Haemonetics Corporation (NYSE:HAE) Q3 2024 Earnings Call Transcript

Haemonetics Corporation (NYSE:HAE) Q3 2024 Earnings Call Transcript February 8, 2024

Haemonetics Corporation beats earnings expectations. Reported EPS is $1.04, expectations were $0.97. HAE 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 Haemonetics Corporation Third Quarter Fiscal 2024 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 note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Olga Guyette, Senior Director of Investor Relations and Treasury. Please go ahead.

Olga Guyette: Good morning, everyone. Thank you for joining us for Haemonetics third quarter fiscal year 2024 conference call and webcast. I’m joined today by Chris Simon, our CEO; and James D’Arecca, our CFO. This morning, we posted our third quarter fiscal year 2024 results to our Investor Relations website, along with our updated fiscal 2024 guidance. Before we begin just a quick reminder that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuations and our recently completed acquisition of OpSens. We’ll also refer to other non-GAAP financial measures to help investors understand Haemonetics’ ongoing business performance. Please note that these measures exclude certain charges and income items.

For a full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods please refer to our third quarter fiscal year 2024 earnings release available on our website. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today’s earnings release and in our other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now I’d like to turn it over to Chris.

Chris Simon: Thanks, Olga. Good morning and thank you all for joining. Today, we reported third quarter revenue of $336 million, growth of 10% on a reported and organic basis, and adjusted earnings per diluted share of $1.04, 22% growth over prior year. Our results underscore our success in driving above-market growth while we are achieving critical milestones in our long-range plan to fuel the transformation of our company. Margin expansion through FY2024 foreshadows the compounding impact of changes in volume and mix, coupled with productivity and operating leverage. We are proud of our accomplishments and enthusiastic about the many opportunities to grow our business moving forward. Through portfolio evolution, operational excellence and resource allocation, we’ve strengthened our leadership in plasma while building our high-growth, high-margin hospital segment to expand our scale and leverage.

Looking at our business unit results, plasma revenue grew 8% in the third quarter and 17% year-to-date, driven primarily by volume. Our collections environment in the U.S. continued to be favorable and disposables – with disposables growing 7% in the quarter and 17% year-to-date. With robust recovery continuing, our operational excellence program helped us ensure delivery for our customers as they continue to collect historically high volumes, further highlighting the need for reliability, donor safety, and yield-enhancing solutions. We are working in close collaboration with our customers to provide solutions that further distinguish Haemonetics as the undisputed industry leader in plasma innovation. The rollout of Persona, our proprietary technology proven to increase yield 9% to 12% on average, continues to gain momentum with more than 25 million collections.

The limited market release of our new Express Plus Technology has been encouraging. We have performed over 50,000 collections that have demonstrated a significant reduction in procedure times, and we remain on track for full market release in early fiscal 2025. Advancements in NexLynk DMS, our bidirectional connectivity software, are improving cycle times, reducing errors and allowing staff to focus on taking care of donors and reducing door-to-door time, a key determinant of donor satisfaction. The combination of Persona, Express Plus, and NexLynk sets a new industry standard for center throughput, cost per liter and donor satisfaction. Due to strong year-to-date results, we are increasing our plasma guidance from 10% to 12% to 11% to 13%.

We remain bullish on plasma longer term, and we are confident in our ability to maintain leading market share while continuing to migrate customers to our latest technology. Blood Center revenue declined 3% in the third quarter and 1% year-to-date. Apheresis revenue was down 1% in the quarter, but grew 2% year-to-date. Both in the quarter and year-to-date, we continue to benefit from increasing Blood Center plasma collections, particularly within newly established plasma centers in Egypt, and strong efforts to increase the collection of red cell units in the U.S. These trends were partially offset by the strong growth we experienced last year and order timing among distributors, particularly in our third quarter. Whole blood revenue declined 6% in the quarter and 9% year-to-date, predominantly driven by lower volumes associated with our decision to rationalize parts of this business, partially offset by benefits from last time buys.

The portfolio and manufacturing network rationalization initiatives we introduced in November are critical for preserving Blood Center’s ability to generate strong EBITDA as we continue to work with our customers to migrate them to alternative products. Due to price benefits and early success with customer migration, we are increasing our revenue growth guidance from a range of -4% to -2% to a range of -2% to flat. Our Hospital business had an especially strong third quarter with revenue growth of 22% as all of our products grew double digits. Year-to-date Hospital grew 17% driven by the continued success of Vascular Closure and hemostasis management. In interventional technologies, which includes Vascular Closure and OpSens products, Vascular Closure grew 28% in the third quarter and 29% year-to-date, driven by continued momentum with new account openings and improving utilization throughout the U.S. We are on track to be in 80% of the target top 600 U.S. hospital accounts by the end of this fiscal year, providing us access to the vast majority of addressable procedures in this market.

This footprint will also provide the foundation for future growth, particularly as we realize opportunities through our innovation and M&A pipelines. Internationally, our products are gaining recognition, contributing approximately 200 basis points of growth in the third quarter. We completed the OpSens acquisition on December 12. This is an exciting milestone for us as we continue to expand our Hospital business with procedure enabling technologies in high growth areas. The integration is underway and we plan to launch both SavvyWire and OptoWire sensor-guided technologies with our U.S. commercial team in April. These products are highly synergistic with our Vascular Closure products and are immediately accretive to revenue and adjusted earnings per diluted share growth with an expected three year ROIC in excess of 10%.

Now moving to blood management technologies which includes hemostasis management and our legacy hospital products, hemostasis management revenue grew 18% in the third quarter and 14% year-to-date, driven by increased capital sales and utilization of TEG disposables in the U.S. and China. Growth in China rebounded in the third quarter more than offsetting previous underperformance in that market earlier this fiscal. We anticipate sustaining our growth momentum as we capitalize on our significantly expanded R&D and clinical capabilities to further develop new and existing products and commercial infrastructure to cover the majority of our strategic accounts in the $700 million underpenetrated total addressable market. The rest of the blood management technologies portfolio, which includes Transfusion Management and Cell Salvage, grew 18% in the third quarter and 6% year-to-date.

Transfusion Management was up significantly year-over-year due to 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 kits both in the U.S. and China. In Hospital, we expect continued revenue growth acceleration and reaffirm our previous guidance range of 16% to 18%, which is on top of the strong revenue growth we experienced in prior two years. Our transformational growth plans are working across our businesses and we are raising our total company revenue guidance by 200 basis points to a new range of 10% to 12% to better reflect the year-to-date momentum in plasma and our success mitigating challenges in our Blood Center business.

Now I’ll hand it over to James to discuss the rest of our third quarter results and updated FY’24 guidance. James?

James D’Arecca: Thank you, Chris. And good morning everyone. I’ll begin with our business results and some additional updates to our fiscal 2024 guidance. Third quarter adjusted gross margin was 55.3%, an increase of 280 basis points compared with the third quarter of the prior year. Adjusted gross margin year-to-date was 54.5%, an increase of 80 basis points compared with the prior year. Both the third quarter and year-to-date adjusted gross margins benefited from price, volume and a favorable mix driven by strong sales in Hospital and continued momentum in Plasma. These benefits were somewhat offset by increased depreciation, impacts from foreign exchange and a $6.8 million in cumulative year-to-date charges related to a voluntary product recall, in our Whole Blood business, which was announced earlier in fiscal 2024.

Adjusted operating expenses in the third quarter were $112.7 million, an increase of $11 million, or 11% compared with the third quarter of the prior year. As a percentage of revenue, adjusted operating expenses were at 33.5%. The increase in adjusted operating expenses in the third quarter was due to higher growth investments, higher performance based compensation and, to a lesser extent, higher freight cost. Adjusted operating expenses year-to-date were $314.9 million at 32.6% of revenue compared to last year’s $299.9 million at 34.7% of revenue. The decrease in adjusted operating expenses as a percentage of revenue is driven by growing operating momentum, which more than offset continued investments in our business. Most of these investments were directed toward advancing our innovation pipeline and amplifying market share in our hospital business.

We anticipate that the investments we are making today will continue to expand our operating leverage over the next several years. Adjusted operating income was $73.4 million in the third quarter and $211.9 million year-to-date, representing increases of $14 million and $47 million, respectively. As a percentage of revenue, the adjusted operating margin was 21.8% in the third quarter and 21.9% year-to-date, up 250 basis points and 290 basis points, respectively when compared with the same periods in the fiscal year 2023. We remain confident in our ability to expand our margins. Our fiscal year 2024 adjusted operating margin guidance remains unchanged at approximately 21% and includes the expected contribution from OpSens, which we anticipate to be slightly dilutive to our adjusted operating margin in the near term.

As you heard from Chris, we have big plans for this business and expect it to become increasingly accretive throughout our adjusted P&L in the next several years, particularly as we begin to realize synergies and improve scale. Our guidance also includes $20 million in target gross savings from the operational excellence program or about $6 million in net savings, helping to generate additional efficiency and free up resources that can be reallocated to drive growth. We are one year ahead of schedule to complete our OEP and deliver $116 million of gross target cumulative savings by the end of this fiscal year, with about 30% of these savings directly benefiting our bottom-line. This program helped us drive renewed efficiencies and strengthen our supply chain.

Beyond this program, we will continue to pursue additional opportunities to reduce our costs and further improve efficiency. The portfolio and manufacturing network rationalization initiatives announced in November are just a few examples of our stewardship. The adjusted income tax rate was 25% in the third quarter, the same as in the third quarter of last year, and the adjusted income tax rate year-to-date was 23% and 24% in fiscal years 2024 and 2023, respectively. Third quarter adjusted net income was $53.3 million, up $9.7 million, or 22%, and adjusted earnings per diluted share was $1.04, also up 22% when compared with the third quarter of fiscal 2023. Year-to-date adjusted net income was $157.6 million, up $41.1 million or 35%, and adjusted earnings per diluted share was $3.07, up 36% when compared with fiscal 2023.

The combination of the adjusted interest expense, fluctuations in FX and adjusted income tax had about a $0.09 unfavorable impact in the third quarter and about $0.02 unfavorable impact year-to-date when compared with the prior year. We are updating our fiscal 2024 adjusted earnings per diluted share guidance to be in the range of $3.90 to $4 or approximately 30% growth and our adjusted EPS at the midpoint of our guidance range to better reflect strong year-to-date momentum. Turning now to select balance sheet and cash flow highlights. In our third quarter, cash outflow from operating activities was $0.5 million, and free cash outflow before restructuring and restructuring-related costs was $20.3 million, primarily due to the timing of disbursements, collection delays, which temporarily increased accounts receivable and increased inventory balances.

Cash flow from operations for the nine months was $118 million primarily attributed to higher net income partially offset by higher inventory levels, which were expected to increase throughout fiscal 2024 as we replenish our inventory of the NexSys PCS devices. After taking into account $55 million in CapEx and net of proceeds from the sale of property, plant and equipment we had $68 million of free cash flow before restructuring and restructuring related costs. We are confident in our ability to generate strong free cash flow and we are updating our expectations for free cash flow before restructuring and restructuring related costs to be in the range of $160 million to $180 million in fiscal 2024. Our financial position continues to provide us flexibility to operate our business and execute our disciplined capital allocation strategy.

At the end of our third quarter we had $194 million of cash on hand, down $90 million since the beginning of our fiscal year 2024. In December 2023, we used the combination of $145 million of cash on hand and $110 million of the revolving credit facility to fund the acquisition of OpSens. Our net leverage ratio at the end of the third quarter was approximately 2.4 times EBITDA, leaving us ample room to continue our growth agenda including additional M&A, an organic investments both in the short-term and in the long run. And now I’d like to turn the call back over to Chris for a few closing remarks. Chris?

Chris Simon: Thanks James. As I reflect on the quarter and where we are in our journey, I’d like to reiterate a few points. As we approach the end of our fiscal 2024 and the midpoint of our LRP we are tracking ahead of our growth goals of high-single-digit organic revenue and mid-teams adjusted EPS growth rates. This year we expect to deliver at least 200 basis points of adjusted operating margin expansion despite more than 700 basis points of inflationary impacts and heightened freight cost needed to help combat continued supply chain inefficiencies when compared with fiscal 2022, the starting point for our long range plan. We remain committed to our LRP and as we scale our plasma business, execute portfolio rationalizations initiatives and drive commercial execution in hospital, we expect to see continued expansion in our adjusted operating margins consistent with our long-range plan.

In plasma, we are the company our customers know and trust. We will continue to strengthen our leadership through our value adding technology, continuously setting new industry standards for cost per liter improvements and donor satisfaction. In hospital we expect to more than double our revenue at the end of this fiscal year when compared with three years ago. Subsequently, our goal is to double this revenue again within the next four years, positioning it as the largest segment in our portfolio comparing favorably with the top quartile med-surg sector revenue growth and margin profile. We are optimizing capital allocation and value creation while driving what will be a fivefold increase in capacity to $2 billion by the end of fiscal year 2026.

We are making strategic acquisitions and building an M&A pipeline to sustain our momentum and expand leverage. With a disciplined strategy and a high bar for expected returns we expect to accelerate our portfolio transformation as we launch new products, improve existing product features and further augment our growth with highly synergistic M&A over the next two years. This isn’t just a portfolio transformation; it’s a company transformation, a journey consisting of a set of evolutionary steps to deliver revolutionary results. I’m confident that we have the right plan, the right resources and the right focus to deliver value creation in the next several years and beyond. We are excited about the next phase of our growth. Thank you. We now would like to open the line for Q&A.

Operator: Thank you. [Operator Instructions] And our first question coming from the line of Anthony Petrone of Mizuho Group. Your line is open.

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Q&A Session

Anthony Petrone: Thanks and congratulations on a strong quarter here to the team. Maybe Chris, I’ll start with a couple on plasma and then I’ll go to Jim on margins. On plasma maybe just a state of the union here a little bit on where do you see underlying demand from donors on one hand, but where do your customers sit the fractionators? Just on replenishing their inventories and then maybe a comment just on how we should be thinking about CSL from a phase out standpoint just from the competitor update this week? And then I’ll have a follow up for Jim.

Chris Simon: Thanks Anthony. Appreciate it. So, state of the market, right? I think the supply demand equation in source plasma remains quite robust. From a fractionator perspective they’re continuing to work hard to meet growing end market demand and replenish their inventories, and there’s still a good way to go, really on both sides of that. So we don’t see any abatement in their desire to continue to accelerate collections, and what they’re doing with their centers is really quite powerful. And we’re delighted to be a part of helping enable that with our technology. On the donor side we see no slowdown in donor traffic into the centers. A good chunk of that is economic, obviously for the donor demographic they’re still struggling quite heavily in this marketplace, unfortunately for them.

So it does lead to a stronger desire to augment their disposable income. And again, we don’t see any abatement there. I have read folks talking about the performance of the economy. We’re hoping the economy strengthens as well. But we fully expect to collect high volumes of plasma in good markets and in more challenging markets. In fact, I’ll go back in time to 2018 and 2019, two very good years for the macro economy. Prior to this most recent robust recovery, they were the highest volume years we had ever experienced. So we can collect plasma in good markets and bad. Our customers are doing their part to make that a reality. So we feel quite good about that. With regards to CSL, we’ve orchestrated through the various amendments what will be a smooth and somewhat lengthy transition, and that’s good for both parties.

And so we’re going to continue to execute fully against that, as we do with all of our customers to make sure that they have the supply they need into the future. And I think that will enable us to orchestrate a smooth landing while we continue to do the other things that ensure continued growth in our plasma business.

Anthony Petrone: Helpful. And then, Jim on margins, maybe a revisit on the LRP Bridge, just taking into consideration the complexion in the quarter. So they’re nice jump in, gross margin, ahead of expectations. But overall, OpEx did tick up here beyond at least our model. So is this kind of where we are from a percentage of total revenue standpoint for total OpEx? Is there leverage in OpEx, or does OpEx grow a little bit more from here? Thanks again and congrats.

Chris Simon: Yes, thanks for the question, Anthony. Yeah. On op margin we still see a nice path to our high twenty’s that we initially came out with back when we unveiled our LRP last year. And that’s really going to be driven by three main factors. One is the hospital business really begins to scale, right. And we’re going to gain leverage there because we’re going to be increasing sales with just very modest growth in the cost base. So that addresses I think, your question on OpEx. Will it grow a bit? Yes, but not nearly as quickly as we plan on growing sales. So that will be the biggest factor that helps drive us there. But there’s two other really important points as well. The second one is mix on the gross margin line. We’re going to end up in a position here where we have favorability from more sales, from higher margin hospital products.

So that will hopefully drop down to the bottom line. And then finally, to get there, we also need to work on our manufacturing cost, and we’ll do that in two ways. One with the higher volumes and we’ll gain the better absorption from that. But secondly, we need to continue our operational excellence initiatives that you’ve heard us talk so much about here over the prior couple of years. That doesn’t end when the program end and that continues and we take the learning’s from that and we continue to apply that to reduce the manufacturing costs. So those three factors really is what’s going to get us there.

Anthony Petrone: Yes. Thanks. I’ll hop back in queue. Thank you.

Operator: Thank you. And our next question coming from the line of Larry Solow with CJS Securities. Your line is now open.

Larry Solow: Thank you and good morning. I guess just a follow up on Anthony’s question, just on the plasma growth and CSL. Again, I don’t know how specific you can get, but just in terms of, it does look like your guidance still kind of incorporates a little bit of a downturn in Q4 and I know we were kind of expecting or the market was expecting a little bit of an acceleration in sort of the transition at CSL. So is that kind of indicative of, and I know they have a sales minimum, so does that – is that kind of tapered off, tapered into that into that cure [ph]? Can you give us any kind of color on that?

Chris Simon: Yes. Larry, I appreciate the question. Again, we see robust growth across the board. CSL is participating in that along with all of our other customers. The highest growth that we are experiencing is actually from our customers who were the adopters of Persona because of the yield benefits as well as the gain in productivity from the integrated system. They are by far driving this, and we don’t see any meaningful slowdown there. Normal historic seasonal averages we’re getting back to that, and that’s as expected. The guidance – we’ve raised guidance again in fourth quarter for plasma, and that does reflect seasonality as well as the anticipated ongoing CSL transition, right, and that’s both factored into the guide.

But again, we entered into this agreement with them because it works for both parties. It gives us that gradual soft landing if you will with – coupled with the ability to expand our share and market presence elsewhere. And that’s what we’re working hard to achieve simultaneously.

Larry Solow: That’s fair. And what about in terms of just, you mentioned sort of gaining some momentum – momentum on Persona continues and going to be rolling out Express Plus in a bigger way, it sounds like coming up over the next few quarters. Do you expect to kind of get some more pricing as you go forward as Persona continues to roll out and as Express Plus gets into the market?

Chris Simon: Yes. The fundamental aspects of our plans are continued market leadership, strengthened market leadership in plasma. We’re absolutely committed to that. That’s what we’re experiencing. I’ll give you two stats, $25 million and $50,000, $25 million Persona collections, right. We’ve demonstrated the safety and the reliability and the performance of that system, 9% to 12% yield enhancement on average. That’s an answer for all of our collectors in this environment to their productivity challenges. So – and we do anticipate an appropriate premium for our technology. Express Plus is performing exactly to our expectations. And just as soon as we have the –finalized our limited market release and have worked out all the remaining questions, which are few at this point, right, we feel great about it.

The customer feedback has been outstanding. And we’ll look to flick the switch in early fiscal 2025 and roll that across the field. We’re not going to talk about specific pricing given the competitive environment, but we remain committed to growing share and improving our margins as a result of technological advancements that have unrivaled value propositions.

Larry Solow: Great. And just lastly, if I may, a simple question and just on the OpSens, obviously you closed the acquisition a few weeks back hasn’t been under the hood too long. But maybe you could just speak about just the expansion opportunities under your umbrella. I know they’re two lead products, or I guess they’re a lead product, I guess OptoWire and then the SavvyWire you mentioned. I guess they’re both now going to be under a much larger sales force. So can you just speak to the limitations they had previously or just maybe that significant opportunity under your roof just going forward?

Chris Simon: Yes, thanks for the question. Sorry. We are really excited to welcome OpSens as part of our company going forward. So shout out to those employees. We’ve spent a lot of time with them over the prior six weeks now and have really gotten to know them, understand and appreciate their work ethic and their commitment to advancing patient care. So it fits hand in glove with what we’re doing, with what we’re now referring to as interventional technology. So it’s our Vascular Closure and it’s sensor-guided technology that we’ve acquired. So, yes, we will put that directly in. In fact, the training is underway. Our sales force being trained on the guidewires and their sales force being trained on Vascular Closure. We expect to have completed the fullest of that training this quarter, fourth quarter fiscal 2024, such that we launched together in April with fiscal 2025.

And the [indiscernible], the Apheresis, the collaboration has been really excellent. And so, we’re quite optimistic about what we can do together to advance that product. And I think some of what we talked about, some of the OpEx expansion you see over the last two quarters is us preparing to make sure that these products can live up to their full potential as part of our portfolio. So stay tuned for more, but we’re very optimistic about what we can do together here.

Larry Solow: Great. Thank you. I appreciate the thoughts.

Operator: Thank you. And our next question coming from the line of Andrew Cooper with Raymond James. Your line is open.

Andrew Cooper: Hi, everybody. Thanks for the time. I’ll save my CSL questions for offline. But maybe shifting to the VASCADE International and you called out the 200 bps of incremental growth there. Just a little bit of help on sort of the trajectory you expect from there. Is that the first bolus and it’s a gradual pacing? Or is there a potential for sort of an inflection here now that you’re out in the market in some of these other geographies?

Chris Simon: Yes, thanks, Andrew. So, the way we think about the expansion in Vascular Closure, we’re going to, where appropriate, replicate the playbook that served us so well in the U.S. And so, there aren’t 600 accounts in Europe, for example, there is 250 or 260, but – and we’ll use a combination of direct and distributor approaches to fully realize that potential. So, it will be mixed in that regard and appropriately so. We think it’s more economical and feasible as we scale. A lot of the lift experienced in the third quarter was specifically from Japan, right? So like most companies, we’re using a distributor model in Japan. There was the initial buy-ins that came with that and you see that come forward. What we really like – this is true in Europe and it’s especially true in Japan and we were able to secure a very favorable reimbursement in Japan to reflect this.

This is a safety-first market and this is a safety-first product. And we have exceptionally good data in support of that. And so we think it’s an outstanding fit for markets that are looking for a better answer on closure, but want to put a premium on safety and productivity and patient satisfaction, all of which come with the Vascular Closure pipeline. So more to come, but we were optimistic about the growth trajectory in international. It’s starting essentially from ground zero, it’s a zero base, but we look forward to continued robust uptake.

Andrew Cooper: Okay, great. And then maybe shifting a little bit to costs and the cash flows, just you mentioned freight costs rising again. A little bit more detail there would maybe be helpful. Are we back on the upswing? Any signs of kind of stabilization there? It’s been sort of noisy through the pandemic, but had felt like we had gotten a little bit more normal. And then just would love a little bit more color on some of the collection delays you called out in terms of cash flow. I think with the guide, it sounds like it’s maybe more timing than it is an actual fundamental shift. But just thinking about that and inventory balance, just a little bit of sense for how you think about cash flows, maybe beyond fiscal 2024 and whether anything has changed.

James D’Arecca: Right. Hi, Andrew. Thanks for the question. So, on the freight costs, what we’ve seen there in terms of higher freight, mostly a good story there, just because it’s been more volume based, the more volume have, we have to pay more freight. And you see that in our cost line. That’s the good news part of it. We are watching the events unfolding in the Red Sea that has created some additional cost. We are looking to manage that as best we can and figure out ways to absorb that. But overall, big picture landscape on freight, apart from what’s going on in the Red Sea, I think it’s a good story overall. The rates have certainly come back down from their peaks back a year or so ago. On the cash flow side, there were some collection delays that I mentioned earlier that has mostly resolved itself, and it really was more of a timing issue around year end with certain collections.

And then we had some turnover on our staff, which led to a bit of an uptick. We’ve seen a lot of that now come back and we should see that normalize here very shortly. And the story for the future in terms of overall cash flow is still a very good one. This business generates a lot of cash and we expect it to continue to do so. You heard Chris remark at the end there. We’re going to have about $2 billion in capacity by the end of 2026 to continue down our M&A agenda.

Andrew Cooper: Great, appreciate it. I’ll hop back in the queue. Thank you.

Operator: Thank you. And our next question coming from the line of Joanne Wuensch with Citi. Your line is open.

Unidentified Analyst : Good morning. This is actually Anthony out for Joanne. Thank you for taking our questions. First, going back to VASCADE, can you share or remind us just where you think your share is in the U.S. in those small- and mid-bore procedures? And then is the incremental opportunity here really more share gain or market growth?

Chris Simon: Anthony, so I appreciate the question. The share question is not as simple and straightforward as we might like, because really what we’re doing here is driving advancement in medical therapy. Disproportionately our competition, particularly in the small- and mid-bore areas that you called out, is manual compression, clearly a suboptimal therapy, or suturing, typically via a figure of eight. And so we’re actively transitioning jointly with the medical community advancements there. And what we think about it is we’ve identified these top 600 hospitals. They represent more than 90% of the ablation procedures. And for those hospitals, we will be in fully 500 of them by the end of this fiscal, so in another month and a half.

And the disproportionate source of growth for us is the already converted hospitals driving significantly higher levels of utilization. When we sat down and worked through with Cardiva at the time, what we thought would be an appropriate level of utilization we were targeting numbers that were 35% to 45%. What we are seeing in our most established accounts now are numbers well worth north of 50%, 65%, 75% in some cases. It’s really good technology and it’s being broadly adopted. So, it tells us there is significantly more upside and there is a lot of stickiness to the product. That’s what’s driving the uptake. And that’s true in ablation, it’s also true in interventional technologies with PCI. So there’s a lot more room to run with that product here in the U.S. and internationally.

Unidentified Analyst : Got it. That’s helpful. And then you just mentioned the two billion in capacity. Talking about M&A, can you share maybe what other adjacencies you would be interested in when it comes to inorganic opportunities in the Hospital segment?

James D’Arecca: Yes, I appreciate the question, Anthony. Look for us, our first priority for capital allocation will be organic, right, whether that is building a fit for task commercial force or strengthening our clinical and our data and analytic capabilities, we feel quite good about what we’ve done there. In R&D, it’s about additional indications, it’s about new product offerings on the same existing product families, and further build out there in terms of registration and such. In terms of M&A, our clear, close second priority, we think there is significantly more room to run with what we’re now calling interventional technologies. So really anything in the EP and IC suite, our game plan hasn’t changed. We want enabling technologies.

We’re not looking to drive the core therapeutics. We’re going to rely on other larger companies that are better equipped to do that. But we make the procedure better, and that can be access, that can be closure, that can be monitoring and protection, that full suite. And we are typically agnostic as to which therapeutic choice the clinician is using. We want to help all of them. And that gives us unfettered access and candidly enables us to punch above our weight for a company of our size. And then we think we bring real value. And when we’re talking to our OpSens colleagues or the prior Cardiva team, it’s about being well enough resourced to be able to deliver the growth that they maybe weren’t able to achieve as standalone entities, but still of a size and a scale where we focus and out execute.

Right? That’s our mantra. We think there is more room to run, in interventional technologies, that’s the primary focus. Eventually, we’ll step out to the next adjacency, but I don’t see that in the near term.

Unidentified Analyst : Great. Thank you.

Operator: Thank you. And our next question coming from the line of Mike Matson with Needham & Company. Your line is open.

Mike Matson: Yes, thanks. So I just wanted to ask one on OpSens deal. So I think everyone kind of understands FFR and PCI, but just in terms of the TAVR opportunity there or the SavvyWire product, can you just talk about kind of the advantages and the reasons that the cardiologists shouldn’t use SavvyWire in those procedures? And can you remind us, I don’t think there’s any other companies targeting that opportunity, but just remind us if there’s any competitors there?

Chris Simon: Yes. Thanks, Mike. We think SavvyWire in TAVR is the shining gem, if you will, in a good portfolio OptoWire and some of the OEM work that we’re doing at OpSens is valuable. But SavvyWire is really the growth engine as we see it going forward. And to your point, it will be disproportionately in TAVR as those procedures continue to expand double digit, right. So we are displacing essentially three other technologies, right, with an all-in-one offering that does the monitoring and the pressure sensing and the guide altogether. And so we think that it is meaningful advancement. I point to some of the most recent trial work, including work that was done by the leading therapeutics companies, where they used SavvyWire.

And the commentary that we heard back from the key opinion leaders that were overseeing that is, to do these procedures without SavvyWire is borderline malpractice. This is just that much better in terms of the outcomes they believe they were able to achieve and the technology support that was gained. So we’ll continue to work and expand that. We think that that paves the way for some of our additional product and portfolio expansion elsewhere in interventional technologies. And we’re proud to have a product of SavvyWire’s prowess to be able to do that on the back of. So stay tuned for more about that. We do have competition there, but we just think the opportunity to displace the existing suboptimal standard of care with an all-in-one product that really delivers was designed by clinicians, for clinicians is the right way to go here.

Unidentified Analyst: Okay, thanks. And then just I guess you’re sort of reiterating the high 20 operating margin target from the Investor Day in 2022. So one of the things that you called out was that the operational excellence program sort of doesn’t end with the end of the program, I guess. But I’ve been wondering, do you need to do kind of another formal sort of restructuring program to get you there, or can you – do you think you can do it without doing that once operational excellence ends?

Chris Simon: Yes, Mike, thanks for the question. I want to start. I’ll let James weigh in on this. But I just want to be crystal clear, right. We came out with those targets in June of 2022. We remain committed to those. They are not aspirational, they’re not kind of some intangible thing. We believe that as we transition and evolve this portfolio, it absolutely has the capability to deliver the revenue growth and the margin expansion that we’ve highlighted. And James touched upon that. I tried to highlight a few of those things in my prepared remark. It is the combination of volume and mix and price driven disproportionately by the advanced technologies and the multiplicative effect that then has on productivity to your point, and operating leverage more broadly.

So we’re excited about where that goes there it’s – there’ll be fits and starts along the way. It won’t be fully linear. But we really like the progress we’re making there. And I’ll let James weigh in. But operational excellence is as much a mindset as it is a program, and we’re not going to back off of that in the spirit of advancing our own productivity.

James D’Arecca: Yes. And I was just going to say just that. As I mentioned earlier, it just becomes part of who we are, right. If we’re going to be a company that’s high volume with disposables, that has to be a constant objective here is to figure out a way to even reduce cost in a small amount. It has a big effect over time.

Unidentified Analyst: Okay, got it. And then just one final one. So on the TEG business or hemostasis business, can you just give us an update on kind of where things stand with regard to the installed base versus existing utilization of the units that are out there? So in other words like, is it both that’s driving the growth you’re placing new units, or is it more about driving more volume utilization through the ones that are out there?

Chris Simon: Yes. Mike it is absolutely both. We had a record quarter for TEG. We expected it, right. That was the plan this year. We knew kind of where we were coming out of it. Where we were surprised favorably was the robustness of equipment sales. And that bodes extremely well for the future because we see hospitals embracing the technology, scaling the technology, adding additional tags to their arsenal. So that bodes well for the future growth. Obviously, that doesn’t happen if we don’t continue to drive utilization. So in this case, it was both record new equipment placements and continued uptick in utilization. Absolutely led by the U.S., but also complemented by an uptick in China, which may be a bit counterintuitive given the broader challenges that medtech is facing there.

But in our case, coming off of a relatively modest performance, particularly this time last year. We saw a meaningful uptick there and that was predominantly utilization. So nice one, two combo record quarter for TEG. And I think it hopefully answers any questions about the robustness and the growth of that platform going forward.

Unidentified Analyst: Yes. Great. Thank you.

Operator: Thank you. Our next question coming from the line of David Turkaly with JMP securities. Your line is open.

David Turkaly: Hey, good morning. Just a quick follow-up on the operating margin. You grew at 250 bps year-over-year, and it sounds like you’re saying that’s sustainable or maybe that that can even accelerate. I know you didn’t have OpSens when you mentioned that, but how should we think, I mean, is that 250 something in that range with two years left in the LRP [ph] about what we should expect a year? I know you said nonlinear, but something to that magnitude or more?

Chris Simon: Yes. I think something to that magnitude. We have to get to the high 20s, and we want to make – I don’t want to get too far ahead of our guidance that’s going to come out in May, but we have to make a meaningful step next year or we’re not going to hit it, right. So we’re working on that right now. And we’ll have more to say on that when we come give our annual guidance for our fiscal 2025. But there’ll be – with that, there’ll be a nice indication of how we’re going to get there for 2026 as well.

David Turkaly: Thank you.

Operator: Thank you. And at this time, we have no further questions in the queue. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.