Haemonetics Corp (HAE) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Haemonetics Corporation Q2 FY16 earnings release conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Gerry Gould, VP of Investor Relations. Sir, you may begin your conference.

Thank you, Chelsea. Good morning. Thank you for joining us for Haemonetics second-quarter FY16 conference call webcast. I'm joined today by Ron Gelbman, Interim CEO; Kent Davies, Chief Operating Officer; and Chris Lindop, CFO and Executive Vice President of Business Development.

Please note that our comments -- our remarks today will include forward-looking statements. Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form 8-K we filed today as well as in our recent 10-K and 10-Q filings.

On today's call, Ron will provide some summary comments, including observations from his first month with Haemonetics. Kent will note highlights from the quarter and reveal important trends in our commercial operations. Then Chris will cover second-quarter performance and our FY16 guidance in more detail. After a brief closing comment by Ron, we will take your questions.

Before I turn the call over to Ron, 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 have excluded certain costs from the adjusted financial results we will talk about today. In the second quarters and first halves of FY15 and FY16, we excluded pretax transformation and restructuring costs associated with our value creation and capture, or VCC initiatives, and related tax effects. Additionally, the earnings information discussed for all periods excludes deal-related amortization expense.

Further details of second quarter and first half FY16 excluded amounts, including comparisons with applicable periods of FY15, are provided in our Form 8-K and have been posted to our Investor Relations website. Our press release and website also include a complete P&L and balance sheet, and a summary statement of cash flows, as well as reconciliation of our GAAP and adjusted results.

With that, I will turn the call over to Ron.

Thanks, Gerry, and good morning to all of you. Before we give you more detailed information on the second quarter and the rest of the year, and after being in my new role for a month, I wanted to provide you with some of my observations about our Company.

My first priority was to talk to as many of our employees as possible. By walking around the Braintree campus quite often and talking with our employees -- using Skype with our sales force, conducting teleconferences with employees around the world and receiving emails from roughly 100 Management employees, answering the question as to why our sales haven't been growing faster -- I was able to quickly gain a deeper understanding of the business.

Second, I had the opportunity to speak with a number of our customers, and this process provided invaluable insight. There were many important and encouraging observations. We have a base of employees who perform at a high level and care deeply about our customers and the donors and patients those customers serve. We clearly have some executional issues that have held us back from performing as well as we should have. We will be addressing those issues immediately.

My views of any business are generally formed by listening to our people, listening to our customers and, objectively -- I hope -- reviewing products and franchises. We have two fast-growing franchises, Plasma and Hemostasis Management, which today is the TEG family of products. We have begun to use the franchise name Hemostasis Management, instead of just TEG, because we believe it helps frame a bigger picture and it points to our desire to define and participate in growing and profitable end markets. These two franchises have consistently grown by double-digit rates and their strong performance should continue.

Our Plasma franchise is well positioned to accelerate its recent growth trajectory. Strong Disposables growth is expected to continue as we and our customers keep pace with the robust and -- end market for plasma-derived biopharmaceuticals. Our customers are responding to our initiatives, focused on optimizing their collection productivity and yield.

We installed over 4,000 plasma collection devices over the past three fiscal years and over 1,300 devices in the first half of FY16. We recently launched NextGen plasma collection software and our smart collection device targeted for commercial introduction near the end of FY17 to deliver differentiated value to our customers in each plasma collection event. These advances lead us to expect continued plasma growth above end-market rates over our five-year strategic horizon.

We expect our TEG family of products -- TEG 5000, TEG 6s, and TEG Manager -- to deliver accelerated growth with existing and new customers on the strength of global market penetration. We have two additional franchises, apheresis and whole blood. The apheresis franchise is predominantly a platelet business which has been steady over time, is quite profitable, it's technology-based, and is a non-US business. New technology which is making its way through our R&D process appears to have the potential for a favorable impact on this franchise.

The whole blood market is challenged and recent opportunities to gain market share have been decided based on pricing. While the filter technology capabilities inherent in this business are valuable and important to our apheresis franchise, the whole blood business will require more analysis in order for us to determine the best strategies to unlock value. We certainly have other products that don't fit into these main franchises, yet they remain important to us.

In addition, the Company has spoken to you in the past about emerging markets, particularly China, as it continues to be very exciting and will continue to be a real focus for us in the years to come.

With that, I will turn this over to Kent Davies, our COO, to provide more details about our business performance.

Thank you, Ron. Good morning, everyone. This morning, we reported results for our second quarter of FY16 and we confirmed the full-year guidance that was issued on October 5. Revenue was $220 million in the second quarter, down 3% as reported and flat with the prior year in constant currency.

Our growth drivers of Plasma, TEG, and Emerging Markets accounted for 63% of Disposables revenue. In constant currency, these three business elements had combined growth of 8% in the second quarter. Disposables revenue in these growth drivers, excluding Russia, grew 9% in the second quarter. Drivers include North America Plasma, up 11%; TEG, up 25%; and Emerging Markets, excluding Russia, up 6%.

Plasma disposables revenue was $84 million, an increase of approximately $4 million, or 4% as reported, and 7% in constant currency. North America Plasma disposables grew 11%, while global plasma growth continued to be impacted by softness in the Russia market. For the first half of FY16, Plasma disposables revenue grew by 6% overall in constant currency and, notably, by 10% in North America.

In the second quarter, Blood Center disposables revenue declined $9 million, or 11%, to $74 million. Excluding the impact of currency, Blood Center disposables declined 7%. Platelet disposables revenue was $34 million in the second quarter, down $5 million, or 13% as reported, and down 7% in constant currency. The majority of the constant-currency decline was in Japan where a shift towards double-dose platelet collection has begun. At the beginning of the fiscal year, we executed a commercial agreement for higher share of the single-dose collection segment, which continues to represent the vast majority of the collection activity in Japan. Implementation of this agreement has been slower than anticipated.

Red cell disposables revenue was $9 million number, down $1 million, or 9% as reported, and down 8% in constant currency versus last year's second quarter. Sequentially, this follows a flat FY15 and a 5% constant-currency increase in the first quarter.

In the US market, the tender process for the supply of double red cell apheresis collection devices and disposables to several blood thinner customers is now complete. The results include a new long-term contract with the American Red Cross to achieve 100% of their double red cell business. This contract includes increased volume, but at a lower price. Pricing concessions granted in advance of volume gains anticipated in that contract contributed to the second quarter's decline in red cell disposables revenue. Also, two US blood center GPOs have recommended competitive devices in disposables to their members, so we now anticipate volume reductions in this portion of the market.

Whole blood revenue was $30 million in the second quarter, declining $3 million, or 10%, and down 7% in constant currency. Whole blood revenue was $21 million in North America, $5 million in Europe and European distribution markets, and $4 million in the Asia-Pacific and Japan markets. North America whole blood revenue declined by $2 million, or 9%, in the second quarter of FY16 and 16% year to date following Q1's final quarter of year-over-year volume loss associated with the previously announced American Red Cross whole blood agreement. Declines in the US red cell transfusion rate were approximately 10% in each fiscal year of 2014 and 2015 and 8% in the first half of FY16. Sales of whole blood products to US blood centers now represents 6% of our consolidated revenue.

Hospital revenue was $31 million, essentially flat with the prior-year second quarter. Excluding the impact of currency, hospital revenue grew 5% in the second quarter following 3% growth in the first quarter and 1% in FY15. Continued strong TEG momentum offset declines in orthopedic cell salvage.

We had record TEG disposables revenue of $12.5 million in the second quarter, up 24% as reported and up 25% in constant currency. We continued to see strong growth from TEG 5000 devices and disposables, even as we prepare for the TEG 6s full-market release. Globally, customers continue to recognize the value of this innovative hemostasis management technology.

The limited market release of TEG success and our new TEG Manager software is ongoing following the previously announced regulatory approvals. Over the past three fiscal years, we sold nearly 1,900 TEG devices and over 350 in the first half of FY16. Surgical disposables revenue was $15 million in the second quarter, down 6% as reported and flat in constant currency, consistent with the market.

First half FY16 surgical disposables revenue was flat with the prior-year period in constant currency. A major cell salvage platform enhancement is scheduled for initial release late in FY16, bringing new clinical benefits and significantly enhanced data connectivity to our hospital cell salvage customers.

Software Solutions revenue was $18 million in the second quarter, down 2% as reported and flat in constant currency. Customer interest in our new BloodTrack HaemoBank system remains encouraging and we now have launched it in multiple global markets. We have also recently introduced a smaller, 20-unit HaemoBank device to complement the initial 80-unit device. And we continue to update our BloodTrack software and related peripherals.

Equipment revenue was $13 million in the quarter and $24 million in the first half. Our installed base of equipment, which is the combination of purchased and placed devices, increased 7% over the last 12 months. The installed bases of Plasma and TEG, two of our growth drivers, had increases of 10% and 13%, respectively, over this same trailing 12 months.

Before I turn the call over to Chris, I'd like to address those revenue items that were noted in the October 5 revision to our FY16 guidance. We had $8 million of revenue in Russia in the first half of FY16, down $6 million, or 45%, from a year ago. Our largest distributor has rebalanced its inventory and is better positioned to match supply with recovering market demand. As we closed Q1, we saw signs of an improving Russian economy, specifically strengthening oil and ruble valuations. However, those macro trends have not continued. And with the ongoing economic and political uncertainty in the region, we revised our forecast downward by about $5 million.

As I mentioned earlier, we are seeing a shift in the Japan platelet market toward double-dose collection techniques. While this accounts for only about 10% of today's collections in Japan, it is a trend we're monitoring closely as it means reduction in the market utilizing the traditional single-dose technology where we enjoy a majority market share. To address these market dynamics, we entered into a contract that provides meaningful market share gains for Haemonetics in the traditional single-dose collection modality in Japan. The pace of implementation of that contract has been slower than anticipated, although our forecast anticipates some acceleration in utilization through the second half of this year.

For the full FY16, we now expect our Japan revenue to be flat with the prior year in constant currency, incorporating an $8 million reduction in revenue in our October 5 guidance. Finally, our plan for FY16 contemplated significant revenue gains from the new BloodTrack HaemoBank product which have not yet been achieved. We believe that this growth and market adoption will come, and we continue to receive great feedback and encouragement from target customers who comprise our developing pipeline.

Recently, we introduced a smaller 20-unit storage device and showcased it at the industry's largest annual meeting. We remain encouraged by our customers' enthusiasm about this product line. We anticipate that BloodTrack HaemoBank, along with SafeTrace Tx, our transfusion services software for hospital customers, will generate meaningful increases in our software revenue in the second half of FY16, delivering 5% to 7% constant currency software growth in the full year.

Notwithstanding the recent reset of expectations for the back half of FY16, our October 5 revised FY16 guidance calls for 4% constant-currency growth in both revenue and operating earnings.

In summary, while we have recently revised our outlook for FY16 -- and we continue to work to improve the performance of our global blood collections business in the face of difficult market conditions -- our Plasma, TEG Hemostasis Management, and our China businesses continue to grow at rapid rates. Our surgical business is stable and our software business is expanding. We will manage our focus and investments accordingly in order to deliver the best possible outcomes for our efforts.

With that, I'll turn the call over to Chris Lindop. Chris?

Thanks, Kent. As previously stated, in the second quarter, total revenue was $220 million, a decrease of 3% as reported and flat on a constant-currency basis. Currency is expected to impact revenue by about 300 basis points in FY16.

Strong growth in US Plasma and TEG Hemostasis Management disposables revenue was offset by a decline in Blood Center revenue, specifically in whole blood in US blood centers and platelets in Japan and Russia. Adjusted gross profit was $106 million, down 4%, or $5 million year on year, of which $4 million was attributable to currency. Second-quarter adjusted gross margin was 48.5%, down 30 basis points.

On a constant-currency basis, gross margin declined 60 basis points compared with the second quarter of FY15. Benefits from our growth drivers and VCC initiatives were offset by lower pricing in the Blood Center business and unfavorable product mix. Adjusted operating expenses were $73 million as reported, down $3 million, or 3%, as compared with the prior-year second quarter, but up $500,000, or 1%, in constant currency.

Planned benefits from organizational and corporate cost reductions permitted ongoing investments in the business. Notably, R&D spending increased $2 million, to over 5% of revenue, up nearly a full percentage point from the prior-year quarter. Adjusted operating income was $33 million in the second quarter, down $2 million, including $1 million attributed to currency. As the pressure upon gross profit outpaced the benefits from our growth drivers, VCC and other cost savings initiatives, adjusted operating margin was 15% in the quarter, down 30 basis points.

Adjusted interest expense associated with our loans was $2 million in the second quarter. Our tax rate was 26.5%, compared with 25.7% in the second quarter a year ago. The currency had diminished our non-US earnings, putting pressure on our effective tax rate in the second quarter. Adjusted earnings per share were $0.44, down $0.03, or 6%.

We ended the first half with $100 million of cash on hand, down $60 million from our FY15 year end. We used $24 million of cash net of tax benefits for VCC and other restructuring, and $61 million for the repurchase of shares in the open market.

At the outset of FY15, our Board of Directors authorized the repurchase of up to $100 million of Haemonetics shares. We repurchased 1.2 million shares in FY15 and an additional 1.5 million shares in the first half of FY16. In total, we spent $100 million to acquire 2.7 million shares at an average price of $37.57 per share.

Turning to the full year, we affirmed the FY16 revenue guidance we provided on October 5. Revenue is expected in the range of $910 million to $920 million, which represents growth of 0% to 1% as reported, including the benefit from a 53rd week. With about 300 basis points of headwind attributable to currency trends, revenue growth of about 4% is expected on a constant-currency basis.

The revisions to our FY16 outlook Kent discussed -- platelets in Japan, platelets and plasma in Russia, software and currency -- were the significant drivers of the revenue guidance revision issued a month ago. The resulting elements of revenue guidance are as follows. Revised expectation for Plasma disposables growth of 11% to 13% in constant currency reflects a reduction of 1 to 2 percentage points due largely to weakness in Russia.

Our planned solutions manufacturing expansion is progressing and should enable us to meet our targeted annual run rate of saline and sodium citrate shipments to our plasma customers by the end of FY16. Blood Center disposables are now expected to decline 5% to 7% in constant currency, 5 percentage points more than previous guidance, due principally to the platelet market shift and the late share gains in Japan. Hospital disposables are now expected to grow 4% to 6% in constant currency, a reduction of 5 percentage points from our prior guidance, principally in recognition of weaker revenue in cell salvage than originally anticipated.

Currency Software Solutions growth expectations of 5% to 7% in constant currency reflects the reduction of 8 percentage points in recognition of the revised timeline for market penetration of new software products. Our full-year guidance for adjusted gross margin is approximately 47%, considering the lower revenue guidance, unfavorable mix, and currency offsetting benefits of VCC and other structural cost improvements. Adjusted operating margin is now expected to approximate 14%.

Our recent adjusted earnings guidance range of $1.65 to $1.75 per share is affirmed. An anticipated currency headwind to our earnings growth rate of about 900 basis points reflects the rates at which we have hedged our FY16 foreign earnings. In constant currency, we expect FY16 earnings growth of approximately 4%. As in the past, our website includes revenue and income statement scenarios which are based on the elements of the FY16 guidance provided.

With recently lowered revenue and earnings forecasts, we now expect FY16 adjusted free cash flow of $70 million to $75 million before funding $27 million related to our VCC initiatives versus previous guidance of $105 million to $110 million of adjusted free cash flow. We realized $6 million of incremental VCC savings in the first half and we remain on track to realize the incremental VCC savings needed to bring us to our target of $65 million in annual savings by the end of FY18.

Regarding FY17, we expect to provide guidance in our fourth-quarter earnings release in April. There are, however, a few items you should consider as you prepare your own FY17 estimates. First, currency will have a negative impact on operating earnings in FY17 of approximately $10 million. Second, FY17 will have the absence of the 53rd week that will benefit FY16. Third, in our red cell apharesis business in the US, price reductions to the American Red Cross and other share losses will have a negative impact on operating earnings of about $10 million. Fourth, we expect double-digit revenue growth in our Plasma business enabled by continuing strong US market growth and a full $25 million of saline and citrate revenue under a previously disclosed agreement. And last, we expect to see another year with growth approximating 25% in the TEG franchise.

While we have recently had to make meaningful revisions to our FY16 outlook, over 60% of our business continues to grow rapidly. We anticipate that this trend will accelerate, driven by differentiated innovation in the key markets which we serve. We have a strong balance sheet and free cash flow, which gives us confidence in our ability to deliver on the important opportunities for value creation that remain ahead of us.

With that, I will turn the call back over to Ron.

Thanks, Chris. I just want to reiterate that my many discussions with our employees give me real optimism about turning our potential into better performance. Our employees are dedicated to the needs of our customers and to the donors and patients we serve.

With that, we are happy to take your questions.

(Operator Instructions)

Larry Solow, CJS Securities.

Ron, just a quick 50,000-foot overview. You actually went through a good amount of what you have seen so far. You mentioned some obvious lack of efficiencies and whatnot or it seemed to me that there seems to be, in your mind, some obvious levers that could be pulled. Is that a good way of how to read that? Any color on that would be great. Thanks.

I tried to divide them into maybe two buckets to start with. One are just some executional issues that we need to immediately go after. I can give you more color on what some of those issues are.

The second is strategic. I was going to end the call with this but, Larry, let me go ahead with it now. The strategic parts, we do have those two fast-growing franchises that we talked about. My question is can they grow faster? We're not just going to leave those alone, we are going to take a look at those and challenge our teams that you've got some fast-growing franchises. What more can we do with those customers to even grow faster?

The other two franchises, apharesis and whole blood, as I mentioned in my opening remarks, we've got some interesting technology in apharesis. We need to ask ourselves what that means and what the forecasts are for those technologies, how much cash we're going to have to spend to bring them to the market. In whole blood, we do believe there is value there, but we're going to have to closely look at whole blood and try to understand how we should deal with that franchise in the future to unlock some value. I don't know if that did a very good job of it for you or not?

No, that's fine. Just second question, on the growth drivers, the outlook even as you look out into FY17, it sounds like plasma and TEG growth is sustainable and, obviously, a good thing. What about an early look at what your expectations are for software?

Obviously, those were back down a little bit and I think also emerging markets. Russia, obviously, remains a disappointment. And does that crimp on the -- will you be challenged to get TEG to the double-digit range in emerging markets next year as well based on where we stand today?

With software there are -- as you know, there are two parts to it. One is connectivity. I have been extremely impressed with our software group and what they have achieved in connectivity. It appears to be world-class and our customers are really happy with what we are doing in that area.

The other area of software is just software that we sell to our customers. I don't have a good grasp on that, but that is another area that we are going to do a deep dive and try to understand that portion of software. I have spent quite a bit of time back with the R&D engineers and the software folks, and I'm really impressed -- not to diminish the engineers where I am also impressed, but I'm really impressed with our software group.

As far as emerging markets, Chris or Kent, did you want to take a look at that one?

Emerging markets -- this is Kent -- emerging markets continues to be a critical part of our business. We're really excited about what is going on in China right now. China is performing well. We think for the full-year we will grow at a double-digit rate. We have got a great team on the ground there, great leadership. I think we're doing a super job penetrating that market and we are using a relatively large part of our portfolio.

Obviously, over the last couple of years, Russia has had a big impact on our total emerging markets' performance and we don't see that coming back immediately. That will color the total. We are a very global business. We're probably somewhat more global than a number of our direct competitors. We are out there in every market around the world developing those markets and we expect to get good results from all of that effort.

Great. Thank you.

Anthony Petrone, Jefferies.

Maybe, Ron, a little bit on your comments on whole blood a little bit more. Are you suggesting potentially that business may no longer be a fit for the Company going forward? And maybe a follow-up to that would be for Kent and/or Chris. You gave a little bit of a look into 2017 and some color on how that trended this quarter in terms of transfusion trends, 10% decline in this quarter or rather two years ago it reduced to 8%.

That still seems to be a little bit ahead of where the initial expectation for transfusion declines will be this year. What are your thoughts as you look into 2017 as to where the transfusion headwinds will sort of trend over the next several quarters? And one follow-up on margins. Thanks.

Hi, Anthony. On the subject of whole blood, I'm not really smart enough to really comment on that yet. We are going to take our time to take an in-depth view of where we think we can go with that business and as soon as we have a clear view, we are going to communicate it.

As for the rate of decline, Anthony, we just came back from the big annual meeting in this industry, the AABB out in Anaheim and just in talking with our customers out there, I think their heads are about where ours are. They're continuing to see rates of decline in that mid to high single-digit rate. They are talking about 7% to 8% rates of decline.

I don't know that any of us really believe that we've got a wonderful crystal ball and can look forward into the future with a whole lot of certainty, but what we believe is that we are performing about with the market, experiencing what the market is experiencing and that all of the players in that market who really care about that rate of performance are seeing it in a fairly consistent way.

Great. To follow up on margins, and really specifically to the Japanese platelet contract, is that margin accretive, just thinking in Japan pricing over there tends to be at a premium. I'm just wondering how that will impact margins over time?

Yes. It is margin accretive. The Japanese business tends to be profitable business, above average.

Thanks again.

James Francescone, Morgan Stanley.

I wanted to touch on the updated guidance relative to the guidance that you gave in July or August. Relative to that outlook, you have lost about $35 million or $40 million in revenue, $0.30 to $0.35 in earnings. If we do the math on that, the incremental margin is pretty close to 60%, which is obviously higher than the corporate gross margin, so maybe a little bit surprising.

To what extent -- what is driving that very high incremental drop-through or to what extent is that a conservative outlook on where earnings could be over the balance of the year? I guess especially considering that you actually did much better in the quarter relative to what you preannounced?

Let me take that and Kent or Ron can add color. I would say that the areas of headwind that we were facing in our Russian distribution markets in platelets and in software tend to be higher than average gross margins for the business and therefore they present more adversity. Of course, in resetting the guidance, we tried to make sure that we had considered every eventuality in our outlook for the rest of the year.

Okay. More specifically, on gross margins for the back half of the year, it seems like you're suggesting in your updated outlook that gross margins are going to go down to about 46% in the second half from 48% to 49% in the first half. What is driving such a large sequential decline?

Well, there's a couple of pressure points. I would say, one, we're getting some of our growth from Solutions, which tend to have a reasonable operating margin but not an attractive gross margin. Secondly, as we alluded to, there is a price that we are giving up in advance of share gains in North American red cell business.

Great. Thank you.

David Roman, Goldman Sachs.

This is actually Kyle filling in for David. Good morning and thank you for taking the question. On the platelets business in Japan, you mentioned in the release that you are seeing weakness from an increase in double dose collection techniques. Could you speak more broadly with regard to collection techniques and apheresis yields in your other platelet markets in general? Is double dose collection the norm in the majority of your end markets or is it transition to these alternative collection techniques still underway?

Yes. Double dose collection is certainly a well-established modality in many markets around the world. But it has a different level of penetration in each major market around the world. A little bit higher in North America. Significantly lower in Japan and with more balance in Europe and Asia-Pacific regions.

We have different share positions in each of those markets. This is not a new phenomenon against which we compete, it is just beginning to pop up a bit now in the Japan market.

Thank you. That is helpful. As you think about the CEO search, could you discuss the types of characteristics you have in mind when evaluating candidates? Namely, are you looking for someone with a track record in strategic activity or someone with more restructuring experience? Also any information on timing with regard to when we might hear an update would be great.

My inclination, Kyle, is to say yes. There are a number of characteristics that we have talked about, two of them that you mentioned, you'd like to have a person, of course, who has the ability to think strategically and who is able to execute what needs to be done in order to get products to the market and grow the business. Those are two of the characteristics that we are thinking about.

Another important characteristic is the ability to unite our people towards common goals. [We're] continue to work on our culture that we have here at Haemonetics so people feel as though they can contribute to those goals. Those are just a few of the traits that we have talked about.

As far as timing, I'm going to talk about that at the end so, Kyle, if you wouldn't mind, I'm going to hold that off until the end. Then if I don't do a good job of answering it, you should come back on.

Okay. Will do. Thanks very much.

Brian Weinstein, William Blair.

This is Matt Larew. Can you hear me okay?

Yes.

Just quickly, on the red cell business here, it looks like you won the sole-source contract from ARC. Just wanted to get an update coming out of AABB where you spoke with a lot of customers where folks are at in terms of moving additional business to sole-source outside of obviously the whole blood and red cell. And just other opportunities there might be to gain share through sole-source contracts.

Yes, it's a mixed bag. This is Kent. It's a mixed bag, as you might imagine. In the course of what has transpired here in North America around double red cells, we won a sole-source agreement; we lost a sole-source agreement; and then we kept some share in an agreement that is going to be more balanced in its ultimate distribution.

I think our customers continue to look at what their needs are. Are they most focused on price? Are they most focused on technology? Do they value a bundled offering from a single competitor or are they trying to select from the market the best from each competitor? We see all of that all over the world.

I wouldn't say that there was a specific trend here one way or the other, but one thing we can guarantee you is that when the business comes up we are in there competing and doing everything we can to feature the benefits and the value that Haemonetics brings to the table.

I have one for Chris. Chris, the step-down on sales and marketing. If you could just give a sense for what component that was currency related and what was actual reductions on that side? I'm trying to get a sense of where you looking to more rationalize costs versus continued investment.

In your references, is simply in the quarter?

Correct, Chris.

And OpEx. As we said, we actually stepped up total OpEx in the quarter on a constant-currency basis and invested incrementally within that total about $2 million incremental to our R&D spending, taking that up to about 5% of revenue, I'd say a little bit over 5% of revenue. So the step-down in reported currency and OpEx that you're seeing is about $3 million of currency effect. Does that answer your question?

Yes. It does. Thanks, Chris.

(Operator Instructions)

Jim Sidoti, Sidoti & Company.

A couple of questions on whole blood. When you completed the acquisitions, one of the drivers for that business you thought would be [Solex], but we haven't heard a lot about that recently. Is that still a viable product for you?

We are looking at -- we are waiting, I should say, for the final comments from the FDA on that product. It will not be viable until approved and it has not yet been approved.

Okay. Has anything changed with regards to your strategy? Do you still think that isn't something that will likely be approved and do you still think it will help you grow the whole blood business?

A lot of the whole blood business in North America where it was targeted to be -- to have most relevance has been tied up in long-term contracts. So what we're talking about is opportunities towards the end of our strategic planning period, if any.

As we said before, the protocol that is going through an approval process involves the application of a whole blood filter as part of a whole blood collection. There's another modality which involves a red cell filter and that would involve further development in order to bring that to market. Obviously, we have seen a major shift in market pricing in the whole blood sector in North America, which calls into question a lot of assumptions about volume.

Finally, do you still expect that market to level off at some point in the next year or so or do you think the declines to whole blood collections could continue for the next several years?

As Kent commented, we are sort at the high end of what we thought might happen this year. We had earmarked 5% to 8%. We appear to be at the 8% level, unfortunately, we're learning as we go based on experience in the market.

Logically, based on the world trends, you would say there is a base here. There is a point to which the transfusions will be necessary and we are going to get to that point, but predicting exactly when we get to it, Jim, is something that seems to be a high risk activity at the moment.

Thank you.

I am not showing any further questions at this time. I would now like to hand the call back to Mr. Gelbman for closing remarks.

Thanks, Chelsea. Kyle, I wanted to come back to your question. The word interim always brings up different things in different people's minds. I want to assure everybody on the call that if you spoke to the Management team and to our employees -- and around the world, actually, not just Braintree, they would tell you that interim, in this case, means we are taking a very deep look at everything we do, whether it is executional or is strategic.

I live in Boston. I don't go back and forth to Florida. I am here seven days a week. We are all engaged in doing the kinds of things that you would expect and want us to be doing. We are focusing on growth. The 100 emails that I talked about was this question I asked all of our Management employees, which was why aren't our sales growing faster?

My focus is getting the top line growing. It is not a sole focus, but it is a major focus. I really do believe, I don't think I'm delusional, that we are making some progress. That there is positive momentum, there is a vitality in the Company and we just need to focus in on growing the business, whether it is a franchise that is already growing, why can't it grow faster? And franchises that are not growing, what can we do to make them grow faster and/or unlock the value that is in these franchises.

As far as timing, what I have said from day one is I think I will be here four to eight months. During that time, I'm not just keeping the seat warm. My hope of when the day I leave is that we have paved a runway and that runway will allow us to take off and perform better than we have performed in quite some time.

Kyle, if that is not a good enough answer, you can follow up with me sometime and I will try to do better. Thanks. That is the end of my remarks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.