Haemonetics Corp (HAE) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2010 Haemonetics Corporation earnings conference call. My name is Kaitlin and I will be your operator for today. (Operator Instructions). I would now like to turn the conference over to your host for today's call, Ms. Julie Fallon, Director of Investor Relations.

Good morning. Thank you for joining Haemonetics' third-quarter fiscal '10 earnings webcast. Today I am 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 10-K and press release.

Also, regarding our announcement this morning of our intent to acquire Global Med Technologies, please note that this conference call is for informational purposes only. It is not an offer to buy or the solicitation of an offer to sell any securities. The tender offer for the outstanding stock of Global Med has not yet begun and will only be made pursuant to a tender offer statement on Schedule TO. The Schedule TO will include an offer to purchase and other related materials that Atlas Acquisitions Corp., a wholly owned subsidiary of Haemonetics, intends to file with the Securities and Exchange Commission.

Global Med will also file a solicitation recommendation statement on Schedule 14-D9 related to the offer. Once filed, Global Med stockholders should read these materials carefully prior to making any decisions with respect to the offer, because they contain important information, including the terms and conditions of the offer. Once filed, Global Med stockholders will be able to obtain the materials with respect to the offer free of charge at the SEC's website at www.SEC.gov, from the information agent named in the tender offer materials, or from Atlas Acquisition Corp.

Now let me move to the details of today's call. On the call Brian Concannon will review the highlights of the quarter and today's announcement of our intent to acquire Global Med. 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 have excluded from the results we will talk about today. In fiscal '09 our adjusted operating income excluded $400,000 in pretax restructuring costs for the quarter, and $2.7 million in pretax restructuring costs year-to-date. Because no such restructuring costs have incurred in fiscal '10, for comparative purposes we have excluded these restructuring costs from our fiscal '09 financial results.

I also want to note that our fourth-quarter includes a 14th week. This is a routine event that occurs every six years or so in our fiscal year reporting.

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. And additionally, we have posted a fact sheet with details on the Global Med acquisition.

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

Thanks, Julie, and good morning everyone. I am pleased to report another quarter of solid operating performance and progress against our goals of blood management solutions. In the quarter we saw improved performance in several product lines and geographies. Good news. We are beginning to feel the effects of recovery in the hospital environment, and the distribution markets are recovering with healthy sequential growth. Both are important barometers for our future.

In my comments today I will briefly review the highlights of our results. Then I will talk about our progress with blood management solutions. But first, let me share that I'm extremely pleased to announce our intent to acquire Global Med Technologies. As I have talked about blood management solutions you have heard me say that information technology is critical to the blood supply chain continuum. Indeed, information technology has represented one of the largest strategic opportunities for us, particularly in the hospital and blood center environment. This one acquisition, which is complementary to our current software offerings, substantially completes our blood management information technology platform.

Let me share some detail on Global Med and its products. Global Med is a healthcare information technology company which markets a breadth of software that spans the blood supply chain. Global Med markets four key platforms. First, a donor recruitment and blood management system. Second, a cellular therapy and tissue tracking system. Third, a hospital transfusion information system. And fourth, a platform for donor center and transfusion management systems in European markets.

So when we look at areas of opportunity for Haemonetics, we see Global Med as a great strategic fit, being complementary to our current software offerings, yet addressing critical needs for our customers.

The Global Med platforms have little overlap with Haemonetics' current US platforms. Global Med's European operations will give us immediate share in this important market and a team knowledgeable in the discrete needs of our European customers.

Conversely, Global Med has little or no presence in the Department of Defense or plasma markets or in US blood bank laboratory information systems. These are strong parts of our existing software business.

Haemonetics also brings a global reach and comprehensive portfolio of devices and services that Global Med does not offer. Combined, we become a more comprehensive blood management company, offering our customers the best blood management solution available today.

In my closing comments I will talk more about the strategic vision of this acquisition, and in a moment, Chris will provide you with the financial overview of the deal. The deal will allow for synergies between both companies. However, it is premature for us to comment about this further. We will consider additional communication when the deal closes later in the fourth quarter.

Now let me move to comment on the quarter and our current progress with blood management solutions. In the quarter, on sales growth of 6%, we had gross profit growth of 9%, operating income growth of 4%, and earnings per share growth of 11%.

Operating expenses were high in the quarter as we intentionally invested to achieve our long-term strategic goals. This was timing more than anything else, with 25% of incremental operating expenses, or almost $2 million, coming from our three most recent acquisitions, and another $500,000 of expenses associated with the Global Med acquisition.

We will continue to manage full-year spending to meet our goal for operating income growth, which I am pleased to report we are raising to 15% to 16% for the year. Let me remind you that expense management is something we do extremely well.

Turning to cash flow. We ended the quarter with $169 million in cash, after spending $34 million on our share repurchase. As you can see, our cash flow remains exceptionally strong. We will fund the Global Med acquisition from our balance sheet and still have more than $100 million in cash on hand at the end of the fiscal year.

Let me say a few words about revenues. We shared all year that we expected plasma growth to moderate as the year progressed, and it has. But despite the deceleration, plasma is still growing, up 10% in Q3. Total Company revenue growth reflects a more balanced product mix now that we are seeing recovery in other product lines and geographies.

Beyond the improving economic environment our blood management solutions are gaining traction. During the last call we told you we expected our blood management solutions to play favorably in this market, which is looking for ways to lower health care spending, and now it is happening.

We can track our progress by how many customers are becoming what we call Impact accounts. Impact accounts are committed to a comprehensive blood management program, usually deploying several Haemonetics technologies. But more important than the number of technologies they use, are the proprietary IT tools we use to mine and analyze the accounts' blood management progress. It is the data analysis that is the real secret to the success of these programs.

Impact accounts can be large hospital systems, stand-alone hospitals, or blood centers. We also have device specific Impact accounts. In these accounts we take a baseline measurement of a customer's current blood management practices for a particular area. In a hospital that could be orthopedics. 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.

So as we continue to introduce the concept of blood management solutions, you should focus on three things to assess how we are doing driving revenue growth. Number one, the number of comprehensive Impact programs. Number two, the number of device specific Impact programs. Number three, our disposables growth rates, particularly OrthoPAT, CardioPAT and TEG.

So here's how we are doing with our comprehensive Impact accounts. Today we have 12 contracts for comprehensive Impact programs, seven hospitals and five blood centers. Our plan was to add 9 to 12 of these accounts by year-end. So we have overachieved this goal. We have eight more customers in the contracting process to sign on as comprehensive Impact accounts.

Moving to device specific Impact accounts, we now have eight accounts under contract, and we have a pipeline of 29 customers using devices following our baseline assessment, but not yet having signed a contract. Our goal for the year was to have 40 accounts. While I don't expect we will have 40 accounts under contract by year-end, I am confident we will have 40 customers through the analysis phase and using our devices in pre-contact trials, as our pipeline of accounts is strong and continues to grow.

But the key question is how are these Impact accounts translating to sales? As I said, the product lines most affected by our product base or hospital-based Impact programs are the OrthoPAT, CardioPAT and TEG. The great news here, we saw Q3 disposable growth rates of 8% for OrthoPAT, 25% for CardioPAT, and 18% for TEG. We are clearly gaining traction with blood management solutions in the hospital, and that has translated into results for our products.

We have a growing pipeline of customers seeking the economic and clinical benefits that our blood management solutions are uniquely positioned to deliver. This is just one of the reasons why we remain confident for the near term. Combine this with our acquisition of Global Med, and you can see why our future is very bright.

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

Thanks, Brian. As Brian said, this was a very positive quarter. We saw strengthening in our hospital business and more product lines contributing to revenue growth than we have seen in the last two quarters. Our European and Asian distribution businesses accelerated once again. Product and geographic diversity continues to give us multiple ways to win. Revenue growth combined with margin expansion and operating leverage to deliver operating income growth of 4% in the quarter and 13% year-to-date.

Earnings per share grew 11% in the quarter and 16% year-to-date. Solid results. Let me review revenue growth in more detail. Then I will highlight a few points in the income statement, providing some color.

First, with regard to revenue, we now believe revenue growth will be in the low end of our guidance range, so we are tightening the range to 8% to 9% from 8% to 11% that we set at the beginning of the year.

Moving to the specific product lines, plasma sales continue to be strong, but certainly growth rates moderated as we expected. In the quarter plasma sales were $59 million, up 10%. Year-to-date plasma sales were up 18%. Plasma revenue growth comes from three areas, collections at existing customers -- that is same-store sales -- pricing and share gains. In the quarter pricing contributed 1% to growth, share gains contributed 7%, and same-store collections contributed 2.5% growth.

Now recall that in Q1 same-store collections grew 16% and in Q2 same-store collections grew 8%. So collectors in North America took advantage of the holidays to reduce operating hours and trim plasma inventories. While this slowdown was expected, frankly the quarterly change was a bit more than we expected. With the collection moderation this quarter we now expect fiscal year plasma growth in the 18% to 19% range.

This means that, despite the strong start, the plasma fractionators have successfully moderated collections and will end their year almost exactly as they originally forecast. That is a key point that many of you have asked about. Fractionators are monitoring inventories closely and have the ability to adjust collections quickly. They adjusted quickly in our third quarter, the end of their fiscal year, to align collections with demand. So while quarterly collection growth fluctuates, we continue to expect year-over-year collections growth of 7% to 8% to meet end use drug demand.

In the near term Haemonetics will continue to benefit from market growth, bolstered further by contractual pricing improvements and modest share gains. We are also benefiting from the launch of Express. Remember, we charge for Express through a premium on each consumables sold.

Consistent with the first half of the year, continued plasma growth drives manufacturing efficiencies. Plasma gross margin grew 190 basis points in the quarter and 170 basis points year-to-date. This means 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. So all in all, another quarter of double-digit growth for plasma, with trends remaining very positive.

Software solutions also had another strong quarter and remains a consistent contributor. Sales grew 9% to over $8 million, and year-to-date software solutions sales are up 18%. Altivation and Neoteric acquired earlier in the year were key contributors to revenue growth. As we shared last quarter, we will be comparing against a significant one-time software revenue event which occurred in the fourth quarter of fiscal '09, and that will not repeat this year. Even with this tough comparison, we expect solid growth of 9% to 13% for the year in our software business.

In our platelet business revenues were up 9% in the quarter to $40 million. Year-to-date platelet sales are up 3%. As expected, international distributors are returning to normal buying patterns after working down inventories in their recent economic downturn. This trend positively impacted the quarter.

Both the European and Asian platelet distribution businesses grew double-digits in the quarter. The Japan platelet business remained stable. All in all, we expect 1% to 2% growth in platelets for the full year.

Moving to red cells. Recovery here is lagging improvement in the hospital business, as blood collectors' inventories remain abnormally high. In the quarter red cell revenues declined 8% to $12 million. Year-to-date red cell sales are down 4%. We anticipate red cell revenues will be down 4% to 5% for the full year.

While the hospital market is seeing some recovery, the decline in demand for red cells is driven by an increased focus by hospitals on minimizing the use of blood, which will likely continue, but also by fewer elective surgeries, which will reverse over time. So our product line continues to be challenged by a 1% to 2% decline in overall demand for blood.

Now how do we address this? Well, we address this by the same data mining and analysis that Brian referred to earlier when describing the Impact accounts. Let me explain. When blood demand dropped, many blood collectors pushed back on double red cell collections, reverting to traditional manual collections that use less expensive whole blood collection kits. However, they are holding the same number of mobile blood drives, which can be expensive to operate, particularly smaller drives where the fixed costs increase the per unit collection costs.

The opportunity for blood collectors is to use double red cell technology, not just to double the number of blood units collected from a single donor, but to better align supply with demand. To do this requires robust data management tools to help identify and optimize the number of high-yield blood drives, and drop low yield drives. We have these tools. The combination of our Altivation blood drive software acquired last year and our Impact data mining tools permits blood centers to optimize blood drives based on specific donor profiles and specific blood needs. The acquisition of Global Med will further strengthen our ability to impact this analysis to improve our customers' operations.

Last quarter I gave the example of an analysis done of mobile blood drives for a large regional blood center. We identified $1.4 million in potential savings for that blood center by eliminating almost 800 blood drives, while deploying our red cell devices to collect the same amount of blood.

So far we have done similar comprehensive analyses for five blood centers. We provided this kind of information and deployed cross functional teams to teach Lean Manufacturing and Six Sigma. There are -- these are the five comprehensive blood bank accounts that Brian mentioned earlier. This is how we plan to stabilize our red cell business going forward and return to a growth profile in fiscal '11.

Moving to the hospital side of the business, OrthoPAT sales strengthen for the second consecutive quarter. Our blood management solutions are beginning to influence hospitals' purchasing behaviors. OrthoPAT sales were up 8% to $10 million, and up over 10% in the US, where our Impact programs are focused. Surgical sales were up 1% at $18 million. Year-to-date OrthoPAT and surgical sales are up 3% and 2%, respectively. Our annual growth guidance is confirmed at 5% to 7% for OrthoPAT and 4% to 5% for surgical.

Moving to diagnostics. TEG sales came back strong in the quarter as hospitals resumed capital spending. Recall that reported diagnosis revenue include TEG equipment sales. In the first half of the year we reported strong TEG disposables growth, but declining equipment sales. This resulted in a decline in overall revenues for the product line. I am pleased to report that third-quarter diagnostics revenue all in, including equipment, was $6 million, up 11%.

In fact, the best measurement of how frequently our technology is used by clinicians is disposable sales, and in the third quarter TEG disposables grew 18%. With TEG device sales back on a growth trajectory after a slow start in the first half of fiscal '10, we anticipate annual revenue growth for diagnostics of 7% to 9%.

Equipment sales related to our apheresis and cell salvage devices declined, down 3% in the quarter to $12 million when compared to the third quarter of fiscal '09. Year-to-date equipment sales are down 10%. Similar to our diagnostics business, equipment sales have been impacted by hospitals' spending pressures and economic trends in our international distribution market.

So we are beginning to see these trends improve. In Q4 we will see strengthening equipment sales, primarily driven by penetration of our Sebra equipment sales into the plasma market. For the full year we anticipate equipment revenue to bounce back, ending the year with between 0% to 5% growth.

For the past two quarters I have given you some detail on our installed base of devices. Our installed base includes devices sold and devices placed under use plans. Despite the equipment revenue trends, we continue to see healthy growth in our installed base. In Q3 we added 405 devices, a 1% sequential growth from the earlier quarter and 10% growth in our installed base year over year. Roughly half of the placements were to emerging markets in Europe, Latin America and Asia Pacific. Year to date we have added approximately 2,000 devices to our installed base. There are two important points here. First, our installed base continues to grow. And second, installed base growth ultimately drives stronger disposable sales.

With respect to new products, disposable sales grew 68% to $1 million, or just over $1 million in the quarter, and they are up 72% year-to-date. We saw growth across all new products, and particularly the CardioPAT.

But to wrap up the revenue story, we continue to perform well. Plasma and software remains strong, and the platelet, OrthoPAT and diagnostic lines are returning to growth. I am pleased with the revenue strength across several product lines and the traction with our blood management solutions. I remain confident we will see continuing momentum as blood management solutions initiatives expand within our hospital and blood center customers.

Now let me review some highlights of the P&L. We remain focused on consistent improvement in gross margin. Over the quarter gross margin was 51.7%, up 140 basis points. And year-to-date gross margin is 52.4%, up 160 basis points. Quarterly gross margin benefited from currency and manufacturing efficiency, offset by product mix.

Let me remind you that currency benefits are built into our plan. We anticipate them because of the hedging decisions that we made last year. With this tailwind we have been able to plan our investments.

We continue to invest in important strategic projects, including our automated whole blood collection system, our blood diagnostic system, and blood management solutions. The year-over-year comparison of quarterly spending includes $2 million in incremental expenses related to the recent acquisitions of Altivation, Neoteric and Sebra, and an incremental $2 million related to foreign currency exchange rate fluctuations.

Let me remind you that despite investments, operating expense growth is at 61% of incremental gross profit dollar growth year to date, and our current guidance assumes that we will be below that level for the full year. With two months left in the year I am confident that we will achieve that target. Remember, our philosophy is to meet our commitments to our shareholders before we pay our bonus, even as we invest in the business and make good long-term decisions for the future of your Company.

Operating margin was 15.6% in the quarter, down 40 basis points, and 16.6% year-to-date, up 90 basis points. Operating income was up 4% in the quarter, impacted by higher spending. Year-to-date operating income is up 13%. And for the year we are increasing our guidance to operating income growth of 15% to 16%, and we are well positioned to meet that goal.

Remember that in Q4 of last year we had several factors totaling about $2.8 million, which adversely impacted operating income. These are not expected to recur in Q4 of this year. Our Q4 operating income growth rate will benefit from this comparison. It is worth noting that this fiscal year-end will mark our seventh consecutive year of double-digit growth in operating income.

Moving to our tax rate. Our tax rate was 28%, slightly lower than our run rate, reflecting the resolution of certain contingencies. Our tax optimization initiative implemented this year is driving good earnings leverage, with 11% net income growth in the quarter and 16% year-to-date.

Earnings per share were $0.71, up 11%. And year-to-date earnings per share are $2.08, up 16%. With three quarters behind us, we are pleased to be guiding to the high end of our original EPS range with guidance of $2.80 to $2.85.

For those of you who know us, you know that expense management is a hallmark of this management team. So let me reiterate that I am confident we will manage our Q4 expenses to get to our operating income growth goal of 15% to 16%. We have predictability in other expenses and tax rate, so I am equally confident in achieving our EPS range.

Moving to the balance sheet. In the quarter we generated $21 million in free cash flow, after making net investments of $12 million in capital expenditures. With $50 million in free cash flow year-to-date we feel very confident in achieving our annual free cash flow goal of greater than $60 million. We have $169 million in cash on hand, and we spent $34 million on share purchases in the quarter, completing our $40 million share repurchase authorization. We will fund the Global Med acquisition from available cash.

But before I close, let me make a few other points about this acquisition. First, I share Brian's enthusiasm, because this acquisition essentially completes our information technology offering. It provides our customers with the most comprehensive set of products for managing blood, from collection to transfusion. Global Med has a great reputation in the development of software for transfusion medicine, and its team will be a terrific addition to Haemonetics.

As you saw in our press release, we are offering Global Med $1.22 per common share and $1,694 per preferred share. The company has about 49 million common equivalent shares outstanding, which translates to a purchase price of about $60 million, or roughly 2 times revenues.

Because Global Med is publicly traded we will conduct a tender offer for the shares. We expect to close late in our fourth quarter. Once we have closed, we will give more clarity on the financial impact of this acquisition. But in general, excluding the impact of one-time costs associated with the transaction, we anticipate minimal dilution to earnings in fiscal 2010. This impact is included in our updated guidance for $2.80 to $2.85 per share.

So to close, we performed well on revenue growth. Even as plasma growth moderated, other product lines strengthened. We showed positive drop through from revenue to EPS, primarily as a result of improvements in gross margin. Our business fundamentals remain very strong. With that, let me turn the call back to Brian.

Thanks, Chris. As we close out the year, we are well-positioned to continue our legacy of delivering consistent double-digit operating income and earnings per share growth to our shareholders. Our mix of sales is different than anticipated, but our results are very solid, particularly in this economic environment. And industry trends indicate a turnaround that we can leverage for the future. We are raising our operating income guidance, and we are well positioned to achieve our earnings per share target.

We also continue to perform well against our acquisition strategy. We have been busy this year. In Q1 we acquired Altivation and Neoteric. In Q2 we acquired the Sebra products used in whole blood collection and processing. Now we have announced our intent to acquire Global Med. Combined, these acquisitions will contribute about 1% to 2% to revenue growth this year.

But here is the important part. Each acquisition is strategic to our vision of being the leading provider of blood management solutions for our customers, as well as achieving our aspirational goals of double-digit growth in revenue, operating income and earnings per share over the next five years.

So let me talk about Global Med and how it fits with our blood management solutions vision. As I have said before, blood management solutions is the integration of software, devices and services to help customers improve compliance, cost efficiency and patient care.

When we began this journey four years ago, we evaluated the best path to achieve our goal of being the leading provider of blood management solutions for our customers. We had to evaluate our buy versus build options. Over the past four years we have made significant progress. We have invented new technologies like the Cymbal and CardioPAT to help customers manage their blood processing needs. We have developed new software like eQue, eLynx and Express, to help customers become more efficient capturing critical information needed in the collection process and shortening plasma donation times.

We have made three acquisitions, Haemoscope, Medicell and Sebra, to add to our existing base of blood management products. And we have made four more acquisitions [Infonale, IDM, Altivation and Neoteric, that build our portfolio of information technology platforms to manage the data that is critical for making informed clinical decisions and reducing costs.

In short, we have assembled a powerful collection of blood management tools, unmatched in the industry today. But at its core, effective blood management is all about software and data. Data to analyze and assess current practices, data to track and reinforce changes in practice, and data to ensure compliance and efficiency within the supply chain. As I said earlier, Global Med's software offerings span the blood supply continuum, and the acquisition substantially completes our blood management information technology platform.

The acquisition is an opportunity to accelerate our vision of offering integrated information across the entire blood supply chain. With our information technology platforms, customers will be able to better manage processes, from donor recruitment and collections to laboratory processing and distribution to hospital transfusion medicine, a truly seamless integration of data management from the donor to patient.

This seamless integration will be critical as we prepare to enter the $1.6 billion market for whole blood collection. The automated whole blood collector is the technology platform that will revolutionize the way most blood is collected in the world.

Our automated whole blood system is a device and transport system that incorporates data and workflow management. In this way software will be the connective tissue from the devices to customer operations. Software will enhance regulatory compliance and quality, while simultaneously driving down operating costs. The Global Med software, when linked with our workflow automation software and devices, will be a powerful tool for blood collectors.

So you can see why I am so excited about the acquisition of Global Med, and what it means for our customers and your Company in this new world of blood management solutions.

As I close, let me thank our employees for their continued commitment. You can see from the activity of this past year that we have been extremely busy. Yet despite some of the most challenging economic times in recent history, year-to-date this team has grown sales 7%, and delivered double-digit operating income and earnings per share growth once again.

Additionally, we have strategically invested in blood management solutions. And including Global Med, we have made four key strategic acquisitions, funded off of our balance sheet, that have positioned us for accelerated growth going forward.

I'm extremely proud of what we have accomplished, but I am even more excited about what the future has to offer. Now we would be happy to take your questions. Operator.

(Operator Instructions). Steve Crowley, Craig-Hallum Capital Group.

A couple questions for you. Obviously, your guidance implies a pickup in plasma sequentially and in the year-to-year growth rate. That would break the normal historical pattern, and I am wondering what is behind -- what can you tell us about what is behind your confidence in that taking place?

We do have a 53rd week in this quarter, and that is going to help us. We have obviously a very detailed understanding of the demand patterns of our customers, and so we remain confident of our estimates in the fourth quarter. And, yes, there will be an uptick.

I think your comments seem to imply that there was some readjustment of inventory on hand at your collection customers, and that process appears to largely have run its course come the end of the quarter. Is that a fair inference?

Yes, that is a fair inference. What we have seen is the good communication of Steve Swenson and his team with our plasma customers. We had good visibility to what was happening towards the end of the quarter. We saw that adjustment occur. And we have good visibility as we go forward into the fourth quarter.

Also, on the FX front, Chris, you mentioned that FX added a couple of million dollars to operating expense in Q3. Can you give us a sense for what the other impacts were on the top line and overall on the operating income line?

Sure. We got 3% topline growth from currency in the quarter, and about $2.6 million of help on the operating earnings line.

FX in the fourth quarter, do you anticipate significant influence on your financial results?

It actually started to moderate, Steve, as we look forward, about 1% -- our best (inaudible) is about 1% on the topline, and actually a push at operating earnings.

Final question, and I will hop back in the queue. Your success with adding customers to the Impact program, especially the comprehensive customers -- or the comprehensive program, does the [JACO] stuff that is growing in terms of pushing blood management metrics, has it played any role in that success to date? And if not, when do you think that will start to come into play? Thanks for taking my questions this morning.

Yes, on the JACO metrics, no, they have just come out at the end of last calendar year with the seven metrics that they're going to use in pilot. So, no, that is not having any appreciable impact yet. But it will as we go forward, because we know we can affect all seven of those metrics, and our dashboard will be designed to measure each of those.

David Lewis, Morgan Stanley.

Brian, you did a very nice job of walking through the complete solution set here, post the acquisition of Global Med, as well as the prior acquisitions and internally developed solutions. But I am more interested in it would be, how does your selling model change post the acquisition of Global Med? Now you have all these solutions do you go after the Global Med installed base? Do you change your selling model in terms of how the revenue accounting would work? Maybe just talk to us more about distribution and selling more than the product portfolio.

I'm going to keep it at a high level, just as we are working through this, as you might imagine, with the integration. But we plan later in the quarter to provide a lot more visibility to this, because I think this is a really important thing to understand.

But we are going to have, as we bring these two businesses together, we will have a more concentrated focus on the software side on both plasma and on our blood bank business, which will allow us to really customize our offerings to these critical customers more appropriately as we go forward.

But your question begs differently as well as we approach our customers in the hospital and in the blood bank environment. And especially being two years out from launching the automated whole blood collector, we have to contemplate how we manage that and how we bring that to market. That is going to be more of an operational implementation and execution than it is going to be about sales. So that is something we are contemplating as we speak, and we will provide more color on that as we go through the quarter and into our FY '11 fiscal year.

Then, Chris, just looking into the fourth quarter, obviously the guidance implies acceleration in more lines than just plasma, effectively all the lines, which is obviously the selling week. Can you just tell us what you think the organic growth impact of the extra selling is going to be? And do you expect it to equally impact your various lines like plasma, diagnostics, equipment and surgical?

The extra week is about 2% on the year. Yes, everyone is going to be open for an extra week. The businesses that are not really affected so much are the distribution businesses internationally where they tend to work on sort of a monthly cycle.

As a reminder, please dial nine to ask a question. James Sidoti, Sidoti & Company.

I just want to be clear on the revenue guidance for the year, does that exclude anything from the acquisition?

Yes. The closing timing is uncertain and it would be inappropriate data at this point.

But your EPS does assume some costs related to the acquisition?

Yes. That is totally dialed in.

Larry Solow, CJS Securities.

In terms of plasma collection, it sounds like there is some little volatility as some of the collectors manage. Do you still expect going forward this to be in the high single-digits? I know you have in the past few quarters expected basically high single-digit, double-digit growth in your disposables for the next, I think, 18 to 24 months. Is that still a fair statement or --?

Yes, this is Brian. I think that is a fair statement. What we said was we expected at the beginning of this year double-digit growth for fiscal '10 and fiscal '11. As we look out to fiscal '11 we still feel good about that high single-digit growth -- mid to high single-digit growth in terms of collections. Add in modest share gains, not what we have seen in the past, and add in some pricing gains, and that will take us into the low double-digit growth range.

Then in terms of profit margins, which generally I know over the last few quarters, although they have been expanding and certainly helped by efficiencies in the plasma plant themselves, they were down a little bit this quarter, while your plasma sales were also down. So only -- was that just an aberration, was it the FX, or was there anything else in there?

Plasma margins were up about 190 basis points in the gross. The operating margin was really affected more by mix and trends in FX.

On the gross, profit margin for the quarter was down, and you also lowered your guidance from 50 to 100 bips for the year. So anything behind that on the gross profit line?

No, it is really mix.

Then last question. I know you have generally spent 60%, 65% of gross incremental profit dollars on operating expense. It looks like it is going to swing down in Q4 and it will be about 50% for the year. Is that a better number to use going forward, or any color on that?

No, we will be planning at around 60%, plus or minus, for next year. We have a very favorable comparison when you look at the fourth quarter, because if you remember, in the fourth quarter of last year we had about $4.8 million of OpEx that was unusually high bonus, some yen -- excuse me, some Korean won write-offs, and a warranty related to our platelet devices, offset by about $2 million positive in the gross margin line that was from a one -- it was from the termination of a contract software contract that came in in the fourth quarter.

Great. Thank you very much.

(Operator Instructions). Scott Gleason, Stephens Inc.

Just a couple of quick questions on the guidance. I guess first, propelling through the model here, and you imply in the middle range for most of the line items. On the equipment side it looks like it would imply a pretty substantial uptick in equipment revenue. I guess does that speak to any confidence in some of these Impact programs starting to manifest in terms of higher equipment sales in the fourth quarter?

Yes. We are seeing certainly a rebound relative to equipment in the hospital market. But also what this is, is some real nice tailwind with respect to our Sebra acquisition and access into the plasma market, a market that that product line had not had access to in the past. So it is a combination of the two of those.

Great. Then, Brian, just one other quick question on the guidance. On the platelet side it sounded like some of the commentary you guys were making supported that you were seeing some increased demand in some of the international markets. But if you look at the full year guidance there it implies pretty big sequential uptick -- or I am sorry, downtick in the fourth quarter, even if you assume the high end of the guidance range. Can you walk us through that a little bit?

We are about 3% year to date, and we think we will be around 2% for the year. It is small numbers in terms of the overall revenues for the Company. And it could be better than that obviously. We will wait and see.

This is primarily -- platelets is a flat market for us for the most part. What we saw in the quarter was really the rebound that we had anticipated seeing in our distribution market, and that bodes well for us. This may be a bit conservative, but not too dramatic.

Great. Thanks for taking my questions guys.

Anthony Petrone, Maxim Group.

A few on Global Med and then one on guidance here. In terms of the hospital footprint in the US, and in particular the EU, can you give us a look as to what Global Med's installed base is within the hospital market, and if indeed there is any overlap between Global Med's hospital footprint and Haemonetics' footprint at this point?

Global Med is one of the leading providers of hospital systems out in the marketplace today. One of the great things that we have learned as a part of our due diligence is the customer response for Global Med is extremely high. They get very high grades from our customers relative to their service, relative to their implementation, relative to their validation process. And they continue to grow. If you were to go in and just take a look at what they have added this year, you would see that they have made some very significant progress.

In terms of overlap, this is a wonderful thing about this acquisition is that there is very little overlap between our businesses. It is very complimentary to both what we do and what they do specifically in the blood center and the hospital marketplace. And that is really why this fits so well for us.

Additionally, they give us what I will call a beachhead into our European market. We've got a small footprint in Europe, a small footprint in Asia Pacific. But this gives us a fairly substantial business in Europe from which we can expand. And they are very, very well received in that European market as well. The customer responses that were surveyed there were also extremely positive.

So as it relates to Impact and InSight how much do you expect this acquisition to really propel that initiative, or those initiatives going forward?

Yet to be determined. We've still got to do a lot of work to get to the bottom of that piece. We will get you the exact placement as well, so you have that number. So that we've got that accurate number out there for you. But yet to be determined.

I think it is fair to say that we would expect not just as a result of this acquisition, but just as a result of the progress that we are making today with our existing products, that we will see it impact both comprehensive and department specific accelerate in fiscal Lebanon.

I might add that what we are seeing as well -- this is a good thing -- is that we are seeing greater appetite for comprehensive Impact agreements than what we thought we would see. Hospitals are willing to look at this across-the-board more aggressively than we had originally anticipated, and that is reflected in our numbers. So we think that will -- this acquisition will only bode well for those types of accounts going forward.

Shawn Bevec, SIG.

On the Impact program, I know you guys over the last several quarters have been able to shrink that data phase -- data collection phase time. I'm just wondering where that stands today.

It is about 30 to 40 days, right where we -- where it was before and right where we expect it to be. We don't see it getting much shorter than that.

Even with the Global Med, you don't think that would help that at all?

No, because Global Med is the back-end implementation. It is the front-end data analysis, which is our Infonale acquisition which really speaks to that. But this is from the point that we actually get agreement with the customer to mine their data. This is when we go in. We go in and connect to the hospital system. We mine their information. We take that back, dump it into our database, and then build a blood management -- a customized blood management program for the customer. So 30 to 40 days is pretty rapid.

Now exciting about this is that, as we go into the next fiscal year, we going to be launching our online tool, which is a dashboard. It is a critical piece. It is a dashboard that allows hospitals to be able to online measure, not only their progress to the goals that were set, the blood -- the specific blood management program, but also the ability to measure against best demonstrated practices. So these are very significant tools we are continuing to arm our customers with going forward.

Joshua Zable, Natixis.

Most of my questions have been answered here, but I just have a couple of quick follow-ups. You made a comment about making key strategic investments on the expense side. I'm just wondering -- I know you broke out the $2.5 million. Is that what you are referring to? And is that $2.5 million sort of a one-time charge, if you will, associated with the acquisitions, or is it going forward we should expense -- expect expenses to be higher and that is just an explanation for it?

The key strategic investments are the same ones we have talked to you about before. It is blood management solutions, particularly this dashboard you hear us talk a bit about. We are excited to be able to show you that. We expect we're going to be able to showcase that at our May investor day. It is also automated whole blood, and the work that we are doing there and progressing with there. We have made a lot of progress. And again, something that will be showcased at our May investor day.

Then it is our blood typing product through Arryx. And once again we will showcase that as well. So you think about these investments, it is today blood management solutions, near-term automated whole blood, longer-term blood typing.

Are they going to continue or is this a one-time thing that is -- obviously these are going to continue, but did you stuff them all into one quarter, or are you just pointing out that as we move forward there is going to be more investment in these type of things?

The investment levels will fluctuate, because obviously some of it is program spending versus headcount. Maybe if you just take a look at the sequential OpEx, we finished Q3 at $59.6 million. We were guiding for Q4 about $61 million to $62 million. We have obviously got an extra week in Q4. Not all expenses are affected by the extra week, some of them are monthly expenses.

In Q3 we had a few things that were higher than normal run rates. We had deal costs associated with this transaction. We had health insurance, which we self-insure, was slightly higher in the quarter. And FX is higher as a negative, if you will, and increased our expenses in Q3 than we expect it to be in Q4 by about $0.5 million. So there is a few moving pieces in there, but that gives you a bit more color.

Daniel Owczarski, Avondale Partners.

Brian, can you talk a little bit more about your comments on share gains within plasma? You said it should moderate here, but you've got, I think -- what -- 7% this quarter, 8% last quarter. Is that still from the big wins? Do you still have some runway there? And could you be a little more -- give a little bit more detail on how we should think about that share gains?

The primary part of the share gains is the Octapharma agreement here that we signed two years ago. It anniversaries in its second year in May, as we said. It typically takes about two years to really ramp up these types of agreements. So that is what you're seeing here. There are other gains occurring in small customers, small markets. But it is primarily what we are looking at relative to Octapharma in the comparisons here.

Sticking with that, is there anything new to report on the potential to get Baxter's business there? Are they still looking at a 2011 exploration expiration for their existing?

Yes, their current contract with Fenwal expires in about two years. We are excited about the opportunity to work with this very large customer and be able to showcase the progress we have made relative to our devices, our disposables, primarily our software to do it faster. But even more so, how do you integrate this into their existing software platforms and deliver value to them like we have been able to deliver to our existing customers.

So that is an opportunity on the horizon. We continue to remain very, very positive about that. I expect that Baxter will be considering what course they're going to take starting in about a year, and we welcome that opportunity.

Larry Keusch, Morgan Keegan.

I'm going to just ask my questions up front. Just on the plasma side, pricing of 1% in the quarter, could you just help us understand how that goes now that you have given some sense on share? And along with that, the actions taken by the collection center customers that you referenced at the end of the quarter, could you help us just understand was the quarter tracking differently, and then these things happened at the end of the quarter? And what gives you confidence that that doesn't spill into the next quarter or two?

Then the other question is just now that you have completed your share repurchase authorization, and you indicated you will have about $100 million in cash at the end of this fiscal year, philosophically again how are you thinking about share repurchase alongside of acquisitions? Thanks.

Pricing was a little softer than we have been tracking year-to-date in the quarter. We are seeing a little bit of a slowdown in the uptick of Express against our expectations. And I think that is very logical. When you think about Express, it really makes the most sense for a customer when they are at that decision point, do I build another center or do I make the center I have more efficient? As we come to this phase of stabilization, if you will, that occurred towards the end of the year, obviously that is not the time that the customers are going to be most interested in taking on increased productivity. But we believe that time will come, and we are ready. And Express is a real exciting opportunity for both us and our customers.

I will just take share repurchase, and then Brian will cover your -- other part of your question. With us share repurchase is always our second, if you will, priority. We prioritize first strategic acquisitions. We have done a few this year. We continue to have strong cash flow generation. From my own perspective speaking as a CFO, I like the $100 million number when we are running a company the size we are running. It certainly gives us dry powder to be opportunistic.

But we are looking at another year next year where we'll grow -- if we finish this year over $60 million, and I think we will be substantially over $60 million, then I would presume that we would be adding a lot more than that next year. So it does give us the flexibility to stay with adequate liquidity and still be back in the market repurchasing shares.

This is Brian. Let me just come at it this way for you. When you look at Express, I think Chris gave just good color there that we have seen. But when this -- as plasma demand continues to grow, even at the mid to high single-digit growth rate, there is going to come a time as these plasma collectors need to consider expanding their operations. And when you have the opportunity to make your current operation more effective, more efficient, or build out new facilities, Express provides them with an option that is economically beneficial. So we are still excited about that for the future and what that means.

In terms of the plasma growth, what we saw is during the holidays, as this industry is consolidated and now vertically integrated, visibility on the part of our customers to really see where their plasma inventories were and what they needed to do.

While we may not in one sense be happy that it moderated back at the 10% growth from 19% growth, Q3 -- Q2 to Q3, what we are excited about is that they're able to move so rapidly to address this. What they did was they closed down during the holidays. They moderated their hours. And so they were able to do it very effectively with their existing operation.

They communicated very effectively with us, and hence it is that same communication about Q4, what they're looking at that really gives us confidence in what our Q4 looks like.

Just on Chris's last point on share repurchase. We are going to continue to manage and use our cash wisely. The number one priority is acquisitions. I think you have seen us do that smartly, not just this year but over the course of the last four years. At the same time in each one of these years we have been able to do a share repurchase. It is the secondary objective use of cash. But it is something we have been able to do effectively, as we like to say, do both of them effectively, as we have gone forward. I believe we will continue to do that in the future as well.

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

Just before I say my closing remarks to the analysts, we are going to, as we typically do, do our call backs, and we are going to try to spend a little more time with our analysts today so that we are able to answer all your questions, particularly relative to our Global Med acquisition, so you can get your reports out there as well. So know that for those who had follow-up questions, we will give some additional time here today to that.

So on my closing, I want to say I very pleased with our performance in Q3. While our plasma cells moderate to a low double-digit growth rate, as expected, we are building traction with blood management solutions. This is leading to solid growth in our hospital-based products. With two months remaining in fiscal '10, we are on track to deliver another strong financial performance with double-digit operating income and earnings per share growth once again. This momentum shift will serve us well as we prepare for fiscal '11.

As pleased as I am about our financial performance, I am even more excited about the progress we have made strategically this year. The acquisition of Global Med substantially completes our blood management information technology platform. Including Global Med, as I said, we have made four key acquisitions that significantly enhance our blood management offering, an offering that is unmatched in our industry today.

Our customers face an uncertain future. A future that demands an improved clinical outcomes while reducing costs. They are realizing that effective blood management practices allow them to address both. Haemonetics has strategically invested to meet these needs. And we continue to invest for the future with automated whole blood and our Rh blood typing initiatives.

We are well positioned to continue our legacy of innovation in the blood space. And we are absolutely committed to being the leading provider of blood management solutions for our customers. You can see why I am pleased with our performance. And I hope you can see why I'm extremely excited about our future. Thank you everybody for your time this morning.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.