Q2 2027 Haemonetics Corporation Earnings Conference Call - HAEMONETICS CORP

Financial Performance:

• Second quarter organic revenue growth was 10% and first-half growth was 8%; adjusted EPS grew 6% to $1.35 in Q2 and $2.49 in the first half.
• Adjusted gross margin increased to 61.9% in Q2 (up 140 bps YoY) and 61.2% for the first half (up 60 bps YoY), driven by favorable portfolio mix, tariff refunds, and software licensing, partially offset by FX headwinds and supply chain costs.
• Adjusted operating margin decreased to 26.3% in Q2 (down 40 bps) and 24.9% in the first half (down 50 bps) due to investments in growth, higher personnel costs (performance-based compensation), and elevated freight expenses.
• Operating expenses rose 15% in Q2 to $127.6 million and 11% in the first half to $253.2 million.
• Operating cash flow increased 40% YoY to $180 million in the first half; free cash flow rose 57% to $143 million with a 166% conversion rate in Q2.
• Cash and equivalents totaled $261 million at quarter-end; net leverage remained at approximately 2.5x EBITDA with a $200 million revolver balance.

Guidance and Future Outlook:

• Revised fiscal 2027 organic revenue growth guidance to 6–9% (up from 4–7%) and reported growth to 8–11% (up from 5–8%).
• Apheresis organic revenue growth guidance raised to high single digits (from low-to-mid single digits) driven by CSL conversions and Persona Plus adoption.
• MedSurge organic revenue growth guidance reaffirmed at mid-single digits.
• Fiscal 2027 adjusted operating margin expansion guidance revised to 0–50 bps (down from 50–100 bps) to reflect transitory ramp-up costs, higher compensation, and inflation.
• Fiscal 2027 adjusted EPS growth expected to align with the increased reported revenue growth guidance (8–11%).
• Free cash flow conversion expected to exceed 80% of adjusted net income for the full year, inclusive of higher inventory and CapEx investments.
• Second-half growth is expected to be weighted toward Q4 due to contractual economics and the phasing of the CSL rollout.

Business Segments and Product Lines:

• MedSurg: Delivered 6% organic growth in both Q2 and first half; Hemostasis (TAG) grew mid-teens on recurring disposables; Transfusion Management grew double digits and now represents 20% of the segment.
• Interventional Technologies: Recorded 3% organic growth, driven by low double-digit growth in Vascular Closure (Fascade MVP/MVP XL) and stabilization in the electrophysiology market.
• New Product Launches: Received FDA approval for Percocel Elite (large-bore vascular closure), launched PACE Pro Guidewire, and achieved CE Mark/Japanese approval for Vascade MVP XL; these are expected to contribute meaningfully in the long term.
• Apheresis: Global plasma collections grew high single digits; Plasma business grew 18% in Q2 and 13% in first half; Persona Plus rollout is on schedule with substantial adoption.

Market and Competitive Landscape:

• CSL relationship expansion validates the superiority of the integrated platform, with expected completion of Nexus PCS with Persona Plus rollout at all CSL U.S. centers by end of calendar 2027.
• Plasma market share gains are being driven by Persona Plus adoption, which improves yield and lowers cost per liter for customers.
• Vascular closure market is stabilizing; the company is gaining share due to improved clinical data and expanded indications in Europe and Japan.
• TAG platform utilization is doubling as the product shifts toward point-of-care applications in operating rooms and trauma wards, targeting a TAM over $400 million.

Risks and Challenges:

• Operating margin pressure from transitory ramp-up costs (manufacturing capacity expansion, expedited freight), higher fuel prices, and performance-based compensation tied to outperformance.
• Potential slowdown in plasma collection volumes if fractionators utilize increased yield to reduce collection frequency (similar to previous Persona rollout dynamics).
• Order timing and a challenging prior-year comparison in esophageal cooling within Interventional Technologies.
• Portfolio rationalization in other apheresis products, partially offsetting strength in red cell collection.
• Cybersecurity risks in the broader healthcare environment, though no direct impact reported from recent attacks.

Management Commentary and Tone:

• Management expressed cautious optimism, emphasizing strong momentum across core businesses while acknowledging near-term cost headwinds related to scaling.
• Tone was confident regarding long-term value creation, citing a multi-year runway for growth in plasma and structural heart procedures.
• Emphasized capital discipline and the intent to convert growth into shareholder value via cash flow generation and balance sheet strengthening.
• Disclosed that the Q2 growth was driven by market share and prior share annualization, with minimal CSL revenue impact in the quarter.

Analyst Questions and Answers:

• CSL Economics: Management confirmed the contract includes the full Persona suite but declined to disclose specific financial terms; CSL contributions are expected to ramp significantly in fiscal 2028.
• Margin Profile: Projected operating margins will eventually reach high 20s as volumes scale and transitory ramp costs normalize, with expansion weighted toward Q4.
• New Product Strategy: Percocel Elite targets a $300M global opportunity with a stepwise launch focusing on physician education; PacePro is positioned as complementary to SavvyWire to avoid cannibalization.
• Capital Allocation: Priorities remain funding organic growth (CSL execution), strengthening the balance sheet (potential opportunistic debt repayment), and maintaining share repurchase flexibility ($325M remaining).
• CapEx: Expect elevated CapEx over the next two years to fund manufacturing line extensions, device inventory, and warehousing for the volume increase.

Other Key Points:

• Fiscal 2027 includes a 53rd week, which impacts revenue and margin comparisons.
• The company reported $100 million in revolver repayments year-to-date and expects to continue strengthening the balance sheet.
• Transfusion management is a high-margin growth driver within Blood Management Technologies, offsetting a temporary pullback in other areas.
• No material revenue contribution from new product launches (Percocel Elite, PacePro) is expected in fiscal 2027, but they are strategic for future market reach.
• The company will wait for specific confirmation of fourth-quarter CSL rollout plans before incorporating them into future guidance.