Haemonetics Corporation (HAE) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Gerry Gould. Please go ahead, sir.

Thank you. Good morning. Thank you for joining Haemonetics Fiscal '13 First Quarter Conference Call and Webcast. 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. 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 first quarter and provide an update on the Pall transaction. Chris will review our operating performance for the quarter, annual guidance for fiscal '13, preliminary outlook for fiscal '14 and the impact of the acquisition and deal financing in more detail. Then Brian will close with summary comments. Before I turn the call over to Brian, I would like to mention that 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 from the adjusted financial results we'll talk about today. These include costs of completing the acquisition of the Pall Transfusion Medicine business and conducting significant integration activities. In total, we have excluded $6.4 million of net cost primarily for the transaction and integration from our fiscal '13 first quarter adjusted results. Further details, including comparison with fiscal '12 amounts excluded, were 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, as well as reconciliation of our GAAP and adjusted results. With that, I will turn the call over to Brian.

Thank you, Gerry, and good morning, everyone. We're very pleased to report that we finalized the acquisition of the Pall Transfusion Medicine business yesterday. This is an important strategic step for Haemonetics as we enter the whole blood market in advance of the phase launch of our automated whole blood product beginning later this fiscal year. The enthusiastic response from the 1,300 employees who have now joined our company has been very motivational, and the response from our customers has only served to confirm the importance of blood management for their future. This marks an important strategic advance for your company. Shifting to first quarter results, we started fiscal '13 with a solid performance that positions us well to achieve our full year operating and financial objectives. Let me remind you about 2 anticipated items which affected the first quarter's financial performance. You will recall that we benefited in the fourth quarter of fiscal '12 from an increase in platelet and plasma disposables revenue in Japan in advance of a system conversion by the Japanese Red Cross. In Q4 fiscal '12, the JRC purchased almost $4 million of our product that would have normally been purchased in Q1 fiscal '13. This represents a $0.09 per share headwind in the first quarter, which will not occur in subsequent quarters. Adjusting for the impact of that advance purchase, first quarter revenue growth would have been 6% and broad based across virtually all reported categories versus the 3% reported. This is why we remain confident in our ability to achieve our guidance of 4% to 6% organic revenue growth this fiscal year. We also said that we would be using some of the anticipated accretion from the Pall Transfusion Medicine acquisition to invest in infrastructure and identified growth initiatives. And as you would expect, this spending has begun in the first quarter. This accounted for approximately $2.1 million or $0.06 per share of incremental operating expenses, which we expect in subsequent quarters to be more than offset by the profitability of the combined businesses. Our Q1 fiscal '13 adjusted earnings per share finished at $0.55. Historically, Haemonetics generates about 1/5 of our full year adjusted earnings per share in the first quarter. Absent the impact of the 2 items I've just described, our core adjusted earnings per share in the quarter would be approximately $0.70. So we're about where we expected to be and feel very confident about the fundamentals of our business and the momentum being built. Accordingly, we are affirming our original earnings per share guidance of $3.30 to $3.40. Let me move on and provide you with some highlights from the quarter. We continue to see strong growth in emerging markets, up 16% in the quarter to $30 million in revenue. IMPACT selling is starting to contribute more meaningfully to growth as our hospital business was up 11% in the first quarter versus down 1% for the full year of fiscal '12. We closed 8 new IMPACT accounts in the quarter, bringing our total number of IMPACT accounts to 266. Another sign that IMPACT selling is working is the average size of these 266 IMPACT accounts versus non-IMPACT accounts. In Q1 fiscal '13, a blood center IMPACT account averaged $537,000 in sales versus a non-IMPACT account, which averaged $82,000 in sales. And in hospitals, the average IMPACT account at roughly $100,000 in sales, was more than 3x larger than a non-IMPACT account. We also delivered another strong quarter of equipment sales as overall equipment and other revenue was up 20%. Surgical equipment sales increased over 200% as we placed 445 new Cell Saver devices, 317 more than in last year's first quarter, including 229 of our new Cell Saver Elite devices. These leading indicators of midterm future disposables revenue give us confidence that blood management is gaining traction and we're able to affirm our previous guidance of 12% to 15% revenue growth in our hospital business in fiscal '13. Finally, and as I said earlier, we successfully completed the acquisition of Pall Corporation's Transfusion Medicine business and we did so with some very attractive financing that Chris will detail. This transaction brings us an immediate and meaningful commercial presence in the whole blood collection market, with annual revenue in excess of $200 million and a global market share of approximately 15%. Our legacy double red cell and platelet collection business and our new whole blood collection business serve common blood center customers and together, they now bring those customers leading technology and a broader portfolio of blood products. This means our customers can purchase all of their blood collection products from one supplier focused on reducing cost, improving the collection experience and committed to bringing blood management solutions to the hospital customers we serve. With such a strong and established business based in the whole blood collection marketplace, we believe the Pall business will allow us to leverage our future automation efforts with a greater likelihood of market adoption. We were well prepared upon yesterday's closing, having formulated cross-functional integration teams, whose members clearly understand their roles in executing plans for realization of the operational and financial benefits. We started funding the required infrastructure build in the first quarter and all functions will begin executing our integration plans immediately. We also took the opportunity to accelerate funding of identified growth initiatives in the first quarter, such as our emerging market presence, our next-generation TEG device and clinical trials to support new claims for our blood management products. This is opportunistic and we expect to drive incremental growth in fiscal '14, but importantly, accelerate growth back to high single-digit growth within the next 3 years. So let me now turn the call over to Chris Lindop, who will review the financial highlights of the first quarter and the financial aspects of the acquisitions in more detail. Chris?

Thank you, Brian. First, I'll review the revenue growth that was realized in the first quarter then highlights of our quarterly financial results, our revenue, earnings and cash flow guidance for fiscal '13 and finally, our preliminary outlook for fiscal '14. I'll also discuss financial implications of the Pall transaction. In the first quarter of fiscal '13, setting aside the impact of the fiscal '12 fourth quarter JRC buy-in, every product category, except software, had growth. Plasma revenue grew 2% to $64 million for the quarter. The Japanese Red Cross had accelerated more than $1 million of April plasma purchasing into March in anticipation of a planned system conversion. Aside from the impact of this action, plasma growth was 4% in the quarter and in line with our continued belief that plasma growth will return to a more normal mid-single digit growth rate in fiscal '13, consistent with the long term and market growth rates of the industry. We are affirming our previous guidance of 4% to 6% plasma growth in fiscal '13 and we're very well positioned, with customer contracts covering over 98% of our plasma business through Q3 of fiscal '15. Blood center revenue was flat with the prior year quarter at $49 million, but up 6% after setting aside the effect of the JRC revenue shift in the prior quarter. On that basis, platelet growth was 7% and red cells grew 2% in the flat market as we are succeeding in demonstrating value to those customers utilizing IMPACT. Therefore, we are affirming our guidance of 0% to 2% blood center growth for fiscal '13. In our hospital business, revenue increased 11% to $32 million in the quarter. Aside from OrthoPAT, our hospital revenue was actually up 16% in the quarter. Following the Cell Saver Elite launch, we have 4 consecutive quarters of growth in our surgical business, and we had continued very strong growth in diagnostics. OrthoPAT disposables revenue was $8 million in the quarter, down 3%, but the team is back to selling this important blood management product. We were quite encouraged by a good finish to the quarter with 5% growth in June and a great start to the second quarter with even higher growth rate in July. We're on track for the launch of OrthoPAT Advance, our next-generation OrthoPAT device in early fiscal '14, so we remain very confident that OrthoPAT will return to growth in fiscal '13. Surgical disposables revenue was $18 million in the quarter, an increase of $2.5 million or 16% year-over-year. Our installed base of surgical cell salvage devices increased by nearly 800 in fiscal '12 and by over 400 in the first quarter of fiscal '13, a leading indicator of future disposables revenue growth. In Diagnostics, TEG disposables revenue was $6 million, growing 16% in the first quarter on strength of 70% increase in China where use of the TEG analyzer is growing fast in connection with interventional cardiology. Recall that we installed 230 TEG devices in the second half of fiscal '12 and a record 172 devices in the first quarter of fiscal '13, so we fully expect the strong TEG disposables growth to continue. We are affirming our 12% to 15% fiscal '13 revenue growth guidance for our hospital business. Software solutions revenue was $17 million, down 5% compared with the first quarter of fiscal '12, which benefited from $1.7 million of unique revenue associated with the completion of a customer software contract. We're affirming our 5% to 7% fiscal '13 revenue growth guidance for our software solutions business. Equipment revenue was $14 million in the quarter, up 20% on strength in our hospital business, led by TEG analyzers and surgical products in North America and emerging markets. First quarter fiscal '13 gross profit was $90 million, up $1 million or 2%. Gross margin was 51.1%, down 90 basis points from a gross margin of 52% in the first quarter of fiscal '12, but up sequentially by 30 basis points from the fourth quarter of fiscal '12. So we're making good progress towards achieving our objective of long term gross margin expansion after the drop in margins that we experienced in fiscal '12. Operating expenses were $71 million in the quarter, up $6 million or 9%. Operating expenses included a full accrual of variable compensation, $2.4 million higher than last year and $1.5 million of normal operating expense expansion attributable to the revenue growth, along with $2.1 million of planned investments in global growth initiatives, emerging markets and infrastructure to support anticipated organic and acquisitive revenue growth. Operating income was $19.5 million in the quarter, down $4.7 million. Operating margin was 11.1%, down 310 basis points quarter-over-quarter and reflects both the gross margin pressures and the operating expenses I've just referred to. As Brian mentioned, we are investing ahead of the anticipated Pall Transfusion Medicine profits that will offset this increased investment and infrastructure spend going forward. Our tax rate was 27.8% in the quarter compared with 28.9% in the first quarter of fiscal '12. Our first quarter tax rate was favorably impacted by the geographic distribution of income. Adjusted earnings per share in the quarter were $0.55 versus $0.65 in fiscal '12. Understanding the seasonality of the first quarter earnings and the return of JRC platelet and plasma revenue to normal levels, along with the inclusion of Pall Transfusion Medicine revenue and profit, our expectations for the full year are consistent with our previous guidance. In the first fiscal quarter of fiscal '13, we generated $3 million of free cash flow after making net investments of $8 million in capital expenditures and before funding the cash restructuring and transformation and deal costs of $11 million. The $3 million free cash flow reflects investments in our installed base, growth initiatives and infrastructure, as well as payment of variable compensation. We ended the first quarter with $236 million of cash on hand and we expect strong cash generation for the remainder of the year. In summary, we delivered continued broad-based revenue growth in Q1, invested appropriately in the growth drivers of our business and will more than offset the impact of the first quarter items we've previously described. So with that, we are affirming full year fiscal '13 revenue and EPS guidance. As Brian mentioned, we are very pleased to have completed the Pall Transfusion Medicine acquisition yesterday. The Pall acquisition, brings us into the whole blood collection market, adding approximately $210 million of annual revenue. Roughly 2/3 of this revenue is generated from the sale of nearly 8 million whole blood collection sets. The remaining 1/3 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 this transaction enabled us to complete it in a tax-efficient manner. The purchase price approximated $550 million, of which we paid all but $50 million at closing yesterday. This is approximately 2.5x fiscal '11 revenue and 8x fiscal '11 EBITDA. The remaining $50 million will be paid upon Pall's delivery of certain manufacturing assets of the filter media business to us by 2016. Until then, Pall will deliver certain filter media under a supplied agreement. The Pall Transfusion Medicine acquisition is a carve-out from Pall Corporation. And as such, it will require incremental annual infrastructure cost of which we continue to estimate at approximately $10 million. In addition, consistent with our full commitment to the whole blood market entry and its subsequent automation, we have begun to implement planned increases in our fiscal '13 investments in R&D, clinical trials for the next-generation TEG device and clinical trials associated with our automated whole blood collector. We are pleased to be able to fund these important growth initiatives and have no earnings dilution in fiscal '13. So let me provide you with a summary of guidance for fiscal '13. As in the past, our website includes revenue and income statement scenarios, which are based on the elements of the guidance provided in my comments for the full year. These scenarios have been updated to reflect the Pall Transfusion Medicine acquisition. We continue to believe fiscal '13 will be a year in which organic revenue growth will be 4% to 6%, in line with the mid single-digit growth we discussed last quarter. Plasma is still expected to grow 4% to 6%; blood center, 0% to 2%; hospital products, 12% to 15%; and software solutions, 5% to 7%. Pall Transfusion Medicine revenue is expected to approximate $135 million to $145 million for the remaining 8 months of fiscal '13, bringing total revenue into an estimated range of $890 million to $915 million, up between 23% and 26%. Gross profit is expected to be approximately $450 million to $465 million. Operating income is expected to grow 19% to 22% and adjusted earnings per share are expected to grow 9% to 12% to a range of $3.30 to $3.40 per share. We also affirm our fiscal '13 free cash flow guidance of approximately $85 million before funding, restructuring, transformation and transaction costs. The last quarter, we said we would provide insight into our fiscal '14 guidance. We are pleased with the progress we are making, and for fiscal '14, our preliminary outlook is for a 5% to 7% organic revenue growth and a full year's revenue from the acquired business expected to contribute incremental revenue growth of about 8%. All in, fiscal '14 revenue is expected to surpass $1 billion. Our preliminary outlook for fiscal '14 adjusted earnings per share is between $3.90 and $4.10, approximately 20% above the fiscal '13 expected earnings per share finish. We ended the first quarter of fiscal '13 with $236 million of cash on hand. We borrowed $475 million to fund the Pall Transfusion Medicine acquisition and paid the remainder from our balance sheet. The borrowings were made under a $525 million credit agreement with a syndicate of lenders. This credit agreement has a $475 million term loan facility, under which we made the acquisition borrowings, and a $50 million revolving credit facility. As you would expect, the cost of borrowing is attractive at this time. We secured an initial interest rate of LIBOR plus 137.5 basis points, so roughly 2% to 3% all in, meaning inclusive of amortization, debt issue costs and the recorded interest expense. The loans of 2 financial covenants based on anticipated levels of adjusted EBITDA consistent with our fiscal '13 guidance and our outlook for fiscal '14, we are well within compliance. Early repayment has no adverse financial implications. So with strong free cash flow expected from our base and acquired businesses, we can accelerate payment of the loans over the next 5 years should we find it advantageous to do so. Our Board of Directors has authorized the use of up to $50 million of cash towards a repurchase of shares in the marketplace over the remainder of fiscal '13. Returning cash to our shareholders continues to be a significant component of our capital allocation strategy. The share repurchase program reflects our Board's confidence in the cash generation potential of the company for both the near term and the future. We see repayments, along with continued acquisition and share repurchase activities, as priorities for our cash going forward. So as I said, I am pleased with the completion of the acquisition and our ability to fund growth initiatives. With that, I'll turn the call back over to Brian.

Thanks, Chris. We were especially encouraged with 11% growth at our hospital business this quarter. Strength in surgical and diagnostics disposables, strong demand for the Cell Saver Elite and TEG disposables, record sales of our TEG and Cell Saver Elite devices and the return of OrthoPAT to growth in June and July are all indications that hospital customers are embracing the value of our blood management solutions. Our plasma and blood center businesses are contributing growth. And we are generating growth in areas of strategic importance to us: TEG, emerging markets and IMPACT accounts. These continue to be exciting times at Haemonetics. The acquisition of the Pall Transfusion Medicine business and the planned Hemerus Medical acquisition reinforce our commitment to better blood management and improved blood collection. The acquisition of the Pall business is strategic, providing a meaningful presence in the $1.2 billion whole blood market where we plan to launch new technology and automation beginning later this fiscal year. It also provides us expanded manufacturing capabilities, differentiated products, key customer relationships and for the first time in our 41-year history, control of the production of filters that go into the majority of our disposable products. Now that we're in the whole blood collection market, we intend to collaborate even more with our customers to introduce products that will enhance the whole blood collection process, bringing process improvements to our customers that we expect will lower their whole blood collection cost and improve their donors' experience. The acquisition of Hemerus remains in the near term horizon. We made the first $1 million payment during the first quarter, and we're awaiting FDA approvals of that SOLX enhanced red cell storage solution. Upon each of 2 such approvals, we will make a $13 million payment and we expect these approvals to occur in Q2 and later in fiscal '13, respectively. The acquisition of Hemerus is creative and will allow us 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. We will continue to invest in clinical trials to prove the value of a slower aging red cell. By funding further scaling of 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. As an established participant in the market, we'll 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. I want to take this opportunity to extend a warm welcome to the new employees who just joined from Pall Transfusion Medicine. They are extremely accomplished in their fields and we look forward to having them on our team. We believe more than ever in our blood management vision. We recently announced the addition of Ellen Zane to our Board of Directors. Ellen is Vice Chairman of the Board of Trustees of Tufts Medical Center & Floating Hospital for Children here in Boston, where she was President and CEO until her recent retirement. As a business executive and educator, she has over 30 years of health care industry experience and serves on the Board of Directors of several public companies. Her expertise in the hospital market will serve us well and I'm pleased to welcome Ellen to our board. Finally, I once again thank our employees for their dedication and success. Last year, we were working diligently to fix the quality issues in our business. Their efforts paid off and strengthened the foundation of our business. This year, they are working equally as hard, but on opportunities that bring us organic and acquisitive growth, while also bringing real value to our customers with products and services that help lower costs and improve clinical care around the world. With that, we're happy to take your questions.

[Operator Instructions] Your first question comes from Lawrence Keusch from Raymond James.

This is actually Konstantin in for Larry. So I guess to start off with -- I just want to make sure I understood you guys correctly. So it sounds like, from an EPS perspective, the quarter went kind of in line with your expectations. And I guess as part of that question, I clearly understand the $0.09 headwind from the Japanese revenue that got pulled into 4Q. But that I guess should have been reflected in the Street model. So I was wondering, is the gate -- did the Street just did not get the gating right, just kind of what happened? Any color would be appreciated.

Yes. I think with some puts and takes, we're pretty much where we thought we might be. We did highlight the Japan revenue pull-in into Q4, which obviously gave us remarkably high growth in Q4. And it's possible that we didn't get that into the quarterly guidance that was -- rather, the quarterly outlook that the analysts were preparing. So apart from that, we did give the -- I think we gave the headline last call that we were going to start the investment.

Konstantin, this is Brian. I think I'd say it this way. I mean, we give annual guidance, so there's always going to be that challenge quarter-to-quarter. We try to signal as best as we possibly could about the impact of the Japan Red Cross buy-in in Q4 versus Q1. We certainly signaled our intent to spend in advance of the acquisition closing. You just can't start from a standing still stop when you do something like that. There's a risk associated with that, but I think it was an important calculated risk. We did that. It's going to serve us well. I think the message here is that there's a great deal of confidence on our part about our guidance as we go forward. And importantly, what the investments we're making now are going to mean to our future and that's why we're providing for you a peek under the tent, if you will, to fiscal '14. Our sales, we expect organic sales to tick up a bit and we expect that to continue year-over-year. But importantly, you're going to see that start to return to shareholders with earnings per share growth of about 20% next fiscal year. So that's the message that I think we want you to take from us.

Okay, that's terrific. And then Brian, just kind of on the -- do we think investors think about 2014, can you guys just piece out and quantify what is the expected accretion from Pall? And have you guys state any I guess revenue synergies from Pall? And also just kind of to add on, as we think over the next 2 years before your auto whole blood really kicks in, how should we be thinking about potential revenue synergies from the Pall acquisition?

We have in our outlook and plan considered revenue synergies. We see our global network as a driver of revenue synergies and obviously scale in North America for our existing or shared customers, some of which are in some of the bigger customers in that market. So we baked that in. We're not really prepared to break out the accretion from the deal at this point in our outlook for next year. We feel very confident in our ability to achieve this. But the base business first, is deal accretion we'll get to later on.

And Konstantin, I'll just add that the deal is coming over. We feel good about the last 9 months' audited financials of the business we're acquiring. It has growth rates that are consistent with our base business when you take into account the impact of the JRC buy-in. So it's consistent. We'll give guidance for fiscal '14 next year. We're not prepared to break that out any further. I would tell you that when you make an acquisition of this size, I think we've been prudently responsible in how we've layered that in with expected growth to take off from there as we go into the future. But we'll give that guidance a little more visibility to that as we get into fiscal '14.

Your next question comes from Lawrence Solow from CJS Securities.

I wonder if you could just discuss sort of in general terms how you're looking into your investments and as you head out into '14 and then '15 as you bring in the automated whole blood collector, do you plan on having spent most of your, due to big -- lump sum of your investments upfront before you complete this whole process or is it sort of going to be spread out through that whole process?

I'd answer it this way, Larry. I mean, there's obviously the investment you need to make upfront when you develop a new product. There's no question. Not only in the product, but certainly in preparing the markets for that product. I think we've done a fairly good amount of work on that. We told you about the work we did with outside consultants to help us understand that market better. Frankly, that's what had driven us to where we are today strategically. This acquisition, Hemerus acquisition, I feel very good about the position we put ourselves in. It's like any time you launch a new product, what's that going to mean? We're going to know a lot of things going into it. We're going to learn a lot of things as we come out of it. That will start to happen in the fourth quarter. We're on track with our expectations in the first phase of our automated whole blood product launch. So we'll start to learn that and see what that means. You can see all of this reflected, I think, responsibly in sales that we expect to tick up next year. But I think we're being responsible in that outlook as we look at it today.

Okay. I know you don't want to get into sort of some of the finer details with the acquisition by itself in terms of accretion, but did you give any number -- I bounced out of the call, I got a few balls off me this morning -- on the amortization or the anticipated amortization from the deal?

So we had, on the last call, given an estimate of D&A of $25 million full year, and that's still our estimate.

So you take that -- prorate that over the next 8 months.

Your next question comes from David Lewis from Morgan Stanley.

This is actually James in for David. First, just switching gears a little bit away from the deal, there has been some competitive consolidation, most particularly in your blood center business. And I'm wondering, could you give us any thoughts on what the strategic implications some of those deals among your competitors could be for your business going forward?

Well, I think there's been a lot of activity in this space when you look over the last year. Immucor went to private equity with TPG. You saw Caridian acquired by Terumo. We have now seen Fenwal acquired by Fresenius. So what you're seeing is a lot of interest in this space. I think it speaks to the value of this space. But I also would tell you that I think it gives credibility to the value of the deal that we've just accomplished. We bought, I think, a very, very valuable piece of real estate at a reasonable price. And I think we should feel good about that.

Okay. And then second is, any comment on red cell utilization or blood usage trends in general? It did seem like the red cell business got a little bit better and some of that was related to share and product cadence more than the market. But what's the market outlook there? And how has that been trending over the past couple of quarters?

Yes, the market hasn't moved very much. You've seen some calls for blood, more calls for blood. Some of that has been more driven by activities in blood centers where there's been some strikes and some blood centers have been closed down as a result of that. So it's a less reflection of the demand for blood than it is a decline in the amount of blood donors and the ability to draw blood. Most of that's worked out. So you're still looking at a market that's basically flat. But we continue to grow in that market and I think that bodes well for us. Our technologies are meaningful. And as we bring the Pall acquisition to that market, I think it speaks well for the future.

Your next question comes from Steve Crowley, Craig-Hallum Capital.

You mentioned Hemerus and gave us a bit of an update there. You've done such a good job of selling us on the merits of that product line into the Pall Haemonetics base. I'm wondering how you dealt with that variable in your 2013 and 2014 guidance, the upsell possibilities of Hemerus.

Yes. Steve, we've taken a fairly conservative view of that in our guidance. I mean, this is an emerging technology. It's something that we are incredibly confident about, but it's not something that's been an overwhelming influence in our outlook. There's a lot of fundamental revenue synergies that we think we can drive here, x SOLX and then SOLX is sort of the icing on the cake. And so I don't want to get ahead of the FDA approvals. When we know that and when we start our initial introductions with customers will be the time to start to bake that into the outlook.

And Steve, this is Brian. I'd add this and certainly affirming I think the responsible approach we've taken here. But I would tell you that the response from our customers was, as a result of the announcement of the Pall Transfusion Medicine acquisition and the Hemerus acquisition, was a little more positive than we had anticipated it would be. I mean, we expected it to be well received, but it was even more strongly received, not only in the U.S. but particularly in our -- outside the U.S. markets where the Pall presence wasn't as strong.

Okay. And in terms of the Japanese Red Cross business, you've talked about the distortion. Are you -- have you seen something in the recent monthly trends and orders from JRC, such that you can say their transition, their timing distortions are definitively behind you and you're back to normal? Are you looking more prospectively at that?

No. I mean, it was like a rubber band. It bounced back right back to normal in May and has continued that way.

Okay. And one follow-up...

Steve, we lost you.

[Operator Instructions] Your next question comes from James Sidoti from Sidoti & Co.

Let me just follow-up where Steve was going. Brian, you said that those sales bounced back in May. I assume you mean the end of the month? Or are you saying it was really just April where sales are unusually low?

Yes, it was basically one month of sales that were moved into Q4 of last year. So we saw them bounce back right at the beginning of May. I mean, that first week, you saw it come right back in, so...

And then, was June a normal month?

Yes, both May and June were normal months.

It was actually about 2 weeks of sales, Jim. I mean...

And you do have Steve Crowley with Craig-Hallum Capital.

Sorry for the technical difficulties there. What I wanted to ask you about was OrthoPAT. And to refresh our memory on the seasonality apparently of that business as it declines in the March quarter to the June quarter, I'm trying to understand that, and then I have one follow-up.

I think clearly, there is a decline that typically occurs but quarter-to-quarter comparisons, I wouldn't blame a 3% decline on that. It's a reflection of the prior quarter, prior year's quarter. But what it is, is just our ability to come right back into the market. I feel very good about where we are with that, Steve. We saw that growth in June, up 5%. We saw even more significant growth in July. So I feel very comfortable that the team is back. I think more importantly, what we ought to be looking at here is what's happening in the hospital business. Our hospital business, with OrthoPAT down 3% inclusive in that category, our hospital business is up 11%. We've been looking for that catalyst around blood management. We're looking for the value of IMPACT as a selling tool under blood management. We're starting to see that. That's meaningful. OrthoPAT is going to rebound. It's only going to contribute to that. That's why we have affirmed our guidance in that category of 12% to 15%.

One of the surprises though, Brian, I was referencing is that the business was down sequentially versus what you did in the fourth quarter and since it's a consumable business, I'm having a little trouble understanding why you'd set back before you started to see steady growth.

Yes. That is the seasonality I think you're talking about. That is normal.

And the reason is surgical procedures in the June quarter?

It's more orthopedic surgical procedures which you typically see. You see that third and fourth quarters of ours, which is fourth quarter calendar year, first quarter calendar year, which are typically your strongest quarters.

And you have a follow-up question from Lawrence Keusch, Raymond James.

This is Konstantin again. So I guess I just wanted to follow up and just get your updated thoughts on the state of plasma market. So I think some of Pall's manufacturers kind of suggest that recently that end market demand is really kind of running probably above the 6% to 8% growth that historically the market has witnessed. So just any color would be much appreciated.

Well, what they're talking about is not collections. They're talking about demand for the end-market drugs. As we all know, come back in the supply chain, that gets whipsawed a little bit. They've got up to a 2-year frozen plasma supply that they can manage. So what we are seeing today is pretty much that 4% to 6% growth rate that we talked about before. We feel very good about that. Our forecast would certainly affirm that.

As there are no further questions, I will now turn the call over to Brian Concannon for closing remarks.

Thank you, Tina. What a difference a year makes. One year ago, we were explaining what steps we'd take to address some serious quality issues in our business. We did what we said we would do and today, we're a stronger company for that experience. We've now completed the single largest, most strategic acquisition in our history, allowing us to enter the $1.2 billion whole blood collection market. We have much work to do, but our planning has been extensive and our confidence is high. Our integration teams are already hard at work. We continue to build sales momentum. The momentum is broad based across all product categories. Our hospital products are beginning to contribute meaningful growth as our customers embrace blood management. We had a solid first quarter and we're right about where we would expect to be 3 months into the fiscal year. We're affirming our revenue and earnings per share guidance. We have a good plan, committed leadership and a great team made even stronger with the addition of our Pall Transfusion Medicine teammates. It's now time to execute. We look forward to sharing the results with you at future quarters. Thank you all for your time this morning.

This concludes today's First Quarter Fiscal Year 2013 Earnings Release Conference Call. You may now disconnect your lines.