Good day, and thank you for standing by. Welcome to the Haemonetics Corporation's Third Quarter Fiscal 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olga Guyette, Director, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for Haemonetics' Third Quarter Fiscal '22 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO. This morning, we posted our third quarter fiscal '22 results to our Investor Relations website, along with our updated fiscal '22 guidance and the analytical tables with the information we'll refer to on this call. Additionally, we provided a complete P&L, balance sheet, summary statement of cash flows as well as reconciliations of our GAAP to non-GAAP financial results and guidance. Before we get started, unless otherwise noted, all revenue growth rates discussed today are on an organic basis and exclude the impact of currency fluctuation, strategic assets of product lines, acquisitions and divestitures and the impact of the 53rd week in fiscal '21. As in the past, we'll refer to non-GAAP financial measures to held this call to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. Please refer to this morning's earnings release for details on excluded items, including comparisons with the same periods of fiscal '21 and a reconciliation to our GAAP results. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Haemonetics cautions that these forward-looking statements are subject to risks and uncertainties, including the potential impacts from the pandemic on our results and other factors referenced in the safe harbor statement in our earnings release and in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. And now I'd like to turn it over to Chris.

Thanks, Olga. Good morning, everyone, and thank you for joining. Third quarter revenue was $260 million, an increase of 8% in reported dollars and an organic revenue decline of 1%. Year-to-date revenue was $728 million, an increase of 13% in reported dollars and an organic revenue growth of 3% versus prior year. Third quarter adjusted earnings per diluted share was $0.84, an increase of 4%, and year-to-date adjusted diluted EPS was $1.93, an increase of 2% when compared with the prior year. Our third quarter performance exemplifies our agility and resilience as we navigated the pandemic headwinds, keeping our people safe while providing our customers the solutions and support they depend on. U.S. blood and plasma collections and some hospital product lines were disrupted by the impact of the Omicron variant, but we believe those effects are transitory. Meanwhile, our Hospital business continues to excel with Hemostasis Management and Vascular Closure achieving record high quarterly sales. We made significant progress with our NexSys and Persona conversions, which support increased plasma volumes. We met critical R&D milestones and expanded our global commercial capabilities, and we delivered additional savings from our Operational Excellence Program that are partially offsetting inflationary pressures and supply chain disruptions and freeing up resources to fund growth. As we will discuss, these accomplishments have contributed to our increasingly strong adjusted gross and operating margins. Moving on to our business unit results. Plasma revenue decreased 2% in the third quarter, primarily driven by disruption from Omicron and a $6 million stocking order in the prior year. Excluding the stocking order, U.S. Plasma collections volume improved 2% on top of the strong growth we experienced in the same quarter last year and grew 9% sequentially compared with the historical seasonal improvement of 3% to 5%. Year-to-date, Plasma revenue improved 3%…

Thank you, Chris, and good morning, everyone. As Chris discussed, our results today showed continued resilience in the business as strong revenue performance in Hospital, specifically in Hemostasis Management and Vascular Closure, helped to mitigate the impact of a prolonged recovery in plasma volumes. In addition, our Operational Excellence program, combined with other cost mitigation efforts, partially offset inflationary pressures and allowed us to continue to fund investments to long-term growth. In the third quarter, we reported our highest adjusted gross margin in company history of 54.9%, an increase of 350 basis points compared with the third quarter of the prior year. The adjusted gross margin year-to-date was 54.1%, an increase of 370 basis points compared with the first 9 months of the prior year. In both periods, adjusted gross margin benefited from the addition of the Vascular Closure business, incremental gross savings from our Operational Excellence Program and favorable product mix due to a higher proportion of our revenue coming from the high-margin and fast-growing Hospital business. These benefits were partially offset by inflationary pressures in the global manufacturing and supply chain, including freight and raw material costs, previous divestitures and price adjustments. Price had a positive impact on third quarter results as we recognized additional benefits from upgrading customers to our latest NexSys PCS and Persona technologies and fully annualized previously announced price adjustments in Plasma, including the expiration of fixed-term pricing on a historical PCS2 technology. Adjusted operating expenses in the third quarter were $83.8 million, an increase of $12.8 million or 18% compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 280 basis points and were at 32.3%. Adjusted operating expenses year-to-date were $253.2 million, an increase of $52.2 million or 26% compared with the prior year. As a percentage…

[Operator Instructions] Our first question comes from Zach Weiner with Jefferies.

Two for us. Can you provide some color on pricing -- plasma pricing through the quarter? And then just going forward with the extension of the CSL contract, can you give some color on the expected pricing there? Is it kind of in line with historical? Or is there a premium for that vast extension?

Yes. Zack, it's Chris Simon. With regards to pricing in the quarter, what we've been calling out all year is that we had some legacy pricing, one on a specific technology regarding PCS2 collections that the contract itself is more than 6 years old. It expired, and we had the effect of that. That is fully annualized. We also had some legacy PCS2 disposable pricing, same as annualized. What you're seeing now is a positive in what we're calling out going forward is that pricing will be a decided benefit because more collections are being done on the NexSys technologies. We're rapidly converting all of our remaining customers to NexSys. And we've also begun the process and are pressing forward with Persona, which is that much more incremental. So here a headwind through much of the first 3 quarters, some net positive this past quarter decidedly a benefit for us going forward. In terms of the CSL contract, I don't want to comment on individual customers just out of respect for their confidentiality. What I can say about the agreement, just to reiterate what was in our prepared remarks, is effectively, it is an 18-month extension through December of 2023. It's nonexclusive after the current agreement terminates in June, and we'll get commitment from them on volumes in advance and work to supply them. We're very confident in our ability to do so as we're confident in our ability to convert the rest of our customer base to NexSys. In fact, the good thing about the NexSys' conversions is we have all of the devices we need to drive the conversions. We're actively doing so now, which is kind of a part of the pricing question. And we expect to be complete with the NexSys upgrade cycle, both the software and the devices, by the middle of our fiscal '23, and we still hold to that projected timing given the progress we're making.

Got it. That's helpful. And then just one quick follow-up. The CSL, there's -- are they fully in PCS2 and they will not have any hardware upgrades? Just want to confirm that.

Yes. The U.S. supply to CSL is all PCS2 based. We have converted the entirety of CSL's business that we have with them in Europe to NexSys that was done earlier this year, first half of this year.

Our next question comes from Andrew Cooper with Raymond James.

Just wanted to make sure I had Maybe first, just in terms of some of the spend in OEP dynamics, OpEx was a little lighter than we had thought, which obviously is a good thing. But was there anything timing related to call out there, especially when we think about sort of the implied earnings guide for the fourth quarter? Anything in particular you'd point to?

Yes, I can take that one, Andrew. So our spending in our third quarter was a little light. We were very judicious in our investment opportunities as we started to see the impacts of Omicron on our plasma collections. But our intent in the fourth quarter is to drive that investment spending back to the levels that are respectable for us. And those investments will be both on the commercial side and in R&D. Our portfolio is evolving, right? You saw the solid gross margin that we delivered in the quarter. And a lot of that is the result of favorable product mix that's coming from our Hospital business, particularly in Vascular Closure and Hemostasis Management. So we want to make sure that we address the opportunities in those businesses that are right for us to go after and continue growth, and we want to be aggressive in our investments. So that's the primary reason. And then you did mention something on OEP. OEP was another driver of our operational -- sorry, of our gross margin improvement. And we've been fortunate enough to really run a very successful program that is helping us offset the inflationary pressures that we're seeing in the business.

Great. Maybe just to follow up on that last piece. On the last earnings call, you had called out that 33 pretty much dropping down to and even offset versus inflationary costs. Is that still what you're expecting? I know you reiterated the 33, but I just wanted to make sure in terms of sort of drop-through if anything has changed?

Yes, that's correct. It's the same comment as we had last quarter.

Okay. Great. And then maybe just one more on Plasma as we continue to see kind of the impact. The conversations you're having around these conversions Obviously, you're talking about contracting and thinking about what volumes may look like. Has anything changed in terms of what your customers are looking at? We hear different things on donor fees and things like that. So I just want to get kind of the latest and greatest from you for both the near term and then ultimately, long term? I think you already said your expectation to get back to the 8% to 10%, but would love any additional color from the quarter?

Yes, Andrew. Happy to do so. I think when we look at it, there's clearly a disconnect between revenue and collection volumes. Revenue was down 2% in Q3. Collection volumes were actually up 2%. And that's against a very challenging comp from the third quarter of last year. And I think it is important to be cognizant of what's going on in the macro environment. Relative to third quarter of last year, there's probably 3 or 4 factors that are relative and important here. In the third quarter of last year, the volume from collections in college towns was a new positive. Thankfully, those -- that segment has stayed active and really very little change, continues to do favorably. But it's on a year-on-year basis, the comparator is not the same left. Conversely, the Southern border situation is difficult and enforcement of preexisting policy there has largely kept those centers at a small percentage of what they contributed previously. The numbers have gotten worse, not better. And our customers are working hard to address that, but there's been very little progress. I think the underlying economics are still a big factor here with government assistance. What we track to is where is household -- average household income and savings rates and how is that trending. We don't foresee any additional stimulus, and we're watching those numbers. They've already plateaued. We expect that they'll continue to trend downward, particularly in an inflationary environment. That's typically a favorable conditions for plasma collections. And then I'd be remiss if I didn't mention Omicron as it affected the collections environment, both the psychology of donors staying home to avoid infection but also just labor shortages, whether it's backfilling in the centers or absenteeism due to and center operators sitting sick. So same challenges we're seeing across the rest of med tech. Our customers are working through it. A bunch of things we're doing with our software and our remote technology help, and we're cautiously optimistic going forward. But they are the factors, and that certainly influences our guidance. The -- our view going forward, 8% to 10%, is a long-term growth in collection volumes. We have no qualms about that. We think it will be higher than that as our customers work to replenish their inventories, and we stand ready to help them with the integrated NexSys platform.

Perfect. And then if I can sneak in maybe just one last one. I think early on, there was mention of some R&D milestones and sort of progress there. And then the answer to a previous question, you talked about investments in R&D. So can you give us a little bit of a flavor for where some of that's going? And what maybe in particular, those milestones might have been just so we can kind of have a road map for what's to come?

Sure. Yes. We're very enthusiastic about our portfolio and the pipeline that we're generating. We're working hard to broaden the shoulders with new applications, new indications across all 3 of our primary growth drivers that being Plasma vis-a-vis the NexSys platform, that being Hemostasis, both TEG and ClotPro and also with regards to Vascular Closure and everything we're doing for VASCADE and VASCADE MVP. So our spend is heavily concentrated in those 3 product areas. And we see very good progress with regards to taking the NexSys platform to the next level. It's the only integrated offering of software and hardware, and now we have an increasing suite of digital applications, which will take us into the next generation. We'll talk a lot more about the Hospital business when we get together for our Investor Day, but we're really enthusiastic about our ability to accelerate that growth and defend our position where we have leading positions, both for Vascular Closure and for Hemostasis. More to come, but we're excited about what we're doing there.

Our next question comes from Mike Matson with Needham & Company.

So a question on the Plasma guidance. It seems like it implies kind of high single-digit sequential growth to get to the implied midpoint. So just with the normal seasonality and kind of macro continuing into the March quarter, is that mainly going to be coming from pricing then to drive the growth?

Yes. Mike, you're right to pick up on the difference in trajectory in the fourth quarter. The reality is we typically see volume declines in the fourth quarter, just given our fiscal fourth quarter just given the seasonality of the business. Typically, from third quarter to fourth quarter, you'd see a downward trend of 7% to 8%. Last year, that decline was actually double digits, 12%. So admittedly, a soft comp. We think this year will be very different based on our implied guidance, which pushes us into the mid-20s and beyond in terms of quarter-on-quarter growth. We think there's a couple of things just to reiterate. We see stabilizing household income and saving rates. Last year, in December, there was $900 billion of new stimulus. Again, in March, there was $1.9 trillion of new stimulus. We don't anticipate that repeating this year. That's probably the biggest point. Yes, to your question, we clearly see price benefits as we called out earlier, as we upgrade all of our customers to the NexSys platform and press forward with Persona as well. So those things clearly help us as well as the annualization that we already called out of prior PCS2 discounts. And then there are a certain level of volume commitments that we know at this point with 1/3 of the way through the quarter. So we feel reasonably confident that you're going to see meaningful improvement quarter-over-quarter. And I think we're watching carefully as we and our customers respond to the peaking of the Omicron variant and how to help get those collection centers up and as productive as possible. So more to come. Forecasting in this environment remains very difficult, but we feel good about where we sit now and how we'll close the year.

Okay. Great. And then I just wanted to ask another one on the CSL amendment. So it sounds like what you're seeing is that they're going to come back to you with some kind of forecast or commitment to a certain amount of volume. So when do you expect to have that information? And is that something you'll be able to factor into your 2030 guidance when you report your fourth quarter? And just I guess as a follow-up, what should we -- how should we handle this from a modeling perspective when we're looking at 23? Should we just assume for now that they're out of the picture, just to be conservative?

It's a dynamic situation to be clear, Mike, and I want to be respectful of customer confidentiality. We're in close conversation with all of our customers almost real time, right? And so we get rolling forecast, et cetera. The CSL situation is more dynamic for obvious reasons. We will know in advance of our guidance for FY '23 where we stand with them. Obviously, it continue to change and evolve, and I expect it will. We'll include whatever committed volumes we have in our FY '23 guidance. And our intention, because shortly thereafter we're hoping to get together virtually for an Investor Day, we'll talk about the long-range plan. And that long-range plan, we'll give you a clear picture without -- it will include customer commitments longer term, including those that are out. So it will be a cleaner picture. '23 will be mixed for obvious reasons. And I just want to be very careful about what we can say and when we can say it. And at this point, we stand ready to serve all of our customers. We get the forecast and the updates been challenging in this environment for sure. And I think there'll be even more so for them going forward.

We have a question from Drew Ranieri with Morgan Stanley.

Just on CSL, I appreciate you can't provide much detail. But could you maybe talk about what you're kind of thinking about in terms of dropping through that revenue bolus that, maybe the Street hasn't expected in their 2023 numbers. Just curious as to what you're thinking, whether you're going to really reinvest that or let it drop through, especially given your comments about building a foundation for growth?

Yes. Drew, thanks. Appreciate the question. As you're going to appreciate, we're not going to comment on '23 at this point beyond what we think is the ongoing recovery, which is clearly underway in plasma collection volumes. And I think for us, as a company, we think about our value proposition, our growth drivers. We're going to continue to view this from a through-cycle mindset and make the investments. We're the market share leader in Plasma today. We intend to remain a market share leader in Plasma going forward. We'll do what we can to help our customers recover in the near term because they need the plasma to meet the end market demand. We're going to fight for what's rightfully ours on share. And we're very confident. And as you heard in the prepared remarks about the differential value proposition of the integrated NexSys platform. So that all requires investment. Any upside around our revenue and the pass-through just more fuel for that I think we don't talk a lot about in these conversations is what's happening with that Hospital business, and we now have these dual pillars of growth in Hemostasis Management, a set of products that have been around for several decades that are now growing in the mid-20s, right, in terms of a percentage basis. We're 80 share leader in that market, and we intend to continue to grow that aggressively. When we think about basket being added to the mix, there's even higher growth potential around that product as we annualize the acquisition and kind of move forward together with those. So we have other smaller products in the Hospital business that are contributing favorably as well. But those 2 pillars really drive us. It shouldn't be lost on anybody that when we created the Hospital business, wherever that was 3.5 or 4 years ago, it was roughly $100 million in revenue, and it wasn't growing. Today, it's north of $300 million in revenue collectively and growing in the mid-teens. So we're excited about the investments there. Clearly, as we're calling out in our fourth quarter and through FY '23, there will need to be investments in those businesses. But the return on that investment is quite exciting, and we'll talk more about that in our Investor Day because we think there's Bill highlighted portfolio evolution. I think portfolio evolution is something that needs to be talked more about as you think about the investment thesis in Hemostasis and Vascular as well. And then maybe more broadly on OEP, where the gains you're seeing this quarter and our gross margins are sustainable, they reflect the product mix, they reflect the OEP, they reflect the good work that our teams are doing to serve our customers consistently well. And I think there's an opportunity to build on that going forward.

[Operator Instructions] We have a question from Larry Solow with CJS Securities.

Just a follow-up on the hospital business. Really encouraged by the growth there and the outlook. Can you just remind us the gross margin on those products obviously with the Vascular Closure has really been improved? But even without Vascular Closure, the gross margin on those products, I think, is pretty significantly north of the corporate average. Is that fair to say?

Yes, Larry, they are -- you want to answer that, Bill?

No, I can, yes. So Larry, those projects -- products, sorry, are definitely higher than the corporate average, right? And it's driving a lot of the benefits that we're seeing in our gross margin and our operating margin. Those higher -- we're fortunate enough that those higher-margin businesses are the fastest-growing businesses that we have in the company, right? So we should continue to see these improvements or these benefits in both operating and gross margins.

Right. And I think as on the Plasma side, the planned conversion to NexSys, has that changed at all? Or any update on that for the rest of your customers?

Now what we had called out, Larry, is we've substantially completed all of the NexLynk donor management software upgrade. So that's largely done. We are neck deep in rolling out across collection centers for multiple customers, essentially all of our remaining major customers. And let's call that we have the devices, FDA approved station here in the U.S. and ready for deployment. So we'll battle the pandemic like our customers, our day in and day out, and we obviously don't want to cause any disruption. We've been quite successful in avoiding that. So our current plans have us completing that conversion by the middle of fiscal '23.

Okay. So that really hasn't changed there. Okay. And then just lastly, I guess, on pricing, I assume -- I know you can't really talk too much about this, but we should assume pricing is your mix on Plasma just in general should be getting better, right? I mean you get -- you should be getting some price on NexSys. And then as more customers adopt Persona, I suppose that should be the case as well, right? So by fiscal '24, you should have some -- ex the CSL side of it, your pricing should be pretty meaningfully higher than it is today. Is that a fair statement?

It is a fair statement, Larry, right? We spent a lot of time and conversations with customers through our trial work and through ongoing monitoring, which is readily available with the NexLynk system. We know the effects we're having on lowering cost per writer connected with NexSys and with Persona. And we reflect that in the pricing reflected in the value proposition. I think our converted customers feel quite good about the exchange there. And yes, that will benefit our gross margins going forward, as Bill highlighted.

And just last question on CSL, I think that beat this subject. But I don't think you can't comment, but it maybe you did. Just on pricing, do we assume that, that pricing -- is that agreement just extended from where that pricing was? Or can you speak to that at all? Or was there a change? Or do you --

Not. It's not -- the vagaries of individual contracts, is something I don't want to get into, Larry, for some reasons. I know you can appreciate. It's a good agreement for [indiscernible] and good agreement for us.

Thank you, and that's all the questions we've had. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.