Q3 2024 Haemonetics Corp Earnings Call

Participants

Olga Guyette; Director, IR; Haemonetics Corporation

Chris Simon; President and CEO; Haemonetics Corporation

James D'Arecca; EVP, CFO; Haemonetics Corporation

Presentation

Operator

Good day, and thank you for standing by. Welcome to Haemonetics Corporation third-quarter fiscal 2024 earnings conference call. (Operator Instructions) Please note that today's conference is being recorded.
I would now hand the conference over to your speaker host, Olga Guyette, Senior Director of Investor Relations and Treasury. Please go ahead.

Olga Guyette

Good morning, everyone. Thank you for joining us for Haemonetics third-quarter fiscal year 2024 conference call and webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we posted our third-quarter fiscal year 2024 results to our Investor Relations website, along with our updated fiscal '24 guidance.
Before we begin, just a quick reminder that all revenue growth rates discussed today are organic and exclude the impact of currency fluctuations and our recently completed acquisition of OpSens. We'll also refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. For a full list of excluded items, reconciliations to our GAAP results in comparison with the prior year periods, please refer to our third-quarter fiscal year 2024 earnings release available on our website.
Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause the 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.

Chris Simon

Thanks, Olga. Good morning, and thank you all for joining. Today, we reported third-quarter revenue of $336 million, growth of 10% on a reported and organic basis, and adjusted earnings per diluted share of $1.04, 22% growth over prior year. Our results underscore our success in driving above-market growth. While we are achieving critical milestones in our long-range plan to fuel the transformation of our company.
Margin expansion through FY24, foreshadows, the compounding impact of changes in volume and mix, coupled with productivity and operating leverage. We are proud of our accomplishments and enthusiastic about the many opportunities to grow our business moving forward through portfolio evolution operational excellence and resource allocation. We've strengthened our leadership in plasma while building our high growth, high margin hospital segment to expand our scale and leverage.
Looking at our business unit results, plasma revenue grew 8% in the third quarter and 17% year to date, driven primarily by volume. Our collections environment in the US continued to be favorable in disposables with disposables growing 7% in the quarter and 17% year to date. With robust recovery continuing, our operational excellence program helped us ensure delivery for our customers as they continued to collect historically high volumes, further highlighting the need for reliability, donor safety, and yield-enhancing solutions. We are working in close collaboration with our customers to provide solutions that further distinguish Haemonetics as the undisputed industry leader in plasma innovation.
The rollout of Persona, our proprietary technology proven to increase yield 9% to 12% on average, continues to gain momentum with more than 25 million collections. The limited market release of our new Express Plus technology has been encouraging. We have performed over 50,000 collections that have demonstrated a significant reduction in procedure times and we remain on track for full market release in early fiscal 25 advancements in NexLynk DMS, our bidirectional connectivity software are improving cycle times, reducing errors and allowing staff to focus on taking care of donors and reducing door-to-door time, a key determinant of donor satisfaction.
The combination of Persona, Express Plus, and NexLynk sets a new industry standard for center throughput, cost per liter, and donor satisfaction. Due to strong year-to-date results, we are increasing our plasma guidance from 10% to 12% to 11% to 13%. We remain bullish on plasma longer-term, and we are confident in our ability to maintain leading market share while continuing to migrate customers to our latest technology.
Blood center revenue declined 3% in the third quarter and 1% year to date. Apheresis revenue was down 1% in the quarter but grew 2% year to date. Both in the quarter and year to date, we continue to benefit from increasing blood center plasma collections, particularly within newly established plasma centers in Egypt and strong efforts to increase the collection of red cell units in the US. These trends were partially offset by the strong growth we experienced last year and order timing among distributors, particularly in our third quarter.
Whole blood revenue declined 6% in the quarter and 9% year to date, predominantly driven by lower volumes associated with our decision to rationalize parts of this business, partially offset by benefits from last-time buys. The portfolio and manufacturing network rationalization initiatives we introduced in November are critical for preserving blood center's ability to generate strong EBITDA as we continue to work with our customers to migrate them to alternative products. Due to price benefits and early success with customer migration, we are increasing our revenue growth guidance from a range of minus 4% to minus 2% to a range of minus 2% to flat.
Our hospital business had an especially strong third quarter with revenue growth of 22% as all of our products grew double digits. Year to date, hospital grew 17%, driven by the continued success of vascular closure and hemostasis management. In interventional technologies, which includes vascular closure and OpSense products, vascular closure grew 28% in the third quarter and 29% year to date, driven by continued momentum with new account openings and improving utilization throughout the US. We are on track to be in 80% of the target top 600 US hospital accounts by the end of this fiscal year, providing us access to the vast majority of addressable procedures in this market. This footprint will also provide the foundation for future growth, particularly as we realize opportunities through our innovation and M&A pipelines.
Internationally, our products are gaining recognition, contributing approximately 200 basis points of growth in the third quarter, we completed the off-sites acquisition on December 12th. So this is an exciting milestone for us as we continue to expand our hospital business with procedure, enabling technologies in high-growth areas. The integration is underway, and we plan to launch both Savi wire and Opta wire center guided technologies with our U.S. commercial team in April. These products are highly synergistic with our vascular closure products and are immediately accretive to revenue and adjusted earnings per diluted share growth with an expected three year ROIC in excess of 10%.
Now moving to blood management technologies, which includes hemostasis management and our legacy hospital products. Hemostasis Management revenue grew 18% in the third quarter and 14% year to date, driven by increased capital sales and utilization of tech disposables in the U.S. and China growth in China rebounded in the third quarter, more than offsetting previous underperformance in that market. Earlier this fiscal, we anticipate sustaining our growth momentum as we capitalize on our significantly expanded R&D and clinical capabilities to further develop new and existing products and commercial infrastructure that cover the majority of our strategic accounts in the 700 million, our underpenetrated total addressable market.
The rest of the blood management technologies portfolio, which includes transfusion management and cell salvage, grew 18% in the third quarter and 6% year to date. Transfusion management was up significantly year over year due to the completion of customer implementations for both SafeTrace Tx and BloodTrack as well as growth in recurring maintenance revenue for both products. Growth in cell salvage was driven by strong utilization of disposable kits, both in the U.S. and China.
In hospital, we expect continued revenue growth acceleration and reaffirm our previous guidance range of 16% to 18%, which is on top of the strong revenue growth we experienced in prior two years. Our transformational growth plans are working across our businesses, and we are raising our total company revenue guidance by 200 basis points to a new range of 10% to 12% to better reflect the year to date, momentum in plasma and our success mitigating challenges in our blood center business.
Now I'll hand it over to James to discuss the rest of our third-quarter result and updated FY24 guidance. James?

James D'Arecca

Thank you, Chris, and good morning, everyone. I'll begin with our business results and some additional updates to our fiscal 2024 guidance. Third-quarter adjusted gross margin was 55.3%, an increase of 280 basis points compared with the third quarter of the prior year. Adjusted gross margin year to date was 54.5%, an increase of 80 basis points compared with the prior year. Both the third quarter and year-to-date adjusted gross margins benefited from price, volume, and a favorable mix driven by strong sales in hospital and continued momentum in plasma.
These benefits were somewhat offset by increased depreciation, impacts from foreign exchange, and a $6.8 million in cumulative year-to-date charges related to a voluntary product recall in our whole blood business, which was announced earlier in fiscal '24. Adjusted operating expenses in the third quarter were $112.7 million, an increase of $11 million or 11% compared with the third quarter of the prior year. As a percentage of revenue, adjusted operating expenses were at 33.5%. The increase in adjusted operating expenses in the third quarter was due to higher growth investments, higher performance-based compensation, and, to a lesser extent, higher freight costs.
Adjusted operating expenses year to date were $314.9 million at 32.6% of revenue compared to last year's $299.9 million at 34.7% of revenue. The decrease in adjusted operating expenses as a percentage of revenue is driven by growing operating momentum which more than offset continued investments in our business. Most of these investments were directed toward advancing our innovation pipeline and amplifying market share in our hospital business. We anticipate that the investments we are making today will continue to expand our operating leverage over the next several years.
Adjusted operating income was $73.4 million in the third quarter and $211.9 million year to date, representing increases of $14 million and $47 million respectively. As a percentage of revenue, the adjusted operating margin was 21.8% in the third quarter and 21.9% year to date, up 250 basis points and 290 basis points, respectively. When compared with the same periods in the fiscal year 2023, we remain confident in our ability to expand our margins. Our fiscal year 2024 adjusted operating margin guidance remains unchanged at approximately 21% and includes the expected contribution from offset, which we anticipate to be slightly dilutive to our adjusted operating margin in the near term.
As you heard from Chris, we have big plans for this business and expect it to become increasingly accretive throughout our adjusted P&L in the next several years, particularly as we begin to realize synergies and improves scale. Our guidance also includes $20 million in target gross savings from the operational excellence program or about 6 billion in net savings, helping to generate additional efficiency and free up resources that can be reallocated to drive growth. We are one year ahead of schedule to complete our OEP. and deliver 116 million of gross target cumulative savings by the end of this fiscal year, with about 30% of these savings directly benefiting our bottom line. This program helped us drive renewed efficiencies and strengthen our supply chain. Beyond this program, we will continue to pursue additional opportunities to reduce our costs and further improve efficiency portfolio and manufacturing network rationalization initiatives announced in November are just a few examples of our stewardship. The adjusted income tax rate was 25% in the third quarter, the same as in the third quarter of last year and the adjusted income tax rate year to date was 23% and 24% in fiscal years 2024 and 2023, respectively. Third quarter adjusted net income was $53.3 million, up 9.7 million or 22%, and adjusted earnings per diluted share was $1.4, also up 22% when compared with the third quarter of fiscal 2023. Year to date, adjusted net income was 157.6 million, up 41.1 million or 35% and adjusted earnings per diluted share was $3.7, up 36% when compared with fiscal 2023. The combination of the adjusted interest expense fluctuations in FX and adjusted income tax had about a $0.09 unfavorable impact in the third quarter and about $0.02 unfavorable impact year to date when compared with the prior year, we are updating our fiscal 2024 adjusted earnings per diluted share guidance to be in the range of $3.90 to $4 or approximately 30% growth in our adjusted EPS at the midpoint of our guidance range to better reflect strong year to date momentum.
Turning now to select balance sheet and cash flow highlights in our third quarter cash outflow from operating activities was $0.5 million and free cash outflow before restructuring and restructuring related costs was 20.3 million, primarily due to the timing of disbursements collection delays, which temporarily increased accounts receivable and increased inventory balances. Cash flow from operations for the nine months was 118 million, primarily attributed to higher net income, partially offset by higher inventory levels, which are expected to increase throughout fiscal 2024 as we replenish our inventory of the NexSys PCS devices after taking into account 55 million in CapEx and net of proceeds from the sale of property, plant and equipment. We had 68 million of free cash flow before restructuring and restructuring related costs we are confident in our ability to generate strong free cash flow, and we are updating our expectations for free cash flow before restructuring and restructuring related costs to be in the range of 160 to $180 million in fiscal 2024. Our financial position continues to provide us flexibility to operate our business and execute our disciplined capital allocation strategy. At the end of our third quarter, we had 194 million of cash on hand, down 90 million since the beginning of our fiscal year 2024. In December 2023, we used the combination of $145 million of cash on hand and 110 million of the revolving credit facility to fund the acquisition of OptaSense. Our net leverage ratio at the end of the third quarter was approximately 2.4 times EBITDA, leaving us ample room to continue our growth agenda, including additional M&A and organic investments, both in the short term and in the long run.
And now I'd like to turn the call back over to Chris for a few closing remarks. Chris?
Thanks, James.

Chris Simon

So I reflect on the quarter and where we are in our journey. I'd like to reiterate a few points as we approach the end of our fiscal 24 and the midpoint of our LRP. We are tracking ahead of our growth goals of high single digit organic revenue and mid 10s adjusted EPS growth rates this year, we expect to deliver at least 200 basis points of adjusted operating margin expansion despite more than 700 basis points of inflationary impacts and heightened freight costs needed to help combat continued supply chain inefficiencies when compared with fiscal 22.
The starting point for our long-range plan, we remain committed to our LRP and as we scale our plasma business, execute portfolio rationalizations initiatives and drive commercial execution in hospital, we expect to see continued expansion in our adjusted operating margins, consistent with our long-range plan in plasma we are the company our customers know and trust. We will continue to strengthen our leadership through our value, adding technology, continuously setting new industry standards for cost per liter improvements and donor satisfaction in hospital. We expect to more than double our revenue at the end of this fiscal year when compared with three years ago. Subsequently, our goal is to double this revenue again within the next four years, positioning it as the largest segment in our portfolio, comparing favorably with the top quartile MedSurge sector revenue growth and margin profile. We are optimizing capital allocation and value creation while driving what will be a fivefold increase in capacity to $2 billion by the end of fiscal year 2026, we are making strategic acquisitions and building an M&A pipeline to sustain our momentum and expand leverage with a disciplined strategy and a high bar for expected returns, we expect to accelerate our portfolio transformation as we launch new products, improve existing product features and further augment our growth with highly synergistic M&A over the next two years. This isn't just a portfolio transformation. It's a company transformation a journey consisting of a set of evolutionary steps to deliver revolutionary results. I'm confident that we have the right plan, the right resources and the right focus to deliver value creation in the next several years and beyond. We are excited about the next phase of our growth. Thank you. We now would like to open the line for Q&A.

Question and Answer Session

Operator

Again, ladies and gentlemen, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question. You may press by one one, please stand by while we compile the Q&A.
And our first question coming from the line of Anthony Petrone with Mr. Hill Group.

James D'Arecca

Yes, thanks, and congratulations on a strong quarter here to the team, but maybe, Chris, I'll start with a couple on plasma and then I'll go to Jim on margins on plasma and maybe just the state of the union here a little bit on where do you see underlying demand from donors on one hand, but where does the where do your customers sit the fractionators just on replenishing their inventories. And then maybe a comment just on how we should be thinking about CSL from a from a phaseout standpoint, just from the competitor uptake this week.

And then I'll have a follow-up for Jim.
Thanks, Anthony. Appreciate it. So your state of the market, right, I think the supply demand equation in source plasma remains quite robust from a fractionator perspective. They're continuing to work hard to meet growing end market demand and replenish their inventories. And there's still a good way to go really on both sides of that. So we don't see any abatement and their desire to continue to accelerate collections. And what they're doing with their centers is is really quite powerful. And we're delighted to be a part of helping enable that with our technology on the donor side, we see no slowdown in donor traffic into the centers. A good chunk of that is economic, obviously, for the donor demographic. They're still struggling quite heavily in this marketplace, unfortunately for them. So it does lead to a stronger desire to augment their disposable income. And we don't again, we don't see any abatement there I have read know, folks talking about the performance of the economy, we're hoping the economy strengthens as well, but we fully expect to collect high volumes of plasma in good markets and in more challenging markets, in fact, go back in time to 2018 and 2019, two very good years for the macro economy. Prior to this most recent robust recovery they were the highest volume years we had ever experienced. So we can collect plasma in good markets and bad. Our customers are doing their part to make that a reality. So we feel quite good about that.
With regard to CSL, we've orchestrated through the various amendments, what will be a smooth and somewhat lengthy transition, and that's good for both parties and so we're going to continue to execute fully against that as we do with all of our customers, make sure they have the supply they need into the future. And I think that will enable us to orchestrate a smooth landing while we continue to do the other things that ensure continued growth in our plasma business.
Helpful.

James D'Arecca

And Jim, on margins, maybe revisit on the LRP bridge and just taking into consideration the complexion in the quarter. So there nice jump in gross margin ahead of expectations, but overall, OpEx did tick up here beyond at least our model. So is this kind of where we are from a percentage of total revenue standpoint for total OpEx? Is there leverage in OpEx? Or does OpEx grow a little bit more from here. Thanks again, and congrats.

Yes.

Olga Guyette

Thanks for the question, Anthony.

James D'Arecca

Yes, on op margin, we still see a nice path to our high 20s that we initially came out with back when we unveiled our LRP last year. And that's really going to be driven by three main factors. One is the as the hospital business really begins to scale, right? And we're going to gain leverage there because we're going to be increasing sales with just very modest growth in the cost base. So that addresses I think your question on on OpEx will grow a bit, yes, but not nearly as quickly as we plan on growing sales. So that will be the biggest factor that helps drive us there. But there's two other really important points as well.

Olga Guyette

On the second one is a mix on the gross margin line.

James D'Arecca

We're going to end up in a position here where we have favorability from more sales from higher margin hospital products. So that will that will hopefully we dropped down to the bottom line.
And then finally, to get there, we also need to work on our manufacturing cost, and we'll do that in two ways. One with the higher volumes, and we'll gain the better absorption from that. But secondly, we need to continue our operational excellence initiatives that you've heard us talk so much about here over the prior couple of years. That doesn't end when the program and that continues and we take the learnings from that and we continue to apply that to reducing manufacturing costs. So those three factors really is what's going to get us there.

Thanks. I'll hop back in queue.

Thanks on Kim.

Operator

Next question coming from the line of Larry Solow with CJS Securities. Your line is open.

Great.

Thank you and good morning. I guess just a follow-up on Andy's question. Just on the plasma growth and CSL again, I don't know how specific you can get, but just in terms of it does look like your guidance still kind of incorporates a little bit of a downturn in Q4. And I know we were kind of expecting or the market was expecting a little bigger acceleration and it's hard to transition it to sell. So is that kind of indicative of that? And I know they have a sales minimum. So does that is that correct, tapered off Cape rotating into that covenant? Can you give us any kind of color on that?

Yes.

I appreciate the question. The young again, we see robust growth across the board. Csl is participating in that along with all of our other customers like highest growth that we are experiencing. It's actually from our customers who were the adopters of persona because of the yield benefits as well as the gain in productivity from the integrated system. They are by far driving this and we don't see any meaningful slowdown. Their normal has the historic seasonal averages. We're getting back to that, and that's as expected on the guidance. We've raised guidance again in Q4 for plasma, and that does reflect seasonality as well as the anticipated ongoing CSL transition. That's both factored into the guide. But again, we entered into this agreement with them because it works both parties. It gives us and that gradual soft landing, if you will, what coupled with the ability to expand our share and market presence elsewhere.

And that's what we're working hard to achieve simultaneously as as what about in terms of just you mentioned sort of gaining some momentum momentum on persona continues and given the rolling out of Express plus a figure where it sounds like coming, are there actually quarters? Did you expect to kind of get some more pricing as you go forward as persona continues to roll out and they've expressed thoughts on gets into the market.

Yes, a final fundamental aspects of our plans are from continued market leadership, strengthened market leadership in plasma. We're absolutely committed to that. That's what we're experiencing. I'll give you two stats, 25 and 50,000, $25 million persona collections. We've demonstrated safety and the reliability and the performance of that system, 9% to 12% yield enhancement on average. That's an answer for all of our collectors in this environment to their productivity challenges. So we do anticipate an appropriate premium for our technology expressed plus is performing exactly to our expectations and just as soon as we have the finalized our limited market release and have worked out all the remaining questions, which are few at this point, right? We feel great about it. The customer feedback has been outstanding and we'll look to flick the switch in early fiscal 25 and roll that across the field. We're not going to talk about specific pricing given the competitive environment, but we remain committed to growing share and improving our margins as a result of technological advancements that have unrivaled value propositions.

Great. And just lastly, if I may, just sort of a question then just on the options. Obviously you closed the acquisition of GLOW a few weeks back. It hasn't done that too long, but but maybe you could just speak about just the expansion opportunities under your umbrella.
Another on the TV product, I guess their lead product is up to wire than the satellite you mentioned. I guess they're both now going to be under a much larger sales force. Can you just speak to the limitations they had previously or just maybe that significant opportunity on their under your roof?

Tanya, thanks for the question, and that's why we are really excited to welcome OptaSense as part of our company going forward. So shout out to those employees. We've spent a lot of time with them over the prior six weeks now and have really gotten to know them now understand and appreciate our work ethic and their commitment to advancing patient care. So it fits hand in glove with what we're doing with what we're now referring to as interventional technologies. So it's our vascular closure, and it's the sensor guided technology that we've acquired. So yes, we will put that directly. And in fact, the training is underway our sales force being trained on the guidewires and their sales force being trained on vascular closure. We expect to have completed the bolus of that training this quarter. Fourth quarter fiscal 24, such that we launched together in April of fiscal 25. And on the camaraderie, the Osprey, the collaboration has been really excellent. And so we were quite optimistic about what we can do together to advance that product. And I think some of what we talked about, some of the OpEx expansion you see over the last two quarters is us preparing to make sure that these products can live up to their full potential as part of our portfolio. So stay tuned for more, but we're very optimistic about what we can do together here.
Great.

Thank you.

Operator

Appreciate the color, Kim now our next question coming from the line of Andrew Cooper with Raymond James. Your line is open.

Hey, everybody. Thanks for the time. I'll save my CSL questions for offline, but then maybe shifting the vast in international. You called out the 200 bps of incremental growth there, just a little bit of help on sort of the trajectory you expect from there? Is that the first bolus and it's a gradual pacing? Or is there potential for sort of an inflection here now that you're out in the market in some of these these other geographies?

Yes.

Thanks, Andrew. So with the way we think about the expansion in vascular closure, we're going to where appropriate replicate the playbook that served us so well in the U.S. And so there aren't 600 accounts in Europe, for example, there's 250 or 260. But and we'll use a combination of direct and distributor approaches to fully and realize that potential. So it will be it will be mixed in that regard and appropriately.
So we think it's more economical and feasible as we scale. A lot of the lift we experienced in the third quarter was specifically from Japan, right? So like most companies were using a distributor model in Japan. There was on the initial buy-ins that came with that, and you see that come forward. What we really like is this is true in Europe and it's especially true in Japan, and we were able to secure very favorable reimbursement in Japan to reflect this. This is of this is a safety first market, and this is a safety first product, and we have exceptionally good data in support of that. And so we think it's an outstanding fit for markets that are looking for a better answer on closure but want to put a premium on safety and productivity and patient satisfaction, all of which come with the vascular closure pipeline. So more to come, but we're optimistic about the growth trajectory in international. It's starting essentially from ground zero zero base but done, but we look forward to continued robust uptake.

Okay, great. And then maybe shifting a little bit.

The costs and the cash flows. Just you mentioned freight costs rising again, a little bit more detail there would maybe be helpful in RE. back on the upswing, any signs or kind of stabilization. There had been sort of noisy through the pandemic, but it felt like we had gotten a little bit more normal. And then just would love a little bit more color on some of the collection delays you called out in terms of cash flow. I think with the guide, it sounds like it may be more timing than it is an actual fundamental shift, but just thinking about that and inventory balance, just a little bit of sense for how you think about cash flows maybe beyond fiscal 24 and whether anything's changed.
Right. Hi, Andrew.

Thanks.

Olga Guyette

Thanks for the question. So on the on the freight costs, what we've seen there in terms of higher freight, mostly a good story there, just because it's been more volume based, the more volume we have.

James D'Arecca

So we have to pay more freight and that's you see that in our and in our cost line, that's the good news part of it. We are watching the events unfolding in the Red Sea and that has created some additional cost. We're looking to manage that as best we can and try and figure out ways to to absorb that. But overall, big picture landscape on freight, apart from what's going on in the Red Sea, I think that's a good story overall, the rates have certainly come back down from from their peaks back a year or so ago.
And on the cash flow side, there were some collection delays that I mentioned earlier that that has mostly resolved itself. And it really was more of a more of a timing issue around year end with certain collections. And then we had some some turnover on our staff, which which led to a bit of an uptick. We've seen a lot of that now come back and we should see that normalize here very shortly.

Olga Guyette

And the story for the future in terms of overall cash flow is still very good.

James D'Arecca

One, we have this business generates a lot of cash, and we expect it to continue to do so. You heard Chris remark at the end there where we're going to have about 2 billion in capacity by by the end of 2026 to continue down our on our M&A agenda.

Great.

Appreciate it. I'll hop back in the queue.
Thank you.

Operator

And Kim.
Next question coming from the line of Joanne Wuensch with Citi. Your line is open.

Morning.

This is actually happening for Joel and thank you for taking our questions. First, going back to that scale, can you share or remind us just where you think your share is in the US and those small and mid bore procedures? And then is the incremental opportunity here, really more share gain or market growth the S&A?

So appreciate the question on the share question is not as simple and straightforward as we might like. Because really what we're doing here is driving advancement in medical therapy, disproportionately our competition, particularly in the small and mid bore areas that you called out is manual compression. Clearly, a suboptimal therapy or suturing typically be a figure of eight. And so we're actively transitioning from jointly with the medical community on advancements there. And what we think about it is we've identified these top 600 hospitals. They represent more than 90% of the ablation procedures. And for those hospitals, we will be in fully 500 of them on by the end of this fiscal. So another month and a half. And the disproportionate source of growth for us is the already converted hospitals driving significantly higher levels of utilization. When we sat down and worked through with Cardiva at the time what we thought would be an appropriate level of utilization, we were targeting numbers that were 35% to 45%. What we are seeing in our most established accounts now are numbers well worth north of 50% and 65, 75%. In some cases, it's really good technology and it's being broadly adopted. So it tells us there's significantly more upside and there's a lot of stickiness to the product. That's what's driving the uptake. And that's that's true in ablation. It's also true and in interventional technologies with PCI., so there's a lot more room to run with that product here in the US and internationally.
Got it.

That's helpful. And then you just mentioned the 2 billion in capacity talking about M&A. And can you share maybe what other adjacencies you'd be interested in when it comes to inorganic opportunities in the hospital segment.

Appreciate the question and say, look for us, our first priority for capital allocation will be organic, whether that is building a fit for task commercial for us are strengthening our clinical and our data and analytic capabilities. We feel quite good about what we've done there in R & D. It's about additional indications. It's about new new product offerings on the same existing product families and further build out there in terms of raised registration and such.
In terms of M&A, our clear close second priority. We think there's significantly more room to run with what we're now calling interventional technologies. So really anything in the EP. and IC. suite, our game plan hasn't changed. We want enabling technologies. We're not looking to drive the core therapeutics. We're going to rely on other larger companies that are better equipped to do that. But we make the procedure better and that can be access that can be closure that can be monitoring protection that full suite.

Chris Simon

So we are typically agnostic as to which therapeutic choice.

The collection is using. We want to help all of them. And that gives us unfettered access and candidly, enables us to punch above our weight for a company of our size and then, um, we think we bring real value. And when we're talking to our options colleagues or the prior Cardiva team, it's about being well enough resource to be able to deliver the growth that they maybe weren't able to achieve as stand-alone entities, but still of a size and a scale where we focus and execute right, that that's our mantra. We think there's more room to run in interventional technologies. That's the primary focus eventually will step out to the next adjacency. But I don't see that in the near term.

Great.

Thanks, Kim.

Operator

And our next question coming from the line of Mike Matson with Needham & Company. Your line is open.

Olga Guyette

Yes, thanks.

So I just wanted to ask one on the on the Optum deal. So I think everyone kind of understands FFRU. and PCI., but just in terms of the tower opportunity there of the Savvy wire products can you just talk about kind of the the advantages and the reason that the cardiologists should new savvy, why are those procedures? And and can you remind us?
I don't think there's any other companies targeting that opportunity, but just remind us if there's any competitors there.

Yes.

Thanks, Mike. We think GaN savvy wire in Tampa is the shining gem, if you will, a good portfolio off the wire and some of the OEM work that they're doing at op centers valuable. But savvy wire is really the growth engine as we see it going forward. And to your point, it will be disproportionately in TAP or as those procedures continue to expand double digit, right? So we are displacing essentially three other technologies, right with an all in one offering. It does feel the monitoring and the pressure sensing and the guide altogether and so on. We think that it is meaningful advancement. I point to some of the most recent trial work, including work that was done by the leading therapeutics companies where they use savvy wire and the commentary that we heard back from the key opinion leaders that were overseeing that is to do these procedures without savvy wires, borderline malpractice. This is just that much better in terms of the outcomes they believe they're able to achieve and the technology support that was gained. So we'll continue to work and expand that. We think that dumb that paves the way for some of our additional product and portfolio expansion elsewhere in interventional technologies. And we're proud to have a product of savvy wires, deal prowess to be able to do that on the back of. So stay tuned for more about that we do have competition there, but we just think the opportunity to displace the existing suboptimal standard of care with all in one product that really delivers was designed by clinicians for clinicians is the right way to go here.
Okay, thanks.

And then just I guess you're sort of reiterating the high 20s operating margin target from the Investor Day in 2022 on. So one of the things that you called out was that the operational excellence program sort of does it fit with the end of the program, I guess, but you know, I've been wondering, do you do you need to do kind of another, you know, formal sort of restructuring program to get you there, or can you do you think you can do it without without doing that once operational excellence 10?

Yes, Mike, thanks for the question. I want to start I'll let James weigh in on this, but I just want to be crystal clear why we came out with those targets in June of 2022. We remain committed to those. They are not aspirational. They're not you're kind of some intangible thing. We believe that as we transition and evolve this portfolio, it absolutely has the capability to deliver the revenue growth and the margin expansion that we've highlighted.
And James touched upon that, I tried to highlight a few of those things in my prepared remarks. It is a combination of volume and mix and price driven disproportionately by the advanced technologies and the multiplicative effect that then has on productivity to your point and operating leverage more broadly. So we're excited about where that goes. There is if there will be fits and starts along the way, it won't be fully linear, but dumb, but we really like the progress we're making there. And then I'll let James weigh in. But operational excellence is as much a mindset as it is a program, and we're not going to back off of that in the spirit of advancing our own productivity.

James D'Arecca

Yes, I was just going to say just that it, as I mentioned earlier, it just becomes part of who we are right. If we're going to be a company that's high volume with disposables that has to be a constant objective here is to figure out a way to even to even reduce our cost and a small amount that has a big effect over time.

Okay, got it.

And then just one final one also on on the tag business, hemostasis business on Hill, can you just give us an update on kind of where things stand with regard to the installed base versus existing utilization of the units that are out there. So in other words like off, is that both that's driving the growth, you're placing the new units? Or is it more about driving more volume utilization through the ones that are out there.

And Mike, it is absolutely both, right. We had a record quarter for TAG. We expected it right that was the plan this year. We knew kind of where we were coming out of it where we were surprised favorably was the robustness of equipment sales, and that bodes extremely well for the future because we see hospitals embracing the technology, scaling the technology, adding additional tags to their to their arsenal. So that bodes well for the future growth. Obviously, that doesn't happen if we don't continue to drive utilization. So in this case, it was both record new equipment placements and continued uptick in utilization, absolutely led by the US, but also complemented by an uptick in China, which may be a bit counterintuitive given the broader challenges that medtech is facing there. But in our case, coming off of a relatively modest performance, particularly this time last year, we saw a meaningful uptick there, and that was predominantly utilization. So a nice one-two combo record quarter for TAG. And I think it hopefully answers any questions about the robustness and the growth of that platform going forward.
Yes.
Great. Thank you.

Operator

And can our next question coming from the line of David Turkaly with JMP Securities.
Your line is.

Hey, good morning. Just a quick follow-up on the upper operating margin grew 250 bps year-over-year. And it sounds like you're saying that's sustainable or maybe that that can even accelerate. I know you didn't have options you on when you mentioned that. But how should we think I mean, is that to 50 something in that range?
You know, with two years left in the LRP about what we should expect a year. I know you said nonlinear something to that magnitude are more.

James D'Arecca

Yes, I think add something to that to that magnitude. I mean we have to get to the to the high 20s low and we want to make it. I don't want to get too far ahead of our guidance that's going to come out in May, but we have to make a meaningful step next year or we're not going to hit it, right? So we're working on that right now and we'll have more to say on that when we come give our annual guidance for our fiscal for our fiscal 25. But there will be a with that there will be a nice indication of how we're going to get there for for 26 as well.

Thank you in queue.

Operator

And at this time, we have no further questions in the queue, please.
And gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.