Haemonetics Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Second Quarter 2025 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. Session.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Olga Gayet. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us for Haemonetics' 2nd Quarter Fiscal Year 2025 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO and James Dureka, our CFO. This morning, we posted our Q2 fiscal year 2025 results to our Investor Relations website along with our fiscal year 2025 guidance. Before we begin, just a quick reminder that all revenue growth rates discussed today are organic, unless specified otherwise, and exclude the impact of currency fluctuation and acquisitions.

Speaker 1

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. 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 period, please refer to our Q2 fiscal year 2025 earnings release available on our website. Our remarks today include forward looking statements, and our actual results may differ materially from anticipated results.

Speaker 1

Factors that may cause our results to differ include those referenced in Safe Harbor statement in today's earnings release and in our usual 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.

Speaker 2

Thanks, Olga. Good morning, and thank you all for joining. Today, we reported 2nd quarter revenue of $346,000,000 growth of 9% on a reported basis and 4% organically, primarily driven by our hospital business. Year to date, revenue growth was 8% reported and 3% organic. 2nd quarter adjusted earnings per share were $1.12 an increase of 13% from the prior year.

Speaker 2

Our growth and record financial performance speak to our agility and our progress executing our long range plan. We continue to set the standard in plasma collection, accelerating center conversions and gaining share with our newest technologies, while we rapidly expand our presence and successfully address emerging industry trends and attractive hospital markets. We have the tools and the resources necessary to achieve increasingly profitable growth in both the short and long term and to deliver significant value for our customers and stakeholders. We have momentum and we anticipate an even better performance going forward. We reaffirm our total revenue growth expectation for the fiscal year in the range of 5% to 8% and are raising our organic growth guidance to 1% to 4%, up from flat to 3% previously.

Speaker 2

Turning now to our business unit results. Plasma revenue declined 3% in 2nd quarter year to date after growing 11% and 22%, respectively, in the same periods last year. North America disposables revenue declined 3% in the quarter and 4% year to date, primarily due to CSL's planned transition. Excluding CSL, revenue grew as declines in volume were more than offset by premium pricing from technology upgrades. Software revenue was flat in the 2nd quarter and grew 10% year to date, driven by additional NextLINK DMS upgrades where as the only plasma collection platform provider offering an independent DMS, we have 80% share of the U.

Speaker 2

S. Market. Europe continued to show strong collections momentum as well. We believe recent pressure on volumes is transitory as customers are readying to support additional fractionation capacity and fuel continued growth. Our enhanced NexSys platform equips them with the tools to safely optimize center operations through increased yield and more efficient throughput.

Speaker 2

We are also using this opportunity to accelerate technology upgrades across the remaining U. S. Nexus centers and expect to complete these upgrades this fiscal year. With more than 35,000,000 Persona collections to date and a strong body of real world evidence supporting the superiority of the enhanced Nexus platform, we are gaining market share and converting competitors' centers. We expect that share gains will continue through the remainder of this year and into next year.

Speaker 2

Based on customer forecast, we foresee a return to more rapid collections in the near to intermediate term. End market demand for IG therapies remains strong and our large customers have plans to expand fractionation capacity over the next several years to meet this demand. We reaffirm our full year fiscal 2025 plasma guidance of a 3% to 6% decline inclusive of an approximately $100,000,000 contribution from CSL. Blood Center revenue declined 1% in the 2nd quarter year to date. Apheresis revenue was flat in the 2nd quarter and grew 1% in the first half of the year, primarily driven by continued plasma share gains globally and strength in U.

Speaker 2

S. Red cell collections, partially offset by fewer capital sales in the Q2 versus the prior year. Self sufficiency is driving international demand for source plasma and we are strengthening our global customer relationships to expand Nexus worldwide. Whole blood declined 3% in the 2nd quarter and 10% in the first half of the year as we rationalize this franchise to expand margins. Based on strong performance, we are updating our fiscal 2025 Blood Center guidance range to a decline of 4% to 6%, up from a decline of 5% to 7% previously.

Speaker 2

Moving to Hospital. Revenue grew 31% on a reported basis in both the Q2 year to date with organic growth of 16% 15%, respectively. Blood Management Technologies increased momentum growing 14% in the 2nd quarter and 12% year to date driven by the U. S. And EMEA.

Speaker 2

In the quarter, TEG grew an impressive 35% in the U. S. Driven by strong capital sales and a 20% improvement in device utilization. Much of this success is attributed to our new global hemostasis heparinase neutralization assay cartridge that aids clinicians in managing fully heparinized adult patients, particularly in CV surgery and liver transplant. We have initiated regulatory efforts to expand patient access to this product globally.

Speaker 2

Success in the U. S. Was partially offset by continued market challenges in China. Transfusion management grew double digits in the quarter and year to date benefiting from new account openings for SafeTrace Tx and BloodTrack in North America and EMEA. Cell salvage revenue declined as growth in disposables was more than offset by both capital order timing and a purposeful shift away from lower margin accounts.

Speaker 2

Interventional Technologies grew 61% in the 2nd quarter and 64% year to date on a reported basis, with 20% organic growth in both periods. Growth in vascular closure was largely driven by the successful launch of Vascade MVP XL halfway through our 2nd quarter. With a 58% larger collagen plug and workflow similar to our other VASGADE devices, MVP XL is a game changer, enabling us to participate in the rapidly growing pulsed field ablation market and increase adoption and procedures such as left atrial appendage closures. In less than 3 months since full market release, this device has been introduced in nearly half of our existing accounts, strengthening our leadership and enabling the treatment of atrial fibrillation across ablation technologies, while expanding our presence in left atrial appendage closures, where we had minimal use prior to this launch. With work underway to expand the label for the current design of SKADE MVPXL up to 14 French inner diameter and 17 French outer diameter, we plan to further accelerate the adoption in the U.

Speaker 2

S. And internationally. We are seeing strong momentum in this business and expect growth for this product line to be in the high 20s in the second half of this fiscal, driven by our success with MVPXL, improving utilization rates and an overall uptick in procedure volumes. Our newly acquired products delivered a total of $16,000,000 in revenue in our Q2 and $34,000,000 in revenue year to date. We are making significant progress with the Enzo ETM esophageal cooling device having opened 32 new centers in the Q2.

Speaker 2

This device is now available across more than 200 accounts, in line with our original expectations. We are also making progress with advancing our sensor guided technology. SavvyWire is distinctly differentiated with a high accuracy pressure sensor for in situ hemodynamic measurements providing crucial information to the physician in real time and improving overall workflow for the TAVR procedure. We remain confident in realizing the commercial and financial benefits of these acquisitions over time as we further expand our market share in electrophysiology and build a solid foundation in interventional cardiology and structural heart. We have meaningful market opportunities and expect growth to accelerate driven by the launches of MVPXL, the TEG-six heparinase neutralization cartridge, Enzo ETM and our sensor guided technologies.

Speaker 2

In light of the growing momentum in our hospital business, we are raising our organic revenue growth guidance to a range of 14% to 17%, up from the previous 13% to 16%, while adjusting expectations for the newly acquired products resulting in a 100 basis points reduction at the midpoint of our reported revenue guidance of 26% to 31%. Before I hand over the call to James to discuss the rest of our financials and updates to our fiscal 2025 guidance, I want to reaffirm our commitment to our LRP and delivering value to our shareholders through sustainable, profitable growth. Our product portfolio is increasingly well positioned to deliver on significant unmet needs and our commercial investments are strengthening our competitiveness. We are confident we will thrive in this dynamic environment and achieve our short and long term goals. We are navigating complex market challenges and adapting to emerging trends and opportunities.

Speaker 2

We're resilient, we find ways to deliver and we have a lot to be excited about. James, over to you.

Speaker 3

Thank you, Chris, and good morning, everyone. Chris has already discussed our revenue, so I'll continue with the rest of our financial results and updates to our fiscal 2025 guidance. Our portfolio evolution is having an increased impact on our business, driving sustainable margin improvements. In the second quarter, adjusted gross margin reached 56.7 percent, up 2 70 basis points from Q2 fiscal 2024 with approximately 70% of this improvement driven by volume and mix, followed by additional contributions from price across all business units and manufacturing efficiencies. These improvements were partially offset by approximately 130 basis points of headwind from foreign exchange.

Speaker 3

Year to date trends reflect a similar story. Having delivered an additional 140 basis point margin expansion sequentially, we finished the 1st 6 months of the fiscal year with an adjusted gross margin of 56%, up 190 basis points when compared with the prior year. Looking ahead, we expect further margin expansion in fiscal 2025, primarily driven by an increase in momentum throughout our hospital business, technology upgrades and overall higher margin business in plasma and incremental savings from our operational excellence program. Adjusted operating expenses in the 2nd quarter were $112,300,000 an increase of $8,700,000 or 8% compared with the Q2 of the prior year. As a percentage of revenue, adjusted operating expenses were at 32.5%, flat when compared with the same period last year.

Speaker 3

Adjusted operating expenses year to date were $227,200,000 an increase of $25,000,000 or 12% compared with the prior year at 33.3 percent of revenue. The dollar increase in adjusted operating expenses in the quarter year to date was primarily driven by the acquisitions of OpSens and Attune Medical along with additional investments to support our growth momentum. Adjusted operating income reached $83,500,000 in the 2nd quarter, up $15,000,000 to 24.2 percent of revenue, reflecting a 310 basis point sequential expansion from the prior quarter and a 270 basis point increase year over year inclusive of an approximately 100 basis point headwind from foreign exchange. Adjusted operating income in the 1st 6 months was $154,500,000 up $16,000,000 at 22.7 percent of revenue. As we continue to move through fiscal 2025, the expansion in adjusted operating margin is becoming more pronounced, reflecting impacts from our shifting portfolio mix, improved operating efficiencies and disciplined capital allocation.

Speaker 3

We reaffirm our fiscal year 2025 adjusted operating margin guidance in the range of 23% to 24%. This guidance reflects our expectation of additional margin improvement in the second half of this fiscal year, more than offsetting the anticipated increase in adjusted operating expenses due to the expansion of our clinical teams and investments into innovation. This will help set the groundwork needed for continued margin increases into fiscal 2026 as we work towards achieving expected adjusted operating margins in the high 20s. The adjusted income tax rate was 25% in the 2nd quarter and 23% year to date compared with 23% and 22% in the same periods of the prior year respectively. We anticipate our 3rd quarter tax rate to be similar to 2nd quarter and a full year tax rate at around 23.5%.

Speaker 3

2nd quarter adjusted net income was $57,300,000 up $7,000,000 or 13% and adjusted earnings per diluted share was 1.12 dollars also up 13% when compared with the Q2 of fiscal 2024. First half adjusted income was $109,600,000 up $5,300,000 or 5 percent and adjusted earnings per diluted share was $2.13 also up 5% when compared with the first half of fiscal twenty twenty four. The combination of the adjusted income tax rate, interest expense, net of interest income, changes in the share count and FX had a $0.13 unfavorable impact in the 2nd quarter and a $0.20 unfavorable impact year to date when compared with the prior year. We're enthusiastic about our performance in the 1st 6 months of fiscal 2025 despite modest changes in the revenue mix included with our updated guidance and reaffirm our fiscal 2025 adjusted earnings per diluted share guidance to be in the range of $4.45 to 4.75 Before we move on to discuss our balance sheet and cash flow, I have an additional update related to capital allocation. In our Q2, we entered into an accelerated share repurchase agreement to buy back $75,000,000 of common stock under our previously announced $300,000,000 share repurchase authorization.

Speaker 3

This share buyback helped offset some dilution from existing share based compensation programs and returned some capital to shareholders at an opportune time given our growth expectations. We have $150,000,000 remaining under the existing share repurchase authorization and we will continue to be opportunistic with additional buybacks. Moving on to balance sheet and cash flow. In the 1st 6 months of fiscal 2025, we recorded cash provided by operating activities of $21,400,000 down from the $118,000,000 in the same period last year and free cash flow of $20,400,000 compared with $84,800,000 in fiscal 2024. While our cash flow has improved significantly since the Q1, working capital has also continued to increase, offsetting an increase in net income.

Speaker 3

The increase in working capital can be attributed to higher inventory levels driven by several factors, including an overall improvement in the disposable inventory position in plasma compared to the previous year when we were operating under critically low inventory levels. The continued transition of our customers to the latest technology, which includes new bowls and bottles, additional NexSys devices and inventory from recent acquisitions. And finally, the timing of certain payments and receivables, including settlement of specific legal expenses and performance based bonus payments for fiscal 2024, both of which were paid out in our Q1 of fiscal 2025. We expect our working capital to improve in the second half of the year and reaffirm our expectation for fiscal 2025 free cash flow to be in the range of $130,000,000 to $180,000,000 Cash on hand at the end of the quarter was $299,300,000 up $120,500,000,000 since the end of fiscal 2024, primarily due to our recently completed debt transactions and partially offset by our acquisition of Attune Medical and share buybacks. There were no further changes made to our debt capital structure following a series of refinancings we completed earlier this fiscal year.

Speaker 3

Our debt tower consisted of $1,000,000,000 in convertible bonds, a $248,000,000 term loan A and no outstanding borrowings on the revolving credit facility, resulting in a net leverage ratio of approximately 2.7 times EBITDA as defined by our credit facility. Before opening the call for Q and A, I'd like to provide some key takeaways from our remarks. First, our long range plan financial targets remain intact and we expect growth in the second half of this year to set a solid foundation for our final installment of the LRP as leverage and mix benefits become increasingly more evident in our results. In plasma, we are upgrading our remaining customers to the latest technology and continue to win share, allowing us to deliver meaningful growth in this business ex CSL despite short term impacts to collection volumes. As collections return to historical growth levels, we are well positioned to sustain our above market growth through ongoing innovation and expanded market share.

Speaker 3

Our hospital business is well positioned to sustain its outsized growth trajectory amid dynamic market trends. We are dedicated to accelerating the adoption of all our products and expanding our reach and relevance as we unlock new growth opportunities and achieve operating leverage through scale. And finally, we will actively pursue opportunities to enhance shareholder returns With nearly $1,000,000,000 in available capacity today projected to grow up to $1,600,000,000 by the end of fiscal 2026, we are well positioned to deploy additional capital for organic investments, M and A, opportunistic share buybacks and debt repayment, maximizing outcomes for both the company and its shareholders. Thank you. We are now ready to open the call for Q and A.

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from the line of Anthony Petrone from Mizuho Financial Group. Your line is now open.

Speaker 4

Thanks and good morning. Congratulations on a good print here. Maybe, Chris, I'll start off with Basket and then I'll have a follow-up on plasma. Maybe to just kick off on Bascade. Chris, you mentioned in the second half of the year in your prepared remarks, high 20s growth rate trajectory.

Speaker 4

Can you maybe walk through how many of the target 600 electrophysiology sites in the United States have adopted XL at this point? What's the rollout plan in the second half for more deeply penetrating those sites? And is there anything you can share on the pricing dynamics of XL versus the predecessor MDP device? And again, I'll have that follow-up on plasma.

Speaker 2

Thank you, Anthony. The introduction of MPP XL has put us back on our front foot in vascular closure. Clearly, PFA, fantastic technology, disruptive influence in the market, and you see that unfortunately in our Q1 results where it was a setback for us. We did the limited market release. We truncated that because the results were so overwhelmingly positive and we had a lot of confidence with the product's performance.

Speaker 2

So mid August, exactly halfway through the quarter for us, we began the launch. We are now at this point in time fully through 200 of our top 600 accounts. Again, feedback has been very similar to what we experienced in the limited market release in terms of ease of use and the functionality for closure both for AFib and BFA included and for left atrial appendage closure, which is a market we didn't really have penetration in previously. So we're moving ahead nicely. In fact, if we just look at it from the results through today, if that 13 week period, which is about how long we've been on the market, had been in the quarter, we would have already been talking about mid-20s growth.

Speaker 2

We think it will be high-20s in the second half of the year because of the continued penetration. In terms of pricing, we tend to price all of our innovation based on the value proposition. There's a clear and definitive value proposition for MVPXL in the market. It's a 58% larger collagen plug and our pricing reflects that. As we scale the business, the gross margin from that will be accretive to our overall closure business.

Speaker 2

It's not there today, just given where it is in the launch. But certainly over the second half of this year, we'll realize that benefit as well. Thanks.

Speaker 4

Very helpful. And then the follow-up on plasma, Chris, maybe just to parse through if we exclude CSL and maybe just the pricing and volume dynamics of that base business excluding CSL. And really where I'm getting at, there was weather and IV shortages. So how is volume versus price in the base plasma business ex CSL trending? Thanks again.

Speaker 4

Congrats.

Speaker 2

Yes. Thank you, Anthony. See, our non CSL business, we saw mild pullback in total volumes, not unexpected. The growth rate over the prior 2 years, clearly not sustainable. The market for collections is excellent and there's a lot of foot traffic into the centers and our largest customers are using this as an opportunity to manage inventory and to manage cost per liter.

Speaker 2

And that's where our value proposition for the integrated platform on NexSys with Persona and Express Plus and the software support is really front and center. And it's enabled us now to have commitments such that we know we will complete the upgrade to our latest technology across all U. S. Customers on the Nexus device by the end of this fiscal year, if not sooner. As we upgrade, customers are seeing the benefit, faster throughputs, better plasma yields, and that's driving share gains as well.

Speaker 2

So excluding the CSL business, we actually grew that business, but not on collections. We grew it on the pricing and the revenue, which again just reflects the superiority of the platform and the demand for the product. So we remain very bullish. The share gains are happening as we speak. They'll continue into our FY 2026, all of which is meaningfully margin accretive for that plasma business.

Speaker 2

So we feel quite good about our positioning and what we can get done here over the next 4 to 6 quarters.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from the line

Speaker 6

of

Operator

Marie Thibault from BTIG. Your line is now open.

Speaker 7

Good morning. Thanks for taking the questions and congrats on a good fiscal second quarter. I wanted to start here to talk a little bit more about the adjusted operating margin, a really nice jump in that metric, certainly more than we had expected. Yet you held the guide for the year. Can you help us think about some of the cost cutting you're doing?

Speaker 7

I know you're making some investments in clinical teams. Should we think about the increases you talked about rest of the year being more incremental? Certainly, if we did larger jumps, we'd be getting past the top end of your guidance. So help us think a little bit about cadence and what's actually happening behind the scenes.

Speaker 3

Yes, Marie, I'll start and

Speaker 2

then I'll invite James to finish it out. We are pleased with the gross margin and operating margin improvement in the quarter. Fully 40% of our business in the Q2 is hospital based business. We tend to run that overall business at roughly a 70% gross margin. As our plans entail, that's really driving the expansion.

Speaker 2

So pretty much all of the improvement. And we really saw close to a 400 basis points improvement. There was about 130 basis points of FX headwind that James called out, which got us back just below 300 overall. That's what our plans called for and we're delighted to be able to deliver it, taking advantage of some opportunities that have presented themselves in the market. Within Plasma, as I just mentioned on the prior question, the migration to NEXUS with Persona and Express Plus and the share gains is meaningfully moving the gross margin of that business as well.

Speaker 2

We do have investments planned and we try to be explicit and fulsome when we gave our guidance at the beginning of the year. Still the midpoint of our guidance range has us growing in the mid teens earnings year over year and a year where we're transitioning one of our largest customers. So we felt the original guide for the year was appropriately ambitious and we're pleased to be delivering against it, but I'll let James fill in the detail.

Speaker 3

Yes. Thanks, Chris, and thanks Marie for the question. So, for the remainder of the year, as Chris mentioned, we see the mix really being the story with continued 2 full quarters of MVPXL, continued momentum across TEG, continued progress in esophageal cooling and sensor guided technologies and a more profitable plasma business. Those are all very positive mix signals for us, which will continue throughout the year. Phasing wise, Q3 will likely be flattish operating margin wise to 2nd quarter.

Speaker 3

And the reason for that is some of the investments that Chris just spoke about as we continue to build out our IVT commercial team and our clinical team to set the foundation for future growth. And then by the time you get to the Q4, then we see a bit more of a bump up to finish the year strong and right within our guidance range for operating margin.

Speaker 7

Okay. That's really helpful and good to hear. Maybe my follow-up quickly here on some of the acquired products in hospital. I heard $16,000,000 in revenue from that segment this quarter. I think it was $18,000,000 last quarter.

Speaker 7

And I noticed a little bit of a nudge down on the guidance. Can you tell us what's happening a bit with the Attune and Opense products, and the rollout there? Thank you.

Speaker 2

Yes. Thanks, Pareek. So we remain bullish on both of those acquisitions. It is slower out of the gate than we obviously would otherwise want. Very different stories, in electrophysiology versus in structural heart.

Speaker 2

So for Enzo ETM, for Attune, the challenge is PFA. And we're fully aware of BFA. Our modeling actually has BFA taking slightly more share of the market than either some of the leading players are now forecasting approaching 60%. We had it closer to 65% in our model, and that still delivers nicely for the business. The challenge in the first half has been rightfully the PFA companies are targeting our most attractive Enzo ETM customers.

Speaker 2

As those procedures get done on PFA versus RF, there's no role for Enzo at this time. So we've moved backwards on those. We have opened 32 new accounts and we tend to be now kind of navigating the landscape, finding the RFA users at volume. And I think that's going to continue to be an exercise for us. If I put it in context and why we remain bullish, we have roughly 9% of the closure market on Enzo ETM today.

Speaker 2

If we are able over the next 3 years to drive that closer to the mid teens, call it 15%, we will achieve mid teens return on invested capital over that 3 year period. So this is by far the most accretive acquisition we've done and we think our aspirations are appropriate. They're not overly ambitious. It will take time and that's what our field force is navigating. Candidly having XL in the bag puts them front and center in the conversation both with PSA PFA and RF users.

Speaker 2

So we like the direction of travel and what we're able to build there. If I switch over to OpSense and the sensor guide wire business, that's a classic example of going slow to go faster and further over time. Structural Heart is meaningfully different than closure. So we have presence and we're building on that presence. But the learning curve and our ability to execute against that curve, I think there's a bunch of things coming out of TCT, for instance, last week that will be net positives for us and for the use of sensor guided technology.

Speaker 2

We need to capitalize on that and we remain optimistic that over time we will be able to. But that's part of the build out James just talked about investments in the second half of the year as we strengthen our clinical sales team. That's all part of the equation and what we had envisioned for the sensor Guidewire business. So more to come. We remain optimistic.

Speaker 2

It's just being thoughtful and purposeful about the launch.

Speaker 7

Very thorough. Thank you so much.

Operator

Thank you. Our next question comes from the line of Larry Solow of CJS Securities. Your line is now open.

Speaker 6

Great. Thanks and good morning everybody. I guess first question, which is just on the Tag market there. Chris, I know you mentioned really strong growth in the U. S.

Speaker 6

35% and then obviously continued challenges in China. Perhaps you can just kind of give us a little more color on directionally where you see both those, the U. S. And the international markets going on TEG?

Speaker 2

Yes. Good morning, Larry. The TEG is real positive development for us. We joke internally it's the oldest launch product in medtech. Having the heparinase neutralization cartridge has really expanded the value proposition for the TEG-6s.

Speaker 2

It's accelerating the remaining conversions of TEG-5000 to 6s because it now puts the products at absolute parity, but in a site of care application. So really powerful driving that. You see that in our results both in the U. S. Mid-30s and in Europe in the 20s now.

Speaker 2

So that's something we're excited about. We think we can build upon that and carry that forward. China is a different story, right? China's challenge, you've heard about it from many of our peer companies. I'm not going to go into further detail there.

Speaker 2

But to put it in context, China is roughly 5% of our corporate revenue split pretty much evenly between Blood Center and Hospital. Within Blood Center, it's split pretty evenly between TEG, which is mostly it's all TEG 5,000 and our cell salvage business. And the challenges we're facing right now are really pricing related to the TEG 5,000. We'll work our way through it, but there's no easy answers there and we don't expect that to meaningfully change over the second half of the year.

Speaker 6

Got it. And switching gears just back to just on BESKADE, you mentioned it sounds like somewhat a lot of the acceleration in growth perhaps in the back half of the year, driven by the performance of MVPXL. How about just Baskayne and Baskayne MVP?

Speaker 4

Are those

Speaker 6

still considerable obviously still should be a lot of room for growth there? Are those still hanging in and doing how you thought they would? That's a little bit of a slowness in Q2 Q1, excuse me?

Speaker 2

Yes, Larry. It's performing as planned. I do think PFA has been so disruptive. It sucked all the oxygen out of the room. And we did see pushback on MVP in that regard in electrophysiology.

Speaker 2

What we've targeted with the launch of XL is to go and regain the share we lost in the Q1. And I can tell you sitting here at this point in the Q3, we've largely regained everything we lost and then some. And that's coming where clinicians being very thoughtful. They're using Excel where appropriate and then they're using MVP accordingly. And like any other kind of sales effort, there's some spring in the step and that's helping across the entire closure product line.

Speaker 2

So yes, I think we're seeing a lift across all three and we anticipate building that momentum as we move into the second half.

Speaker 6

Got it. Great. And then just last question if I could squeeze in. James, just you gave us some good guidance on the cadence of operating margin. It looks like this quarter, the expansion was kind of half by gross and half by operating leverage.

Speaker 6

As we look out in the back half of the year, gross margin had a nice little sequential uptick. Do you think that also is sort of flattish in Q3? How do we just kind of how do you feel about gross margin in the back half of the year? Thanks.

Speaker 3

Yes. So the gross margin, yes, will follow, I would say, a similar pattern to the operating margin. You'll see it come up a bit in Q3 and then a little bit more in Q4 as we move forward in the rest of the year.

Speaker 6

Got it. Great. Thanks very much. I appreciate all the color.

Operator

Thank you. Our next question comes from the line of Craig Bijou of Bank of America Securities. Your line is now open.

Speaker 8

Good morning, guys. Thanks for taking the question. Congrats on a strong quarter. I wanted to start with some of your comments on the Baskayne label expansion. And with the XL launch or now full launch, just kind of wanted to get your sense for pushback for maybe not having that label expansion?

Speaker 8

Or when you think about what that label expansion can how it can drive XL, like do you think it's needed? Or is it something that you guys just want to have going forward and maybe gives you access to some other procedures?

Speaker 2

Welcome, Craig, and thanks for the question. From our vantage point, MVP is getting XL is getting a lot of consideration appropriately. And that's one thing I can highlight a bit more is that the breakdown is 60 plus percent PFA, the remaining 35% or 40% is left atrial appendage closure. And that's completely new for us because we really didn't have a product that was applicable for that previously. That's exactly what we saw in the limited market release where we have a lot of physician testimonial.

Speaker 2

They'll use it where they see appropriate. We obviously can't detail it or position it in that way out of the gate. And so we're being very mindful about that and building the usage. We are making the label expansion a corporate priority because it's the right thing to do. And it will further reinforce and the label will reflect the appropriate use of the product over time.

Speaker 2

In the near term, I think we've got a good market opportunity ahead of us and we expect to see continued uptake and judgment on behalf of the commissions. Obviously, we don't promote it off label. So we'd be really thoughtful about that.

Speaker 8

Got it. That's helpful. And if maybe just taking a step back and big picture on the longer term opportunity for Baskade. Obviously, you guys are expecting high 20s growth in the second half, return to that. You guys had high 20s growth in 2024.

Speaker 8

So when we think about the growth profile of that business, I guess, more longer term, 26, 27 over the next couple of years, can you maintain that high 20s growth profile? And what are some of the assumptions, penetration that we should be thinking about in terms of the opportunity for Baskett?

Speaker 2

Yes. It's something we're grappling with. We know what the TAMs are and they remain really robust and significantly underpenetrated. So we do think continued accelerated growth is achievable. There is the math here.

Speaker 2

At the end of the day, if you continue to grow it 30% per annum, you become the market and we don't want to be unrealistic about that. What we look at is 2 offsetting effects that are really powerful that we describe as the net positive, Craig. There's less holes to be closed, right? That is a function of how the market adopts to PFA. We're going to have some dual modality coming in the market.

Speaker 2

That will certainly reduce the number of holes. We model it going from just over 3, like approximately 3.2 down to the mid to high 2s, 2.7, 2.8 per procedure. That is completely offset by our initial growth experience when we were a year and 2 years ago where we were printing 30% growth. We were looking at a market that was growing in the low double digits. Now we're in the mid teens or better, right?

Speaker 2

I think the current forecast have procedure volume in aggregate growing at 16%. That more than offsets the lack of closures per procedure. Now having XL, having MVP, having Vascade working down market, our development plans call for smaller closure ability and pushing more into venous, so they'll help us with the interventional front PCI. We think there's a lot of opportunity. Part of it's, as I described, broadening the shoulders of this application.

Speaker 2

Part of it's the expansion internationally as we follow PFA and the other, ablation modalities into other geographies. Japan, for an example, is really hot market for us right now. So we think there's good room to run. We'll hold off on guiding exactly what's going to happen next year until the spring. But at this point, we feel really good we're back on our front foot and able to participate fully in a very interesting ablation market.

Speaker 8

Great, Chris. Thanks for all the color.

Operator

Thank you. Our next question comes from the line of Joanne Wuensch from Citi. Good morning. Your line is now open.

Speaker 9

Good morning. This is Anthony on for Joanne. Thanks for taking our questions. I want to just switch gears to Blood Center. That margin has been a bit volatile over the last few quarters.

Speaker 9

It's stepped up pretty nicely this quarter. Should we think about is this quarter a good way to think about stable margin for the business going forward? Should we expect it to expand more as you continue to rationalize that whole blood business? Just any thoughts on profitability in blood center going forward? Thanks.

Speaker 2

Yes. Thanks, Anthony. Look, we that business doesn't have the growth potential of our plasma or our source plasma or our hospital businesses. So we are in a mode of margin expansion, play for the profit contribution, which has improved nicely, as you say. I would separate it out really into 3 component parts.

Speaker 2

There's the whole blood filters business. We've announced more than a year ago now the rationalization of that business. It's a non strategic asset for us going forward, and we just are looking to optimize it exactly as you described. Within the remaining business, apheresis splits in 2 parts. There is a plasma collections apheresis business, which we are actively migrating to the Nexus platform, many, many of our blood center customers are partnering with our source plasma customers to drive self sufficiency.

Speaker 2

You see that in our operations throughout the Middle East, for example, but it's also happening in Canada and elsewhere in Europe. That's a powerful driver of the plasma apheresis blood center, but it's looking more and more and growing more and more like the source plasma business. On the other part of the business, the other remaining apheresis, it's platelets and it's red cells. Folks use our technology very specifically, and we've had the courage to lean into that and price those technologies accordingly. And so this is all part of the broader rationalization.

Speaker 2

It's not an active contributor to the top line, but it is meaningfully contributing through price and mix to our bottom line, which is all part of the LRP that we outlined previously.

Speaker 9

Helpful. And then, in the Hemostasis Management business, I don't know if you touched on this. Just any color you can give on how much of that growth this quarter was, from volume? I heard utilization was up 20% versus how much of it was pricing of that new assay that you're rolling out?

Speaker 2

Yes. So the heparinase neutralization cartridge has been a real catalyst for that business and we're driving it in the U. S. We will bring it to our global markets in due course. So that is really the single driver behind the 35% growth rate in the quarter.

Speaker 2

It is a mix of both capital as we swap out TEG-5000s for the TEG-6s device moving from a lab based application to something that is site of care and much more user friendly. And it's also utilization because adding that cartridge makes the full suite of opportunities available. So we feel both of those things are combining and it is at a higher margin just given the again, the value prop of the cartridge, we had the confidence to price accordingly. I think we're seeing the market response.

Operator

Thank you. Our next question comes from the line of Andrew Cooper from Raymond James. Your line is now open.

Speaker 10

Hey, everybody. Thanks for the questions. Maybe just first, I do want to touch on you mentioned some more clinical investments. Can you give a bit of sense of kind of exactly what those look like? And should we think about that as being somewhat reactionary to what you've learned as you look at selling OpSens as an example and it being a little bit more complex of sales and maybe appreciated initially and just would love kind of thoughts around how that progresses and when we can start to see maybe a little bit of acceleration there?

Speaker 2

Hey, Andrew. Thanks for the question. I would describe it as reactive. When we bought Opsense, did that acquisition, we ring fenced their commercial efforts and their R and D efforts, and we've spent real time over the prior 6 months learning and helping choose what we're going to accelerate to bring to market sooner as we expand the profile and the value prop of those sensor guide wires. So that's all part of our plan was factored into our deal models, for example, and our guidance for this year accordingly.

Speaker 2

But we do think there's real opportunity to broaden the use case for the sensor guide wires by example. Enzo ETM is a little more straightforward and there's less to do there. I talked earlier on the call about what we're doing for the Vascade family of products and how we're broadening the shoulder of those applications and making sure we are all things closure with distinctive offerings in each application. I would shift over on the plasma business as well as we've talked previously. We have the leading share.

Speaker 2

We intend to build upon that leading share. We are building upon that leading share and we're having lots of dialogue with our all of our customers about whether it's the hardware or the disposable or the software, particularly DMS where we're really the only game in town. How do we advance that to be more valuable to them, to be more integrated with their operations. And that does require real investments and probably in not too distant future, we'll sit down and have either an Investor Day or an R and D Day where we showcase some of these innovations because we think we have the opportunity to create the next S curve in that space as well.

Speaker 10

Okay, great. That's helpful. Maybe just one more quick one. Can you give us an update on where you are in that international launch for VASTADE and maybe interventional overall? Obviously, still the early days, but maybe any sense for what that contributed in 1Q and 2Q?

Speaker 10

And how we think about the curve there as you continue to build up the operational presence?

Speaker 2

Yes. It is one of along with the label expansion and strengthening our U. S. Interventional technologies field for us, both sales and clinicals, international expansion is an important lever for us. We feel like we're meaningfully ahead of schedule there.

Speaker 2

There is a different market set that we enter into depending on where we are geographically. I'd highlight Japan as an absolute hotspot for us. We were able to secure really favorable reimbursement at the time of market release and you see that playing forward in the market. So that's a meaningful contributor. We're well ahead of schedule there.

Speaker 2

Europe has been more build as we go. There's a different base modality. They use much more suturing than compression. We have clear value, but there's some challenges with regards to the benefit of same day discharge and how that's reimbursed. And we continue to work through that country by country in Europe.

Speaker 2

We're confident that we'll meet our plans longer term, but it's slower going. It doesn't have quite the same rapid uptake that we saw previously in the U. S. Or currently in Japan. But that's it's one of the 3 drivers, the international expansion, Andrew, and we're going to continue to lean.

Speaker 2

And it is also part of the investment in our commercial and clinical efforts that James talked about earlier.

Speaker 10

Perfect. And I'm going to sneak one more in if I can, just shifting to plasma. You talked about the share gains sort of ongoing. Can you give a sense it sounds like you have some visibility. So can you give a sense for the magnitude, whether it's number of centers or kind of where those are coming from?

Speaker 10

And how we think about what that business can look like ex CSL with this sort of share gain over the next, call it, handful of quarters?

Speaker 2

Yes. We'll move as fast as humanly possible based on our customers' willingness to accelerate. And so I think they've all been very clear. They want Express Plus because it speeds up the device in tandem with our software. The DMS software, it makes the door to door time unrivaled.

Speaker 2

Then they add in the plasma yield enhancement in a way that's not even in any way imposing on the donor's time. That's kind of the sequence. And then as we do that, we're picking up additional share. We talked at some time ago with the large customer transition out. We don't need to go one for 1 given the decidedly different price points and margin profile of the businesses.

Speaker 2

In fact, it's closer to 2 to 3 type of thing, running like a 2 thirds ratio. We're not there yet today, and that's what's included in our guidance. We do expect that we'll gain momentum moving into FY 2026, all of which is factored into our overall plan.

Speaker 10

Perfect. I appreciate the time.

Speaker 2

Thanks.

Operator

Thank you. Our next question comes from the line of Mike Matson from Needham. Your line is now open.

Speaker 5

Yes. Thanks for taking my questions. So, just one more on MVPXL. So on the labeling to get the larger franchising, do you need clinical data there? And then just the timing, can you give us any sense of the timing on when you expect to have that labeling from the FDA?

Speaker 2

Yes, Mike, thanks for the question. So there's no change to the workflow. The workflow for XL is the same as it is for MVP as it is for base basket. There's really no change to the engineering design. What we are doing, beginning actually with our limited market release where we saw substantial PFA use, is working with active clinicians in some of the largest leading centers and helping put the clinical evidence together of how XL works in that setting.

Speaker 2

We're in dialogue with FDA about the appropriate timing and structure and kind of what that submission needs to look like. That's still work in progress and we clearly don't control that. But I think, without going too far out on the branch, I think FDA has been highly supportive of the need to expand the label and give clinicians and patients access to what is truly the best available closure technology. So more to say as we go forward, but we are making it a top priority, Mike.

Speaker 5

Okay, got it. And then there was a pretty large headwind from currency to margins and EPS in the first half of the fiscal year. And I know no one can really predict currency movements, but with rates where they currently stand at least, what is your expectation for the second half? Is that going to be continue to be a headwind? Does it neutralize?

Speaker 5

Does it become a tailwind?

Speaker 3

Yes. I think if at current prevailing rates, it should continue to be somewhat of a headwind. But I think I've seen rates moving around all over, given the elections and some of the volatility in global markets. So I don't want to make too much of a call there.

Speaker 5

Okay. Thanks. And then finally, I thought I heard you guys say that CSL was going to contribute $100,000,000 this year. Did I hear that right?

Speaker 2

Yes, Mike, you did. And that was included in our affirmed guidance. What we're seeing from CSL, the approximately $85,000,000 that we talked about back at the beginning of the fiscal was their minimum purchase commitment. Through the first half of the year, they've needed more. And like all of our customers, we're going to do what we can do to respond.

Speaker 2

Roughly 70% of that, approximately $100,000,000 has already been realized in the first half. Their transition will continue. In fact, our model has it accelerating over the second half of the year. We still expect them to fully transition not later than December of 2025 per the existing agreements. But But yes, it's going to be marginally higher total volume than it was from the original expectation.

Speaker 5

Okay, got it. Thank you.

Operator

Thank you. And our next question comes from the line of Kristen Stewart from CL King. Your line is now open.

Speaker 1

Hi, thanks for taking the question and congrats on a good quarter. I was wondering if you could just provide some over level thinking on M and A and the environment that's out there and the need to do acquisitions going forward and what kind of areas you'd be looking at?

Speaker 2

Welcome, Kristen, and thank you for the question. Growth, both organic and inorganic, remains our top priority to drive the margins, to drive our profitability and to make this all significantly more sustainable going forward. Right now, the here and now and certainly in our second half of this fiscal year, our first, second and third priority is delivering on those recent acquisitions for some of our prepared remarks. We really want to deliver fully against what we're doing with Enzo ETM. We want to deliver fully against the Guidewire business and the R and D expenditures that we had, whether it's XL or Hep neutralization.

Speaker 2

They're our immediate priorities. That said, we will continue to look to be opportunistic with regards to M and A. Think tuck ins, in fact, we've been very public about our relationship and the option play that we've put for VIVISHORE, for example. They had an outstanding readout on their patch trial at TCT that's moving forward and we're helping shape that submission to FDA. So that's something we will talk about in fiscal 2026, for example.

Speaker 2

But and then you saw we did the buyback in the quarter. We'll be opportunistic about returning value to shareholders where we can, and that would include debt pay down as appropriate. But M and A is part of the equation. For now, it's tuck ins. Maybe a year from now or longer, we'll talk about the next leg on the stool.

Speaker 2

But our top priority is validating our performance in interventional technologies and really driving home this thesis that we can be the enabling tech, in a very rapid and attractive category.

Speaker 1

Thanks for taking the question.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Haemonetics Q2 2025
00:00 / 00:00
Remove Ads