Haemonetics Corp (HAE) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Haemonetics first quarter fiscal year 2009 conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for questions following the presentation.

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

Thank you, Operator. Good morning. Thank you for joining Haemonetics first quarter fiscal 2009 earnings call. Today I am joined by Brad Nutter, our Chairman and CEO, Chris Lindop, CFO and Vice President of Business Development, Brian Concannon, COO, and Lisa Lopez, Vice President of Corporate Affairs.

Please note that during this 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, and additional information concerning factors that could cause actual results to differ materially is available in our press release.

Today, Brad Nutter will review the highlights of the quarter, Chris Lindop will review our operating performance, and Brian Concannon will talk about our progress on transformation. But before I turn the call over to Brad, I wanted to review a few items that affect our comparative financial results. In connection with the ongoing transformation of our business, we incurred restructuring costs in both fiscal '08 and fiscal '09, as we have excluded from the financial results that we are talking about today, so in fiscal '08 our adjusted first quarter net income excluded $1.6 million in pretax costs, associated with the ongoing restructuring of our European business. And then in the first quarter of fiscal '09, we incurred restructuring costs of $1.9 million pretax, and again we have excluded these costs in the quarter, so that we can give greater clarity to our operating results.

As is our normal practice our press release and website include a complete P&L and balance sheet, as well as selective reconciliations between our GAAP results and our results adjusted for the items I just mentioned.

With that let me turn the call over to Brad Nutter.

Thank, Julie. Good morning everyone. At our May Investor conference, we shared with you we aspire to become a company that can sustain a five year compounded growth rate of 10 to 12% in revenue, and 12 to 15% in operating income. Fiscal '08 last year was a strong year, and I am extremely pleased with our start in fiscal '09.

The highlights are revenue growth of 18%, and operating income grew 22%. Both are well above our annual guidance range, and our aspirational long term goals. We also improved both gross and operating margins, and all growth drivers performed very well. We set high expectations for growth this year, and we exceeded those expectations in Q1. And this growth isn't happenstance.

Last year each quarter I was somewhat cautious or conservative to call this kind of performance a trend, even as we consistently achieved double-digit growth. The fundamentals of our business continue to trend very positively. And we see prospects for growth only getting stronger. With the increased visibility and the outstanding performance, which Chris Lindop will highlight, I must say that the facts indicate that we can sustain stronger growth than planned. Therefore I am pleased to be raising revenue and EPS guidance for fiscal '09. We are off to a great start.

Now let me turn the call over to Chris Lindop, our CFO, to review our new guidance for FY '09, and the details of a great quarter. Chris.

Thanks, Brad. Good morning everyone. As Brad said, this was a great quarter.

The business is running on all cylinders, and as you saw from our press release, all product lines contributed to revenue growth. We managed expenses well for strong operating income growth. Perhaps more important, we no we can continue this trend. The fundamentals of the business, and our prospects for future growth are stronger than they have ever been. For example, this is the third consecutive quarter of our revenue growth exceeding 18%.

Let me start by updating guidance for the year, and then I will go through revenue growth drivers, and other highlights of the income statement and balance sheet. First, we are increasing our annual revenue guidance, from a range of 8 to 11% up to a range of 10 to 13% growth. The increase is based primarily on strength in our plasma business, and to a lesser extent in our blood bank business. Product lines that represent nearly 50% of total sales are all growing strong double-digit.

Plasma has a lower than average gross margin so based on our tremendous plasma outlook, we are also revising our annual gross margin growth guidance, down from a 150 basis point increase to a 100 basis point increase. This in turn results in revised guidance of 50 basis point expansion in operating margin, and increases earnings per share guidance for the year to a range of $2.33 to $2.43. I will give more details as I walk down the P&L.

So let's talk about revenue strength. As I said revenues grew 18.2%, driving revenue growth in the quarter and for the next couple of years is plasma. Plasma is our largest business with $155 million of revenues in fiscal '08, and plasma grew 22% last year, and 30.4% in the first quarter of this year.

Based on this strong start, we are increasing our revenue growth guidance for our plasma business, our original guidance of 10 to 15% growth, has increased to 15 to 20% growth for the year. We have excellent visibility into the plasma market, which gives us great confidence that double-digit growth will continue well into the future. We have talked about this numerous times, but let me reiterate, it is IVIG demand, collection capacity, and long-term contract roll-outs that are driving revenue growth.

To give you an idea of the explosive growth in this market, consider that in the last three years our installed base has more than doubled. And this year, we anticipate placing 1,800 more devices. These placements will drive us to more than $200 million of plasma disposables revenue in fiscal '10, and an increase of more than $100 million in five years. To support plasma growth our Board of Directors has approved a further $25 million plasma manufacturing plant expansion, to be operational in fiscal '11. This will support our western customer base in the United States.

I will move to Software and Services. This was a $39 million business in fiscal '08. In the quarter, we saw that our combined software and services businesses grew 1.4%. This number masks the real growth of our software business. In the first quarter of last year, we had a large services contract, that did not repeat in Q1 of this year. Excluding services, the software business grew organically 28.8% in the quarter.

We now have a software contracts with four of the five largest plasma collectors, and we have migrated many of these contracts to a price per procedure. That is for every plasma collection, just like with disposables, we get a software fee. Additionally remember that we have introduced three new software products in just the last 18 months, we are beginning to see some traction and these new products will provide incremental growth opportunities moving forward. We continue to anticipate annual growth of 15 to 20% in our software and services business for the year.

Blood bank is our second largest business, with $136 million of revenue in fiscal '08. The sales in the quarter grew 8%. In Q1 growth was driven by strength in our North American and Asia Pacific businesses. We continue to do a good job gaining market share, and penetrating both emerging and developed markets. Given this and the stabilization of our Japan platelet business, we now believe we can grow our blood bank business higher than planned. We have increased our annual revenue guidance for blood bank to approximately 4% growth, which is up from our previous guidance of approximately 2% growth.

Moving to red cells, the red cells disposables business had revenue of $46 million in fiscal '08, and grew 8.2% in the first quarter. Growth in the quarter was driven by the US business which was up 11%, and there is a nice balance here between disposables growth from the legacy MCS systems, and growth from the new Cymbal system. We are off to a good start. Remember that last year we gained momentum each quarter, and we expect that trend to continue in fiscal '09. Our annual guidance for red cell growth is still 10 to 15% for the year.

The patient side of our business is also doing very well. Let me remind you that the patient business consists of our cardiovascular surgical blood salvage systems and our diagnostics, which are grouped as surgical and diagnostics, as well as our orthopedic surgical blood salvage system. First, Surgical Diagnostics, a $72 million business in fiscal '08, which grew 34% in the quarter. This increase was driven by the acquisition of Haemoscope's TEG Technology in November of 2007. The TEG business which grew organically at 17% over the first quarter of last year, contributed approximately $5 million in sales for the quarter.

Given the market opportunity and customer response, TEG sales will continue to be a growth driver. We continue to expect revenue growth of approximately 18% from our combined surgical disposables business for the year. Also included in the patient business is the OrthoPad. The OrthoPad was a $34 million business in fiscal '08, and grew 7.4% in the quarter. We have 2,800 device placements, which will drive disposables growth throughout the year, and similar to last year, we are off to a slightly slower start than our anticipated annual growth rate, but we continue to expect revenue growth of 10 to 15% for OrthoPad for the year.

Finally, let me briefly comment on equipment sales. This is the last predictable part of our business, as we both sell and lease our equipment. Last year equipment sales were a record $33 million, with year-over-year growth of 46%. In the quarter, equipment sales grew 19%, and equipment sales continue to be very strong. In the quarter, we benefited from sales of platelets and cell saver equipment.

So while we had planned for annual equipment sales to be down 5 to 10% year-over-year, we now believe that equipment sales should be closer to the fiscal '08 record levels for the year. In summary, the fundamental growth drivers of the business and our prospects for future revenue growth are stronger than ever. Let me repeat this is the third consecutive quarter of 18% plus growth.

Now let me talk about gross profit. Gross profit grew $12 million, up 19% over prior year. This is the positive drop-through that we have often talked about. Gross margin was up 30 basis points from 50.4% to 50.7%. Even with the strong growth of our lower margin plasma products.

While I am talking about gross margins let me comment on the cost of our raw materials. As many of you know the plastics used in our consumables are petroleum based, and the rising cost of oil can put pressure on our margins. Brian will address our response to increased oil prices, and how we will offset the impact of material cost increases this year, just as we have done for the last five years. We have considered the impact of raw material pricing pressure in our revised annual guidance, and we expect a 100 basis point increase in gross margin.

Turning to operating expenses, in the quarter operating expense growth was 67% of incremental gross profit dollars. This is a little higher than our annual plan of 65%. As we said at our Investor Conference in May, almost half of the incremental spend relates to our investments in Arryx, as well as acquired businesses whose expenses were not included in Q1 of last year. The remainer relates to foreign currency, and routine incremental spending to drive growth in the base business. So as you can see, we are controlling operating expense.

Operating income was up 22%, and operating margin grew 40 basis points to 14.7%. Again for the full year, we expect operating margin to improve about 50 basis points, and I am particularly pleased with the consistency of the growth rates in our P&L. With 18% revenue increase dropping through to 19% increase in gross profit, and 22% increase in operating [revenue].

Our quarterly tax rate is lower than our annual guidance, because of a positive impact of the resolution of a tax contingency in the quarter. This contributed $0.03 per share in the quarter, and as a result, our revised tax rate guidance for the year is 33.5% to 34%, down from our previous guidance of 34% to 34.5%. Earnings per share was $0.59 in the quarter, up 17%, and our revised guidance for the year is a range of $2.33 to $2.43. And that's 10 to 15% growth in EPS.

Moving to the balance sheet, we closed the quarter with a cash balance of $120 million. This is cash available for future acquisitions and potential share buy backs. In the quarter we generated $14 million in cash flow from operations, and made a net investment of $10 million in capital expenditures.

In May, the Board approved a $60 million share buy back, and recently we were able to acquire a significant number of shares at a very attractive price. We spent about $25 million against the plan in the first quarter, and have completed the buy back in July.

Before I turn the call over to Brian let me reiterate we have never been better positioned for continued strong balanced revenue growth. We have got plans in place to offset global economic factors impacting the business and our industry. And our blood management solution strategy provides significant opportunity for future growth. Q1 was a great quarter, and a great start to the year.

So with that, let me turn the call over to Brian.

Thanks, Chris. As we have said repeatedly, we have two strategies to create and sustain shareholder value, leverage the business to improve profitability, and expand the business. We performed well with both strategies.

Since we began our transformation efforts five years ago, gross margin grew from 46% to over 50%. Operating margin improved from 11% to 15%. We launched seven new products and completed four acquisitions. This is a team that can execute, and this is also a team prepared to make tough choices today, to make us stronger for the future.

As an example, the success we enjoy today in Japan, Asia Pacific, and Europe, is rooted in the changes that we began to make two years ago. As you may recall these businesses combined were lagging well behind the growth rate of our North American business. Today our Japan business has stabilized, and Asia Pacific and Europe just completed their fifth consecutive quarter of double-digit growth. With Asia Pacific at 29%, and Europe at 21%. Clearly these changes are working.

So what is this year's transformational focus, and what will we get from it? I will now focus on our technical operations, which includes manufacturing, quality, and R&D. Changes today will better align those functions with our sales and marketing, to more effectively deliver blood management solutions to our customers. In Phase 1, which we implemented in May, we spent 1.8 million of the 7 to $8 million we targeted for this year's business transformation. This plan is already working having contributed to the positive results we see today.

Two years ago, we also began to implement our Oracle based ERP system. Having an enterprise-wide integrated platform is imperative to our strategy to expand the business. We now have stronger internal planning [teams], and we can better focus on meeting our customers needs and delivery, service, and operational efficiencies, all of which helps us to more effectively run the business.

So what does all of this mean to shareholders? At the highest level we continue to gain share with improved margins. This is the third consecutive quarter of 18% plus revenue growth. Our strategy and execution are paying off big time. We believe that the real power of our management vision, many of the benefits of this will have for our customers, the industry, and Haemonetics, still lay ahead of us.

Now let me pause here to emphasize a point that I made at our May Investor Conference. Business transformation is now another competency we have built here at Haemonetics. For those of you who have gone through this type of change, you know how difficult this is for the business. But it was necessary. We have been so successful is a real testament to our employees. They have implemented significant change, while at the same time growing our business double-digits. We are not done yet.

We have targeted to grow gross margin another 100 basis points this year, and we are targeting a total of 150 basis points for next year, fiscal '10. Many of you have asked how we plan to get there. In some ways the answer is more of the same. Our manufacturing group has targeted $4 million of structural cost reductions. We are rationalizing product lines, the benefit from improved pricing written into existing contracts. New automation for our plasma products in our Pittsburgh facility, comes online at the end of this fiscal year.

We have also targeted 50 basis points of operating margin expansion on increased revenue guidance. Why do we have such confidence we will be able to deliver? Since to 2003 our core program has driven down structural costs by $42 million. Consider in the last five years alone, oil prices have risen 400%, from about $25 a barrel, to a recent high of over $149 a barrel. In that same timeframe, raw material costs as a percentage as a revenue for our consumables has only increased by a net 1%. As you know, during that period, we have improved gross margin from 46% to over 50%.

The point is, we have been and will continue to be relentlessly focused on cost reduction as an operating philosophy. During the past 24 months, we have made changes to every part of our business. Yet we are still achieving results like this quarter, with revenue growth of 18%, and operating income growth of 22%. This is a credit to our operating discipline. This is a credit to our people. I am very pleased with our results so far, and I am confident in continued positive results as we move forward.

With that, let me turn the call back to Brad.

Thank, Brian. It was certainly a pleasure for our management team to share information at our Investor Conference about your company's opportunities to grow in the future. Now many of you have commented on the consistency of our message and our performance, and we thank you for your comments. We take great pride in our consistent leadership. We firmly believe that the future is best predicted by our past performance, and we clearly stated that at the Investor Conference. Today, the facts show that our revenue CAGR of 9% over the 5 years of the past, indicates a stable growth environment.

Additionally we stated that our operational growth for revenue CAGR for the next five years is 10 to 12%. In Q1 with an 18% growth, this is a reason why we believe, and an indication that we have building confidence in that target. After five quarters of double-digit revenue growth, I now firmly believe that this is a sustainable trend in the future. At our Investor Conference many of you commented on the high expectations we have regarding operating income growth. Our growth range for this year is projected to be in the 14 to 17% range.

So we are obviously very pleased with our good start, with operating income growing 22% over prior year. Therefore our aspirational operating income 5-year CAGR of 12 to 15% is clearly achievable. I am proud of our ability to consistently implement to our plans, and I am very confident in our ability to achieve our plan of double-digit revenue growth, and to achieve double-digit growth in operating income this year for the sixth consecutive year. Now this quarter is a great example of Haemonetics operating discipline. To all Haemonetics employees thank you very, very much for your efforts during Q1, you did a great job.

We are off to a great start, and with that operator, I will turn the call over to your questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question is coming from Dave Turkaly, SIG, please go ahead.

Thanks a lot. Congratulations on another nice revenue growth quarter there. We look at plasma, and I know you have given us some color, in terms of what each system can generate. Is anything changing in terms of how often they are being utilized? I know you guys announced that you have launched a new system that is a little quicker, in terms of how it collects. Is there anything else that kind of underlying why that growth rate has been so high?

Hi. This is Brian. Let me answer in two ways. The first part is that while we have launched that new software to speed our machines up, that is not out there at this point in time. So it has not had that impact in the quarter.

This growth is coming from what I call the organic growth of this business. But what we are seeing is the impact of the plasma collectors running their centers, what I will call white hot, and some of them have referred to this as convenience store hours. They are running these centers and in fact in some cases, with those centers only being closed three days a year. So what we are seeing is the demand in this market continuing, and the race to catch up with that demand.

David, this is Brad, I would also say that as Chris indicated in his prepared remarks, we really see this commercial plasma market as a real growth driver going forward in the future. If you look at some of the growth that I am sure you follow with the companies of that fractionators, these large bifractionators and their outstanding growth, we are being able to capitalize on that market, and expect to for the next two to three years.

Great. Then one for Chris. Quickly on the SG&A I know there is the ERP spend, and I know you told us, we are going to increase some of our operational spending which we can see. Can you remind us where we are in that, and when, if, towards the end of this year if that is going to drop off, and how we should be thinking about that base, as a percent of sales a big number, I imagine that is because of some of that incremental spending. Should we run it through expecting that to continue, or do you get some leverage in SG&A in the back half of the year? Thanks.

We will still be busy with ERP through the course of the year, but let me address the underlying question is, what is happening in the growth of operating expense. So as I look at the growth in operating expenses, it is about $7.8 million in the year. 2.8 of that is FX impact, just as our revenues have some benefit from FX, so do our operating expenses increase, so then we have invested in both, Arryx and our new businesses, the acquisitions that we have this quarter, but did not have in last quarter, or in the last comparative year's quarter. That is about another $3.1 million of incremental spend. So when you analyze it, we are spending about $1.9 million of incremental spend to drive the organic growth in the business.

And that, David is about $12 million in incremental growth in constant currency, so we are really continuing to leverage the business very, very strongly, and as Chris indicated our plans are to be more complete with ERP next summer. So we have got another 12 months of work as we implement Phase 2, which is in manufacturing operations and HR. That will not have an end at the end of this fiscal year.

I just caution you just to remember that the order, so ownership cost associated with ERP that involved depreciation, maintenance fees and infrastructure that help to optimize the system. So in terms of modeling operating expenses, don't model a real major drop-off. Are you still there, David?

Thank you. Your next question is coming from Steven Crowley of Craig-Hallum Capital. Please go ahead.

Good morning. Congratulations on the nice performance.

Thanks, Steve.

Couple of question for you. In terms of the efforts around the push to sale higher into the fee suite at hospitals, what can you tell me about where you are, in terms of training the troops to do that well, and beginning to see when should we expect to see a more pronounced impact from that capability?

We are in the early stages of that. This is Brian. We are in the early stages of that. Where we are doing this and you can count the places we are doing this on one hand. We are enjoying some really nice success already.

We are seeing that the institutions are responding very, very well to the blood management solutions we are offering. Within our hospital base customers and within our collection, our donor center customers. The real magic will be as we connect this over the course of the next 12 months, using our technology, our information systems technology, our software services technology, and how we connect that. That is where the real magic will be as we move forward. But we will continue to do this in a small number of accounts through this year.

My follow-up question really relates to some of the exciting stuff that you presented to us at the Analyst Round Table, the push into automated whole blood collection, and then an update on Arryx, and maybe I could ask for a progress update on both of those initiatives? That would be great.

Sure. And it is very timely, we just gave our Board the update on both of them yesterday, and they were very excited about what we were able to share with them. Obviously as we said, we are working on integrating the software with the blood pump solution, and we will be targeting, May, June of next year, having that through the development phase, and into a clinical trial phase, and we are on-track for that. The team is working well, and it is highly motivated and very excited.

With Arryx, we also have a milestone to deliver back to you, if you recall from the Investor Conference, that we are going to bring you reverse typing on a chip, with filters and controls and all of that in a dynamic chip. We feel extremely confidence about our ability to bring that to you, and demonstrate it at the meeting next year, and the team is so motivated and working real hard to do that. So I can't give you much more detail than that. Stay tuned, but we are still on-track. We are still on plan.

Steve, this is Brad. To address another aspect of the question, which Brian answered early on about blood management, you might remember that it was just early May when we had our global sales and marketing meeting, and we began the training efforts for our team point one. So as Brian indicated correctly, we have got a lot more work to do to train the team, yet despite that we continue to grow at 18%. So we are firing on all cylinders, but the other aspect of where we see blood management as a concept being implemented today, most successfully is our commercial plasma business, we have been doing this on software and disposables for some time.

Steve Swenson and his team have always sold like this, and as Chris reported, we are up 30% this year. We raised our revenue guidance of 15 to 20% now with commercial plasma. So there is a best indication of how blood management solutions is actually being implemented very, very well today. That is why we are so convinced that the strength of the plasma market will carry us forward well into this year, next year, and beyond.

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

Good morning, guys. Can you hear me?

Yes. Hi, Jim.

Can you tell us what the OrthoPAT and the Cymbal system placements were in the quarter, and how they compared to your expectations?

Cymbal was 16 and OrthoPAT was 125.

So 125 new systems in the quarter.

For OrthoPAT and we are pleased with those numbers, yes. Just to complete the loop on new product, cardio CATs were 7, and Harmony was 59. That gives you a full picture.

Okay. And Chris can you tell us what was the impact of currency on the bottom line?

Yes. I can. The operating income line, it was around $700,000 and so EPS of between $0.01 and $0.02.

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

Good morning, guys. Great quarter.

Thank you.

Can you just discuss a sometimes overlooked topic, your pretty actually nice recovery in platelets over the few quarters. I know a lot was related to your Europe and Asia restructuring, but it seem like there may be potential in the US, and for the first time it seems like you are getting some traction there?

Sure Larry. This is Brad. Platelets grew 8% over prior year in the quarter, and you might remember that we had planned somewhere around 2%. We are very, very pleased with that performance, and it is really being driven. We had a great quarter in Asia growing 29%. Europe grew 21%.

So our geographies are doing very well, and in North America, a real, you may be right, we perhaps not have done a good enough job talking about Canadian blood services in the past. You might remember that was a competitive bid that was let out about a year ago. AMBRO was the contract holder, over a year ago we were able to win that as a 100% contract, and so that is beginning to be implemented, and we saw a lot of the growth come from the United States. Or excuse me from that Canadian Blood Services agreement. So we feel very, very good about that.

The final aspect of our platelet business is our team in Japan has done a great job, and that market is very stabilized at this point. We feel good about that from a platelet standpoint. All of those things together roll up to 8% growth, which is significantly above what we had planned for.

Absolutely. Then just a follow-up question, can you just remind us what the ERP spending is expected for this year, and then what it is supposed to be for next fiscal year?

It is runs 7 million, pushing 7 million this year is our plan. And in terms of next year, as I said there will be a depreciation as we place the system into service, and we have maintenance fees, and so on. You think about that as between 5 and 6 million probably going forward.

Going back to Larry's question, I would just like to emphasize to all shareholders, how good we feel about the strength of growth across all product lines, and all geographies. In the past we have been dependent upon a few product lines maybe five years ago, but today all of our product lines are growing very, very well.

What this indicates to us is that we are beyond that point of a couple of quarters where we had double-digit growth. We have now seen five quarters in a row of double-digit growth. We think that trend is very, very stable, and very predictable going forward. That is a lot of the reason why we are raising revenue guidance. We are not dependent on one product line or another, or just one geography, the growth is very balanced for the corporation.

Thank you. Your next question is coming from John Putnam., Dawson James, please go ahead Please go ahead.

Thanks and congratulations on the quarter.

Thank, John.

Two things, one the gross margin in plasma, as you shift to a different model on the software side, where you actually, I guess get some kind of revenue from each collection I am assuming, can that increase the gross margin in plasma?

It wouldn't have a big impact, John. I think the biggest impact we are going to see in plasma when we get our plants up and operating in Q4 of this year, that automation plant, that line that we are adding in Pittsburgh will have an impact, and to support the growth, the long-term growth we see in this market, the Board as Chris indicated approved yesterday, an expansion of our manufacturing capability for the United States market west of the Mississippi.

So it will be through automation of manufacturing. That will have the biggest impact on margin, as you might also remember each of our contracts calls for annual price increases when we negotiated those contracts at the beginning of the contract term. So we are opportunities for price increases as well.

So those things will have an impact, and finally in terms of a new plant west of the Mississippi River, freight costs are clearly an impact to this business. So we will see a reduction of freight costs, because we only have one plant today in Pittsburgh. That will be a benefit as well. Brian, you might have some more information.

If I understand your question, I think you are referring to our new Express software that will speed up our devices. Yes, that will be something that will be an incremental cost saver, and that will improve our margins as we roll that out beginning later this year, and into fiscal year '10.

My follow-up question is traditionally your second quarter has been kind of flat with your first quarter. Given the increase in the revenue guidance, what would be your thoughts on the sequential revenues?

We would be happy to have another quarter just like this one. We really don't give as you know quarterly guidance, but I think the important message today, is that this is five quarters in a row of strong revenue guidance, delivered on every particular product line that is a growth driver in every geography. So as we looked going into this year, we were confident of increasing our annual guidance to 10 to 13% on the top line. We feel very, very good about that.

Thank you. Your next question is coming from Victor Gezunterman of Morgan Stanley. Please go ahead.

Good morning, guys.

Good morning.

Very strong quarter in plasma, but as I look at your guidance it seems like you were expecting flattish to maybe even declining sequential trends in plasma through the rest of the year. So what happened in the first quarter that you think is not going to happen in the following quarters, and if you maybe could give us a little more color, as to what drove plasma revenue in the quarter? Was it after pharma Talecris, was it bare utilization of [DODs]?

Victor this is Brad, it was all of those new contracts, growth, growth, growth. We don't want to get ahead of ourselves in the commercial plasma market. These folks as Brian and Chris have both indicated are collecting as much plasma as possible. So when we look at our 15 to 20% guidance up from 10 to 15. That is just an indication of our confidence but we don't want to get ahead of ourselves. It is a little bit conservative But I would remind you this isn't a plasma story.

I will remind you our blood bank business grew 8%. Our Red cell business grew 8%. OrthoPAT grew 7.4. Our Systems business grew 20%. Surgical diagnostics grew 34%, and equipment 19%. So we are not determined on just one particular, particular product line, or area for growth. It was consistent across all parts of our business.

And we also Victor just to give a little more color, we had strong quarters in Q3 and Q4 in plasma last year, so it was up against some pretty solid comparisons as we go forward as well.

Okay. Fair enough. As far as EPS guidance, it seems like well you only raised it by about $0.02, which was probably less than given in the quarter relative to Consensus. What are the different moving parts there? Do you expect SG&A to go up sequentially or trend flattish?

We are targeting right around that 65 to 67% of growth and gross profit dollars, obviously that in itself is a moving target, as we have ranges of revenue against which we are measuring that. We believe we will continue to have good operating expense, discipline and control. Part of what is flowing through operating expense is FX, and that is a spot rate effect that on that line item is essentially unhedged, because we hedge on the revenue line item on a net basis.

I think the other things to think about in when you think about EPS in the company is we have expectations of strong operating income growth, but the operating income growth is a little bit muted, because of the deployment of our cash into acquisitions and share buy backs. And the tax rate will be up slightly year-over-year compared to last year.

Thank you. Your next question is coming from Daniel Owczarski of Avondale. Please go ahead.

Thanks. Good morning. I will add my congratulations as well. Plasma, and sorry to stay with that, could you remind us again how long the ramp-up period is for these new equipment placements until they kind of get up fully operational, or full capacity, and I guess that piggybacks on with another question if you are expanding plants, I mean you would have to have some real long term visibility on this plasma market, beyond just a quarter or two?

Dan. This is Brad. We certainly do have long term visibility, and that is why we are going to spend $25 million expanding our capacity, to support our customers growth expectations. So we have great visibility in that business. It is going be a growth driver for the next three years, as Chris indicated. We feel very good about that. Brian you might want to comment on the other aspect.

Roughly for a new center to get up and running, it is roughly about an 18 month period of time that that takes.

Okay. And then just to switch over to the Cymbal, you had mentioned the 16 placements, is that product, is that under the full launch right now, and if you could add any color, if it is under the full launch, and how even, how we can think about that ramping up through the year?

The answer to your question is yes, it is the full launch at this point, and we do expect, we are working on some protocols as it relates to the double red cells, and working for approval on the plasma side of that, and the single unit of red cells. What I mean by that is if it is a double red cell collection. If we only get one unit out of the collection can they use that, and we have submitted to the FDA, to be able to get approval for the use of that one unit. So we do expect this to continue to ramp-up throughout the rest of the year.

Thank you. You have a follow up question coming from Steven Crowley of Craig-Hallum Capital. Please go ahead.

Yes. In terms of the progress with Haemoscope, quantitatively it seems very consistent with what you telegraph when you acquired the business, you have now had it for a couple of quarters and a fraction, and I am wondering what plans you have in place to scale that business, whether or not what you have determined warrants an investment and additional sales and marketing, or just how you are approaching that business, and what you know about it now that you may not have known six months ago?

Sure Steve, let me try to answer that. We are very pleased with the performance of Haemoscope, it is performing as we had anticipated, in a very positive way. It is being well received by customers. We have begun the process as you would expect of integrating the sales force, first of all starting with our national accounts group. We are also building out technical clinical specialists in several regions, to assist and drive the growth in the business, and all of that investment is in our plans and in the guidance that we provided to you.

We have also brought on the British distributor of the TEG product, a small company based in the UK, that has a great cultural fit with our organization, and we are deploying those resources to help drive the EU growth of TEG, which where there is a presence but very much a distributor based presence at the moment. And the reports back from our European organization is that those two teams are working incredibly well together to drive TEG. I am optimistic about it, and of course our folks in Asia are anxious as can be, to get resources out there, clinical specialists out there, and we are more and more confident with every day of ownership, that this is a terrific fit with our blood management solutions story.

Thank you. Your next question is coming from Joshua Zable, Natixis. Please go ahead.

Hey guys, congrats on another great quarter here and thanks for taking my questions.

Thanks, Josh. How are you doing?

Doing good. You guys make it more difficult to think of smart things to say over here because you keep delivering consistent results.

You can take reprints from the transcripts.

We still manage, we still manage. I have a couple of real quick ones for you. Most of my questions have been answered. First on eLynx I saw that you guys launched that. I thought that was launched before. It could by my mistake that you had acquired it, and maybe had not launched it yet. Just clarity on that just so I know?

You may be confused with eQue and eLynx, we had launched eQue before, eLynx we recently received the approval for that, and have just gone from limited market release into full market release with that product.

Perfect.

That was internally developed, Josh.

Okay. Thank you for that clarification, and then the second one is just on blood bank revenues for our model here. There's not too much to nitpick, you said you won a Canadian contract, and looks like it goes through the first half of this year. So is the way to think about it is sort of another descent quarter next one, and then sort of stepping down in the second half of the year?

That is a fair way to look at it, Josh. Tha is why we have guided up from 2 to 4.

Congrats again guys. Thank very much.

All right. Thank you.

All right.

Thank you. (OPERATOR INSTRUCTIONS). You have a follow-up question coming from Larry Solow of CJS Securities, please go ahead.

Can you tell us what the average price of your share buy back was in the quarter, and if you can tell me what the July number was too, that would be even better?

Yes. I don't have it in front of me but we are around 54 I think an average, and probably did a lot better than that in July. It was a real nice opportunity.

Got it. Great. Thanks, guys.

Thank you. Your next question is coming from [Eugene Pazak, Civic Global]. Please go ahead.

Hi, guys, great quarter. One quick question, I just wanted to follow up on a comment you made about room for increasing in prices in plasma? Can you give a ball park amount of how much space you have there?

The answer to that question in two ways would be, we have pricing built into our contracts, and that is minimal, it is going be based off of CPI, PPI what you would typically see the target move.

And then with the launch of our Express product which is our software that speeds the device, again it is not a huge amount, but it is a modest amount that allows us to get a payback on the investment we made in developing that software.

Okay. And then, also on the higher raw material costs, are you passing that through to your customers in higher prices, or are you offsetting that in different ways?

Both.

Both. Okay. And finally just my last question, can you kind of give a ball park of what acquisition contributed in Surgical?

Yes. Sure. Acquisition, I should have said this in the script, about 5 million was the contribution of acquisitions.

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

Thank you, operator. Haemonetics has developed and implemented strategic plans to insure that we create shareholder value. We have done a very good job of that over the last five years, and we are off to a good start this year in terms of Q1.

We have never been better positioned for continued strong balanced revenue growth, the fact is that Haemonetics has recorded three consecutive quarters of 18% plus revenue growth, and five consecutive quarters of double-digit revenue growth. We really believe that this is now a trend, and that we have continued to improve while doing that, so both improving gross and operating margins, and have a proven track record of leveraging our P&L, while investing smartly into the future of your Company.

We are off to a great start in fiscal '09. We believe this will be a very good call, and thank you for your support. Have a nice day.

Thank you. This concludes today's Haemonetics first quarter fiscal year 2009 conference call. You may now disconnect.