Haemonetics Corp (HAE) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Haemonetics fourth quarter fiscal year '07 conference call. At this time, all participants have been placed on a listen only mode and the floor will be open for questions following the presentation.

Let me introduce Julie Fallon, Director of Investor Relations, for Haemonetics.

Good morning. And thank you for joining Haemonetics earnings call. Today I'm joined by Brad Nutter, CEO, Chris Lindop, CFO, and Lisa Lopez, Vice President of Administration. Please note that during the course of this call we may make statements that could be characterized as forward looking. Our actual results may differ materially from the anticipated results. Additional information concerning factors that could cause actual results to differ materially is available in our press release and 10K. Today Brad Nutter will provide an overview of fiscal '07 and the strategic progress we made during the year. Chris Lindop will review the fiscal '08 outlook as well as detailed business trends.

Before I turn the call over to Brad, I want to draw your attention to a few items that affect our annual and comparative results. You may remember that in the third quarter of fiscal '06, we received a significant arbitration award that under GAAP accounting was included in our operating results. In fiscal '07, there were five items that impacted our results which were not present in the prior year results. First, expenses related to stock compensation, or FAS 123. Second, restructuring of our international businesses. Third, the in process R&D charge related to our acquisition of Arryx. Fourth, a one time positive tax benefit. And fifth, receipt of a settlement from a legal claim.

As is our normal practice, our press release and website include a complete P&L, balance sheet, and sales by product line for both the fourth quarter and the full year. They also include a reconciliation between our GAAP results and our results adjusted for the items I just mentioned. However, when describing the business today, in order to give greater clarity to our operating results, we'll be speaking about results which are adjusted to exclude these items. With that let me turn the call over to Brad Nutter, Haemonetics President and CEO.

Good morning, everyone, and thank you for joining us. For the past several years, we've articulated two strategies. They are, number one, leveraging the core business for improved profitability. And number two, expanding the business by leveraging our three core competencies. We continue to perform well against these strategies, and let me share some highlights. With regard to strategy number one, improving profitability, in fiscal '07 annual earnings per share were $2.17, up 14.6% over FY '06, achieving the high end of the guidance set at the beginning of the year. This gives us a four year compounded annual growth rate on earnings per share of 17.4%. Operating income for the year grew 10.2%, bringing us to an impressive four year CAGR of 21.4%. Now for the fourth consecutive year we improved operating margin ending FY '07 at 17.8%, and this is an 11 year high. Our operating margin is up from 11% just four years ago. Significantly, the quality of this year's operating income was better than previous years. Let me remind you that we invested $4 million in ERP this year which was included in our expenses, and we face currency head winds. Despite these, operating income grew more than 10%.

Now, we haven't talked much about EBITDA but four years ago our EBITDA was only $66 million. We just finished this year when EBITDA was $108 million, so we've made tremendous progress on this measurement as well as operating income. Now, as expected, because of the stronger plasma product mix, gross profit grew a modest 3.2% for the year. Still, our four year CAGR for gross profit is a solid 10.3%.

Now moving to revenue, in retrospect I may have been a little overly bullish on revenue projections at the beginning of the year. But despite the significant challenges we discussed on previous calls, specifically Japan, we grew revenue 7.1%. And what's really impressive is that's in line with our four year CAGR of 7.5%. So to summarize strategy number one, improving profitability, we have performed well. On revenue growth of 7% operating income grew 10%. This is the fourth year of positive drop through for your Company. Our performance is consistent, and stands up well against the last four years.

But what I'm more pleased with, and although it doesn't show up in our numbers yet, is our performance to strategy number two, which is expanding the business. In FY '07 this was our strongest year yet in this regard, and our progress puts in place the foundation for a strong future. So let me review our strategic progress. First, we completed a restructuring in Japan, and have plans in place for our European restructuring. Although we experienced revenue challenges in Japan, with Japan sales declining $9.4 million over prior year, we now see stability in the Japanese market. In Europe, under Brian Concannon's leadership, plans are in place for a transformation initiative. And let me remind you just four years ago we restructured our U.S. organization and as a result we have seen two years of revenue growth in the United States above 20%. So our strategic goal for Europe is to mirror the U.S. changes and to position the European business for an improved growth profile.

Within our core franchise we've positioned our product lines well to expand the business. Four of our seven product lines, plasma, red cell, OrthoPAT, and software and services, specifically 5D, which represent about 1/2 of the total business, grew at or about 20%. And all are poised to continue solid growth in FY '08 because of our achievements in FY '07. Now Chris will talk more about this, but let me give you a few highlights. As we've shared we continue to strengthen our position in the plasma market with long term agreements. Our market share is indeed very strong, and we are poised to capitalize on continuing strength in the worldwide plasma market. In the year we signed an exclusive primary supplier agreement with Talecris, a large plasma collector in the United States. This gives us one more long term agreement with plasma collectors and will support double-digit revenue growth in FY '08.

Additionally, device installations which really drive disposable utilization have increased significantly. Last year our installed base of plasma devices increased nearly 1,200 and we expect to place an additional 1,500 devices this year, FY '08. Let me add a some perspective here. At the end of FY '05 we had an installed base of 3,000 devices. And by the end of FY '08 we will have about 8,500 installed devices just in the U.S. market.

Now, moving beyond plasma, we signed two very important contracts this past year. The American Red Cross agreement positions us to continue to penetrate the U.S. blood collection market. Our focus here is on red cells, and this agreement, plus the Cymbal launch, will allow us to continue revenue growth in the 15% to 20% range in FY '08 for red blood cells. Our agreement with Canadian Blood Services gives us entry into the Canadian platelet market. This is a big win for Haemonetics as CBS converts from Gambro to Haemonetics platelet technology. Within our core franchise, we are launching seven new products which will build momentum in FY '08. Now these new products significantly expand our product lines and markets.

With our existing product portfolio, plus our new product platforms, we are truly transforming Haemonetics. Therefore, our market potential has expanded significantly and exceeds $2 billion today. Our reported revenue is $450 million this year. So strategically, we're no longer a niche company with limited product platforms. We're a Company with real expanded growth potential and multiple opportunities for growth.

Now, moving beyond our core franchise, we acquired two companies in FY '07, Arryx and IDM. The Arryx acquisition strengthens Haemonetics' research capability and gives us access to game changing separation and detection technology. Now we're going to highlight some of this research at our May 23rd investor day which will be held at our headquarters here in Braintree. The IDM acquisition is also strategic. It supports our vision to be the global leader in blood management solutions for our customers. Specifically, IDM gives us software applications to deliver comprehensive IT solutions to blood banks. Now, this replicates our 5D strategy in the commercial plasma market where we have been so extraordinarily successful. 5D is part of the reason our market share in plasma continues to grow and our customer relationships are so strong. And we believe IDM can do for blood banks what 5D does for plasma customers.

Finally, shortly after year end, we began implementation of Phase 1 of ERP, Enterprise Resource Planning. We are moving from 20 legacy systems to a single integrated Oracle system. Phase 1 included system design and the launch of financial, sales and service software in several regions around the world. This significant investment in the long term growth of the Company continues to be on time and on budget. Now ERP supports both of our strategies. It gives us efficiencies and operations and is a catalyst for our European restructuring efforts. As importantly ERP gives us the tools necessary to expand the business. Therefore, for the year, we delivered both solid financial and strategic performance.

When I joined Haemonetics four years ago we said we would create long term shareholder value by implementing our two strategies, and we have been successful in improving the profitability of your Company, which is strategy number one. As a result of our success, we have seen some impressive compounded annual growth rates. We will not relent on the operating discipline that we have built and that you have come to expect. We'll continue to tie our compensation to that objective.

We are now in the transformation phase, where we are focused on implementing tactics to expand the business which is strategy number two. We are entering the second year of the transformation process. In FY '07, we executed well strategically, building the future of your Company. We laid a solid foundation for our FY '08 plan. And now with that let me turn the call over to Chris Lindop to go into more detail on FY '07 results and FY '08 expectations. Chris.

Thanks, Brad, and good morning, everyone. Let me begin by summarizing our FY '08 guidance, then I'll share the building blocks of our plan. To ensure that comparisons accurately reflect the underlying business performance our guidance excludes restructuring costs associated with our recently announced European transformation. However our guidance includes the impact of stock compensation expense. You may recall that we excluded this expense in FY '07 because there was no relevant comparison to the previous year. Please refer to our press release for specific information. Our FY '08 guidance is revenue growth of 7% to 9%, delivering positive drop through to operating income growth of 10%. Note that our guidance does not include revenue from potential future acquisitions. In FY '08 gross margins will trend up approximately 100 basis points due to mix.

Operating expenses are planned to increase by about 65% of the gross profit dollar growth. Over the past four years, our operating expense increase has averaged less than 50% of the gross profit dollar growth. And this year's increase reflects budgeted ERP spending of $7.5 million, up from $4 million in FY '07. Our investment in ERP should be substantially complete by the end of FY '08 but we believe it's important to make this investment now as ERP positions our Company for sustainable long term growth. Our operating income growth guidance is 10%, somewhat below our four year CAGR, but again reflecting the ongoing investment in ERP. We are pleased to present plans for a fifth consecutive year of double-digit growth in operating income while making this important investment in our infrastructure.

Earnings per share are expected to be between $2.02 and $2.12 per share again including stock compensation expense, which compares to the FY '07 performance of $1.91 when you adjust for $0.26 per share of stock compensation expense in FY '07. In FY '08 we expect to generate $32 million of free cash flow after capital expenditures of approximately $50 million, which is up from a run rate of about $40 million in 2007 reflecting a planned investment in our plasma disposables capacity.

Now, how do we expect to deliver on our FY '08 goals? Well, having spent much of the last 100 days working through the details of this plan with the Management team, I believe we're well positioned with an achievable revenue growth goal for FY '08. So let me walk you through the details. As Brad said, we've made significant head way this year in our strategic efforts to expand the business. We made progress in our core franchises as well as a new market. The bulk of the planned $30 million to $40 million of revenue growth comes from our core franchises, that is, our current markets of plasma, red cells, and OrthoPAT. Approximately 20% of our planned revenue growth will come from new products, including our Cymbal mobile red cell device.

So let me break down these growth drivers. As you know, our -- ours is a razor blade business with 86% of revenues coming from disposables, 5% from equipment sales, and the balance from software and services. Because equipment sales are planned to be flat year-over-year I will focus on trends in the consumables revenue for our core businesses. On the donor side, one of our most exciting core franchises and the one with the most potential to impact top line growth is the plasma business. The plasma business is currently a $127 million business in consumables revenues, up 16.4% over FY '06. The U.S. revenue grew an astounding 30% in FY '07. Globally, plasma has a two year CAGR of 14%. And in FY '08 we anticipate plasma disposables revenue will grow by 10% to 13% based on market share gains and growth trends in the underlying market.

With respect to our market share gain, as we reported last quarter, we signed an exclusive supplier agreement with Talecris Plasma Resources. Talecris has exciting expansion plans for the next several years as it adds 25 new plasma collection centers and continues to grow in its existing 33 centers. This contract will provide incremental revenue in FY '08 as ZLB did in FY '07. The plasma market is the strongest we've seen in years, and this is because fractionators are struggling to meet the increased demand for plasma derived intravenous immune globulin, or IVIG.

Let me give you an idea of how quickly plasma collections are growing. In calendar 2005 there were 8 million liters of plasma collected in the United States. And in 2006 there were 10 million liters collected. In 2007 we anticipate about 11 million liters will be collected. And to support this rapid growth in just two years Haemonetics installed 4,000 more plasma collection devices in the United States. We finished fiscal year '07 with an installed base of more than 7,000 devices. Productivity on these devices grows at varying rates so we'll continue to see significant benefit from the new machine installation in FY '08. And an ongoing expansion is also likely. In fact, as Brad commented, our plan contemplates placing another 1,500 devices in FY '08. Given the long term market outlook for plasma derived pharmaceuticals and the near term market outlook for plasma collection we remain bullish on our plasma business. We're confident in achieving revenue growth of 10% to 13% for the year.

Another core product growth driver for Haemonetics donor division is the red cell product line. FY '07 red cell disposables revenue was $43 million, up 14.7% over fiscal year '06. The two year CAGR for red cells is 22%. In FY '08 we anticipate red cell revenues will grow 15% to 20%. And some of you may recall that we [inaudible] into our existing technology, the MCS+, softened somewhat last year as customers awaited launch of the Cymbal System. Cymbal is the next generation red cell collection device specifically designed to meet the needs of mobile blood collectors. The Cymbal is particularly well suited for mobile blood collections because it is small and can operate on batteries. So in FY '08 we believe our red cell business will benefit from two things. One, the pent up demand for new -- for our new technology. And two, increased mobile collections because of ease of use of the system. We're confident in achieving our red cell revenue growth of 15% to 20% for the year.

Now moving to the patient division, a core product driver for FY '08 is the OrthoPAT. FY '07 OrthoPAT disposables revenue was $31 million, up 39.6% over fiscal '06. Mostly due to pricing as we went to direct sales in the United States. The two year CAGR for OrthoPAT is 24%. In FY '08 we anticipate OrthoPAT revenues will grow 10% to 15% driven by unit growth. For most of last year we focused on maintaining the business built by our former distributor. We found it time to strengthen our sales force and put in place the marketing tactics needed for what was essentially a new product launch. But in the fourth quarter, our efforts began to pay off. We saw increasing sales momentum for U.S. units grew sequentially more than 10%. We continue to see significant opportunity for growth at existing accounts with low penetration. OrthoPAT sales will continue to strengthen through the year as our sales repositioning efforts and new programs take hold. We're confident in achieving our OrthoPAT revenue goals for fiscal '08 of 10% to 15% growth.

To wrap up the growth drivers of the business coming from our core franchise, I want to cover new surgical products, the CardioPAT and SmartSuction. These new products are expected to contribute approximately $4 million in revenue in FY '08. Both products represent differentiating technology advancements and are being marketed in large growing markets. We're confident that we can achieve our fiscal '08 goals in new surgical products. Now, I've given you an overview of the growth drivers in what we refer to as our core franchise. In addition to these growing product lines, our Haemonetics traditional markets of surgical blood salvage and donor platelet collections. These products represent $67 million and $126 million respectively of disposables revenue in fiscal year '07. These markets have been flat for the past three years and so our guidance anticipates no growth in fiscal year '08.

So we've got strong growth planned in three of our five core businesses. But as you've heard us say before, we also have potential for growth beyond the core franchises as we execute on our long term strategy to become a global leader in blood management solution to our customers. Our strategy is to fill the gaps in the supply chain with product or services that improve regulatory compliance, eliminate waste and optimize efficiencies. Software and information management is the key for growth. And we've made good head way our last year in our software division through new product launches and in acquisition. In FY '07 software and service revenues were $34 million growing 25.4% over fiscal year '06. Software and service revenues have a two year CAGR of 29%, and in FY '08 we anticipate software and service revenues will grow between 18% and 22%.

Our existing 5D software division performed exceptionally well last year. Let me remind you that a significant portion of 5D sales came from information management of plasma collection centers. Part of what is driving growth in our 5D division is the growth in the plasma market. 5D is also contracted with the U.S. Department of Defense to manage its blood supply information system. This speaks strongly to 5D's ability as a software company to operate within a highly regulated world such as blood collection. And it strengthens Haemonetics' position in the industry.

Finally, 5D launched a new product, eQue, late in the year, to support blood donor recruitment and operations management. We've also made a key acquisition in January with the addition of Information Data Management or IDM to our global business. IDM software applications for blood collection, blood laboratory operations, and services compliments 5D's sweep of product. By adding this piece of the blood supply chain we've strengthened our customer value proposition and gained a strong position in blood management solutions at the front end of the supply chain, the blood donation. With 5D's ongoing growth from the plasma industry and its new products, combined with the incremental sales from the IDM acquisition we are confident in achieving our revenue goals for software and services.

Let me remind you that our full guidance, which includes stock compensation expense of $11 million, or about $0.29 per share, is posted on our website. I focused a lot today on the building blocks of our fiscal year '08 revenue plan, so let me summarize. Our FY '08 revenue guidance is growth of 7% to 9%, and we've shown over the last four years that our core franchise is capable of consistently delivering mid to high single-digit revenue growth. If new products grow as planned, that should take us to the high end of our revenue range. And as we strive to further expand the business we will execute a solid acquisition strategy in FY '08 to strengthen revenue growth in the future. We're well positioned for FY '08 and beyond. And with that let me turn the call back over to Brad for some closing comments.

Thanks, Chris. I see many of you at investor conferences or road shows and we often talk about the investment pieces for Haemonetics, or why should you invest in Haemonetics. When I think about your Company today versus four years ago some of those investment reasons are the same, some are even more compelling, and some have changed. So let's review. Now, unlike four years ago, we now have a four year history of sustained operating leverage. Every year we deliver operating income growing faster than revenue. As your Management team, we've consistently demonstrated that discipline, and we're committed to continued positive drop through in the future.

Unlike four years ago, we are regaining our reputation for innovation. We lost this in the mid to late 90s, but in the last two years, we've launched seven new products and have more in the pipeline. And speaking of innovation, this year we acquired Arryx with this cutting edge laser technology that has game changing implications in many areas of blood processing, the broader healthcare industry, and perhaps beyond. We're looking forward to previewing this technology at our upcoming investor round table.

Unlike four years ago, we have a clearly defined five year strategic plan with a vision to be the global leader in blood management solutions for our customers. Now, this vision and the products and services that fill in the gaps in the blood supply chain provide for significant potential growth beyond our core franchise. We are putting in place the building blocks to execute this strategy through our services division, 5D and the IDM acquisition. Frankly, when we achieve our vision, we won't just be the global leader in blood management solutions for our customers, we'll be the only Company that operates horizontally across the entire blood supply chain. We're very excited about what the future holds beginning this year.

Now, just as four years ago Haemonetics has remained the leading brand name in the highly defensible profitable blood market. Some of our competitors are private companies today and will undergo fundamental change. We're confident in our ability to continue to grow market share. Also, just as four years ago we have a significant cash generating business model. Over the past four years we've executed well to our cash generating strategy and now have $229 million in cash and only $29 million in short and long term debt. For the year, we delivered $46 million in operating cash flow which we define as free cash after working capital and capital expenditures, even as we executed a $40 million share repurchase.

So to address our broader cash management strategy, let me restate that a key component of our strategy will be acquisitions. Having said that, we anticipate that acquisitions will mirror what we've done historically. So while our goal is to ramp up moderately, and the key word here is moderately, we'll continue to target smaller bolt on products or companies to compliment our core franchises. Our acquisition strategy will enable to us become the double-digit growth Company that we aspire to become. We're building a competency of integrating new businesses into the Haemonetics infrastructure. And ERP will certainly strengthen our capabilities here.

Also, as part of our cash management strategy, we have gained approval from the Board of Directors for a $75 million share repurchase program. Frankly, we think share repurchase demonstrates a value we see in your Company. The repurchase program will not impair our ability to grow through possible acquisitions. I believe that a share repurchase program is a responsible component of shareholder value model now and in the future. The anticipated impact of the program is included in the high end of the earnings per share guidance provided by Chris a moment ago. We'll begin this program in the near future.

So let me close by thanking our employees for their efforts this year. Thanks to our shareholders for your ongoing support. Operationally, Haemonetics has never been stronger. Strategically, we are extraordinarily well positioned. More importantly, we have a solid plan upon which to execute in FY '08. Our goal at the end of this three year transformation is to be a Company that consistently grows low double-digits on the revenue line. Now, this will occur through a combination of organic growth, new product introductions, and possible acquisitions. We'll also continue to be a Company that sustains its double-digit growth on the operating income line, just as we have over the last four years. Now with that let me turn the call over to the operator for your questions.

Thank you. The floor is now open for questions. (OPERATOR INSTRUCTIONS) Please note that you will have the opportunity to ask one question and a follow up question, and then will you be returned into the call. The question-and-answer session will last for the remainder of the hour. (OPERATOR INSTRUCTIONS) Your first question is coming from Dave Turkaly of SIG.

Thanks for that, and thanks for all the detail. If we just look quickly at the quarter on the donor side, specifically in plasma and red blood, can you point to anything domestically or internationally to describe how the numbers came in just specifically in the fourth quarter alone?

Yes, Dave this is Brad. The plasma business grew about 9% in the quarter. And that was primarily, as you remember, the ZLB implementation was really a two year implementation. Earlier in the year we were growing at much more aggressive rates. And in this quarter as we've now converted most of that or implemented most of ZLB business we saw that ramp down a little bit in the fourth quarter. And then we saw in the rest of the business--

Let me take that question, Dave.

Some information on red cells and Cymbal launch as well go ahead, Lisa.

Yes, the number in the quarter for red cells was 1.2%. And that was frankly two factors. You may remember that our Cymbal, which is the next generation new technology, was cleared by the FDA a little bit later in the quarter than we expected, and so the kind of growth that we expect to see from Cymbal is a little bit delayed. But frankly the stronger factor was comparison to last year's growth, the fourth quarter last year was a 32% increase, and that was because we had a rebound from a slower Q3 due to hurricane Katrina. So it was really those two factors. The Cymbal as well as the very strong comparison to last year.

Lisa brings up a very good point. If you look at the Corporation as a whole, last year in Q4 we had sales increase of more than 10% and operating increase in Q4 of more than 52%. So as you might remember in the Q3 call we indicated we're running up against some big comps from last year.

Great. That is helpful. And specifically on the red blood side. On the plasma side, I know the guidance looks really strong, and I know you mentioned some stats on the call about systems, but anything -- can you give us any, I guess, color on the domestic side of what's going on in the plasma side of the business today?

Yes, we're real pleased with the new agreement that we have Dave with Talecris. And as we saw, the model of ZLB, it took us about two years to really implement that contract, and it was a building block, where we grew about $10 million incrementally over the last two years, as we built that business up with ZLB. The Talecris business will have a very very similar model as we build that over the next 18 months. So we really look at the plasma market as being a growth driver here in the United States as it has been the last two years. It will be the next couple of years as well.

Great, if I do one last one, just quickly on the guidance. What kind of of tax rate should we be looking at in 2008? Thanks.

You'll see if you look at the detailed scenarios that we've put up, we finished the year at 33.5. Assuming the very low end of the share buy back scenario, we'd be at 33.5, the high end at 34.5. And the reason for that, is we use monies that are currently invested in tax exempt investment for the buy back. And so we end up taking tax exempt income out of our pre-tax income which has the effect of driving the tax rate up a little but net/net we end up better off in the bottom line. Does that make sense? So it's 84%.

Thank you. Your next question is coming from [Larry] of CJS Securities.

Good morning, guys.

Hi.

Could you just give me a little more color on how Japan was for the quarter and then kind of shed some light on how you see stability going forward?

Sure, Larry. In Japan was a really challenge, and let me put the fourth quarter as the second part of the answer, and talk about Japan for the year first.

Okay.

We saw about just shy of $10 million of decline year-over-year in Japan. And as we highlighted in previous quarterly calls, it was an impact both on plasma and platelets. The interesting thing is, if we had not -- and we can't control certainly the ministry of health or the Japanese Red Cross as they change their policies, but that $10 million of negative impact really affected our growth rates. With the-- just shy of 10% double-digit growth, had it not been for that, and the margin on that business is extremely high. It's approaching over 70%. So the operating income impact to our Japan decline on that -- on those policy changes throughout the J.R.C. and the Ministry of Health really had a negative impact or about $7 million. We just reported revenue -- operating income growth of 10.4%. It would have been 19% without that. Now not making excuses for things that happen beyond our control but factually it had a big impact on the business. That's why I said this year we, in fact, the quality of earnings was very strong despite that.

Now, going to the second part of your question of our quarterly trending, when we started the year, we saw -- and this is in constant currency, we saw Japan start in Q1 with a 13% decline from prior year. In Q2, that decline was only 8%. In Q3 it was 5.7%. And in Q4 it was actually a positive 3.3% so we grew in Q4 over prior year. That's why I said in our prepared remarks that we now see stability in the Japanese market.

Okay. Okay and then one follow up question on software, you talk about about a 20% growth. Now, I note IDM is -- was running about $6 million annually. So if I back that number out, does that imply that your existing software business and IDM included would be about flat?

No, let me break down the numbers for you. Our existing software business is about $15 million.

Okay.

That business is going to grow at about 10% this year, and the balance is -- growth in IDM resulting from -- we had about $1 million of IDM revenue representing about two months of ownership in this year and next year's number will be closer to $7 million. And so that business itself is growing quite nicely. Now think the note about our software business, especially our 5D businesses, it's a business where we build out systems and then host them, and this year, 5D's growth is going to be a little muted because we're going to be in another phase of building our systems. The revenue model that goes with hosting is once the systems complete you earn a fee per transaction, and that goes on as long as you host the system. And these are long term contracts. So we -- we're seeing slightly less growth in 5D in '08 than we've experienced in the past while we have a building year, but we think that that will sustain us very well going into the future.

Okay, great. And then just one housekeeping question. Do you have the D&A for the quarter? The actual number?

It's actually in our -- it's about 25 to 27 million. I will get you the right number a little bit later in the call.

Okay that;s fine. Okay, great. Thank you.

Thank you.

Thank you. Your next question is coming from [Victor Duchovni] of Morgan Stanley.

Good mornings guys.

Good morning.

Somehow I was a little bit late to the call. And you probably addressed this issue at the very beginning. It seems like the settlement benefit is worth about $0.15-- was worth about $0.15 in the quarter. How do you go from 72 to 65, adjusted EPS if the benefit was $0.15?

Our adjusted EPS is 65 in the quarter.

Great.

And that the reconciliation to get to 65 is in -- attached to our press release but the pieces are $0.72 GAAP, $0.01 resolution of tax contingencies, $0.07 the negative impact of stock compensation that we reverse out of our GAAP numbers, $0.02 of restructuring, and $0.15 of the Baxter settlement.

Okay. So we can get that. All right. And is it kind of follow up to guidance, did you guys mention the number of platelets in terms of growth in '08?

Platelets will be flat.

Platelets will be flat. And this--maybe the last question, about Cymbal. I was wondering if Cymbal kind of commands a price premium to your existing RBC lines. And how much of the business is going to be sort of replacement business for you, how much of it is going to be new opportunity in terms of percentages, if you can address that?

We don't expect any cannibalization, and we are launching this product as a premium product. So in terms of pricing. So we expect good things from the product going forward.

Thank you. Your next question is coming from David Zimbalist of Natexis.

Hi thank you very much. Could you talk a little about the sequential decline of plasma revenues in the quarter, plasma disposables, and if that has to do more with issues of stocking up for ZLB and what you saw as the underlying sort of utilization, then I have a follow up?

Yes let me give you, David, North American plasma revenue growth over prior year quarter-by-quarter. I think that's your question. In plasma in the United States, our growth in Q1 was 44% over prior year. In Q2 it was 43%. In Q3 it was 36%. In Q4, it was 9%. Now, why was that declining? The answer is, we had built up that bulbous, if you will, or that large pent up demand as we were bringing all the ZLB locations on, which was two year transformation, as you know. So as we saw that continue to grow up over the time of two years, that's what the comp indicates as a slight decline, which was anticipated.

I was actually talking about the dollar decline of almost $2 million sequentially from the third quarter.

It's just -- it's timing, when orders come in. It's nothing that we see as continuing long term trend.

Okay. And the follow up question, you have a number of new products you're launching this year. You've got some material revenues expected for CardioPAT, for the SmartSuction, et cetera. What are you putting in place in terms of -- these are new markets you're developing, as opposed to just selling a new version of something you're already selling. So can you talk a little bit about your plans are for rolling out these new products and what your experience of OrthoPAT or other new product launches in the last year or so, what did you do different?

Yes, part of what we've learned over the last couple of years in preparing the launch, David, as we've talked in the past, is the idea of a customer acceptance trial, limited market release, and full market release. So as we go into launching the product line, we really think that as we're in the stage of limited market release, we're launching products appropriately. That will build over time, and we're going to be very patient in doing that. But we also think there two are ways that we can position these products. Number one, as clinical advantages. Number two, based on the economic benefit of these product lines versus other technology out there, or other kinds of application for this technology. So those are the ways we'll differentiate it.

Finally, on a global basis, we have a plan in place by sales territory with specific targeted growth goals by product line and by disposable. So the plans roll up from the bottom of the field all the way to the numbers that Chris indicated, so that we have a very good plan by territory to exactly what we expect in terms of placements and disposable growth. So the plans are very robust.

David, it's worth adding, that when we talk to our customers about the customer value proposition, we're not selling just the CardioPAT or the SmartSuction or the OrthoPAT, it's a bundled portfolio of products and services. So we're talking about clinical advantages of total blood management programs that a hospital can put into place.

Thank you. Your next question is coming from John Putnam of Dawson James.

Thanks, good morning.

Good morning, John.

The Talecris situation is that-- should we think of that as a one or a two year play?

It will be at least 18 months, John. We're comfortable with that. So it's really a -- just like ZLB, it'll take time for them to get the devices put in place, train their staff on the utilization of the device, and building that up. So it is 18 months easily at this point.

Are there any other plasma organizations that are like ZLB or Talecris?

Within the United States we've done particularly well. On a global basis there could be some additions, but basically, as we indicated, with a number of device placements, we have executed extraordinarily well in the plasma market.

Okay. One follow-up question. On the guidance, I think, Chris, you said that did not include the restructuring of Europe, is that correct?

That's correct, about $0.11.

I'm sorry.

That will be about $0.11.

$0.11 okay and will it be kind of even throughout the year, or--?

It will be concentrated in Q1 and Q2. There may be a little bit of lease exit costs as we close the facilities.

Okay thanks very much.

Thank you, John.

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

Good morning.

Good morning, Jim.

Hi, Jim.

Most of my questions have been answered but just a couple one-- a couple quick ones. On the R&D line, notice that ticked up a little bit sequentially. Is that relative to the IDM acquisition, and should we expect it to stay about this level going forward?

Jim, you should expect it to stay about the same level, number one. Number two, it was investment in Arryx. And again, we're going to be showing some of that technology at the investor round table on May 23rd. So those were the two -- that's where most of the money went later in the year.

And when you say (inaudible) is in that absolute basis or as percentage of sales?

That's a percentage of sales.

And then just to reiterate in Japan you said it was down about $9.4 million for the year. What was that on a percentage basis?

About 9%. We were about $100 million all in on a reported basis.

And then you're looking at going forward to Japan sales to stay about flat?

That's right, Jim. Our expectation in Japan is flat for FY '08. Let me remind everybody on the call that through Q4 of this year we have maintained our 80% market share in plasma and maintained our 70% market share in platelets and that's the same market share that we had four years ago. So this is a maintenance market. And Brian Concannon and the team in Japan have done a real good job of restructuring our Japanese organization, recognizing that we're not structure for growth, we're structured now for maintaining that business. And that restructuring is behind us.

Okay and then just a final question on the stock buyback. Is it safe to assume if the stock stays around $50 a share you'll commence with buyback at this level?

Well, we obviously will not communicate at what prices we'll be buying back shares, but we will be in the market in the event.

Okay thank you.

And let me just add one thing who while I've got open mic here. I think I owe someone the D&A for the year and it's 27.5 million.

Thank you. Your next question comes from Dave Turkaly of SIG.

One quick follow up along the lines of what David was asking. On the plasma side, guidance of 10 to 13 is strong and I understand that timing of orders. If you look at the first quarter, the low end that 10 to 13 would be a $35 million number in the first quarter of '08, and given the timing of orders and some of the good deals you guys have, is that kind of a bounce back sequentially, do you think that's-- is that reasonable?

Yes, we do.

Thank you. And your final question is coming from David Zimbalist of Natexis.

Thank you very much. In terms of OrthoPAT, can you give us some statistics to help us understand the sequential increase in units? Are you getting to new docs who haven't used it before, or are you completing the sort of transition to ordering from Haemonetics from existing (inaudible) customers, new accounts, anything you could help us understand where that trajectory is headed?

Sure, David this is Brad. I'll be happy to give you overview on the numbers comparing Q3 to Q4. In Q3 of this past year, we had 1,467 devices placed in customers' hands. In Q4, that grew by 9% or 131 devices up to 1,598 devices. So you'll remember that the theory here is as our sales force matured a little bit we are hoping not only to just maintain the business we have, but grow the business we have. And so as the sales force experience increased, we saw an increase by 9% from Q3 to Q4 in the number of devices placed. In terms of dollars, or number of [gold burn] we saw in Q3 to Q4 growth of 11.2%.

So this is the quarter that you may remember we said it was taking time for our sales force and team to get this really new product launch for us on a direct basis, and through the first three quarters of the year, we averaged about 10,500 units placed in Q1, 2, and 3. In Q4, we had 11,800 units placed. So one quarter doesn't a year make, obviously. But we do like the fact that we're seeing traction on OrthoPAT, and it's taking us time. It's been a little painful for that time over the first three quarters but we are seeing the kind of traction that indicates to us that our growth target that Chris talked about on OrthoPAT for FY '08 is very realistic.

All right. Thank you.

Thank you.

Thank you. There are no more questions. Here's Mr. Nutter for closing remarks.

Thank you, operator. To all our shareholders and to the analysts that follow us, we are very excited about our May 23rd investor meeting up here in Braintree. We sure would like to see all of you. The highlights of that meeting is we'll talk more about our FY '08 plans and how we intend to implement those plans in our markets overall.

Secondly, and most importantly, we're excited to share with you a little bit about the acquisition that we made just nine months ago, and that Arryx, and the tremendous improvement we've made from a technology standpoint to show you some new exciting things that will indicate what our future may become going forward. We'll also want to share a little bit more about our vision of being the global leader in blood management solutions for our customers. So to all of you, we would welcome you the opportunity to come visit with us. Thank you to our team for a great Q4 and year end. And we'll look forward to seeing all of you on May 23rd.

Thank you. This concludes digital replay.