Haemonetics Corporation ($HAE)

Good afternoon, everyone. Pleased to welcome you to just our last session of day 1 of the conference. Very pleased to welcome Chris Simon, President and CEO of Haemonetics. Thank you again for making the trip to Miami. We're catching up before it's been a long time since I saw we said you were here last year, but obviously, we go back much further than that in the evolution of the company.

So maybe just your kind of -- you've completed an LRP. Your -- you just set out fiscal year guidance. Such like -- where are you in kind of this transformation of?

Thanks for having us at the conference. Delighted to be here. And another chance to tell our story. So yes, you talked about the LRP. That was a 4-year plan that wrapped up about 3 months ago. And -- if I reflect on that, we were coming out of COVID, we were managing the transition of a large customer. It was a challenging environment to say the least. We went out with what we thought was old aspirational goals. And I'm pleased to say for the team that we achieved almost all of them. We thought we would grow high single digits. We actually grew 10%. We said we would grow mid-teens on our earnings, we actually grew mid-20s and we felt good about that. We had this very powerful combination of free cash flow in excess of $650 million and then the margin expansion, where we fell a notch short, we were at 18% operating income margin. When we started, we said we'd get to the high 20s. We actually got to 25 and change. So 700 basis points to be exact, but not quite where we had thought to go. We would argue, and the guidance is -- I think I'm sure we're going to talk a bunch about, but the vast majority of the things we did over that 4-year period, portfolio evolution, capability building within the organization, streamlining our operations, investing in a major ERP program. The vast majority of those are sustainable and bode well for where we go from here.

Excellent. Well, you're right. I do want to dive into the guidance here for 27%, the 3% to 6% organic growth that you you said for, obviously, coming in below where you were over the LRP time frame, understanding that there are some specific factors specific to 2027. Maybe just talk to us a little bit about the guidance framing and the considerations that went into setting the outlook?

Again, delivery against bold aspirational goals, unfortunately, due to a series of idiosyncrasies, most of which were actually beyond our control. institutional investors have abandoned the position and the sector, and our multiple is compressed now to historic lows. And so I don't want to be ignorant of that reality. We trade like a low to mid-single-digit grower. And under the circumstances, I thought it was best to be highly prudent and keep our guidance conservative and things we directly control. We're driving share gains across our businesses. We'll factor those in. We're executing on innovation that we know is value to such in the market where we have a price premium. So when it's already contracted, we have hard deadlines, we're going to account for that. And a very modest level of growth in collection and procedure rates, but all that's against the backdrop that I think more so than any time in my tenure time with the company we're a show-me story, and it's about execution and rebuilding momentum with the goal of returning to a pattern of underpromising and overdelivering, and that's what you see in our guide.

Let's talk about that a little more. I mean I think the -- 1 of the things that as we look at company guidance, we started using kind of a like a benchmark is, like what do you have to believe takes place operationally to hit these numbers. So if you do that exercise, for Haemonetics, like what are the things in your markets that have to be true? Or what are some of the operating considerations that need to play out to hit the...?

We break down our businesses. And this is an interesting one, right? Because I've heard from investors, you guys have become very complex. That's not true. We're very straightforward. We are 3 products. NEXUS, TEG and Vasqade. They make up more than 80% of our total revenue, the vast majority of which comes from here in the U.S., the product is all manufactured here in North America than it's a pretty straightforward story. Now when I decompose those to get to your question, for Nexus, it's always been about 3 things. There's the market share or loss. There's what we command a price premium or contraction for competitive pressures and then ultimately collection volumes. We have line of sight to ongoing share capture. What we've put into the plan is the annualization of what we already did last year that you where we deal with pricing, we had a lot of pricing benefit last year from Persona. This year, it's going to be about the rollout of Persona Plus our latest technology what's in the plan is where we have a contract and an agreed time line. There'll be further upside to that. That would be upside to the plan. And on collection volumes, we're doing exactly what we did last year. We were saying essentially, it's 0% to 2%. And that's the number we'll talk about. But from our vantage point, we feel quite good about the underlying health and vitality of that business. But they are the 3 things that drive plasma. There's a separate set of things that drive interventional technologies and the broader blood management egg business again, the procedure volume, share gain price is the basic story. And then we're putting in a modest degree, 50 to 100 basis points of margin expansion, operating income margin expansion. There'll be some gross margin but probably more so than you've seen in the past, that will be operating leverage as we scale those MedSurg businesses.

And as you think -- and I want to talk a little bit about the sector because you brought it up. But maybe just sticking on the guidance for a second here. Within that range of 3% to 6% or even thinking outside of those bands, what are the factors that would need to materialize to see the number be fixed or better? Or what are the things that would need to take place to be or lower?

Yes. So I think -- again, I'm breaking down plasma, I'd say, a more rapid uptick in Persona Plus. We know it's superior technology. The other companies can't match us. Our customers are very excited about the prospects it will add roughly another 5% yield on top of the Persona adoption, and that will be a more balanced deal just given the way the algorithms work for a number of our customers who have a different mix of demographics in their donor base. They'll all see that meaningful mid-single-digit growth. That's positive. That happens faster in this environment, that will be upside to us. Ongoing share gains I think that defines us in plasma. So -- but we've been conservative and we want to make sure there's hard and fast commitments. And then on the collection volume, we grew -- collection volumes grew 9% last year. We don't see that falling off a cliff. We think the end market demand for plasma is as robust as it's ever been and our position within that is better than it's ever been. But we don't control it. And because we don't control it, it's candidly, it's a non-guide guide, it would be wrong if we said it was 0, so you get 0 to 2, pick your number. What I can tell you is what we've done as a company over the last decade. We're going to grow 200 to 300 basis points above market growth on the things that we control. If plasma collection volumes look like they did last year, then that would be a significant outperformance.On blood management technologies, it's the ongoing conversions, it's the share capture and it's just driving utilization. It doesn't get talked about enough. Hopefully, we'll spend time on it today. That has grown 15% per annum for the last 5 years. Not always linear, but it's always been double digit and sometimes go up into the high teens. So we think TEG in its own right in MedSurg defines durable growth. And we're looking forward to surprising positively on interventional technologies given the investments we've already made to get that business back on its default.

Unfortunately, I think you announced a resegmentation in the past after I prepared my question. So -- but we can -- I want to talk about that a little bit. But before we dive into that, maybe just zoom back out to the sector, one of the things I think that's also a conversation around medtech is just overall -- the overall health of volume. And you listen to managed care companies and you think like no one's going to the doctor, then you listen to hospitals and on a little wobbly, but it's just the fault of weather and seasonality. And then we get Medtronic last week, and they sounded pretty good. You had the benefit of -- you reported, obviously, your quarter ends in March, but you had seen some additional data April and a lot of May when you reported this maybe like what are you seeing? Like how are you kind of putting all the feedback together? And what's your perspective on the latest kind of volume out

Yes, we want to pay really close attention to this. There's obviously large macro forces that can disrupt things. Candidly, we don't see any of it. We see very healthy volumes. If you look at TEG, as an example, bag is general cardiology, it's cardiac surgery. It can be used in interventional cardiology as well. It's a big in transplant and it's big in trauma. And they're all categories where the growth remains really robust. And so we overlay driving greater utilization and a meaningful uptick outside the U.S. and Europe and Japan, where we've been running hard at those targets. Yes. We don't -- we're not handwringing about the underlying procedure volumes, derailing our growth opportunity. When we look at interventional technology, both electrophysiology, structural heart again, healthy markets, I think it gets obscured because there's meaningful share shift going on. So depending on who you talk to, if they're on the receiving end of that, perhaps they look and feel a bit different. From us, the underlying strategy of enabling technologies. We're agnostic as to whose therapeutic you're using. What we care about is the access site holes that need to be closed and can you use the best available. Now there is real science behind what's the total available access sites. So people get confused because they see mid-teens growth in Afib -- the reality is, last year, we think the access site growth for AFib was in the low single digits, probably 3.5% overall. That same number this year should be between 6% and 7%. I'm happy to walk through that. But basically, as they adopt the more advanced PFA technology, we're losing typically 1 access site per procedure. Same is true for concomitant therapy if they're doing Afib and left atrial appendage simultaneously. But the good news, the silver lining here is that adoption rate has progressed so far so fast that the market is stabilizing. And that stability is a great backdrop for us to resume above-market growth. The base market, like I said, 6% to 7%. Eventually, we get on the other side of this, and that could be as early as the latter part of this year, our growth rate and number of access sites will return to whatever the procedural growth rate is. And we're looking forward to that return to double-digit growth. In the meantime, we're going to get it done with share capture.

Great. I do want to start talking about TAG and going to some of the specific products. So maybe you could just talk about the reporting changes that you announced and -- what was sort of the genesis behind it and what you're sort of intending to communicate to investors with a new view of the company?

The change is largely aimed to align our external reporting with how we're already managing the business internally. When we look at plasma and blood center, plasma source class, that's key opportunity. It's globalized quite dramatically. The outside of the U.S. growth is now outpacing the U.S. growth. And a lot of that is coming from what traditionally were blood center customers aligning with our source plasma customers. It's all being done on the Nexus device. So by reconfiguring and retitling to apheresis, you're going to see 80%, 90%, et cetera, a concentration in the plasma apheresis. And then we have the other, which is not an area that's getting a lot of capital or we'll continue to break it out. We're not looking to take away any information. But -- and then the hospital side, we're just trying to align with the terminology that more accurately defines our products in the segments they compete in. Importantly, I think we tried to be really clear about this on Friday with the announcement. This is a reporting change. It's not a change in strategy or outlook. We have not updated our guidance. The guidance we issued back in May is the guidance for the year until we have an opportunity to upgrade it as the year progresses. But for now, everything stays intact. I guess there's probably one more possible rationale that is further down the road. But if you think about we think there's an opportunity to further clarify the intrinsic value of each part of the business. And today, we know we trade at a significant read that as massive discount to the current sum of the parts. If by being clearer about the individual parts, helps to begin to help investors quantify that discount so much the better.

And I appreciate that there's always 2 pieces to getting value that's quantifying the discount and all of us didn't do that fresh math. Then there's realizing the different that gap through something strategic and operational. So are you actively having those conversations at the board level of breaking up the company? Or is that more of a valuation point that you're trying to make?

Our first, second and third point is we're focused on execution to drive valuation, long-term shareholder returns, period, full stop. I think there's been enough noise in the system, as I said, the idiosyncrasies I think about us and the overhang that really dominate it unfortunately diminished really strong performance in FY '26. The first was $153 million of nonrecurring plasma blood center revenue, which we've talked extensively about but there was also the IVT disruption, which was in 1 part, PFA. It was 1 part, the OEM sensor guided business that we acquired that had a disruption from J&J and Abiomed there's obviously the dislocation of the cooling market. And candidly, on the cash flow side, we had real things we needed to do to build devices to get the share gains we've now gotten in plasma -- we've built a new manufacturing facility, state-of-the-art operations in Pittsburgh, Pennsylvania to deliver against all this opportunity, and we rebuild our inventories after a massive depletion all those things diminished. But if I look at that, whether it's plasma blood, whether it's the recovery in international technologies or a return to really robust cash flow that overhang is behind us now. And so we've got to execute and we got to execute across 100% of the business, not 85%. We know that sitting here this time next year, when we sit down, if we're still trading at 10x to 12x forward PE, then we'll have a different conversation because the company is just worth significantly more than that period, full stop.

Maybe just -- now you've sort of opened the go forward to. So you keep going to -- look, has been increasingly active in med tech. We've started to say we've been hearing about it for better part of 1.5 years. And I think in one of the public sessions here last year, our bankers talked about private equity interest in in medtech. Are you seeing inbound interest of -- for the company? Or are you still talking more of the theoretical valuation level?

I think the practical reality is anybody that lives at the intersection of med tech and small, mid if you're not having these conversations, there's probably something wrong, right, just in terms of valuation. And our obligation as fiduciaries to deliver value -- from our vantage point, we think the most important thing to drive value is the execution against the existing business, right, get back on the path of exceeding expectations, delivering consistent making sure the durable growth of this business and the outstanding free cash flow generation and conversion ratio becomes apparent. We do that, I think, intelligent investors, public or private, will find their way to our doorstep. And at the end of the day, that's our obligation.

And are you guys buying back stock?

We've bought back stock meaningfully over the course of the past year. It's a second capital allocation priority behind the organic investment that we're making clinically and commercially in the business. We think the ROIC on that first year investments have been really attractive. A second priority is the buyback, right? We feel quite good about our balance sheet and where we are. We'll pay down debt opportunistically. But for now, yes, the buybacks and we have well, just over $300 million, about $325 million remaining on a prior authorization. Opportunities present themselves, we'll buy back we understand the cost of our equity and the cost of our debt.

Excellent. That's a good segue to kind of continue to reframe execution and dive into the businesses. So maybe why don't we start you pick -- where do you want to start from a business perspective? What do you want to highlight to people and then we'll go through the key franchises?

Let's touch on plasma, but make sure we spend enough time to go through MedSurg parial both parts of it.

Okay. Great. So plasma -- I mean, I've always thought about this market is like high single-digit growth in terms of end-user demand. I mean, collections should follow that in volumes or probably lead that a little bit of companies want to build inventory. Is that -- and you have this -- how do we square that with the 0% to 2% number?

Yes. So again, 0 to 2 is as close as we can get to a non-guide guide without pulling back on any transparency at all, right? So when we look at the underlying demand for this market, it all traces back to what is the underlying demand for IT, right? And so -- we look carefully at the end markets. There's lots of folks more lean and more knowledgeable about this than us. But we look at the 55% of the Ig pharmaceutical market that's primary and secondary immune deficiency. That growth rate continues unabated. Tragically in part because of cancer therapy and reactions therein. On the autoimmune side, obviously, there's been a tens that's a good thing. It's a good thing for the category. It's a good thing for patients. There's very little to no evidence that the alternative therapies are picking up significant volume of new patient starts outside of the ultra rare orphan diseases like myasthenia gravis in the big categories, ITP, CIDP, IG remains first-line therapy. When someone's non-IG responsive or not responsive enough -- you see the adjunct therapy. It's a good thing for patients, but it's not coming at the expense of demand. Now there's different numbers out there. Pick your favorite number. We tend from a long-term planning perspective, we tend to look at 5% to 7% growth in demand for then we overlay what should we reasonably deliver, and that's my point earlier, about 200 to 300 basis points on top of that, either through share gains or incremental pricing against superior technology. There'll be some uptick with regards to a move to subcutaneous, which requires more plasma, but there's also yield enhancements, ours and others that is coming from the fractionation side. So that largely nets out. But take that 5% to 7% as we see it, add to a couple of hundred basis points. That's how we've delivered what we've delivered essentially for the last decade.

Okay. That's helpful perspective. But I want to go on to MedSurg, but maybe just last one. Just plasma collection service sort of a hedge in a scenario where there is macroeconomic weak. I always thought about collections as being countercyclical, unemployment goes up, collections go up, is that a reasonable consideration.

I think it's very reasonable. I'll just answer it in the here and the now. This is as good a collections environment, as I've seen over the last decade right? I think it's a very different economy for your typical donor than it is maybe for some other folks gathered here today. And so in that regard, our collectors are able to collect all the plasma they want at very favorable prices. Obviously, our yield enhancement, our speed enhancement, our software support and what we can do to really drive donor loyalty helps the cause a great deal -- but I think this is as good an environment as we've seen.

Excellent. Maybe not. But helpful perspective. Why don't we switch over to MedSurg. Feel free why don't you take us through kind of what you're excited about? You talked a little bit about the dynamics with Facade and this WATCHMAN interplay, that sounds like that will cycle through pretty clearly. But maybe you want to start with Tegmaybe and then go from

Yes. So tech is on a run. As I said, it's grown 15% on average over the last 5 years. That's a variety of factors. We've added new indications, the most recent of which was heparanase neutralization global mutualization cartridge. And that's really opened up the aperture for us to be able to move our existing TEG 5000 business a lab directed product that has a much broader swath of indications because we can now match it in the success ability, functionality is comparable we're moving it more into a site of care. And it's a new device. We get the device sales. We like that profile. A lot of these are devices that we sell that are at attractive returns. We have a whole package of software around TEG manager that's helping drive heuristics and treatment protocols. But the other thing is how many out of this and the ultimate metric that we run to is we're seeing literally 2x the revenue per device on the 6 than we were even 3 years ago, which tells me we're making meaningful inroads in utilization. And I get asked all the time, is this thing sustainable. This was a $100 million product 5 years ago, we at $200 million plus, it is absolutely sustainable. We think it defines durable growth in MedSurg. And the big part of that is nearly half the market still doesn't use viscoelastic testing or use it at scale. And so that's the opportunity in patent and in Europe, which tend to be do no the viscoelastic testing readout helps avoid harm in terms of the underlying treatments. So yes, we think TEG's best days are ahead of it.

Excellent. Maybe we go on to the interventional business. just in interest of time, and we talked a little bit about the EP side. Maybe talk through structural heart and how you -- as EP goes through this transition with that negatively impacts the number of access sites help us understand the other growth drivers in the business that can supplement that share gains?

It's a critical question. When we look at IBT, we went in the wrong direction. We contracted at 9% last year. An important distinction is 80% of that contraction was a combination of Enzo ETM, the cooling device for radio frequency ablation. -- and the OEM portion of our sensor guided technology. So for Enzo, we thought we were entering a category that would hold 25% to 35% we got that wrong. And that's a mistake and I could take it back. It's $160 million that we put out there for that asset and the market is just really challenged. We're doing what we can do, but it's a challenged market to be sure. That was of the $16 million contraction, that was 2/3 of it, right there. The good news, to the extent there's good news here is it's currently -- we exited the year, we did like roughly $2 million in the fourth quarter on Enzo on a print of $346 million. It's at the point where it just hurt us Right? The other part of it was the OEM center guided business. We acquired that business shortly thereafter J&J acquired Abiomed and they did 2 things. They leveled up the production. We have a contract that requires them to buy at least 50% that leveling, coupled with that they had over a year's inventory on hand. They wanted to take it down to a much smaller level. Fortunately, both of those effects have now annualized. So at this point, we should grow certainly with the category or above there's obviously questions around that, but we feel quite good about our ability to bring that business back to above-market growth.

And how about VivaSure?

So Viva Sure, we had taken an option on that company several years back. What we think is really critical is the landscape for large bore closure is just really underdeveloped. We look at that as roughly a $300 million addressable market, predominantly for TAVR and EVAR, and -- what we have is a product that's just meaningfully differentiated. It's sutureless. It's fully bioabsorbable and it can handle up to that French OD and nothing is left behind in the vessel. So when you look at it clinically leveraging the patch trial data, for example, immediate median hemostasis an ability to -- very strong safety outcomes, clearly superior or anything is on the market. And it's a straightforward, easy procedure to use the patch with a clip technology -- and unfortunately, if you need to go back in 30 days later on a redo, you can go anywhere along the vessel because the patch is fully bioabsorbable and the patient is fully recovered. So -- we think it's a market that we should do well. It is closure, and it's 1 of the 3 things you should expect from us in FY '27 to demonstrate we're back on our front foot.

Okay. Excellent. Maybe just I want to make sure we can talk about margins a little bit. and cash flow. But before we go to try to wrap this all together, as we think about the 3% to 6% guidance that you're laying out and you kind of started on the med surg side. Within the EP exposed segment, there are some market dynamics that you're managing through that I think everyone is very well aware of now the impact concomitants having on on stand-alone WATCHMAN procedures, the impact of PSS having in advanced PFA technologies that are all in 1 mapping and ablation that are having on access sites. That's going to cycle through, but that -- you don't have a ton of control over how the market evolves here you can control your market share, but how quickly we move to stability in concomitant procedures or how market share plays out and EP is still -- they're fighting that out. The tag side, continue to see great upgrade momentum would take success and really strong growth there, opportunity to do well with the TAVR EVAR opportunity on Viva sure and then we go over to the plasma side, it's like, okay, the market is good, but we're just going to take a super conservative approach and the levers to the upside and the guidance really sit with Plaza, maybe in a scenario where the DFA dynamics play out faster or stabilize at a lower rate than people expect that could be upside as well? Is that a fair way to characterize it?

There's clearly upside in the apheresis business along the lines you described. I think even with the historical blood center business, not giving up on that business by any stretch. That's a consistent outperformer. We've guided to negative mid-single digits there. We obviously did better than that last year. We would aspire to do better than that this year. So the apheresis piece, I think as you described it and then some. -- we're equally bullish on MedSurg. And we guided to mid-single-digit growth. We would -- I just got done saying vascular closure is the biggest opportunity within IVT. We think the market growth rate is going to be roughly 6.5%. If we don't return to above-market growth, we be pretty -- we would be concerned about that. So we see upside in vascular closure. I talked about the Guidewire business and we're dependent upon FDA. We put cost in for the ViVASure product launch. We don't have any revenue. That's just our convention in a way to be prudent. But we get that approval in FY '27. We're going to come out of the gates in a really purposeful step-wise function. We want to play for the long term, but make no mistakes, we're going to have guns blazing, and we're going to be successful with that product. So there's upside there for sure. And then egg just delivered what they delivered for the year and for the last 5 years. We don't see them slowing down anytime soon, but we don't control all the vagaries of the markets and the type of things that you and I are talking about here. So let's be conservative and give ourselves room to outperform

Maybe sort of toggling over to the margin side. I mean you just went through a period of pretty significant margin expansion as you laid out, 700 basis points over roughly a 4-year period. As you talk about 50 to 100 basis points this year, how much of that influenced just by the level of top line growth? Or is it some level of minimum top line growth you need to achieve operating leverage? Or -- and how much of this is just kind of maybe a hangover from the sort of significant amount of margin expansion you realized in the failing period?

Yes. So by far, the last 4 years have been driven by gross margin expansion. We've held it together and feedback tariffs and inflation and geopolitical disruption and cost to make sure that, that drops through proportionately. We have not achieved the operating leverage that we had aimed for initially. We'll come back to that because I do think that's going to begin to manifest pretty materially this year. When we look at it though, gross margin is not done. Sure. volumes matter, mix matters, both of them are trending favorably for us and should continue to do so. we put high marks on ourselves to continue to push price on valued innovation. And then core productivity, which a lot of our productivity has gone to offsetting these headwinds and -- but we come out the other side of that, and we've been very conservative in terms of how we thought about the cost of tariffs and inflation in our current plan. We catch a break there or we get further ahead of our own cycle, we'll be back on the train to drive productivity and ways that it covers not just inflation and merit but the broader cost -- but there's more to do on the gross margin. I think what's going to be new to the story, as you heard James talk about it is our operating leverage, and that's just a scale play within hospital because we've already made the investments, both for blood management technologies and interventional technologies. We have what we need to succeed. We now need to leverage it.

Excellent. Well, we have just about a minute left year. Maybe I'll turn it back to you just to -- as you kind of think about -- you just said earnings call, your meeting with investors today, just obviously at our discussion here. What do you want people to walk out of the room with a like the key take-home message?

Yes. I hope the -- I used the phrase at the risk of being philosophical about it, but the fog's clearing, and it's going to reveal a forest for the trees. And the fog is that overhang that I ticked off earlier that and the IVT, what it's going to reveal is durable growth where you have this apheresis business that's just an engine of mid-single-digit growth or better and the associated EBITDA and free cash flow, which strengthens the balance sheet, it gives us real optionality. And flip over on the other side, and I think we'll replicate the playbook that we've gotten very right in BMT as we execute in IVT. -- and now you start seeing operating leverage and a much higher potential, not just for durable growth but outsized growth. And so that's what we're planning for. We understand where we sit in the market. We're a show-me story. We're going to under promise and over deliver and continue to do so until we're on the other side of this.

Excellent. That's a great place to wrap up, Chris and I really appreciate your coming to the conference again this year and giving us this update, and we'll look forward to the next update in August, if not something transpiring before then.

Great, thanks for your time.

Thanks, Chris.