Haemonetics Corp (HAE) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Haemonetics first quarter fiscal year '05 conference call. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following the presentation. Please note that during the the course of the call, Haemonetics could make statements that could be characterized as forward-looking, and actual results may materially differ from the anticipated results. Additional information concerning factors that could cause actual results to differ materially, is available in the Company's press release and 10-K. Brad Nutter, Haemonetics President and CEO will moderate this call. Mr. Nutter?

Thank you, operator. Good morning. Today I'm joined by Ron Ryan, our Chief Financial Officer, Lisa Lopez, General Counsel and VP Administration, and Julie Fallon, Director of Investor Relations. Our comments today will cover 3 things. First, I'll comment on our performance for the quarter, and our guidance for the year. Second, Ron Ryan will provide details for first quarter operating results. Last, I'll return to discuss some priorities for the second quarter.

Let's begin by reviewing the quarter, and how it tracks to full year guidance. This quarter, Haemonetics achieved revenue of 94.6 million, 7.2% increase over Q1 prior year. Our annual guidance was mid single-digit growth. So we overachieved in the quarter against our full year goal. Let me add some transparency on revenue, and walk you through the 2 factors that affected the business, so you can see the organic growth in our business. Remember, we expected a decline in revenue in FY '05, due to the volatility in the global plasma market. The loss of Alpha and the pressures in the European plasma market was planned to have a negative effect on revenues. For the quarter, plasma revenues were, in total, down $4.1 million. So we really started with a hole in prior year comparisons. Conversely, currency had a positive impact on revenue results this quarter, somewhat offsetting the loss in the plasma business.

So let's look at revenue results. When we peel away the effects of currency and the temporary volatility in the plasma industry, Haemonetics' organic growth was 10%. Now, this is worth repeating. Our growth, in organic terms, was 10% over prior year when we peel away the effects of currency, and the temporary volatility in the plasma market. My point is, strength in other product lines, offset the plasma loss. When the plasma markets rebounds, as both we, and our customers expect, Haemonetics will be very well positioned.

Moving beyond revenue, our full year goal for gross profit margin is high 40% range. Gross margin for the quarter was 49.8%. Aside from currency, market improvement comes from price improvement. Our plan is to grow annual operating income more than 20%. For the quarter, operating income grew 82.8% over prior year, to $14.9 million. We also plan to improve our operating margin above 12.6%, which is what we reported for the full year and fiscal year '04. Operating margin for the quarter grew to 15.8%, a significant improvement over prior year, when our operating margin was 9.3%.

Finally, our EPS goal is in the $1.38 to $1.43 range for the year. Earnings per share for the first quarter were 38 cents, an 81% increase over Q1 FY '04 of 21 cents. So we're comfortable affirming our full year guidance. I'm pleased that with 1 quarter behind us, we're tracking to the high end of our annual ranges.

Now I'd like to comment on our 2 continuing strategies. The first strategy is to leverage the core business to improve growth and profitability. The second strategy is to prepare to expand our business, using the core competency review process. In reviewing our first strategy to leverage the core business, several factors are affecting growth.

Let's start with the donor business, and specifically the plasma product line. We started the year anticipating a $12 million decline in plasma sales over the year. Now, this decline is caused by 2 things. Primarily the sale of our key customer, Alpha, to our only competitor, and secondarily, declining plasma collections in Europe. Plasma fractionators and collectors continue to consolidate and affect our business. On a positive note, our sales kept pace with the trends in the plasma collection.

Last year, plasma customers identified an oversupply of plasma inventory that could take approximately 12 to 18 months to work down. This caused many collectors to temporarily reduce plasma collections. Recently, our customers have been telling us that the oversupply has been reduced to approximately 12 months.

Now, there are several factors in the donor business that are really driving growth. We see positive trends in a number of areas. For example, in the blood bank business, customers continue to recognize the value of quality and service in our product offerings. Our performance in the global platelet market in Q1 was strong, and Ron Ryan will give you more detail in a few minutes.

Our significant platelet market share, also makes us a partner of choice for marketing blood bank technology. For example, we now sell a platelet bacterial detection system in Europe, and other parts of the world. This capitalizes on an important trend both in blood banking, and makes it convenient for our customers to implement this new technology. Several sites across Europe are now trialing the technology, which has been well received. Additionally, several countries are considering mandating bacterial detection.

We also just announced an exclusive marketing agreement with Hemametrics. Hemametrics is a private company with new technology to test the hematocrit of blood donors, what some call blood iron. What's exciting about this technology, is that it's non-invasive. This means blood donors can avoid the uncomfortable finger stick test prior to donating blood. The finger stick is cited by some people as a reason for not donating. So Hemametrics believes that this product can help our customers recruit new donors. Worldwide there, are about 60 million units of blood collected annually, and every blood donation requires a hematocrit test. So it's a large market for this new technology. This is just another example of leveraging our strong market share and brand name to grow our core business.

In the red cell business, U.S. blood shortages continue. Just last week, the American Red Cross issued a press release, urgently calling for blood donations. In some parts of the country, there is less than 1 day's supply of blood. In fact, a spokesperson for the Red Cross here in the Northeast, said that our region has been particularly hard hit. Hospitals here have been advised to postpone non-emergency transfusions. Blood shortages like this, continue to drive use of our double red cell technology.

Additionally, we continue to migrate customers to filter sets, which is a high margin disposable that improves customers profitability and efficiency. We can also leverage our strengths as a provider of mobile technology. More than 70% of blood in the U.S. is collected on mobile drives at churches, businesses and schools, et cetera. Our technology has proven to be easy to use in this environment. Most of our customers are now using the technology on these mobile blood drives. For example, the Carolinas region of the Red Cross, just ran a mobile drive in which it collected 110 units of red cells in 1 day on our technology. This is a Red Cross record for mobile automated red cell collections. More importantly, our customer was able to put twice as much blood on the shelf during the summer months, when supplies are at their lowest. During Q1, we negotiated an extension of our agreement with the American Red Cross, and Ron will talk about this more later.

So now let me move to the patient business, and describe how we're leveraging the business there. Disposable revenue was 20.7 million, up 13.6% over prior year. And I'll comment on both of our product lines. For the Cell Saver brand, use of surgical blood salvage is declining in cardiovascular surgeries, as discussed on previous calls. Less blood is being lost in surgery. Consequently, this business is a business that we could plan declines. However, we've worked diligently to maintain our market share, and I'm pleased to report that the Cell Saver brand sales are up 4% over prior year.

The other part of our patient business involves OrthoPAT brand products. The OrthoPAT is used for surgical blood salvage and orthopedic surgeries. These revenues are growing rapidly, and the market is largely unpenetrated. The unpenetrated market itself is growing at about 6 to 8%, so this product has tremendous growth potential. Demand for safe, cost effective trans -- transfused alternatives drives the use of our technology.

Doctors continue to embrace the technology as evidenced by our 71% growth over prior year. We're penetrating new customers and Zimmer has done a great job in the United States supporting our efforts. As important as sales growth, the patient business also did an excellent job of improving margins, and contributed to our profitability.

Now, having reviewed the businesses, let me summarize. We continue to leverage strengths, as well as some market trends, to grow existing product lines. We offset significant shortfalls in one product line with strength in all other product lines. Expenses are well controlled and on plan. The Q1 focus was on initiating pricing strategies and reducing costs to maintain strong margins. You can see this reflected in the outstanding positive drop-through on the P&L, as reflected by operating income growing significantly faster than gross profit and revenue.

So now let me turn to the second strategy mentioned earlier, which is to expand the business using our core competency review process. To remind you, our core competency is a unique, internal process that can contribute significant value, is a competitive advantage, and can be leveraged to other market opportunities. Last quarter, I shared that we reduced a huge list of potential competencies down to 3. Namely, (1) sales and service for complex medical technology; (2) process management and high volume manufacturing; and (3) systems/IT services for medical devices.

At this time, I believe the first 2 are true potential competencies. I need more information to assess the third, and this quarter we made further progress, by choosing an independent party to evaluate these proposed competencies. We want to know that these competencies are world class, and can be leveraged into adjacent therapeutic classes. That part of the evaluation is underway. The independent evaluation should be enlightening, and I'll keep you posted on our progress.

But, let me emphasize, if there is an opportunity to expand our business, we'll not wait until the core competencies review process is finalized. It's important to remember, we're always considering new marketing agreements, joint ventures, and other arrangements such as those with Hemametrics, Hema Systems and Arizant. So let me sum up by saying that we're making good progress on both strategies this year.

With that, I'll turn the call over to Ron Ryan. Ron?

Thanks, Brad, and good morning. Today I'm going to share our first quarter fiscal year 2005 financial results, and give an operational update. I'm pleased to report on a quarter of solid performance against our goals. Consistent with our communications over the past year, all numbers are as reported. Foreign exchange did have a positive impact on the P&L this quarter. You can find information about this, as well as a detailed P&L breakout in operating cash flow metrics,on our website. Brad already reviewed our total revenues. But, as you may know, disposable sales represent nearly 90% of our revenues, and are the best indicator of how our business is doing.

Let me break down our disposable results by-product line. First, I'll review our donor product family, which consists of the plasma, blood bank and red cell product line. Miscellaneous and services are also included in this section. The plasma business, disposables revenue was $25.5 million for the quarter, down 13.9%. As Brad noted, these revenues were significantly impacted by industry consolidation. In fact, the loss of our largest plasma customer, Alpha, when it was acquired by our only competitor last year, had the most significant negative impact on the business. Next quarter, Q2 of FY '05, the loss of the Alpha business will result in a loss of another $4 million in sales. As Alpha was acquired in the third quarter of the last fiscal year, Q3 of this fiscal year will be the last quarter we'll report revenue loss comparison from the Alpha business.

Now, turning to the blood bank business, which consists of platelets and cell processing, disposables revenue was $30.8 million for the quarter, up 18.6%. Since 90% of our platelet sales are in Japan and Europe, this business is impacted by foreign exchange. We told you last quarter, that Japan had gained some market share for the year. They continue to hold that share this quarter, thus posting improvements over prior year.

In Europe, we won tenders in France and Germany for our platelet collection devices. It's more difficult to measure market share in Europe on a quarterly basis, but we did show disposable unit gain of almost 10% versus Q1 '04. Since our analysis indicates that this market is currently flat, we believe that we have taken market share. We plan to continue this trend, particularly in the U.S., where there is more growth opportunity for us, because our share here is currently less than 10%.

I shared you previously that as platelet supplies declined with the onset of mandatory bacterial detection, we expect customers to consider mobile platelet collections as one strategy to increase supplies. Mobile collection means bringing our machines into the community, instead of requiring platelet donors to donate at the blood center. We signed contracts with 6 customers to use our technology on mobile drives, and are starting to see some success here. For example, one customer collected 40 units of platelets on one of its mobile drives. Let me put that into perspective. Many blood centers collect fewer than 40 units of platelets in a day at their fixed site locations. This type of success can have a tremendous impact on platelet supplies. It's too early to predict meaningful growth of our platelet business in the U.S., but we are encouraged by this trend. To follow a point Brad made earlier, this is one more way that we're leveraging our strengths, in this case our product mobility, to grow our core business.

Turning to the red cell business, disposables revenue was $6.5 million for the quarter, up 41.6%. In the U.S., we grew red cell disposables revenue 54%. As you saw in our press release, we renegotiated our partnership agreement with the American Red Cross. We are very pleased with the new agreement, and look forward to continuing to serve the Red Cross. As part of this agreement, the Red Cross made a substantial capital investment in equipment, that had been placed in their regions over the past 2 years. This appears on the equipment line of our revenue analysis. For the year, while we expect to expand into some new regions of the Red Cross, we will put more focus on service, training and growth of collections at existing accounts.

Finally, miscellaneous and service revenue was $4.4 million for the quarter, down 17.8%. Revenue for our Fifth Dimension subsidiary is reported on this line. Fifth Dimension sells mainly to plasma customers and its sales have also been negatively impacted by the plasma industry consolidation.

Now, let me review our patient product family, which consists mainly of the Cell Saver and OrthoPAT brand. For total patient business, that is both product lines combined, revenue was up 13.6% to 20.8 million for the quarter. Cell Saver disposable revenue for the quarter was 16.4 million. Despite lost sales opportunities due to a decline in open heart surgeries, this product sales grew 4% this quarter over prior year. OrthoPAT disposables revenue for the quarter was $4.4 million, up 71%. Zimmer distributes this product in the U.S., where we've seen consistent, strong device placement over the last several quarters.

To remind you, our exclusive Japanese marketing with Arizant was extended for another 3 years. Under this agreement, we market the Bair Hugger patient warming system in Japan. We also added Arizant's Ranger fluid warming system to the agreement, another product for surgical customers, once the Ranger receives regulatory clearance in Japan.

We received some good news from Belgium in the quarter. The country has expanded reimbursement for surgical salvage to cover a broader range of surgeries. Nearly 40,000 more cardiovascular and orthopedic surgeries will now qualify for surgical blood salvage, significantly expanding our market opportunity for Belgium. Before I go into details on the other parts of the P&L, I want to remind you that we remain focused on generating positive drop-through.

For the quarter, we leveraged 7% sales growth, in a 19% gross profit growth, and an 83% increase in operating income. This performance was affected by currency, but more importantly, is a direct result of exercising restraint in operating expenses, and being disciplined in our pricing strategy. This is the third consecutive quarter of positive drop-through.

I've given you specific on sales, so let me now turn to the rest of the P&L. Gross profit was $47.1 million, gross margin was 49.8%, up 500 basis points over Q1 '04. Our CORE program, which stands for Customer Oriented Redesign for Excellence, generated more than $700,000 of operating cost reduction this quarter. We continue to target annual savings similar to FY '04, in the $5 million range.

Operating expenses were $32.1 million, up 2.4% over Q1 '04. In constant currency, expenses were $400 ,00 below the prior year. Spending for the year is structured so that we have the flexibility to protect our financial target through the prudent expense management. This is a discipline that we used to good effect last year.

Operating income was $14.9 million, up 82.8% over Q1 '04. This resulted in operating margin of 15.8%, up 650 basis points over Q1 FY '04. Our tax rate for the quarter was 32%, down from 36% in Q1 '04. This includes a $600,000 income tax benefit in Japan, that is reflected in the quarter's tax rate. The tax rate for the balance of FY '05 is projected at 36%. Earnings per share were 38 cents, up 81% over Q1 '04, when EPS was 21 cents. The tax rate change I just mentioned added 2 cents to earnings.

We maintain a strong balance sheet, producing $8 million of operating cash flow, which is free cash, after working capital and capital expenditures. We're managing capital expenditures below depreciation expense. Beyond cash from operations, we generated 2.7 million from stock option exercises. We now have $130 million of invested cash and $56 million of short and long-term debt.

A few final thoughts, I've been at Haemonetics now for 6 years, and in recent quarters we have shown stronger operating discipline and extended areas of the business. For example, we have improved our execution in developing partnerships. Second, we implemented broad pricing strategies. Third, we have extended our operational effectiveness discipline beyond the factories. And, fourth, we are running the business to generate positive drop-through. We're working hard on these, and other disciplines to assure we deliver on our full year commitments. Now I'll turn the discussion back to Brad.

Thanks, Ron. It's been a challenge to offset the gap in revenue versus last year in the plasma market, but I'm pleased that we've made good progress. I hope Ron's overview makes it clear; we're confident in our ability to improve growth and profitability, and achieve our full year guidance.

Now I'm going to turn to our 3 priorities for the second quarter. First, we continue our R&D programs to enhance our platelet collection platform, and to introduce the Cardio Plat blood salvage system. We remain on budget, and on track on both of these projects. Second, we will complete the external independent review of our potential core competencies. This last review will prepare us to enter the final stage of the process. The final stage of the process should lead us to the development of a new growth profile for Haemonetics. Now, this could take many forms, and as we move forward, we'll keep you posted. Third, we continue to focus on our strategy to leverage the core business for improved profitability. Something we've done with great success.

So let me close by sharing our enthusiasm on some key trends. Number one, it's not difficult to gain market share, but to gain market share with improved profitability, that's impressive. For 3 consecutive quarters, we've done just that. Two, trends in the plasma market continue to negatively effect the business throughout the year. However, I'm pleased with our ability to focus on our internal goals, offset losses, and exceed our plans. It's encouraging that, excluding currency and the temporary volatility in the plasma business, we achieved double-digit sales growth. Three, our cash flow performance is strong. All of us continue to focus on our balance sheet, and produce outstanding results. This positions us very well financially, for the completion of core competency review process. Four, we continue to strengthen and implement key relationships. Arizant, the American Red Cross, and Hemametrics are good growth opportunities.

In closing, Q1 was another solid performance for Haemonetics. At this point, I'm comfortable affirming our guidance, and note that we're currently tracking at the high end of our ranges. On behalf of the management team at Haemonetics, I want to thank all of our employees who contributed to this very fine quarter.

With that, operator, let's open up the lines for questions.

Thank you. The floor is now open for questions. If you have a question, please indicate so by pressing star, 1, on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that if you are using a speaker phone, to pick up your hand set to provide optimum sound quality. Please note that you will have the opportunity to ask 1 question, and 1 follow-up question. Then you will be returned into the queue. The question and answer session will last for the remainder of the hour. Once again, to ask a question, you may press star, 1, on your touch-tone phone, at this time. Your first question is coming from Steve Hamill of Piper Jaffray. Please go ahead.

Good morning.

Good morning, Steve.

Can you talk a little bit about the platelet market in terms of growth overall. I ask because, not only did you post strong double-digit results, but so did one of your most important competitors, and I know there has been talk about Baxter losing share, but it sure seems like this market must be growing a little bit faster than people expected.

Well, we've seen that the market has not grown significantly, and this is consist with our past comments. Improvements in yield, Steve, have maintained flattish collections. However, the kind of successes that you have seen from Haemonetics, we attribute to continuing to take market share, predominantly in Japan and in Europe.

Okay, and to what extent is your revenue on the platelet side also being benefited by this pricing strategy, that you have alluded to a couple times in your prepared comments?

It is.

It is, Steve. Let me give you a little additional color on that one. We've initiated broad pricing strategies across the business. Not just specifically targeted at platelets, but across all our donor business and patient business. So it's part of an overall strategy, and as you look at the positive drop-through, this strategy really started back in Q3 of last year and has continued through this year. So it's not just targeted at platelets, but it's a broad pricing initiative throughout the corporation.

Thank you. Your next question is coming from James Sidoti of Sidoti and Company.

Good morning. Can you hear me?

Yes, we can, Jim. How are you doing?

Very good. The question is I had is, on the last call you indicated you would be increasing -- extending on the R&D and SG&A lines throughout year, and based on the first quarter results, it doesn't appear to be that there was much of an increase. In fact, both these are down substantially from a year ago, on a percentage basis. What's your plan for the rest of the year? Do you expect an uptick in the second half?

We do, Jim. This is just a timing issue. In Q1, we came prepared and focused on launching the 2 new product lines that we're going to see a positive impact in, in FY '06. That's the MCS platform that we talked about last call, and the Cardio Pat. We're on time line and on budget for both of those, so we just see a timing issue in terms of R&D. We would expect that would ramp up in the back quarters of the year.

Okay, and SG&A is something similar there?

You know, expenses, operating expenses are the most controllable line on the P&L, and as we did last year, we wanted to see the year kind of come out forward, given the fact that we had the plasma hole to fill, so we've been diligent on expense management, and we would expect we have the ability to do that going forward. If we see opportunities to expand the business when prudent, we'll do that, but we've been conservative on that line as we were successful with that last year.

Okay, and I know I'm over my limit here, but just a quick one. What is the length of the Red Cross agreement that you extended?

It's multi-year.

Yeah, per our negotiations and relationship with the Red Cross, which I would say is much improved and an appreciated relationship certainly on Haemonetics part, we don't give the terms of our agreements, Jim. It is multi-year and we've done some real fine work with them, and we're pleased to have this extended agreement.

Thank you. Your next question is coming from Bob Dunn of Viscoe Brothers.

Hi. I have a couple of questions. First, maybe you can expand a bit on how far you would go in expanding your -- into product lines that fit into your core competencies. Will you go beyond the kind of blood banking and surgery markets that you now serve, say into general hospital supplies, you know, or something like that? Secondly, can you just update us on the red cell market, how active have your competitors have been, how much of the market do you think you still have?

Bob, let me take the first part of your question first. And it's a good one. As we have gone through this core competency review process, you might remember that we've looked at trying to figure out exactly what we think we're world class at doing. As we've gone through that, we see 3 potential core competencies, 2 we feel pretty comfortable about. That's why we have brought someone in from the outside to help validate if we're exactly as good as we think we might be in these core competencies. As we expand looking forward, we really want to take about another 3 months to evaluate those core competencies. At this time, presently, we don't see ourselves expanding much beyond our space to date. Although as we look at opportunities and as we strengthen the business through the positive drop-through in leveraging the core business that we have today, if we saw opportunities beyond our current blood space that, we thought we could participate in, and do it profitably, then we might consider that. But at this time, we haven't considered that yet as the option. It's still a little bit premature.

Your second question, in terms of red cells, we have done very well, as you heard Ron report. Our red cell growth is over 40%. We have continued to do well on red cells globally. Our relationship with the American Red Cross is strong. From a competitive standpoint, we have not seen major impact yet in dollars to our competitor with a new technology being launched. I don't believe that our competitor is in the Red Cross, for example. They may be other places. You would have to check with those guys, but we're just pleased with our continued growth rate at 40%. We think that's sustainable going forward.

I mean an important point here, Bob, is that we now have penetrated in excess of 4% of the U.S. market. Well, that leaves a lot of collections yet to convert. So there is lots of room for us to grow here.

Thank you. Your next question is coming from John Harlow of Ferrell Healy.

Why do I think I've seen this before?

Hi, John.

How are you?

Good.

Is there a change in strategy? I thought we kind of gave our machines in the double red cell to the Red Cross, and I notice there is a comment about equipment sales. Is there a change in your business model?

No, no, there isn't. Although we are prepared to support our customers' needs, and perhaps they're changing their direction, and we'll meet those needs. In the case of the Red Cross, they did decide to purchase equipment, and we are more than prepared to support our customers, whether we place the machines or they want to purchase equipment. So that's a-- that's being customer sensitive on our part. And we're pleased that, that indication by the Red Cross to this technology is a strong, strong support, John, from our perspective, that they believe in this technology, they want to implement it. So I guess if a customer is willing to buy the product line from you, I guess there is no better support for your technology than the willingness to do that. So we were pleased with that, and that's their direction, and we were more than happy to support it.

Indeed, we have a real shared interest now in improving, increasing the number of times that equipment is used every day. So, no better incentive than having the American Red Cross own the equipment outright.

So you're saying, you've given them the option from the beginning to either take it or buy it?

We routinely give customers the option all the time, and historically, most customers have preferred the option of using the equipment, and having it remain on Haemonetics' balance sheet. The American Red Cross decided that it was in its interest to own the equipment, and make it a permanent part of its, you know, its assets to deploy in increasing the blood supplies.

Thank you. Your next question is coming from Keith Markey of Value Line.

Good morning. Two questions. Just wondered if you could tell us a little bit more about the tax credit in Japan, and/or the tax benefit in Japan. And secondly, whether you could break out, at least on a corporate level, the impact of pricing on your sales growth.

I'll take the second part of your question, and Ron can talk about the tax part. This quarter we saw about 14% of our sales, excuse me, of our gross profit be impacted by pricing. So if you look at our growth over prior year on incremental gross profit dollars, 14% of that came from pricing. Ron, you might want to talk about the tax impact in Japan.

Yeah, we record our income tax in most quarters using an annual effective tax rate, but this quarter, and sometimes in other quarters, events are reflected in the period they occur. And so when we filed our Japanese tax return in the last quarter, that gave us the opportunity to record that $600,000 tax benefit.

Thank you. Your next question is coming from Neal Shaw, Frontier Capital.

Good morning.

Good morning, Neal.

Hi. I just, I had 2 questions. I'm not sure I -- your revenues for the full year, maybe Ron, you can clarify, 94 plus or 95 million. Can you-- I wondered, about 21 for the surgical disposables, right, the Cell Saver and OrthoPAT, I have about 31 for the platelets, 6 1/2 for the red cells, 25 1/2 for the plasma, about 4, just over 4 for services. So is the equipment the balance?

The equipment sales were about 6.7 million.

Okay.

In the quarter.

Great. And-- okay. I appreciate that. Also then, the second question is, within the disposable surgical, the Cell Saver and OrthoPAT, can you comment on that? Can you comment on the Cell Saver? You had talked about that a bit at the beginning of the call, and sort of what's going on there, and where you-- how you expect revenues in that to trend, to grow, or be over the next 12 to 18 months.

Sure. The Cell Saver disposable revenue for the quarter was about 16 million and up 4% over prior year. Now, unlike other product lines, for example, if you take a look at the whole blood bank business, it was a $30 million piece of business, up 18%. If you look at red cells were growing at 40%, OrthoPAT 71%. We're actually pleased with our 4% growth over prior year on Cell Saver because the marketplace is actually flat to down. So for us to be growing at 4% indicates, again, as we do-- as we have done for 3 consecutive quarters, we continue to take market share. It's counter-intuitive to say that we're excited about growing at 4%. On the other hand, considering this is a shrinking market, our growth indicates we're taking market share, and as I indicated, we've been implementing new pricing strategies. So we're really kind of pleased with that.

Thank you. Your next question is coming from Stan Mann of Browning Investments.

Good job, Brad.

Thanks, Stan.

Question on stock buyback. You have not discussed whether you're going to -- you have that in your plans for board approval.

Right.

I notice the number of shares has gone up significantly. Could you kind of talk to both issues, the share expansion, and the possibility of share buyback in the plan for the company.

Stan, this is Lisa Lopez. We don't have any immediate plans for share buyback, although there is the formality of a board authorization approving it. Frankly, the board is much more interested in identifying ways to spend that money, with the kind of returns that would be even more attractive to the business. And so we're holding back on share buybacks for the time being. On the share increase, it's really a reflection of stock option exercises.

Yeah, the shares grew about 5 to 6% in the quarter.

So that's option exercised?

That's right.

That's right.

Okay. Thank you.

Thanks, Stan.

As a reminder, if you do have a question, you may press star, then 1, on your touch-tone telephone at this time. Your next question is a follow-up coming from Steve Hamill of Piper Jaffray.

Yes. I was wondering if you could elaborate a little bit more about what you're seeing for a response on the opportunity to do mobile platelets in the U.S.. I know you talked in the past, about interest in Oklahoma, and I'm curious if you're seeing interest at other sites around the country, if you can give us any sense as to how many sites are showing interest in this.

Sure, Steve. Go ahead, Lisa. You've done some work on this.

Actually on the OBI side in Oklahoma, it's not interest. They have been collecting mobile platelets for a number of years now. You know, they are really one of the blood centers on the cutting edge, but there are a number of other customers who have, not only made the commitment contractually, but have begun to implement this program. Indeed, the customer that Ron mentioned in his remarks was not OBI. I'm not at liberty to be specific about the customers, but it is gaining traction.

Yeah, I'd just add this color for you, Steve. When you think about the fact that one of the 3 big problems our customers are faced with is getting more donors to be able to provide blood products for their customers, and getting more folks into the system, 70% in the United States, of blood donations happen not in the location, but mobily, and certainly our technology plays very, very well there in terms of mobile drives. So we see this trend developing. We think we've been positioned well as a -- from a technology standpoint, to have our equipment being very mobile. So we anticipate that that could provide growth, a vehicle going forward. And as we see this trend continuing, we'll continue to report some of the specifics of how we see it develop in the future.

Okay, and then can you address the hematocrit opportunity, and give us some sense as to how optimistic you are about this. It seems like it would make a lot of sense from a patient, or not patient, a donor comfort standpoint, but I'm sure is probably going to be an incremental expense for the blood banks.

You know, we'll give a couple pieces of color on it. First of all, part of our strategy has been, over the last 5 quarters, to look for ways to expand our business by partnering and working with others. This is a fine privately held company that has a really interesting device here that's non-invasive. If you have given blood, Steve, and for those of you on the call have given blood, it's really uncomfortable to have your finger stuck. It's not as uncomfortable to give the blood through the donation process. So we met with this company over the past year, and have developed a marketing relationship that we're pleased with.

Now, there are 60 million units of blood that are collected annually, and every one of those collections starts with a finger stick. So we believe that this is a new technology, since it's non-invasive, that's really worth looking at. I think it's not as much about an additional cost to our customer, but our customer giving their donor a choice of, would you like to be stuck, or try the new technology, or stuck with a finger. I think that's customer sensitivity on the part of the blood bank industry. So I don't think it's as much an incremental cost that will have a factor. I think it's a new technology that will have great application when their donors get comfortable with doing this, versus the old finger stick. So that's a strategy behind it. We think it's a marketplace that's about a $60 million opportunity for us.

Indeed, Steve. When we ask our customers, how can we help you, virtually every customer responds that the number one challenge they have these days, is recruiting donors. And so this is an opportunity for us to help the blood centers recruit more donors, and that's the way the blood centers are characterizing this. Not as an expense, but as an opportunity to sort of connect in a more satisfying way with their donor base.

There are no more questions. Here is Mr. Nutter with closing comments.

This was a very solid quarter for Haemonetics. I want to thank all our employees for continuing to be very focused on our 2 strategies. We've done a good job of leveraging the P&L this quarter, and we're making good progress on our core competency review. With that, thank you very much, and have a nice day.