Haemonetics Corp Q4 FY2022 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Haemonetics Corporation Fourth Quarter Fiscal 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker host for today, Olga Guyette, Senior Director of Investor Relations and Treasury. Please go ahead.

Good morning, everyone. Thank you for joining us for Haemonetics' Fourth Quarter Fiscal 2022 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D’Arecca, our CFO. This morning, we posted our fourth quarter fiscal '22 results to our Investor Relations website, along with our fiscal '23 guidance and the 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 a 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 exits of product lines, acquisitions and divestitures and the impact of the 53rd week in fiscal '21. As in the past, we will refer to non-GAAP financial measures throughout 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 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, and thank you all for joining our earnings call. Today, we reported organic revenue growth of 19% in the fourth quarter and 7% in fiscal '22, and an adjusted earnings per diluted share of $0.65 in the fourth quarter, and $2.58 in fiscal '22, an increase of 41% versus the prior year fourth quarter, and an increase of 10% versus the prior fiscal year. The past year was a challenging one, but we are proud of how our people have responded. Our fourth quarter performance reflects our resilience and our commitment to meet the needs of our customers and deliver on our purpose of improving standards of care. Our agility and perseverance helped us achieve growth in all businesses, and we continue to distinguish Haemonetics for the meaningful value we are creating across our markets. As the industry leader, we delivered integrated solutions to help our plasma customers realize much needed growth in the volume of collections. In the face of unprecedented blood shortages, our blood center products help maximize the impact of donations, and attract and retain donors. Hospital, including Vascular Closure, continue to exceed expectations and was our fastest-growing business in fiscal '22, helping customers improve patient care and outcomes at less cost. As we evolve our portfolio and we expand our reach and relevance, Hospital will increasingly drive our growth and diversification. Our operational excellence program proved fundamental to our resilience and ability to quickly address supply chain disruptions, and serve all who depend on us. It will continue to play a critical role in sustaining our success, enabling us to be a more agile, efficient and productive company, creating lasting cost savings and bringing resources to fund investments. Turning now to our business unit results. Plasma revenue increased 31% in the fourth quarter driven by a 12% increase in U.S. plasma volume, price benefits, and a $6 million stocking order. Excluding the stocking order, U.S. Plasma volume declined 4% sequentially, which compares favorably to a typical seasonal decline of about 7% in the fourth quarter, and last year's fourth quarter decline of 13%. In fiscal '22, Plasma revenue grew 10% driven by growth in volume. We remain committed to enabling our customers to improve donor satisfaction, maximize Plasma volume and lower cost per liter collected. Our technology and ongoing product development are essential to helping our customers meet these critical needs. Nearly all of our major customers in the U.S. are now experiencing the full value of our technology through a network of bidirectionally connected NexSys PCS devices with NexLynk DMS and Donor360 app. Working closely with our customers, we have designed NexSys to streamline the collection process. These advances have proven especially important at a time when our customers are facing unprecedented staffing challenges. Our fully integrated system plays a vital role in a positive donor experience and collection center productivity. From instant check-in upon arrival through streamlined donation and expedited payment, NexSys contributes to a demonstrated 16-minute reduction in average donor door-to-door times, improved compliance, including a 98% elimination of documentation errors and increased donor satisfaction. Our customers are also collecting an additional 9% to 12% of Plasma yield on average on NexSys with Persona, enabling them to both increase Plasma supply and reduce the average cost per liter. We are leveraging extensive customer experience and real-world data from nearly 30 million NexSys collections to focus our ongoing innovation agenda. Our product development efforts continue to help customers improve center operations by driving growth in collections and improving Plasma volume output while increasing donor retention and satisfaction. We look forward to sharing more about these programs at our Investor Day in June. The patient need for plasma-derived pharmaceuticals has never been greater. We continue to see long-term plasma market collections demand of 8% to 10%, and we expect to see volume growth in excess of that as fractionators strive to replenish depleted plasma inventories. Moving to Hospital. Revenue increased 19% in the fourth quarter and 16% in fiscal '22. All 4 of our product lines grew this year despite the challenges posed by the Omicron outbreaks, Hospital staffing shortages and COVID-19-related lockdowns in China. Hemostasis Management delivered 12% revenue growth in the quarter and 20% revenue growth in fiscal '22. In the U.S., our largest market, TEG, delivered robust growth both in the quarter and in fiscal '22. We also benefited from strong growth in Europe, primarily driven by successful market penetration with our ClotPro, viscoelastic diagnostic device, which was acquired in April 2020. Growth in the U.S. and Europe was partially offset by weaker sales in China. As you will hear during our Investor Day, we remain enthusiastic about our ability to grow organically and inorganically in what we estimate is a $700 million global market. Transfusion Management revenue grew 18% in the fourth quarter and 11% in fiscal '22, and was equally strong for BloodTrack and for SafeTrace Tx as we completed a series of new account installations. Our fourth quarter results also benefited from a catch-up in software implementations in the U.S. after a few months of delay due to Omicron. Cell salvage revenue increased 17% in the quarter and 8% in fiscal '22 driven by procedure recovery and strong capital sales. Growth in the quarter also benefited from back order relief, from the temporary supply chain constraints we experienced in the third quarter. Vascular Closure continues to excel delivering a record $27 million of revenue in the fourth quarter and $94 million in fiscal '22. With the integration of this business essentially complete, our focus is on accelerating our penetration into the $2.8 billion underpenetrated market. While advancing our product portfolio to continue strengthening the role of our Hospital business as a growth engine for Haemonetics. Blood Center revenue grew 7% in the fourth quarter and declined 1% in fiscal '22. Apheresis revenue declined 1% in the quarter and fiscal '22 as the strong recovery in platelet collections in Japan was offset by lower revenue from convalescent plasma, and staffing shortages that affect the collection centers across the U.S. Whole Blood grew 26% in the quarter driven by favorable order timing among distributors in EMEA and additional opportunities in North America. Our supply chain resilience enabled us to serve customers in need. For the full year, Whole Blood revenue declined 3% driven by blood center staffing shortages and previously discontinued customer contracts in North America. To carry our momentum into fiscal '23 and beyond, Haemonetics is set for robust transformational growth, propelled by investments in the advancement of our technologies and expansion of our global commercial capabilities. We look forward to sharing our updated long-range plans, key business initiatives, innovation agenda, and revised financial outlook at our Investor Day on Wednesday, June 29, at 10:00 a.m. Eastern Time, and we invite you to join us either in person, in Boston, or virtually. I'll now turn the call over to James D’Arecca, and take this opportunity to welcome him as our new Executive Vice President and Chief Financial Officer. James brings to Haemonetics substantial experience and financial leadership from prominent global health care organizations, and I look forward to working together to support our company's growth, resource allocation and long-term value creation.

Thank you, Chris, and good morning, everyone. I'd like to begin by saying how excited I am to be part of Haemonetics. Tomorrow, we'll mark 1 month since I joined the company. And as I onboard, I'm incredibly impressed with our people, our leadership and the exciting possibilities ahead of us. I very much look forward to being part of this journey, and applying my experience towards growth and value creation. Now let's discuss our business results and fiscal '23 guidance. Our results for the fourth quarter and fiscal '22 show continued resilience across the business. Chris already discussed our revenue results, so I will focus on the rest of the financials. Our adjusted gross margin was 53.6% in the fourth quarter and 53.9% in fiscal '22, an increase of 360 basis points when compared with the same periods of the prior year. The adjusted gross margin expansion was driven by the addition of the Vascular Closure business and benefits from the operational excellence program. These benefits were partially offset by inflationary pressures in our supply chain and manufacturing, including freight, labor and raw material costs as well as higher depreciation costs primarily related to the increasing installed base of our NexSys devices in the U.S. Price had a positive impact on the fourth quarter results, but a limited impact on our fiscal '22 since price adjustments in our Plasma business in the first 9 months of the year largely offset price benefits from NexSys and Persona conversions in the second half of fiscal '22. As a reminder, these price adjustments were related to the expiration of fixed term pricing on historical PCS2 technology, and were fully annualized at the end of the third quarter of fiscal '22. Adjusted operating expenses in the fourth quarter were $95.4 million, an increase of $13.4 million or 16% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 40 basis points to 36%. Adjusted operating expenses in the fourth quarter included a ramp-up in investments that were delayed earlier in fiscal '22. Adjusted operating expenses for fiscal '22 were $348.6 million, an increase of $65.6 million or 23% compared with the prior year. As a percentage of revenue, adjusted operating expenses increased by 260 basis points to 35.1%. Vascular Closure had the largest impact on adjusted operating expenses in the quarter and in fiscal '22. Additionally, we had higher investments, higher outbound freight costs and increases in other expenses associated with the return to normal spending levels. Contributions from our productivity savings, lower variable compensation and the impact of the 53rd week in fiscal '21, helped offset some of the cost increases, both in the quarter and in fiscal '22. As a result of changes in our adjusted gross margin and adjusted operating expenses, fourth quarter adjusted operating income was $46.6 million, an increase of $16.1 million or 53%, and adjusted operating income for fiscal '22 was $187.1 million, an increase of $32.6 million or 21% compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.6% in the fourth quarter and 18.8% in fiscal '22, up 410 basis points and 100 basis points, respectively compared with the same periods in fiscal '21. The macroeconomic-driven inflationary environment continues to be challenging. The impacts in fiscal '22 have been broad-based, including freight, raw materials and labor. We estimate an approximately 300 basis point impact from inflationary pressures on our adjusted operating income margin. Our operational excellence program is an important lever in making us more efficient and agile, especially during periods of high macroeconomic uncertainty. In our fiscal '22, this program delivered $37 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $71 million in cumulative gross savings, slightly ahead of our plan. We also had positive contributions from Vascular Closure. This business continues to exceed our expectations. And within the first year of our ownership of this business, it has delivered a robust revenue growth and positive contribution to our adjusted earnings per diluted share compared with $0.15 to $0.20 of dilution we had originally guided to in the first year following the acquisition. We are excited about the opportunities in Vascular Closure, and we'll continue to allocate investments to fund its growth. The adjusted income tax rate was 22% for both the fourth quarter and fiscal '22 compared with 12% and 14%, respectively, for the same periods of the prior year. The adjusted income tax rate in fiscal '21 was lower than fiscal '22 due to the benefit of higher share vestings and option exercises in fiscal '21, which did not recur in fiscal '22. Fourth quarter adjusted net income was $33.5 million, up $9.6 million or 40%, and adjusted earnings per diluted share was $0.65, an increase of 41% when compared with the fourth quarter of fiscal '21. Adjusted net income for fiscal '22 was $132.6 million, up $11.9 million or 10%, and adjusted earnings per diluted share was $2.58, up 10% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense and foreign exchange had a negative $0.10 impact on the fourth quarter and a negative $0.31 impact on the full year adjusted earnings per diluted share when compared with the prior year. Cash on hand at the end of the fourth quarter was $259 million, up $67 million since the beginning of the year. Free cash flow before restructuring and restructuring-related costs was $117 million compared with $99 million at the end of the last fiscal year. The higher free cash flow before restructuring and restructuring-related costs in fiscal '22 was mainly due to lower accounts payable, largely due to a $54 million payment for our compensation-related liability as part of the Cardiva Medical acquisition in fiscal '21. We also had higher accounts receivable as revenue continued to recover from the effects of the pandemic and higher capital expenses primarily related to NexSys upgrades and the operational excellence program, partially offset by a decrease in inventory. We have enough NexSys PCS devices in the U.S. inventory to convert the remainder of our major customers with no impact to future cash flow. Our current debt structure includes a $700 million credit facility that matures in June 2023, with balloon payments starting in September 2022. At the end of the fourth quarter, total debt outstanding under the facility was $284 million, with no borrowings outstanding under the $350 million revolving credit line at the end of fiscal '22. We plan to refinance our credit facility before the balloon payments are due. Additionally, we have $500 million in convertible notes that expire in March of 2026. Our EBITDA leverage ratio as calculated in accordance with the terms set forth in the company's existing credit agreement was $3.08 at the end of fiscal '22. Now let's move on to our guidance. We expect total organic revenue growth of 6% to 10% in fiscal '23. We remain confident in our Plasma business and expect Plasma revenue to grow 7% to 12% in fiscal '23 with price and volume both contributing meaningfully. Additionally, our guidance includes an $88 million minimum purchase commitment from CSL compared with $102 million of revenue in fiscal '22. We are excited about the opportunity in our Hospital business. Our go-to-market strategies are working, and we're looking forward to another year of strong commercial performance. In fiscal '23, we expect the Hospital business to deliver revenue growth of 16% to 19% driven by continued robust growth in Hemostasis Management and Vascular Closure. Our Blood Center revenue guidance is a year-over-year decline of 4% to 7% and reflects additional geopolitical risk and an unfavorable impact from distributor order timing when compared with fiscal '22. We expect fiscal '23 adjusted operating margins in the range of 18% to 19%. Our adjusted operating margin guidance includes higher operating expenses driven by continuous investment into our business as we broaden our product portfolio to strengthen our technology and expand our commercial footprint and a return to normalized spending levels. Our adjusted operating income margin also includes about 250 basis points of additional headwinds due to inflation and geopolitical risk. We expect our operational excellence program to deliver additional gross savings of approximately $22 million, with total cumulative savings reaching $93 million by the end of our fiscal '23. About half of these savings will be in cost of goods sold, with the rest in operating expenses, helping us generate additional efficiency across our business. Our adjusted earnings per diluted share guidance for fiscal '23 is a range of $2.50 to $2.90. The midpoint of our adjusted earnings per diluted share guidance includes about $0.09 headwind from foreign exchange and share count. Additionally, consistent with our fiscal '22 results, we expect our adjusted earnings per diluted share to be higher in the second half of fiscal '23. And lastly, our free cash flow before restructuring and turnaround expenses in fiscal '23 is expected to be $100 million to $130 million. Our capital allocation priorities remain unchanged, and we will continue to allocate capital to prioritize organic investments followed by inorganic opportunities and share repurchases. Before we open the call up for Q&A, I wanted to reiterate the key points that we hope you take away from today's call. First, we continue to strengthen and grow our business despite the continued challenges caused by the pandemic. The end market demand, particularly for our Plasma and Hospital products is strong, and we're focused on maintaining an uninterrupted supply of our products. Second, our product portfolio continues to evolve and increase our reach within large, underserved and fast-growing markets. The acquisition of Cardiva Medical was an important step in our transformational growth journey. We remain focused on further optimizing our portfolio and accelerating our growth. Third, our operational excellence program improves our operating performance, enabling us to respond quickly to supply chain disruptions. We made significant progress by achieving more than half of the target program gross savings by the end of fiscal '22 while managing through a series of macroeconomic-driven headwinds. We plan to achieve the remaining $44 million to $54 million in target savings by the end of fiscal '25. This program is essential for our ongoing transformation. And once the macro environment stabilizes, these efficiency benefits will continue to expand our margins. And finally, we remain committed to driving value for our customers and our shareholders. We are proud of the work we've done to meet the challenges over the past few years. We recognize more challenges are ahead, and we remain committed to taking action, implementing necessary changes and mitigating impacts without compromising growth of our business. We look forward to sharing more detail about our plans to deliver value at our Investor Day. Thank you. And now I would like to open the line for Q&A.

And our first question comes from Larry Solow with CJS Securities.

Welcome James to Haemonetics. My first question is regarding the guidance range. It's quite broad, and I’m trying to understand the significant differences between the low end of $250 million and the high end of $290 million.

It's Chris. To begin, I'll invite James to share his thoughts as well. First and foremost, we are focused on revenue, which relies on our customers who are making every effort to drive both donations and procedures. We observed a significant recovery in the fourth quarter of our fiscal year and anticipate that momentum will continue throughout the year. However, as you can imagine, the past eight quarters have presented challenges, especially in the Plasma and Blood Center areas, making it difficult to predict outcomes. We want to approach this cautiously. Additionally, there are several macro challenges that James mentioned in his prepared remarks. We are considering a mix of inflation, supply chain disruptions, and geopolitical risks, particularly in regions like China and Russia, which could act as headwinds, along with foreign exchange and other factors. It's a volatile environment, and we aim to remain aware of this, reflecting it with a broader range that we plan to narrow down as we progress through the year and see how these external factors unfold.

Okay. In terms of your operating margin, it appears to be relatively flat compared to last year. Can we discuss the factors involved? Regarding gross margin, it has been trending upward, and it doesn’t seem like you’re losing much of it to CSL revenue this year, but perhaps that will change next year. How do you see gross margin moving forward? I understand there are many factors at play, including inflation, which might be worsening for you. Additionally, you mentioned the operational excellence program with $22 million in savings, with half of that contributing to gross margin. Are you allocating the other half to operating expenses, or will some of that impact the bottom line?

Yes, thank you, Larry. We do anticipate a slight improvement in our gross margins. Factors contributing to this include pricing and product mix, particularly related to Cardiva, as well as our operational excellence initiatives. However, challenges such as depreciation from the NexSys systems and inflationary pressures, which we've discussed, along with some negative foreign exchange impacts, will also play a role. These factors are what we are considering when assessing gross margins, which in turn will influence our operating margin. Regarding the $22 million, approximately half will be allocated to cost of goods savings, while the other half will be directed towards operating expenses. We do plan to invest in sales and marketing as well as research and development next year, so not all of these savings will apply directly to the bottom line. We are also closely monitoring geopolitical risks and inflation. Overall, after accounting for these factors, our operating margins are expected to remain relatively flat, but they could vary depending on global conditions as we move through the remainder of this year into the next.

Yes. Got you. So I mean a lot of moving parts. Okay.

Our next question coming from the line of Drew Ranieri with Morgan Stanley.

Maybe just first on VASCADE. You've had the asset for a year now. Just curious how you're thinking about maybe the growth opportunity here in front of you, if you could lay out a number? I mean it looks like Hospital pre-VASCADE might have been growing high single digits. So is the right way to think about VASCADE is adding maybe 10 points to your Hospital growth? Just any help would be appreciated.

Yes, Drew, thank you for the question. We are enthusiastic about the contributions that the Hospital segment is making and will continue to make. We are forecasting growth in the high teens, between 16% and 19%, which aligns with the performance of the combined business in FY '22. The two main drivers of this growth are Hemostasis Management, particularly the TEG franchise, and VASCADE, as you noted. We expect Hemostasis Management to perform similarly to its success in '22, which is promising considering the expanded base. VASCADE is indeed exciting, and we will primarily focus on the U.S. market while also planning for international expansion in both clinical and regulatory aspects, as well as enhancing our sales presence. For FY '23, our objective remains to deepen our penetration into the top 500 to 600 electrophysiology hospitals in the U.S.

Got it. And then just maybe on Plasma recovery. Can you give a little bit more details on what you're seeing in the market just as customers are trying to work through VASCADE costs for donor fees? Just maybe what you're seeing? And then with just the CSL revenue, I think I heard you say $88 million for fiscal 2023. Just curious about the cadence there. Should that be kind of a ratable basis across the quarters? Or is there any weighting that we should be thinking about?

Yes. Thanks, Jim. So clearly, Plasma is in recovery. It's been long coming. But I think you hear that from our customers as they're speaking publicly about this, we certainly saw that in our fourth quarter. Typically, the fiscal fourth quarter is the weakest quarter of the year in terms of collection volumes, just given a bunch of seasonality, we expect to build from that, and that's what's reflected in our guidance, essentially building throughout the course of the year, culminating with the winter holidays. So we feel about that. Clearly, it looks different than it has historically, more coming from new center openings, a disproportionate share of that growth. And that's a testament to the hard work that our customers are doing. They haven't backed off their pace of new center openings as fast as it has ever been, and they continue to do what they can to recruit and retain their donor base. So we stand ready to serve them. The great news is we have the devices, they're ready to go, and we're well on track for our conversions, both to NexSys and to Persona. So we feel good about it. Obviously, there are factors that FY '22 is challenging in that regard. We think '23 will be different and better. We want to be cautious, which I know you can appreciate after 8 quarters of trying to forecast this, probably caution is the operative term here.

Our next question comes from the line of Andrew Cooper with Raymond James.

I would like to get more clarity on the previous guidance. Can you provide some insight into how the fractionators are expected to replenish the safety stock and whether we can anticipate growth rates exceeding 8% to 10% in the near future? What specifics are reflected in the guidance? That will be my first question, and I have another one I'll ask afterward.

Yes. Andrew, it's Chris. In fiscal '22, we saw about 10% growth across the network, slightly more in North America and somewhat less outside the U.S. For '23, we anticipate that we can replicate this 10% growth in volume, particularly at the high end of our range. There are additional opportunities for growth as well. As mentioned in my previous remarks, we still observe underlying demand for IG at unprecedented levels. We project a demand for IG of 6% to 8%, which, due to several previously discussed factors, translates to long-term growth in collections of 8% to 10%. Our customers need support in rebuilding their inventory from the low levels they are currently at, so we expect double-digit growth on top of that. We just need various economic and societal conditions to align to facilitate this. We're well-positioned to assist, and we believe growth will continue throughout the year. We look forward to updating our guidance as the recovery progresses.

Okay. That's helpful. Can you provide more details on the rollout of NexSys and Persona, specifically regarding how many users of NexSys currently have or plan to implement Persona? Additionally, you mentioned expanding the portfolio and innovation. Could you share any insights on potential new products and how the portfolio might grow?

As we consider the development of collection volumes, it's something that will gradually become clearer. It's a mix of new center openings and expected recovery in existing centers throughout the year. We have nearly everything contracted at this stage and anticipate completing the NexSys PCS device rollout by the middle of our fiscal year '23, around late summer to early fall. Regarding Persona, our guidance includes the pricing advantages of all currently contracted items, so there's no additional risk regarding contracts beyond what we have. This is an impressive technology with yields between 9% and 12%, unique in the market. Looking at early NexSys platform users, those who have NexLynk, the PCS device, and Persona collected more Plasma in our fiscal fourth quarter than in any previous quarter, even before the pandemic. This technology significantly enhances their efforts to accelerate growth, though it comes with challenges, such as the need for logistical adjustments. Some customers are motivated to validate protein concentration, which we will assist with clinically as indicated in our regulatory filings. It takes some time, and we hope to gain more clarity as the year progresses. It's an exciting technology, and we are observing its impact in the market. Concerning portfolio evolution, our capital allocation priorities are primarily geared towards growth, both organic and inorganic. We are pleased with our additions to the hospital portfolio and feel confident about our focus on cardiovascular areas, particularly electrophysiology and interventional cardiology, which offer abundant opportunities. We look forward to discussing this further at our Investor Day in June, where we will share our priorities and our approach.

Our next question is coming from Mike Matson with Needham & Company.

So I appreciate you breaking out the CSL revenue that you're expecting in '23. What should we be assuming in, if any, in '24, should we assume that it's largely done heading into fiscal '24?

Yes, Mike, we recently provided guidance for 2023. I will hold off on commenting about 2024 until we're a bit closer. However, we are fully prepared to support all of our customers. We believe the breakout information is useful for comparing 2022 to fiscal 2023, and we plan to provide clearer insights during Investor Day about how the growth trend will progress over the next four to five years. I'm confident you will be impressed with the business's organic ability to scale and grow profitably.

Yes. Sorry, I guess I was talking specifically about CSL within the Plasma business. I mean if you're not willing to answer, I understand because it isn't more than a year away. So...

Yes. I think as we get closer, there are many factors we cannot see or control. Obviously, we will serve CSL and all of our customers to the best of our ability within the existing agreements, which extend through December of '23 in CSL's case.

Okay. All right. And then I wanted to ask about this debt refinancing. You went through it kind of quickly. So I just want to make sure I understand the timing, the amount. And is there a risk here that, that results in higher interest expense, just given that rates have surged lately?

Thank you, Mike. We are planning to refinance the debt within the next quarter. The outcome will likely resemble our current situation. Currently, we have interest rate swap coverage on 70% of the debt, which is floating rate debt that has been converted to fixed. This coverage is secured at 4% through June of '23. When we reach that point, we will evaluate the interest rates and decide if we want to extend our coverage. For now, we do not expect any increase in interest expense related to our refinancing activities.

Okay. Got it. And then just on the operational excellence savings, the $37 million of gross savings. I think that was for last fiscal year. What was the net savings, if it was $37 million gross?

Yes. We don't separate gross savings from net savings. To provide some context, we have made investments in the business, and there were some offsets throughout the year due to inflationary challenges, which reduced some of that savings. Moving forward, we expect to see similar factors as our guidance includes additional savings for next year. However, as I mentioned earlier regarding operating margins, there are aspects that may reduce our savings as we continue to invest in sales and marketing as well as research and development.

And our next question coming from the line of David Turkaly from JMP Securities.

I apologize. I was joining a couple of calls, but Chris, I wanted to check if you made any comments about the Terumo device. I know it’s still very early, and I’m not sure if it’s available anywhere, but could you share any information about its features? Obviously, we know CSL is involved, but when I looked at your device, I thought that it might not be possible to gather much more information from someone or to do it any faster. I would appreciate your thoughts on what the device is or if anyone has encountered it, and where it currently stands.

Yes, Dave, I appreciate the question. I think people were a bit surprised by the limited information available. We closely monitor this situation. From my understanding and discussions with our teams, the device received approval with a trial size of 124 donations, which makes it difficult to draw significant conclusions. For Persona's approval two years ago, we processed over 20,000 donations, but they did not provide any data on yield. We made some educated guesses and assumed it was about 830 milliliters per collection, and we are clearly performing well above that. As we mentioned earlier, we have nearly 30 million NexSys donations. We are confident in the value of the integrated NexSys platform. It's user-friendly and efficient, contributing to a safe collection process with 98% elimination of documentation errors and a strong safety record. Donors have shown a 93% preference for NexSys, which directly correlates to more frequent donations and improved donor retention—critical factors for the recovery we're discussing. Furthermore, we have solid quantifiable evidence that NexSys reduces the cost of plasma collection, combining a 9% to 12% yield with an average decrease in door-to-door time by 16 minutes based on our experiences with NexSys in its basic setup. We are enhancing this value proposition, and I invite you to join us in Boston for Investor Day in June, where we will present more advancements in our innovation plans aimed at further improving all these areas. We are optimistic about this platform and its positive impact on our customers' growth goals, so we feel confident about the future.

I appreciate that. As a quick follow-up, I understand the Blood Center isn't a significant growth driver or a crucial part of Haemonetics' future. However, it had a decent quarter. What are your thoughts on whether it will bottom out at some point? Is it still strategically important for your future plans, or could it stabilize? I recognize your guidance suggests another mid-single-digit decline, but will that decline eventually stop?

Dave, we care deeply about our Blood Center business and the customers we serve there. And yes, they had a very good quarter. In fact, they had a very good year overall relative to our initial expectations. And no small part, that was because our teams were able to step up, aided by our operational excellence program, right? We talk about the gross to net savings, and that's important. We want to free up resources to reinvest in growth, typically in other franchises. But what we also get from that OEP program is meaningful agility and resilience, not to mention the highest possible levels of product quality. We benefited in the quarter and in the year in that blood center business, we were able to step in and meet customer demands, large stocking orders in some cases, as a contingency. In other cases where maybe their existing source of supply had let them down. So we were able to step in and fill that, and that bodes well. The guidance we gave a fairly wide range and down again reflects disproportionately geopolitical risk, and some potential headwinds in FX. That business is concentrated outside the U.S. And we have some exposure there that we have to be mindful of. But we think it's actually increasingly stable and a good source of continued EBITDA for the company.

And I'm not showing anyone else in queue at this time. Ladies and gentlemen, that does conclude our conference for today, and thank you for your participation. You may now disconnect. Everyone, have a great day.