Haemonetics Corp (HAE) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q4 2010 Haemonetics Corporation earnings conference call. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Lisa Lopez, Vice President of Corporate Affairs. Please proceed.

Good morning, everyone and thank you for joining Haemonetics fiscal year-end earnings call. Today I'm joined by Brian Concannon, President and CEO, and Chris Lindop, CFO and Vice President of business development. 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 and additional information concerning factors that could cause actual results to differ materially is available in our 10-K and our 10-Q. On today's call, Brian Concannon will review the highlights of the year, Chris Lindop will review our operating performance and provide Fiscal 2011 guidance, and Brian will close with comments on our key strategies.

But before I turn the call over to Brian let me mention the treatment in our adjusted results of certain items, which by their nature and size affect the comparability of our financial results. Consistent with our past practice, we have excluded certain charges and income in fiscal 2009 and 2010 from the adjusted financial results we'll talk about today. These items relate to transformation costs incurred in both periods and in fiscal 2010 Global Med transaction costs and other income related to the adjustment of a contingent consideration estimate for the Neoteric acquisition. In fiscal 2009, our fourth-quarter and full-year adjusted results excluded $4.4 million and $7 million respectively in pre-tax costs. In fiscal 2010, our adjusted fourth-quarter and full-year results exclude $26 million and $26.5 million respectively in pre-tax costs. Also excluded from the adjusted results for the fourth quarter and full year in fiscal 2010 is $2.3 million in contingent consideration income. I also want to note that our fourth quarter of fiscal 2010 includes a 53rd week. This is a routine event that occurs every five or so years 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 with that let me turn the call over to Brian Concannon.

Thanks, Lisa, and good morning, everyone. I'll start with a few comments about our financial performance and then speak about the strategic progress we made in our year just ended. Fiscal 2010 had continued strong operating performance. Revenue grew 8%, operating income grew 16% and earnings per share grew 16%. This marks the seventh year of double-digit earnings per share growth for your Company. Chris will review the details with you in a moment. As I stated on our April 6th call, I'm not disappointed with high single-digit revenue growth considering the global economic crisis. Rest assured that returning to double-digit revenue growth is a key focus for us in the upcoming year. Moreover, I am very pleased with our continued operating discipline that resulted in positive drop through to operating income and earnings per share at the high end of our guidance ranges. This operating performance is a hallmark of this management team.

We committed several years ago to improved profitability and we've delivered. This success is driven by our focus on two key strategies; the first, to leverage the business to improve profitability and the second, to leverage our core competencies to expand the business. We continue to perform well for both strategies. In the past fiscal year we improved gross profit margin by 80-basis points to 52.3%. This represents 650-basis points of gross margin improvement over the past seven years. Operating margins also improved by 110-basis points finishing at 16.6%. Operating margins have more than doubled over the past seven years, representing 860-basis points of improvement. We aspire to sustain a long term revenue CAGR of 10% to 12% and operating income and earnings per share CAGRs of 12% to 15%. We are already delivering on these goals. We are proud of our operational performance, but we're just as proud of our progress this year in expanding on our market opportunities. Here are some of the highlights from the year.

With the completion of the Global Med acquisition in April, we acquired four businesses in the last 13 months; Altavation Software, Neoteric Technologies, CEBRA and Global Med. These acquisitions strengthen our offerings in information technology for our hospital and blood bank customers and give us an entry into the strategically-important whole blood market. As I said before, with the Global Med acquisition we have substantially completed our information technology platform to deliver blood management solutions across the entire blood supply chain, from the arm of the donor to the arm of the patient.

Consistent with our blood management strategy we continue to build our IMPACT program. We now have 26 IMPACT accounts under contract and an additional 40 customers in the evaluation phase, using our devices and disposables following our baseline assessment. We are seeing results of this program translate to increased sales of our disposable products. In the quarter OrthoPAT disposables grew 9%, CardioPAT disposables grew 38% and TEG disposables grew 31%. Clearly we are gaining traction. This quarter we also launched IMPACT online, web-based business intelligence portal with drill-down capabilities. It allows our customers to access their own blood management data, data that is currently disbursed through many different systems. This powerful tool allows our customers to better manage blood use in their institutions. We completed the implementation of our new automation in our Pittsburgh facility and we opened our new plasma facility in Salt Lake City, initially for distribution with the expectation we will begin manufacturing later this year. This is an important step in our ongoing partnership with our plasma customers to build capacity to support current growth trends, to address business continuity risk, and to enhance logistics.

We also opened new distribution offices in India, Russia and the Middle East. These are important markets for us, which collectively grew 30% in the back half of the year. We completed our $40 million stock buyback in the second quarter and we generated free cash flow of $75 million for the full fiscal year. In addition to all of this, we made great progress towards strengthening our leadership position in blood management solutions with our work on our Automated Full Blood and Arryx Blood Typing systems.

I'll talk more about these later in the call but first, Chris Lindop will review our fiscal 2010 performance and give guidance for fiscal 2011.

Thanks, Brian. Well let me say at the outset that I'm extremely proud of our results. We achieved the high end of our annual earnings guidance and at the same time we continue to invest for the long term. Let me start by reviewing our revenue growth drivers and then I'll talk about the rest of the income statement and the balance sheet. For the full year revenues grew 8%. Now let me break that down for you. The base business grew 4%, acquisitions contributed 2%, currency added another 2%, while plasma, platelets, OthorPAT and TEG drove revenue in the quarter. For the full year all product lines, except red cells, contributed to our growth. Red cells declined 3% for the year, a little better than our guidance but well below our long-term growth expectations for this product. As I said many times we have multiple growth drivers so if one product lags others can take up the slack.

In fiscal 2010, plasma disposables revenue was $232 million, up 15% for the year and up 6% for the quarter, and for the year our 15% plasma growth rate reflects same-store collection growth of about 6%, pricing of about 2% and share gains of about 7%. Plasma will continue to be a growth driver going forward, so that growth will moderate, as expected. Moving to our second largest business, blood bank. Disposables revenue was $199 million in fiscal 2010, up 3% for the year and up 9% for the quarter. The blood bank business includes platelet collection disposables, which had revenues of $151 million in fiscal 2010, up 5% for the year and up 13% for the quarter. The platelet market is growing modestly in developed Markets and growing double digits in emerging markets. Although we don't expect platelets to be a significant growth driver in fiscal 2011, we're pleased to grow by expanding markets globally.

Red cell revenue was $48 million in fiscal 2010, down 3% for the year and down 1% for the quarter. Let me remind you how we position our automated red cell system. First, automation increases the blood supply with the existing donor base; second, automation reduces collection cost; and third, automation improves quality and operating efficiency. Recently, US blood banks have reported ample blood supplies. That said, blood centers should continue to grow their automation programs to improve their operations and reduce costs. So while red cell growth declined this year we believe that this underpenetrated market remains a long-term growth driver, especially as the recommand for red cells rebounds.

Our patient business is doing well. This business includes our surgical and orthopedic blood salvage products and our TAG diagnostic products. First, surgical with $70 million in sales in fiscal 2010, this business grew 3% for the year and 8% for the quarter, benefiting from double-digit revenue growth in Japan. OrthoPAT's disposable revenue was $37 million, up 5% for the year and up 9% for the quarter. We remain bullish about the long-term prospects for this business. Why? Well first, the orthopedic market is virtually untapped for surgical blood salvage, so even though elective surgeries are down due to the economy there's still plenty of room to grow. And second, we continue to see results from our IMPACT accounts for OrthoPAT usage rates are between two and five times higher than our average accounts. Our TAG business, with $22 million in sales in fiscal 2010, grew 10% for the year and 41% for the quarter. The recovery in the hospital market was evidenced by accelerating TAG growth during the year. TAG is now at $22 million product line with a five-year CAGR of more than 20% and we expect strong double-digit growth to continue.

Software Solutions revenue was $36 million, up 14% in fiscal 2010. In the fourth quarter of fiscal 2009, the software business benefited from the acceleration of revenue related to a US Department of Defense contract. Despite this tough comparison, the business grew 4% in the fourth quarter of fiscal 2010. Software Solution sales will continue to be an important component of our blood management solutions strategy. Equipment and other sales were $49 million, up 2% for the year. Current economic conditions discouraged capital spending through our early fiscal 2010; however, we saw signs of recovery in the back half of the year, especially in global markets. In the fourth quarter equipment sales were up 36%, primarily related to CEBRA and other license revenues. So to summarize revenues we saw balanced growth across multiple product lines and all of our geographies. In fiscal 2010 North America sales were up 9%, Europe sales were up 3%, Asia sales were up 13%, and Japan sales were up 12%.

Let me review the rest of the P&L, focusing on full-year results. If you want more details than our fourth quarter results they're posted on our website. Full-year adjusted gross profit was $337, million up 10%, and gross margin was 52.3%, up 80-basis points. Gross margin improvements resulted from manufacturing efficiencies, product mix, and currency. We managed operating expenses well in the year despite $6 million in incremental expenses from acquisitions, which were not included in fiscal 2009 expenses. We kept adjusted operating expense dollar growth to 51% of incremental gross profit dollar growth and adjusted operating income grew 16% for the year. Operating margin expanded 110-basis points to 16.6% and adjusted earnings per share were $2.85, up 16%.

Now moving to the balance sheet. For the year we generated a record $75 million in free cash flow after making net investments of $55 million in capital expenditures. Let me remind you that we began the year with $157 million in cash on hand and we then repurchased $40 million in Haemonetics stock and spent $78 million in acquisitions and we're closing the year with $142 million of cash on hand. This is an extremely strong cash generation model, which will strengthen further in fiscal 2011.

Now let me move to our guidance. For fiscal 2011 we expect revenue growth of between 9% and 12%. Adjusted for approximately $7 million of pre-tax transformation and integration costs announced in our April 6 conference call, we expect adjusted operating income growth of 11% to 14% and adjusted earnings per share in the range of $3.15 to $3.25. As Lisa mentioned we posted some scenarios on our website for the income statement and for product line growth that you might find useful. Our success in fiscal 2010 provides us with a strong base for growth in fiscal 2011. We are guiding to stronger revenue growth despite one less billing week in fiscal 2011 when compared to fiscal 2010. We expect all product lines will contribute to growth in fiscal 2011. The strongest performance will come from diagnostics, OrthoPAT, plasma and software. Diagnostic growth will be driven by TAG market penetration and both OrthoPAT and TAG will benefit from growing traction with selling in targeted hospitals. Software will benefit from the Global Med acquisition, where we now have the strongest and most-comprehensive software offering for our plasma customers and for our customers in blood bank and hospital transfusion services.

I know that many of you are very interested plasma so let me spend a few minutes discussing our plasma guidance in more detail, since this is our largest business and a key growth driver. As we stated previously, we expect plasma growth to moderate from recent high-growth levels. We saw this in the third and fourth quarters of fiscal 2010. Our major commercial plasma customers are forecasting collection volume growth of mid single digits for fiscal 2011,, and with low double-digit growth from both share gain and pricing we expect revenue growth of approximately 10% in the commercial plasma business which represents about 90% of our plasma business. This growth will be offset by a decline in our non-commercial plasma business with the Japanese Red Cross. This decline relates to the JRC collecting more whole blood to address its growing need for red cells, resulting in more recovered plasma, which is a by product of whole blood and therefore, less Apheresis-derived plasma.

As expected, commercial plasma collection growth is aligned with the end-use demand for drugs and end-use demand is still growing. The combination of these factors has us guiding towards high single-digit growth in plasma. Because of the very strong start to plasma in the first two quarters of fiscal 2010, we anticipate challenging growth comparisons in the first half of fiscal 2011, with accelerating growth rates for plasma in the second half of fiscal 2011.

Moving down the P&L, in fiscal 2011 we continued to see improvement in both gross and operating margins. Gross margin is planned to increase by more than 100-basis points in fiscal 2011. Product mix, structural cost savings and manufacturing efficiencies from automation will drive growth in gross margin. As we look at expense management we've done a great job of leveraging the P&L over the last seven years. Fiscal 2011 will be no exception. We plan for expenses to grow at a rate of approximately 65% of incremental gross profit dollar growth, driving operating income growth of 11% to 14%, and we expect fiscal 2011 adjusted operating margins to increase about 30-basis points to roughly 17%. In fiscal 2011, adjusted earnings per share will grow to between $3.15 and $ 3.25. In the past several years we've invested heavily in our plasma business and in our global ERP system.

From a cash flow perspective we're now beginning to harvest these earlier investments. This, combined with strong underlying business growth and the operating discipline that you've come to expect from this management team, will permit us to generate over $85 million in adjusted free cash flow in fiscal 2011 before paying $15 million in cash for the transformation costs discussed earlier on the call. Additionally, as we discussed on April 6th call, our board of directors has authorized a $50 million share repurchase, which we expect to begin this quarter.

So to summarize, in fiscal 2011 we'll see revenue growth of 9% to 12% dropping through to 11% to 14% adjusted operating income growth, and adjusted EPS growing to between $3.15 and $3.25. Gross and operating margins will continue to expand and once again will generate strong free cash flow. Our business fundamentals remain very strong. Despite pressing global economic factors and market extremes Haemonetics is performing exceptionally well. Our investment thesis remains solid and our vision is more a reality than ever before. Fiscal 2010 was a good year. We look forward to having another good year in fiscal 2011

And with that let me turn the call back to Brian.

Thanks, Chris. As we close out our fiscal 2010 I'm extremely pleased with our operating performance. We successfully leveraged high single-digit revenue growth into solid double-digit operating income and earnings per share growth once again, and as Chris just outlined for you, fiscal 2011 promises more of the same. I'm equally pleased with the progress we've made moving our vision from concept to reality. Just three years ago, we shared our vision to be the global leader in blood management solutions for our customers. Today, Haemonetics is uniquely positioned as the only Company to offer the depth and breadth of software, devices, and services, which span the blood supply chain from donor to patient. These efforts are translating into results, as we continue to make great progress implementing and accelerating blood management accounts. Implementation will continue to be a focus in fiscal 2011 as we further expand the number of impact accounts. We'll share more detail at our investor day on May 13th.

Strategically, we've achieved key milestones on two projects critical to expanding our product offering in blood Management; our Automated Whole Blood and Arryx Blood Typing systems. For the Automated Whole Blood system, we've identified a host of opportunities to improve the economics of collection, the quality of final blood products and the overall donor experience. We believe the cost of blood collection can be reduced substantially. This will be achieved through an integrated service offering that combines more controlled blood collection with the tools for accurate information capture, secure data transmission and superior transportation control. This integrated product suite for blood doning -- for blood donation management will provide an improved solution for compliance at customer sites. It will radically improve blood management economics in the industry at a time when cost per productive unit is becoming an important management measure.

We also continue to work on a point-of-care blood typing system. We are targeting a system that is compact and which can type and screen blood in a traction of the time it takes current technology. Our system will use just a few drops of blood and reagents. In the last year we've made good progress on the chemistry and technology. We've also consummated an important strategic relationship with Able Bioscience, giving us an exclusive access to a comprehensive array of FDA-approved blood typing reagents for use with our system. As with Automated Whole Blood we are targeting a game-changing technology providing work flow efficiency in a billion dollar market where innovation has been limited in recent years. We look forward to showing you our progress on both key initiatives at our investor day on May 13th.

We've also strengthened our blood management solutions through acquisitions this year. with our acquisition of altavation we now have the hemosphere product to help blood banks manage their mobile blood drives. With the neoteric acquisition we have the blood track suite, which helps ensure the right blood product gets to the right patient at the right time. Blood track extends lab control and helps reduce hospital costs and improve blood use efficiencies. Blood can be distributed to where it is needed in the hospital, just in time rather than just in case. The CEBRA product line brings us a portfolio of products used in whole blood collection and offers us the opportunity to engage with customers on whole blood collection in advance of our planned entry into that $1.6 billion market. The CEBRA products also provide us with the opportunity to leverage our plasma market share to accelerate product penetration.

Finally the Global Med acquisition brings us a breadth of software that spans the blood supply chain in four key areas; one, donor recruitment; two, donor center system of record; three, hospital transfusion management, and four, in certain major European markets, donor center, laboratory and transfusion management systems. Strategically Global Med allows us to provide comprehensive software offering, delivering clinical and economic advantages, connecting the entire blood supply chain from the donor to the patient. Blood management will change and improve the work flow and practices performed today in transfusion therapy.

Now that we've developed or acquired many of these solutions, hospitals and blood centers will want to know if our solutions are actually driving results. To meet this need, we have developed a robust web-based tool to help our customers access their blood management performance. We mind their data from a variety of disparate systems within the hospital or blood center. Our software tool users of this data to summarize the cost reduction impact of our solutions, as well as provide key metrics, comparison and best practices. Armed with this information, our customers can better understand their blood management performance and will be able to address the necessary changes more rapidly. To help our customers make these changes, we are investing in implementation resources. Our customers will have access to information previously unattainable, now available in seconds. The demand for continuous improvement and for our solutions will become more pronounced, and our new Customer Solutions Implementation organization is designed to meet this need.

Our execution during the year to our strategic plan is noteworthy. Our consistent performance, strong balance sheet, and improved profitability demonstrate we do know how to execute. The economic environment in the past 18 months has been trying no doubt, but many economic factors favor Haemonetics' value proposition as we are well positioned to bring blood management solutions to our customers that represent strong economic value and improved clinical outcomes. I'm proud of our results, and as strong as our performance has been these past seven years we believe that our best years are still ahead of us.

Let me close by saying thank you to our employees. The team has performed well, both operationally and strategically. Thanks also to our shareholders for your ongoing support. I mentioned our investor day earlier. We'll spend more time on that day discussing our fiscal 2011 operating plan and of course, our strategic initiatives with updates on Automated Whole Blood, blood typing and demonstrations designed to show just how our products provide benefit within the blood supply continuum. So I invite you to join us here at our headquarters on May 13th.

With that, let me turn the call over to the operator to answer your questions.

(Operator instructions). Your first question comes from the line of Larry Solow from CJS Securities.

Hi, good morning, guys. Just a quick question on the gross profit. Looks like if we look at on the whole-year basis perhaps some of the initial expectation of an increase was a little bit less than expected and any reason for that? I know there was some currency impact and some transformation to distributors during the year, but any color behind that and is the Pittsburgh plant now fully operational and Utah going to help going forward?

Yes. Well I think we said the expectation was 100-basis points of growth and we got to about 80. There's nothing specific, maybe a little bit of manufacturing challenges in the fourth quarter but nothing to concern ourselves about.

And to answer your question about Pittsburgh, Larry, it is fully up and running and operational.

Okay, on the positive I'll let someone else because I'm sure there will be a lot of questions on that but in terms of your targeted expenditures on your incremental gross profit actually looks like -- if I do the math it's about 70% and I imagine this may be a little bit skewed by the acquisition of Global Med?

Yes, we've got about $5 million to $6 million of amortization in there, and yes it is skewed. If you remember, our target there is year one breakeven or neutral and then year two accretive.

Okay. And then just lastly, you mentioned that you signed 26 -- or you have 26 IMPACT contract -- accounts under contract, what was -- I know the incremental target was 12 and I believe you beat that because you already had beat that through Q3. Do you have that number and --? Go ahead.

No, go ahead, I'm sorry.

No. And just a follow up to that is any color on the device-specific accounts? I know it seems like the focus? And then also is there any goals for fiscal 2011 that you'd care to share or you maybe want to do that at your analyst day?

Yes, we'll do that on our analyst day, Larry, we'll tell you just what we're going to do relative to IMPACT. And what we're going to do overall with IMPACT is we're not going to break out device-specific and accounts or facility wide as we go forward -- I'll answer your question so you have that -- and the reason being is because of two things that come into play here. One is that we see -- throughout the year now as we've started to mature this, we see a shifting of incremental products coming in to the IMPACT accounts and then we see departmental IMPACT accounts and hospital IMPACT accounts shifting. That's what we saw earlier in the fiscal year.

Overall, we have -- we finished the year with the 12 for comprehensive and 14 for departmental specific with a little bit of shifting taking place there, but the real key here is that we have 66 accounts now and the reason why we give you those other numbers break them out, 66 accounts now that are in the demonstration phase with our products, which means they are using our devices in disposables, we are generating revenue. And to put an exclamation point on that, those 66 accounts last year represented incrementally about $3.2 million worth of incremental sales for us in total.

Thank you. And your next question comes from the line of Matt Hewitt, Craig-Hallum.

Good morning. Just to follow up on the IMPACT customers, I was wondering if you could give us a little bit of color as far as the sales process, whether that cycle has shortened as you've gotten more familiar with what the customers are looking for, or any additional color you can provide? Thanks.

Yes, att, it is really dependent on the hospital, it really depends upon their starting point. But let me just say, you're going to want to see what we unveil at our investor day next week, which is IMPACT online. It's a very difficult thing to explain on a conference call but as we demonstrate the power of that tool, you'll see that that is going to allow us to provide our customers with access to their data far more rapidly. So we still see that baseline, whether it be a paper report or IMPACT online, still taking about 30-to-40 days roughly but the ability for our customers to manipulate that data for their own particular use can now be done in seconds and minutes and it is an extremely powerful tool that we're now seeing accelerate in the pilot accounts that we've launched this into use of our devices and disposables far more rapidly.

Thank you. Your next question comes from the line of David Lewis.

Good morning. This is actually James in for David.

Hi, James.

So, Chris, in the past you've broken out the change in plasma gross margins year over year, could you share with us what that was for the fourth quarter?

Yes, it was about 40 BIPS in the fourth quarter, year to date of 130 BIPS.

Okay, great, thanks. And then if I look at the gross margin expansion of 100 BIPS in 2011 maybe if you could just give us a little more color on the specific drivers in either mix or manufacturing and also how much of that is going to be related, if any, to the savings from the restructuring program you're putting in place?

In terms of the transformation that we're driving not so much, so the transformation that we're driving is more focused on OpEx. We do have -- in parallel with that initiative we do have a major supply chain manufacturing initiative ongoing and have established goals for our manufacturing organization that will drive this 100-basis points or more of gross margin expansion.

Thank you. Your next question comes from the line of Joshua Zable from Natixis Bleichroeder. Your line is open.

Good morning, guys, congrats on a nice quarter, nice year, and thanks for taking my questions.

Thanks, Josh, good morning. And usually they mess up our name, not yours.

I know, I know. that's all right, at least they didn't ask me why I'm from Texas. (LAUGHTER) Just a question on the red cell I guess, I know there's obviously litigation going on, I'm sure you don't want to comment specifically, but maybe you can just talk about maybe blood collections in general and then also from a competitive standpoint, I would've thought there might be a pick up or you might expect a pick up, I know you never want to put the cart before the horse but just any color around that would be helpful? Thanks.

Yes, Josh, what we're seeing is, because we've seen the demand for blood go down we've seen the urgency in use of automation decline. Now, Chris covered for you what this really means to our blood collectors but to make a change from a competitive device to our device is a big deal. It requires regulatory approval, it requires SOP changes, it's not an insignificant thing for them to do. So because we've seen the demand for blood go down we've seen less of an urgency on the part of our customers to mitigate this risk. It is something they're willing to wait to see what happens in the appeals process and so that's where we find ourselves today. Now let me pause and let Lisa just speak a little bit about the litigation in general.

There's not much more to say other than the litigation is proceeding on both the appeal, as well on the new so-called modified competitive device, and we expect it to play out over the next six months or so.

OKay, great, and then just a timing question. Chris, very helpful on the plasma ramp, if you will. I know you said tough comps early in the year. I'm just wondering -- I know you don't give quarterly guidance, but in terms of expenses because you are integrating Global Med and if you could give us any way to think about the year just so we don't get ahead of ourselves in the first quarter if there are more expenses that are up front? Thanks.

Josh, this is Brian. I'll take the plasma piece first and expand on that a little bit and let Chris talk about the expenses, but it's important for everybody to remember, last year we saw plasma growth in the first three quarters was fairly dramatic. If you recall, 26% in our Q1, 19% in our Q2, so when we look at our comparison, when we start Q1 and Q2 this year. While we don't give quarterly guidance I will tell you we expect our plasma growth in the first quarter to be slightly down to maybe flat, we expect plasma growth in the second quarter to be more in the low to mid single digits and we expect the return to double-digit growth in plasma in Q3 and Q4. And that's really just because of how the year played out this year and the comparisons we face. Let me let Chris talk about the operating expenses.

Yes, you'll see the same tight control of our operating expenses you've seen through the course of this year into the first part of next year. And so while there will be incremental expenses, certainly related to Global Med, we're not expecting anything disproportion at to the Global Med business that we've taken on board. We have a detailed integration plan that is being executed highly effectively. We have, if you look at our guidance carved out, a little over $1 million of integration expenses that will be incurred over the course of the first half. so you shouldn't expect -- other than the incremental expenses that are natural with the Global Med business moderated by some of the synergies that we're taking advantage of, the purpose of our restructuring you shouldn't expect any unusual swing. Does that make sense?

Thank you. your next question comes from the line of Larry Keusch from Morgan Keegan.

Hi, good morning.

Good morning, Larry.

So I guess if you could, Brian, help us understand where we stand with the building of the implementation organization that you've talked about on that April call?

Thanks, Larry. That organization now has its leader named and the people that were embedded within our patient and donor businesses have now been reassigned. You'll recall that we were changing our sales structure -- from a blood bank standpoint changing that focus from a selling standpoint to be more national accounts. That was part of our transformation and those dollars are now being used to invest in incremental resources to be added to our Customer Solutions Implementation organization.It'll allow us to have an organization there starting out that will be between roughly 25-to-30 resources. Overall the impact there -- just to point on that -- from an SG&A standpoint will be modest. There's some incremental investment but that was part of our transformational work that we did and announced in the fourth quarter. So we're well down a path in putting this organization in place.

Okay, terrific. And then the second question for Chris is, if you could just give us some thoughts on 2011 FX , remind us how you're hedged and then also the same-store sales growth for plasma in the fourth quarter? I may have missed

Yes. No, I didn't give it in my prepared remarks but same-store sales growth for plasma in the fourth quarter was around 2%.

2.4% to be

2.4% to be exact. And FX next year is -- well let me talk about hedging and then I'll give you the highlights of FX. So, obviously we are a long yen and euro, short pounds and we essentially sell or buy those currencies in increments each month, 12 months ahead, based on our anticipated either revenues or costs in order to hedge those positions. So we have predictability of 12 months, therefore we have a high degree of confidence with our plan for the major currencies that affect our business. As we look at the full-year next year it's a non-event -- currency's a non-event on the top line, at least as we see the balance of sales in the different regions. And on the bottom line, inherent in our guidance is a little bit of a headwind from currency.

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

[Turkuleze], I like that. Let me ask you one on the equipment side if I could. Obviously very strong in the quarter. I into CEBRA's in there but I'm looking at your guidance for next year, as well. Do you have any other color in terms of what you can give us that was in that line item end of this quarter?

In this quarter we had a royalty arrangement that flowed through that line;essentially licensed one of our technologies to a third party. And next year the growth is really, -- can be attributable to having a full year of CEBRA versus a half year of CEBRA, so ex-CEBRA,we're still a little cautious on our growth rates.

And last if I could just quickly, in terms of investments and just personnel that you guys have done, obviously several acquisitions and I can see your guidance in terms of the margin but do you need to expand sales given some of the new products that you're -- and these efforts that you're working on or do you feel like now you've already got the force in place that you need to hit your goals looking ahead? Thanks.

So, Dave, is your question do we need to expand sales resources? I think that's what you meant by your question.

Yeah, sales force.

Yes, okay, thanks. The answer to that question is no. What we're seeing is two things happening and this is particularly in the US, and I'm speaking more now focused here in the US. We're seeing consolidation take place on the blood center side. I think that we'll see more of that occur in the future. We're seeing the value of a national accounts-type selling organization not, unlike what we migrated to in plasma. And we're seeing where the resource investment needs to occur is in our Customer Solutions Implementation organization. That's why we've gone through the transformation and frankly, I'm hoping that we will have to invest further in that group simply because of growth that will exceed our expectations from the blood management standpoint. Our focus there is to really work with our customers to implement these solutions more rapidly.

Again, I can't emphasize enough the value of this new tool that we launched this past quarter, which is IMPACT online. The pilots for this have gone extremely, extremely well. It's very difficult to talk about on this type of a conference call but you'll actually see that in use, we'll show it, we'll demonstrate it for you and we'll speak to some very specific value that its had for customers at the investor day on May 13th. We believe that this is going to be something that'll be lot more powerful for us. And that's why, just so that you know, we're breaking down some of the measurements for the future.IMPACT accounts in total, we'll break out IMPACT online accounts, how many we have starting in Q1, how that's growing because I think that'll be a key indicator, and we'll continue to focus on these three product lines that I think that really represent the growth, the -- the device and disposable growth that comes from these IMPACT accounts, which is primarily OrthoPAT, CardioPAT and our TAG products.

Thank you. Your next question comes from the line of James Sidoti, Sidoti & Company.

Good morning, Brian, good morning Chris, good morning, Lisa, can you hear me?

Sure, good morning, Jim.

You guys decided to go in age order today? (LAUGHTER)

You must need something.

All right. Right now you're selling to four of the five large plasma fractionators. When can you commence sales to that fifth customer?

Well, the fifth customer being -- a major customer being Baxter,we currently are working with Baxter today and we're in a small number of their centers today, and I think you know that, and we're pleased with that. That gives us the opportunity to show to Baxter what we're capable of doing in their centers and for them with our solutions -- with our plasma solutions. That contract -- the contract that they currently have with their current supplier expires in the first quarter of calendar year 2012, so roughly two years from now. And so I should expect Baxter will begin discussions with the players in this market -- and there's really only two of us -- about their business some time at the beginning of next calendar year, that would be my expectation.

Okay, thank you. And then my second question is related to the whole blood launch. What's the FDA path where you're going to need to get through and have you started that already?

We're actually just reaching out to FDA, as we speak, to set up the meetings to share with FDA our current plans, both clinical and device system pre-market approval plans. And so we have some ideas about how to bundle some of the submissions to consider and propose accelerating an approval path but I think frankly, the comments there would best a wait the FDA's weighing in on that. It's a somewhat different agency these days in the new administration.

Thank you. Your next question comes from the line of Daniel Owczarski, Avondale Partners.

Yes, good morning.

Good morning, Dan.

I just had one quick question about this plasma market and specifically around that Japanese Red Cross. Can you explain a little bit of their decision why they're moving more towards whole blood, what's driving that decision and whether they could go even decide to even further move towards whole blood?

Yes, Dan. The reason for that is that they are using red cells for cancer therapy and so they've seen an increased demand for red cells, and as a result of that, they are taking down their plasmapheresis collections because they'll use the by-product of plasma from those red cell collection. Do I see that changing? No. The Japanese Red Cross is typically very good about their targets and about hitting their targets, and I think that this is one that's going to balance out over the year. This is a very important shift for them and I think it will really help them understand and appreciate just what they'll need for plasmapheresis going forward. Remember, not unlike our market the Japanese market is also seeing an increase in demand for plasma and the plasma-derived biopharmaceuticals.

Thank you. Your next question comes from the line of Anthony Petrone of Jefferies.

Thank you, guys. Hey, how's everything, Brian, Chris, Lisa, how are you?

Hello, Anthony.

We are obviously following the developments here just one question relating to plasma. When we look at the existing contracts, the four contracts that you currently have, just wondering where are those contracts in terms of how many years into them you are, how close you are to expiration for any of those contracts?

The contracts, many of these will expire over the next two to four years roughly. We have already begun discussions with many of these customers as we understand what their needs are for the future and we work with them on some of the things that we're doing relative to both solutions with their environments, as well as enhancements to our products. So we're very much in dialogue with these customers and they are working with us to help us understand and appreciate what their needs are going to be over this timeframe. So our relationships with them continue to be good, continue to be strong, but we don't take that for granted. We recognize that we not only need to meet their needs today but to continue to earn their business in the future and we have to be innovative and creative and meet their needs in the future so that's where that stands.

If I could sneak up a follow up there just in terms of the push/pull on price, if there is any, and how many of the new discussions include Express?

Well, I don't want to get in too much detail on the Express discussions because Express really isn't a price -- it's an increase to their disposable price but it is a very significant enhancement for them. When the need arises for them to have to make decisions, do I get more production out of my existing facilities or do I need to build more collection centers, so it's going to be something of great value to them. But in terms of the pricing discussion overall, remember our disposables, we participate in this $10 billion, $11 billion market. We play in the front end of it. we're less than 5% of that market and our disposables are a very, very tiny element of that entire process, and our disposables are priced enormously competitively today. These disposables are in the range of $10, so there's not a ton of room to move around relative to price.

Thank you. Your next question comes from the line of Larry Solow of CJS Securities.

Just as a quick follow up, on the uses of free cash flow going forward, looks like now that your IT platform seems like it's pretty well rounded out, I'm sure you still expect to do some more complimentary acquisitions but perhaps share repurchases become a little bit more of a higher priority or any way you look at that?

Yes, we've always said nothing's changed at our two priorities for free cash flow are strategic tuck-in acquisitions and share buybacks. We've done that consistently over the last several years. We have a buyback announced, we presumably will still be looking at opportunities from an acquisition perspective and we'll play it by ear, frankly.

And I would just simply add there, Larry, that our priorities for use of cash have not changed. We will still look at acquisitions first and stock repurchase second.

Thank you. I would now like to turn the call over to Brian Concannon for closing remarks.

Thank you, operator. As I said I'm pleased with this year's performance. We delivered double-digit growth in operating income and earnings per share once again. Blood management is gaining traction, demonstrating solid progress in the back half of the year. As plasma sales moderate the high single-digit growth rates, the products associated with our blood management solutions are gaining momentum and these products will be key contributors in fiscal 2011. Beyond operating performance we've made great progress strategically. Four acquisitions this year substantially strengthened our blood . A and we made great progress in our Automated Whole Blood and our Arryx Blood Typing systems.

As I said earlier we look forward to you joining us at our headquarters in Braintree on May 13th. We'll share more specifics of our blood management solutions particularly how they are changing clinical practice, and you won't want to miss this years show-and-tell on our Automated Whole Blood and Arryx Blood Typing systems. Thank you for your time this

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