Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Haemonetics Corporation Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Olga Guyette, Investor Relations.

Thank you. Good morning, everyone. Thank you for joining us for Haemonetics' fourth quarter fiscal 2021 conference call and webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO. This morning we posted our fourth quarter and fiscal 2021 results to our Investor Relations website along with our fiscal 2022 guidance and analytical tables with the information that 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 fluctuations, strategic actions of product lines, acquisitions and divestitures, and the impact of the 53rd week in fiscal 2021. As in the past, we'll refer to non-GAAP financial measures throughout the 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 2020 and a reconciliation to our GAAP results. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Haemonetics cautions that these forward-looking statements are subject to risks and uncertainties, including any potential impact from the COVID-19 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 the call over to Chris.

Good morning, everyone, and thank you for joining today. Before I get into our results, I want to review the news we announced a few weeks ago. In April, CSL Plasma notified us that they do not intend to renew their US supply agreement for the use of our PCS2 plasma collection system equipment and the purchase of plasma disposables that expires in June of 2022. We were informed that CSL's decision was not based on the level of service or quality of our products, but rather reflects a change in internal strategy that was made some time ago, presumably before they had experience with NexSys and Persona. We are disappointed by CSL's decision, but it does not change our commitment to the plasma market and our technology to improve collections. The NexSys and Persona value propositions are strong, supported by real-world data and real-time customer feedback, and we are excited about what this platform means for our customers. We are taking a comprehensive approach to address the impact the CSL transition will have in fiscal 2023. We are acting with urgency, but we are being thoughtful and balanced in our planning. Our ability to respond is enhanced by the steps we have taken these past few years to strengthen our financial health, improve productivity, drive innovation, reshape our portfolio, and build a collaborative performance-driven culture. We are well positioned to navigate this change. We are focused on driving value for customers and shareholders, and our decision-making is guided by a through-cycle mindset. We will continue to pursue growth strategies to maintain our market leadership, including developing innovation in partnership with our customers. We also remain committed to productivity and being good stewards of the company's resources. We will provide more details on the path forward as our plans take shape. With that, let me turn to our results for the quarter and the fiscal year. Today, we reported organic revenue decline of 14% in the fourth quarter and 13% for fiscal 2021 and adjusted earnings per share of $0.46, down 33% in the quarter and down 29% to $2.35 for the year. Fiscal 2021 was a difficult year for Haemonetics as the pandemic had varying effects across our businesses and their respective customers. Despite the challenges, we made progress to build a stronger Haemonetics. We divested non-performing assets like the Fajardo blood filter manufacturing operations, Blood Center Donor Management software in the US, and In Log SAS Blood Bank and Hospital software in Europe. We made organic and inorganic investments in attractive and growing markets, including the launch of Persona and the Donor360 app and the acquisitions of ClotPro and Cardiva Medical. We modified our capital structure for financial flexibility and remain diligent with cost containment while continuing to fund growth. We made significant changes to the way we source and make our products as part of our Operational Excellence Program. While we cannot control the pandemic's impact on our customers' businesses, we met every challenge keeping our employees safe and our plants operational with high levels of service and customer support. Early fiscal 2022 will continue to be challenging, but we expect the pace of recovery to accelerate over the year. The end market demand for our products remains strong and we do not see structural or other changes from the pandemic that would impact the need for life-saving plasma-based medicines or hospital devices for critical areas of medicine like trauma, interventional cardiology, and electrophysiology. We have healthy and viable businesses delivering exceptional value-adding technology. We have proven our resilience and our ability to drive growth and productivity, and we will do so again as our markets recover from the pandemic. Turning now to our business units. Plasma revenues declined 28% in the fourth quarter and 26% in fiscal 2021, as the pandemic continued to have a pronounced effect on the US-sourced plasma donor pool. We saw lingering effects beyond the fourth quarter into April. North America disposables declined by 31% in the fourth quarter, primarily driven by declines in volume and a negative impact from the expiration of pricing on a historical technology enhancement with one of our customers. Sequentially, plasma collection volumes declined by 13% compared with historical average seasonal declines of about 7%, as additional economic stimulus hindered recovery. Fiscal 2021 was an especially difficult year for plasma collections, given the interplay of different factors affecting donor behavior. Our customers have taken extensive measures to ensure the health and safety of donors and to launch a myriad of promotional campaigns to encourage plasma donations. Our teams have remained focused on ensuring no disruptions to our supply, service, and support. Despite the environment, we advanced our innovation agenda with the FDA clearance of Persona, which safely yields an additional 9% to 12% of plasma on average per collection. We extended the reach of our customers to donors via our Donor360 app, which allows donors to engage with centers before in-person visits, decreasing door-to-door time and improving the overall donor experience. Given the pandemic's negative effect on collections, increased yield is more important than ever. And feedback from NexSys customers operating with YES technology or Persona continues to be positive. We believe they were able to offset some of the headwinds from the pandemic because they benefited from safe, higher plasma yield per donor, bidirectional paperless connectivity, and increased donor satisfaction. NexLynk DMS rollouts continue on pace and the software continues to be a key enabler and differentiator for NexSys. All of our major customers have agreed to adopt NexSys, in some part of their collection network. And we anticipate that by mid-fiscal 2023, the majority of our customers, excluding CSL, will be on NexSys in the US or globally. As we emerge from the pandemic and see future sustained increases in available donors, the operational efficiency benefits of NexSys, integrated with NexLynk DMS will be an increasingly valuable tool to support greater donor traffic. We anticipate initial Persona rollout this fiscal year, as we strive to move in sync with our customers and pace our technology implementations to meet their individual needs. We are committed to advancing our innovation agenda across devices, disposables, and software to develop products that create long-term sustainable value for our customers. We continue to do everything we can to support our customers, and we remain cautiously optimistic about the timing and pace of recovery. The demand for plasma-derived medicines remains strong and our customers are doing what they can to recruit and retain donors. Unfortunately, donor economics play a critical role in plasma collections, and we expect collections will be muted until government stimulus wanes. Beyond stimulus, we expect a return to the long-term 8% to 10% growth of the US-sourced plasma collections market, and we see potential to grow in excess of that as customers strive to replenish depleted plasma inventories. Hospital revenue increased 12% in the fourth quarter and 4% in fiscal 2021. Our hospital business experienced continued sequential improvement over the first nine months of the fiscal year. Fourth quarter recovery was uneven, as we saw another spike in COVID cases early in the quarter followed by material improvement in February and March, coupled with the anniversary of the previous impact of COVID-19 in China and other geographies that were affected earliest by the pandemic. Hemostasis Management revenue was up 19% in the fourth quarter and 9% in fiscal 2021. North America, our largest market, showed sequential growth throughout the first nine months of the year. And despite a spike in COVID cases early in the fourth quarter, the business exited in a strong position including additional penetration into new accounts. China, our second largest market, benefited from a lower comparator in the prior year fourth quarter due to the early onset of COVID-19. Strong capital sales in North America and EMEA have also contributed favorably to our fourth quarter and fiscal 2021 results. We continue to drive our go-to-market strategies for viscoelastic testing to meet the unique needs of our regional markets. We are executing on the Chinese market introduction of our locally designed and manufactured viscoelastic testing technology that expands our product offering to meet the needs of that geography. Transfusion management was up 9% in the fourth quarter and fiscal 2021, primarily driven by strong growth in BloodTrack through new accounts and geographic expansion of SafeTrace Tx. Our teams have used remote tools to advance installations and utilization in customer environments where access continues to be restricted. Cell Salvage revenue grew 2% in the fourth quarter and declined 8% in fiscal 2021. Our Cell Salvage results in the quarter benefited from the easy comparison with the prior year quarter in China and 80% growth in capital sales as we continue to upgrade our customers to the latest technology. Partially offsetting these benefits in the fourth quarter was overall lower procedure volume due to COVID-19. The integration of Cardiva Medical is going well and the performance of the business is exceeding expectations. The VASCADE proprietary vascular closure technology strengthens our hospital portfolio in the attractive interventional cardiology and electrophysiology markets, and the team is focused on driving the strategy underlying this acquisition. Although excluded from our organic revenue results, Cardiva added close to $8 million of revenue in March as our teams continue to drive penetration in the top hospital accounts for interventional procedures in the US. Additionally, as US procedure volume continues to improve, we've seen increasing benefit from product utilization among existing accounts. Our long-term outlook for this business is strong as our combined product development and regulatory teams work closely together on OUS registrations and driving additional product innovation. Overall, the pandemic has validated the essential role of our technologies in hospitals. We have demonstrated our ability to safely and effectively sell, including to new and existing accounts, install and service our equipment despite limited access to hospitals. Blood Center revenue declined 10% in the fourth quarter and 4% in fiscal 2021. Apheresis revenue declined 3% in the fourth quarter and grew nearly 1% in fiscal 2021. Fourth quarter apheresis results were impacted by unfavorable distributor order timing in the EMEA and a competitive loss, partially offset by strong capital sales. Order timing was overall a benefit to our full-year fiscal 2021 results as distributors made large stocking orders in response to the pandemic, particularly in Europe and the Middle East. We also benefited from strong capital sales as we continue to support our customers in the collection of convalescent plasma. These benefits were partially offset by the previously disclosed competitive loss that had a $17 million impact on our full-year results. Excluding this loss, overall Blood Center revenue actually grew in fiscal 2021. Whole blood revenue declined 24% in the fourth quarter and 14% in fiscal 2021 driven by lower collection volumes due to COVID-19 and discontinued customer contracts in North America. We remain committed to supporting enhanced product quality and services for our Blood Center customers, while preserving cash generation and exploring portfolio rationalization as appropriate.

Thank you, Chris, and good morning everyone. I will begin by discussing our fiscal 2021 actual results followed by our fiscal '22 guidance. Chris has already discussed revenue, so I will start with adjusted gross margin, which was 50% in the fourth quarter, a decline of 30 basis points compared with the fourth quarter of the prior year. Adjusted gross margin year-to-date was 50.3%, a decline of 130 basis points compared with the prior year. On the positive side, we continue to benefit from productivity savings realized from our Operational Excellence Program and lower depreciation expense related to our PCS2 devices, which were mostly depreciated by the end of the prior fiscal year. We also saw benefits from the recent acquisition of Cardiva Medical. The primary drivers of the adjusted gross margin decline were unfavorable pricing and product mix, mainly due to the impact of COVID-19, higher inventory-related charges, and the impact of recent divestitures. These inventory-related charges, which relate to CSL's intent not to renew the US plasma disposable supply agreement, had approximately 220 basis points impact on our fourth quarter and about 60 basis points impact on our fiscal 2021 results. The combination of our recent divestitures and our strategic decision to exit the liquid solution business resulted in a net negative impact of 70 basis points on our fourth quarter and about neutral impact on our fiscal 2021 adjusted gross margin. Adjusted operating expenses in the fourth quarter were $81.9 million, an increase of $9.2 million or 13% compared with the fourth quarter of the prior year. Adjusted operating expenses for fiscal 2021 were $283 million, a decrease of $9.8 million or 3% compared with the prior year. Adjusted operating expenses in both the fourth quarter and fiscal 2021 were impacted by higher variable compensation, the acquisition of Cardiva Medical, and the impact from the 53rd week. Contributions from our productivity savings and cost-containment efforts that were put in place earlier in the pandemic helped to offset some of the impacts and allowed us to make additional growth investments into our business. As a result of the performance in adjusted gross margin and adjusted operating expenses, fourth-quarter adjusted operating income was $30.5 million, a decrease of $16.8 million or 35%. And adjusted operating income for fiscal 2021 was $154.6 million, a decrease of $63.4 million or 29% compared with the prior year. Adjusted operating margin was 13.5% in the fourth quarter and 17.8% in fiscal 2021, down 630 basis points and 420 basis points respectively compared with the same periods in fiscal '20. For both periods, the lost leverage from revenue coupled with the inventory-related charges, higher variable compensation, and impacts from portfolio changes outpaced the impact of cost mitigation efforts and productivity savings. These inventory-related charges and higher variable compensation put downward pressure on operating margins by approximately 500 basis points in the fourth quarter and approximately 100 basis points in fiscal 2021. The variable compensation incentives we established during the pandemic and the one-time inventory-related charge due to the recent customer announcement are not expected to affect future operating margins. The adjusted income tax rate was 12% in the fourth quarter and 14% in fiscal 2021 compared with 18% and 15% respectively for the same periods of the prior year. Fourth quarter adjusted net income was $23.9 million, down $11.5 million or 33%. And adjusted earnings per diluted share was $0.46, down 33% when compared with the fourth quarter of fiscal '20. Adjusted net income for fiscal 2021 was $120.7 million, down $50.6 million or 30%, and adjusted earnings per diluted share was $2.35, down 29% when compared with the prior year. The inventory-related charges and higher variable compensation had a downward impact on adjusted earnings per diluted share of $0.18 in the fourth quarter and $0.12 in fiscal 2021. Our Operational Excellence Program continued to deliver positive results and drive improvements in adjusted gross and adjusted operating margins. This program has also enabled us to offset some of the challenges resulting from the pandemic. During fiscal years '20 and 2021, the program to date gross savings are approximately $34 million, with the majority of those savings dropping through to adjusted operating income. Cash on hand at the end of the fourth quarter was $192 million, an increase of $55 million since the beginning of the fiscal year. Free cash flow before restructuring and turnaround costs was $99 million in fiscal 2021 compared with $139 million in the prior year. Fiscal 2021 included a $54.3 million payment for a compensation-related liability as part of the Cardiva Medical acquisition. The total purchase price paid for Cardiva Medical was reduced by the amount of this liability. Lower increases in inventory, lower capital expenditures, and improvement in accounts receivable when compared with the prior year have benefited fiscal 2021. Although the free cash outflow for inventory is lower than in the prior year, the impact from lower sales volume in plasma has resulted in a higher disposables inventory balance. We will continue to monitor our inventory levels and expect inventory fluctuations to continue as we adjust our production to support customer demand and our Operational Excellence Program initiatives. In addition to free cash flow, the fourth quarter ending cash balance benefited from the completion of a $500 million convertible debt offering, which resulted in a net cash inflow of $439 million. Offsetting the cash inflow during fiscal 2021 was $390 million of net cash spent on recent portfolio moves and $82 million of debt repayments, including a $60 million repayment of the revolving credit line that was outstanding at the end of fiscal '20. Our current debt structure includes a $700 million credit facility that does not mature until the first quarter of fiscal '24, with the majority of the principal payments weighted toward the end of the term. At the end of the fourth quarter, total debt outstanding under the facility was $302 million. There were no borrowings outstanding under the $350 million revolving credit line at the end of fiscal 2021. During the fourth quarter, we completed a $500 million convertible debt offering. Our EBITDA leverage ratio as calculated in accordance with the terms set forth in the company's existing credit agreement is 3.4 at the end of fiscal 2021. The existing $500 million share repurchase authorization will expire at the end of May 2021 with $325 million remaining on the authorization. We will update our capital allocation priorities in the next few quarters as we continue to develop our long-range plan. Now I will turn to our fiscal '22 guidance. Our business continues to be impacted by the pandemic, therefore our fiscal '22 guidance includes wider-than-usual ranges that reflect the uncertainty of the pace of the continuing recovery. We will narrow or update our guidance as necessary throughout the year. Our fiscal 2022 organic revenue growth is expected to be in the range of 8% to 12%. We remain confident in the continued market growth underlying the commercial plasma business and anticipate plasma revenue growth of 15% to 25% in fiscal 2022. At the low end of our guidance range, we assume that the second and third rounds of economic stimulus will continue to impact plasma collections through the first half of fiscal 2022, with stronger collection volumes in the second half of fiscal 2022. At the higher end of our guidance range, we assume that recovery will begin mid-second quarter with additional acceleration toward the end of the fiscal year as customers begin to replenish safety stock levels. In both cases, we expect the run rate for plasma collections to be at or above fiscal 2020 levels at the end of the fiscal year. Disposable revenue related to CSL collection volume is included in the guidance for 12 months. In fiscal 2021, we recognized disposable revenue in the US from CSL of approximately $89 million. This plasma revenue guidance also includes the net impact of initial rollouts of Persona and NexSys adoption for customers with whom we have agreements, with the majority of the benefit towards the end of the fiscal year. These benefits are partially offset by price adjustments, including the expiration of fixed-term pricing on a historical PCS2 technology enhancement and a one-time safety stockholder in fiscal 2021. We expect 15% to 20% organic revenue growth in our hospital business in fiscal 2022. This growth rate assumes the recovery of hospital procedures will continue to improve throughout the year and will be close to fully recovered across all geographies by the end of our fiscal 2022. Our hospital revenue guidance includes Hemostasis Management revenue growth in the mid-20s. The Cardiva Medical acquisition is anticipated to deliver $65 million to $75 million of revenue and is excluded from organic revenue growth until the anniversary of the acquisition date. Our fiscal 2022 guidance for Blood Center revenue is a year-over-year decline of 6% to 8%. The anticipated revenue decline in Blood Center reflects the annualization of business exits primarily within North America whole blood, the non-repeating revenue related to convalescent plasma in fiscal 2021, and the effects of order timing which favorably impacted fiscal 2021. We expect fiscal 2022 adjusted operating margins in the range of 19% to 20% and adjusted earnings per diluted share in the range of $2.60 to $3. Our adjusted earnings per diluted share guidance includes an adjusted income tax rate of approximately 21%. In fiscal 2022, we expect our Operational Excellence Program to deliver gross savings of approximately $22 million with less than half benefiting adjusted operating income due to inflationary pressures and investments in manufacturing. The program began in fiscal 2020. By the end of fiscal 2022, we anticipate achieving approximately $56 million of gross savings with about 60% of those savings benefiting adjusted operating income. The remaining year of the Operational Excellence Program is being updated as part of our comprehensive effort to address the impacts from the anticipated customer loss in early fiscal 2023. We intend to communicate the updated Operational Excellence Program as part of our longer-range plan. We also expect our free cash flow before restructuring and turnaround expenses in fiscal 2022 to be $135 million to $155 million. Before we open the call up to Q&A, I want to reiterate the key points that we hope you take away from today's call. First, while the pandemic continued to impact our business, we don't believe it has caused any structural changes to the end market demand for our products. By the end of our fiscal 2022, we expect full recovery across all of our businesses, but the exact pace of the recovery is the biggest variable included within our guidance. Second, we believe our product portfolio strongly positions us to capitalize on the market recovery ahead. Despite the challenges put in front of us, our teams remain focused on rationalizing our product portfolio to emphasize the products and markets that meet our strategic goals, prioritizing investment and allocating capital to strengthen the core capabilities and technology that make us distinctive. Third, our Operational Excellence Program continues to drive transformation, primarily in our manufacturing and supply chain as we become more agile and flexible. We made significant progress to date, which has allowed us to offset some of the headwinds due to the pandemic. We expect to have close to 60% to 70% of the program completed by the end of our fiscal 2022, with the majority of those savings benefiting our adjusted operating income. Finally, we have a proven dedicated team committed to driving value for our customers and our shareholders. We are proud of the way our teams have risen to meet the challenges over the past year. We recognize more challenges are ahead, including difficult donor economics and the eventual loss of CSL in plasma. We are committed to taking action, managing costs, and mitigating the impact without compromising future growth of our business. While we have a lot of work to do in the coming quarters, we're confident that our team's experience, resilience, and agility will ensure that Haemonetics has a bright future.

Thank you. Our first question comes from Anthony Petrone with Jefferies. Your line is open.

Thank you. A couple of questions to start on guidance and then I'll shift to plasma. Maybe starting with earnings guidance out of the gate, maybe just a recap of what is baked in for the Cardiva dilution to the earnings line in fiscal 2022? That would be the first question. And then offsetting that, how much gain are you getting from the restructuring? And then perhaps maybe to round out the earnings question, you referenced price several times. So how much price erosion is baked into the earnings line? And then I have a couple more on plasma.

Hi, Anthony, it's Bill. I can take your first question. Regarding the guidance, we anticipate Cardiva revenue to be between $65 million and $75 million. This aligns with our projections from the deal model. There is some dilution reflected in the EPS figures, although we have not specified the exact amount and will refrain from disclosing the precise dilution. It is slightly dilutive both at the operating income level and in EPS.

Okay.

Your second part of the question I think it was related to the...

Yeah, the earnings, yeah, how much is baked in for restructuring gains and then offsetting that to what extent is price impacting earnings?

Sure. Let me provide an overview of our Operational Excellence Program. By the end of fiscal 2021, we achieved $34 million in gross savings, with approximately half contributing to adjusted operating income. For fiscal year 2022, we expect an additional $22 million in gross savings. However, we anticipate that less than half of this amount will impact adjusted operating income due to inflationary pressures and some investments in manufacturing that were offset against the gross savings. Overall, the total gross savings of $56 million will represent 60% to 70% of the total program savings by the end of fiscal year 2022.

Okay. And then just pivoting to plasma, maybe a little bit on the 15% to 25% organic guide. Just to splice that, what's in there for COVID headwind? It sounds like that's still lingering certainly through the first half. But you also referenced last quarter contract wins as well as in today's prepared remarks. So how much headwind is baked in there from a basis point standpoint offset by contract gains? And I'll just go to the last one in for Chris. Just maybe high level on the strategic comments today we have a new competitor coming in Terumo. I'm just wondering if you could provide a little bit more detail on the strategic thoughts that are going on internally and some potential countermeasures at least as you look at how the landscape is shifting here early on? Thanks.

Yes. Anthony, would you like to begin?

Yeah. I'll take the plasma guidance question. So the range that we provided was 15% to 25%. And what's included in the range there and is most impactful in the guidance is the pace of the recovery related to the pandemic. And coming out of Q4, we still have seen some weakness. Chris mentioned it in his remarks that we haven't seen really a recovery coming out of the fourth quarter. So throughout Q1 and FY 2022 so far, the volumes have still been down versus the prior year. So that's reflected in our guidance. And at the low and high end of the guidance there are just slightly different assumptions on the recovery. So at the low end of the guidance, we have recovery not beginning until late in the second quarter and then accelerating throughout the back half of the year. In the high end of the guidance, we're a bit more optimistic and we are assuming that we see volumes recover earlier in the second quarter. In both cases though, we do expect that coming out of FY 2022, on a run rate basis that we would be at/or above the volumes that we were experiencing back in fiscal 2020. And then one other thing that is affecting the guidance range early in the year is FY 2021, we referred to a stocking order of about $6 million. And that stocking order has about a 3% or 4% impact, a downward impact on the guidance range this year.

Okay.

Yes. So Anthony on your questions regarding a longer-term perspective, we remain very bullish on 8% to 10% growth in collection volumes to meet the demand for IG worldwide. Clearly, the pandemic has depleted inventories, so we fully expect that our collection customers will drive higher volumes of collections as they did in prior years pre-COVID to make up for that gap. So we don't see any structural change. We're excited about this. The actual recovery in the third quarter of last year is a good reference point in that regard. When we look at that recovery, clearly stimulus is the single largest factor, and as Bill just articulated, it's just difficult to know exactly when the influence of stimulus is going to wane. So what we're forecasting is that mid to latter part of our second quarter with robust recovery into the latter part of the year probably offsetting seasonality or any other changes you would otherwise expect. So we fully anticipate, but we think it's going to be delayed. We overlay on top of that what we're doing with our portfolio, which we remain very confident in the value proposition of that portfolio. The NexLynk DMS conversions continue full stride. We expect to have that completed by year-end. As I mentioned in the prepared remarks, that is for most of our customers a precursor to NexSys. All of those customers have agreed to adopt NexSys either US or globally, with the exception of CSL. So those conversions are underway. They begin increasing in earnest on the other side of NexLynk. We expect to have our existing base converted to NexSys by mid-year 2023. So we're enthusiastic about that, and we are overlaying Persona with its 9% to 12% yield on top of that, which again we described previously as a game-changer in terms of excitement within the industry. So from our vantage point, we double down on technology and innovation and drive that adoption through the market paced by our customers whose first, second and third priority understandably is recovery from the pandemic.

I’ll get back. Thank you. Thanks.

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

Great. Thanks. Good morning everyone. I guess, I have two questions here. First for Chris. Look, Chris, I think part of what's reflected in the stock price is concerns from investors that you sort of got blindsided by what CSL wound up doing with its contract and the potential for other customers to move in that direction. So I'm just curious as to your thoughts as to again how you fit into the equation here. And what can you tell us, I guess, specifically about the contracts and perhaps some longevity that could give people some comfort that this can't necessarily change three months from now?

Yes, Larry. So we're in constant dialogue with our customers, conducting business reviews, planning for recovery. All of those customers, as we've said, with the exception of CSL, though CSL has agreed to adopt in Europe and that's underway, all of those customers have agreed to adopt NexSys. And the conversations we're having with them are centered around how to make that rollout as minimally disruptive as possible for their ongoing business given the heightened urgency around recovery. So we're under contract, we feel great about what the competitive position of the product is and what it means for them. They're excited about the adoption, and that's what our conversations are focused on.

Chris, could you provide a follow-up on the deployment of NexSys with your customers? How extensive is this within those agreements and deployments? Additionally, can you share any insights on the duration of these contracts to reassure investors that there is potential for growth?

Larry, I want to stay away from specific conversations around customer contracts. It's confidential and proprietary. And candidly in a tightly contested market like this, it's just not helpful, right? So as a general course, we don't talk about individual customers. We're not going to talk about the details of those contracts. What I can tell you is that the change-out of a network is no small feat for us or our customers. So the agreements we have in place cover all of the existing PCS2 devices and the associated disposables in the US or globally as mentioned. I don't think we or our customers take those change-outs lightly. It's predicated upon a belief in the value proposition of the product first and foremost and how it will enhance their collection capabilities, the yield, the cycle time, the connectivity, and the donor satisfaction. And then, I think increasingly, it's predicated upon our commitment to innovation and technology. We're not in any way, shape, or form resting on our laurels. Through the pandemic, we introduced not only Persona, but the Donor360 app, that's having meaningful benefit for all of our customers when we rolled it out industry-wide. We're not backing off of our technology. We'll double down, and we have done so through the pandemic and beyond.

Okay. That's really helpful. And then I guess for Bill, just trying to again wrap my arms around the guidance for fiscal 2022. I'm wondering, Bill, if you can just sort of help bridge the operating margin assumption that you've got in the guide that 19% to 20% versus the 2020 operating margin which was closer to 22%? Just trying to understand the downward pressures there from what you achieved in 2020 to the guide for 2022.

Thank you, Larry. The main reasons for the differences between fiscal year 2020 and our guidance for this year are primarily related to plasma volume, which we know significantly affects our operating margins. When plasma volume declines, it impacts our expectations; we anticipated that by the end of fiscal year 2022, our run rates would match those of fiscal year 2020, but our overall performance for the year would still be lower, putting pressure on our operating margins. Additionally, there is the dilution from Cardiva. As for our operating expenses, I would describe them as neutral. This is important to note as we are working to restore our operating expenses to the levels they were at in fiscal year 2020, following a significant reduction in fiscal year 2021 due to our cost-containment measures.

Okay. As we look to adjust our operating expenses, could you provide some insight, Bill, regarding the additional operating expenses associated with the Cardiva acquisition, which you mentioned would be dilutive? Thank you.

Sure. When you analyze our fourth quarter of fiscal year 2021, that can serve as a reference point for expenses, give or take. For Cardiva, we previously mentioned an expected revenue of $65 million to $75 million, so using the midpoint and applying a margin around 75% is useful. If we see a negative figure on the operating income line, you can derive an expense amount that provides insight into where we should aim.

Great. Thanks very much. Appreciate it.

Yeah. You got it.

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

Good morning. Thank you for taking my questions. I have a couple of follow-ups regarding the Cardiva acquisition. Initially, I understood that the acquisition would result in a dilution of about $0.10 to $0.20 in the first year. Was that the expectation for the first year? At that time, I anticipated that a significant portion of this would come from interest expense prior to the convertible notes, so could you clarify that for me? Has anything changed regarding that expectation? I gather that you’re not providing specific guidance on Cardiva anymore, which suggests that operating expenses might be higher than initially projected. Could you provide some additional details on this?

So Larry, the revenue range is similar to what we provided. And you're correct on the EPS range what we gave initially.

Right.

We are still seeing a negative figure for operating income and expect it to remain negative. However, on an EPS basis, we anticipate being at the lower end of the range we previously provided.

Okay. And then, just to clarify on Plasma. So Chris, it sounds like you're pretty confident that, by the end of fiscal 2023, the majority if not all of your customers will have converted to NexSys, with the exception of CSL, who in theory wouldn't be a customer then anyhow, in the US at least, I should say. Is that correct?

Yes. With your clarification that we are under contract with CSL for Europe, and that conversion has already begun, both parties have communicated their intent to honor the long-term agreement.

And the number this year suggests that you might have some conversions at year-end. You mentioned in the guidance that at the high end of the plasma range, you might be including a bit of conversion. Is that correct?

Yes, that's correct, Larry. We need to keep pushing forward, which is difficult in a pandemic environment. We have made good progress with the NexSys and NexLynk DMS software upgrades and expect to complete them by the end of this year. For those who have converted, we are actively advancing with the NexSys PCS, and the speed of that conversion is primarily driven by our customers. We are prepared to proceed, and they require the plasma. We will do everything we can to expedite this process, but our guidance suggests that both the recovery and the conversions will mainly occur in the second half of the year and into 2023.

Right. Okay. Lastly, regarding the cost structure, I understand you aren't ready to provide your outlook for fiscal 2023. Chris, you've done an excellent job right-sizing the company since you started five or six years ago. This leads to a two-part question from a high-level perspective. For the Operational Excellence Program, is achieving the remaining targeted savings of $25 million to $35 million still feasible, even if that figure might be somewhat lower due to inflation? I know part of the $80 million to $90 million was based on expected volume gains in plasma, so clearly, you're facing some challenges there. Thanks.

What I would say about the program, Larry, is we're really proud of what that team has done. It's not just global manufacturing and supply; it's R&D, it's quality assurance, it's our business services. Collectively, they've made tremendous strides, despite whatever the world has thrown at them. We did take a view at that, which said, we're going to capitalize on high volume and throughput businesses. That's changed somewhat as a result of CSL's decision. So that team is in the process of reexamining what are the levers that we can pull intelligently. The first priority of that initiative is to ensure continued world-class product quality. And we're not going to compromise that. The second priority is world-class customer service. We're not going to compromise that. We then look at the savings, what we've signed up for to date, and the pass-throughs, et cetera. That's hardwired. What we intend to do and what Bill explained in his prepared remarks is, we will now step back with the adjusted volume that will begin in our FY 2023, with the loss of CSL's US PCS2 supply agreement. When we look at that, we'll figure out what OEP needs to become as a result of it. And as you said, I think, this is a team through complexity reduction, through OEP, through the cost management during the pandemic that's demonstrated their commitment to being good stewards financially. We're going to continue to do so here, but we're not going to do it in a way that's going to compromise our leadership position in the markets where we compete.

Absolutely. Okay, great. Got it. I appreciate the color. Thanks so much.

Thanks.

Thank you. Our next question comes from Mike Matson with Needham & Company. Your line is open.

Yes. Thanks. So with regard to the NexSys upgrades, you're saying you expect those to be completed by mid, I think, fiscal 2023? And so is that right? And then, what is your expectation around Persona? Is that going to be kind of beyond that? Is that like another upgrade on top of NexSys, I assume?

Yes, Mike, you have it exactly right. It's mid-2023, the fiscal 2023. And the Persona discussions are going great. We're having those in parallel. I think different customers will view the upgrade to Persona differently. There's a series of clarifications, tests, et cetera, given the magnitude of the change for them. So we're working our way through that. What's reflected in our guidance is the contracts we've already reached. And as we get closure and pull some of the additional opportunity in, we'll communicate through our guidance accordingly.

Okay. Thanks. And then, I don't know if you need to answer this, but just with regard to the stimulus program, I mean, there's the cash payments, but there's also the extended unemployment that I think goes through September. So do you have a feel for whether it's just the cash, one-time stimulus payments versus the added unemployment payments that have caused the pressure on the collection volumes? And because it is unemployment, I mean, we're looking at, like, September timeframe, but if it was the stimulus then could occur earlier or maybe that's why your guidance is so wide and you're uncertain about the timing.

Yes, Mike. That is a driver of the 15% to 25% range on our guidance for growth in revenue on plasma and it's really a function of when does that kick in? And you are right; there are multiple components of this, whether we're looking at the federal dollars or the state dollars, whether we're talking about one-time payments, whether we're talking about the weekly unemployment additional subsidies. There's even provisions for tax credits that get factored in, beginning mid-year in our calendar year. So it's a complicated confluence of different factors. We've worked hard to model that. We're having conversations, obviously, with our customers about that to understand their perspective and how much of that's reflected in the forecast they submit to us. At the end of the day, what we're trying to get to is, what is disposable income, what is household savings rates net of all this. I think we had some good learnings from the past year. While I think we struggle to be precise in the forecasting of it, in both directions, candidly, I think, we've learned a bunch. And that's reflected in the range that we've put forth.

Thanks. I have a clarification question regarding the PCS2 tech enhancement pricing issue. Can you explain that a bit more? I'm unclear on what it entails. It seems like it might be a challenge affecting pricing for the legacy PCS2 units or something similar.

Yes. It's a legacy agreement that has recently ended, and we made some enhancements related to it. We priced it years ago when it was a time-bound agreement, and now it has expired.

Okay. And is that all the customers or just one customer?

It was with one customer.

Thank you. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.

Hi Chris. So, you talked before about your focus on M&A to really diversify the portfolio. You've also completed several divestitures, strategic exits just to get out of lower-growth, lower-margin businesses. So, as you kind of look ahead, and I know there's still a lot of unknowns here, but do you feel more compelled to prune the portfolio in greater magnitude just to give yourself maybe more flexibility or to drive further growth and profitability enhancements?

Yes, Drew, I appreciate the question. From our perspective, this situation doesn't change anything for us. We remain committed to growth—both organic and inorganic—as well as long-term value creation for our shareholders. There are still parts of our portfolio that likely won't be part of the company's future. When we can engage in value-creating transactions, we will approach those thoughtfully. In the meantime, we're focused on delivering maximum value for all our customers. I'm impressed with what our team accomplished this year, particularly regarding the divestitures related to outdated software in the US Blood Center donor market and certain isolated aspects in Europe. We're dedicated to using software as a growth lever, responding to customer demand, but those programs were simply outdated. Similarly, we successfully divested the Fajardo manufacturing facility for whole blood filters and transitioned it to a world-class supplier, which has restored operational agility in our manufacturing network. We will continue seeking out such opportunities. Regarding acquisitions, we've been active and have made significant progress, culminating in the Cardiva deal. There's been previous discussion about this, and it might get overlooked in our reporting. We are very pleased with how the integration has been going since we closed the transaction in March, and we have worked hard to avoid any disruption to that business. The results from the first three months clearly reflect this effort. This is an exciting opportunity that energizes both the Cardiva team and our hospital business unit. You're seeing this reflected in our results around recovery speed and growth. Electrophysiology and interventional cardiology are dynamic growth segments for us, and we are optimistic about the VASCADE portfolio.

Thank you for that. Regarding your outlook for Cardiva for fiscal 2022, I noticed your guidance is set between $65 million and $75 million. I understand they achieved around $8 million in March based on your financials. I would like to get a clearer understanding of the run rate, which appears to be over a $20 million quarterly run rate. Can you provide more insight into this, considering your $65 million to $75 million guidance? Additionally, for fiscal 2022, is the focus more on deepening relationships with existing accounts for Cardiva, or are you looking to expand commercialization across a wider account base? I'm trying to gain a better understanding of the commercial investments planned for the year. Thank you.

Sure. I understand your question. From our perspective, we've spent considerable time on due diligence. We believe we have a solid deal model, and the $65 million to $75 million range reflects that. It's still early, and we are encouraged by what we see. We recognize that if you annualize the March figure, you might arrive at a different conclusion, but we are not ready to make that adjustment yet. This is a rapidly expanding product that grew by 50% year-over-year last year under Cardiva's leadership. We need more time to fully grasp the forecast and growth potential. As we gain more insights, we will share and, if necessary, make adjustments. The primary advantage we observe is twofold. The team is highly focused on increasing penetration in the top 600 US-based interventional cardiology and electrophysiology hospitals. There's some discussion about this and geographic expansion, but overall, the team is executing powerfully on the opportunity at hand, and there's significant excitement surrounding it. Concurrently, we are exploring ways to enhance that and expedite portions of the plan where possible. We will be discussing this further in the coming months as part of our broader response to changes in the plasma landscape. We will seek out opportunities to achieve more, and to do it sooner. Cardiva will be a focal point for those opportunities. However, we are enthusiastic about what they are accomplishing with their current resources and believe we can achieve more with additional support. Additionally, there are important investments that our combined teams are making both clinically and more broadly to expand our presence and potential outside the US. I believe this will become apparent in time. When we have the opportunity to discuss the portfolio in more detail, we will provide further clarity, stemming from the diligence and initial collaborative efforts with the Cardiva team. We are thrilled to have them with us, and they are performing as expected.

Thanks for taking the questions.

Thank you. Our next question is a follow-up from Anthony Petrone with Jefferies. Your line is open.

Thanks. Just a couple of quick follow-ups on cadence in Plasma. First would be just on CSL. They have the one-year option extension to June 2023. I'm just trying to kind of run through that scenario. When would they have to sort of indicate to the company that they would have to sign on for that? And maybe what are your thoughts on the probability that they resign for 2023? And then the last one on Persona. It sounds like discussions are ongoing. I mean when we think about upgrades to Persona and timing, is there a potential for any in fiscal 2022 or do you think that's a beyond fiscal 2023 event? Thanks again.

Thank you, Anthony. Regarding the agreement with CSL, we've shared quite a bit about it already, so I'll keep it brief. The agreement includes one more extension option that CSL can choose to exercise. They must inform us in writing by December 31st of this year if they intend to extend it beyond June of next year. They still have that extension available. For the likelihood of this happening, I believe that's a question for CSL to answer. As for Persona, we have several signed agreements and planned rollouts, some already completed and others scheduled for this year. We are also in discussions with other potential partners and would be eager to expedite those. Some situations are straightforward, while others involve more complex scientific considerations about handling bottles and understanding the implications of fractionation, especially concerning higher yields and necessary customer testing due to various fractionation formulas related to protein concentration. We are collaborating closely with our customers on these aspects. The pace of progress makes it challenging to predict exact timelines. However, as we finalize these agreements, some of which we anticipate will occur in fiscal 2022, that would help us towards the upper end of our guidance. We'll address any developments beyond that point as they arise.

Thank you.

Thank you. And I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.