Earnings Call Transcript - HAE Q4 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Fourth Quarter 2023 Haemonetics Corporation's Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, David Trenk, Investor Relations. Please go ahead.

David Trenk, Investor Relations

Good morning, everyone. Thank you for joining us for Haemonetics fourth quarter fiscal 2023 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 2023 results to our Investor Relations website, along with our fiscal 2024 guidance and the analytical tables with the information that we will refer to on this call. Additionally, we've 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. Unless otherwise noted, all revenue growth rates discussed today are organic and exclude the impact of currency fluctuation and strategic exits of product lines. As in the past, we'll refer to non-GAAP financial measures throughout this call to help investors understand Haemonetics ongoing business performance. Please note that these measures exclude certain charges and income items. Please refer to this morning's earnings release for details on excluded items including comparisons with the same periods of fiscal 2022 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. Factors that may cause our results to differ include those referenced in the Safe Harbor statement in today's earnings release and in our other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now I'd like to turn it over to Chris.

Christopher Simon, CEO

Thanks, David. Good morning and thank you all for joining. Today, we reported organic revenue growth of 17% in the fourth quarter and 21% in fiscal 2023. We reported adjusted earnings per diluted share of $0.77 in the fourth quarter and $3.03 in fiscal 2023, increases of 18% and 17% respectively. For the first time, Haemonetics eclipsed $1 billion in annual revenue, a milestone in our transformational growth journey. Despite the challenging macroeconomic environment, we are delivering and building momentum by creating essential value for donors, patients, and caregivers around the world. Our consistently strong performance throughout fiscal 2023 marked an outstanding start to our long range plan. Three value drivers are fueling our success. First, plasma volumes from unprecedented collections recovery, coupled with the benefits of our successful technology upgrades. Second, accelerated Vascular Closure U.S. account penetration and performance in hemostasis management aided by improving budgets and staffing in hospitals across the world. And third, operational excellence providing agile and resilient supply capacity to meet robust demand and greater productivity to offset inflation and fund our growth. We anticipate these unique value drivers will continue to distinguish Haemonetics and drive our success moving forward. We are realizing transformational growth of our company and our businesses. Let's turn to our business unit results and revenue guidance. Plasma revenue grew 31% in the fourth quarter and 43% in fiscal 2023, driven by volume growth and price benefits. North America disposables represented 85% of our Plasma revenue in fiscal 2023 growing 33% in the fourth quarter and 46% in fiscal 2023. It was a historic year as plasma fractionators strove to replenish safety stocks that were dangerously depleted during the pandemic. As a result, we saw record collection volumes throughout the year and we don't expect any abatement of this trend in the near-term. We also retained a majority of CSL U.S. disposables business which grew at a rate comparable to our overall U.S. disposables business. Our global CSL business accounted for approximately 14% of our reported revenue in fiscal 2023. We increased production and strengthened our supply chain to meet heightened demand for plasma devices and disposables. These investments will also create meaningful operational efficiencies over time as demand normalizes. NexSys with Persona: Hospital revenue grew 19% in Q4 and 18% in fiscal 2023, primarily driven by growth in Vascular Closure and Hemostasis Management. At the beginning of fiscal 2023, we guided 16% to 19% Hospital growth for the year. In August we raised that guidance to 19% to 22% after a strong Q1 in Vascular Closure. The COVID outbreak in China in Q3 negatively affected Hemostasis Management and Cell Salvage revenue, such that we did not meet our upwardly revised forecast. Trends improved globally in Q4 including significant improvements in hospital staffing and easing budgetary constraints. The hospital business unit had its first $100 million revenue quarter in Q4 and we are optimistic that these trends will continue in fiscal 2024. Hemostasis management revenue grew 22% in the quarter and 11% in fiscal 2023. North America, our largest market delivered double-digit growth in Q4 and in fiscal 2023. Global growth was driven by strong adoption and utilization of TEG disposables in both periods. Vascular Closure revenue grew 31% in the quarter and 35% in fiscal 2023. We realized this growth by opening new accounts and driving penetration to gain share in the top U.S. EP hospitals. International commercialization of VASCADE is underway utilizing hybrid sales models and leveraging existing back office infrastructure. We expect our first sales in Europe in Q1 fiscal 2024. Transfusion Management revenue grew 8% in the quarter and 19% in fiscal 2023. Growth in the quarter and fiscal year was driven by expansion of our sales force and software implementations in the U.S. and U.K. Cell Salvage revenue grew 4% in the quarter and 3% in fiscal 2023. The fourth quarter benefited from one-time orders in North America. Fiscal 2023 benefited from strong capital sales and favorable order timing among EMEA distributors. The benefits in both periods were partially offset by large stocking orders in Japan last year. Blood Center revenue declined 4% in the fourth quarter and 2% in fiscal 2023. Apheresis revenue was flat in the quarter and declined 4% in fiscal 2023. In the fourth quarter, we grew Egyptian plasma collections and achieved red cell collection share gains in the U.S. that were offset by lower convalescent plasma revenue when compared with the prior year. Whole blood declined 9% in the quarter due to unfavorable order timing among APAC distributors and customers reducing safety stocks built during the pandemic. For fiscal 2023, whole blood revenue grew 5% driven by share gains in North America as our resilient supply chain enabled us to serve customers when competitors could not. Now turning to fiscal 2024 revenue guidance, we are confident about our momentum going forward as we pursue opportunities to deliver our short and long-term goals. We expect total company organic revenue growth of 5% to 8% in fiscal 2024. We are enthusiastic about the opportunities in our plasma business and anticipate plasma revenue growth of 3% to 6% in fiscal 2024 with price and volume both contributing meaningfully. After exceptional recovery and growth in fiscal 2023, our plasma business forecast, excluding CSL, is in line with the mid-teens growth rate that we expect over the next several years as communicated in our LRP. Regarding CSL, we expect our share of their plasma business to decrease in the second half of fiscal 2024. Our guidance for fiscal 2024 includes a minimum purchase commitment from CSL under our non-exclusive supply agreement that is slightly in excess of $100 million. We expect that CSL will continue to provide a meaningful contribution to our plasma business revenue in fiscal 2025. We remain committed to providing CSL and all of our plasma customers with the highest level of service and support. We are excited about the future of Hospital as a long-term growth driver for our business. Our clinical and commercial strategies are working and we are tracking ahead of our long range plan. In fiscal 2024, we expect the Hospital business to deliver revenue growth of 16% to 18% driven by strength in Vascular Closure and Hemostasis Management. Our Blood Center revenue guidance is a year-over-year decline of 2% to flat. The pacing of revenue in this business is backend loaded with unfavorable order timing impact in the first half of the year when compared with fiscal 2023. In summary, this is a very exciting time for Haemonetics and we are enthusiastic about our prospects for the new fiscal year. We are strengthening our competitiveness and capitalizing on opportunities in plasma while accelerating our pivot to higher growth, higher margin, innovative hospital-based opportunities and improving productivity through operational excellence. We are using our momentum to sustain growth, improve margins, and advance our industry leadership, taking evolutionary steps to deliver revolutionary results. Now I'll turn the call over to James to discuss our financial results and earnings guidance.

James D'Arecca, CFO

Thank you, Chris, and good morning everyone. Our adjusted gross margin was 51.8% in the fourth quarter and 53.2% in fiscal 2023, a decrease of 180 basis points and 70 basis points respectively when compared with the same periods of the prior year. Adjusted operating expenses in the fourth quarter were $103.6 million, an increase of $8.3 million or 9% compared with the fourth quarter of the prior year. As a percentage of revenue, adjusted operating expenses decreased by 200 basis points to 34%. Adjusted operating expenses for fiscal 2023 were $403.6 million, an increase of $54.9 million or 16% compared with the prior year. As a percentage of revenue, adjusted operating expenses decreased by 60 basis points to 34.5%. In the fourth quarter, higher operating expenses were driven by performance-based compensation, investments in sales and marketing and R&D, and the return to normal spending activities, partially offset by improving freight and Operational Excellence Program savings. In fiscal 2023, higher operating expenses were driven by performance-based compensation, higher upfront investments in operations to meet unprecedented demands in plasma collections, along with manufacturing cost headwinds such as higher freight costs within our network and expedited outbound shipping costs. Contributions from our productivity savings helped offset some of the cost increases, both in the quarter and in fiscal 2023. Fourth-quarter adjusted operating income was $53.9 million, an increase of $7.3 million or 16% and adjusted operating income for fiscal 2023 was $218.4 million, an increase of $31.3 million or 17% compared with the prior year. As a percentage of revenue, adjusted operating income margin was 17.7% in the fourth quarter and 18.7% in fiscal 2023, up 10 basis points and down 10 basis points respectively compared with the same periods in fiscal 2022. The impacts of the macroeconomic-driven inflationary environment upon our adjusted operating margins in fiscal 2023 were broad-based, including freight, raw materials, and labor. We incurred approximately 390 basis points impact from inflationary pressures on our adjusted operating income margin in fiscal 2023 compared to approximately 300 basis points impact in fiscal 2022. In addition, we incurred higher performance-based compensation in fiscal 2023 than in the prior year. Our operational excellence program is an important lever in our efficiency and ability to create savings. In our fiscal 2023 this program delivered $26 million of gross savings, freeing up resources to fund additional investments. Since the inception of this program, we have generated $96 million in cumulative gross savings slightly ahead of our plan. We also had positive contributions towards operating margins from Vascular Closure. As this business grows, we can expect higher leverage positively impacting our margins. We are excited about the opportunities in Vascular Closure and will continue to allocate investments to fund its growth in both new and existing markets. The adjusted income tax rate was 23% for the fourth quarter and 24% for fiscal 2023, compared with 22% for both comparative periods of the prior year. The adjusted income tax rate in fiscal 2023 was higher due to jurisdictional earnings and executive compensation. Fourth-quarter adjusted net income was $39.2 million, up $5.7 million or 17%, and adjusted earnings per diluted share were $0.77, up 18% when compared with the fourth quarter of fiscal 2022. Adjusted net income for fiscal 2023 was $155.7 million, up $23.1 million or 17%, and adjusted earnings per diluted share was $3.03 up 17% when compared with the prior year. Changes in the adjusted income tax rate, higher interest expense, and FX had a negative $0.07 impact on the fourth quarter, and a negative $0.19 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 $284 million, up $25 million since the beginning of the year. Free cash flow before restructuring and restructuring-related costs was $190 million compared with $117 million at the end of the last fiscal year. During fiscal 2023, Haemonetics benefited from increased operating cash flow, partially offset by $75 million in share repurchases. Additionally, the company paid $32 million of earn out payments related to previous acquisitions and made a $30 million Euro investment in Vivasure Medical. Moving on to fiscal 2024 earnings guidance, we expect fiscal 2024 adjusted operating margins in the range of 20% to 21%. In fiscal 2023 unprecedented growth in plasma created atypical operational pressures. To ensure that we continued to fulfill our customers' needs, we were required to purchase components and other manufacturing inputs at spot prices, which negatively affected our margins. We expect these inefficiencies to persist in the near-term, but to start to abate in the second half of fiscal 2024. Therefore, our operating margin guidance is backend loaded with first half margins expected to be below our full year guidance range before growing in the second half. In addition to an improving manufacturing environment, we will continue to benefit from a favorable sales mix and improving the profitability of our hospital business. We expect our Operational Excellence Program to deliver additional growth savings of approximately $20 million, $6 million of which are net savings benefiting our bottom line with total cumulative savings reaching $116 million by the end of our fiscal 2024. Despite the additional near-term operational challenges, the margin expansion goals we presented in our long range plan are on track. Our adjusted earnings per diluted share guidance for fiscal 2024 is a range of $3.45 to $3.75, representing a 14% to 24% growth rate when compared with fiscal 2023.

NexSys, Industry Standard

Before we open the call up for Q&A, I'd like to conclude with a few closing thoughts. First, fiscal 2023 was a great initial installment in our long range plan, thanks to stellar performance by Plasma and Hospital. Our Plasma business is a powerful value driver fueled by strong end market demand. The base business is in line with long range expectations and will continue to deliver growth, as the robust recovery experienced in fiscal 2023 gives us compelling momentum to start fiscal 2024. Hospital continues to be strong on the heels of a record revenue quarter. Penetration and utilization in top accounts along with strategic business investments will further strengthen our leadership and expand our share. Second, we are committed to making investments to support our customers' needs along with investments as part of our Operational Excellence Program to set ourselves up for further growth and opportunities. We plan to achieve the remaining $19 million to $29 million in target savings by the end of fiscal 2025. These investments, as the macro environment further stabilizes, will create additional efficiency benefits and will continue to expand our margins. And finally, the strength of our underlying business, coupled with the steps we've taken this year will enable consistent expansion of our capital capacity. With the capital allocation priorities being unchanged, we will be disciplined with allocating capital to high impact, high ROI projects that accelerate growth and value creation. Thank you. And now I would like to open up the line for Q&A.

Anthony Petrone, Analyst

Thanks and congratulations on a strong fiscal 2022 and a good start to the year here on the calendar basis. Maybe Chris, to start out a little bit on Plasma, can you just recap the CSL comments there? Is that 14% of Plasma revenue or total revenue just looking backward just to clarify that? And then, sort of when we think about going forward, the estimate for $100 million minimum and then extending into fiscal 2025, maybe just a little bit on the dynamics there, how that flows in through the year, is that just on an as-need basis? Is it backend loaded? And then I'll have a couple of follow-ups for Jim on margin. Thanks.

Christopher Simon, CEO

Hey Anthony, thanks for the comments and for the question. Yes, we had a banner year across the board in Plasma growing 43%. CSL participated fully in that in helping drive that recovery. So we feel great about CSL and all of our customers and our ability to serve them throughout fiscal 2023. The 14% number that was in our prepared remarks is a global corporate wide number. So it includes not only the U.S. disposable volume, but also Europe and software where we offer it, so that's the aggregate number. As you peel that back, obviously the U.S. agreement is an important part of that. As we said in our prepared remarks, we retained substantially all of CSL's volume in FY 2023 and that's a big part of our delivery there. What we communicated and then again, there's a lot of sensitivities around this that both parties need to recognize and uphold. But we have a minimum commitment that is slightly in excess of $100 million for FY 2024, and we anticipate meaningful revenue coming through in FY 2025 as well. And I think the way you should think about that from our perspective is, we're doing our part to deliver for them, there's value and we've essentially orchestrated a smooth ramp down over effectively a three-year period. And that gives us a lot of confidence in our broader ability to grow Plasma and the corporation through this period.

Anthony Petrone, Analyst

Very helpful. And then Jim, just on margins here, yes you mentioned that we still have some inflationary spot inputs working through the conversion cycle through the first half and then expect the ramp in the second half. Can you give us an idea just how gross margins sort of trend throughout the year? Is the fiscal 4Q sort of margin profile what we should be thinking for the first half? And then when the inflationary inputs sort of roll off what should we be expecting in terms of a shift upward in gross margin? Thanks again.

James D'Arecca, CFO

Yes. So Anthony, we don't really guide on the gross margins, but let me see if I can help address some of the questions. First, yes, you're right. The inflationary pressures and what I referred to as the temporary inefficiencies previously, those will continue into the first half of fiscal 2024 for us. It will take us that long to have that flow through and then to re-enter into arrangements, which are more commensurate with our demand. So you will see an uptick. So we had almost 400 basis points of manufacturing headwinds and other macro pressures this previous quarter, and, I'm sorry, for the full year. And my sense is, is that you'll definitely see a decent portion of that, not all of it, but a fairly decent portion of that abate as we get into the second half of next year. And that will put us in a position then to really expand both at the gross margin level, but more importantly for us at the operating margin level as we move forward through our LRP.

Larry Solow, Analyst

Good morning everyone. Chris, could you provide an update on the 15% long-term growth expectation for Plasma? I assume it involves a combination of volume and price, so could you clarify the pricing aspect? Is it primarily driven by Persona? Where does Persona currently stand in terms of customer penetration?

Christopher Simon, CEO

Yes, Larry, thanks for the question. When we think about Plasma, it's definitely volume and price and perhaps a bit of mix as well. On the volume side, the conversations we're having with customers, the accelerators to the floor with no abatement in sight. They are doing their part to meet end market demand. Most of our customers are telling us they're not building inventory. Everything they're collecting is being fractionated and put in the market to treat patients real-time. So unless and until we see inventories begin to build, we don't anticipate a slowdown in the aggregate demand, so that's a real positive for the business. When we think about the price component, it's all tied to the technology upgrade. So, as you know, the NexLynk upgrade on the software, largely an enablement which was done a year ago last December, we completed NexSys in last fiscal year, FY 2023 in the fall, late summer, early fall, we'll get to a point where we lap the NexSys upgrade and the pricing associated with that. And we are at least midway through upgrading procedure volume to Persona, and so, that's ongoing. The customers that have not yet adopted are all neck-deep in discussions, trials, working through the required changes on their systems to be able to adopt it, to get the yield enhancements that come with it and that are unique to our system. So I feel quite good about the pace of that and the progress. That will be an important contributor as we work our way through FY 2024 and beyond.

Larry Solow, Analyst

Okay, great. And just switching gears to VASCADE and Cardiva, I think, last year at the Analyst Day you shared some pretty good stats on penetration of large accounts, top hospitals. Clearly, the growth there has been phenomenal since you guys acquired it. Could you give us just a high-level outlook, kind of where you stand and, maybe what you stand in just penetrating these top accounts? Because it feels like you got a lot of maybe still low hanging fruit for growth both in the U.S. and then International?

Christopher Simon, CEO

Yes, we fully agree with that. It's a real success story and that team continues to hit it hard to deliver the uptake in the product and it is a combination of opening new accounts. All this is U.S. based today, opening new accounts well into the second half of the top 600 U.S. electrophysiology hospitals, and then once in those accounts expanding our presence and really making Vascular Closure, VASCADE the standard for closure. And so we see that it's predominantly driven by the MVP product in electrophysiology, although with the sales force expansion and the additional clinical support we've put in place, we're now seeing meaningful growth in the other 20% of the market, which is more interventional cardiology based. So we'll continue to run that playbook. There's a good ramp from where we sit to succeed in the U.S. And then as we mentioned in our prepared remarks, we're getting ready to take the product global and Europe will be the first stop there. And with the approval in hand, we feel good about the potential to truly globalize this new standard of care for Vascular Closure.

Larry Solow, Analyst

Great. If I could just please one more in, just on the operating margin goals. I know you guys don't sort of guide to growth versus operating expenses, but just can you help us just sort of bridge sort of the jump up from, say you get the low 20s or even 22 as you exit this year to sort of that high 20s goal you shared for fiscal 2026. Are you sort of reaffirming that? I mean, maybe is it still targeted. That's a nice 600 bps improvement over two years, I guess, or yes, plus that.

Christopher Simon, CEO

Yes. Let me take a first cut at that and I'll invite James to weigh in in addition to what he's already said in the prepared remarks. Look, we look at FY 2023, right where we grew our operating income EPS 17% and we looked at our guidance for FY 2024, which top line growth of 5% to 8% with bottom line growth of 14% to 24%. And we feel like in tandem, they're an outstanding one, two into that four-year long range plan. So we feel quite good about where we are and the progress we are making. It's not lost on any of us that we still have a sizable opportunity for margin expansion over the remainder of this plan. So that's not lost upon us, but the way it's manifest is meaningfully different than we could have anticipated even last June when we put this plan out there. And so, let me give you a couple of few highlights on it some of which is in the script, some of which is additional, right? But we faced the same macroeconomic challenges that everyone else did, foreign exchange, inflation, the supply challenges that we were successfully able to mitigate, but they came at a cost, right? We had that in addition to unprecedented demand. Plasma volume alone grew 43% last year and obviously there was price in there as well, but the share volume uptick was tremendous. And we needed to encourage sizable expediting cost, as James has highlighted, in order to meet that demand. And we're proud of the fact that we were able to rally and do so. But again, it came at a cost. I think there's a third part of that, which is mix, and I think this gets a little bit lost in the margin story, which is, we're very excited about the ability to grow our top line this year 21% in FY 2023. That meant a lot more plasma as a percent of our total revenue, for example versus hospital, which of course is a much higher gross margin business. Within plasma it was a lot more, PCS2 in addition to the NexSys with Persona than we would have anticipated when we wrote the plan because of the retention there. So the combination of more plasma and more plasma going out on the old technology did meaningfully change the complexion of that gross margin profile. As the macroeconomic factors abate, as demand normalizes, and as the transition occurs, you're going to see a threefold effect that will drive those margins. When we back test this, we're very comfortable that we'll be at or ahead of plan. When we look at the macro drivers, the only question mark from where we sit is the overall productivity. And again, we have a lot of confidence in what we can do and what we can control. There's obviously some things going on that are broader than the company that we'll pay close attention to as we work our way through FY 2024 and beyond. But from our perspective, it's very different than we would have forecasted perhaps even a year ago. But when you look at the overall growth in earnings, right, to put up 17%, and then the current guide, just on a sheer earnings volume, we feel great about where we are at this point in the plan.

James D'Arecca, CFO

Yes. The only thing I would add to Chris's comments too is the other tailwind that we'll get on the margin side really is the increase in volumes over time that will help us make us more efficient at the manufacturing level and then our ROE savings as well. So add that to Chris's explanation and that's what gives us the confidence that we're going to get there.

David Turkaly, Analyst

Great. Good morning. Can you hear me?

Christopher Simon, CEO

Yes, Dave.

David Turkaly, Analyst

Thanks. Chris, I'd just love to get your updated thoughts. I know I've asked this in the past, but given what we're watching play out here, what do you think is happening with CSL and are they in centers? Are there manufacturing issues? Like what are you hearing out there about sort of that product and its rollout?

Christopher Simon, CEO

Yes, Dave, I don't want to comment on competitors or individual customers. I can share that NexSys is performing exceptionally well. The volume increase we've been able to help our customers on NexSys with Persona achieve is remarkable, with same-store sales significantly higher than they were even before the pandemic. As we advance our value proposition, we're gaining strength. In the prepared remarks, I mentioned that our strategy creates more free cash flow and funding to invest in the platform and our product development roadmap, enhancing what is already the industry standard. We will have more information about this in the summer and fall, and we're very excited about the platform and its benefits for customers.

David Turkaly, Analyst

Based on your comments regarding the contract for 2025, is there a minimum in place, and would you suggest that it might be somewhat more than half of what you're expecting in 2024?

Christopher Simon, CEO

Dave, you want the 2025 guide, we just gave you 2024. Come on.

David Turkaly, Analyst

We want it all.

Christopher Simon, CEO

Us too, what we'll say now is as we feel very good about our ability to serve all of our customers, CSL included, and I think the smooth ramp down that is anticipated is going to be good for our shareholders too.

Unidentified Analyst, Analyst

Good morning, this is Anthony on for Joanne, thank you for taking our questions. I think the last quarter you gave sort of a breakdown of where new plasma centers versus established ones are on volumes versus pre-pandemic. Can you just give us an update? Are the established centers back to pre-pandemic levels or are they still trying to catch up?

Christopher Simon, CEO

Thank you for your question, Anthony. The established centers have not yet returned to their pre-pandemic levels, and there is ongoing discussion about whether they will reach that point. They are making gradual progress, which is a positive sign. Our customers are actively working to achieve full productivity across the network, and they have opened numerous new centers. These new centers are consistently aligning with our long-term model regarding performance in the initial six months and two years. The mature centers are making incremental gains, particularly those that are positioned in favorable locations, which are experiencing remarkable growth. However, in some areas, growth has been slower, possibly due to the influx of new centers near existing mature ones. This is a structural issue we and our customers are examining. We aim for overall growth, but our primary focus is on individual devices and their turnover rates, as these significantly influence our return on invested capital. While the total number of mature versus new centers is important, the key factor driving our growth and profitability is the turnover rate of individual devices. We are receiving substantial support from customers to manage and optimize this aspect, allowing us to succeed irrespective of a full recovery, which is reflected in our results.

Unidentified Analyst, Analyst

Got it. That's helpful. And then on VASCADE, I think you said commercialization in Europe is starting this fiscal quarter. Can you share maybe what is embedded in guidance from contribution from Europe?

Christopher Simon, CEO

Yes, the guidance we've put forward for VASCADE is almost exclusively new account penetration and utilization here in the U.S. right? That's what our original deal model was predicated upon. That's what our long range plan is predicated upon, and that's what our FY 2024 guidance is focused on. And we're excited to have the CE Mark approval. We're excited to take the product internationally, and we will definitely lean into it. We're making the investments there. It will be a hybrid model where we'll use a mix of direct selling resources most of which didn't exist six months ago coupled with distributor markets in our own back office. And so it will be a ramp, it will be a more modest ramp if we can accelerate that. We'll look for every opportunity to do so. But our plan this year is almost entirely dependent upon success in the U.S. which we're confident in. We feel great about what's happening there.

Unidentified Analyst, Analyst

Great. Thank you very much.

Operator, Operator

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

Mike Matson, Analyst

Good morning. I wanted to start by asking about a report from one of your customers who mentioned reducing donor payments by 25%. There are different interpretations of this situation, so how do you view it? Is it positive or negative for your plasma volumes?

Christopher Simon, CEO

Yes, Mike, don't have a lot of firsthand visibility into the remuneration rates that are, to the individual donor. We obviously track it, we pay close attention to it, and I think there's a variety of different philosophies at work here. What we are seeing in the aggregate, as we said earlier and in the prepared remarks is unabated demand for more plasma, and that's manifest in the number of new center openings, and it's manifest in the amount of reimbursement that is out there. All that said, this macroeconomic environment for all the challenges it's created for us and everyone else is on balance a positive in terms of motivating donors into the center. And if over time our customers use that as an opportunity to pull back on the reimbursement, that's, historically we've seen some of that. It's not the norm at this stage and we'll see how that plays forward. From our vantage point in many ways, this all relates back to cost per liter, which is a metric they focus very closely on. It's another reinforcement for our platform because I think we've got unequivocally the best, most superior ability to reduce cost per liter. And so from our vantage point driving adoption of NexSys with Persona is the answer to that question.

Mike Matson, Analyst

Thank you, that was insightful. Regarding the VASCADE launch in Europe and outside the U.S., I understand there are different competitors in the cardio markets there. How does the competitive landscape for Vascular Closure compare to the U.S.? Are there products in those markets that we aren't competing against here? Additionally, given that those markets tend to be more cost-sensitive, could the pricing of VASCADE hinder its adoption?

Christopher Simon, CEO

Yes Mike, they're all relevant points, right? We like the global applicability of VASCADE in what is a global market for electrophysiology, right? It's a fast-growing market throughout EMEA and Japan as well, and we think the product is an outstanding fit for those markets. But each of them are different, right? What we'll do to be successful in Germany will look different than what we do in the UK, et cetera. And so that's the planning and the uptick work that's underway. There are different reimbursement rates and there are different standards of care. And so some of the health economic arguments of the product that have been so powerful here in the U.S. may play out differently and we'll do our part in helping evolve those markets because at the end of the day, we think this product is one of those that hits the trifecta, right? It improves the standard of care. If you had your choice, you'd use this for closure versus compression or suturing, it is just a better approach. It is health economically viable because it drives same-day discharge, particularly for the EP ablation procedures and gets patients home where they heal better and are more comfortable and it reduces system-wide costs and not for nothing on both of those fronts we have the data to back it up. The markets are at different starting points. It's why you may see a very different ramp in those countries. And we've got some folks on the ground working hard to make sure we understand that ramp and are maximizing it where we can.

Drew Ranieri, Analyst

Hi, Chris and James, thanks for taking the questions. Just maybe three quick ones on my end, but first on plasma centers, kind of the guidance for down 2% or flat, I think is one of the better guidance outlooks that the company has posted for the past few years. So can you maybe just talk about really kind of what the improvement you're seeing in the businesses in fiscal 2024, maybe first historical trends to start? And then I had a couple of other follow-ups. Thanks.

Christopher Simon, CEO

Yes, Drew. Thank you for the question. To clarify, the forecast of a decrease of two percent to flat for blood centers this year stems from both apheresis and whole blood, which are quite different scenarios. We have concentrated our efforts on apheresis, which is constantly advancing towards more plasmapheresis. Some blood centers are collecting plasma for medical use while others are doing so for fractionation purposes, both of which are beneficial for us. NexSys is involved in this area. We mentioned our success with one of our customers in Egypt as a prime example, where the distinction between blood centers and plasma is becoming less clear. NexSys effectively serves all these customers, and that significantly contributes to our results. Recently, we've had notable success in the U.S. with our whole blood filter products, particularly as some competitors have struggled to meet market demand. This market has diminished for us over time, but over the last three to four quarters, we have been reclaiming our share by providing filters when others cannot. We are pleased to support our customers during this time, which is positively influencing our outlook for blood centers in 2024.

Mike Matson, Analyst

Thanks for taking the multiple questions.

Christopher Simon, CEO

Sure.

Operator, Operator

Thank you. And that concludes today's conference call. Thank you for participating. You may now disconnect.