Good morning. My name is Tina, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Haemonetics Second Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Gerry Gould, Vice President of Investor Relations, you may begin your conference.

Thank you, Tina. Good morning. Thank you for joining Haemonetics' Fiscal '13 Second 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 results -- 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 second quarter. Chris will review our operating performance for the quarter, annual guidance for fiscal '13 and outlook for fiscal '14 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 have excluded certain charges from the adjusted financial results we'll talk about today. These include costs associated with the recent Whole Blood business acquisition and conducting significant integration activities. In total, we've excluded $24 million of net cost from our fiscal '13 second quarter adjusted results primarily for the transaction and integration, including $10 million related to the step-up of acquired inventories. 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 reported a solid second quarter, one that saw continued organic revenue growth across our entire product portfolio, in line with our full year expectations. Our second quarter results also included for the first time the recently acquired Whole Blood business, formerly known as Pall Transfusion Medicine. The acquisition marks our initial entry into the $1.2 billion whole blood collection market. This business also performed well in the quarter, with revenue and earnings in line with expectations. Our first half performance positions us very well to achieve our operating and financial objectives for the full year. Our entry into the whole blood market was made in advance of the planned launch of our automated whole blood product beginning later this fiscal year. The first phase of that launch is on track and we expect to begin a limited market release in our fourth fiscal quarter, which is just a few months away, followed by a full market release shortly thereafter. Given the importance of automating whole blood collection to our future, this marks an important strategic advance for our company. But before we launch our automated whole blood product, we need to first complete some critical steps in integrating the Pall Transfusion Medicine business, and we made tremendous progress in the quarter. At this point in time, I'd characterize the integration as extremely well organized and progressing on schedule and in some cases, ahead of schedule. We formed and empowered 17 cross-functional teams, each responsible for defined integration objectives and another 10 value-creation and capture teams, pursuing benefits that we recognized in evaluating the acquisition. These efforts have exceeded our initial expectations and serve as a validation of the thorough integration planning process we completed in advance of the acquisition. So I'm very…

Thank you, Brian. First, I'll review the revenue growth that was realized in the second 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 will also discuss financial disclosures we added, highlighting our strong cash earnings. In the second quarter of fiscal '13, total revenue was $219 million, up 22%, and organic revenue growth was 6%. Every product category had organic growth. Plasma revenue grew 7% to $69 million in the quarter, consistent with our expectations of the long-term and market growth rates of the industry. Growth in the U.S. was higher than average, while our European plasma business declined due to a shift in collections to North America. Plasma disposables revenue was up 4% year-to-date, which incorporates a slow start in Japan as a result of Japan Red Cross' Q4 fiscal '12 buy-in, and we are reaffirming our previous guidance of 4% to 6% growth in fiscal '13. We are very well positioned with customer contracts covering over 98% of our plasma business through Q3 of fiscal '15. Blood center revenue grew organically by 2% to $55 million, with platelets and red cells each up 2% in a flat market as we are succeeding in demonstrating value to our customers. We are reaffirming guidance of 0% to 2% organic blood center growth for fiscal '13. Now remember that we will have a tough growth comparable in our platelet business later this year, resulting from the Q4 fiscal '12 buy-in by the Japan Red Cross. The Whole Blood business got off to a solid start, satisfying our primary objective of no customer disruption throughout the transition. Whole Blood revenue was $29 million, right in line with the run rate needed to realize…

Thanks, Chris. These continue to be exciting times at Haemonetics, and this was certainly an event-filled quarter. The acquisition of the Pall Transfusion Medicine business, which we call our Whole Blood business, was completed with extremely attractive financing on August 1. This strategic acquisition is providing a meaningful presence in the $1.2-billion whole blood market, where our own internal plans to launch new technology and automation beginning later this fiscal year, are right on track. We now have expanded manufacturing capabilities, differentiated products, key customer relationships and control of the production of filters that go into the majority of our disposable products. We will collaborate closely with our customers to introduce products that will enhance the whole blood collection process, bringing process improvements to our customers that lower their whole blood collection cost and improve their donors' experience. Our integration continues to go well, and the value creation and capture teams are well on their way to ensuring that we realize the full potential of the combined business. We are validating that the benefits identified are real, and our teams are executing on or ahead of schedule. And we're finding the acquired business to be more profitable than we originally anticipated. This is a testament to the thoroughness of our integration plans and it enables us to do several important things: First, we can accelerate investments on our growth initiatives in the back half of the year. Second, we can continue to accelerate our value creation and capture initiatives, identifying and pursuing benefits earlier than expected. And third, it bolsters our confidence in our outlook for fiscal '14 and beyond. We will elaborate further on our value creation and capture initiatives at our Investor Day in May. The planned acquisition of Hemerus Medical remains a priority for us. We made…

[Operator Instructions] Your first question comes from Larry Solow, CJS Securities.

Let me just -- one more -- a general question just on Pall. It sounds like -- because basically the quarter seems like everything is pretty much in line, if I look across the legacy businesses. Is there seasonality in that Pall business at all on a quarterly basis? Did things jump up and down a little bit? Or is it pretty even flow on a quarterly basis?

There is a shutdown, Larry, in the first 2 weeks of August the way that, that business was set up. And that actually benefited us for a ramp-down, ramp-up. The way that the business was set and its cadence, I think, oriented itself to Pall's year end. And so we tend to see a bit of a buy-in at the end of Pall's year-end and then in advance of the shutdown and then the shut-down.

Got you, okay. So that was sort of -- so the difference in my estimates was from Pall, but I obviously did not build that in for the first couple of weeks. And then second, a more general question, obviously, it has only been a couple of months, 3 months I guess, since you've been -- you've had the company. But now that you're a little bit more under that hood, it sounds like things are definitely -- maybe even a little bit better than expected. But how about one positive surprise thing that -- something that really fueled your energy more about the company and then something that's maybe more of a challenge than you thought originally might be?

Larry, this is Brian. What surprised us is really nothing other than I think we've seen a stronger customer response around the globe than we maybe might have expected. As we said earlier, the business is a little more profitable than we expected it would be. The whole blood employees that have come over with this business are as passionate about this industry as we are. Combined we're a stronger business, focused on our customers, able to provide them with all of their transfusion medicine needs from one supplier now. So across the board, I'd say we're in a very, very solid position. And again, you ask what surprised us on the negative side? Again, it'd be -- I struggle to find that. Maybe that the integration has gone as well as it has gone. I give a lot of credibility to the teams and the planning process. Anybody that's been through one of these before -- and as Chris mentioned this is our 12th. We've had a great deal of experience in this, and we've had surprises. And in this one, there's not been very many surprises at all. Those that we found have been extremely minor and we continue to move forward. So we're excited about where we are. We feel we're in a very good position after about 3 months.

Your next question comes from Larry Keusch, Raymond James.

So I guess, Brian, just following on that, if I could get your thoughts about where you think you can take the whole blood collection business in the context of that $1.2-billion market. What do you think is a share that is reasonable for you guys to get? Let's talk over sort of a 3- to 5-year period? And what -- how do we think about that cadence? Does it begin to accelerate as you get the auto whole blood system out there? So just any thoughts on that would be helpful.

Yes, we've not put any numbers out there. I guess I'd answer the question this way, Larry. Look at what we did with the plasma business. We came into this slowly when we first introduced the automation, the software. We'll do the same here. We're going to be in a limited market release in our fourth quarter -- I'm sorry, an initial release in our fourth quarter followed by a limited market release after that. We'll come into this slowly as we talked about. We want to be able to prove the benefits that we feel pretty certain that this new product will generate for our customers, but we want to be able to prove that out with these customers. And we'll be able to accelerate from that position moving forward. It's not going to be easy changes. You're talking about 150 -- roughly 150 blood centers in North America -- or in the U.S., but each one of those runs 20 to 30 mobile drives a day, and we must convert every single one of those mobile drives individually. So this is an undertaking that will take some time, but we do believe that if we're right about the value it represents, that will accelerate as we move further into the implementation.

Okay. That is helpful. And then just for Chris, the -- I'm wondering if you could just help us understand the inventory levels for the base business and how should we be thinking about the trajectory on the base inventory levels going forward? And then just on the share repurchase, you've historically completed that $50 million early in the fiscal year. You've done [Audio Gap]

Larry? Tina, do we still have you on?

[Operator Instructions]

Okay, let's go ahead and answer Larry's question to the best of our ability based on that. He's here in Boston and I think we all know that, in the northeast, we're faced with Hurricane Sandy's wrath as it emerges. So let's go ahead and answer the inventory question first, and then we'll talk about the share buyback.

Sure. So inventories in the quarter are at $172 million. In terms of contribution from the whole blood inventory, that's about $41 million, overall increase in inventory of about $56 million in the quarter, spread over plasma, hospital products, related to the reintroduction of the HS Core and a rebuild of inventory in Japan since the end of the year. So if you remember, there was an inventory buy-in by the Japan Red Cross right at the end of the year. So a number of factors contributing to the growth, all of which are understood. Our long-term and medium-term objectives are to bring our inventory levels down from where they are today, and we will continue to work diligently on that. With regard to the share repurchase, the short answer is we got after about $5 million of it. The authorization remains out there from the Board and we will continue to execute on it as the market opportunities present.

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

In terms of the Whole Blood business, you mentioned it performed consistent with where you needed it to perform for your guidance to still make sense. Can you give us some sense, for that business, either for the stub period or the pro forma quarter, how it performed versus year-prior periods like organic growth for that business?

It's hard to get at those numbers, as you can imagine, Steve, because it represents sort of a part of a quarter of a part of a public company. But generally, it looks to be about in line with the growth rates that we saw in Pall's disclosure of that business in advance of the acquisition. So I think mid-single digits.

Okay. And then as we look forward, I mean, to get to that $135 million, $145 million this year, it's got to pop up to a $50 million-plus run rate here for the next 2 quarters. Is there anything in the seasonality or the maturation curve of that business that we should think about as we model the back half of the year?

Yes. We look at the performance in this quarter, including essentially a buy-in with -- in advance of the transition. It looks like about a week a product. And then we had a week when we were shut down, which we call the ramp-down, ramp-up period, where we were basically not able to service customers. So we think of this as not being a 9-week period as much as a 7-week period, and we look at the run rate as being a little over $4 million per week. And we believe that we can hit the target for the full year with that run rate.

And as we look at the balance of the year, is there anything with seasonality or schedule or just as you get your arms fully around the business that we should think? For example, the March quarter is customarily much bigger than December or like anything like that since we haven't been through it once with you?

Nothing that stands out. I mean, you should expect that as we get beyond this Day 1 integration full and the reorganization activities that go with that, that we'll become even more focused on this business and hopefully drive the performance up from that $4.1 million level. But nothing seasonal, per se.

The way I'd say that, Steve, is that this is -- these are customers that we serve today and we expect that business to trend as our business has trended with those customers in the past. But remember what we said: From an earnings per share standpoint, we expect Q3 to be higher than Q2 and Q4 to be higher than Q3.

Your next question comes from Jim Sidoti, Sidoti & Company.

A quick question. OrthoPAT, I think you said in the quarter, was about $7.6 million, which is up from last year but still not back to where you had been prior to the recall. What's going on there?

I think what you're seeing is a rebound in the market, as we talked about. But I also think you're seeing our customers waiting for the OrthoPAT Advance, the next-generation product, that will have some fairly significant upgrades based on customer feedback that we see throughout the recall. So the good news is it's back to growth as we expected it to be. I think we'll see that growth accelerate past these levels once we launch the OrthoPAT Advance.

All right. And then my follow-up question is related to the comments you said about some of the operating expenses that you would anticipate this year didn't occur in the first half of the year. There was -- and that you expect those to ramp up in the back of the year. Was that by design? Or is that due to the Hemerus delay? Or why did that occur?

That was by design, Jim. And most of it, think about Day 1 integration. Our focus was on ensuring that we integrated this business into our business without any interruption. And I'll tell you, I'm really pleased to say that we had no customer interruptions. We transitioned 1,300 employees to our platforms, and this business is seamlessly performing now within the realm of Haemonetics Corporation. And so we're very, very pleased with that. So that's where our focus was. It wasn't anything more strategic than that, but it was just really the capabilities of our people to do what we needed them to do and prioritizing that way.

Your next question comes from Raymond Myers, Benchmark.

I wanted to see if you could elaborate a little more on the integration activities and the investments that you plan on expanding later this fiscal year. Can you expand on what exactly those activities are and specifically what benefits are expected in the future from them?

Well the integration activities that we focused on over the course of the initial 2 months in the quarter are those which you would expect, which is moving employees to our benefits platform, ensuring that their pay was consistent with what they were being paid previously. It was ensuring that all customer contracts were loaded. Our customers were serviced as you would expect them to be, moving them to our quality platform. Just go across the board. What we did, as I said, we identified 17 teams that focused on critical tasks. Many of these teams are closed out. For instance, payroll and benefits were done pretty quickly. Many of those teams are closed out, and we're moving on with the general business. Others will continue as we move forward in the integration. For instance, information technology. The Pall business was on a SAP platform. We have an independent instance that's been established for us for the integration. But ultimately, we need to move that business over to the Oracle platform, which is our platform. So those are some examples of the integration activities that have either occurred or will continue to occur. But this will all step down throughout the remainder of the fiscal year. In terms of investments that we want to make as we go forward, I mean, these are investments that we've talked about in the past, areas such as the TEG clinicals, to really get into growing areas of TEG applications around the world like interventional cardiology in our emerging markets, particularly China, investments in our sales resources as we continue to focus on blood management, et cetera. So those are some examples of investments we'll continue to make as we go forward.

Okay. And then I wanted to touch upon the SOLX a bit more. In the end of September, you announced that the FDA had asked for further information on SOLX. Has that been produced? And does that appear to satisfy the agency's issues?

Well let me remind you, Ray, that we don't own Hemerus. Hemerus is still independent. We simply bought the rights to acquire them. So they are still an independent company. But to the best of our ability, we're assisting Hemerus in that response, and that continues to progress forward on the schedule that we've laid out.

Your next question comes from Gregory Macosko, Lord, Abbett.

Just with regard to the growth initiatives. Could you sort of give us a feeling for the rate at which it -- they progressed in the first couple of quarters and what you -- you expect it to be accelerating going forward?

Well, when -- I want to make sure I understand your question, Greg. When you're saying what do we focus on or what did we spend?

Well, it sounds like you didn't -- they didn't go quite as quickly as you had expected. Or am I wrong on that?

No. The investment -- the spending was not as rapidly ramped up as maybe we would have liked to have done, and that will continue to ramp throughout the fiscal year. It's not -- the points that we're making there is not to signal any alarm or concern or any pullback on our part on any of those. It's merely the priorities that we had in the business and what we focused on in the quarter. But we feel very good and we have a better feel for the financials of this business today than we did even 2 months ago, 3 months ago. We know what dollars we have available, we know what initiatives we'll spend those on and we have the teams poised to prepare to move that process forward and manage it as we go throughout the fiscal year. So think about integration activities ramping down, think about investments and our growth initiatives ramping up.

But you were speaking primarily of the acquisition as opposed to other growth initiatives within the company?

No. We're speaking about other growth -- we're speaking about both, but when I talk about growth initiatives beyond that, I'm talking about areas that we've identified before: TEG, Blood Management Solutions, investments in the selling organization and the methods by which we approach those customers, the things that we've talked about in the past.

Okay. And then with regard to the blood typing, which you pulled back on, which there seems to make some sense. Was that -- did that -- how did that affect the R&D and the R&D spend, which was up 4.6%?

Yes, within that R&D spend, we're reallocating resources from what was being spent on blood typing to the other initiatives that are priorities for us, some of which we've talked to you about and are public about, some of which we're not so public about.

And to be -- the way I'd answer that, Gregory, to be clear, we're not taking R&D spending down. We're simply redirecting it into those areas of our business that we deem to be more important as we focus on blood management going forward.

And we do have a follow-up question from Steve Crowley, Craig-Hallum.

Just picking up on the blood-typing thing. Did you hit a technical hurdle that was going to require some significant extra investment beyond original plans? And what are you going to do with the operation in downtown Chicago there?

So let me answer the first piece, and I'll have Chris answer the second piece. The answer about the technical hurdle is no. Frankly we achieved the technical benefits that we were seeking to achieve. This is all about, again, you've heard me say it, priorities. As we look at the business and what we need to spend and where we need to spend it, like any business, we got to be prudent about that approach. This is a part of the business that we continue to be excited about, but we want to be able to ensure that we de-risk the focus that we have in our base business and what we're doing to drive that business today and we'll decide how we approach this element of blood management as we go forward.

And then in terms of the software business, how should we think about that long, longer term in terms of the normalized growth rate that you're striving for? It was more growthy. It's kind of ebbed back. How do you reinvigorate that? And is that your plan strategically?

Yes. I mean, software is a very strategic element of our blood management solution and therefore core to it. The growth rates, I think, that we can anticipate there as we think of software as being an enabler as it was in the plasma business, certainly, in the high-single digits is our objective for that business. To some extent, recently, we've been impacted by software spending priorities in hospitals. Just now they're focused on other things and that has slowed that business a little bit.

But I -- I'd come at it just a little more along these lines, Steve, is if you think about that business and the 3 segments we've talked about before, the 2 biggest being the hospital blood center market, the second one being the plasma market and the third, smaller piece being Department of Defense. Remember what we said, you've got the plasma market, where we did penetration before, a number of customers choosing their own solutions. That business is for the most part flat, maybe even a little declining at different times. The DOD business, flat. It's stationary as it goes forward. And the hospital blood center business growing as the hospitals adopt these solutions going forward. But as you know, that can be a bit lumpy in software sales at times. So I'd probably give it a little more of a breakdown that way.

And there are no further questions this time. Are there any closing remarks?

Yes. Tina, thank you. Last quarter, I closed by saying 2 things: one, that we were seeing sales momentum building across the business; and two, following the closing of our largest acquisition in our history, it was now time to execute. Today that's exactly what we're seeing. Revenue growth in the second quarter was broad-based with organic growth across our entire product portfolio. Plasma revenue was up 7%. Blood center revenue was up 2%. Software solutions revenue was up 5%, and hospital revenue was up 14%, marking the second quarter of double-digit revenue growth in this segment of our business, giving confidence to the traction of our Blood Management Solutions. The integration of the Pall Transfusion Medicine business continues to go well, and each of the integration teams is either on schedule or ahead of schedule. And this business also had a good quarter with revenue of $29 million, right where we would expect to be to generate revenue of $135 million to $145 million this fiscal year. Our value creation and capture teams have been able to accelerate their efforts as we strive to realize the full benefit of the combined business. As we said, we'll provide you with more details about these efforts at our May Investor Conference. Halfway through the year we are in very good shape and we have affirmed our guidance across the board. We look forward to sharing our progress in the future quarters. Thank you for your time this morning.

This concludes today's Haemonetics Second Quarter Fiscal Year 2013 Earnings Release Conference Call. You may now disconnect.