Yahoo Finance Haemonetics Corporation (NYSE:HAE) Q4 2024 Earnings Call Transcript
Haemonetics Corporation (NYSE:HAE) Q4 2024 Earnings Call Transcript May 10, 2024
Haemonetics Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Q4 2024 Haemonetics Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Olga Guyette, Senior Director of Investor Relations and Treasury. Olga, please go ahead.
Olga Guyette: Good morning. Thank you for joining us for Haemonetics fourth quarter and fiscal year 2024 conference call and webcast. I'm joined today by Chris Simon, our CEO; who will provide business update and discuss revenue results and guidance and James D'Arecca, our CFO who will provide further updates about our fiscal year 2024 financial performance and expectations for fiscal year 2025. Before we begin, I'd like to address revenue reporting changes we're implementing, starting with our fiscal year 2025. These changes involve integrating service revenue within our commercial business unit. This adjustment is in line with our updated management structure and acknowledges the crucial role that services play in our customer offerings.
It underscores our commitment to improving service quality and driving growth within our service organization. As a result of this change, the fiscal year 2025 guidance we will discuss today is presented in our new revenue reporting format. All revenue results for the fourth quarter in fiscal year 2024 are presented in the old format to facilitate appropriate year-over-year comparisons. For a detailed reconciliation between the old and the new revenue reporting format, please refer to the supplemental analysis referenced in this morning's earnings release and also available on the IR section of our website. I'd like to remind everyone that all revenue growth rates discussed today are organic unless specified otherwise and exclude the impact of foreign exchange fluctuations and acquisitions.
Our organic revenue growth guidance for fiscal year 2025 incorporates 15 weeks of revenue from OpSens due to the acquisition closing date being in December 2023. Throughout our call, we'll reference other non-GAAP financial measures to help investors understand Haemonetics ongoing business performance. These measures exclude certain charges and income items. For a complete list of excluded items, reconciliations to our GAAP results in comparisons with the prior year period, please refer to our fourth quarter fiscal year 2024 earnings release. Our remarks today will also include forward-looking statements, and actual results may differ materially from anticipated results. Factors that may cause the results to differ are referenced in our earnings release and other SEC filings.
We do not undertake any obligation to update these forward looking statements. This completes my remarks, and I'm now turning the call over to Chris.
Christopher Simon: Thanks, Olga. Good morning and thank you all for joining. Today, we reported organic revenue growth of 10% in the fourth quarter and 12% in fiscal year 2024. Adjusted earnings per diluted share was $0.90 in the quarter and $3.96 in the year, increases of 17% and 31% respectively. At the midpoint of Haemonetics long range plan, we've made tremendous progress towards our transformational growth goals. Our ability to consistently deliver strong financial performance underscores the accelerating momentum in our business and our commitment to creating value for customers and shareholders. We strengthened our reputation by overcoming hurdles to support all of our plasma customers through consecutive years of unprecedented growth.
We rolled out our Persona and NexLynk DMS software upgrades and introduced Express Plus. Through strategic portfolio rationalization and a heightened focus on global apheresis, we are improving the margin profile and durable contribution of our blood center business. We delivered three consecutive years of high teens organic revenue growth in hospital and took steps to accelerate inorganic growth with the acquisitions of OpSens and Attune. And we continued our relentless pursuit of improved productivity, delivering additional savings through our OEP programs and embedding these skills in the fabric of our organization. As Olga mentioned, we repositioned customer and field services within our commercial business units. Services are a source of distinctiveness for Haemonetics and assigning them to the BUs will create greater accountability and new opportunities to enhance our offerings and optimize returns.
As we transition to the second half of our plan, we are well positioned and fully committed to achieving our goal of sustainable top quartile MedTech revenue and margin growth. Let's turn now to our business unit results and revenue guidance. It was another strong year for Plasma after 43% growth in fiscal year '23. Plasma revenue grew 6% in the fourth quarter and 14% in fiscal year 2024, driven by disposable volume and software. North America disposables represented 85% of plasma revenue and grew 4% in the quarter and 13% for the year. We recently completed the successful limited market release of our new Express Plus technology with more than 60,000 real world collections. We are now initiating full market release in the U.S. This technology is making our customers meaningfully faster.
And when combined with our bidirectionally connected NexLynk DMS offers unmatched plasma center efficiencies. NexSys with Persona remains unrivaled in enabling collectors to safely meet end market demand and lower cost per liter. We continue to enhance the NexSys platform, expanding its competitive advantage as the global industry standard for plasma collection. We are enthusiastic about the opportunity to transition our NexSys customers to our latest technology and to gain share. The plasma collections market remains robust, supported by strong end market demand, frozen plasma inventory deficits and a favorable collections environment. Excluding the effects of the CSL U.S. Transitional supply agreement, our core plasma business delivered an impressive 18% growth in fiscal year 2024, and we project additional growth of 8% to 12% in fiscal year 2025.
We anticipate a 45% decline in CSL revenue from $155 million in fiscal 2024 to approximately $85 million this year. Therefore, our total plasma revenue guidance for fiscal year 2025 is anticipated to be in the range of negative 3% to 6%. In blood center, we overcame significant geopolitical challenges to grow revenue 7% in the quarter and 1% for fiscal year 2024, driven by continued strength in our apheresis portfolio. Apheresis revenue was up nearly 13% in the fourth quarter and 5% for the year. Both in the quarter and fiscal year 2024 growth was disproportionately driven by increasing disposable revenue across plasma collection centers in Egypt, continued strength in red cell collections in the U.S. and strong demand for platelets across our key markets.
Whole blood revenue declined 7% in the quarter and 9% in fiscal year '24, predominantly driven by lower volumes caused by our product rationalization efforts designed to preserve Blood Centers' ability to generate durable contribution margin dollars and participate in our company wide margin expansion. Due to portfolio rationalization, our Blood Center fiscal year 2025 revenue growth guidance is a year-over-year decline of 5% to 7%. Our hospital business had strong results with revenue growth of 19% in the fourth quarter and 17% in fiscal year 2024, primarily driven by vascular closure and hemostasis management. Hemostasis management revenue grew 19% in the fourth quarter and 15% for the year, driven by strong utilization of TEG 6s disposables, price increases and continued growth of the U.S. installed base.
In the fourth quarter, we received FDA clearance for our global hemostasis heparin neutralization cartridge. This extends the capabilities of the TEG 6s platform to serve fully heparinized patients in adult cardiovascular procedures and liver transplants in laboratory and point of care settings. This is an important addition to our portfolio to increase adoption by helping clinicians improve patient outcomes and standards of care. The rest of the Blood Management Technologies franchise, which includes transfusion management and cell salvage grew 7% in the fourth quarter and 6% for the year. Transfusion management was up due to the completion of customer implementations for both SafeTrace Tx and BloodTrack as well as growth in recurring maintenance revenue for both products.
Growth in cell salvage was driven by strong utilization of disposable kit in the U.S. Led by vascular closure, interventional technologies grew 28% in the quarter and fiscal year 2024. We continue to make progress penetrating the top 600 U.S. accounts to finish the year at nearly 80% penetration. We also benefit from improvements in utilization at existing IC and EP accounts. We are pleased to announce that we received U.S. FDA premarket approval for the upsized VASSCADE MVPXL mid-bore venous closure device. Adding MVPXL to our products mix with 58% larger collagen plugs than MVP strengthens our unique proposition of reducing the time to ambulate, total post procedure time, time to hemostasis and time to discharge eligibility, broadening our reach in these high growth markets with a novel solution to support emerging catheter based ablation technologies.
We will be initiating a limited market release in the coming weeks and look forward to full market release later this year. The VASCADE International launch is progressing as expected, contributing approximately 300 basis points of revenue growth in the quarter. In Japan, we have expanded our presence to more than 90 accounts. While European penetration has been more gradual, we are making meaningful progress and plan to expand into more countries in fiscal year 2025. Now let's move on to our newly acquired products. OpSens Pressure Sensing Guidewire Technology delivered nearly $10 million in revenue in the fourth quarter. Over the past several months, we cross trained our expanded U.S. sales team. And in April, we launched both OptiWire and [indiscernible] throughout our U.S. commercial channels.
These products provide meaningful benefits during PCI and TAVR procedures and we are excited to make them available to our interventional cardiology customers. We are also enthusiastic about the addition of the ensoETM Esophageal Cooling Device acquired With Attune Medical. enzoETM provides significant protection against esophageal injury and in combination with radiofrequency ablation provides a more cost effective solution to atrial fibrillation ablation procedures compared to other emerging ablation procedures. With an addressable market approximately $300 million growing in the low teens, we anticipate esophageal protection to become the standard of care used in conjunction with radiofrequency ablation procedures. We look forward to continued revenue growth acceleration from our expanded U.S. Commercial launch in June.
Our development and commercialization strategies are working. We continue to advance our leadership in blood management technologies by capitalizing on significantly expanded R&D and clinical capabilities to further develop new and existing products, while we expand commercially to cover the majority of the top accounts in the $700 million underpenetrated TAM. In Interventional Technologies, we are committed to commercial execution, launching our recent portfolio additions and augmenting growth through R&D and M&A. With the OpSens and Attune acquisitions, we expect hospital will become our largest business unit this year, driving a disproportionate growth and margin expansion. We expect hospital reported revenue growth of 27% to 32% in fiscal year 2025.
Excluding revenue from recent acquisitions, we expect this business to deliver 13% to 16% organic revenue growth. Overall, we expect another strong year as we evolve our portfolio to accelerate revenue growth and margin expansion. For the total company, we expect reported revenue growth to be in the range of 5% to 8%. Excluding recent acquisitions and FX, we expect total company organic growth to be flat to 3% in fiscal year 2025. In closing, I want to express my gratitude to our customers and our shareholders for their continued support and the Haemonetics employees worldwide for their exemplary work to advance our mission and their dedication to our customers. Together, we continue to build our momentum towards a very bright future. Now I'll pass it over to James to discuss the rest of our financial performance and fiscal year 2025 guidance.
James D'Arecca: Thank you, Chris, and good morning, everyone. As I reflect on my two year anniversary at Haemonetics, I'm excited about the opportunities ahead of us. Over the past two years, we have navigated shifting dynamics and supported a delayed CSL transition, while continuing to grow our margins, invest in our business, enhance our solutions and acquire new high growth products. While not all of our efforts are reflected in our results immediately, especially when combined with the extended dilutive impacts of the U.S. transitional agreement in plasma, I am highly optimistic about our ability to accelerate revenue growth and expand our gross and operating margins over the next several years. We finished our fourth quarter with an adjusted gross margin of 54%, an increase of 220 basis points compared with the prior year.
Adjusted gross margin for fiscal '24 was 54.4%, an increase of 120 basis points when compared with the same period of the prior year. The continuous transformation of our portfolio played a disproportionate role in driving gross margin expansion in our results with both product mix and volume contributing meaningfully. These benefits were partially offset by changes in FX both in the quarter and fiscal '24 and $6.8 million of cumulative charges related to a voluntary product recall in our whole blood business. Adjusted operating expenses in the fourth quarter were $120.9 million, an increase of $17 million or 17% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses increased by 120 basis points to 35.2%.
The increase in adjusted operating expenses in the quarter was due to several factors. First the integration of OpSens into our product portfolio, given that this was the first full quarter with OpSens, the anticipated benefits of synergies and scale have not yet been fully realized. We expect this to evolve as we advance our commercial initiatives across our key strategic U.S. accounts beginning in our fiscal 2025. Another factor was elevated freight costs, primarily attributed to macroeconomic hurdles affecting logistics and constraints in our plasma inventory levels. We are in a much better inventory position today and do not anticipate similar levels of expedited freight going forward. Finally, we also had higher performance based compensation expenses along with continuous growth investments into our business.
Adjusted operating expenses for fiscal '24 were $435.7 million, an increase of $32.1 million or 8% compared with the prior year. As a percentage of revenue, adjusted operating expenses decreased by 120 basis points to 33.3%. In fiscal 2024, a combination of operating leverage improvements and savings from our operational excellence program more than offset increases in adjusted operating expenses and growth investments. These investments are primarily aimed at advancing innovation and expanding market share in our hospital business and are expected to further enhance our operating leverage in the coming years. Fourth quarter adjusted operating income was $64.6 million, an increase of $10.7 million or 20% and our adjusted operating margin was at 18.8%.
Our adjusted operating margin in the fourth quarter had approximately 200 basis points of impact from one-time items within our adjusted operating expenses. Adjusted operating income for fiscal 2024 was $276.5 million an increase of $58.1 million or 27% compared with the prior year at 21.1% of revenue. The 240 basis points expansion in the adjusted operating margin in fiscal '24 was due to improving leverage of our business, coupled with approximately $5 million in net savings from OEP. The adjusted income tax rate was 21% for the fourth quarter and 23% for fiscal year '24 compared with 23% and 24% for the respective periods of the prior year. Fourth quarter adjusted net income was $46 million up $6.8 million or 17% and adjusted earnings per diluted share was $0.90 up 17% when compared with the fourth quarter of fiscal year 2023.
Adjusted net income for fiscal year '24 was $203.6 million up $47.9 million or 31% and adjusted earnings per diluted share was $3.96 up 31% when compared with the prior year. Changes in the adjusted income tax rate, interest expense, and FX had a $0.02 negative impact on the fourth quarter and a $0.05 negative impact on the full-year adjusted earnings per diluted share when compared with the prior year. Turning now to select balance sheet and cash flow highlights. Cash on hand at the end of our fiscal 2024 was $179 million a decrease of $106 million, since the beginning of this fiscal year, primarily due to the OpSens acquisition, which was financed through a combination of cash on hand and a revolving credit facility. In our fourth quarter, cash flow from operating activities was $64 million and free cash flow before restructuring and restructuring related costs was $59 million.
Cash flow in the quarter was primarily driven by net income and benefits from working capital. In fiscal year '24, cash flow from operations was $182 million primarily attributed to net income, partially offset by increased inventory. After taking into account $64 million in CapEx, net of proceeds from the sale of property, plant and equipment, we had $127 million of free cash flow before restructuring and restructuring related costs. As you will recall, we anticipated our fiscal year 2024 free cash flow before restructuring and restructuring related costs to be in the range of $160 million to $180 million. The outlook we have provided overestimated the impact of certain add backs related to restructuring and restructuring related spend. Going forward, we will provide guidance for free cash flow.
We also have some important updates about our credit facility. In April, we refinanced our existing credit facility with a new $1 billion five year facility comprised of a $250 million unsecured term loan A and a $750 million unsecured revolving credit facility with a current drawn balance of about $230 million used to help fund our recent acquisitions of OpSens and Attune Medical. Our new credit facility includes a $330 million increase in our revolver capacity and provides enhanced covenant flexibility, a testament to the strength of our balance sheet and credit profile. Haemonetics is currently utilizing two interest rate swaps with a blended fixed interest rate of 4.12% and a current notional value of $211 million to mitigate interest rate risk.
These swaps will mature in June of 2025 and we have plans to evaluate and determine the appropriate risk management strategy thereafter. Taking into account our $500 million unsecured convertible bonds due March 26, our net leverage ratio was at approximately 2.1x EBITDA at the end of our fourth quarter, increasing to approximately 2.4x EBITDA following the close of Attune Medical on April 1st. With our new credit agreement and our ability to generate strong EBITDA and free cash flow, we estimate our available capital capacity to be in excess of $1 billion by the end of fiscal '25 and up to about $2 billion by the end of fiscal '26 after nearly $500 million of capital we have already allocated to M&A and share buybacks, since we issued our long range plan in June of 2022.
We plan to continue to leverage our access to capital to further expand our product portfolio and lay the foundation for additional growth, including additional strategic tuck in acquisitions for our Interventional Technologies portfolio in the near term. Before I discuss the rest of our fiscal year 2025 guidance, I'd like to reflect on where we are in our transformational growth journey. In the first half of our long range plan, we delivered revenue and adjusted earnings per diluted share growth that exceeded our expectations. Our success can be attributed to several key factors. First, unprecedented volume growth in plasma collections driven by a rebound from the COVID-19 pandemic. The volume growth we experienced in the first half of our plan was significantly higher than our original projections.
Second, delayed transition of CSL's U.S. Disposable business, resulting in the retention of the majority of their U.S. volume through the end of our fiscal year '24. This provided us with additional excess cash flow we used to fund recent acquisitions in hospital. Third, strong commercial execution in vascular closure, surpassing our original deal model and enabling deeper penetration into the top 600 strategic accounts in the U.S. with the help of a series of additional strategic investments focused on broadening our commercial footprint. And finally, overcoming substantial macroeconomic headwinds, including approximately 700 basis points of margin pressure stemming from inflationary headwinds, supply chain disruptions and volatility in foreign exchange rates among other challenges.
While revenue and adjusted EPS growth were robust and ahead of our plan, the combination of underlying drivers and actions we took to support this growth temporarily dampened our margin expansion plans, particularly in the adjusted gross margin. As we enter the second half of our LRP, we plan to accelerate our margin expansion. Our LRP goal of the high 20s adjusted operating margin in fiscal '26 is intact and will be driven by approximately 400 to 600 basis points of projected expansion in our adjusted gross margins, coupled with improving operating leverage in our business. Our strategy is clear and includes benefits from volume, mix, price, and higher operating leverage. In Hospital, we will leverage our commercial footprint to promote an expanded hospital portfolio requiring minimal additional investments.
Recent acquisitions of OpSens and Attune Medical will further expedite our transition towards high growth, high margin products. In Plasma, changes in customer mix and technology upgrades will continue to improve margins and drive growth on top of collections momentum. CSL's U.S. Supply Agreement has a dilutive impact on our corporate gross margins. As such, continued transition away from our PCS2 devices to the latest NexSys with Persona Technology will drive meaningful improvements. In Blood Center, we continue to rationalize parts of the business, predominantly in whole blood with no impact on contribution margin dollars, while significantly improving its contribution margin percent. And lastly, aligned with our commercial objectives, we are pursuing additional improvements within our operations, including additional OEP savings, the continued rationalization of the manufacturing footprint and addressing the remainder of stranded costs and inefficiencies from CSL's delayed transition, which will help generate additional cost savings and ensure increased productivity as we move forward with our plan.
In fiscal year 2025, we expect the adjusted operating margin to be in the range of 23% to 24%, representing a substantial installment towards our LRP goals. Our fiscal year 2025 guidance includes approximately $15 million of gross savings from our OEP program with about $10 million of that benefiting our adjusted operating margins. Given the timing of specific cost savings initiatives and business opportunities outlined in our plan, we anticipate that the operating margin improvement outlined in our fiscal year 2025 guidance will be back end loaded with gradual improvements throughout the year. Our adjusted earnings per diluted share guidance for fiscal year 2025 is a range of $4.45 to $4.75 or 12% to 20% growth when compared with fiscal year '24.
At the midpoint of our guidance range, we anticipate approximately $0.30 of headwind from interest expense, FX, income tax and share count with interest expense being responsible for more than half of that. CSL's transitional agreement represents just under 10% of the midpoint of our adjusted earnings per diluted share guidance in fiscal year '25 compared with about 20% of our adjusted EPS in fiscal year '24. Our ability to generate cash flow is strong and we expect our free cash flow in fiscal year '25 to be in the range of $130 million to $180 million. Our fiscal year '24 performance underscores our resilience, agility, and commitment to our long range plan as we continue to execute our initiatives and drive sustainable growth both on the top and bottom line.
Our capital allocation priorities remain unchanged and we will continue to deploy cash to accelerate our growth momentum, particularly as we further expand our product portfolio and look for opportunities to increase our returns through opportunistic share buybacks and debt repayment. With a clear vision, a well-defined plan and a dedicated team, I'm confident in our ability to deliver long-term value. We look forward to updating you on our progress in the quarters to come. This concludes our remarks for today. And now, I'll turn it back to the operator for Q&A.
Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question comes from Anthony Petrone at Mizuno Group. Your line is open.
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