Haemonetics Corporation (HAE) Q1 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Haemonetics First Quarter Fiscal Year '20 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Olga Vlasova, Investor Relations. Ma'am, you may begin.

Good morning. Thank you for joining us for Haemonetics' First Quarter Fiscal Year '20 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO. Before we begin, I'd like to remind everyone that on July 22, the company announced changes to its reportable segments. We also realigned previously reported business units to align with the internal management structure of the business units. To help with this transition, we have provided 2 years of historical revenues and fiscal '20 revenue guidance in the new business unit structure. All documents are available on the Investor Relations website under the Guidance and Analytical tables. Today, we will discuss our first quarter fiscal '20 results and the new segment structure. All revenue growth rates are on an organic basis and exclude impacts from currency, product end-of-life decisions and divestitures. Adjusted earnings per share is calculated using weighted average diluted shares outstanding of $52.3 million, which represents basic shares outstanding, plus the dilutive effect of stock awards. Our remarks today will include forward-looking statements, and our actual results may differ materially from anticipated results. Information concerning factors that could cause results to differ is available in the Form 8-K we filed today and the periodic filings we make with the SEC. This morning, we posted our first quarter fiscal '20 results to our Investor Relations website. We included updated fiscal '20 guidance and posted analytical tables with the information that we'll refer to on this call. I would like to remind everyone that consistent with our past practices, we have excluded certain charges and income items from the adjusted financial results and guidance. Details on excluded items, including comparisons to the same period of fiscal '19, are provided within the Form 8-K and have been posted to our Investor Relations website. Additionally, our press release and website include a complete P&L, balance sheet, summary statement of cash flows as well as reconciliations of our reported and adjusted results. And now I'd like to turn it over to Chris.

Thanks, Olga. Good morning, and welcome to today's call. We benefited from solid execution across all businesses to grow organic revenue 8% in the fiscal first quarter. Adjusted gross margin improved 400 basis points to 51.2%. Adjusted operating margin was up 360 basis points to 21.4%, and adjusted earnings per share grew 37% to $0.81 per share. The positive start to the year confirms that our strategy is working, our value drivers are propelling us forward, and we continue to make meaningful progress on our multiyear turnaround. Turning to the 3 business units. Plasma, our largest BU, grew 16%, with a 17% increase in North America, driven by price, volume and mix. We have completed more than 5 million YES procedures, resulting in more than 115,000 incremental leaders of plasma collected. NexSys PCS and NexLynk DMS are complementary interconnected offerings designed to work together seamlessly. Haemonetics is the only company to offer both and, together, they enable increased yields and greater collection center capacity. NexSys safely delivers up to 31 milliliters of additional plasma per donation for high-hematocrit, large-volume donors. Beyond increased volume per donation, NexSys enables more collections per center and a more positive, predictable donor experience. These factors decrease the overall cost to collect by approximately 10%. A July report from the American Society of Health-System Pharmacists outlines a shortage across the number of IgG drugs. Our customers are taking action to increase collection volumes, and we are responding. The NexSys value proposition has never been more relevant. We are engaging with all of our customers on the tangible benefits of the fully integrated, bidirectional technology that is unique to NexSys. Upgrading collection center software has become a primary focus for most of our customers, and NexLynk DMS has emerged as the preferred solution. The NexSys value proposition is supported by a growing body of real-world evidence. Customers who have converted are realizing the value, and this gives us added confidence in the superiority of our platform. Moving to Hospital. Revenue grew 8.3%, and we are on track to deliver our plans for the year. Hemostasis management grew nearly 16% year-on-year after double-digit growth last year, led by strong performance in the U.S. and China. We are encouraged by customers' enthusiasm in the early stages of the U.S. launch of our new indication for TEG 6s, which is the only site of care device specifically cleared for adult trauma. Surgeons, anesthesiologists and nurses are eager to have a hemostasis testing device that they can use in critical care areas, while lab personnel are pleased that TEG Manager software helps manage testing and compliance. Some hospital customers have expressed interest in a comprehensive program now that both cardiac and trauma indications are cleared in the U.S. Cell Salvage was challenged this quarter by pockets of weakness, especially in Europe. We completed the OrthoPAT end-of-life program, and we are turning our attention to opportunities to improve performance on the remaining Cell Saver line. The phased launch of SafeTrace Tx, software that protects patients from the transfusion mistakes, is progressing ahead of schedule. We have a robust pipeline of willing, early adopters that are enabling us to accelerate rollout. Adoption of BloodTrack software, which delivers information at the bed side, will continue to grow globally as hospitals seek increased efficiencies in transfusion services, particularly in the U.S. and the U.K. Across Hospital, we see positive impact from pricing and sales force expansion. The talent infusion is helping strengthen our competitiveness. R&D projects are progressing as scheduled, including the planned global launch of a 4-channel platelet mapping cartridge later this year. We continue to have high expectations for all 3 of our Hospital segments as we refine our portfolio and focus our efforts on the products that help improve the standard of care while lowering health care costs. Blood Center revenue was down 2% in the quarter. Transfusion rates continue to decline, driving down whole blood collection volume. Our team is working diligently amid a difficult price-sensitive market, consistent with our stabilization strategy for Blood Center. We are making every effort to be successful in areas where our product offerings are differentiated. We will continue to evaluate each contract to balance the value it brings to our customers and to Haemonetics, including foregoing unprofitable business in order to stay competitive. In January, we outlined 6 long-term value drivers that underpin our corporate strategy. We have been implementing the complexity reduction initiative to revamp our operating model and reduce spending, particularly operating expenses and administrative costs. We are on track to deliver more than $80 million of savings by the end of fiscal '20. Complexity reduction has helped catalyze cultural change in Haemonetics, and we will continue to seek ways to reduce complexity to free up resources. Today, we announced a new multi-year operational excellence program designed to deliver $80 million to $90 million of annualized savings by transforming the way we source, make and deliver our products. It builds on the complexity reduction initiative, but it is different in that it focuses on our operating functions. First and foremost, the program will strengthen our performance by further improving quality. This is our top priority, and our success depends on it. The program will also enhance sustainability and scalability, and it will amplify efficiency by reducing unproductive costs and processes while investing in effective solutions. The centerpiece of the program is transforming our global manufacturing and supply chain organization for more modern, flexible and efficient end-to-end production. Strategic sourcing is a top priority as we fundamentally rethink what we make versus what we buy. We will improve plan performance by implementing Lean Six Sigma, and we will optimize our network by automating and rightsizing capacity for the future. The divestiture of our Union, South Carolina facility in May was part of this asset-light approach to improve ROIC. The program timing is strategic and purposeful as we have laid the foundation for operational excellence. We are launching from a position of strength with the right leadership, the right fact base and momentum in our operating results to effectively execute these changes. There is a lot of energy behind our efforts to build an agile and lean organization. The savings will not only strengthen our financial health, but also free up additional resources to invest in innovation and growth. We are committed to delivering near-term results while also taking actions and making investments to strengthen our growth trajectory. Strong first quarter performance and the anticipated early benefits from operational excellence give us confidence to increase our fiscal '20 adjusted EPS guidance range to $2.95 to $3.15 and adjusted operating margin expectations to approximately 21%. We also remain confident that we can meet our previously communicated fiscal '21 aspirations for operating income and free cash flow. Before I turn the call over to Bill, I want to thank our customers who put their trust in us, and also our employees who make it possible by living our values every day. It's an exciting time to be at Haemonetics.

Thank you, Chris, and good morning, everyone. Before I begin, I'd like to remind you that the revenue growth rates I will discuss are on an organic basis. On that basis, in the first quarter of fiscal '20, we had 8% growth in revenue for the total company. Plasma revenue was up 16.1% in the first quarter. North America Plasma, which accounts for about 93% of the total Plasma business, grew 17.4% in the first quarter. The majority of the growth was driven by higher collection volumes, pricing benefits from NexSys device conversions in the prior fiscal year and continued pricing initiatives within our liquid solutions business. Additionally, we had a one-time item in software which had a favorable impact on the Plasma growth rate of approximately 2% in the first quarter. We remain confident in the continued growth of our Plasma business and affirm our fiscal '20 revenue guidance of 13% to 15% and North America Plasma guidance of 14% to 16%. Hospital revenue grew 8.3% in the first quarter, which was in line with our internal expectations, implying an acceleration of growth throughout the remainder of the year to achieve our annual guidance range of 11% to 13%. Within Hospital, hemostasis management grew 15.7% in the first quarter. Commercial execution, including leverage from our sales force expansion and new pricing strategies, are driving growth in TEG disposables, and we delivered double-digit growth for both TEG 5000 and TEG 6s. Our allocation of investments to fund growth, specifically in the sales force and product portfolio expansion, continues to support the growth profile of the business. Also within Hospital, Cell Salvage and transfusion management grew 1.9% in the first quarter, driven by strong growth in transfusion management, particularly within North America, as we continue to develop our markets and gain share. Early results from the limited release of SafeTrace Tx version 4 also positively contributed to our first quarter results. Partly offsetting these benefits in transfusion management was performance in Cell Salvage, which was below our internal expectations in the first quarter due to increasing competitive pressures, order timing related to a large distributor in Europe and capital sales in North America. We affirm our fiscal '20 Hospital revenue guidance of 11% to 13%, including growth in hemostasis management, consistent with the revenue growth rate we achieved in fiscal '19. Blood Center revenue declined by 2.3% in the first quarter. Apheresis revenue accounts for about 2/3 of blood center revenue, and is comprised of platelet, red cell and plasma disposables as well as the associated capital equipment. Apheresis declined by 1.1% in the first quarter. The main driver of the decline was the increasing share of double dose platelet collections in Japan. Whole blood revenue declined by 4.1% due to continued slowing transfusion rates and unfavorable order timing when compared with the first quarter of fiscal '19. Overall, we are on track to meet our full year expectations, and we affirm our fiscal '20 guidance in the range of a decline of 4% to 6%. We continue to transform our portfolio and expand gross margins. Adjusted gross margin was 51.2%, an increase of 400 basis points compared with the same quarter in the prior year. This expansion in adjusted gross margin primarily reflects pricing benefits, improved product mix, the divestiture of the Union, South Carolina facility and additional benefits from the complexity reduction program. Partly offsetting these improvements was additional depreciation from both NexSys device placements and the expansion of our Plasma disposables production capacity. Adjusted operating expenses increased $3.9 million compared with the first quarter of fiscal '19 and were higher by 30 basis points at 29.8% of revenue. This increase was primarily due to additional investments in TEG sales and marketing and higher performance-based compensation, partially offset by savings from our complexity reduction initiative. Adjusted operating income was $51.4 million in the first quarter, $10.7 million or 26.3% higher than the first quarter of fiscal '19. Adjusted operating margin of 21.4% was up 360 basis points compared to the same period of fiscal '19 as the benefits from improved mix, implementation of pricing strategies, complexity reduction and the Union divestiture outweighed increased depreciation and additional investments. We remain confident in our company-wide efforts to improve our operating performance, and we anticipate our adjusted operating income margin for fiscal '20 will be at the high end of our previously issued guidance or approximately 21%. Our income tax provision on adjusted earnings was 10.4% in the first quarter of fiscal '20, significantly lower than 17.9% in the first quarter of the prior year. This lower tax rate was due to higher share vestings and increased option exercises. Based on the benefits we are seeing from equity vesting and option exercises, we now expect our first half tax rate to be a low-teens percentage of adjusted income before taxes and our second half tax rate to be in line with the full year income tax rate from fiscal '19. Adjusted earnings per share came in at $0.81 or 37.3% higher than the first quarter of fiscal '19, driven by strong operating income growth, the lower tax rate and fewer outstanding shares. Our adjusted earnings per share reflects $0.07 positive impact on a year-over-year basis from our tax rate. I'd now like to provide some financial details about the operational excellence program announced this morning. Although we have shown improvements in gross and operating margins, we have additional opportunities to improve product quality and lower our cost of goods sold. We anticipate that this program will be substantially completed by the end of fiscal '23, providing benefits beginning in the second half of fiscal '20 and targeted to reach $80 million to $90 million in annual savings. We estimate that the majority of the savings realized will drop to operating income by the conclusion of the program. Additionally, this program will result in restructuring and related charges of $60 million to $70 million and additional investments of $60 million to $70 million in capital expenditures. These expenditures will be incurred over the course of the 4-year program as the specific actions required to execute on these initiatives are identified and approved. Additional details about the pacing of anticipated savings, required restructuring and related charges and capital expenditures will be evaluated each year as part of our annual operating plan and will be provided with our annual guidance for each fiscal year. In the first quarter of fiscal '20, we incurred $51 million of asset impairments and related costs associated with the disposition of the Union, South Carolina facility to CSL Plasma. These charges were primarily related to the manufacturing facility, including its equipment and inventory, and were excluded from our adjusted earnings. Free cash flow before restructuring and turnaround costs was $5 million in the first quarter of fiscal '20 compared with $6 million in the first quarter of fiscal '19. In the first quarter of fiscal '20, we had a $63 million cash outflow related to an increase in working capital, which included a decrease in accounts receivable, offset by 3 items. First, we had an increase in inventories due to a build of our safety stock levels in particular for Plasma, which included the continued manufacturing of NexSys devices; second, accrued liabilities decreased as we made a payment for the fiscal '19 year-end performance-based bonus; and finally, a decrease in accounts payable related to the timing of payments to one of our third-party service providers. In the first quarter of fiscal '20, we completed $75 million of our $500 million share repurchase program and repurchased about 645,000 common shares. As a reminder, our $500 million share repurchase authorization was issued for 2 years, and we planned to utilize this authorization during fiscal '20 and fiscal '21 to offset historical and ongoing dilution. We finished our first quarter fiscal '20 with $190 million of cash on hand, an increase of about $21 million from fiscal '19 year-end. We are confident with our fiscal '20 expectations of 6% to 8% organic revenue growth and 24% to 32% adjusted earnings growth over the prior year. We continue to fund revenue growth opportunities and execute on transformative initiatives. The first quarter was a strong beginning to fiscal '20, and we believe that the momentum created, coupled with the operational excellence program, sets us up to achieve our fiscal '20 guidance and helps to derisk our fiscal '21 aspirations. Now I'd like to turn the call back to the operator.

Thank you. [Operator Instructions] And our first question comes from Anthony Petrone from Jefferies. Your line is open.

Thanks. Good morning and congrats on a strong start to the year here. First question's going to be on Plasma and just going through the moving parts there on the 16% under the new reporting structure. Can you maybe give us a little bit of detail on the benefit from volumes versus price in the quarter or even maybe NexSys kits versus the legacy? But within that, can you provide a little bit of detail on what we've been hearing are persistent in rising shortages of IVIG? And around that, what would be the impact for volumes as the year progresses? And then I'll have one follow-up on cost.

Yes. Anthony, it's Chris. Thanks for the question. With regards to Plasma, it is a combination of volume, mix and price, and I think the delineation within them gets a little bit sensitive, obviously, given the competitive nature. But what we see is continued robust demand for source plasma. We have clearly benefited from the conversions that we did last year to the NexSys platform and the associated premiums that come with that. And there's also the question of mix. As Bill highlighted, we had a very good quarter, continue to have real, robust demand for our NexLynk DMS and the upgrades therein as well as some of our service and support. So all of that contributed positively to the quarter and gives us confidence for the guidance going forward. With regards to the shortages, we obviously monitor this very closely. There's a lot of publications detailing exactly what's taking place in the market. It traces back to IVIG, as you've highlighted. And just a simple reality that these -- there's a continued expansion in indications and formulations and geographical reach. And I think the market -- the industry continues to respond to try to meet those shortages. We think it reinforces the value proposition of our platform all the more, and we stand ready to help the industry respond to that increased demand.

Just a quick follow-up would be -- is just to confirm, is there any kink in the hose associated with donor retention or attracting donors to collection sites? And just on the cost program, the new one announced, how should we think about layering that in through the fiscal 2023 targeted endpoint?

Yes. Thanks, Anthony. So with regards to donor satisfaction, donor retention attraction, we think that's actually the unsung real benefit of NexSys. We're doing a bunch of exit surveys. What we hear is a spike in donor satisfaction to procedures more interactive. It is faster. It is more predictable. And it's early, so I want to be careful where we go with the data at this point. But across 5 million collections, we now have clear evidence that donors donate more frequently and are willing to come back more for a longer duration of time in their active period of donating. So we think it's an important part of the value proposition that will come to the floor as we expand that reach. With regards to the new program, I think what we said in the prepared remarks, this is very much focused on improving product quality and service support. It builds on the lessons learned from complexity reduction. Complexity was a huge catalyst for us culturally, but this we focus disproportionately on our cost of goods sold and improving quality and reliability in our global supply chain.

And Anthony, it's Bill. As part of the guidance that we issued, the saving -- any savings related to the program are included in that new guidance. And with the folks of the program manufacturing, it takes a little bit longer to get to the savings, obviously. So we'll start to see those savings ramp up as we get into FY '21 and beyond, but we have included some savings already into the guidance that we adjusted upwards.

Thanks.

Thank you. And our next question comes from David Lewis from Morgan Stanley. Your line is open.

Hi. This is Mason on for David. Thanks for taking my question. The gross margins obviously stepped up materially, and you cited mix, pricing strategies and productivity. Any chance you can parse these out a little bit further and what's potentially the most material drivers here, and then how you see the outlook from here on gross margins? Thanks.

Yes. So all those items did drive gross margin up by 400 basis points. We don't take the approach of disaggregating the exact benefits of each of the drivers, and we actually don't typically even guide to a gross margin by quarter. But I think going forward, you can see some of -- all these benefits that we spoke about in the quarter to drive margins for the rest of the year. The one thing that was kind of a one-time item that helped out margin in the quarter were the software -- some software contracts that we were able to recognize the revenue in the quarter, and that drove about a point of gross margin improvement. But other than that, the pricing strategies that we're implementing are really positive. The divestiture of the Union, South Carolina facility helped us out and will continue to help out margins throughout the year. And the complexity reduction program that's being the final stage of the program this year, that also drove some benefits.

Yes. And Mason, it's Chris. Let me pick up on that. I do think operational excellence will further over time -- beyond FY '20 over time help us improve on those gross margins. That's really the focus on it with regards to reducing our cost of goods sold. As it pertains to our operational expenses and kind of our SG&A, we have had meaningful reshaping of that spend. It's my pet peeve around SG&A. We've actually invested pretty significantly in sales. We've done so largely keeping our OpEx neutral by taking costs out of the G&A. You see that rebalancing. I think that is true investment coming off of the benefits from complexity reduction and one of the things that's propelled some of the top line performance.

Great. That's very helpful. And then Hospital segment growth came in a little lighter than, I think, Street estimates this quarter. I was wondering if you could touch on this in a little bit more detail, and if you're still comfortable with the achievability of fiscal '20 guidance? Thank you.

Thank you, Mason. We are comfortable with the FY '20 guidance. We've left that unchanged. We feel great about TEG, in particular the early stage of the launch of adult trauma in the U.S. as it allegates and going quite well. We're seeing good demand in China and elsewhere for the product. So TEG's fully on track at or ahead of expectations. Transfusion management is the other source of strength for us, really doing quite well, smaller line of business, but profitable and growing rapidly. So we feel great about that. We've struggled a little bit on Cell Salvage. There are different issues depending on where you are. It's probably not where it needs to be anywhere in the globe, but particularly in Europe right now, mainly competitive pressures. And we've just -- we made changes to our commercial team. We're stepping up our competitive efforts. We have every reason to believe we'll regain our footing. It was a weak spot for us in the quarter that we attempt to -- we intend to correct for.

Thank you, both.

Thank you. Our next question comes from Larry Keusch from Raymond James. Your line is open.

Thanks. Good morning, everyone. Just wanted to, Chris, maybe touch on capital allocation, sort of a 2-part question here, and then I had one other one. Again, sort of just thoughts around M&A and how you view the environment out there, asset valuations, et cetera. And then as the second part of that question, maybe this is for you, Bill. As you think about the share repurchase that you sort of have planned here over the next year and change, just curious as to how we should be thinking about that. You did an ASR. So just trying to think through. Is ASR more likely to be the way that you'll get this done or is it potentially just more open market purchases? Just trying understand how we think about the modeling.

Larry, it's Chris. Thanks for the question. I think we do spend a good bit of time thinking through capital allocation. The business is increasingly robust as we expand our EBITDA margins and cash flow, which it's a great challenge to think about, how do we do this? Our priorities remain unchanged. Number one, organic growth. It's investing in our people. It's expanding our product portfolio. It's the equipment builds. It's the plant property and equipment capacity we need to meet this rising demand. That is our first priority. It's driving the organic growth of the business, and something we're -- it's first amongst equals, and that we're very proud of. We do want to pursue inorganic growth to complement. As you rightfully point out, asset valuations in the market are high. Some of them have corrected a little bit year-to-date, but not much. And so we see ourselves as a buyer, but we're not going to do deals that aren't accretive in the operating benefit that they afford us, not just because we can borrow inexpensively. So we're continuing to look. Hospitals, the sector that is probably going to be the beneficiary of that as we look to complement TEG in its various permutations globally and create more operating leverage in the Hospital segment. But we're in the market, and we're actively looking. We see some things that make sense to us, but we want to be prudent and thoughtful about how we do it. And then I'll let Bill talk about how the share repurchase factors into that.

Larry, so on the ASR, yes, we utilized the ASR for the share repurchase that we did in the quarter. We also utilized it on prior -- under the prior share repurchase authorization, and we have all intent and purposes in running the ASR for future programs. We see so many benefits with the ASR in terms of early retirement of the shares, the discounts we get and the elimination of the administrative burden we have on the company. So yes, we continue to use it, and we plan on using it going forward.

Okay. And then just given the rising trade tensions with China, can you just remind us again of your exposure to tariffs, and if there was, what it was in the quarter, and, again, to the extent that there is a meaningful tariff exposure, how you're planning to mitigate it?

Yes. It's a situation we watch closely, Larry. The reality is, and we're excited about China and our growth there, 2 of our 3 businesses are represented. Both our Hospital and our Blood Center business, both are growing and contributing nicely to our overall performance. In aggregate, though, it's less than 5% of our revenue. And then when you think about the portion of the product supply to China that comes from the U.S., it's a much smaller fraction of that. So it is not a material effect. And to date, at least, neither country has made blood or blood-related products a focus of their endeavors. So we model it. We're watching it. It's not a material factor and not an issue that we're concerned about. We do look for opportunities to expand. I'd love to see our Plasma business there. We've love to source locally in China, and it's something we'll -- in the spirit of being a bit contrary, and I think we'll continue to explore over the coming quarters as opportunities present themselves.

Okay. Very good. Thank you very much.

Thank you. Our next question comes from Brian Weinstein from William Blair. Your line is open.

Hey, guys. Good morning. This is actually Andrew Brackmann on for Brian. A couple of questions on the $5 million collections to date. So I think that's right around $1.5 million in the quarter. So I guess, first, was this in line with your assumptions heading into the quarter? And then as we think about sort of the remainder of the year and the guide, should we assume this $1.5 million per quarter or $6 million run rate is a number of collections which are contemplated in that guide? Or is that something more?

Andrew, it's Chris. So you are right, $5 million collection's kind of fully in line with what we have anticipated. We're not going to guide to the individual number of collections. What we have is in our guidance and our ranges, et cetera, we're assuming no new substantial contracts on the disposables themselves or for new equipment. So we'll continue to grow that. We'll grow that as our customers respond to the unmet need in the marketplace, and we think that we'll see an increasing benefit. It is interesting if you actually work back against what that means for them, right? If you think about 115,000 leaders that dose 5 million collections reflect, depending on what value you put on that, that's worth in likelihood in excess of $20 million of incremental Plasmas just valued at their current cost base. I'm ignoring the 10% savings, which should be another $50 million to $60 million on top of that or the foregone remuneration for donors that comes from that. This is easily worth $80 million to $100 million of economics to the industry, and we're delighted to be a part of that equation and helping those customers realize it. It will continue to grow over the year. And if we have reason to change our guidance accordingly, we will.

Okay. And then as it relates to the new restructuring plan today, I appreciate that, but maybe on the core operating margin expansion opportunities outside of this plan, how should we think about sort of areas of further expansion here? And I guess, maybe what I'm getting at is, over the longer term, where should we think about sort of operating margin getting to for -- to be kind of sort of peak Haemonetics operating margin?

Yes. Thanks, Andrew. So on operating margins, 3 years ago, operating margin was in the 13% range. We're guiding to approximately 21% now. So we've seen significant operating margin expansion over the last 3 years. We, 2 years ago, had said that by fiscal '21 that we would be approximately 20% or just above that. We haven't updated any guidance related to that. We're at approximately 21% guide. This year, we are ahead of what we thought for the plan. But on our next Investor Day meeting, which we don't have schedules yet, we'll start to provide guidance going forward on our operating margins.

Thanks, guys.

You’re welcome.

Thank you. [Operator Instructions] And our next question comes from Dave Turkaly from JMP Securities. Your line is open.

Great. Thanks. I guess sorry to start, I just have to say. So what was the former management team doing that you're able to find another $80 million to $90 million of costs to pull out? I'm teasing a little bit, but after just having completed, say, $80 million by the end of this year to find another $85 million, I'm just curious, is this -- Chris, is this really sort of your experience and background, your focus in the past that you're applying here to find that type of that level of savings?

Yes. It's interesting, Dave, because I was reflecting, this is my 3-year anniversary for the first earnings call. I got asked a question, I think, during that call about the audacity of the plan or what gave us confidence, and I probably didn't give a great answer. The answer I would have wanted to give in hindsight is any transformation like this is entirely a function of the leadership team and the team that they can recruit to do the work. I think we feel so much more confident today that we actually have the right leaders across the entirety of the organization, including our operating functions, specifically manufacturing and supply, detailed work on quality assurance or in our design, engineering, our global business services. And what you're observing and our ability to turn our attention towards productivity gains, the primary focus is product quality, but the associated benefit that comes from productivity gains is a function of the leadership in those areas. It just didn't exist 3 years ago. So having that team in place, having the facts and the analytics that they now have, their detailed understanding, the momentum they've created and the absence of operating penalties. When I did that call 3 years ago, we earned a lot less per share than we do today. The difference -- a big part of that is complexity reduction, but another big part of that is the absence of operating penalties to credit the team. And we're confident that they're going to deliver, and that a majority of those savings will pass through in terms of our improved financial health.

Got it. And then you mentioned NexLynk. But actually, on the call, you also mentioned SafeTrace, BloodTrack and that you seem to be one of the only companies offering sort of these software options. So I just wanted to get your thoughts on what any of the competitors are doing, if you think they're coming with anything in those areas. And is that -- how big of an advantage is that for you guys? It seems like you're driving results of software across several different areas.

Yes. The software is an area we are attempting to up our game. We're building out our capabilities internally and through partnership with others, and we're confident it's going to be a huge catalyst for us going forward. When you think about NexLynk specifically, dating back to 2015, Haemonetics was largely out of the DMS software game. We left the door open for others and suffered accordingly. One of our customers reached out to us because they were so frustrated by the lack of support they were getting elsewhere and pulled us back, and the company responded admirably. In 2017, we completed that conversion. It's public knowledge. We talked about it at the time, but that was the real precursor for NexLynk. We've now had multiple competitive win-backs to the NexLynk system, and we're upgrading everybody who was on our legacy system. So it's a not-so-secret sauce behind the effectiveness of NexSys, and it's a huge part of this. And I think we've only begun to scratch the surface of what software, data, analytics and digital can mean for our customer base. So we're going to continue to up our game there. The Hospital is a different opportunity. It's a great one. You mentioned SafeTrace Tx in combination with the BloodTrack system. We definitely have competition there, but, yes, we're really focused on it, and I think it's one of the benefits of the integrated business historically that we know something about. I'll handle blood in a hospital, and we're bringing that to bear. And it is a proprietary advantage, so just like DMS. The difference, DMS, we're -- I don't know that -- I'm not sure how I'd say it. We're not just the best at what we do there, we are the only ones who do what we do there.

Thank you.

Thank you. And our next question comes from Mike Petusky from Barrington Research. Your line is open.

Thank you. Just a quick one around the guide in Hospital. Is much assumed from adult trauma there? And I guess, also, just you seem to allude that it's off to a good start. Could you -- if there's any color you can give on that, that'd be great.

Yes. On adult trauma, we got the approval and release earlier in the fiscal year. So we're coming out of the gates from the second part of the quarter trying to get moving on it, and I think we'll ramp from there. We're eagerly awaiting for channel option for platelet mapping cartridge, which we expect to have this year as well. Outside the U.S., I think we have the full spectrum of use for the TEG's success, so we're just expecting our sales force investments and the go-to-market model step-up that we've done there to begin to pay dividends and returns, much like we're seeing already in the U.S. I think the combination of those things buoy us on TEG. Transfusion management gives us additional upside, and I think the real focus is just getting our footing back and taking back what's rightfully ours in Cell Saver. That's a market-leading product. And I think with the end of life complete for OrthoPAT, we have the focus and the energy, and we just need to execute against it. But the combination of those 3 gives us optimism for the guide. It will regain where we are and make up the difference by year-end for Hospital.

Okay. That’s all I got. Great start to the year. Thanks.

Thank you.

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Chris Simon for any closing remarks.

Thank you, operator. Just a couple of quick closing comments because it's interesting times, for sure. I think the strong start to the year is evidence of the robustness of our long-term value drivers. Complexity reduction, as an example, helped catalyze both cultural change for us and lowered our operational expenses. Operational excellence, on the other hand, will build on these learnings, but is more focused, as we've said, on improving quality while also lowering our COGS. We're optimistic about growth and profitability, such that we raised our adjusted EPS and operating margin guidance, and we're confident that this strategy and our ability to accelerate growth can create long-term value for our stakeholders across the board. So thanks again for joining today.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.