Earnings Call: Q1 2019

Aug 7, 2018

Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Jerry Gould, Vice President, Investor Relations. Please go ahead. Thank you. Good morning. Thank you for joining us for Haemonetics' Q1 fiscal 'nineteen conference call and webcast. I'm joined today by Chris Simon, President and CEO Bill Burke, CFO and Chad Nicholl, President of our Blood Center Business Unit. Please note that our remarks today will include forward looking statements. Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form 8 ks we filed today and in our other periodic reports and filings we make with the SEC. This morning, we posted our Q1 results to our Investor Relations website. We included fiscal 2019 guidance, and we posted 2 tables with information that we will refer to on this call. Those tables are Pages 23 within the document entitled Analytical Tables and Supplemental Information, to which we provided a link in our release. Today, Chris and Bill will discuss elements of our financial and business performance, trends in our served markets, our strategy, our complexity reduction initiative and our fiscal year 2019 guidance. Chad will discuss highlights within our Blood Center business. Then we will take your questions. Before I turn the call over to Chris, I would like to mention the treatment in our adjusted results of certain items, which by their nature and size affect the comparability of our financial results. Consistent with our past practice, we have excluded certain costs, charges, asset impairments and income items from the adjusted financial results we'll talk about today. In the 1st quarters of fiscal 'nineteen 'eighteen, we excluded restructuring and turnaround charges, accelerated device depreciation, deal related amortization expense, asset impairment and related charges and illegal charge. In fiscal 'eighteen, we excluded the gain we realized upon sale of our Sebra line of benchtop and hand sealers. Finally, we excluded the tax effects of excluded items. Further details of 1st quarter fiscal 2019 excluded amounts, including comparisons with the same period of fiscal 2018, are provided in our Form 8 ks and have been posted to our Investor Relations website. Our press release and website also include a complete P and L and balance sheet and a summary statement of cash flows as well as reconciliations of our reported and adjusted results. That, I'd like to turn the call over to Chris. Thanks, Jerry. Good morning, and thank you for joining today's call. We are pleased with our start to fiscal 'nineteen. Our performance in the Q1 is evidenced on many dimensions that our plans are on track and our strategies to compete in attractive segments, achieve market leading positions and deliver superior performance are working. We are executing our multiyear turnaround and pivoting to accelerated growth. In the Q1, revenue grew nearly 9% as reported and more than 7% in constant currency. It was a global effort propelled by our 2 largest growth $5.9 compared with $0.33 in the prior year's Q1. Turning to our BU results. Our customer focused structure is enabling teams to execute on our growth plans. Let's start with Plasma. We delivered revenue that was up 14% in the quarter, driven largely by volume. Growth was widespread across multiple regions with the U. S. Contributing strong double digit growth. Disposable kits and liquids both grew double digits, rising with increased overall collection volumes, partially related to customer order timing. Anticipate continued collection volume growth and have been investing in our manufacturing capabilities to keep pace with market demand. We recently increased our bold bottle and harness production capacity by about 10%, and we will bring an additional 50% disposable production capacity online in the second half of fiscal twenty nineteen to meet future demand. We also received FDA approval this quarter for an additional sodium citrate manufacturing line and for an additional sterilizer to support liquids growth. We are moving forward with the launch of NexSys PCS and NexLynx DMS, providing an integrated platform that also includes disposables, technical support and service. All 4 launch work streams, regulatory, contracting, device manufacturing and center conversion are on track. The FDA clearances for the NexSys PCS have enabled us to engage in donor center experience programs with many of our customers. To date, we have performed more than 50,000 NexSys plasma collections. There are several benefits to these programs. First, the donor center experience further pressure tests the device and its functionality. 2nd, we are learning together with customers how to modify their SOPs to expedite center conversions and technology adoption. 3rd, customers are able to experience the value proposition of the integrated system firsthand. Feedback from center staff, phlebotomists and donors have been very positive about the increased yield, greater productivity, improved quality and better overall donor experience. In parallel, we are advancing negotiations with our customers and have signed several long term NexSys contracts, one of which also included a competitive win back to NexLynx DMS. The new platform is performing fully as expected, and that is reflected in our new customer agreements. We are proceeding with implementation and have placed more than 500 devices in a dozen center conversions with our first wave of customers. Donor center conversion is a complex process that requires thoughtful planning and coordination, coupled with thorough preparation and swift, skillful execution. Conversion typically involves 36 to 54 NexSys PCS devices. We offer customers the option to convert during the day or overnight. Our focus is on minimizing disruption to daily collections. In advance of the center conversion, 2 to 3 customer support staff complete a 3 day churning program run by Haemonetics on device operations, preventive maintenance and troubleshooting. Dedicated Haemonetics teams, supplemented by external contractors, work closely with these technicians throughout the installation. New devices are inspected and shipped to donor centers for installation. The conversion begins with the PCS to device decontamination and removal. The old devices are packed for return in the same containers used to ship the NexSys PCSs. The new devices are assembled, custom configured with a screen view's format and data parameters, then tested, calibrated and staged for installation. Customer technicians perform a verification process and update their to our NextLINK DMS software where appropriate to create the optimal integrated plasma collection solution. Customer employees return to work the next day to a fully operational and converted Nexus enabled center. Final operator training is conducted immediately prior to reopening the center. It is early days, but this process is working well. In fact, on our first commercial go live with our new platform, the customer had its largest volume day ever. We are confident in our ability to roll out the device seamlessly and we are ramping up our center conversion capability. We have manufactured devices needed to meet all of our contracted customer demand And in anticipation of continued successful contracting, we have engaged a second device manufacturer. In summary, our experience to date across all 4 launch work streams gives us confidence in our ability to deliver Nexus as planned. Moving to our Hospital business. We started the year growing 6%. We believe our ongoing investments are creating growing momentum as this is the first time the Hospital BU saw strong performance in both domestic and international markets. Hemostasis Management's 21% increase of 19% growth in the U. S. And 24% growth in international. TEG performance included robust disposable growth and increased TAG 6S capital sales. Our hospital business launched 2 product line extensions in the quarter. TAG Manager 4.0, a software solution with a new feature called the Interpretation Guidance Module, which gives clinicians easy access to test information and customize clinical alert messages and a CellSaver connectivity solution that enables the transfer of blood salvage procedure and device data from CellSaver Elite to a hospital's EMR system. We are continuing to invest in R and D to build evidence for our technologies and expand our product portfolio. Overall, we are encouraged by our performance in hospital and critical elements of our tailored go to market strategies in key geographies are starting to take hold. Our product launches are propelling us forward and we are seeing robust global demand for capital and disposables, but we must continue to manage the vagaries and the resulting unevenness of our hospital customers' capital buying cycles. I'll now turn the call over to Chad Nichol, who runs the Blood Center business unit. Chad was recently promoted to President in recognition of the progress his team is making to stabilize and improve performance. Thank you, Chris. Today, I'd like to provide an update on the progress we've made in implementing our strategy of achieving stability within the Blood Center business unit, a goal that reflects the value it creates within Haemonetics and for our blood collector customers that we serve around the globe. In fiscal 2018, we completed the reorganization of our commercial and manufacturing teams. In the process, we removed layers of management and today we have a flatter organization that is aligned with the business' role to be a stable and reliable asset for the company. We are closer to the technical aspects of the products we make and the market realities our customers face daily. Today, we have a richer understanding of the business' fundamentals. We separated and stabilized it, and this clarity allowed us to optimize and simplify by reducing complexity and lowering our cost structure. 1st, in an effort to reduce complexity, we embarked on an SKU reduction program, Starting with the baseline of more than 1300 products available for commercial sale, we now have a portfolio of 2 19 products with an eye towards further standardization without affecting our customers' operations. Next, we have evaluated our commercial contracts of significance and made tough calls to reprice or exit as necessary certain business arrangements with suboptimal pricing that did not serve the best interest of our business and shareholders. These moves have resulted in heightened focus and improved execution to shore up businesses that we value. One outcome is that we successfully negotiated the contract extension of our largest whole blood customer in North America. In our indirect markets, we continue to make progress in optimizing our distribution network and ensuring that we are working with the best partners in each market. We have also taken a hard look at how we supply product to these markets and the improvements we have made reduced excess and obsolete inventory by more than 80%. We also have more than 80% of our portfolio projects focused on efficiency gains, improving cost of goods sold and the underlying quality of our products. Unfortunately, late in fiscal 2018, we had a recall of our ACRADOSE platelet pooling kits in North America caused by an issue at one of our suppliers. We remedied the issue with our kits and have returned to market. However, it highlights our ongoing need to be vigilant across our quality management programs and in this case, enhance our supplier oversight. In May 2018, we entered into a long term agreement for the continued supply of certain filter medias to further stabilize the business. This resulted in the decommissioning of some assets that are not in our plans going forward. This will allow our Fajardo Puerto Rico site, whose recovery and the aftermath of Hurricane Maria was exceptional, to remain focused on producing best in class filters at favorable costs for the blood collection industry. We continue to make deliberate quality investments in the business that have both high returns and short payback periods. For example, the recent release of a double dose platelet protocol at our largest customer in Japan and the launch of our universal platelet protocol in China. These moves help to slow the rate of decline and provide further stability in both our business and key customer relationships by ensuring our best technology is available in these markets. Through these efforts, we delivered revenue of $64,000,000 in the Q1 of fiscal 2019 and continue to stabilize the decline year over year at minus 3%. While we benefited from order timing, this quarter's a 14% decline in fiscal 2017. And now I'll turn it back over to Chris. Thanks, Chad. At the enterprise level, we are focused on a few key areas that in addition to our product launches will support accelerated growth. Our complexity reduction initiative continues to be an important factor in reducing our cost base to free up resources to fund growth as we change the way we work and improve the efficiency of our processes. We are on track to deliver savings at an annual run rate of $80,000,000 by the end of fiscal 2020, including a planned run rate in excess of $40,000,000 exiting fiscal 2019. Improving operating performance, product quality and supply are critical to our growth. We have made progress in improving our operating efficiency, but challenges remain. We are pleased to announce that Josef Lorenz will join Haemonetics later this month as Senior Vice President, Global Manufacturing and Supply Chain. Josef has led numerous turnarounds over his 30 year career in Global Healthcare and Consumer Businesses and brings real depth across disposables, capital equipment, devices and software. As mentioned earlier, commercial excellence is a major contributor to our momentum. Given our confidence in our improving product quality and service delivery, we are challenging our sales teams globally to improve contracting excellence and command appropriate price premiums based on the value conveyed to our customers. We continue to support our accelerated growth plans with thoughtful capital allocation enabled by our recently announced debt refinancing, which ensures we have the resources and flexibility to invest to further drive growth. Investment is needed to accelerate product launches, fund our innovation agenda and attract, develop and retain talent. In closing, we are well positioned heading into the 2nd quarter. Our focus and our energy are driving execution. Thank you. Now I'll turn the call over to Bill. Thank you, Chris, and good morning, everyone. Please refer to the 2 tables we posted to our website with the link in our earnings release. We provided specific revenue and income dollar amounts that derive certain percentages I will refer to in my comments. We reported 8.7% revenue growth in the Q1 of fiscal 2019, which included 150 basis points of growth attributable to favorable currency. All revenue growth rates I will discuss are in constant currency and on that basis we had 7.2% revenue growth. Strong results in our plasma business continued as revenue grew 14% in the first quarter. North America in disposables and strong performance in 2 much smaller product categories, software and liquid solutions. In plasma disposables, we experienced customer order timing that contributed to growth rates higher than the historical or anticipated growth rates. It's important to note that no incremental pricing benefit from NexSys was realized in the Q1 of fiscal 2019. Software revenue growth reflects the annualizing of the rollout of our NextLINK software to all plasma centers by our largest plasma customer within the past year. Liquid Solutions revenue growth is due to a customer spot buy in an easy comparison with a low prior year Q1. We remain confident in the continued market growth underlying our commercial plasma collection business, which continues to be driven by strong end market demand for plasma derived biopharmaceuticals. Hospital revenue grew 6.3% in the quarter of fiscal 2019. We had price increases across our hospital business that provided modest benefit in the Q1. These increases were anticipated in our guidance. Hemostasis Management grew 20.6% in the 1st quarter, a meaningful acceleration over the low teens growth achieved in fiscal year 2017 2018. This growth was broad based geographically, including growth rates near or above 20% in TEGS key markets of North America, China and EMEA. Also of note, TEG5000 and TEG6S each had double digit percentage revenue growth. Hemostasis Management is demonstrating the potential that validates the allocation of investment funding towards its growth. Cell processing revenue declined 2.8% in the Q1 of fiscal 2019. Excluding OrthoPAT disposables, a product whose commercialization will end this fiscal year and has been communicated to our customers, cell processing revenue declined by 0.8% in the Q1 of fiscal 2019. Blood center revenue declined 3.1% in the first quarter, while the comparison is against a particularly low prior year period. This decline also demonstrated continued moderation following deeper declines in previous fiscal years. This decline included strategic exits from business mostly outside of the U. S. That no longer met our profitability objectives. All elements of our blood center business, whole blood, red cells, platelets and equipment software and other had declined below 5% in the quarter. Adjusted gross margin in the first quarter was 47 0.2%, up 370 basis points compared to the prior year. Complexity reduction savings, costs related to liquid solution production delays in the prior year's Q1 and favorable product mix contributed to 230 points basis points of gross margin expansion. Additionally, approximately 140 basis points were due to the benefit of favorable currency. Adjusted operating expenses increased 1 point $5,000,000 or 2.2 percent compared with the Q1 of fiscal 2018. However, operating expenses a percentage of revenue decreased by 190 basis points to 29.5 percent as we benefited from operating leverage. Productivity gains from complexity reduction initiatives yielded planned G and A cost reductions. Partly offsetting this benefit were planned investments aimed at accelerating future revenue growth, including anticipated investments in R and D and SG and A. R and D spending was $1,000,000 higher than in the Q1 of fiscal 2018. Increased stock based compensation was mitigated in this quarter by open positions and certain one time benefits. Additionally, we had an increase in freight expense resulting from increased revenue volume and higher shipping rates. Adjusted operating margin of 17.8% was up 5.70 basis points compared to the Q1 of the prior year as the benefits of higher revenue, improved product mix, favorable currency and cost reductions from our complexity reduction initiative outpaced investments and rising freight costs. Our income tax provision on adjusted earnings was 18% in the Q1 of fiscal 2019, significantly lower than the 27.9 percent in the Q1 of the prior year. This lower tax rate was due to the impact of recent U. S. Tax reform and continued favorable geographic income mix. Additionally, we had nearly a 4 percentage point benefit in the Q1 of fiscal 2019 related to a recent high level of employee share vestings, which were immediately deductible for tax purposes. First fiscal 2019 adjusted earnings per share of $0.59 compared to $0.33 in the prior year period. This $0.26 increase included benefits of about $0.07 from the lower tax rate and $0.05 from favorable currency. We believe that most of these tax rate and currency benefits as compared to prior year were unique to the Q1. In the Q1 of fiscal 2019, we incurred asset impairments and accelerated depreciation costs totaling $25,000,000 including a $21,000,000 asset impairment on the non strategic product line in the Blood Center business, as Chad noted. We also incurred approximately $3,000,000 of restructuring and turnaround expenses in the Q1 of fiscal 2019. Cumulatively, including amounts incurred in fiscal 2018, we have incurred approximately $40,000,000 of the $50,000,000 to $60,000,000 restructuring and turnaround expenses anticipated by our complexity reduction initiatives. These expenses, along with the impairments and accelerated depreciation, were excluded from adjusted earnings. Free cash flow before restructuring and turnaround costs was $6,000,000 in the Q1 of fiscal 2019 compared with $29,000,000 in the Q1 of fiscal 2018. We had $30,000,000 of greater cash investment inventory and capital expenditures in the Q1 of fiscal 2019 compared to the Q1 of fiscal 2018, including the production of NexSys PCS devices and the expansion of capacity for disposables in our plasma business. During the Q1 of fiscal 2019 and the subsequent period through August 1, we completed an $80,000,000 accelerated share repurchase under our $260,000,000 authorization. As a result of this program, in a previous $100,000,000 repurchase we completed in May 2018, approximately 2,200,000 of our common shares have been repurchased at an average cost above $81 during the past 6 months. While the share repurchase program is addressing recent dilution, further dilution from existing share based compensation programs is offsetting the benefit. During the Q1 of fiscal 2019, we completed and executed a new 5 year credit agreement with our lenders that takes us through mid June 2023. The new financing provided for a $350,000,000 term loan and a $350,000,000 revolving loan. Interest is at LIBOR plus 1.13% to 1.75% depending on our leverage ratio, an effective rate of 3.625% at the end of the quarter. We utilized proceeds from the new term loan to repay the then $254,000,000 outstanding balance on our former debt and $94,000,000 of net proceeds were received and became available to support the launch of our NexSys PCS device and for general corporate purposes. These new credit facilities enhance our strong financial profile and ease covenants. Combined with our strong cash flow, this refinancing enhances our ability to execute on our growth plans. We finished the Q1 of fiscal 2019 with $192,000,000 of cash on hand, an increase of $12,000,000 from fiscal $2,027 per share caused us to consider raising fiscal 2019 guidance. We believe the Q1 was not reflective of full year expected results for the following reasons, and so we are affirming our previously issued guidance. In the Q1, we experienced a higher growth rate in plasma than historical or anticipated market growth rates for reasons I explained earlier. It's too early to have full confidence with only a single quarter as a data point, but we do acknowledge that the implied revenue growth rate in Plasma over the remaining 9 months of fiscal 2019 would be lower than our full year guidance of 7% to 10%. We have also considered that our NexSys PCS and NexLynk commercialization is in a very early stage. We did not reach our full level of planned investments in the Q1 and we expect to increase investments in the remainder of the fiscal year and to achieve the anticipated spending levels originally communicated, including open positions. We also expect the impact of rising freight and commodity costs to continue. In our business unit, we will incur higher expenses in the remainder of this fiscal year than in the Q1 as a result of the rollout of NexSys PCS devices as well as the collection, repositioning and disposition of PCS II devices. Our guidance contemplates the initial deployment of NexSys PCS devices and related depreciation and rollout cost expenses. Our hospital business also requires continued investment in operating expenses for the build out of our sales force and the expansion of clinical and health economic studies. Higher interest expense as a result of the debt refinancing and a higher tax rate are expected for the remainder of the year. Also, we had a benefit from foreign exchange in the Q1 compared to the prior year, which will not continue based on current foreign exchange rates. The recent U. S. And China trade tariffs had no impact in the Q1, but may affect some of our hospital product sales in China later in this fiscal year. Based on these factors, we affirmed all elements of our revenue, adjusted earnings and free cash flow guidance for fiscal year 2019. Our guidance for plasma revenue growth is affirmed at 7% to 10% including 10% to 14% growth in North America. The ramp up of the commercial launch is expected to occur throughout the remainder of the fiscal year and its benefit to growth on an annualized basis will be much more pronounced in fiscal 2020. We affirm our expectation for 5% to 8% revenue growth in Hospital in fiscal 2019, including double digit growth in Hemostasis Management. Our fiscal 2019 guidance for blood center revenue is affirmed as a decline of 3% to 6%. We are anticipating continued modest declines in transfusion rates and single dose platelet collection trends. We are on track and affirm our expectation to realize $80,000,000 savings from our complexity reduction initiatives and to reach a run rate in excess of $40,000,000 at the end of the current fiscal year, as well as our intent to make significant investments supporting and enabling revenue growth acceleration and margin expansion contemplated in our long term strategy. These investments represent approximately $0.40 to $0.50 of earnings per share and are funded with our complexity reduction savings. Additionally, increasing freight and other costs could mitigate the gross margin benefit of Complexity Reduction savings in fiscal 2019. We affirm our expectation for adjusted operating margin in the 16% to 18% range in fiscal 2019 and our guidance for adjusted earnings per share in the range of $2 to $2.30 Capital expenditures are included in our fiscal 2019 cash flow projections at $150,000,000 to $160,000,000 up from $75,000,000 in fiscal 2018, anticipating the completion of capacity expansions at plasma manufacturing facilities to accommodate the next several years' volume growth as well as production of NexSys PCS devices. We affirm our fiscal 2019 adjusted free cash flow guidance before restructuring and turnaround costs of $25,000,000 to $50,000,000 We appreciate you joining today and we'll now proceed to your questions. And our first question comes from Larry Solow of CJS Securities. Your line is now open. Great. Thanks guys and congratulations on another great quarter. Just have just 2 questions one question on plasma and then a follow-up. Just on the rapid growth in the quarter and I know you called out there was no contributions from the new next PCS device. Anything in particular that drove the strength that would sort of not want you to at least increase your outlook to sort of the higher end of the range? Or is it just a sense of conservatism there? Yes, Larry, it's Chris. I think it's more the latter. We look across each of our major customers. We have quite good historical data and there were certain aspects of the Q1 that were different than what we've experienced historically. Clearly, they are all keen to collect as much plasma as possible to meet the demands for their end markets. But we saw some things in the Q1 that while they were outstanding, we just can't make a call yet, but they'll continue through the duration of the year. Okay. And then just on a follow-up, I noticed on the accelerated depreciation, I guess, the although you didn't book any revenue, I guess, you began to depreciate some of those machines. I guess, they were placed during the quarter. I guess, part of that question is I guess that you can just confirm that and B, I assume going forward since you this accelerated depreciation was pulled out of your adjusted EPS, it will, I guess, be pulled out going forward? So Larry, it's Bill. Thanks for that question. On the accelerated depreciation that relates to the PCS2 devices, not the new devices. Okay. So what happens is if let's use a single device, if the device is out there, it originally had depreciation associated with it of 7 years. Let's say 2 years has passed and there's 5 years remaining. We've made a determination that the remaining life on that particular device is only 2 years. So we've accelerated that 3 years of depreciation and we've taken the difference between that new depreciation and what the normal depreciation would have been if we left it depreciating at a 7 year life. Understood. So the depreciation on the new PCS will not be you will not pull that out, that will not be adjusted out? That's part of the investment spending, as we call it. Correct. Got it. Great. Thanks. I appreciate that clarification. And your Part B of the question was about will we do it every quarter and the answer is yes. Right. Okay. Thanks. Thank you. And our next question comes from Anthony Petrone of Jefferies. Your line is now open. Thanks. Congratulations on a good quarter. Maybe a couple on plasma and one on restructuring. So maybe just, Chris, you spoke on customer purchases in the quarter ahead of schedule, but also strong volumes. Just trying to get a sense in the quarter, how much came from excess purchases in the quarter versus just volumes? And then the follow-up there would be on Nexus. Just trying to get a sense of the cadence of the rollout. You mentioned 500 systems already installed. I mean, what should we be expecting as it relates to the cadence of the rollout for the rest of the fiscal year? And then I'll have a follow-up. Thanks. Yes. Thanks, Anthony. So on the Q1, we see that as all organic demand, and we don't have any reason to believe that anybody was doing anything other than buying to meet their current growth expectations. There's a lot of demand in the marketplace right now, and seeing all of our major customers rise to meet that challenge. So we think it was organic and consumed in the quarter. As Bill mentioned on the prepared remarks, there was no pricing associated with Nexus in the quarter. In terms of the actual rollout, as I said, we have 4 major work streams, center conversion contracting and center conversion being 2 of them. We feel we are fully on track and proceeding as planned, which is why we affirm guidance for the year. But we're meeting with good success in the initial rollouts, which have begun in earnest. And I think we have a high degree of confidence that we can keep that pace through the year, but that's contemplated in our initial guidance. Helpful. And then follow-up would be just you also referenced the expectation for positive contracting with additional customers going forward, maybe just a little bit of color there. And then maybe just a high level update on the restructuring initiative. Where is the company in terms of pre tax savings today and what is the expectation for the annualized pre tax savings amount exiting fiscal 2019? Thanks again. Okay. Thank you. I'll take the first part and let Phil answer the second regarding restructuring. In terms of the dialogue that we have going on, we talked in the prepared remarks about the customer experience programs continue to be quite positive for the reasons mentioned. It really gives folks a chance at the conversion at the collection center floor to experience the new device and its value proposition first hand. And that's really helped us. It's helped us move quickly when we get signed contracts to move to installation. So again, all very positive, and I think the device is performing as expected, and that's what's reflected in the dialogues that we're having. Anthony, it's Bill. On restructuring question, so for fiscal 2019, we are right on track where we thought we would be at this time. We're still affirming that by the end of fiscal 2019, we will be at a run rate in excess of $80,000,000 and by the end of fiscal 2020, we'll be at a run rate to hit the $80,000,000 in the $40,000,000 this year. Yes. Sorry, dollars 40,000,000 this year, Anthony. I guess I said the wrong number there. And by quarter, Anthony, we're not going to disclose exactly where we are on the savings. We're just on plan. And what I've said in the past was we'll see a little bit more of the savings in the second half of the year, obviously, than in the first half. Thanks again. Thank you. And our next question comes from David Lewis of Morgan Stanley. Your line is now open. Good morning. Chris, just a few questions here. The first is, it's not clear in the release. So how many customers are actively rolling out? Or how many customers will roll out the NexSys system or are under contract to roll out the NexSys system? And how are those contracted terms relative to your expectations? So David, thanks for the question. We're not going to talk for customer confidentiality and competitiveness about individual customers and the specifics therein. We had several. We're in negotiations and discussions with many others as well. And the actual contracts themselves, I think we and our customers feel really good about these long term agreements that we've entered into. They are reflective of the value of NexSys PCS. And interestingly, increasingly, NexLink, the our DMS software as well. As you'll recall, we originally designed NexSys PCS to be agnostic of the DMS software, for good reason. However, what our first wave of customers experience is that by upgrading their DMS as part of this, they're really able to achieve the full benefit of the NexSys platform value proposition. And the contracts we are writing are reflective of that. Okay. So it sounds like there's at least 3 customers that are rolling out the NexSys system under a new contract? Again, David, we're not going to talk about specifics and specific numbers. We are fully on track and feeling quite good about Wave 1 and what will come next. Okay. And then Bill, just thinking about guidance, I know you've gone through this in a fair amount of detail, but North American Plasma 17% this quarter, you're guiding at 10% to 14%, and you obviously have some new customer wins. So there was no pricing obviously in the Q1. So effectively, I'm just kind of reading two lines, your guidance for the back half of the year has to assume that the North American plasma disposable business basically grows below market. Do you have any reason to believe that, that business would grow below market? We don't, but I know what Chris referred to it earlier too. We did have that customer order timing in Q1, which drove the 17% growth rate, which is above the 10% to 14%. So if that if the total amount of that volume is consumed, then we probably would expect a higher rate. But we just wanted to wait. 1 quarter as a data point is enough for us to change guidance at this point, but we're feeling pretty comfortable. Okay. And Bill, just thinking of margins next few quarters here, it kind of seems similar question. You've got some depreciation headwinds as you or I should say rollout costs associated with Nexus, but you've also got the underlying expansion plans in a solid Q1. So how should we think about the next three quarters looking? Historically, 2nd and third quarter margins tick up 100 basis points, something like that before a pretty significant sort of reinvestment in the Q4. Is there any reason to believe by the next three quarters, at least on a relative basis, should they be playing out generally the same way we've seen in the last three quarters, the prior 2 years? Or are there reasons based on spending in this obviously unique rollout where the margin performance is going to look a lot different the next three quarters relative to the Q1? Thanks so much. Yes. Thanks, David. I don't expect us to have that much variability in the operating margin. Obviously, as we move through the year with the pricing benefits see some uptick in margin as that drops through. But again, offsetting that is the significant investments that we are making in terms of the rollout and the other investments in the hospital business, for example. So overall, I would expect margins to be a little choppy, but not that far off of where we are today. All right. Thanks so much. Thank you. And our next question Great, great. First question on interest expense. With the new line of with the new financing that you just put in place and the interest rates that you talked about on the call, it seems like it might tick up a little. It's been running around $2,000,000 a quarter. Do you think it'd be closer to $2,500,000 going forward? The interest so we said our effective rate is 3.625, and you can see the balance that we have outstanding, Jim. So it will be higher in the last 9 months of the year than it was in the Q1 on by quarter. Okay. Can you give us any it looks to me somewhere between $2,500,000 $3,000,000 a quarter. Is that about right? It will be a little bit over $3,000,000 A little bit over $3,000,000 Okay. All right. And second question on the PCS2, is there any market for those devices once you bring them back? There is, Jim. I mean, we are actively looking outside of the U. S. Typically we sell the device. It's not placed like it is in North America. So there's certainly an opportunity there. There are restrictions in terms of products that have been used in other markets and what we have to do to be able to certify and then later repurpose them. But we're actively exploring that, and we're exploring that on a global basis, including markets that don't represent a sizable base for us today but could potentially be attractive collection markets going forward. So we're cautiously optimistic that those devices will find uses down the road. But remember, we're talking about a number in excess of 20,000 devices in total for the NexSys conversion. All right. Thank you. Thank you. And our next question comes from Larry Keusch of Raymond James. Your line is now open. Good morning, everyone. Just a first question, could you talk a little bit about the second device manufacturer that you referenced in the call? And is that coming on in parallel? Or is it an issue that your first manufacturer is going to hit its capacity? Just maybe just talk through sort of how you're thinking about that one. Yes. I think that's an appropriate conservatism on our behalf. We are moving quickly to meet demand and we want to make sure that we have the full capacity necessary to do that. So it will be in parallel with our long standing initial device supplier. And I think it gives us redundancy, it gives us flexibility and it gives us the ability to meet demand in the short term as we ramp. I think probably the biggest challenge that we face there is our secondary supply chain and having 2 highly qualified device manufacturers driving assembly is really helpful because they have connections into that secondary supply market and are able to prevent challenges as they occur. Okay. Perfect. And then 2 perhaps for Bill. Just on you mentioned the tariffs, obviously. So could you just spend a moment on the exposure there and sort of what's contemplated currently in the guidance? I recognize this is fairly dynamic, but any thoughts there would be great. And then lastly, just given all the order timing in the various parts of the business, I just didn't recall if you actually quantified what that was worth in the Q1. Okay. So first on the order timing, I'll take that first. We didn't quantify what it was in the quarter. We just North America Plasm specifically that 17% growth rate, we think it's within the guidance range if we take the timing out. Okay. And on the tariffs, obviously, it's a very fluid situation. We look at it closely. Right now, we have an understanding of what the product codes are that would have some type of tariff impact on them. It's something we're dealing with and we think we'll be able to cover within the business just because it's not a very material item to us at all, Larry. Okay, perfect. Thanks very much. Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Haemonetics for any closing remarks. Again, thank you and thank you for dialing for our call. I hope what comes through on this is that the company is very much in launch mode, not only for NexSys, which we're quite excited about, but also for TEG and the various line extensions that we're bringing to market in addition to our complexity reduction that really drives us and is the force behind our accelerated growth projections. Thank you again for your questions today. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.