Haemonetics Corp (HAE) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Haemonetics first quarter fiscal year 2006 conference call. At this time, all participants have been placed on a listen-only mode. And the floor will be open for your questions following the presentation. Please note that during the course of this call, Haemonetics may 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 the 10-K. Brad Nutter, Haemonetics' President and CEO, will moderate this call. Mr. Nutter, you may begin.

Thank you, operator. Good morning, everyone. Today, I'm joined by Ron Ryan, our CFO; Lisa Lopez, General Counsel and VP of Administration; Julie Fallon, Director of Investor Relations; and Brian Concannon, President of our Patient Division. Our call today will cover three things. First, I will comment on the Company's overall performance for the first quarter. Second, Ron Ryan will detail our quarterly operating results. And third, Brian Concannon will discuss progress on new product launches from the patient division. Then I will end with some closing comments.

Let me begin by reminding you that we have two strategies. The first strategy is to leverage our core business to improve profitability. The second strategy is to expand our business by leveraging our core competencies. I will focus on progress to these strategies throughout today's call.

I will start by affirming our annual guidance of revenue growth of 11 to 13 percent, operating income growth of approximately 20 percent, operating margins exceeding 16 percent, and diluted net earnings per share in the range of $1.73 to $1.83. This was a good quarter in which we performed right on track to meet our annual guidance. For the quarter, revenue was 103 million, up 9.1 percent, over Q1 of FY '05. We continue to strive to reach a higher growth profile, and as you can see, we're gaining momentum. This quarter's 9 percent top line came from a very balanced growth in our core business. We continue to improve profitability and Ron Ryan will give you more detail on operational performance.

But let me highlight our performance versus our remaining guidance goals. Operating income grew 23.6 percent. We're particularly pleased with this, since we're comparing against a very strong Q1 in FY '05 when operating income grew more than 80 percent. Operating margin for the quarter was 17.9 percent, versus 15.8 percent in Q1 of FY '05. Operating margin of almost 18 percent is a high not reached since fiscal year 1997. Earnings per share were $0.47, up 23.3 percent over Q1 of FY '05, when earnings per share were $0.38. So we're off to a good start this year. And we will remain confident in our ability to obtain double digit revenue growth as well as our financial and operational goals for the year.

As indicated earlier, our second strategy is to expand the business. The patient division launched two products and plans to launch three more products over the next year. So Brian Concannon will give you some exciting things to talk about later in the call. With, that let me turn the all over to Ron Ryan for details on our quarterly performance. Ron?

Thanks, Brad. And good morning, everyone. Today, I will review our first quarter FY '05 financial results and areas of the P&L where I would like to add detail. Then I will share some comments on divisional operations. For the quarter, revenue grew 9.1percent over Q1 of FY '05, to $103 million. The significantly less currency tail wind that we experienced in Q1 of FY '05. Q1 FY '05, 87 percent of revenue growth came from currency. This quarter, 31percent of revenue growth came from currency. We're pleased that for the first time in several years, we've seen all of our core product lines contributing to total growth. I will discuss product line growth in more detail in a few minutes.

But let me break down our success further. On revenue growth of 9 percent, unit volume contributed 8.6 percent, currency 3 percent, price improvement 0.4 percent, and product mix negative 2.8 percent. For the quarter, gross margin increased 300 basis points to 52.8 percent, versus 49.8 percent in Q1of FY '05. We took $700,000 out of structural manufacturing costs in the quarter and plan to achieve $4 million of structural cost reductions for the year. Our structural cost reduction program has been delivering significant cost savings for seven years, and let me assure you, it is sustainable.

Now, let me turn to expense management. As many of you may remember, our commitment to shareholders is to limit annual growth and expenses to one-half the rate of annual growth in gross profit dollars. However, we also shared with you on our last call that expenses as a percent of sales were expected to be high in Q1 and Q2, as we converted the ZLB Plasma Centers to Haemonetics devices as we wrapped up markets of new product launches.

Having said that, we did underspend in the first quarter versus plan. Actual first quarter expenses were $36.0 million, up 12.1 percent over Q1 of FY '05. Gross profit dollar growth was 7.4 million, and total expense growth was 3.9 million, so although our expense management goal is an annual objective, we are in the target range for the first quarter.

Operating margin was 17.9 percent for the quarter, up 210 basis points over 15.8 percent in Q1 of FY '05. Our tax rate for the quarter increased to 36 percent, up from 32 percent in Q1 of FY '05, when we had a one-time $600,000 income tax benefit in Japan. We continue to look for opportunistic tax strategies to bring our tax rate down but expect to remain in the 36 percent range this year.

Earnings per share were $0.47, up 23.3 percent over Q1 of FY '05. In addition to the slight underspending, and tax rate I just mentioned earlier, earnings were also impacted by higher short-term interest rate and hedge points.

So summing up the P&L, for the quarter, we saw the positive drop-through that we're committed to achieving annually. Revenues grew 9 percent, while gross profit grew 16 percent, and operating income grew nearly 24 percent.

We maintain a strong balance sheet, producing $3 million of operating cash flow, which we defined as free cash after working capital and capital expenditures. Cash flow was lower than our run rate because of investment in inventory and receivables to support the business. For the year, we expect about $40 million of operating cash flow.

Beyond operating cash flow, we generated $4.6 million of stock option exercises, and employee stock purchases for the quarter. We now have $198 million of invested cash and $45 million of short and long-term debt. Consistent with past communications, all numbers are as reported. Once again, foreign exchange had a positive impact on the P&L for the quarter. If you want to review our results with and without the impact of foreign exchange, look to our web site for the detailed P&L breakout as well as in operating cash flow metrics.

Now, I want to drill down a little deep near revenue by product line for disposable sales since disposables continue to be the best indicator of our business strength. First, I will review our donor product family, which consists of plasma, blood bank, and red cell product line. I'll Include miscellaneous and services in this section. In the plasma business, we plan for revenues to increase 7 to 9 percent on an annual basis, as we believe sales will be impacted by three factors. On the positive side, we are beginning a significant long-term supply contract for a plasma collection set and we expect a rebound in the U.S. plasma market. On the negative side, we see a weakening of the plasma market in Japan. For the quarter, plasma revenue was $27 million, up 7.1percent over Q1 of FY '05. As predicted, disposable unit growth from our new customer, ZLB Plasma Services, as well as some other U.S. customer, was a key sales driver.

Now, let me turn to the blood bank business which includes platelets, cell processing, and intravenous solutions. For the past two years, we saw double digit growth benefiting from temporary market shift, conversions to higher-priced disposables, intravenous solution sales, and currencies. On our last call, we said we expected growth in the blood bank business to temper with growth returning to single digits. Blood bank disposables revenue for the quarter was $33 million, up 6.2 percent, over Q1 of FY '05. Very strong unit growth in Asia, still an emerging market, as well as currency contributed to revenue growth in the quarter. We're pleased that despite not benefiting from the opportunistic type of events I just mentioned, we continue to grow here. So our two core product lines of plasma and blood bank reported 7 percent and 6 percent growth respectively. This is the balanced growth I spoke about earlier.

Turning to the red cell business, we plan for annual disposables revenue to increase 30 to 40 percent. Q1 of FY '06, red cell disposable revenue was $8.5 million, up 30.9 percent, over Q1 of FY '05. One of our goals this quarter is to continue to grow units at our current customer base. In the U.S., the red cell business grew 34 percent, much of which came from unit growth. Blood shortages continue in the U.S., driving use of our technology to maximize the amount of blood collected from each donor. On July 5, our local Red Cross reported that it was down to less than one day supply of blood for all blood types. Blood shipments to area hospitals have been reduced. There are shortages like this being reported all over the country. Our double red cell technology can address this problem.

Our European marketing continues to be focused on early adopters, but we're pleased to report nearly 20 percent growth in our European red cell business in the quarter coming from unit growth, price improvements, and currency. Another goal for the donor division is to continue to convert existing customers to our filtered red cell collection kit. Filtration removes potentially harmful white blood cells prior to patient transfusion of the unit of blood. The filtered red cell disposable is higher priced but offers customers a cost effective high quality means of filtering blood. We are excited to report that the American Red Cross, Fort Wayne region, has completed the Red Cross's first pilot of our filtered disposable set. The pilot went well, and the region is completing its report to national Red Cross headquarters. This is a great opportunity to expand our relationship with this very important customer.

Moving on to the miscellaneous and service line, Q1 of FY '06 revenue was $6 million, up 33.5 percent. Revenue growth from our Fifth Dimension subsidiary was a key contributor to this growth. 5D saw revenue gains in the quarter from new contracts as it begins to penetrate beyond plasma collection and into the broad blood bank collection market.

Now, let me review revenues from our patient division, which includes the Cell Saver and OrthoPAT brand products. Cell Saver disposable revenue for the quarter was $17 million, up 4.1percent over Q1 of FY '05. Our growth expectations for Cell Saver for the year is 1 to 3 percent, or slightly over that for the quarter. OrthoPAT's disposables revenue for the quarter was almost $6 million, up 28.3 percent over prior year. Our growth expectations for the year are 35 to 45 percent, so we fell short of that goal on a quarterly basis. The majority of the shortfall came from unit sales in the U.S. Brian will talk more about this.

I will close by saying again that we are pleased to see that growth is balanced among our core product lines of plasma, blood bank and Cell Saver and that our newer red cell and OrthoPAT product line continue to be meaningful growth drivers to the business. We continue to increase operational effectiveness, with operating income growing nearly 24 percent on high single digit revenue growth. Now, here is Brian Concannon, President of the Patient Division group, to review progress to date on new products for the patient group.

Thanks, Ron. And good morning, everyone. Let me remind you that full-year guidance for the patient division is revenue growth of 10 to 15 percent. For the quarter, disposables revenue was 9.2 percent. So we didn't achieve our full-year range in the quarter. But I'm confident that we will achieve this range for the year.

Let me explain why. We missed our target in the quarter primarily due to lower-than-planned U.S. OrthoPAT revenues. We came off a solid year last year with Zimmer in the U.S. and with direct sales in the rest of the world. This year, Zimmer is off to a slow start with some Zimmer distributors underperforming. As you may remember, we have a contract with Zimmer that includes minimum sales commitments. So we are discussing with them some joint steps we can take to address the revenue shortfall. We remain confident that the OrthoPAT represents a strong growth opportunity worldwide. Outside the U.S., the OrthoPAT continues to grow significantly, and overall, we achieved our operating income plan due to strong based business sales and gross profit dollar growth, and disciplined expense control. In addition to our sales results, we made important progress implementing some critical parts of our strategic plan. I will briefly review the patient division strategy and then talk specifically about our new products.

In May, 2004, we shared with investors that the patient division had developed a strategy to drive growth to expand into adjacent markets, and enhance our value proposition to our customers. Rather than remaining a company narrowly focused on washed cell salvage, we now think of ourselves more broadly, as a surgical patient management company. We reiterated this strategy at the May 2005 investor round table. Our focus on surgical patient management significantly expands our potential product line. But in the near term, we're focused on growing from our base of strength in surgical blood management, including automated wash salvaging of blood, enhancing surgical transfusions, and minimizing blood loss. In the near term, we will expand our product portfolio beyond washed cell salvage to become a blood management company. And in the long term we will focus on expanding into a broader surgical patient management company. We have already begun this expansion.

Now, let me shift gears and highlight our progress with our five new products, that will help us achieve this strategy. Success with these new products will be measured in two ways. First, the sales success. An second, an equally as important is learning how to launch new products.

Introducing new product has not been a skill set for us. So let me share with you what we've learned and how our first two launches are going. As an organization, we've always been good at inventing product and at creating market. However, it has been five years since we introduced a new product in the patient division. So prior to launching our first new technology, we implemented a defined and well disciplined process for new product introductions.

Following regulatory approval and technical release of the product, our process has three phases. Customer acceptance trials, limited market release, and full market release. These processes are designed to shorten the time between invention and market creation. And to ensure the success of the product launch. Throughout each stage of the launch, we focus on in-depth training of the field staff involved.

We used and refined this process in the launches of the Cell Saver 5 Plus and the CardioPAT system. The Cell Saver 5 Plus is an example of the new impact that our new process is having on product launches. The Cell Saver 5 Plus is an enhanced cell saver device with better interface making it easier to use and with component improvements, making it more robust. We launched the device worldwide in the first quarter of this calendar year. The device has been well received with very strong equipment orders in the quarter. Our focus on equipment sales versus placement is also driving sales. We now pay bonuses to our territory managers on device sales and territory sales improvement it so this incentive is driving higher profitability for the device.

Finally, extensive field training has allowed territory managers to sell the value of the Cell Saver 5 Plus and the role it can play in surgical blood management. Let me put these factors into perspective. Prior to the launch of the Cell Saver 5 Plus, we averaged installation of 88 Cell Saver 5 devices per quarter. In Q1, we installed 111 Cell Saver 5 Plus devices. This represents an increase of more than 25 percent over our run rate. Equipment orders for the Cell Saver 5 Plus resulted in over 1.4 million in revenue for the first quarter of this fiscal year alone. Sales to date are beating expectations.

Now, let me move on to discuss our newest product, the cardioPAT blood salvage system. The cardioPAT system is a surgical blood salvage device that brings the unique advantages of blood salvage during or after surgery to cardiovascular patients. As you may recall, the customer acceptance trials or CAT trials for the cardioPAT were carried out in Europe and the U.S. near the end of the last fiscal year. Over 100 procedures were performed. And the CAT trials helped us determine the need for some technical adjustments to the device, and for some training refinements to improve the ease of use of the device. We began limited market release on the cardioPAT early in the calendar year in selected territories in the U.S., the U.K., Austria and Italy. As part of the limited market release, we validated the importance of the highly educated sales force, and well defined sales strategy and market acceptance of this new technology. We have now certified our entire U.S. field staff in the cardioPAT, and we have also completed field staff training in several European countries.

Our first sales for device and disposable contracts came in May in the U.S. and Italy, during the limited market release. We entered full market release on the cardioPAT on schedule in June in Europe and in July in the U.S. On full market release, we placed about 30 devices for customer evaluation in seven different countries including the U.S.

Recently, during one of these customer evaluations, we determined that we could have a potential problem with the check valve, and made the decision to implement a voluntary recall. While this approach is conservative, we feel it is prudent as we place patient safety as our number one priority. Customers continue to affirm the value of this new device for their patients, and we are committed to completing this investigation and resolving the temporary suspension of cardioPAT as rapidly as possible. Our original goal for the cardioPAT this year is just $1 million. All necessary resources have been dedicated to resolving this issue with the cardioPAT. Assuming a timely resolution, I remain optimistic that we can still achieve our original sales target in F Y '06. However, our greatest focus is to ensure we remain on track to provide success with the cardioPAT in FY '07. The product is solid technology that is first to market and meets an untapped customer need.

Moving beyond the Cell Saver 5 Plus, and the cardioPAT, we have three more products in the pipeline. These products come from the bloodstream family, and begin with the Smart Suction Harmony launch in Q3. Followed by the Filter Bag in Q4 and the Smart Suction Solo in early FY '07. Each of these technologies will follow our new product introduction process.

Let me spend just a few minutes on these three products which give us access to a $375 million market. As a reminder, the Smart Suction is a surgical suction system that rapidly removes fluid from the surgical field without excessive suction. The Smart Suction system will introduce in FY '06 is the Harmony, which will be used in conjunction with, that is, in harmony with, the Haemonetics surgical blood salvage systems. We acquired this product and needed to do some extensive redesign of the system to adapt it to work with Haemonetics systems, and to update the many obsolete components in the old design. We are currently in the testing phase of this new device and expect to submit our results for FDA review in Q2. Because the suction technology is not complex or invasive, we expect FDA clearance of the device in less than two months. Assuming we receive FDA clearance by October, customer acceptance trials will begin immediately. Again, assuming no issues are raised during the CAT trial, we will begin limited market release on schedule late in the third quarter.

The next product we will introduce late the year is the Filter Bag. The Filter Bag is an auto transfusion blood bag with an integral 40-micron filter that is a simpler, lower cost alternative to adding a specialty filter prior to transfusion. Over the past year, we've also been re-working this system. Specifically, we redesigned the bag to integrate with our disposables, to bring the design up to industry standards, and to meet industry expectations for blood bags. We've completed prototypes in additional testing. We expect to submit to the FDA in late November and expect FDA clearance in January 2006. We would then begin customer acceptance trials in January. Assuming no issues are raised during the CAT trials, we will begin limited market release by the end of the fiscal year.

Finally, our fifth new product is the Smart Suction Solo. The same surgical suction system for Harmony, it is designed for use in any surgery on its own or with any surgical blood salvage system including competitive systems. The Solo is exciting because it can expand our footprint into new markets. I will give more details on this device late in the year since the launch is scheduled for FY '07.

What's new at Haemonetics? Through internal R&D efforts, and external product line acquisition, the patient division expects to launch five new products over six quarters. We have implemented a well defined product launch process, and we've established a high standard of education and training to ensure success. I expect that 20 to 30 percent of incremental growth for the patient division this year will come from these new products. Our learnings from the launch process combined with the renewed focus on our base business gives me confidence in achieving our annual guidance of 10 to 15 percent revenue growth. Now, I am going to turn the call back over to Brad.

Thanks, Brian. As indicated we're now operating to a very specific strategic plan that is driven on two key strategies. As you saw from Ron's and Brian's comments, we're executing well to that plan. Quarterly performance is solid. And we're on track to perform to annual guidance. So let me thank all Haemonetics employees worldwide for doing an outstanding job at continuing the momentum of the business. The foundation and building blocks are in place for future growth.

This is an exciting time for our company. And I'm confident in the ability to execute to guidance for the third consecutive year. Our goal is to launch 10 new products companywide over the next two years. And eight this year. You may remember, in FY '06, our annual new product guidance is sales of 8 to $10 million. In Q1, the patient division, with the launch of the Cell Saver 5 Plus that Brian just spoke about, recorded sales of $1.4 million. Now Brian and his team are confident in generating annual sales of $5 million on this product line alone, and I'm pleased with this progress. I'm very confident in achieving at least $3 million of additional new product sales by year-end with the introduction of the other seven new products.

So we're right on track. And this will certainly change the growth profile of your company. Brian has talked about two new product launches, and the patient division recognizes there is much work to be done. But the team is executing very well.

Now, two final comments. First, Pete Alan, President of the Donor Division, will join us next quarter to update you on the progress of the new product launches in his division. All product launches in the donor division, with the exception of CritScan, remain on budget and on track. Second, last quarter, I promised to update you on our research work with Arryx. Today, Arryx has proven its ability to separate platelets, separate red blood cells, and separate white blood cells from blood. Arryx scientists are now focusing on improving the through-put or the amount of cells they can process in a unit of time. We remain very excited about the potential of this new technology, and we'll keep you updated as appropriate. We are pleased with our progress and our performance, and with that, operator, I'll open up the call to all of your questions.

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS] And then you will be returned into the call. The question-and-answer session will last for the remainder of the hour. Once again, to ask a question, you may press star, followed by one on your touch-tone phone at this time. Our first question is coming from Steve Hamill with Piper Jaffray.

Good morning.

Good morning, Steve.

I was wondering, first, on the operating expense side, you mentioned that you under spent your plan in Q1, but it wasn't real clear to me if that was just delayed spending, or if, you know, if that is foregone spending?

It was delayed spending, primarily. The launch of the new product is the key here, Steve, and as we looked at the Q coming out, we saw opportunities to delay that spending back into Q2 and 3 and prespread it out a little more evenly. As you remember, we were originally planning on having Q1 a heavy spend quarter but we have been able to look at the plan as it progresses throughout the year and spread it out a little more evenly.

Okay. And then with regard to CardioPAT, I'm curious about this valve issue, and a little bit surprised by it, mainly just because of your experience with the OrthoPAT which is so similar. Why did this catch you off guard like this?

Steve, this is Brian. The OrthoPAT does no the have a check valve. It is a one-way check valve that is designed to regulate the flow and prevent back flow into the chest cavity for a cardiovascular patient. So this is a part of the device or part of the disposable that is new for the OrthoPAT. And we're experiencing a little more hang-up with blood clots than we had anticipated. And so -- but as our experience from the OrthoPAT that has caused us to be aggressive in dealing with this with the CardioPAT, and address this early, an ensure that we continue to manage our process as we roll the product out -- our introduction process works in that respect.

Thank you. Our next question is coming from James Sidoti with Sidoti Capital.

Good morning.

Good morning, Jim.

Gross margins continue to get better. Do you see any pressure on them as plasma sales become a bigger part of the picture? Or do you think you'll continue to be able to expand the gross margins throughout fiscal 2006?

It is our hope, Jim, to continue to expand margins throughout the year. As you remember, our guidance was slightly improving margins. We did a very good job in Q1. This is the genesis of us compensating of our sales force on gross margin versus sales that we changed two years ago. Really looking at the good job that we've done in the core program to reduce operating expenses, and manufacturing. And really looking at our selling process, so we believe margin improvement is what we're striving for, and I'm very pleased with the rapid rate of improvement that we saw in Q1.

So do you think you will be able to maintain this level throughout the rest of the year?

I would hope so. In a word. We have had a good start to the year. I'm not a soothe sayer in predicting everything, but I think we're running hard in trying to improve margin and hopefully we can sustain it.

Once again, ladies and gentlemen, if you do have a question, you may press star one on your touch-tone phone at this time. Our next question is coming from John Harlow with Barrow.

Good morning, everybody.

Good morning, John.

Did you all make any comment about how you did in red cells in international markets?

Our red cell growth, John, for the quarter was 30 percent. And so we're pleased with that. In terms of international sales, I don't have those available. Lisa, do you have those available?

We were at about a 20 percent increase.

About a 20 percent increase.

Is that what you're expecting to do? I know when you had your analyst meeting, you had high hopes of doing business internationally.

And we continue to be on track with that.

Yes, that's right on plan.

Thank you. Our next is coming from David Zimbalist with Natexis.

Hi, thank you. Just following up on the cardioPAT, the clotting issue you're talking about, is this one where the clot actually is at risk of going back into the patient or just gums up the ability to auto transfuse red cells back into the patient?

What it is, it is the -- David, it is the tube that comes from the patient's chest into the reservoir, and it is designed to prevent the flow of that fluid back into the chest. The clotting is occurring at that valve. And so what it does, is it prevents, it potentially prevents the flow out of the chest cavity.

Okay. And --

One quick thing. You might explain to David an the rest of the participants on the call what our procedure is in terms of that check valve as we designed it early on.

Sure. In that sense, David, it isn't that we didn't anticipate that this would be an issue, and that disposable is designed in the instructions in our customers are intended to replace that check valve when that happens. But we're seeing a frequency there that causes us some concern, and we want to be able to address that very, very early on. We only have 30 devices out there, and again, we learned from the OrthoPAT launch that we want to address these early ensure that we have a device out there that is an outstanding device for our customers.

Okay. Can you talk a little bit about the -- you know, stated through your blood bank business in Japan, you talked in the fourth quarter about a rebalancing of shares in Japan, so, you know, where are we at with that? And then also, you made comments about Asia being strong. I presume that is non-Japan Asia? And if you could talk a little bit about what you're putting in place there.

I would be happy too, David. I don't want to bore you guys with specifics of numbers but let me kind of give you a run down of unit devices in Japan. The market is not growing. There are 1976 platelet collection devices in Japan. Of that 1976, we have 1389 units placed or about 70 percent of the units placed. Gambro has 136. Terumo has 376. And Baxter, is as you know, down to 75. So we continue to have a very, very strong position. What is unique in this market is that these machines are not on use plans. They're actually purchased by the JRC. So our unit placements continues to be very strong, as our market share continues to be strong.

In terms of your comment on Asia, we have seen that our platelet growth has been very strong in Asia. Asia had about a 22 percent increase in operating income on a very good sales growth this quarter, so we're pleased with our platelet growth. And that's the primary growth vehicle throughout Asia. We are flat on plasma and we see that marketplace changing in plasma. So overall, those are the -- I hope that gives you a little more detail as to the platelets that are growing in Asia and we expect that to continue.

Thank you. Our next question is coming from Craig [Welshon] with [Yearis] Capital.

Hi, guys. Could you maybe just give us a little bit of clarity on what the components of that $860,000 other income was?

Yes, this is Ron. The other income is a couple of factors. Number one, this is where we record our hedge points, which is the compensation that we get when we hedge our foreign currencies that pays us for the differential between U.S. and the rates in the countries whose currencies we're hedging. And, secondly, a small insurance recovery during the quarter.

How much was the insurance recovery? And what can we expect in terms of the hedge points going forward? I know have you them on a 12-month forward basis so can you give us some guidance as to where we can see this line over the next three quarters?

Well, that's a question of the fluctuation and exchange rate, and interest rate. So it is a little difficult to speculate. But, you know, we have seen in the past, hedge points run in the 600,000 per quarter plus range.

Thank you. Our next question is coming from Keith Marquis with Value Line.

Good morning. I was just wondering if you could tell us the -- what your share is of the U.S. donor market now and where you think this might be say a year or two away from now?

When we look at the donor business, we have to break it down to its component parts. Let me answer the question by first talking about the plasma market. As we complete our implementation of the new ZLB contract which we expect to be finalized in January time frame, where we place more than 1,000 additional units in ZLB. If you exclude the fact that Baxter has a number of centers that we will not be selling to, our market share in the U.S. alone, after the completion of the implementation of that ZLB contract, will be in excess of 80 percent. So we have a very, very strong position there.

When you look at our platelet market, it is just the opposite of that. We have only about 5 percent market share in platelet, and that's a real growth opportunity for us in the United States. In terms of red cells, that's the newest technology in the marketplace, and it is a small growing market. We have more than 800 devices placed. Our best recollection of the number of units placed by our competitor is less than 100, so we've got about 80 to 85 percent market share, albeit a a very small market at this time.

Thank you. Our next question is come from Steve Hamill with Piper Jaffray.

Yes, I was wondering first it you can give us an update on the situation in Italy with regard to the government investigation?

Sure, Steve this is Lisa Lopez. The two employees of ours that had been arrested and detained for questioning were released. We continue to cooperate fully with the Italian government and continue to have no reason to believe that there is any risk of finding of corruption, and indeed, our Italian operations continued this quarterly doing very well and performing to our expectations to plan.

They were right on plan for this quarter, Steve.

So have you gotten any indication from the Italian government whether or not these employees are your -- or your subsidiary there are still considered targets of the investigation, and any feedback from -- I know you, I think, had the independent counsel go back and do more work, any further indications from that?

Indeed, the independent counsel to the audit committee resumed his investigation at the timing of the arrest of these individuals to consider any new information. He has reviewed literally thousands and thousands of pages of documents from the prosecutor, issued another report, and again confirmed his view, that there is no finding of misconduct, and that there aren't any findings of corruption, that our consulting agreement with our Italian physicians are indeed bona fide.

Once again, ladies and gentlemen, if you do have a question, you may press star followed by one on your touch-tone phone at this time. Our next question is coming from David Zimbalist with Natexis.

Thanks. The OrthoPAT business, Zimmer commented that their growth there actually ticked up a bit into the second quarter from a slower first quarter rate. Could you tell us a little bit about some of the dynamics there, and then also if you could talk about your efforts to sell it directly outside the U.S.?

Speaking first, David, regarding outside the U.S., our efforts there continue to go very strong. Our growth outside the U.S. is much higher than what we're seeing here in the U.S. With respect to the U.S. business, we are concerned with a number of distributors that are part of the Zimmer organization, that are continuing to lag well behind our growth rate. And while, you know, we're seeing growth in the 28 percent growth range, that's nothing that we're terribly embarrassed by, except for the fact that our contract and our plans require and call for growth that are much higher than that.

I think -- David, it is important that, as Brian answered your question, we continue to work with Zimmer to find ways to accelerate that growth throughout the remainder of the year.

Okay. And with -- can you talk a little bit about the issues with CritScan and I may have missed the beginning of the call but if CritScan is, you know, likely to make it back to the market or if this is going to take a lot of re-engineering?

The answer is, it is too premature to know exactly. The product has not performed with the consistency that we would like to see. So we've got some more work to do there. For those on the call that may not know, this is a marketing partnership that we have with another company. And we are working with them to help them launch this product. We really do like the idea of a non-invasive hematocrit test. We are hopeful that this company can get to a point where we can launch the product, but we have a lot more work to do. Pete Alan will give us a very good detailed update and it will be appropriate at the end of Q2 when we have more details to share with you. So we're a little bit without total answer on that at this point.

There are no further questions at this time. I would now like to turn the floor back over to Mr. Nutter for closing remarks.

Thank you very much, operator. Our quarterly performance was very solid. We feel we're right on track to perform to our annual guidance. Most importantly, the foundation and building blocks are in place for our future growth profile that exceeds what we've done in the past. I remain very confident in our ability to execute to our guidance, and we thank you for your participation in this call. We look forward to visiting with you in Q2. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day.