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Haemonetics (NYSE:HAE)
Q4 2019 Earnings Call
May. 07, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. And welcome to the fourth-quarter and fiscal 2019 Haemonetics conference call and webcast. [Operator instructions]. I would now like to introduce your host for today's conference, Ms.

Olga Vlasova, Investor Relations.

Olga Vlasova -- Investor Relations

Good morning. Thank you for joining us for Haemonetics fourth-quarter and fiscal '19 conference call and webcast. I'm joined today by Chris Simon, our CEO; and Bill Burke, our CFO. Please note that all revenue growth rates of order firms on this call are in constant currency and less noted otherwise.

Our revenue guidance is based on organic revenue growth rates which excludes impacts from currency, product line end of life decision, and acquisitions and divestitures. Our remarks today will include forward-looking statements and our actual results may differ materially from anticipated results. Information concerning factors that could cause results to differ is available in Form 8-K was filed today and in other periodic filings that were made with the SEC. This morning with both is our fourth-quarter and fiscal-year '19 results in our investor relations website.

We included fiscal '20 guidance and thoughts of tables with information rule virtue on this call. Before I turn the call over to Chris, I would like to remind you that a consistent with our past practices will have excluded certain charges and income item from the adjusted financial results and guidance. Further details and such items including comparisons with the same periods of fiscal '18 are provided was the Form 8-K and have been both its our investor relations website. Our press release and website also include complete P&L and balance sheet and the summary statement of cash flows, as well as reconciliations of our reported and adjusted results.

And now I'd like to turn it over to Chris.

Chris Simon -- Chief Executive Officer

Thanks, Olga. Good morning and welcome to today's call. We are pleased with our finished the fiscal '19. In the fourth quarter, we delivered 8% revenue growth, and 42% adjusted EPS growth to $0.61.

In full-year of fiscal '19, we grew our top line 7% driven by plasma and hospital offset by declines in Blood Center due to continued slowing transfusion rates, and our decisions to exit unprofitable business. Adjusted EPS for the year grew 28% to $2.39 after growing 22% in the prior year. We received regulatory approvals, launched new products, and continue to execute our corporatewide transformation. We reduced complexity and cost to meaningfully expand gross and operating margins, while freeing up resources to invest in future growth.

These strong results exceeded our initial expectations and create momentum for additional growth in fiscal '20. We expect to grow organic revenue, 6 to 8% and adjusted earnings per share 17 to 26%, within a range of $2.80 to $3.0. With continued improvement in ROIC, and robust cash flow generation. We remain confident, we will deliver our stated goals of increasing adjusted operating income by two times, and adjusted free cash flow by up to four times in fiscal '21 as compared to fiscal '16.

Three years into a five-year turnaround we are fully on track. Our accelerating revenue growth and expanding profitability are evidence that our strategy is sound. I'd like to put our results in the context of six value drivers, we shared earlier this year at the J.P. Morgan Healthcare Conference.

First, we participate in a robust global plasma market where we have approximately 80% share. In fiscal '19, we grew plasma revenue of 15% globally driven primarily by strong demand for disposables in North America, where our revenue grew 18%. Our guidance for fiscal '20 is reflective of our leadership share in plasma worldwide, and the underlying industry growth in North America. We continue to see market growth above historic rates driven by an industry striving to double collections to 90 million liters by 2025 to meet the rising demand for plasma based medicines. NexSys is the platform best positioned to support this industry growth, and we have compelling real world evidence that gives us confidence in our value proposition, and our continued progress toward upgrading customers to the new system.

Customers have now completed over three and a half million Yes donations. The device is performing exceptionally well having enabled converted customers to safely select more than 80,000 extra liters of plasma. We are pleased about the design quality and our proven ability to manufacture, program, install and activate devices at scale. In parallel, we continue to upgrade our donor management software customer base to NexLynk.

There's a growing body of data that our system drives a paradigm shift in plasma yield center productivity, donor safety, and satisfaction, contributing to about a 10% reduction in the cost to collect a liter of plasma. For those customers who have converted the economic and operational benefits are meaningful, customer feedback has been very positive about the innovative new technology, and our accompanying customer service and technical support. Based on the system's performance to date and the evidence we are accumulating, we are more certain than ever about the value of our platform. We are engaging all of our customers in dialogue on the NexSys platform valued proposition, and we are confident that NexSys will solidify its position as the industry standard in plasma collection worldwide, and to strengthen our position as a value added partner. Second is our Hospital business, where we delivered 7% growth in fiscal '19, including 16% in Hemostasis Management.

Our performance was driven by commercial execution, new pricing strategies, rapid growth in tech disposables, and increased blood track adoption globally. All areas of hospital are expected to contribute to growth in fiscal '20, which is a critical year with anticipated product launches across the portfolio. TEG 6s continues to reshape the fast growing advance this year elastic testing segment. Our engineers are developing integrated software solutions to increase market share in transfusion management.

We are in the early launch stages of Safe Trace Tx version 4, and expect a full market release later this year. Cell salvage is poised for further improvement with Cell Saver Elite+ deployment increasing in targeted geographic regions. Hospital will benefit from increased focus having end of life non-strategic products like OrthoPAT, as we reshape our portfolio for growth and market leadership. We are excited about hospital and the impact our teams are having helping change the standard of care in what we believe is a $1.0 billion market.

Our products help healthcare professionals to improve the quality of the medical care they provide, while also lowering the total healthcare cost. We are unlocking the Hospital business units full potential as a growth engine by evolving from three smaller product segments to one larger more synergistic and relevant business, with TEG as its centerpiece. Third, we continue to invest in our innovation agenda. In plasma, we are innovating the NexSys platform including the device software and disposables.

Through experience with early adopting customers, we are assessing the expanded use of donor biometric data and analytics to personalize collections, not only making them safer but also exploring the potential to collect more pure plasma. Advances in TEG innovation will continue throughout fiscal '20, including a four channel platelet-mapping cartridge. We also continue to innovate selectively in blood center with opportunities for attractive near-term returns such as, the Universal Platelet protocol in Russia and China, as well as a constantly concentrated Platelet protocol in Japan to help us gain share of both single dose and double-dose platelet collections, support our customers drive for maximum efficiency. As recently announced, Dr. Claire Pomeroy joined our board of directors, and will serve on the newly formed technology committee to help champion our innovation agenda. Claire is the fifth new director to join Haemonetics board in the past three years, as we are committed to renewal, and diversifying the expertise of our membership.

Fourth, our redesigned operating model is focused on customer centric business units, incentivized to drive superior execution of well-defined strategies. Our model puts the right structure, products, and processes in place for a sustainable scalable business. And while it's early days, our fifth value driver operational excellence is helping us to become more productive. In fiscal '19, we drove 160 basis points adjusted gross margin improvement through a combination of product mixed price and complexity reduction. We continue to rationalize our product offerings and have seen significant benefits including, better inventory management.

Our complexity reduction initiative has reduced costs and freed up resources to invest in growth such as, our hospital sales force, plasma disposable manufacturing capacity, new devices, and talent. We are creating operating leverage across our P&L, and offsetting higher than expected manufacturing, and logistics costs. In fiscal '19, we improved our adjusted operating margin by 260 basis points. Prior to initiating this turnaround in fiscal '17, Haemonetics adjusted operating income margin was 13%.

Today, we are guiding to 19 to 21% for fiscal '20, about a 50% improvement. Although we have shown improvement in gross margin and operating margin, we have additional opportunity to improve product quality and lower our cost of goods sold. We are committed to earning a better return across our portfolio, and our asset base including making strategic decisions about the products we source and manufacturer to create a more flexible and agile infrastructure. Our operating and financial leverage fuels our sixth driver, capital allocation.

We expect meaningful capacity expansion in our strong free cash flow and debt facility. This allows us to allocate resources in a disciplined manner to grow the base business, augment our portfolio through M&A, and offset equity dilution. To that end, we announced a new $500 million share repurchase program. Now turn the call over to Bill, for more on our performance and guidance. Thank you.

Bill Burke -- Chief Financial Officer

Thank you, Chris and good morning everyone. Before I begin, I'd like to remind you that we have posted cables to our website that includes, specific dollar amounts, and growth rates I'll refer to in my comments. We had 7.8% revenue growth in the fourth quarter and 7% growth in fiscal '19. Plasma revenue was up 15.9% in the fourth quarter, and 14.8% in fiscal '19. North America Plasma revenue was up 17.6% in the fourth quarter, and 18.1% in fiscal '19.

In North America, we experienced strong growth in disposables volume which was in line with the 15% growth in U.S. collections recently published by PPTA for the previous calendar year. In addition to market growth, we realized benefits from NexSys conversions, implemented additional pricing initiatives within our liquid solutions product line and had growth in software from the annualizing of market share gains within our donor management software. Hospital revenue increased 7.2% in the fourth quarter, and 7.3% in fiscal '19.

Hemostasis Management continue to drive growth in Hospital growing 13.7% in the fourth quarter, and 16.1% in fiscal '19. Strong order timing in China and North America in the first half of fiscal '19 resulted in a slower growth rate in the second half. On a full-year basis, TEG continue to show an upward growth trajectory and acceleration over the lower-double digit growth rates we achieved in fiscal '17 and fiscal '18. Also within the Hospital business, onetime customer orders as a result of the end-of-life of OrthoPAT, a product line whose commercialization ended in fiscal '19 positively impact and result in fourth quarter. Blood Center revenue declined 4.6% in the fourth quarter, and 5.5% in fiscal '19.

Platelets revenue declined 6.1% in the fourth quarter, and 1.8% in fiscal '19, attributable to continued adoption of a competitor's double dose technology in Japan, partly offset by favorable order timing we saw in the first half of this year. Whole blood revenue declined 1.2% in the fourth quarter, and 9.3% in fiscal '19. About half of the decline in whole blood we saw in fiscal '19 was due to the annualization of impacts from Intentional business exits that no longer met our strategic objectives. The remaining half of the decline was due to slowing transfusion rates, additional pricing pressures in international markets, and quality issues in the first half of fiscal '19. We continue to transform our portfolio and expand gross margins.

Our fiscal '19 adjusted gross margin was 47.1% in the fourth quarter, and 47.5% in the full year. When compared with fiscal '18, our adjusted gross margin expanded 150 basis points in the fourth quarter, and 160 basis points for the full year. This expansion in gross margin both in the fourth quarter and fiscal '19 was due to improving product mix, pricing, our complexity reduction initiative, and currency. Partly offsetting these benefits, were higher depreciation and freight cost.

Adjusted operating expenses in the fourth-quarter decreased $4.6 million or 5.8%, compared with the fourth quarter of fiscal '18, and were lower by 390 basis points at 30% of revenue. For fiscal '19, our adjusted operating expenses increased by $10.8 million, with 3.8% when compared with fiscal '18, and will lower by 90 basis points at 30.4% of revenue. This reduction in operating expenses as a percent of revenue was a direct results of improvement in productivity, as well as favorable year-over-year comparison due to one-time investments in the prior year. We also continue to make investments to improve organic growth of Hospital and Plasma, and had higher performance based compensation and freight expense.

Our adjusted operating income increased by 56.7% to $42.8 million in the fourth quarter, and increased by 25.7% to $165 million in fiscal '19. Adjusted operating margin for the fourth quarter and fiscal '19 was 17.1%, improving by 540 basis points compared with the fourth quarter of the prior year, and improving by 260 basis points compared with fiscal '18. Our income tax provision on adjusted earnings was 21.6% in the fourth quarter, significantly higher than 11.6% in the fourth quarter of fiscal '18. The income tax provision in the fourth quarter of fiscal '18 included a year-to-date catch-up adjustment for the discrete benefits associated with the initial implementation of U.S. tax reform, and certain favorable shifts in geographic income mix.

The benefits from both items continued in fiscal '19, but were more evenly distributed on a quarterly basis throughout the full year. Our fiscal '19 tax provision on adjusted earnings was 18.2% or 280 basis points lower than fiscal '18, primarily due to the benefit of a full year of U.S. tax reform, and higher levels of stock option exercises, and share award vesting. Adjusted earnings per diluted share were $0.61 in the fourth quarter, and $2.39 for fiscal '19, increases of 41.9% and 27.8% respectively when compared with the same periods of fiscal '18.

We have realized $54 million in savings, as a result of the complexity reduction initiatives since the program's inception and reinvested the majority of the savings in Plasma and Hospital. Additionally in the fourth quarter and fiscal '19 we incurred approximately $6.4 million and $13.6 million respectively in restructuring and turnaround expect --expenses, anticipated by our complexity reduction initiative. Free cash flow before restructuring and turnaround costs was $70.7 million in fiscal '19, compared to a $161.8 million in fiscal '18. The decrease is the result of higher capital expenditures and working capital, including NexSys PCS devices and expansion of Plasma disposables production capacity.

In fiscal '19, we also completed our previously authorized share repurchase program, and purchased $160 million worth of company stock. We finished fiscal '19 with $169.4 million of cash on hand, a decrease of $10.8 million from the prior year. Now turning to fiscal '20 guidance. Our fiscal '20 organic revenue growth guidance is expected to be in the range of 6% to 8%. We remain confident in the continued market growth underlying our commercial Plasma business, and anticipate plasma revenue growth of 11% to 13% in fiscal '20, including North America plasma growth of 14% to 16%.

Our North America revenue guidance includes only NexSys device contracts that have been signed, and includes the annualizing of pricing premiums from NexSys device conversions in fiscal '19. We expect 11 to 13% organic growth in our Hospital business in fiscal '20, and expect that growth in Hemostasis Management will be consistent with the revenue growth rate we have seen in fiscal '19. Due to the size of Hemostasis Management, the impact that a relatively low dollar amount has on its growth, we will continue to see some variation in Hemostasis Management quarterly growth rates during the year. In the first half of fiscal '19, we had a favorable impact from order timing in China and North America and as such, we expect that first-half revenue growth rates TEG will be significantly lower than in the second half of fiscal '20. Also, Transfusion management will benefit from new product launches, which will start contributing toward growth in the second half of fiscal '20.

Our fiscal '20 guidance, the Blood Center revenue is a year-over-year decline of 6% to 8%. The anticipated revenue decline in Blood Center is slightly higher than in fiscal '19 and reflects additional business exits, primarily within whole blood that no longer meet our strategic objectives. Our guidance also assumes additional declines in transfusion rates and single-dose platelet collections in Japan. We expect unfavorable impacts from order timing in the first half of fiscal '20 when compared with fiscal '19. We will continue to realize savings in both cost of goods sold and operate expenses, similar to fiscal '19 as part of our complexity reduction initiative.

We will substantially complete this program by the end of fiscal '20 and expect 25 to $30 million of incremental cost savings. We expect that about one third of our fiscal '20 complexity reduction savings will drop through to operating income. The remaining two thirds will be offset by higher depreciation from NexSys device placements; depreciation from capacity expansion for plasma disposables, and investments to support new product launches, and strengthen other areas of our business. We expect adjusted operating margin to be in the range of 19 to 21%.

This margin expansion represents an additional 200 basis points to 400 basis point expansion over fiscal '19. After two consecutive years of delivering EPS growth of more than 20%, we are setting our guidance at 17% to 26% growth in fiscal '20, and expect our earnings per share to be in the range of $2.80 to $3.0. With our recent history of delivering growth both on top line and bottom line, coupled with increasing operating and financial leverage, we remain confident in our ability to deliver our fiscal '21 aspirations of doubling our operating income when compared with fiscal '16. We expect our fiscal '20 free cash flow before restructuring and turnaround expenses to be in the range of 100 to $125 million.

Additionally, we sought and gained authorization from our board of directors for the repurchase of up to $500 million of Haemonetics common shares, with the authorization expiring two years from the date of its issuance. The timing and amount of activity under the repurchase program will be at management's discretion. The intent of the authorization is to offset dilution, including ongoing dilution anticipated over the two-year period. In addition to the share repurchase activity, the company's capital allocation strategy continues to prioritize funding of all planned internal investments to support the business, as well as inorganic opportunities to accelerate its long-term growth plans. Before we take your questions, I'd like to take a moment and summarize a few important points we discussed during our call.

Our ability to generate revenue and earnings growth reinforces our confidence in achieving our operating income target of $240 million, and up to four times fiscal '16 free cash flow by the end of fiscal '21. Our expected revenue and adjusted EPS guidance includes only NexSys device contracts that have been signed. Any additional signings will enable us to update our guidance. Our complexity reduction savings commitment of $80 million is expected to be achieved by the end of fiscal '20. Our free cash flow generation together with a $350 million credit line, and our EBITDA expansion leave ample capacity for investments into our core businesses and inorganic opportunities, while also allowing us to address continuing dilution through our newly authorized $500 million share repurchase program.

Now, I'd like to turn the call back to the operator.

Questions & Answers:


Operator

Thank you. [Operator instructions]. And our first question comes from David Lewis from Morgan Stanley. Your line is open.

David Lewis -- Morgan Stanley -- Analyst

Good morning. Chris, a strategic question for you, a couple quick financial ones for Bill. So, first Chris, you're very clear about fiscal '20 plasma guide, what's embedded that number. As you think about your 21 goals of doubling EBITDA and free cash flow generation.

Chris we know that 20 numbers do not apply in NexSys contracts, but can you deliver the EBITDA in free cash flow targets. You communicate to the street without additional NexSys contracts.

Chris Simon -- Chief Executive Officer

Thanks, David. Appreciate the question. We're very confident that what we've accomplished over the last two years; what we're guiding to this year will carry forward, and you can expect comparable growth rates into 21. Based on the six value drivers that we talked about.

Obviously, plasma is first among them. We take a lot of pride in what we're accomplishing both with the market. A market that's growing double digit and robustly into the future, as well as NexSys and further innovations that we have planned for that platform. But there's also Hospital, our innovation agenda, the operational excellence, and our operating model.

Not to mention our capital allocation. All of them are important contributors and give us a high degree of confidence in our ability to keep what has been a 20% plus growth rate going in our earnings carry forward.

David Lewis -- Morgan Stanley -- Analyst

OK. Very clear, Chris. And Bill, just two for you to ask them both together here in the time. So the first is just balance sheet dynamics in the fourth-quarter Bill.

Inventory is up very materially, much larger than a year ago period and then cap ex was down. Can you just walk us through why inventories were up. I think I understand my capex was down, but that would be very helpful for people. And the second question is on operating margin expansion.

Thank you for disclosure on the drop through on the CRI. It's about 100 basis points of margin expansion. Are you still guiding to more margin expansion at '20 relative to '19. There's still another 200 basis points of expansion which can't be explained for by the cost reduction initiative.

So just walk us through the other drivers of fiscal '20 margin, and how you're doing on some of the manufacturing and logistical challenges that we're seeing in fiscal '19. Thanks so much.

Bill Burke -- Chief Financial Officer

On the balance sheet specifically, in working capital both on accounts receivable and inventory, we had increases versus the beginning of the year. On the CRI side, we did have a transition to a third-party provider on collections specifically. And we did have growing pains as we moved over to that provider. But now we're actually seeing a reduction on the on the account receivable.

We have no credit issues whatsoever. On inventory specifically, we're in a better position today than we ever have been in managing our inventory. As you know, we had capacity expansion come online in our third and fourth quarters. And we have now the ability to start to ramp up our inventory to meet the demands, the growing demands of our customers in terms of volume growth in plasma specifically.

And on the second question our operating margin expansion, we are guiding to 19 to 21% margin -- operating margins in fiscal '20 which is a 200 basis point to 400 basis point expansion. It's not totally explained by the complexity reduction drop that I provided, but we will get leverage. Also on the revenue growth that we have in the plan. So I think those two combined will drive the operating margin expansion in total.

Operator

Thank you. Our next question comes from Anthony Petrone from Jefferies. Your line is open. Please check that your line's not on mute.

Anthony Petrone -- Jefferies -- Analyst

I apologize for that, I was on mute. Thanks. A couple on the moving parts on guidance and maybe one on hospital. Can you just have some more details on specifically at the operating margin level.

Last quarter there was freight costs that ran in excess but there was also installation costs. So I'm wondering on those two moving parts on how that's reflected in guidance and in particular on freight. If there's no offsets here out of the gate, is that potential upside as you move to the year and a half of a couple of follow ups. Thanks.

Bill Burke -- Chief Financial Officer

So on freight specifically, we did talk about FY '19 about increasing freight costs. Now moving into FY '20, what's embedded in the guidance on freight, freight would just be a typical increase due to the volume increases that we're seeing across the business. We're not anticipating any major increase like we saw in the prior fiscal year. And then on the NexSys for all of costs.

We did obviously have NexSys for low costs in FY '19. We are anticipating some NexSys rollout costs. There is a trickle effect of continuing cost as we move forward. But in the plan obviously, only a guiding toward NexSys contracts that are signed.

So the impact of the rollout cost will be far less in '19.

Anthony Petrone -- Jefferies -- Analyst

Maybe just on volumes, can you give us an update as you work on some of your customers where plasma center build outs are. Our understanding is that most of the customers are still planning on increasing centers this year, where that process sits and maybe anything OUS on out of the European conference, there is a center capacity in Europe as well. And then my last one will be on hospital. Thanks.

Chris Simon -- Chief Executive Officer

Sure, Anthony, this is Chris. I think you are right. The industry has meaningful unmet demand for additional plasma collections. We see that in their activity.

Your PPTA has estimating the industry trade association has estimated doubling of collection volumes to 90 million units by 2025, about calculate off of that. That's where you hear the 8% to 10% in compound annual growth rate. We're clearly running ahead of that. And then the industry is running ahead of that has done so for the last two years and we're guiding that it would happen again this year.

So we're excited by that. The way they're meeting that demand, they really have three levers available to them. They can buy source plasma on the open market from our blood center customers. That comes at a significant premium, but they're absolutely doing.

So they can add new centers which they do. They're all committed to that and we see more of that ahead for FY '20 and beyond. But you would hear from those customers that's a three or four year proposition break-even proposition with a lot of upfront expenditure and diminished productivity in that interim period. They can also pay their donors more on a per donation basis, particularly new donors to attract additional foot traffic.

We like the NexSys value proposition as a fourth lever to help them get there. It comes with a lot of benefit. It's fully variable and their cost structure and significantly better economic returns. So we see NexSys as a very powerful tool in helping advance that collection rate which is we're guiding here.

It's going to be in the low-teens going forward. Internationally, it's still a story of country-to-country what their legislative front is, and how well they're collecting obviously, a significantly slower rate of growth, but still growth. And we're happy to participate and as we have meaningful share expansion there.

Anthony Petrone -- Jefferies -- Analyst

And on TEG just update on trauma. Thanks again. I'll hop back in queue.

Chris Simon -- Chief Executive Officer

Yes. We noted last quarter, we've submitted the TEG trauma indication for the 6s in North America. We have the ability to use 6s and trauma worldwide outside the U.S. and our major markets outside the U.S.

And we had the 5,000 in the trauma suite. We think the cartridge base 6s is a better site of Care technology. We submitted our application to FDA. We're undergoing what's been predominately an interactive review up to this point, and we're cautiously optimistic but obviously, we'll work with that directly with FDA. 

Anthony Petrone -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Dave Turkaly from JMP Securities. Your line is open.

Dave Turkaly -- JMP Securities -- Analyst

Thank you. As I'm looking at your guidance and I appreciate all the color on the operating margin side. But we're looking at restructuring and turnaround, you've got reduced complexity and cost. And I was wondering if you might be able to give us a little color in terms of the improvement you expect between the gross margin.

And then the SG&A line. Do you think you're gonna get benefits that will accrue to both of those that are relatively similar in terms of basis point size next year or this fiscal year.

Bill Burke -- Chief Financial Officer

Thanks, David. I'm going to I'm not going to say specifically what the margin improvement is due to gross margin or leverage in operating expenses. But I can just say, we are always focused on full elements in the P&L. We have said though over the last year and a half since the complexity reduction program was announced that upfront the operating expense savings would be easier to get to than any improvement in gross margin.

We have seen improvement in gross margin in FY '19, and we hope to continue to see it. But as far as the distribution of the 200 basis points to 400 basis points improvement I'm just going to leave it at that.

Dave Turkaly -- JMP Securities -- Analyst

I guess this is just a quick follow up on that. The SG&A component, can you talk about headcount or what. How are you driving savings of that magnitude. And just some color around what where you're seeing that.

How you're driving those savings.

Chris Simon -- Chief Executive Officer

Yeah. Dave, it's Chris. We try hard internally to separate sales and marketing from general and administrative, they're all expenses. We want to manage them thoughtfully.

But we've actually expanded our sales force particularly in North America in the Hospital business and to a lesser extent for the for the NexSys rollout in our Plasma business. The intention there is to be able to meet and drive an increased demand for our product. And we see good return on that investment and we're excited about that. On the G&A front, that's been the primary benefactor of our complexity reduction.

We've outsourced, we've offshore, we've streamlined, and we've held ourselves accountable for tight standards where we run that roughly with a comparable cost base year over year and as we have a growth in our business. Overall, we get increased operating leverage as a result of it. It's one degree. If you think back on where we were, it was my third year anniversary at the company.

When I joined the company, we ran at a 13% operating income margin for the guidance that Bill offered this morning in our prepared remarks. We're looking at 19% to 21% that is approaching a 50% improvement in that three year period. And we're excited about that. And this trajectory, we can build from there.

Dave Turkaly -- JMP Securities -- Analyst

I agree and that's what I've been looking for the additional color. So I appreciate that. Last one, you've talked about M&A opportunities particularly on the hospital side . What's your confidence level that you may be able to get something done given where your balance sheet stands today.

Bill Burke -- Chief Financial Officer

Yes, I appreciate that. We've tried to be very clear about this dating back certainly before this. But even in the J.P. Morgan Healthcare conference discussion, our sixth value driver is thoughtful and prudent capital allocation.

We have three very clear priorities in hierarchy order. No. 1, is the investment in our underlying business that ranges from R&D to fee on the street, sales force to the device builds that we need to meet the ongoing demand in our markets. We feel very comfortable with our ability to cover that.

The second priority is in organic growth and M&A. And we have a sizable war chest, sizable and growing war chest between our free cash flow and our expanded that capacity to do what we want to do there. The buyback that we announced this morning is our third component, and that's really just focused on addressing dilution of current and future in the market. With regards to M&A, we're committed to it.

I think hospital is the place you can expect that, but we're also committed to doing accretive deals, not just any deals. Valuations in the market are high and we want to be thoughtful about what we step into and make sure that there's an appropriate return. We care deeply about return on invested capital, and we're going to make sure that comes through and whatever we do in the M&A front. 

Dave Turkaly -- JMP Securities -- Analyst

Thanks a lot.

Operator

Thank you. Our next question comes from [inaudible] from Raymond James. Your line is open.

Unknown Speaker

Great, thanks. I just want to first start with international. There's a lot of moving pieces there between contract exits some of the dynamics that you're seeing in Asia, Japan particularly. But could you talk a little bit about the sources of growth that you think you can keep in mind there.

And when we might start to see the International business begin to step up in its growth rate.

Bill Burke -- Chief Financial Officer

Yes. Let me disaggregate that because we do run it as three global business units. When I think about plasma, the legislative landscape. Plasma is disproportionately North America and really a U.S.

story. What we're excited by is with platforms like NexSys out there for the countries that have allowed remuneration for the donations. We do anticipate some level of growth, and we're there to meet them. These are the same global customers that we serve well in North America.

So we're cautiously optimistic. We can continue to drive our 80% share presence there. The open question for us on plasma is some of the emerging markets, China in particular. And we'll look carefully at that and consider options going forward that as those markets come on line as our core customers worldwide invest more in China.

We want to be there to meet them so they can collect on the standard for plasma collection worldwide. And we think we have the ability to do that. Hospital is already an International market. Our Hospital businesses is roughly a 50/50 split.

It may be closer to 55%, 45% and the current guide, but that's just a reflection of individual products and growth and launch. But we're very much think about our product our our hospital portfolio as three products across the essentially seven to 10 markets worldwide. We think about each of those individual markets as distinct, and I think one of the things that's fueling the growth in hospital. The growth we had this year, the growth we're forecasting going forward off of a very modest base is because it's truly a global story with international contributing equally.

And then Blood Center is even more skewed for us at least toward Asia and Europe where we've just had more success. Some of the incremental innovation that we're doing around platelets and Red Cell collection is a reflection of our desire to retain what we've fought hard to own in those markets with Japan, with Russia, with with China, and elsewhere in Europe. So we're excited about the global aspect of that business as well. And I think you'll see important ongoing contributions there.

Unknown Speaker

And then I just wanted to check on one item here. So I know that as of February, you were looking for capex to be around $150 million, $160 million it looks like it came in at $119 million, so certainly below your anticipation three months ago. So could you talk about what was the difference there versus the prior guidance. And then how were you thinking about capex spending in the drivers for 2020.

Chris Simon -- Chief Executive Officer

Yeah, Larry, we have a tendency to be a bit conservative when we talk about our capex. Sometimes projects just don't--we all think they're going to come through and we're going to have the spending on them and sometimes it just get delayed into the next fiscal year. I think a year and a half or two years ago we had the same type of anomaly when we were looking at our capacity expansion to come online a little bit earlier. It's the same situation now.

And that delay from FY '19 into FY '20 is reflected in the 100 to $125 million overall free cash flow guidance. We're not going to guide because of that anomaly we're not going to guide specifically in FY '20 to capital right at this moment. Maybe halfway through the year, we'll provide an update based on the mid-year spending.

Unknown Speaker

On those days just on the on the capex, I know this came up on the third quarter, but just given some of the comments about the non linearity of the NexSys rollout and how that moves forward. Just does any of that again change from the $150 million to $160 million, or as you look into 2020. Again, contemplate some of that more non-linear thoughts around the NexSys rollout and the thoughts around the guidance capturing of what you have today.

Chris Simon -- Chief Executive Officer

Yes. There's no question that any NexSys builds would be a little bit lumpy depending on the contracts that we do receive. We are comfortable holding a certain level of  NexSys devices. Obviously, we have committed to a six months to nine month timeline with our customers on device delivery.

So as we receive the contracts, we'll hold to that that time frame too. 

Unknown Speaker

OK. Great. Thanks very much.

Chris Simon -- Chief Executive Officer

You're welcome.

Operator

Thank you. [Operator instructions] Our next question comes from Mike Petusky from Barrington Research. Your line is open.

Mike Petusky -- Barrington Research -- Analyst

Hey, guys, thanks a lot. So just a quick question around Blood Center, that's the only piece of your guidance that's a little bit worse than I had assumed and obviously, I understand the backdrop of falling transfusions. I understand the portfolio shaping that you guys are doing there. I guess my question is as you look out at that business, is there a place where you say, hey we can run with what we have, the assets we have, and this flattish type top line.

And the margins can hold together or is that a really tough business, and it's hard to foresee a place where you can stabilize revenues there.

Chris Simon -- Chief Executive Officer

Mike, it's Chris. With regards to Blood center, you are right. The dynamic that you see in the market particularly in North America continued decrease in the rate of transfusions, and therefore the demand for blood products is point one ongoing price pressure, driven competitively is an important piece. And our unwillingness to continue to perpetuate negative margin dilutive business that just doesn't meet our strategic objectives of the combination of those things is what's driven.

The decline we set forth a bold aspiration originally to maintain EBITDA neutral on that business that is more challenging given the dynamics on the top line. But we will continue to look at every aspect of that business including our gross margins, and our operating expenditures, and how we manage it thoughtfully going forward. I'm cautiously optimistic that there's a few developments in the market that will further strengthen our competitive position. And as that plays out, we have a fighting chance of getting back to our EBITDA neutral aspiration.

And that's the strategic role that plays for us in our portfolio as we narrow our focus. We aspire to serve our Blood Center customers exceptionally well. On the product lines in the segments where we are competitive. And that's what you see in our guidance going forward.

Mike Petusky -- Barrington Research -- Analyst

Fair enough. Thank you.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Olga Vlasova -- Investor Relations

Chris Simon -- Chief Executive Officer

Bill Burke -- Chief Financial Officer

David Lewis -- Morgan Stanley -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Dave Turkaly -- JMP Securities -- Analyst

Unknown Speaker

Mike Petusky -- Barrington Research -- Analyst

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