Haemonetics Corp (HAE) 2012 Q4 法說會逐字稿

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 FY '12 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I will now turn the call over to Gerry Gould, Vice President, Investor Relations. Please go ahead.

Thank you, Chris. Good morning. Thank you for joining Haemonetics' first fiscal '12 year end conference call and webcast. Today we will cover the financial highlights of fiscal '12; provide guidance for fiscal '13; and discuss the two transactions that we announced yesterday.

I am 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. Additional information concerning factors that could cause actual results to differ materially is available in the Form 8-K we filed this morning as well as in our 10-K and 10-Qs.

On today's call, Brian will review the business and financial highlights of the fourth quarter and fiscal year '12, as well as key business and strategic elements of the two transactions. Chris will review our operating performance for fiscal '12 and annual guidance for fiscal '13; provide an overview of intended deal financing; and highlight financial implications in more detail. Then Brian will close with summary comments.

Before I turn the call over to Brian, I would like to 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've excluded certain charges from the adjusted financial results we'll talk about today. These include costs of restructuring and transformational activities in our research, manufacturing, supply chain, and software organizations.

We have also excluded $1 million of net income in the fourth quarter and $3.1 million of net costs in fiscal '12 for European customer claims for HS-core plasma, net of partial insurance recoveries; and $4.5 million of costs associated with the two transactions we announced yesterday, such as legal and other professional fees associated with our due diligence, as well as cost for preliminary integration planning activities.

In total, we have excluded $6.1 million of net costs from our fiscal '12 fourth quarter adjusted results; and $17.7 million of net costs from our fiscal '12 adjusted results. Further details, including comparison with fiscal '11 amounts excluded, were included in Form 8-K and have been posted to our investor relations website.

Our press releases and website also include a complete P&L and balance sheet, as well as reconciliations between our GAAP results and our adjusted results.

With that, I'll turn the call over to Brian.

Thank you, Gerry, and good morning, everyone. With the completion of fiscal '12 now behind us, I believe history will judge this year as one of the most important in our 41-year history.

We began the year having to deal with two significant quality issues that initially tested us, and ultimately strengthened us as we restructured our quality and regulatory organizations, and embarked on a plan designed to enhance the quality culture in every aspect of our business. And we finish the year negotiating two significant acquisitions, one of these being the largest in our history.

We believe these deals will provide a critical foundation for further growth and accelerate the Company's whole blood strategy that we previously communicated. They provide an established market presence in differentiated offerings, resulting in the ability to serve our customers with a broad portfolio of blood and blood component collection products.

In short, we have accomplished much over these past 12 months. But we have a lot more to do. These are very exciting times for Haemonetics. The quality issues are substantially behind us. With the two deals announced yesterday, Haemonetics will be even better-positioned to realize our vision and deliver greater value to our customers and our shareholders.

So, let me start by telling you about our fiscal '12 finish and the progress we continue to make with blood management. And then I'll speak to the strategic value of the acquisitions and how this will further strengthen Haemonetics as the global leader of Blood Management Solutions for our customers.

We finished fiscal '12 with a solid fourth quarter. Revenue grew 10% and adjusted earnings per share were in line with the expectations we provided last quarter. Revenue growth was broad-based, as all reported categories saw growth in the quarter led by continued strength in demand for plasma disposables, diagnostic products, and equipment.

We also benefited from an increase in platelet and plasma disposables in Japan in advance of a system conversion by the Japanese Red Cross.

We continue to see strong growth in emerging markets, which grew 11% in the quarter, finishing with $116 million in revenue for fiscal 2012. IMPACT selling also accelerated and we had encouraging sales of our Blood Management Solutions to prestigious hospital, health system and blood center customers, adding 21 new customers in the quarter and bringing the current total to 258. Our IMPACT selling at hospitals manifested into very strong TEG disposables revenues in the fourth quarter, up 27% overall and up 52% in IMPACT accounts.

Let me provide you with some of the highlights from the quarter. We're pleased to announce that we signed one additional importune contract extension with a major plasma customer in the quarter. With this latest contract extension, 75% of our current plasma business is under contract for the third quarter of fiscal 2017 and over 98% through the third quarter of fiscal 2015.

We entered into a long-term agreement with the Oklahoma Blood Institute to provide red cell collection technology and IMPACT Online. OBI, one of the top 10 blood centers in collection volume in the United States, has always been a customer-focused organization, providing services to over 150 hospitals in Oklahoma, Texas, and Arkansas. They look to continue to expand these offerings by helping their customers maximize their blood utilization efforts through the use of IMPACT Online.

We entered into an agreement with the St. Luke's Episcopal Health System to implement IMPACT Online at St. Luke's Episcopal Hospital in Houston, Texas. They expect to go live in May.

We've also entered into an agreement with the Memorial Hermann Healthcare System to implement IMPACT Online at their Texas Medical Center location. Memorial Hermann, the largest not-for-profit healthcare system in Texas, serves the greater Houston community and expects to go live in May as well.

We finished the year with another strong quarter of equipment sales, as overall Equipment and Other revenue was up 17% in the fourth quarter and 18% in the second half of fiscal '12, following a first-half decline of 4%. Fiscal '12 Surgical Equipment sales increased 72%, and we placed nearly 800 new Cell Saver devices in fiscal '12, including nearly 200 of our new Cell Saver Elite devices.

These leading indicators of near-term future Disposables revenue give us confidence that blood management is gaining traction and we're able to provide guidance of 12% to 15% revenue growth in our hospital business in fiscal '13.

The OrthoPAT device recall build and replacement is substantially complete. As we anticipated, the OrthoPAT Disposables decline moderated in Q4. It is expected to return to growth in fiscal '13.

We've also reintroduced the HS Core Bowl in a limited market release with completion expected in Q1.

I've said it before and I will say it again -- we're a stronger Company for having substantially resolved our quality issues but we will remain focused on executing our quality improvement plan, driving the levels of product quality our customers expect from the industry leader in blood management.

With the quality issues substantially resolved, we were able to turn our attention to using our strong balance sheet for acquisitions to advance our strategic objectives. We announced two such acquisitions yesterday, Pall Corporation's transfusion medicine business and Hemerus Medical. These are important steps we're taking to immediately enter the $1.2 billion whole blood collection market.

We've made clear our objective to enter this market with differentiated offerings by bringing automation to the blood collection process that improves the donor and blood collector experience, enhances efficiencies and quality, and ultimately reduces costs for our blood collectors. Our current product offering includes two-unit apheresis collection technologies, using less than 10% of all red blood cell units collected today. Manual whole blood collection accounts for the vast majority of the nearly 60 million red blood cells collection procedures performed annually worldwide. And the acquisitions we announced yesterday will accelerate our entry into this attractive market.

We will begin launching our whole blood automation package later this fiscal year, which will include a new donation workflow module in a software suite; a communications tower for a plug-and-play ease of use via a new handheld interface; two peripherals to make the system paper list; and ultimately, smart devices with full data integration in wet-set consumables. Upon closing, the Pall and Hemerus acquisitions will provide us an existing entry point, immediate and meaningful scale, expanded manufacturing capabilities, differentiated products and key customer relationships that should allow us to accelerate adoption. And this is exactly what we expect these acquisitions will do.

With such a strong and established business base in the whole blood collection marketplace, we believe the planned acquisition of the Pall business will allow us to leverage our future automation efforts with a greater likelihood of market adoption. And with the Hemerus acquisition, we expect to penetrate this market more rapidly by providing our customers with a unique storage solution that is important to our leadership position in blood management. Upon approval, it will offer medical and economic benefits to our blood center and hospital customers that are not available today.

So, let me discuss each of these acquisitions separately.

First, we announced the signing of an agreement with Pall Corporation to acquire their blood collection, filtration, and processing product line; collectively, their transfusion medicine business. This transaction will bring us an immediate and meaningful commercial presence in whole blood collection, with revenue in excess of $200 million and a global market share of approximately 15%.

We serve common customers, and together will bring those customers' leading technology and a broad portfolio of manual collection and processing products in addition to our double red cell collection technology that we offer today. This means that our customers will be able to purchase all of their blood collection products from one supplier focused on reducing costs, improving the collection experience, and committed to bringing Blood Management Solutions to the hospital customers we both serve.

Annually, the Pall business supplies over 8 million collection kits containing single-use disposables such as blood bags, needles, tubing, anticoagulants, donor blood sampling arms, and in-line leukoreduction filters. Approximately 65% are sold in the Americas and 35% overseas.

We believe this is a perfect fit with our business. Both companies serve a large customer base around the world which includes the American Red Cross and Blood Systems Inc. in the United States; the National Health Service Blood and Transplant in the UK; the German Red Cross; and Hemo-Quebec in Canada.

In addition to market presence, we will gain manufacturing capacity and the expertise of some 1300 new employees who know and understand the whole blood market. This commercial presence, market knowledge and manufacturing know-how provide us with the scale and scope to bring automation to an existing base of business more rapidly.

Under a separate but related supply agreement, Pall Corporation will remain a supplier of certain [media for use] in leukoreduction filters relevant to our donor product lines for the next four years. Pall Corporation will transfer the assets related to this activity to Haemonetics at the end of the period, and we will vertically integrate that supply source into our operations.

We also announced an agreement yesterday to acquire the business assets of Hemerus Medical, a company that develops innovative technologies for the collection of whole blood, and processing and storage of blood components. Hemerus Medical has recently submitted a new drug application to the FDA for its unique patented SOLX whole blood collection set following the completion of Phase III clinical trials. This collection set includes a storage solution that is believed to extend the effective life of red blood cells considerably. Data indicates the red cells stored in the Hemerus Medical solution have better biomarkers than those stored for 42 days in solutions use today.

As the industry completes various studies on the clinical value of younger red cells, we believe an improved red cell storage solution will become a key differentiator.

We've told you of our intent to enter the large manual whole blood collection market for several years now, but in a way that differentiates Haemonetics from our competitors and provides our customers with enhanced automation, thereby improving the collection and process. We will combine our market-leading double red cell collection technology with Pall's blood (technical difficulty) and processing product lines, providing our customers with a full suite of products to meet their blood collection needs.

We will enhance these products further with the addition of the Hemerus whole blood collection set that includes the patented SOLX storage solution that improves red cell quality considerably. In short, these acquisitions represent a powerful combination for our blood center customers that have not been present in our industry through one supplier until now.

While the strategic benefits of these transactions is clear, we expect the financial benefits of both acquisitions to be equally attractive. We will continue to invest to accelerate our market-leading position in blood management solutions, yet expect the net impact to earnings per share will be at least neutral for fiscal '13, and accretive in fiscal '14 and beyond.

So now, let me turn the call over to Chris Lindop, who will review the financial highlights of the fourth quarter and the financial aspects of these transactions in more detail. Chris.

Thank you, Brian. First, I'll review the broad-based revenue growth that continued in the fourth quarter; then, highlights of our quarterly and full-year financial results; and finally, our revenues, earnings, and cash flow guidance for fiscal 2013. I will also discuss financial implications of the two planned transactions.

In fiscal '12 every product category except hospital had growth. And hospital, aside from OrthoPAT, grew 4%. This top line strength is encouraging in light of the quality-related challenges we overcame during the year. In fiscal '12 we surpassed our full-year revenue guidance of 6% to 7% growth, realizing 8% top line growth on the strength of 10% growth in the fourth quarter.

Plasma revenue growth continued to put pressure on margins, leaving us right where we expected to be on the bottom line for the full year. Some product categories outpaced our expectations a bit, while others delivered what we expected. So, let me talk about these in more detail.

Plasma revenue grew 13% to $62 million for the quarter. We saw some second-half improvements in our Japan plasma business after declining in the first half. The Japanese Red Cross accelerated $1 million of April plasma purchasing into March in anticipation of a planned system conversion. Additionally, collection volumes in the commercial plasma business in the US were robust again in the fourth quarter. Plasma revenue grew 14% in fiscal 2012.

We continue to believe that our plasma growth will return to a more normal mid-single-digit growth rate in fiscal '13, consistent with the long-term end market growth rates of the industry. We are very well-positioned with customer contracts covering over 98% of our plasma business through Q3 of fiscal '15. We and our customers have the stability required to respond to any catalysts in the plasma market which may fall in this time period.

In January we increased our fiscal '12 blood center guidance to 3% to 4% growth, reflecting strength in both red cells and platelets. Blood center revenue was up 9% at $56 million for the quarter and 6% for fiscal '12, as we are succeeding in demonstrating value to those customers utilizing IMPACT.

The platelet business, with revenues of $44 million, increased 13% in the quarter, reflecting growth in emerging markets and in Japan. We won a $2 million platelet tender in Russia, and platelet growth also benefited from the Japanese Red Cross accelerating $2.5 million of platelet purchases into our Q4 to build inventories of our disposables in anticipation of their system conversion.

Red cells delivered $12 million of revenue in the quarter, a decrease of 1% year over year compared with a strong prior-year quarter. Our red cell business grew 3% in fiscal '12 in a flat market as we are succeeding in demonstrating value to those customers utilizing IMPACT.

In our hospital business, revenue increased 3% to $32 million in the quarter, and was virtually flat for the full year at the low end of our previously-stated expectations. Aside from OrthoPAT, our hospital revenue was actually up 7% in the quarter. Following the Cell Saver Elite launch, we had a third consecutive quarter of growth in our surgical business. And at the same time, we had continued very strong growth in diagnostics.

OrthoPAT Disposables revenue was $8 million in the quarter, down 8%, or less than $1 million. This was a very encouraging result, as the OrthoPAT recalls has had a negative impact on the Disposables revenue growth rate rates.

Although approximately half of our fleet was impacted by the recall, our OrthoPAT revenue was down only 12% in the past fiscal year. And the reduction in that rate of decline to 8% in the fourth quarter demonstrates the moderation in revenue declines that we expected. This is why we are confident of a return to OrthoPAT growth in fiscal '13.

Surgical Disposables revenue was $17 million in the quarter, a 2% increase year over year, marking the third quarter with growth after eight consecutive quarters of decline. Our installed base of surgical cell salvage devices increased by nearly 800 in fiscal '12, a leading indicator of future Disposables revenue growth.

In Diagnostics, TEG disposables revenue was $6 million, growing 27% in the fourth quarter, bringing full-year fiscal '12 revenue growth to 19%. This growth came primarily from continued penetration at key IMPACT accounts in North America. TEG revenue growth has exceeded 15% in each of the last four years. Revenue in the quarter increased 127% in China, where use of the TEG analyzer is growing fast in connection with interventional cardiology.

We installed 230 TEG devices in the second half of fiscal '12 and grew the installed base by 18% in the full year. So we expect strong TEG Disposables growth to continue in fiscal '13 on the basis of these equipment sales.

Based on deals in the pipeline, we expected our Software Solutions business could finish the year strong, and that was the case. Software Solutions revenue was $19 million, up 9% this quarter. Revenue was up 6% in fiscal '12, consistent with our previously-stated guidance of 5% to 7%. Software revenue from hospital and blood centers in North America was up 9% in fiscal '12, continuing to be a key enabler of blood management.

Equipment revenue was $17 million in the quarter, up 17% on strength in our hospital business, led by TEG and surgical products. In fiscal '12, equipment revenue was up 8%.

Fourth quarter fiscal '12 gross profits were $95 million, up $7 million or 8%. Gross margin was 50.8%, down 70 basis points from a gross margin of 51.5% in the fourth quarter of fiscal '11. The costs of quality accounted for $2.8 million or 150 basis points. So you can see the impact of quality on our gross margin.

Fiscal '12 gross margin was 50.9%, down 160 basis points from last year as margin was under pressure from the $11.7 million or 160 basis points of costs of quality that we disclosed in the past. Operating expenses were $68 million in the quarter, up $11 million or 19%. Incremental expenses relate to investments in quality; sales and marketing resources; R&D funding; and spending to drive our strategic initiatives.

In addition, $3 million of the $11 million increase was attributable to the reversal of year-to-date bonus accruals in the fourth quarter of fiscal '11.

Operating income was $27.1 million in the quarter, down $3.5 million. Operating margin was 14.5%, down 350 basis points quarter over quarter, and reflects $3.5 million of costs and lost margin related to the quality issues.

Fiscal '12 operating margin was 14.6%, down 270 basis points from last year.

Our tax rate was 25% in the quarter, resulting in a full-year tax rate of 27% compared with 28% in fiscal '11. Our fourth quarter tax rate was favorably impacted by the geographic distribution of income.

Adjusted earnings per share in the quarter were $0.80, down 5% from $0.85 in fiscal '11, reflecting the impact of the quality issues in the fourth quarter. Adjusted earnings per share in fiscal '12 were $3.04, down 7% but in line with the expectations we had established for the full year in our previous guidance. Cost of quality impacted our results by about $0.10 in the fourth quarter and $0.41 in fiscal '12, slightly above our previous estimates.

We continue to have a strong cash generation model. In fiscal '12, we generated $75 million of free cash flow after making net investments of $52 million in capital expenditures, and before funding the cash transformation costs of $12 million. We completed the year with $229 million of cash on hand after completing a $50 million share repurchase in the second quarter.

In summary, we delivered strong revenue growth once again in Q4. And our gross margin was negatively impacted by the cost of quality, including the inability to capture targeted cost savings while giving full attention to the quality issues.

Now let me shift to fiscal '13. As in the past, our website includes revenue and income statement scenarios which are based on the elements of guidance provided in my comments for the full year. We believe fiscal '13 will be a year in which revenue will grow 4% to 6%, in line with the mid-single-digit growth we discussed last quarter.

Plasma is expected to grow 4% to 6%. Blood center, flat to 2% growth; hospital products, 12% to 15%; and Software Solutions, 5% to 7%.

Operating income is expected to grow 10% to 12%. And adjusted earnings per share is expected to grow 9% to 12%, to a range of $3.30 to $3.40 per share. Now, these estimates are organic; in other words, before considering any impact of the two announced transactions.

Our business fundamentals remain very strong and the challenges of fiscal '12 are behind us. Our strong cash flow model and ample cash on hand provides us with the flexibility required to capitalize on the Pall and Hemerus opportunities which Brian described. So let me spend a few minutes on the financial implications of these transactions.

The exciting value proposition of the integrated businesses comes in allowing Haemonetics to become a meaningful participant in the whole blood collection market with scale manufacturing operations. As an established participant in the market, we will be able to offer differentiated products and services to customers, including automation, to capture share and ultimately to expand the value of the whole blood collection market opportunity.

The anticipated Pall acquisition will bring us into the whole blood collection market, adding over $200 million of annual revenue. Approximately two-thirds of this revenue is generated from the sale of nearly 8 million whole blood collection sets. The remaining third represents different entry-level blood filter products for blood centers and hospitals.

Revenue breaks down with 65% in North America and 35% in the rest of the world. Our strong presence in global markets is highly complementary to Pall's existing business.

The asset sale structure of these transactions will enable us to complete the purchases in a manner that is tax efficient for us. The agreed-upon purchase price of the Pall assets is $551 million, of which $536 million is payable upon closing, which we expect to be in the second quarter of fiscal 2013.This is approximately 2.5 times fiscal '11 revenue and eight times fiscal '11 EBITDA.

We ended in fiscal '12 with $229 million of cash. We will use $61 million of that cash and borrow $475 million under a new five-year term loan. And as you would expect, the cost of borrowing is attractive at this time and we anticipate having a low to mid-single-digit percentage interest rate on the loans all-in, meaning inclusive of amortization of debt issue costs in the recorded interest expense.

The loans will have only two financial covenants -- a debt-to-equity maximum and a minimum interest coverage ratio, neither of which we expect to restrict our financial flexibility going forward. Early repayment will be permitted with no adverse financial implications.

With strong free cash flow expected from our base and acquired businesses, we plan to repay these loans over the five years following the closing. We see such loan repayments, along with continued acquisition and share repurchase activities, as our priorities for the use of cash going forward.

For Hemerus, we will pay up to a maximum of $27 million in several stages that are contingent upon receipt of two regulatory approvals of SOLX. Additionally, we will pay a royalty on future sales of SOLX-based products and maximum royalties will be $14 million over the next ten years.

All Board approvals are in place with some confirmatory due diligence stats and regulatory and other approvals required, we expect to close on the planned Pall and Hemerus transactions in the second fiscal quarter.

The Pall acquisition, which is a carve-out for Pall Corporation, will require incremental infrastructure resources, which are preliminary diligence estimates at approximately $10 million.

In addition, consistent with our full commitment to the whole blood market entry and its subsequent automation, we expect to increase our fiscal '13 investments in R&D for the development of SOLX, the next generation TEG device, and clinical trials associated with the automated whole blood collector. We are pleased to be able to fund important future growth initiatives and also have no earnings dilution in fiscal '13 following these acquisitions.

We expect to report our adjusted results all-in, including amortization expenses, financing costs, and income taxes going forward. The expected impact to earnings per share of all of these elements is at least neutral for fiscal '13 and accretive in fiscal '14 and beyond.

Our integration planning includes the one-time costs related to a dedicated team in IT service and technologies to scale our infrastructure to meet the needs of the combined businesses. Additionally, as required by US GAAP, we will make a one-time adjustment to increase the cost of inventory acquired from Pall as part of the transaction, such that we earn only a distributors' profit on the first turn of that acquired inventory.

To enable a clear understanding of the real performance and profitability of the acquired businesses, we will exclude costs of integration activities expected to be between $20 million and $25 million, and this one-time additional inventory cost from our adjusted or non-GAAP results and performance measures.

Today we gave you metrics that depict the size of the business that we have agreed to acquire. These include purchase price, annual revenue, multiples of revenue and EBITDA, and elements of financing for the two deal. We cannot provide additional financial details today as the two transactions have not closed. So, please allow me to briefly go through the progression of information we plan to provide so that you'll know exactly what to expect going forward.

On Thursday, May 10, we will conduct our annual Investor Day. We plan to focus on the Company's financial strength, growth in the plasma business, the strategic and creative rationale for these two transactions, our plans for bringing automation to the whole blood collection market, and plans for growth in the TEG business and emerging markets.

After closing the Hemerus and Pall transactions, likely in the second fiscal quarter, we will update the guidance we provided today to include the financial impacts of the two then-acquired businesses and their financing. At that time, we will have a conference call to discuss fiscal '13 in more detail and to provide some insight into how we expect these acquisitions to impact fiscal '14 and beyond.

With that, I'll turn the call back over to Brian.

Thanks, Chris. Our recent quality issues are substantially behind us and we have realized solid organic growth throughout fiscal '12. We grew 10% in the quarter with plasma, blood center, and hospital businesses all contributing growth. And we continue to generate growth in the areas that are strategically important to us -- TEG, emerging markets, and IMPACT accounts -- as our Blood Management Solutions are delivering positive value to our customers.

I said it earlier; these are exciting times at Haemonetics. Several years ago we unleash a bold vision of blood management borne out of our success in the commercial plasma industry. We began working with our blood center and hospital customers to implement blood management solutions focused on reducing costs and improving clinical outcomes.

We develop and launched new products like IMPACT Online and the Cell Saver Elite to help our customers better understand their blood usage and to consider more effective methods of salvaging a patient's own blood.

We made acquisitions like Haemoscope, that expanded our blood management capabilities by providing clinicians with a diagnostic test that helps them better understand the patient's clotting factors; and Global Med Technologies, that expanded our software suite, allowing us to connect blood centers and hospitals electronically. Over the past six years alone, we've made 11 acquisitions and launched 10 new products.

In the last half of fiscal '12 we were able to turn our attention back to opportunities for acquisitive growth. The acquisitions of Pall Corporation's transfusion medicine business and Hemerus Medical should serve to reinforce our commitment to better blood management for the transfusion medicine community and to improve collection techniques for the blood component collection industry in general.

The acquisition of the Pall business is strategic in that it allows us to have an immediate and meaningful presence in a $1.2 billion market where we plan to launch new and differentiated products beginning later this fiscal year -- products that enhance the whole blood collection process, bringing process improvements to our customers that will lower their whole blood collection costs and improve their donors' experience.

And the acquisition of Hemerus is creative in that it will allow us and to use a new medical advance not currently available today to penetrate this market faster and accelerate market adoption of our new automated whole blood collector. Our intent is to accelerate revenue growth through share gain, relying on the differentiation offered by the inclusion of the enhanced red cell storage solution, SOLX, so we will continue to invest in clinical trials to prove the value of a slower aging red cell.

By funding further scaling and certain functions, internal product development and whole blood collection automation, we hope to accelerate our own growth at levels consistent with our stated aspirational growth goals. This will allow us to generate incremental cash flow that we will invest to advance automation, develop new products, and fund incremental growth during the planning period.

Again, I want to thank all of our employees for their focus and commitment. They have worked tirelessly over this past year to resolve our quality issues, and raise a comprehensive and quality improvement plan, continue to drive blood management solutions for our customers, and expand our business through internal product development and strategic acquisitions. Their commitment is motivating and their confidence is inspiring.

I also want to welcome the new employees we expect to join us from Pall and Hemerus. They are extremely accomplished in their fields and we look forward to having them join our team. We believe more than ever in our blood management vision. Our customers are seeking it, and our employees are committed to delivering it.

With that, we're happy to take your questions.

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

Couple questions, one on the plasma business and then one on the acquisitions.

In terms of the plasma business, I missed the number that you gave us for the Japanese Red Cross move of some business into fourth quarter from first quarter. But I'm also interested in -- you've typically given us a breakdown of how the growth was driven -- volume, price, market share. Can you give us a bit of a feel for that for the plasma business?

Yes, the number for Japan was $1 million in the quarter for plasma; $2.5 million for platelets.

And we've not given the breakdown this year for the plasma business in terms of share price and volume because there really hasn't been any significant share changes. And our pricing has been pretty consistent throughout the year, taking advantage where there was opportunities for PPI and CPI, and of course, there weren't very many of those. So this has pretty much been organic growth.

And does the performance in the fourth quarter reflect the pricing on the recently-renewed contracts? Or is that still in front of you?

It's mostly in front of us, Steve.

Okay. And then in terms of the acquisition, the Pall filtration or blood collection business, in the Pall package was pretty darn profitable. I think they have talked about $60 million of operating profits. You've alluded to an EBITDA number that is generally consistent with that.

I think at first blush, if we look at the financing costs that you just mentioned, and I think struggle a little bit with how this isn't more materially accretive to your financial picture. You gave us some details and you've trained us that we should take you literally when you tell us something is either going to be not accretive or modestly accretive -- so I guess I'm looking for confirmation of that.

And the numbers that you gave us about integration costs and addition of inventory costs on the first turn of inventory, you said those are excluded from your comments about it being neutral. I just want to make sure I understand what you're telling us. Thanks.

A lot of questions there, but yes. I guess the over-arching question is -- I believe what we say -- we anticipate it will be around neutral in year one. So there's a few pieces in there, Steve. One, as I mentioned, this is a carve-out. We're going to have to build some infrastructure around it to accommodate it within our business infrastructure. And our total investment there will be around $10 million, and that is an ongoing investment of OpEx.

We are also taking this opportunity to make some investments in our business to accelerate our strategic goals, both in whole blood but also in other areas such as TEG and our emerging markets. And that is incorporated into that thought process that we've talked about.

And yes, we have -- we are anticipating just the act of physically integrating this business into our business to have around $20 million to $25 million of nonrecurring costs and an additional amount of inventory markup that will, following purchase accounting, which will hit our P&L likely in one quarter but maybe in two during fiscal '13, post the acquisition. Because we're going to get a certain amount of finished goods inventory and we don't know precisely what that amount is, because it's going to be the balance at the date of acquisition. And when we know that and go through the process of valuing it at a distributor margin-type model, we'll be able to tell you exactly what that will be in the quarter to four months following the acquisition closing.

Jim Sidoti, Sidoti and Company.

A busy morning. First a follow-up on the -- you mentioned in Japan, they pulled some sales in because they are redoing some of their programs. How will the restructuring they are doing their impact you going forward? Are they switching away from your product or are they switching more to manual collections? What is that about?

No, this has nothing to do with shifts in technologies. This had to do with a computer upgrade. And so, in advance of that, they were just being prudent and they moved a number of weeks of inventory out of April into March.

So we'll see the impact of this -- $1 million in plasma; $2.5 million in platelets -- we'll see this impact in fiscal '13. And it will be in the first quarter. So we'll see a lighter first quarter by about $3.5 million on the top line as a result of that. But that is built into the guidance we provided this morning.

All right. And then just another follow-up to where Steve was going. It sounds like if you take the incremental EBITDA that you should get from this deal, even if you add in another $10 million of operating costs, when you look out into fiscal 2014, it's hard to imagine how this can't be extremely accretive to your EPS. And I would imagine that 12% operating income guidance would be not valid for fiscal '14.

Yes, and Jim, that's why we said -- let us get through this transaction. It's a carve-out. At the highest level, we know those can be a bit complex. We're clearly being prudent in looking at what that's going to take to complete confirmatory due diligence over the next several months.

And that is why Chris laid out a plan for you to say, look, we're going to come back to you and tell you exactly what this means, not only for fiscal 2013 once we close these deals, but what is it going to mean for fiscal '14 as well. We know that you're looking ahead -- and you should, as are we -- but I want to make sure we don't get ahead of ourselves in that respect.

Larry Solow, CJS Securities.

Congratulations on this significant deal.

Thank you.

Thank you.

Just a quick question, just on Pall. How have they progressed over the last few years in terms of -- I think you mention they have about a 15% market share. Has that been pretty sticky over the last few years? Gone up? Down?

Yes, their business has been growing. And in fact, I think they disclosed around 5% growth in the reported six months for this year. And that is, essentially, obviously higher than the growth of the end market is share gain. They have some new products that they are driving, particularly in North America, that are helping their business to grow.

Okay. And then just a question on your Houston business, in terms of the two initiatives -- or excuse me, the two issues you had in 2012, it sounds like those are pretty much resolved with the OrthoPAT and HS Bowl. Do you expect any lingering -- at least negative impact in the early in '13 before it is fully resolved, or is that -- before it completely washes out?

Yes, we have to complete the recall. And that is why we say, substantially complete. And that has certain metrics that need to be met for the FDA.

But no, we have built into our guidance the expectation for any elements from the fiscal '12 quality issues. And those are primarily in the infrastructure to support this business as we go forward. That goes to the comments we've made about this is a stronger, better business as we go forward. And that's what we mean by that.

Scott Gleason, Stephens.

Thanks for taking my questions and congratulations on the deal here.

Thanks, Scott.

Thanks, Scott.

I guess, Chris, just to start off, when we look at the [$60 million] in EBITDA from this Pall Corporation segment, can you give us a sense for what the ongoing depreciation and amortization expense looks like?

Yes, obviously it is modeling based on preliminary valuations, but think about it around $25 million.

Okay, great. And then a second question, can you break down -- or I guess can you give us a little bit more color on what's going on in Japan with this inventory buildup in front of this planned system conversion?

Yes, it is nothing more than the Japanese Red Cross being prudent. And they've gone through a system conversion. So in advance of that system conversion, they wanted to ensure they had sufficient inventories on hand because they would not be able to make those inventory purchases electronically as they typically do.

They've gone through their system conversion. They have already begun repurchasing inventories at normal rates, as we've gotten into the later part of April.

Okay, thanks for taking my questions, guys.

You're welcome.

[James Prentiss-Cohn], Morgan Stanley.

Thanks for taking the question. First, I was hoping you could expand a little bit on your assumptions around the whole blood automation market opportunity, and specifically, how it relates to Pall's existing business.

I'm not sure if this is the right way to look at this, but if Pall is selling supplies for 8 million collections with their revenue base, that works out to about $25 per collection. What do you think the revenue opportunity for your whole blood solution would be? And would that be incremental to Pall's $25 per collection? Or would Pall's existing services be captured in that?

It's a detailed question and we will provide more guidance as we move forward. I think it may be inappropriate to talk too much about how our strategy and Pall's will result in transaction-specific value creation. But I did say that we anticipate this helping us to gain share, because what we're delivering through automation -- and obviously, automation encompasses the delivery of a consumable, but what we deliver through automation will add significant value to our customers in terms of their all-in cost of collecting blood. And we would anticipate extracting some of that value in our pricing.

And therefore, as I also said in my comments, we anticipate if we execute on this properly, that we'll actually expand the size of the market opportunity, which today is measured in terms of these single-use consumables.

Got it. And then second, is there anything else you can tell us on the SOLX technology? And specifically, how it relates to your existing whole blood automation portfolio?

Yes, every whole blood kit that is sold today -- and I think I'm making a true statement -- in the world has a red cell survival solution in it. There hasn't been much evolution of those survival solutions in 20 years. And so, the claims that have been submitted to the FDA and the data that accompanies those that relate to a very extensive clinical trial that the folks at Hemerus have done -- and it appears to be done very well based on our review of it, is that when you look at old red cells that are transfused, generally the body has the tendency to expel them very, very quickly, because they are deformed.

And what as SOLX -- one of the claims that SOLX has, which is probably the most differentiating, is that with old blood cells there is a much better 24-hour survival of those red cells. Which is to say, when you mark the red cells and put them into a human being and go looking for them, 24 hours later they are still there, which is not true of some of the conventional -- or not as true, let me say, of some of the conventional current solutions that are used in the market.

So we think it is an interesting play on red cell storage, which is a key concern for our customers.

Yes, and I would say this on top of this, James. There's more and more interest in the industry on the hospital side, about the age of red cells and the freshness of red cells. And then it is certainly a challenge for our blood center customers to address that without new technologies.

And that is what excites us about this, is that we feel we're putting ourselves in a position to not only establish a presence in the whole blood collection market ahead of what we think is a pretty neat, creative, innovative automation that we'll bring to that market, but we also bring a new technology that will be able to address the freshness of red cells at a time when our blood center customers are being asked more about that.

At this time we have no further questions. I'll now turn the call back over to Brian Concannon for closing remarks.

Thank you, Chris. I started this morning by saying I believe fiscal '12 will be viewed as a pivotal year in the history of Haemonetics. We strengthened the Company in many ways as we addressed some significant quality issues. Yet despite these challenges, we realized solid revenue growth of 8%.

We announced two important acquisitions that, when complete, will provide us immediate access into the $1.2 billion whole blood collection market. We have much left to do to close these acquisitions, and we recognize that you will have many questions. We'll be prepared to provide greater insight into the strategic value of these acquisitions during our investor conference on May 10, and will provide you greater insight into the economic value when we complete the transactions later in the second quarter.

Today, this is clear -- our customers are recognizing our value in blood management. We are seeing solid revenue growth as more customers turn to Haemonetics to help them reduce costs and improve clinical outcomes. And the acquisitions we announced yesterday will only strengthen our ability and build on our commitment to blood management at a time when our customers need us most. We've accomplished much, but there is still more work to do. We're ready for this challenge.

We hope you'll join us at our investor conference on May 10, where we'll share more details with you about how we're strengthening our position as the global leader in blood management solutions for our customers.

Thank you all for your time this morning.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.