Good day, ladies and gentlemen. And welcome to the Haemonetics second quarter fiscal year 2018 financial results conference call. My name is Brian and I'll be your facilitator today. At this time, all participants are in a listen-only mode. [Operator Instructions]. It is now my pleasure to hand the conference over to Mr. Gerry Gould, VP, Investor Relations. Sir, you may begin.

Thank you. Good morning. Thank you for joining us for Haemonetics second quarter fiscal 2018 conference call and webcast. I'm joined today by Chris Simon, President and CEO, and Bill Burke, CFO. Please note that 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 and in our latest Form 10-K filing. This morning, we posted our second quarter and first half fiscal 2018 earnings release to our Investor Relations website. We also posted two tables with information that we will refer to on this call. Today, Chris and Bill will discuss elements of our financial and business performance, our guidance, trends in our served markets, our strategy and a new initiative we announced. Then, we'll take your questions. Before I turn the call over to Chris, I would like to mention the treatment in our adjusted result 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, charges and income items from the adjusted financial results, which we'll talk about today. In the second quarters and first halves of fiscal 2018 and fiscal 2017, we excluded restructuring and turnaround charges from adjusted earnings, as well as deal-related amortization expense. Also, in the first half of fiscal 2018, we excluded the gain we realized upon sale of our SEBRA line of benchtop and hand sealers. In the first half of fiscal 2017, we excluded impairment charge. Finally, we excluded the tax effects of excluded items. In considering our results, please bear in mind that fiscal 2018 total Haemonetics revenue and Plasma business unit revenue include no SEBRA revenue. By comparison, the second quarter and first half of fiscal 2017 included $2 million and $3 million of SEBRA revenue respectively. Further details of second quarter and first half fiscal year excluded amounts, including comparisons with the same periods of fiscal 2017 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 reconciliations of our reported and adjusted results. With that, I'll turn the call over to Chris.

Thank you, Gerry. And good morning. Our comments will focus on the second quarter and first half results, our fiscal 2018 guidance revision and our Complexity Reduction program, and then we'll take your questions. Our first-half fiscal 2018 results demonstrated continued momentum in implementing our strategy to compete in winning segments and geographies, to achieve leading positions in each segment where we compete, and to deliver superior short and long-term operating performance. Our second quarter fiscal 2018 results met our expectations. Second quarter revenue was $225 million, and aside from the divestiture Gerry noted, up 3% both in reported and in constant currency. We had 6% Plasma revenue growth, 3% Hospital growth and our Blood Center business stabilized, declining 4% in constant currency. On an adjusted basis, operating income increased 100 basis points to 16.2%, up $3 million or 9% as we continue to benefit from our ongoing cost savings initiatives. Adjusted net income of $26 million was also up 9% and earnings per share were $0.48, up 4% above last year's second quarter. We generated $46 million of adjusted free cash flow in the second quarter, $75 million year-to-date, further validating the ongoing strong cash generating capability of our business and providing flexibility for the growth investments that we are making. We delivered strong first half results across our three business units. Plasma and Hospital each grew revenue 5% in the first half and the decline in Blood Center revenue moderated to 5%, all while pursuing ongoing productivity. These strengths allowed us to overcome inefficiencies in manufacturing operations and underperformance in our Hospital business outside the US. We will talk later in the call about the actions we are taking to address these challenges. In Plasma, we are focused on the planned rollout of our new PCS system. As…

Thank you, Chris. And good morning, everyone. Please refer to the two tables we posted to our website with a link in our earnings release. We provided specific revenue and income dollar amounts that derive the percentages I will refer to in my comments. All revenue growth rates I will discuss are in constant currency. In the second quarter of fiscal 2018, strong results in Plasma continued. Plasma revenue was up 6%, including a negative impact of 180 basis points from the SEBRA divestiture. In the first half, Plasma revenue was up 5%, including a negative impact of 160 basis points from the SEBRA divestiture. North America Plasma disposables revenue was up 7% in both second quarter and the first half of fiscal 2018. We are reaffirming, and not raising, fiscal 2018 Plasma revenue guidance due to customer order timing between the first half and second half and we expect our customer in Japan to reduce frozen plasma inventories. Growth continues to be driven by strong end market demand for Plasma-derived biopharmaceuticals. We remain highly confident in the continued market growth underlying our commercial plasma collections business. We had 3% growth in our Hospital business in the second quarter of fiscal 2018. In the first half of fiscal 2018, we had 5% growth, which trail our internal expectations as we experienced shortfalls outside the US. The TEG 6s product offering accounted for about half of hemostasis management growth. Hemostasis management revenue was up 10% in the second quarter, with 12% growth in North America and China and virtually no growth in EMEA and other Asia-Pacific. First-half growth was 13%, which fell short of our internal expectations with customer order timing on devices favoring the second half of this fiscal year. The TEG 6s delivered the majority of the revenue growth…

Thank you, Bill. These results show that our strategy is working, but we know that we have more to do. As part of our turnaround, we have assessed how we operate and we have identified areas that can be improved. The Complexity Reduction initiative that we announced today is an important next step as we transform to pursue accelerated growth. These moves will help us increase productivity and lower our cost structure, targeting $80 million of benefit. We will invest savings in the areas that hold the greatest promise for our business. This includes product launches like NexSys PCS and TEG 6s, innovative new R&D programs and acquisitions, clinical and economic evidence to strengthen the value proposition of our products, an expanded sales force, new capabilities such as data and analytics, manufacturing capacity, and overall employee development. This purposeful work is the core of our transformation phase. Over the past 18 months, we have put the right leadership in place to execute our strategies and developed in-depth insight about our business. We are not cutting cost for cost sake. We are changing our operating model, creating a leaner and more agile company, rightsizing our organization and equipping it with the talent and expertise needed to achieve our goals. This is a comprehensive effort to lower our cost base. The majority of the savings will come from reducing direct materials, indirect spending, freight and other non-headcount related costs. The remainder will come from a workforce reduction, which will include both voluntary and involuntary separations. We are changing the way we work, implementing process and productivity improvements, including greater use of external providers. We expect a reduction of about 350 physicians globally. Certain roles in direct selling and clinical support, as well as hourly plant workers are excluded from this initiative. We will implement these changes in a manner that does not adversely impact the many critical time-bound projects essential to our turnaround. This is a conscious decision to ensure that customers, key programs and important projects remain staffed as needed for our company's continued success. I want to emphasize that we are committed to supporting our employees, our customers and our key products in the market, so we will be thoughtful and put necessary transition plans in place as we redeploy resources to enable growth. We expect to complete the program over the next 30 months and to reach the full $80 million annual run rate savings by the end of fiscal 2020. The program is expected to cost $50 million to $60 million, of which approximately two-thirds is related to severance. And now, we'll proceed to your questions.

Thank you, sir. [Operator Instructions]. And our first question will come from the line of Anthony Petrone with Jefferies Group. Please proceed.

Thanks. And good morning, everyone. Maybe, Chris, to start with the restructuring program announced here, maybe just a breakout of the sort of headcount reductions in savings across the three operating segments – Plasma, Hospital Products and Blood Center. And perhaps, just an update on your views on Blood Center as it remains as a key part of the portfolio. Do you see a shift in that going forward? And then, I have a couple of follow-ups on Plasma. Thanks.

Anthony, thanks. With regards to the Complexity Reduction initiative, we are looking at every aspect of the work. We now know, with the benefit of last the year-and-a-half's experience and a new leadership team, in detail what we do and how we do it and where we believe that creates value. So, we're looking across all three of our business units. We're looking across all of our functions, all of our geographies. Importantly, the majority of our savings will actually come from non-headcount related in the areas that we cited in the script. We are also looking at streamlining our processes, leveraging external service providers where it makes sense. It will disproportionately skewed to our general and administrative functions, more so than the line roles. And I have called out a series of things that – excluded roles in terms of the hourlies in our plants and our frontline selling and clinical resources, but everything is in scope and everything will be part of what we advance going forward. Some of the plans behind that are still being developed by the people who will manage it going forward. So, it's meant to be holistic and comprehensive and the effect will be as such. You asked a question about Blood Center. I think we're pleased with our progress. We had talked consistently now about stabilizing, separating and optimizing. We feel quite good with where we are vis-à-vis the progress against that. We're, obviously, getting some benefit, which is slowing the rate of decline in transfusions, which we're participating fully in. But we're also really focused on delivering value as viewed by our customers and managing that P&L quite tightly. So, we're well on track and consistent earnings coming out of that business is the mantra that we run to.

And then, just a follow up on Plasma would be, just any update on timing for the additional clearances needed for NexSys and perhaps when we should begin to see anything on the contracting in for the next cycle. Thanks again.

Thank you. So, we're well on track, as we described it. We had begun customer experience programs. First wave of those already underway. We'll move into a limited market release in the winter. We will have a second and more advanced limited market release where we'll feather in some additional enhancements, both software and more broadly to our platform with the idea that, as we move into fiscal 2019, we'll begin those customer discussions and advance the rollout, which is really an FY 2019, 2020 and 2021 event. I think we feel quite good about where we are. We'll feather in the ongoing development. I described it previously, when we received the approval, the clearance for NexSys PCS, as the base platform, the disruptive change, which we're now going to do a series of enhancements – firmware, donor management software, our tech support, et cetera, all of which will get feathered in here over the coming months and quarters and years because we're not done by any stretch in terms of innovating that platform.

Thank you.

Thank you. Our next question will come from the line of Larry Solow with CJS Securities. Please proceed.

Good morning, guys. Just to follow up on the question about the customer experience programs, will you need to get several more of these enhancements [indiscernible] programs occur as these enhancements occur or you're already getting customer interest without those enhancements?

There is a lot of customer interest and excitement around the new device. It is meaningfully different in appearance and in function. And we talk a lot about the economic benefit and aligning with our customers. That's very important. What the customer experience programs have done for me personally, observing the user interactions and the donor experience, is just how much more user-friendly, kind of fit in form type of things that really play out. And it's useful. We set these experience programs up to learn how to do the rollout, but it's reaffirming the voice of customer work that's been done over the past several years to inform the development that went into the device in the first place. So, a lot of excitement and reaffirms much of what we believe would be the value proposition of the product.

Okay. And any color on the – I know you had a little bit of change in the leadership in the plasma program announced a couple of months ago. Any color on that?

I think we are very much in the early stages of pivoting to value-based approach in our plasma commercialization. We think what we are doing in terms of quality and compliance, yield attainment, center productivity and an overall donor experience is great value for our customers. I want to make sure that we have a team that is equally full and purpose-built to convey that value proposition. David Wilson and the team he is assembling bring that to the fore and we're excited about what David is doing with that business.

Okay. I'm just a quick question on your cash flow. I guess, a two-pronged question. First, on the CapEx push-out, anything specific on that? And then, I know it's actually a pretty nice improvement in working capital management in the first half of the year. It looks like a year-over-year change of $25 million. That's something we probably should expect to continue?

Hi there. It's Bill. I apologize for my voice to. I'm losing my voice here. On the cash flow, I wouldn't be concerned about the timing of the spend. We had very good, aggressive plans to get our capital expansion up and running. And with the new diligence that we've put in place around how we're selecting vendors associated with capital deployment, it's just causing us a little bit of delay, and that spend will trickle into FY 2019, but won't put in jeopardy any of the capacity requirements that we need. And as far as working capital, some of the increase that we have in our guidance against what we previously guided was due to working capital efficiency. We're focused on it now. And when you have focus, you have results. So, do we expect it to continue? Absolutely. We don't expect deterioration in our working capital longer-term. Obviously, there will be some fluctuations in that quarter-to-quarter, but we feel good about where we are right now.

Excellent. Great. Thanks, guys. Appreciate it.

Thank you. And our next question will come from the line of John Hsu with Raymond James. Please proceed.

Good morning. Thanks for taking my questions.

Hi, John.

Good morning. First one on hemostasis management. It appears that TEG is kind of decelerating a bit. It is obviously a key growth driver for you guys. So, maybe you can just talk about – just some color around what you're seeing there and also your level of confidence going forward to accelerate growth through the LRP?

So, before Chris makes some comments, I'll just make a few comments on the numbers too. In Q2, it was – Q2 was a little lighter than what anybody would have expected. But still, on a year-to-date basis, we're at 13% growth year-on-year. So, one quarter, I wouldn't characterize as deceleration. And for the year, we're still expecting to be above the 14% from fiscal 2017. But Chris will make some comments too.

Yeah. I think we have experienced the first half/second half dynamic previously. Some of that just a function of selling more equipment and having the disposable volume which still makes up the vast majority of our revenues come through on the heels of that. It's an escalating trend, which is how you deliver the consistent, pretty ambitious growth that we've put against that product. I think we're encouraged by what we see in select markets, certainly North America, our largest market, where we're doing quite well, not only versus prior comps, but against our own plan. We do have a challenge, as I called out in the script, in some of our other international hospital markets outside the US where, earlier this spring, we reorganized and we created very dedicated teams that are focusing on the commercialization of all of our hospital products. TEG is a complicated product to master and sell Salomon and then we're still building capabilities in those markets to achieve performance that we expect to at least rival what we're doing in North America. But it's a work in progress. It's something that we're on. And I would expect, as we’ve conveyed, will be within the guidance range and build momentum that will carry us nicely into FY 2019 for accelerated growth.

Okay, great. And then, my second question is, as it relates to Plasma, what's your reaction to Grifols, which I believe is your largest customer, saying that the plasma market is decelerating? And as part of that, maybe you could clarify, just from the earnings release, it looks like you're communicating that overall plasma derived sales growth is expected to moderate towards plasma derived rates? So, just what's the right way to think about long-term growth in plasma?

I think we remain quite bullish on the long-term growth rates in plasma. Obviously, from one customer to the next, there will be variability as they compete in different end markets. But if we just look at the macro trends as forecasted by PPTA and by the individual participants, we're still seeing very robust end market demand. I think the advancements in the technology to treat a broader spectrum of indications, the increased rate of diagnosis, so we push from the most severe patients to mild to moderate, the change in our route of administration, specifically greater adoption of subcu, which winds up requiring more, not less, plasma are all contributing factors. But from where we sit, the collection volumes we're observing, we feel quite optimistic vis-à-vis the ongoing growth rates, as do most of our customers.

Okay, great. Thank you so much.

Thank you. And our next question will come from the line of David Turkaly with JMP Securities. Please proceed.

I apologize. I've been hopping back and forth on a few. But I think you said you had your first collection at a – in September, from one of your customer trials, and I wanted to check and see if that was accurate. And then, in terms of how many of these you anticipate running, if there is any detail you can give us on that and just an estimate maybe of how long you think kind of each of those experience trials would take?

Yes. Thanks, David. The customer experience program that we referred to was 150 donor collections, so very modest in scale, but one that we wanted just to take the first round of beta build devices and make sure that they were operating, the start-up and go-live was everything that we wanted it to be, which it was. So, we will do several more of those. The experience from a collection center, from the phlebotomist, the center operator and the donors themselves was overwhelmingly positive. From my vantage point, I'd like to do as many of those as our customers would like to do because it just helps us in this early stage. We do have several ongoing. We will do that through the fall and move in, as I said, to limited market releases, winter and spring, and then we'll move forward with the commercial launch beginning in the summer period and beyond.

Great. And then, obviously, another restructure program. I just wanted to be clear – I think you announced a three-year one last May and I think you quantified that for 2018. But the savings, I know you're not expecting a lot from this new program in fiscal 2019 – or fiscal 2018, I guess, I should say. But have you quantified the benefits of that three-year program to next year, next fiscal year and beyond?

The program, as we announced in May of 2016 – originally it was announced that like $40 million of savings in that fiscal year. We, obviously, exceeded that by a pretty good amount. And then, going into FY 2018, we had said that we would get $0.30 to $0.40 of productivity and a big portion of that was because of that initial restructuring savings as well as other programs. With this new program, we're effectively starting the clock, running again as of the beginning of FY 2019.

Great. And last one. I know you mentioned that cash position, the push out of CapEx. And you mentioned advantageous deployment. I guess just to get your current sense of sort of capacity for M&A and timing, is it something that maybe you have more ability to move forward given some of those comments and where you stand today?

Well, we realize that cash we have in our balance sheet and we're always – we're continuing to look at our capital structure. There is just a lot of moving pieces right now between – we have refinanced that's going to happen in June. We have the financing of the NexSys PCS build, which we said could be in the $200 million, $250 million range. And, obviously, while we're thinking about M&A and although we don't have a share buyback authorized, it would obviously be something on the table in the future.

Great, thank you.

You're welcome.

Thank you. And our next question will come from the line of David Lewis with Morgan Stanley. Please proceed.

Good morning. A few questions here. Bill, just for you to start off, and I appreciate you're not going to provide the cadence here on this restructuring announcement. But if I think about your plan, which was to basically double EBIT or add $100 million to EBIT by 2021. This is a plan that overlaps the 2021. So, how do I think about the $80 million restructuring benefit in 2021 relative to your prior comments that EBIT will double or increase by $100 million from 2016 to 2021?

Yes. So, the $80 million of savings, we said that by the end of FY 2020 that we will be at the annualized run rate of $80 million. So, in FY 2021, you can estimate it's $80 million in FY 2021. Now, in terms of the prior communicated 2x operating income goal that we had out there, we're still sticking with that. Obviously, the $80 million, a portion of the $80 million, was included in that 2X comment. And just the fact that we have this program, it's going to help derisk anything else that happens related to the 2X.

What I was saying is that, three phases, five-year turnaround, the transformation phase that we're headlong into, we just no more – and we are able to do this from a position of strength, therefore, not disrupting customer service, not in any way impacting these critical programs that really drive the accelerated growth that begins next year. So, we wanted to make it more time-bound and more specific. It, obviously, is reinforcing. But all along it's been contemplated and we just now have enough information to be able to do it in a purposeful way.

Okay, very helpful. And, Bill, I appreciate you're not going to give us information on cadence, which I think is totally appropriate here midway through 2018, but the big debate the last six months has been you need to invest in NexSys. There's going to be components of, this year you're spending a TEG, you're spending a little bit on precommercial NexSys and now commercial NexSys. Next year is to going to be a significant depreciation load just based on the dynamics of that launch. With this restructuring announcement hitting in fiscal 2019, are you more confident now that 2019 EBIT margin step up over 2018 and the 2020 EBIT margin step up over 2019?

Yeah, David. We're midway through the year here. We're not going to make comments on FY 2019, especially down at the operating margin level. But what you've said about investments is appropriate. We've been saying all along that we are going to have investments that continue in this business. We’re going to manage those investments judiciously and ensure that they result in growth and acceleration of the growth profile we have today.

Okay. And just two more questions from me for growth, Chris. So, first is just on TEG. Sequentially, that business decelerated, but, frankly, it was a challenging comp. The momentum looks very stable to us. But are you surprised that TEG 6 in the US has not hit its stride or is it simply too early? And the second question, just a broader question. If I think about total guidance in the back half of the year, your momentum is sort of a little down, maybe a point or two in the back half, that's especially the ex-US issues you discussed and perhaps some conservatism. Just want to give a framework of how you see the back-half growth rate versus the first half growth rate and I'll jump back in queue. Thanks so much.

Thanks, David. So, I think with TEG, obviously, the 6s is the growth driver disproportionately. And I've said in the past and we didn't call it out in this quarter's results, but, obviously, in North America, where we have both the 5000, the 6s, and also the TEG Manager, our team is making possible efforts behind each of those. The success is obviously the disproportionate growth driver for us going forward in the indications where we have FDA clearance to be able to pursue that. So, we're excited about what our North American team is doing there and it sets a model for what we want to do across the rest of the world, recognizing there is different slate of indications approved. The first half/second half, there's a dynamic that played out last year. We have every reason to believe it will play out again this year for the reasons noted in the script and earlier in the Q&A. So, we remain confident with the overall guidance range. I think where we'll see the greatest uptick in momentum is this very specific and purposeful focus on key markets outside the US. We do quite well in China, but we have competition. And competition that challenges prices as well as share. We are responding accordingly. We are much – we're excited about what we're doing in the UK, but we can do more. And there are half a dozen other key markets where we know TEG is the right product and has the potential to really deliver. We're just earlier in our growth trajectory. Our hope is and our expectation is that the second half of this year will see a meaningful improvement in that trendline as part of this overall range that we've got.

Great, thanks so much.

Thank you. [Operator Instructions]. Our next question will come from the line of Jim Sidoti with Sidoti & Company. Please proceed.

Good morning. Can you hear me?

Yes, sir. Hi, Jim.

Great. You made some comments about Puerto Rico and the fact that the plant is back up, running 100% right now. Can you quantify, was there any impact in the quarter that ended during the storms on top or bottom line?

In terms of impact in the actual end market's demand, some movement, areas that we're unable to collect drew off of other geographies that were. And we were probably a net benefactor of that. For example, what they couldn't collect in Houston and Corpus Christi, we collected with them with our Blood Center customers in San Antonio and Austin. And we're able to meet demand in that way, which was an important part of the response. We were fortunate, in addition to thoughtful preparations, as noted in the script, that is a large area, raw material facility for us. The team made preparations. We ran the facility in earnest prior to the storm. Put everything we produced on airplanes. It's a little bit easier because it's median filters and we're able to get it off the island before losing the infrastructure there. And then, as I said in the script, mid-October, fully operational under generators. And then, just this past weekend, we were able to restore electric power through the local municipalities. So, we're running. There's some expense. We air-freighted a bunch of stuff. And we tried hard to take care of our employees on the ground. There will be some operating expenses associated with that that will flow through our P&L, some of which was in second quarter, the majority of which will be third quarter, but we don't anticipate that being grounds for putting us outside the ranges we put forth for those businesses.

Okay, thank you. And then, on the $50 billion to $60 billion you're spending on the restructuring that you announced this morning, will that all be complete by the end of the fiscal year?

We are saying that there will be spending in this year and then in 2019 and lingering in 2020.

Okay. So, there will be additional restructuring expense in the next two fiscal years.

Yes.

Okay, got it. Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session today. We would like to thank everyone for their participation on today's conference and you may now disconnect. Everybody, have a wonderful day.