Haemonetics Corp (HAE) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2010 Haemonetics Corporation earnings conference call. My name is Jasmine, and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's call, to Julie Fallon, Director of Investor Relations.

Good morning. Thank you for joining Haemonetics second quarter fiscal '10 earnings webcast. Today I'm joined by Brian Concannon, President and CEO, Chris Lindop, CFO and Vice President of Business Development, and Lisa Lopez, Vice President of Corporate Affairs.

Please note that our remarks today include 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.

On today's call Brian Concannon will review the highlights of the quarter. Chris Lindop will review our operating performance and expectations for the year, and Brian will close with summary comments.

Before I turn the call over to Brian, let me review the restructuring costs incurred last year. With the transformation of our business, we incurred restructuring costs in fiscal '09 that we've excluded from the results we will talk about today. In fiscal '09 our adjusted operating income excluded $300,000 in pretax costs in the quarter and $2.2 million year-to-date. We have no restructuring costs this fiscal year. So again, for comparative purposes, we've excluded these costs from our fiscal '09 financial results.

Finally, as is our normal practice, our press release and website include a complete P&L and balance sheet as well as reconciliations between our GAAP results and our adjusted results.

With that, let me turn the call over to Brian Concannon.

Thanks Julie, and good morning everyone. I'm pleased to report another strong quarter of operating performance. I'm equally pleased with the progress we are making with blood management solutions. We continue to deliver a solid financial result every quarter, while we build the business to deliver on our blood management vision and our long-term aspirational goals. That's impressive.

Let me briefly review the financials and then talk more about blood management solutions.

In the quarter on sales growth of 8% we have strong positive drop-through, finishing with operating income growth of 13% and earnings per share growth of 18%. Positive drop-through was driven by gross margin expansion of 30 basis points.

We are off to a good start as our expenses have been significantly leveraged, spending only 51% of incremental gross profit dollars in Q2. Operating expense discipline continues to be a hallmark of this management team. We ended the quarter with $178 million in cash after spending $6 million on share repurchase and $12.5 million on the acquisition of Sebra. Our balance sheet remains exceptionally strong.

Our plasma business had another great quarter with 19% revenue growth. But as we've told you, we expect plasma will slow to more moderate growth while other parts of our business accelerate. This quarter is a great example of this. Plasma slowed from 26% growth in Q1 to 19% in Q2, yet our overall company revenue growth rate increased. Why is that? Our blood management solutions are beginning to drive growth. It's driving growth in the software business and it's driving growth in the hospital business, despite an environment of declining elective surgeries.

So let me talk more about blood management solutions. As I said earlier, we continued to deliver solid financial performance. And this allows us to continue to invest in and build the business. Blood management solutions are a key area for investment. We are all aware that our customers are facing significant challenges in the current environment of increased scrutiny on healthcare costs. Blood management addresses this critical and unmet need while simultaneously improving patient care.

The time is right for us. Our solutions help customers address these challenges. Each link in blood management, the license, software, and services, is critical. We've always had a strong device portfolio. Over the last two years we've made excellent progress building our software and services portfolios through internal R&D and acquisition. That's paid off as these software and service offerings are driving disposable growth.

Let me start with software. Software, by which we mean information management, is a critical part of blood management solutions because it delivers operational intelligence. Information management improves customers' operational efficiencies and ensures regulatory compliance. Strategically, software can also be the connective tissue for blood management, linking customers' internal operations as well as their supply chains from the hospital to the blood center.

Our software offerings are already proven in plasma. In fact, plasma software is a growth driver for software solutions in total, and our software business continues to grow, up 29% in the quarter. We remain confident that this success can be duplicated on the blood bank and hospital sides of the supply chain as we execute further on our blood management solutions vision.

Moving to the services part of blood management solutions, our success in services is driving renewed disposable growth in the hospital side of the business. We are leveraging our services to convert traditional customers to blood management solutions. We define these customers as Impact accounts. We expect customers will migrate from departmental programs to hospital-wide blood management solutions over time. But we have decided to simplify branding, using Impact as the brand name for all levels of Haemonetics penetration. Information drives blood management decisions and changes in transfusion practice. And that is exactly what we are seeing with our Impact accounts.

I'll talk first about our comprehensive hospital accounts which are leveraging multiple devices. In these accounts we analyzed blood use across the entire hospital using our proprietary analytical tools. We currently have signed contracts with five hospitals for comprehensive programs. An additional six hospitals are moving through the contracting phase.

Our plan for fiscal '10 is to have nine to 12 accounts implementing our hospital-wide, comprehensive solutions by year-end. We remain confident that we will achieve this goal.

Moving to our single device specific Impact accounts. In these accounts, we take a baseline measurement of the hospital's current blood transfusion practices for a particular area of the hospital, such as orthopedics, and then we demonstrate and measure the value of one of our solutions in improving that practice, for example, the use of OrthoPAT in orthopedic surgery.

We expect these accounts to expand over time into more comprehensive, hospital-wide accounts. Against our annual goal of 40 accounts, we have completed the baseline measurement phase and are in value demonstration at 15 accounts. We've moved beyond that phase in 13 accounts toward contracts for the purchase of our products. So once again, we remain confident in this goal.

What does this mean for the rest of the year and beyond? Well, we are seeing accelerating growth in our OrthoPAT and surgical product lines, with OrthoPAT up over 3% and surgical up 4%. And that is just the beginning. We expect this growth trend to continue as the number of Impact accounts increases in the back half of the year. We've got a growing pipeline of customers seeking the economic and clinical benefit that Haemonetics is uniquely positioned to offer.

With our progress in blood management solutions and our financial performance through the first half of the year, we remain confident in the growth potential and operating performance of the company. We are affirming our annual guidance, that is, sales growth of 8% to 11%, operating income growth of 12% to 15%, and earnings-per-share growth of 12% to 16%.

With that, let me turn the call over to Chris Lindop, our CFO. Chris will cover the underlying trends in our growth drivers and review in more detail the results of the quarter.

As Brian said, this was an extremely positive quarter. Strong double-digit growth in our plasma and software solutions businesses combined with margin expansion and operating leverage to deliver 18% growth in earnings per share -- outstanding results. These results are even more remarkable when you consider the broader economic environment and the challenges facing the healthcare sector.

Now, let me start by reviewing revenue growth. Then I'll walk down the income statement providing some color.

Plasma is an ongoing success story. In the quarter, plasma sales were $59 million, up 19%, and year-to-date plasma sales were up 22%. That's 10 consecutive quarters of double-digit growth in our largest business.

When we look at quarterly plasma revenue growth, it comes from three areas. First, what we call same-store sales. That's plasma collection growth at existing customer sites. Same-store sales increased 8%. Price contributed another 3% to total plasma growth, and share gains contributed 8%.

The same plasma growth is driving manufacturing efficiencies. We saw global plasma gross margin growth of 220 basis points in the quarter and 140 basis points year to date. The plasma gross profits are growing even faster than plasma revenues. Going forward, plasma will continue to be both a revenue and a margin expansion story.

We've talked about how our Express protocol will contribute to these trends. Remember that Express is a device software enhancement priced per procedure. The Express rollout is going well, and the software is now in full market release. Feedback remains positive. Customers have seen donation times reduced by more than 20%. That makes device placements more efficient and reduces device depreciation expense on our income statement. That's significant. Remember that we have over 11,000 devices placed in the US alone.

So all in all, another great quarter for plasma with trends remaining very positive. We are affirming our annual growth guidance for plasma of 19% to 22%.

Software Solutions also had a great quarter. Sales grew 29% to $9 million. Year-to-date software solution sales were up 22%. Because Haemonetics provides the information management platforms for plasma sensors on a per-donor fee, strong plasma collections contributed to software solutions growth. Excluding the Impact of our Altivation and Neoteric acquisitions, our software solutions business grew 16% in the quarter.

Note that despite the very strong start for software solutions, our annual growth guidance remains 9% to 13%. In the fourth quarter we will be comparing against a significant one-time software revenue event in fiscal '09 that will not repeat this year. Even with this tough comparison, we still expect solid growth in this business.

In our platelet business revenues were up 3% in the quarter to $37 million. And year-to-date platelet sales were down 1%. As expected, sales recovered in the quarter versus Q1 as we worked through strengthening our distribution network. Orders from distributors are expected to positively impact the second half of the year.

The Japan platelet business remains stable. We continue to expect 0% to 2% growth in platelets for the year.

Moving to red cells. In the quarter, red cell revenues were down 2% to $11 million. Year-to-date red cell sales were down 1%. We now anticipate revenues to remain flat in a range of 0% to 1% for the year, as the challenges we saw in the first quarter continue. Revenue growth excludes any additional Fenwal customer conversions which may occur in the back half of the year.

Aggregate demand for red cells by hospitals is down approximately 2% over last year in absolute terms. This represents a 3% to 4% decline from historical growth rates. Since selective surgeries represent about 25% to 35% of red cell usage, the decline in elective surgeries is impacting demand for red cells.

When faced with lower demand for red cells, blood centers traditionally focus on collecting whole blood, which they perceive as the low cost alternative. Interestingly, analyzing the full cost of blood collection reveals a very different picture. We recently analyzed mobile blood drives for a large regional blood center. We offered several collection scenarios that could reduce costs while still meeting blood collection goals. Through this analysis we identified $1.4 million in potential savings for that blood center by eliminating almost 800 blood drives.

Our analysis clearly showed how the blood center could reduce costs by eliminating low yield, expensive drives while meeting the collection goals by deploying our red cell devices on high yield, lower-cost drives. So our goal is to implement blood management solutions with blood centers in the same way we've executed with hospitals, demonstrating the cost effectiveness of double red cell collections.

This particular blood collector represents our initial launch of Impact with blood bank customers, and we are targeting additional customers in the back half of the year. Additionally, we also remain focused on delivering our automated whole-blood system to this market, which we expect to drive stronger, long-term growth in the red cell business. Brian will talk more about our planned entry into the $1.6 billion whole-blood market.

Now moving to the hospital side of the business. The surgical and OrthoPAT product lines grew in the quarter as we begin to influence hospitals' purchasing behaviors through blood management solutions. Surgical sales were up 4% to $17 million, and OrthoPAT sales were up 3% to $9 million. Year-to-date surgical and OrthoPAT sales were up 2% and flat, respectively.

Our annual guidance for the surgical line has increased to growth of between 4% and 5%, and our OrthoPAT annual growth guidance is confirmed at 5% to 7% for the year.

Moving to diagnostics. TEG disposable sales remained strong with 11% year-over-year growth in the quarter. TEG disposable sales are the best measure of how frequently our technology is actually used by clinicians.

Reported diagnostics revenues, which include TEG equipment sales, were $4 million in the quarter, down 10% as a result of declining equipment sales. But in Q3 we are seeing the acceleration we expected in device sales. Our TEG device sales for the month of October have already exceeded the TEG device sales for the entire second quarter. Our volume selling approach is helping to overcome the capital constraints that our hospital customers are facing. We now anticipate annual revenue growth for diagnostics of 10% to 12%.

Equipment sales related to our apheresis and cell salvage devices also declined, down 13% in the quarter to $10 million when compared to the second quarter of fiscal '09. Year-to-date equipment sales were down 14%. Similar to our diagnostics business, equipment sales are being impacted by hospital spending pressures. Our distribution markets will strengthen in the second half of the year, driven by the weaker dollar and the changes which we've made in various markets.

Given the strengthening distribution market and the positive impact of the Sebra acquisition, we anticipate equipment growth in the second half of the year. For the full year we continue to anticipate equipment revenue growth of between 0% and 5%.

That's not the whole story. We tracked our installed base of devices, and despite the equipment revenue decline, we continued to see healthy growth in our installed base, which includes devices sold and devices placed under use plan. We added 653 devices to our installed base in Q2, led by strong surgical placements. That's a 2% sequential growth from the previous quarter and 10% growth in our installed base year over year.

There are two important points here. First, our installed base continues to grow, and second, installed base growth ultimately drives stronger disposal use. Remember that almost 90% of our revenues comes from the sale of single use disposables.

With respect to new products, disposable sales grew 66% to over $1 million in the quarter, with growth across all new products, and particularly the cardioPAT. Very pleased with this performance.

We are off to a good start against our plans and confirming our original revenue growth targets of 8% to 11% for the year.

Our mix of sales has changed. Plasma and software growth will remain strong, and the distribution business and the acquisition of Sebra will have a positive impact in the second half of the year. As a result we are very confident in our annual growth guidance.

Now let me review the rest of the P&L results. Again, last year's numbers are adjusted, as Julie said.

Second-quarter fiscal '10 gross profits were $81 million, up 8%. Gross margin was 51.5%, up 30 basis points. Year-to-date gross profits were $164 million, up 11%, and gross margin was 52.7%, up 170 basis points.

Now remember that for the year we guided to gross margins of roughly 53%. So halfway through the year we are well-positioned against that target.

Gross margin improvement benefited from currency and manufacturing efficiencies, offset by product mix. While currency is helping us, we anticipated this because of the hedging decisions that we made in fiscal '09.

With this tailwind we have been able to plan our investments. As a result, operating expenses were $54 million in the quarter, up 6%. Year-to-date operating expenses were $111 million, up 8%.

In the quarter R&D expenses were up over $1 million, or 25%, funding development of our automated whole-blood collection system and our Arryx blood diagnostic system. We also continued to invest in blood management solutions. Incremental expenses from Altivation and Neoteric were $900,000, which were not included in the second quarter of fiscal '09.

Despite funding these important initiatives, we still kept growth in operating expenses to 51% of incremental gross profit dollar growth. Now, here is my key point. We continued to manage expenses well and deliver on near-term commitments to our shareholders, even as we invest in the business and make good long-term decisions for the future of your company.

Operating income was $27 million in the quarter, up 13%, and operating margin was 17.2% in the quarter, an increase of 80 basis points year over year. Year-to-date, operating income was $53 million, up 18%, and operating margin was 17.1%, up 150 basis points. For the year we guided to operating margins of roughly 16%, so once again, a great start with respect to achieving this goal.

But let me point out, this is another area of consistency for Haemonetics. At fiscal year-end we will have achieved a seven year compounded annual growth rate of over 21% in operating income. That's year-in, year-out execution against our strategy to leverage our core business to improve profitability.

Moving to our tax rate. Our tax rate was 30.8%, consistent with our annual effective tax rate guidance of 30% to 31%. As I've said, our tax rate is positively impacted by favorable Swiss tax rates, as our Swiss subsidiary is the principal party for most of our non-US business. This initiative has permitted us to leverage 13% operating income growth into 20% net income growth in the quarter.

Earnings-per-share were $0.69, up 18%. And year-to-date earnings-per-share were $1.37, up 18%. We are affirming our original EPS guidance of a range from $2.75 to $2.85.

Moving to the balance sheet, in the quarter we generated $24 million in free cash flow after making net investments of $11 million in capital expenditures. We continue to have a strong cash generation model, and we are affirming our annual free cash flow guidance of greater than $60 million. We have $178 million in cash on hand, and we spent $6 million on share repurchases in the quarter against a $40 million share repurchase plan.

So to close, we performed well on revenue growth. We showed excellent drop-through from revenue to EPS. We also showed strong growth in gross and operating margins. Our business fundamentals remain very strong, and our blood management solutions are taking hold to drive hospital sales.

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

With half the year behind us, we are well-positioned to achieve our full-year guidance. As Chris said, our mix of sales is different than anticipated, but we remain confident in achieving 8% to 11% revenue growth for the year. We are also well-positioned to achieve our EPS target. Plasma and software solutions continue to perform very well. And market trends indicate that this performance will continue for the remainder of the year.

But as important as our plasma and software momentum might be, the fact is that blood management solutions are now driving renewed growth in the surgical and OrthoPAT lines. As our hospital customers feel the impact of challenging economic times, our blood management solutions are helping them today to address the economic and clinical challenges they face and meet the long-term needs of our industry.

New products had another strong quarter. And year-to-date disposable sales were up 74% over the first half of fiscal '09. It's also important to note that in the second quarter our cardioPAT installed base increased 6%, and our placements of Harmony, another new product, increased 5% sequentially on our installed base at the end of the first quarter. So I'm very pleased with the traction these products again.

Finally, we continue to perform well against our acquisition strategy. Remember that we aspire to have acquisitions contribute 1% to 2% revenue growth. In Q1 we acquired Altivation and Neoteric. This quarter we acquired the Sebra products used in whole-blood collection and processing. Combined, these acquisitions will contribute about 1.5% revenue growth in the year.

Let me talk for a minute about Sebra. With the acquisition, we strengthened our blood bank product portfolio. The acquisition will positively impact revenues in the second half of the year and is neutral to EPS.

But these products are also significant strategically. Sebra strengthens Haemonetics' footprint in the whole-blood market. The whole-blood market is a $1.6 billion market, which we will enter into in a more significant way with the launch of our automated whole-blood collection system.

The system consists of an automated collection device and blood transport system unique in the industry. The system also incorporates data and workflow management for enhanced compliance and productivity. We remain enthusiastic about the benefits this new product can have in addressing donor comfort, regulatory compliance, and workflow efficiencies for our blood bank customers.

Earlier I said that software was the connective tissue for customer operations. Our whole-blood collection system will not only automate blood collection, but it will also automate data management, from the donor interview to the laboratory processing. These improvements will enhance regulatory compliance and quality while simultaneously taking costs out of blood processing.

The integrated system will be a powerful tool for blood collectors. Combine this significant new product with a few key strategic acquisitions, and you can see why I remain very confident in our ability to execute on our vision of being the global leader in blood management solutions.

As I close, let me thank our employees for their continued commitment. Despite some of the most challenging economic times in recent history, this team grew sales 8% and delivered double-digit operating income and earnings per share growth once again.

Now we would be happy to take your questions.

(Operator Instructions). Larry Solow, CJS Securities.

Just a quick question on the gross margin. I know you are reaffirming your full-year guidance, but was there any reason why it kind of slipped back down in the second quarter? And I guess what gives you confidence that it's going to sort of bounce back up at least to sort of the first quarter and run year -- and year -- the run rate for the year, in the second half?

Well, certainly an element there is mix. When we have plasma sales stronger than anticipated and some of our other businesses which have higher gross margins performing less strongly, that puts pressure on gross margin. As you can see from our guidance for the year, we anticipate growth in our surgical businesses over levels at which they are growing in the first half and there (multiple speakers) higher margins from that.

Right. But just isolating like plasma for instance, it was sort of flat quarter over quarter, but yet your margins sequentially -- not to look too much into the quarters, because I know they do bounce around, but sequentially fell like almost 230 BPS or something, so --

Obviously currency was a strong factor in the first quarter, if you go back to the 10-Q.

Okay. And then it sounds like your plasma outlook, you reaffirmed it for fiscal '10. Any comments -- I know there's been some talk of -- you can look at Octapharma and CSL, they talk about now where they've reached actually an oversupply in the plasma industry. Is there any fear that would start impacting you guys, maybe as you look out over the next year or two?

As we said, we're going to see plasma sales continue to moderate, consistent with the growth rates that our plasma customers are saying to us. But think about what Chris said in the quarter. We saw same-store sales up 8%, and we saw growth from a price perspective up 3%. So we continue to benefit from share gains, which is why we are seeing our overall growth rate higher than I think our plasma customers are seeing in their trend. Our same-store sales growth are consistent with what they are seeing.

So it will continue to moderate in that fashion, but (multiple speakers) that continued penetration of share that we believe strongly -- and as Chris said, this is our fastest growing, largest business. And it's continuing to grow.

And the great thing is that you're seeing that grow with higher profitability. We had a 220 basis point increase in the quarter, 140 basis points increase year-to-date in this segment of our business. So while it is a lower margin overall, we continue to leverage that business very well as we go forward.

Lastly, I know you guys had targeted sort of 65%, or in the ballpark there, of reinvestment of your gross profit. Looks like you're sort of running in the 50% range year to date. Any reason to think this is going to sort of increase? Or is this more of a comfortable level? Or any comment on that?

I'll jump in on that one as well. What you see here is us managing our investments consistent with our ability to both grow our business and meet our commitments to our shareholders. We will continue to meet those commitments to our shareholders. That's our primary objective. And the benefit is that we are able to continue to leverage our investments in the business strategically in key areas such as R&D and such as blood management solutions, which is really starting to drive growth for us in other key parts of our business as well.

Thanks a lot, I appreciate it.

Joshua Zable, Natixis.

This is actually Ethan on for Josh. Congrats on a really strong quarter here.

Just wanted to ask a quick question on your guidance. Your sales guidance for the year implies that you expect growth to accelerate in the second half, to even hit the bottom end of your range. I know you commented on hospital spending and procedure volumes being difficult through Q2. Are you seeing some improvement there? Or is this basically acquisitions and blood management solutions starting to contribute more? What gives you confidence in that growth picking up in the second half?

I'll jump in first and then maybe Chris will comment. But we are seeing acquisitions contribute. As I indicated, we will see that be -- contribute about 1.5% growth for the full year, and of course the acquisition of Sebra will contribute to that in the back half of the year.

But what we are really excited here is that as plasma moderates, just as we expected it would, we are starting to see traction in our hospital business. And blood management solutions is taking hold. This is a part of the business -- everybody knows the economy has had an impact in our hospital-based customers. Yet we are starting to see that come back in this quarter, even while you're hearing elective surgeries are down significantly. So this gives us great confidence that our blood management solution is taking hold.

As an example, for the quarter we've placed 76 OrthoPAT devices now, which gives, again, an indication of the traction we are gaining. That's against 47 in the first quarter of the fiscal year. So again, we are seeing blood management take hold here. We are seeing sequential growth in both our surgical and OrthoPAT product lines, and we feel very confident about what this means for the back half of the year.

Okay guys, thanks.

Steven Crowley, Craig-Hallum Capital Group.

In terms of the plasma business, obviously you're guiding for a noticeably stronger second half of the year than the first half. Just the math says there's $4 million or $5 million more in revenue in the second half of the year versus the first half for you to get to your guidance. There has historically been some seasonal bump in the business from the September quarter to the December quarter. I guess the questions I have are -- is it reasonable for us to expect that? How should we think about that beefier second half versus the first half?

Let me just correct a misconception perhaps inherent to your question. We grew the first quarter at 26% in plasma, and of course in this quarter we grew 19%. So while we guide to 19% to 22%, we are actually anticipating that the back half of the year would be lower than Q2.

I did recognize -- Chris, I may have phrased my question the wrong way. But to get to $241 million or the low end of your plasma guidance, you did $118.3 million in the first half of the year. That would imply at least $122.5 million in the second half of the year -- so some meaningful growth off the levels you attained on average in the first two quarters. And I'm wondering if we should expect the normal seasonal pattern in your business where there is a jump from Q2 to Q3 and then a bit of a check-back in Q4? Or whether there are market dynamics that should lead us to think differently about the business?

Let me jump in and take a whack at that. As we've typically talked about, our business is about 48/52, 48.5/51.5 -- front half to back half. And plasma is a business that, being our largest business, we typically see that. In fact, Q3 is typically our strongest plasma quarter. So you're right. As you look at the back half, we do expect to see that seasonal trend continue as it has in the past.

That's very helpful. I think what you are trying to tell us with your discussion of operating expenses is don't get carried away with how phenomenal a job you have done managing expenses down in the first half. You really didn't change your operating expense guidance for the year. So there's going to be some significant beef to the operating expense line over the balance of the year. Is there big growth implied by your current guidance and what is left in the year to get to that number?

Let me say it this way. We are going to continue to invest in the business consistent with our ability to meet the commitments we've made to our shareholders. That is the primary objective. We're blessed with a management team that has the ability to be able to turn that on and off pretty easily, as you've recognized over the past seven years. We know exactly where we are going to make those investments, primarily in R&D, primarily in blood management solutions, as you've seen through the first half of the year. So this is something we've done exceptionally well, and you shouldn't expect any change in that throughout the remainder of the year.

Absolutely. Now, in terms of how we should think about the explanations for $5 million or so of incremental growth and operating expense in each of the next two quarters, those are big numbers. And I doubt it's all going to be in R&D. What are those investments?

We continue to invest in Arryx. We continue to invest in our own (inaudible - microphone inaccessible) [whole] blood, and (technical difficulty) in the resources required to help change hospital behavior through our blood management solutions offering.

I guess I'd probably -- a little more color on that -- when you think about blood management specifically, you've heard us talk about it, and we talked about it at the May investor conference, the dashboard that we are creating for our hospital-based customers to more rapidly and effectively manage and measure their performance, especially in our hospital-like comprehensive Impact program, we continue to invest in building that out.

Okay.

(Operator Instructions). David Lewis, Morgan Stanley.

So Brian, just to come back to plasma here for a second, there are three components you've done a nice job of breaking out for us here the last several quarters, which we appreciate. If I think about same-store sales price and share going forward, is it possible that price and share can improve sequentially, or as you look out the next six to 12 months?

If you think about price, the answer is yes. As we implement our Express software, that's where you will see that implementation take effect. We expect that to pick up in the back half of the year.

Share -- I wouldn't expect it to change dramatically from where it is today. In fact, I think we'll continue to see that moderate as we go forward.

So mix can get better, share moderates, and then same-store -- relatively stable?

I'd say same store we expect to be relatively stable, yes.

Perfect. And then Brian, your comments on the acceleration of the blood management business were helpful. I'm trying to understand, how much of this would you say on a percentage basis is tied to the economic improvement, specifically in OrthoPAT, and how much of this is tied to some of the Impact procedures that you described?

I think it's very related, and I think it's primarily in the orthopedic arena. That's our greatest focus today. If you think about cardiovascular cell salvage, it's the standard of care. For cell salvage within the orthopedic arena we're less than 10% penetrated. So it is typically the area where we are able to show clinicians the greatest impact that we can have and then expand from that into a hospital-wide comprehensive program. So that's why we are seeing that impact there.

The growth in our surgical business is certainly something that we are pleased with, and a fair amount of that is coming from the cardioPAT.

This is the last thing, one quick one for Chris, and I'll jump back in queue. Chris, on healthcare reform, I wonder if you could share with us your preliminary thoughts, given we have a couple of bills out there, what that could mean for your business? Have you tried to profile the tax, either from a topline or bottom-line basis?

We've looked at the tax, David, it's -- obviously there's a lot of proposals out there. There is not one clear answer as to how this is going to be implemented, or in fact which companies or which business models will be impacted, whether or not it will simply be the folks whose products contribute to a particular reimbursement group, which of course ours don't directly orient in that way, versus someone like us whose products actually save hospitals money comparatively on procedures. But worst-case, I think that the consensus is forming around about a 2.5% tax on US domestic revenues.

I think key point that Chris talked about and the key point that we continue to try to hammer home is, regardless of what the government may do with the device tax or healthcare reform in general, I think those companies that are out there being able to provide a value proposition for their customers are going to be the ones that win in this environment tomorrow. And we know we can both economically and clinically impact our customers' operation in a fairly significant way. It is how do we manage that? How do you drive that? How do we scope that? We're starting to see that traction.

It is changing the way our customers manage their business, changing the way in which they practice medicine. We all know that that is tough, heavy lifting in this environment. We are starting to gain traction. I believe we will continue to gain traction. Heck, if this was easy, there would be a lot of companies out there doing what we are doing today. And that's not the case.

Anthony Petrone, Maxim Group.

Some -- one with plasma, I'll move through some of the line items. I'll try and get through these. In terms of an Express penetration rate as of the quarter end, where was that? And what was the forecast for Express through the end of the year?

It's less than 10% just now. We still have the goal of 25% penetration by the end of the year. It's very binary. We have a few big customers, and it's going to be -- it will move in step functions rather than in a linear fashion.

I'll jump in there. I think one of the things that's important to note here, and Chris said it in the script, is that we've now moved into full market release. We were in limited market release a little bit longer than we had anticipated or wanted to be. There was a couple of things we needed to iron out with respect to the product. That's done, it's behind us, we are now in full market release, and this is something that has a very significant impact on our customers' operation. So we still believe very strongly that we can drive for that 25% penetration, again, because it's on kind of a cliff function. These are large customers, you get a customer move, you move a lot of centers in that way.

Sure, but you reflect on a quarterly basis you may be actually gaining share [without] penetration rate maybe increasing on a center by center basis. Do you update that only when a customer is completed and fully integrated? Or do you update that as you move center by center?

We will update it as we move center by center.

On red cell, just in terms of market share gains from Fenwal patent resolution, those three counts maybe in the last quarter that were gained, just do you see any of that coming in in the second half of the year?

We've been careful to say that our red cell growth does not include any further transitions of Fenwal customers. Do I see any of that happening? This market has to begin to move if it's going to meet the requirements that the court has put out there. Our customers are moving slowly, we continue to communicate very effectively with these customers, it's going to be on a first-come, first-served basis in terms of those that commit. There are is a tremendous amount of activity in discussion. But these customers, as is the case in virtually everything they do, they are slow to move in this fashion. So I do expect that to accelerate as we move toward that date, which is December of 2010.

Great. Just in terms of Impact here, you had 28 accounts that finalized the baseline assessment. How long is the cycle post baseline assessment when we actually see revenue then from that cycle?

It's really too early to give you an idea. We see some that are quick, we see some that are -- take maybe three, four, five months. The point is, where are they at in the starting process? Are they an existing customer? Are they a new customer? I think we will have better clarity on that as we get toward the end of the fiscal year. Right now it's a little too quick to say.

We do know this, is that we are getting people's attention. We are having more and more discussions about this with our customers, we are being able to demonstrate for them a real value that our OrthoPAT can have in overall blood management within the orthopedic centers.

Daniel Owczarski, Avondale Partners.

Just to stick with Impact, what kind of potential savings are you seeing at these accounts? I know you shared some numbers with Atlantic Health. Is that still consistent today? And then when you are pitching this idea hospitals, how much -- what's their hurdle rate? Or how much savings are they looking for to even have you start these assessments?

Going back to your first question, yes, we are seeing significant savings being driven through the Impact. Now, there are two different types. We talk about the hospital-wide comprehensive program, that's Atlantic Health. We are seeing some very significant savings that our customers are able to drive in that respect.

Chris gave you an example of a similar analysis on the blood bank side, which I hope does not get lost here. We are now starting to move this type of impact analysis into the blood bank customer as well.

For the individual device accounts, certainly those savings are not as significant as the savings you would see in a hospital-wide comprehensive program. But we see savings we will enable to $50,000 to $100,000 to $150,000, even in some smaller hospitals. And those savings are significant enough to get people to pay attention.

It is really, how do we work with our customers? And this becomes the important point here. How do we work with our customers to implement this change while they continue to manage their business overall? That's what we are working with our customers to more effectively scale, to do that more rapidly as we go forward.

Very helpful, thanks. Just on the TEG, can you remind us what the price point is for that analyzer? And maybe a couple more thoughts on what's going on there? Why the big pickup this month versus -- or I'm sorry -- in October versus all of second quarter?

Sure. It's a little over $20,000 for the analyzer. And I think it's really pent-up demand and some -- the successful results of volume selling combined with presumably some budgetary relief for some spring back in spending in our hospital customers.

I would also say, we gave you some exposure into the transition of a couple of distributors here in the US. I think that there's maybe something to do that. I can't put my finger on that specifically, but I think like in any transition, that takes away attention in certain areas, and I think we are seeing that come back. When you think about that growth, in the US alone we are seeing for the month of October, growth for just the month that doubled our Q2 -- just in the US alone.

Dave Turkaly, FIG.

In terms of the Express economics, can you remind us how that works on a per procedure basis? And then the comment you made on depreciation, can you just walk us through how that actually lowers it?

Sure. Quickly on depreciation, we place these devices, we depreciate them over six years -- less devices, less depreciation. And so if you can increase throughput on a device by 20% and if your target is to seven procedures per device, let's say, in a given center, you need less devices. If you can get to eight procedures per device because of increased throughput, you can hit the same procedure goal with less devices. The devices, less appreciation.

I imagine the -- you may not want to share if there is a per-procedure component to that, but if you can, that would be great. And given what you've done facility-wide -- I think you have another on online on plasma -- and the margin's up 220 basis points this quarter, as we look ahead, sure, the growth may slow a bit, but do you have any targets you can share with us in terms of where you think plasma gross margin could be headed given the 220 improvement that you saw this quarter?

Let me go back to the first question, which is the Express component per click. The way that we account for Express once we implement it, it's on an incremental price to the disposable. So that's how we get that per click incremental expense to reimburse us for this new technology. So that's how that works.

Going back, we talk about the new Salt Lake facility, which will be online next summer. Let's not lose sight of the fact that in the month of October it is now up and running as a distribution center, servicing our West Coast plasma customers from a distribution standpoint, and as we indicated, that would provide us certain leverage going forward, so that's very positive for us.

When you think about the future, we will certainly give guidance for FY '11 when we put that out at the end of the fiscal year. But this is an area of focus for us. It's no secret that we will continue to leverage this business, this part of our business, to improve profitability as we go forward.

Thanks.

James Sidoti, Sidoti & Company.

Can we go back to the red cell business a little bit, how -- what is the typical length of time for one of those centers to convert from the Fenwal equipment to your equipment?

It's going to depend upon -- this is Lisa. It's going to depend upon whether they are currently a Haemonetics customer, and we will swap out the ALYX devices they had and already have in place that required licensure and SOPs and training. And those conversions will take much less time than the conversions of customers that are today all-ALYX customers.

So if you're an all-ALYX customer, is it on order of six months? Nine months?

It could be on the order of six to nine months, depending upon the number of centers, the number of employees to be trained, and the complexity of the standard operating procedures that they need to implement in their system, depending upon whether it's a large system or a very small system.

So if December 2010 is the date that they'll have to stop using ALYX, you would think you'll start to hear from those customers at some point in the next six months?

There's 13 months, and you're absolutely right. We are talking with these customers today. There's an awful lot of discussion that's taking place, particularly with those customers that are strictly ALYX customers today. There's an obligation they have to themselves, to their donor pool, to their business in total, to the customers they serve. And so we are trying to be very clear about our expectation and about our ability to meet their needs as we go to the next 13 months.

Now, is there the potential to bundle some of your other products with the red cell systems?

Well, there's always the potential for us to sell into this environment. And the acquisition of Sebra certainly broadens the product offering that we have in our blood bank customers. So yes, we have more than just the reason for converting ALYX to our red cell technology, for being in there with these customers.

But another point and not to be lost here is the impact of the Sebra products in the plasma centers, a part of the business that Sebra hadn't paid a whole lot of attention to and certainly a place where we are very strong today. We see Sebra not only being beneficial to us in our blood bank customers but also our plasma customers as well.

My follow-up is, based on the currency or the contracts that you've already locked in, what do you expect the impact be on the gross margin in the second half of fiscal 2010 and the first half of fiscal 2011?

Well, obviously we haven't locked in contracts for the second half of the year yet. As we -- that is to say, of next year. But it will diminish over levels in the first half.

Okay. So there will be a little pressure as a result of currency in the second half?

Yes, you could say that. It's all planned, Jim.

Ben Yeoh, Atlantic Equities.

Oh, hello there from London. I was just wondering, have you seen any stabilization yet in the elective surgeries from your customer base, from where you're talking to? And I just wondered in your view, are you hearing about whether these surgeries are mainly deferred? I was just wondering, if so, then could there be a bounce-back next year in both the sort of red cells and surgical line to perhaps a little bit about what you're sort of normalization rate is as some of these surgeries come back? And is that what you're sort of planning for in your base case?

We've seen it stabilize in terms of hitting bottom, if that's what you mean. We are not seeing it decline further than what it's decline. But these are very tough numbers for us to get our arms around within our hospital base. So -- but to the best we can tell just working with and talking with our customers and what we've seen in terms of other companies that have reported, we think that's for the most part stabilized.

Your question about are these deferred? Do we see this bouncing back? -- is an interesting question. I think that's a question a lot of people ask. I think in the past the answer to that question has been, yes, we've seen that come back as we move out of recession into better economic times, because people that have bad knees, bad hips, bad shoulders are still going to want to get them fixed, are still going to want to get those done. So we have seen that happen in the past.

We believe that that's why we are so well-positioned. We are seeing growth. Even in this down economy we are seeing growth, and we believe that as this economy accelerates, we believe that we are extremely well positioned to continue to deliver on the economic and clinical benefits our customers will need because they are also going to need to drive their profitabilities to new levels, to invest in things that they have not been able to invest in during this difficult economy as well.

Great, thanks. My follow-up is just on the plasma business again. I know you've talked about the base case where you have and you've had some market share gains and a bit of mix in there. But I was just wondering how leveraged you are into the price of plasma falling, or certainly if the prices for donations fall. Does this impact your business in a very meaningful way in terms of leverage? Or does it just kind of go up and down as we would see what's coming from the main sort of plasma makers?

The prices that -- of -- that our collectors pay to donors, or the end price in the plasma derived by biopharmaceuticals do not affect us all. We are on the front end of that supply-chain. We are on the front end of that market in the collection side.

Mike [Chiu], [Civic Global].

Just two quick questions. One is, if currency rates stay where they are today, can you just give us a rough impact for the year on the top line from currency? And then am I right in assuming that all of the Sebra acquisition revenues are being classified in the equipment line? And then if you could, the contribution from all of your acquisitions in this quarter to the top line? Thanks.

Sure. Our first outlook for the year, contribution from currency is around 1%. That's based on the hedge contracts that we have in place and of course our current anticipated -- anticipation of spot rate movement. Could you repeat the second half of your question?

The second question was the classification of the Sebra revenues. And then third one was just the contribution from total acquisitions in this fiscal quarter.

About -- a little under 1%, 0.8% of the growth.

For this quarter. And then -- okay. And then zero (multiple speakers)

And then going -- for the full year we anticipate a 1.5% (multiple speakers)

Okay. Great, thank you.

This concludes our question and answer session. I would like to turn the call back to management for closing remarks.

So with two quarters complete, we are performing well to the objectives we set at the beginning of the fiscal year. Plasma, our largest business, is now a virtual flywheel of double-digit growth rates and improving gross margins. Blood management solutions is gaining traction with our hospital customers as evidenced by the growth in the surgical and OrthoPAT product lines. And overall growth in the second quarter is up sequentially, and I expect this trend to continue in the back half.

The Sebra acquisition marks our third purchase in six months and strengthens our blood management solutions offering. As important, Sebra strategically positions us in the whole-blood market. Participating directly in this market will help us launch our automated whole-blood collection system, the new platform product we expect to address many of our customers' unmet need.

In addition to acquisitions, we are using cash to repurchase Haemonetics stock as a part of a $40 million share repurchase program authorized at the end of fiscal year '09.

Our balance sheet remains strong, with $178 million of cash on hand, providing flexibility as we continue to build our vision of being the global leader of blood management solutions for our customers.

In closing, I am pleased with our performance to date. I'm pleased with the progress we've made strengthening our blood management solutions offering, and I'm pleased with our building momentum in the midst of these challenging economic times.

Thank you for your time this morning.

Thank you for attending in today's conference. This concludes your presentation. You may now disconnect. Have a great day.