed Anila Lingamnani 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 our planning across 3 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 healthcare customers. Our technology is being used to fight the virus head on. The BUs 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 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 4th quarter and 6.3% for fiscal 2020. Adjusted earnings per share were up 13% in the quarter and 38% for the year. COVID-nineteen had a limited effect on our fiscal '20 performance, up to 2 months in China and parts of Asia and 2 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 4 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 'twenty, 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-nineteen impact was limited to disposable sales in the final 2 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 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 NextLink conversions and contract amendments in previous quarters. Nearly 10,000,000 YESS collections have yielded 230,000 incremental liters 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-nineteen lock down 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, campuses, restricted border travel and less availability of public transportation, impeded collections. Our customers are responding, and 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 Q4 by COVID-nineteen 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-nineteen impact in our Western markets occurred later in the quarter and therefore was not as pronounced. Excluding the estimated impact of COVID-nineteen, 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-nineteen 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 visoelastic testing. We will continue to invest in this business to drive expanded use in different hospital and outpatient settings. In April, we acquired Anacor and their CLOT PRO technology to strengthen our offering across lab based and site of care testing. CLoT Pro has more assays than any other visoelastic 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 clot pro will strengthen our leadership in markets we serve. Cell salvage and transfusion management were down 1.8 performance with mid teens growth in both the quarter 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. Sales salvage continued to be challenged throughout the year. The business was down by double digits in the quarter, mostly due to COVID-nineteen 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-nineteen in April, across the 3 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. Sellsaver 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 CellSaver 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 haemonex long term and have robust plans to expand our presence. We believe the COVID-nineteen 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 the return of non elective procedures to pre COVID levels. We are assisting researchers in the investigation of COVID-nineteen associated coagulopathy and its thrombotic complications. BloodTrack software is deployed in several remote 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 presence in Asia and Europe, where the net impact on our 4th 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 loss that we called out last quarter. We expect this business loss to result in a $17,000,000 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 competitive 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 2020, primarily due to previously discontinued customer 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-nineteen. 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'll begin this morning by briefly discussing our Q4 fiscal 'twenty 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 will start with adjusted gross margin, which was 50.3% in the 4th quarter and 51.6% in fiscal 2020, an improvement of 320 and 4.10 basis points, respectively, compared with the prior year. Consistent with the 1st 9 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 4th quarter were $72,700,000 a decrease of $2,000,000 or 3% compared with the prior year. Adjusted operating expenses for fiscal 2020 were $292,800,000 essentially flat when compared with the prior year and as a percentage of revenue were 29.6 percent, a decrease of 80 basis points. We continue to realize productivity savings and have low research development costs for the fiscal 2020 as we completed some of our clinical trials for TED. These lower costs were partially offset by additional investments in sales and marketing, mainly in our hospital business. 4th quarter adjusted operating income of $47,300,000 increased $4,500,000 or 11% compared with the prior year and for fiscal 2020 was $218,000,000 an increase of $53,000,000 or 32%. Adjusted operating margins were 19.8% in the 4th 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 4th quarter and 15% in fiscal 2020 compared with 22% 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 4th quarter adjusted earnings per diluted share was $0.69 compared to $0.61 in the prior year, an increase of 0 point $8 or 13%. Given the timing of the COVID-nineteen pandemic and its progression during the Q4, 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-nineteen in the 4th quarter was approximately 0 point $6 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 2019, our adjusted earnings per diluted share increased by 0.9 $2 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 $139,000,000 in fiscal 'twenty compared with 71,000,000 dollars in fiscal 2019, well within our guidance range of $125,000,000 to $150,000,000 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 '20. The working capital cash outflow in fiscal 'twenty was $85,000,000 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 $137,000,000 We have an existing credit facility of $700,000,000 that does not mature until the Q1 of fiscal 'twenty four. Total debt outstanding under the facility at the end of fiscal 'twenty was $384,000,000 split between our remaining term loan balance of $324,000,000 and borrowings under our revolving credit line of $60,000,000 The majority of the principal payments are weighted towards the end of the term. In April, we drew down an additional $150,000,000 on the revolving credit line, which bolstered our existing cash on hand to nearly $300,000,000 After this drawdown, we have an additional $140,000,000 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 we'll remain opportunistic with M and 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 $175,000,000 of our shares, and we now have 3 $25,000,000 remaining on our current share repurchase authorization of up to $500,000,000 At this time, we do not foresee repurchasing shares in the first half of fiscal 'twenty one, and we will continue to be disciplined in our approach to ensure adequate cash on hand. Over the last 3 years, we have repurchased nearly 4,500,000 shares, which is about 9% of our total shares outstanding. We are pleased with our financial health and our fiscal 'twenty results. However, due to the continued uncertainty caused by COVID-nineteen, including its duration and the potential impacts on our business, we are not providing our fiscal 'twenty one guidance today. Also, we are not reaffirming our previous comments on our fiscal 'twenty one 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 non essential 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 a 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 Q4 and fiscal 2020 results are evidence that our strategy is working, and we are on track to complete the turnaround this year. The 4th quarter impact of COVID-nineteen was minimal. However, the Q1 impact will be meaningful, but it is difficult to quantify due to the uncertain nature and timing of the preservation and the 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 and A. Thank 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 4th calendar quarter of the year, we could see some type of normalcy. I just wonder how you would react to that kind of relative recovery? Then I had a couple of follow ups. Yes, David, it's Chris. Thanks for the question. We've actually set forth 2 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 and kind of this episodic toggling between opening and closing of markets as we get ample testing, etcetera. 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 3 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 $500,000,000 that we book in plasma or the $300,000,000 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 ilks 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 nuances of 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, tie to nonelective procedures. Cardiovascular and trauma are our big drivers. And as 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 3rd point is a bit of an overlay, but the reality is U. S. Is 2 thirds 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 accelerated 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 2 more for me, and I'll ask them upfront here. So Chris, how do you think COVID-nineteen is going to impact your customers? And there's there's 2 areas I want to focus on. 1, just if you could touch at all on serum positive COVID patients in terms of serum plasma donations, if you think that's going to be a material driver or frankly just not really that material? And the second, probably more important is, how does the COVID environment impact customers' desire to adopt NexSys? And I feel 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, I think for the update on the CRI, I just wondered if you can update us on the OEP plan and how where you are in that plan and how COVID could impact that plan here over the balance of 'twenty one? Thanks so much. Thanks, David. Really, plasma plays a role, 3 potential roles in the treatment of COVID-nineteen. There is ongoing trial work and some interest in just straight application of IVIG, particularly to severe cases to just help as a spike to the immune response and the tamp downs and some of the over response that you see. So that's one piece. 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 in active forms of engagement in 20 different countries around the world, 1 convalescent plasma. I think the 3rd piece, which is probably the most grounded scientifically, is the notion of a hyper immune globulin, whereby they take convalescent plasma and they work through the antibodies and essentially create a drug with 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 midsummer, 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 part of it. And it's one of the ways that our technology is being used to fight virus head on. In terms of your question about Nexus, the Nexus value proposition now at $10,000,000 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 no, we intend to continue to push ahead with Nexus and I think our value proposition just got stronger. Hey, David, it's Bill. Just your other question on 2 savings programs. First on complexity reduction, yes, that program was completed. We haven't talked about it much in this fiscal year because mostly actions undertaken were undertaken already. So the savings just came through as planned and we delivered our $80,000,000 ish of savings that we committed to. In terms of the OEP program, we're still driving forward all the planned initiatives related to that program, and we still are committed to meeting the savings as planned. If you remember, that is a full 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 $80,000,000 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 that are coming through the plan to come through the P and L for FY 2021. 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 2 for me. First, Chris, obviously, plasma collections are extremely important to the businesses as you have noted. I know that HEMA X 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 3 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, which is 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 or erecting partitions, etcetera, 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 punch line 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 in 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 had spoken about some of the greater macroeconomic factors, right? If the economy opens back up and some outbreak happens again with COVID-nineteen and that sets back the whole world of the United States in particular, then that would impact the guidance too. So for me, it's more of our predictable revenue trend, right? When you're looking at doing forecasts overall, predictability is most important. And we don't want to guide and then 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. Yes. Thank you. Our next question comes from Anthony Petrone from Jefferies. Your line is open. Thanks and I hope everyone's healthy, staying safe. A few questions for me. One would be on covalon plasma 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. Thanks. Yes. Thanks, Anthony. 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, 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, lost and 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, to 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 voxeline largely as a bridge to vaccine. It would be effective for moderate to severe onset, probably a hospitalized patient that is 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 expert perspective on that. We just go by what we're hearing from customers and the external experts. But I think over the next 9 to 12 months could be an exciting bridge is, 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 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 closed 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 now, 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 6 month safety supply. We'll get them there, but it'll take the next 2 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 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 again and everyone stay safe. Thanks, Anthony. Yes, on the operational excellence program, 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 $80,000,000 plus of savings. Our intent is still to go as fast as possible with 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 FY 'twenty one and we'll go year by year after that. And if we see some movement up or down, we feel like we can change the overall guidance of the program, we'll do that at that point. But yes, we're full speed ahead of 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 CloudPro and maybe how that will interact with TEG and TEG6S? Yes. Thanks, Steve. Appreciate that. Hope all is well. With regards to Anacor and the ClopPro technology, this is an active tip product. It's essentially a really, really nice complement to our existing TEG 6S business. We imagine that over time displacing the TEG 5,000, particularly in a lab space setting. It was developed by an individual and a team that have just deep roots in visoelastic testing. We have CE Mark 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 in the landscape there is a real opportunity for us. We've talked in the past, we believe it's a $500,000,000 market opportunity in total that expands with the acquisition of our non hospital based rights from Coramet, the originators from PEG. So this is kind of a 1, 2 combination. It opens up the aperture outside the hospital for us inside of care. Anacor itself brings us even more squarely into the lab space with a state of the art product that's low cost to manufacture and has the necessary support. So we're hopeful this is how we drive against what will be a $500,000,000 plus opportunity for us and we manage it as an integrated portfolio in hospital. Thanks for that. 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? Thank you. Yes. So we've I think the progress we've made in our corporate turnaround over the last 4 years has equipped us to respond to this COVID 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 6 production facilities worldwide. All 6 are operational. We've had our experience with COVID and we have detailed protocols for how we address it. So I would say they are 100% operational. The actual capacity varies depending on in Malaysia, where we have restrictions around how many folks were allowed to have at work and which folks were allowed to have similar challenges in Tijuana and interesting factors 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 3 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, 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 daily 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. 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 family as well. Just most of my questions have been answered. Just a couple maybe on the plasma and hope for recovery, hopefully as you said, 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 laxed and donor confidence improves, things will rapidly ratchet. Yes. Hi, Larry. Thanks. And hope all is well with you and your family. Look, 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, etcetera. 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 because there are counties, there are cities, etcetera. But in the Maine, 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 OIC. 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, etcetera. The vast majority of that has been corrected for, but it's a challenge. And as all these things, and I on the Board of AviMed, 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, etcetera. But we're also very micro about this. What will it mean for the individual collection centers? There are 800 collection centers in the 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 6 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 and different adaptive measures. I mean, I assume some of them are staying have 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 lower donors in. I guess those are levers that don't really concern you per se, but indirectly would 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 do they know and 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, practicing social distancing within the centers, how to spread them out, etcetera, which is my reference to a new normal. I think some of that will persist long after the world's figured out an appropriate scientific response to COVID-nineteen. 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 to that proactively. Great. I appreciate the thoughts. Thanks. Thanks. Thank you. Our next question comes from Mike Matson from Needham and 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 Hossbra. I think Chris has gone through that. What we did quantify were 2 things. We quantified the impact on EPS. So EPS overall, we said 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 a 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. No, that's helpful. But I guess what I was getting at is when we get into the Q1 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? I 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 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 revenues. 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, I understand. And then just my final question would be, maybe this ties into Chris' comments on 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? Thanks. 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 3 different arms that the folks are looking at for the use of plasma, convalescent plasma, hyperimmune, etcetera. 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 the 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 an atherosclerotic 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 see a surge in demand for that early on. But 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 will 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.