Haemonetics Corporation (NYSE:HAE) Q4 2023 Earnings Call Transcript May 11, 2023

Haemonetics Corporation beats earnings expectations. Reported EPS is $0.77, expectations were $0.71.

Operator: Good day and thank you for standing by. Welcome to the Fourth Quarter 2023 Haemonetics Corporation’s Earnings Conference Call. At this time, all participants are in 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 turn the conference over to your speaker today, David Trenk, Investor Relations. Please go ahead.

David Trenk: Good morning, everyone. Thank you for joining us for Haemonetics fourth quarter fiscal 2023 conference call and webcast. I’m joined today by Chris Simon, our CEO; and James D’Arecca, our CFO. This morning, we posted our fourth quarter fiscal 2023 results to our Investor Relations website, along with our fiscal 2024 guidance and the analytical tables with the information that we will refer to on this call. Additionally, we’ve provided a complete P&L, balance sheet, summary statement of cash flows as well as reconciliations of our GAAP to non-GAAP financial results and guidance. Unless otherwise noted, all revenue growth rates discussed today are organic and exclude the impact of currency fluctuation and strategic exits of product lines.

As in the past, we’ll refer to non-GAAP financial measures throughout this call to help investors understand Haemonetics ongoing business performance. Please note that these measures exclude certain charges and income items. Please refer to this morning’s earnings release for details on excluded items including comparisons with the same periods of fiscal 2022 and a reconciliation to our GAAP results. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. 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.

Christopher Simon: Thanks, David. Good morning and thank you all for joining. Today, we reported organic revenue growth of 17% in the fourth quarter and 21% in fiscal 2023. We reported adjusted earnings per diluted share of $0.77 in the fourth quarter and $3.03, in fiscal 2023, increases of 18% and 17% respectively. For the first time, Haemonetics eclipsed $1 billion in annual revenue, a milestone in our transformational growth journey. Despite the challenging macroeconomic environment we are delivering and building momentum by creating essential value for donors, patients, and caregivers around the world. Our consistently strong performance throughout fiscal 2023 marked and outstanding start to our long range plan. Three value drivers are fueling our success.

First, plasma volumes from unprecedented collections recovery, coupled with the benefits of our successful technology upgrades. Second, accelerated Vascular Closure U.S. account penetration and performance in hemostasis management aided by improving budgets and staffing in hospitals across the world. And third, operational excellence providing agile and resilient supply capacity to meet robust demand and greater productivity to offset inflation and fund our growth. We anticipate these unique value drivers will continue to distinguish Haemonetics and drive our success moving forward. We are realizing transformational growth of our company and our businesses. Let’s turn to our business unit results and revenue guidance. Plasma revenue grew 31% in the fourth quarter and 43% in fiscal 2023, driven by volume growth and price benefits.

North America disposables represented 85% of our Plasma revenue in fiscal 2023 growing 33% in the fourth quarter and 46% in fiscal 2023. It was a historic year as plasma fractionators strove to replenish safety stocks that were dangerously depleted during the pandemic. As a result, we saw record collection volumes throughout the year and we don’t expect any abatement of this trend in the near-term. We also retained a majority of CSL U.S. disposables business which grew at a rate comparable to our overall U.S. disposables business. Our global CSL business accounted for approximately 14% of our reported revenue in fiscal 2023. We increased production and strengthened our supply chain to meet heightened demand for plasma devices and disposables.

These investments will also create meaningful operational efficiencies over time as demand normalizes.

NexSys with Persona: Hospital revenue grew 19% in Q4 and 18% in fiscal 2023, primarily driven by growth in Vascular Closure and Hemostasis Management. At the beginning of fiscal 2023, we guided 16% to 19% Hospital growth for the year. In August we raised that guidance to 19% to 22% after a strong Q1 in Vascular Closure. The COVID outbreak in China in Q3 negatively affected Hemostasis Management and Cell Salvage revenue such that we did not meet our upwardly revised forecast. Trends improved globally in Q4 including significant improvements in hospital staffing and easing budgetary constraints. The hospital business unit had its first $100 million revenue quarter in Q4 and we are optimistic that these trends will continue in fiscal 2024.

Hemostasis management revenue grew 22% in the quarter and 11% in fiscal 2023. North America, our largest market delivered double digit growth in Q4 and in fiscal 2023. Global growth was driven by strong adoption and utilization of TEG disposables in both periods. Vascular Closure revenue grew 31% in the quarter and 35% in fiscal 2023. We realized this growth by opening new accounts and driving penetration to gain share in the top U.S. EP hospitals. International commercialization of VASCADE is underway utilizing hybrid sales models and leveraging existing back office infrastructure. We expect our first sales in Europe in Q1 fiscal 2024. Transfusion Management revenue grew 8% in the quarter and 19% in fiscal 2023. Growth in the quarter and fiscal year was driven by expansion of our sales force and software implementations in the U.S. and U.K. Cell Salvage revenue grew 4% in the quarter and 3% in fiscal 2023.

Fourth quarter benefited from one time orders in North America. Fiscal 2023 benefited from strong capital sales and favorable order timing among EMEA distributors. The benefits in both periods were partially offset by large stocking orders in Japan last year. Blood Center revenue declined 4% in the fourth quarter and 2% in fiscal 2023. Apheresis revenue was flat in the quarter and declined 4% in fiscal 2023. In the fourth quarter, we grew Egyptian plasma collections and achieved red cell collection share gains in the U.S. that were offset by lower convalescent plasma revenue when compared with the prior year. Whole blood declined 9% in the quarter due to unfavorable order timing among APAC distributors and customers reducing safety stocks built during the pandemic.

For fiscal 2023, whole blood revenue grew 5% driven by share gains in North America as our resilient supply chain enabled us to serve customers when competitors could not. Now turning to fiscal 2024 revenue guidance, we are confident about our momentum going forward as we pursue opportunities to deliver our short and long-term goals. We expect total company organic revenue growth of 5% to 8% in fiscal 2024. We are enthusiastic about the opportunities in our plasma business and anticipate plasma revenue growth of 3% to 6% in fiscal 2024 with price and volume both contributing meaningfully. After exceptional recovery and growth in fiscal 2023, our plasma business forecast, excluding CSL, is in line with the mid-teens growth rate that we expect over the next several years as communicated in our LRP.

Regarding CSL, we expect our share of their plasma business to decrease in the second half of fiscal 2024. Our guidance for fiscal 2024 includes a minimum purchase commitment from CSL under our non-exclusive supply agreement that is slightly in excess of $100 million. We expect that CSL will continue to provide a meaningful contribution to our plasma business revenue in fiscal 2025. We remain committed to providing CSL and all of our plasma customers with the highest level of service and support. We are excited about the future of Hospital as a long-term growth driver for our business. Our clinical and commercial strategies are working and we are tracking ahead of our long range plan. In fiscal 2024, we expect the Hospital business to deliver revenue growth of 16% to 18% driven by strength in Vascular Closure and Hemostasis Management.

Our Blood Center revenue guidance is a year-over-year decline of 2% to flat. The pacing of revenue in this business is backend loaded with unfavorable order timing impact in the first half of the year when compared with fiscal 2023. In summary, this is a very exciting time for Haemonetics and we are enthusiastic about our prospects for the new fiscal year. We are strengthening our competitiveness and capitalizing on opportunities in plasma while accelerating our pivot to higher growth, higher margin, innovative hospital based opportunities and improving productivity through operational excellence. We are using our momentum to sustain growth, improve margins, and advance our industry leadership, taking evolutionary steps to deliver revolutionary results.

Now I’ll turn the call over to James to discuss our financial results and earnings guidance.

NexSys platform as the industry standard.: Hospital revenue grew 19% in Q4 and 18% in fiscal 2023, primarily driven by growth in Vascular Closure and Hemostasis Management. At the beginning of fiscal 2023, we guided 16% to 19% Hospital growth for the year. In August we raised that guidance to 19% to 22% after a strong Q1 in Vascular Closure. The COVID outbreak in China in Q3 negatively affected Hemostasis Management and Cell Salvage revenue such that we did not meet our upwardly revised forecast. Trends improved globally in Q4 including significant improvements in hospital staffing and easing budgetary constraints. The hospital business unit had its first $100 million revenue quarter in Q4 and we are optimistic that these trends will continue in fiscal 2024.

Hemostasis management revenue grew 22% in the quarter and 11% in fiscal 2023. North America, our largest market delivered double digit growth in Q4 and in fiscal 2023. Global growth was driven by strong adoption and utilization of TEG disposables in both periods. Vascular Closure revenue grew 31% in the quarter and 35% in fiscal 2023. We realized this growth by opening new accounts and driving penetration to gain share in the top U.S. EP hospitals. International commercialization of VASCADE is underway utilizing hybrid sales models and leveraging existing back office infrastructure. We expect our first sales in Europe in Q1 fiscal 2024. Transfusion Management revenue grew 8% in the quarter and 19% in fiscal 2023. Growth in the quarter and fiscal year was driven by expansion of our sales force and software implementations in the U.S. and U.K. Cell Salvage revenue grew 4% in the quarter and 3% in fiscal 2023.

Fourth quarter benefited from one time orders in North America. Fiscal 2023 benefited from strong capital sales and favorable order timing among EMEA distributors. The benefits in both periods were partially offset by large stocking orders in Japan last year. Blood Center revenue declined 4% in the fourth quarter and 2% in fiscal 2023. Apheresis revenue was flat in the quarter and declined 4% in fiscal 2023. In the fourth quarter, we grew Egyptian plasma collections and achieved red cell collection share gains in the U.S. that were offset by lower convalescent plasma revenue when compared with the prior year. Whole blood declined 9% in the quarter due to unfavorable order timing among APAC distributors and customers reducing safety stocks built during the pandemic.

For fiscal 2023, whole blood revenue grew 5% driven by share gains in North America as our resilient supply chain enabled us to serve customers when competitors could not. Now turning to fiscal 2024 revenue guidance, we are confident about our momentum going forward as we pursue opportunities to deliver our short and long-term goals. We expect total company organic revenue growth of 5% to 8% in fiscal 2024. We are enthusiastic about the opportunities in our plasma business and anticipate plasma revenue growth of 3% to 6% in fiscal 2024 with price and volume both contributing meaningfully. After exceptional recovery and growth in fiscal 2023, our plasma business forecast, excluding CSL, is in line with the mid-teens growth rate that we expect over the next several years as communicated in our LRP.

Regarding CSL, we expect our share of their plasma business to decrease in the second half of fiscal 2024. Our guidance for fiscal 2024 includes a minimum purchase commitment from CSL under our non-exclusive supply agreement that is slightly in excess of $100 million. We expect that CSL will continue to provide a meaningful contribution to our plasma business revenue in fiscal 2025. We remain committed to providing CSL and all of our plasma customers with the highest level of service and support. We are excited about the future of Hospital as a long-term growth driver for our business. Our clinical and commercial strategies are working and we are tracking ahead of our long range plan. In fiscal 2024, we expect the Hospital business to deliver revenue growth of 16% to 18% driven by strength in Vascular Closure and Hemostasis Management.

Our Blood Center revenue guidance is a year-over-year decline of 2% to flat. The pacing of revenue in this business is backend loaded with unfavorable order timing impact in the first half of the year when compared with fiscal 2023. In summary, this is a very exciting time for Haemonetics and we are enthusiastic about our prospects for the new fiscal year. We are strengthening our competitiveness and capitalizing on opportunities in plasma while accelerating our pivot to higher growth, higher margin, innovative hospital based opportunities and improving productivity through operational excellence. We are using our momentum to sustain growth, improve margins, and advance our industry leadership, taking evolutionary steps to deliver revolutionary results.

Now I’ll turn the call over to James to discuss our financial results and earnings guidance.

Q&A Session

James D’Arecca: Thank you, Chris, and good morning everyone. Our adjusted gross margin was 51.8% in the fourth quarter and 53.2% in fiscal 2023, a decrease of 180 basis points and 70 basis points respectively when compared with the same periods of the prior year.

NexSys: Adjusted operating expenses in the fourth quarter were $103.6 million, an increase of $8.3 million or 9% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 200 basis points to 34%. Adjusted operating expenses for fiscal 2023 were $403.6 million, an increase of $54.9 million or 16% compared with the prior year. As a percentage of revenue, adjusted operating expenses decreased by 60 basis points to 34.5%. In the fourth quarter, higher operating expenses were driven by performance based compensation, investments in sales and marketing and R&D, and return to normal spending activities, partially offset by improving freight and Operational Excellence Program savings.

In fiscal 2023 higher operating expenses were driven by performance based compensation, higher upfront investments in operations to meet unprecedented demands in plasma collections, along with manufacturing cost headwinds such as higher freight costs within our network and expedited outbound shipping costs. Contributions from our productivity savings helped offset some of the cost increases, both in the quarter and in fiscal 2023. Fourth quarter adjusted operating income was $53.9 million, an increase of $7.3 million or 16% and adjusted operating income for fiscal 2023 was $218.4 million, an increase of $31.3 million or 17% compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.7% in the fourth quarter and 18.7% in fiscal 2023, up 10 basis points and down 10 basis points respectively compared with the same periods in fiscal 2022.

The impacts of the macroeconomic driven inflationary environment upon our adjusted operating margins in fiscal 2023 were broad based, including freight, raw materials, and labor. We incurred approximately 390 basis points impact from inflationary pressures on our adjusted operating income margin in fiscal 2023 compared to approximately 300 basis points impact in fiscal 2022. In addition, we incurred higher performance based compensation in fiscal 2023 than in the prior year. Our operational excellence program is an important lever in our efficiency and ability to create savings. In our fiscal 2023 this program delivered $26 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $96 million in cumulative gross savings slightly ahead of our plan.

We also had positive contributions towards operating margins from Vascular Closure. As this business grows, we can expect higher leverage positively impacting our margins. We are excited about the opportunities in Vascular Closure and will continue to allocate investments to fund its growth in both new and existing markets. The adjusted income tax rate was 23% for fourth quarter and 24% for fiscal 2023, compared with 22% for both comparative periods of the prior year. The adjusted income tax rate in fiscal 2023 was higher due to jurisdictional earnings and executive compensation. Fourth quarter adjusted net income was $39.2 million, up $5.7 million or 17%, and adjusted earnings per diluted share were $0.77, up 18% when compared with the fourth quarter of fiscal 2022.

Adjusted net income for fiscal 2023 was $155.7 million, up $23.1 million or 17%, and adjusted earnings per diluted share was $3.03 up 17% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense, and FX had a negative $0.07 impact on the fourth quarter, and a negative $0.19 impact on the full year adjusted earnings per diluted share when compared with the prior year. Cash on hand at the end of the fourth quarter was $284 million, up $25 million since the beginning of the year. Free cash flow before restructuring and restructuring related costs was $190 million compared with $117 million at the end of the last fiscal year. During fiscal 2023, Haemonetics benefited from increased operating cash flow, partially offset by $75 million in share repurchases.

Additionally, the company paid $32 million of earn out payments related to previous acquisitions and made a $30 million Euro investment in Vivasure Medical. Moving on to fiscal 2024 earnings guidance, we expect fiscal 2024 adjusted operating margins in the range of 20% to 21%. In fiscal 2023 unprecedented growth in plasma created atypical operational pressures. To ensure that we continued to fulfill our customer’s needs, we were required to purchase components and other manufacturing inputs at spot prices, which negatively affected our margins. We expect these inefficiencies to persist in the near-term, but to start to abate in the second half of fiscal 2024. Therefore, our operating margin guidance is backend loaded with first half margins expected to be below our full year guidance range before growing in the second half.

In addition to an improving manufacturing environment, we will continue to benefit from a favorable sales mix and improving the profitability of our hospital business. We expect our Operational Excellence Program to deliver additional growth savings of approximately $20 million, $6 million of which are net savings benefiting our bottom line with total cumulative savings reaching $116 million by the end of our fiscal 2024. Despite the additional near-term operational challenges, the margin expansion goals we presented in our long range plan are on track. Our adjusted earnings per diluted share guidance for fiscal 2024 is a range of $3.45 to $3.75, representing a 14% to 24% growth rate when compared with fiscal 2023.

NexSys: Adjusted operating expenses in the fourth quarter were $103.6 million, an increase of $8.3 million or 9% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 200 basis points to 34%. Adjusted operating expenses for fiscal 2023 were $403.6 million, an increase of $54.9 million or 16% compared with the prior year. As a percentage of revenue, adjusted operating expenses decreased by 60 basis points to 34.5%. In the fourth quarter, higher operating expenses were driven by performance based compensation, investments in sales and marketing and R&D, and return to normal spending activities, partially offset by improving freight and Operational Excellence Program savings.

In fiscal 2023 higher operating expenses were driven by performance based compensation, higher upfront investments in operations to meet unprecedented demands in plasma collections, along with manufacturing cost headwinds such as higher freight costs within our network and expedited outbound shipping costs. Contributions from our productivity savings helped offset some of the cost increases, both in the quarter and in fiscal 2023. Fourth quarter adjusted operating income was $53.9 million, an increase of $7.3 million or 16% and adjusted operating income for fiscal 2023 was $218.4 million, an increase of $31.3 million or 17% compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.7% in the fourth quarter and 18.7% in fiscal 2023, up 10 basis points and down 10 basis points respectively compared with the same periods in fiscal 2022.

The impacts of the macroeconomic driven inflationary environment upon our adjusted operating margins in fiscal 2023 were broad based, including freight, raw materials, and labor. We incurred approximately 390 basis points impact from inflationary pressures on our adjusted operating income margin in fiscal 2023 compared to approximately 300 basis points impact in fiscal 2022. In addition, we incurred higher performance based compensation in fiscal 2023 than in the prior year. Our operational excellence program is an important lever in our efficiency and ability to create savings. In our fiscal 2023 this program delivered $26 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $96 million in cumulative gross savings slightly ahead of our plan.

We also had positive contributions towards operating margins from Vascular Closure. As this business grows, we can expect higher leverage positively impacting our margins. We are excited about the opportunities in Vascular Closure and will continue to allocate investments to fund its growth in both new and existing markets. The adjusted income tax rate was 23% for fourth quarter and 24% for fiscal 2023, compared with 22% for both comparative periods of the prior year. The adjusted income tax rate in fiscal 2023 was higher due to jurisdictional earnings and executive compensation. Fourth quarter adjusted net income was $39.2 million, up $5.7 million or 17%, and adjusted earnings per diluted share were $0.77, up 18% when compared with the fourth quarter of fiscal 2022.

Adjusted net income for fiscal 2023 was $155.7 million, up $23.1 million or 17%, and adjusted earnings per diluted share was $3.03 up 17% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense, and FX had a negative $0.07 impact on the fourth quarter, and a negative $0.19 impact on the full year adjusted earnings per diluted share when compared with the prior year. Cash on hand at the end of the fourth quarter was $284 million, up $25 million since the beginning of the year. Free cash flow before restructuring and restructuring related costs was $190 million compared with $117 million at the end of the last fiscal year. During fiscal 2023, Haemonetics benefited from increased operating cash flow, partially offset by $75 million in share repurchases.

Additionally, the company paid $32 million of earn out payments related to previous acquisitions and made a $30 million Euro investment in Vivasure Medical. Moving on to fiscal 2024 earnings guidance, we expect fiscal 2024 adjusted operating margins in the range of 20% to 21%. In fiscal 2023 unprecedented growth in plasma created atypical operational pressures. To ensure that we continued to fulfill our customer’s needs, we were required to purchase components and other manufacturing inputs at spot prices, which negatively affected our margins. We expect these inefficiencies to persist in the near-term, but to start to abate in the second half of fiscal 2024. Therefore, our operating margin guidance is backend loaded with first half margins expected to be below our full year guidance range before growing in the second half.

In addition to an improving manufacturing environment, we will continue to benefit from a favorable sales mix and improving the profitability of our hospital business. We expect our Operational Excellence Program to deliver additional growth savings of approximately $20 million, $6 million of which are net savings benefiting our bottom line with total cumulative savings reaching $116 million by the end of our fiscal 2024. Despite the additional near-term operational challenges, the margin expansion goals we presented in our long range plan are on track. Our adjusted earnings per diluted share guidance for fiscal 2024 is a range of $3.45 to $3.75, representing a 14% to 24% growth rate when compared with fiscal 2023.

NexSys: Adjusted operating expenses in the fourth quarter were $103.6 million, an increase of $8.3 million or 9% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 200 basis points to 34%. Adjusted operating expenses for fiscal 2023 were $403.6 million, an increase of $54.9 million or 16% compared with the prior year. As a percentage of revenue, adjusted operating expenses decreased by 60 basis points to 34.5%. In the fourth quarter, higher operating expenses were driven by performance based compensation, investments in sales and marketing and R&D, and return to normal spending activities, partially offset by improving freight and Operational Excellence Program savings.

In fiscal 2023 higher operating expenses were driven by performance based compensation, higher upfront investments in operations to meet unprecedented demands in plasma collections, along with manufacturing cost headwinds such as higher freight costs within our network and expedited outbound shipping costs. Contributions from our productivity savings helped offset some of the cost increases, both in the quarter and in fiscal 2023. Fourth quarter adjusted operating income was $53.9 million, an increase of $7.3 million or 16% and adjusted operating income for fiscal 2023 was $218.4 million, an increase of $31.3 million or 17% compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.7% in the fourth quarter and 18.7% in fiscal 2023, up 10 basis points and down 10 basis points respectively compared with the same periods in fiscal 2022.

The impacts of the macroeconomic driven inflationary environment upon our adjusted operating margins in fiscal 2023 were broad based, including freight, raw materials, and labor. We incurred approximately 390 basis points impact from inflationary pressures on our adjusted operating income margin in fiscal 2023 compared to approximately 300 basis points impact in fiscal 2022. In addition, we incurred higher performance based compensation in fiscal 2023 than in the prior year. Our operational excellence program is an important lever in our efficiency and ability to create savings. In our fiscal 2023 this program delivered $26 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $96 million in cumulative gross savings slightly ahead of our plan.

We also had positive contributions towards operating margins from Vascular Closure. As this business grows, we can expect higher leverage positively impacting our margins. We are excited about the opportunities in Vascular Closure and will continue to allocate investments to fund its growth in both new and existing markets. The adjusted income tax rate was 23% for fourth quarter and 24% for fiscal 2023, compared with 22% for both comparative periods of the prior year. The adjusted income tax rate in fiscal 2023 was higher due to jurisdictional earnings and executive compensation. Fourth quarter adjusted net income was $39.2 million, up $5.7 million or 17%, and adjusted earnings per diluted share were $0.77, up 18% when compared with the fourth quarter of fiscal 2022.

Adjusted net income for fiscal 2023 was $155.7 million, up $23.1 million or 17%, and adjusted earnings per diluted share was $3.03 up 17% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense, and FX had a negative $0.07 impact on the fourth quarter, and a negative $0.19 impact on the full year adjusted earnings per diluted share when compared with the prior year. Cash on hand at the end of the fourth quarter was $284 million, up $25 million since the beginning of the year. Free cash flow before restructuring and restructuring related costs was $190 million compared with $117 million at the end of the last fiscal year. During fiscal 2023, Haemonetics benefited from increased operating cash flow, partially offset by $75 million in share repurchases.

Additionally, the company paid $32 million of earn out payments related to previous acquisitions and made a $30 million Euro investment in Vivasure Medical. Moving on to fiscal 2024 earnings guidance, we expect fiscal 2024 adjusted operating margins in the range of 20% to 21%. In fiscal 2023 unprecedented growth in plasma created atypical operational pressures. To ensure that we continued to fulfill our customer’s needs, we were required to purchase components and other manufacturing inputs at spot prices, which negatively affected our margins. We expect these inefficiencies to persist in the near-term, but to start to abate in the second half of fiscal 2024. Therefore, our operating margin guidance is backend loaded with first half margins expected to be below our full year guidance range before growing in the second half.

In addition to an improving manufacturing environment, we will continue to benefit from a favorable sales mix and improving the profitability of our hospital business. We expect our Operational Excellence Program to deliver additional growth savings of approximately $20 million, $6 million of which are net savings benefiting our bottom line with total cumulative savings reaching $116 million by the end of our fiscal 2024. Despite the additional near-term operational challenges, the margin expansion goals we presented in our long range plan are on track. Our adjusted earnings per diluted share guidance for fiscal 2024 is a range of $3.45 to $3.75, representing a 14% to 24% growth rate when compared with fiscal 2023.

NexSys: Before we open the call up for Q&A, I’d like to conclude with a few closing thoughts. First, fiscal 2023 was a great initial installment in our long range plan, thanks to stellar performance by Plasma and Hospital. Our Plasma business is a powerful value driver fueled by strong end market demand. The base business is in line with long range expectations and will continue to deliver growth, as the robust recovery experienced in fiscal 2023 gives us compelling momentum to start fiscal 2024. Hospital continues to be strong on the heels of a record revenue quarter. Penetration and utilization in top accounts along with strategic business investments will further strengthen our leadership and expand our share. Second, we are committed to making investments to support our customers’ needs along with investments as part of our Operational Excellence Program to set ourselves up for further growth and opportunities.

We plan to achieve the remaining $19 million to $29 million in target savings by the end of fiscal 2025. These investments as the macro environment further stabilizes will create additional efficiency benefits and will continue to expand our margins. And finally, the strength of our underlying business, coupled with the steps we’ve taken this year will enable consistent expansion of our capital capacity. With the capital allocation priorities being unchanged, we will be disciplined with allocating capital to high impact, high ROI projects that accelerate growth and value creation. Thank you. And now I would like to open up the line for Q&A.

Q – Anthony Petrone: Thanks and congratulations to strong fiscal 2022 and a good start to the year here on the calendar basis. Maybe Chris, to start out a little bit on Plasma, can you just a recap of the CSL comments there? Is that 14% of Plasma revenue or total revenue just looking backward just to clarify that? And then, sort of when we think about going forward, the estimate for $100 million minimum and then extending into fiscal 2025, maybe just a little bit on the dynamics there, how that flows in through the year, is that just on an as-need basis? Is it backend loaded? And then I’ll have a couple of follow ups for Jim on margin. Thanks.

Operator: Thank you. One moment for our next question. We have a question from Larry Solow with CJS Securities. Your line is…

Operator: Thank you. One moment for our next question. We have a question from David Turkaly with JMP Securities. Your line is…

Operator: Thank you. Our next question comes from Joanne Wuensch from Citi. Your line is open.

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

Operator: Thank you. We have a question from Drew Ranieri with Morgan Stanley. Your line is open.

NexSys:

Operator: Thank you. One moment for our next question. We have a question from Michael Petusky from Barrington Research. Your line is open.

Operator: Thank you. And that’s all the questions we have. This does conclude today’s conference call. Thank you for participating. You may now disconnect.