Good day, ladies and gentlemen, and welcome to the Q3 2018 Haemonetics Corporation's Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Gerry Gould, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us for Haemonetics' third quarter fiscal 2018 conference call and webcast. I'm joined today by Chris Simon, President and CEO; Bill Burke, CFO; and David Wilson, President of our Plasma business unit. 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 other periodic reports and filings that we make with the SEC. This morning, we posted our third quarter and year-to-date fiscal 2018 earnings release to our Investor Relations website. We also posted two tables with information that we'll refer to on the call. Today, Chris and Bill will discuss elements of our financial and business performance, trends in our served markets, our strategy, our Complexity Reduction Initiative and our guidance. David will discuss highlights within our Plasma business. Then we will take your questions. Before I turn the call over to Chris, 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 cost charges and income items from the adjusted financial results, which we'll talk about today. In the third quarters and year-to-date fiscal 2018 and fiscal 2017, we excluded restructuring and turnaround charges, legal charge and certain onetime charges resulting from U.S. Tax Reform from adjusted earnings, as well as deal-related amortization expenses. Also, in the year-to-date fiscal 2018, we excluded the gain we realized upon sale of our SEBRA line of benchtop and hand sealers. In year-to-date fiscal 2017, we excluded a non-cash 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 third quarter and year-to-date fiscal 2017 included $1.6 million and $4.7 million of SEBRA revenue respectively. Today, we will cite organic revenue growth, which excludes the impact of the SEBRA divestiture and excludes the effects of currency. Further details of third quarter and year-to-date 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 included 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'd like to turn it over to Chris.

Thank you, Gerry. Good morning, everyone, and welcome to our third quarter call. Today, we will discuss our quarter and year-to-date performance, our revised outlook for fiscal 2018 and the actions we are taking to advance our transformation and position Haemonetics for long-term growth. Our performance year-to-date shows continued progress in our multi-year turnaround, our goal of accelerated growth and we are executing against our value creation strategies centered on attractive segments achieving leading positions in those segments and delivering superior results. Our third quarter fiscal 2018 results surpassed our expectations as we had a combination of solid underlying performance combined with non-operational benefits. Organic revenue grew approximately 2%. We had 5% organic Plasma revenue growth, 6% Hospital growth, and our Blood Center business declined 5%. Adjusted operating income increased 20%, adjusted net income increased 49%, and adjusted earnings per share of $0.62 increased by 44% over last year's third quarter. We had some non-operating items in our adjusted earnings in this third quarter including a benefit from U.S. Tax Reform, favorable foreign currency, and dilution from an increased outstanding share count. These three elements aside, we consider the remaining $0.50 per share, up from $0.43 in last year's third quarter, to demonstrate the operating performance of our company. Bill will provide additional detail on the individual items later. Year-to-date organic Plasma revenue growth was 6%. Hospital also grew revenues 6%, while the decline in Blood Center revenue moderated to 5%. We generated $38 million of adjusted free cash flow in the third quarter, a $113 million year-to-date, further validating the health and strong cash generating capability of our business and providing flexibility for the growth investments that we are making. Productivity gains have contributed meaningfully to our performance in fiscal 2018. However, as is to be expected in a turnaround of this magnitude, not all parts of the organization are changing at the same rapid pace. To date, manufacturing and global supply has been a laggard, but we are taking corrective actions to improve performance and further reduce complexity. Let me now turn to our business units. We are organized around three focused customer-centric business units, each has a defined role to play in our corporate portfolio, and together, they are financially synergistic. Let's start with Plasma where third quarter revenue growth was driven both by disposables and software, particularly in the U.S. We remain focused on and are quite excited about our plans to roll out the innovative NexSys PCS platform. It has been designed to create meaningful customer value from increased yield straight through to an improved donor experience, and it is a key area of investment and growth for our company. Our plans are fully on track and we know that there is a high level of interest in these key initiatives. So, I'm pleased to turn the call over to David Wilson, President of our Plasma business unit, for a further update.

Thanks, Chris. I'm excited to lead our Plasma business unit as we advance toward commercial implementation of NexSys PCS. Haemonetics is a brand built on innovation in the blood collection and processing space, and I'm confident that the new platform will provide significant value to our customers who are working to meet the growing global demand for medicines derived from human plasma. Let me begin by restating our value proposition for the new platform. We will help our customers to reduce the cost to collect a liter of plasma by increasing plasma yield per donor, improving collection center productivity and throughput, helping ensure quality and compliance and enhancing the overall donor experience. Haemonetics is uniquely positioned to offer a new platform. It consists of the NexSys Plasma Collection System; its embedded software or, as we previously referred to it, firmware; the NexLynk DMS, donor management software; the disposables; technical support and customer service. Each of these components provides opportunity for additional innovation over time. Beyond the individual benefits of these components, the integrated platform is even more valuable for our customers and for Haemonetics. NexSys PCS is the foundation. We have harnessed more than two decades of experience as the leader in the plasma collection space to design and build the device. NexSys is a smarter device, easier to operate and maintain, and it was designed to increase overall plasma yield per donor through planned embedded software upgrades. You'll recall that the device was FDA cleared in July. We anticipate a 510(k) submission for the embedded software and we also expect the CE Mark on the NexSys PCS platform this spring. Our NexSys PCS will support an open architecture format to accommodate all DMS programs. However, we remain confident that the combination of our NexLynk DMS and our NexSys PCS…

Thanks, David. I hope it is clear how enthusiastic we are about Plasma, but it is not our only growth driver. Moving to our Hospital business, revenue grew 6% in the quarter, a good acceleration versus prior quarter and last year. Our performance in the quarter was driven by continued strong results in North America and improving international results in key markets. TEG revenue growth is on track at about 14% year-to-date versus fiscal 2017. In the third quarter, we drove double-digit sales growth in both TEG 5000 and TEG 6s disposables, as well as in our major TEG markets. We are beginning to see improvement outside the U.S. from ongoing organization and sales personnel changes, as well as specific commercial strategies for our most important markets. We remain enthusiastic about the differentiating role our products play in critical markets and the long-term growth prospects for our Hospital business, especially TEG. We continue to invest in multiple clinical trials for TEG, a multi-center BloodTrack study and KOL support from our Scientific Advisory Committee, as well as ongoing meaningful expansion of our sales force, including clinical representatives. Turning to our Blood Center business unit, for the past several quarters, the market has been relatively stable with moderating rates of decline in demand for blood products. In North America, volume declines appear consistent with our own estimates that have been validated by our customers, which is in the rate of decline of about 1% to 3% year-over-year. With this backdrop, we are making choices and managing the business accordingly with a focus both on commercial and manufacturing, as well as select disciplined investments in the business. The confluence of these factors is allowing us to maintain operating income in this business and puts us at the favorable end of our original negative…

Thank you, Chris, and good morning, everybody. Please refer to the two tables we posted to our website with the link in our earnings release. We provided specific revenue and income dollar amounts that derive the percentages I'll refer to in my comments. As we identified, all revenue growth rates I will discuss are organic. Third quarter and year-to-date fiscal 2018 performances included modest revenue growth, higher adjusted earnings including gross margin expansion and operating expense leverage aside from the investments. We also had free cash flow growth and we are delivering productivity and making investments above what we initially planned. Adjusted operating income grew 20% in the third quarter and 19% year-to-date. Our adjusted operating margin in the third quarter of fiscal 2018 was 17.9%, up 270 basis points over the third quarter of the prior year, while year-to-date fiscal 2018 operating margin improved to 15.5%, up 220 basis points over the same period of fiscal 2017. Included in the operating margin improvement in the third quarter is a currency benefit of 100 basis points and 30 basis points on a year-to-date basis. The net result of these improvements was fiscal 2018 adjusted earnings per share of $0.62 in the third quarter, up 44%, and a $1.44 year-to-date, up 26%. As we noted in the press release and referencing Chris' opening comments, we had three specific items in our adjusted earnings in this third quarter netting to approximately a $0.12 positive impact. First, the passage of U.S. Tax Reform led to a year-to-date rate adjustment that added $0.10 per share to our adjusted earnings. Second, favorable foreign currency added another $0.04. And third, increased outstanding share count reduced adjusted earnings by $0.02. Excluding these three items, we consider the remaining $0.50 per share, up $0.07 from $0.43 in last…

And our first question comes from David Lewis of Morgan Stanley. Your line is now open. David Ryan Lewis - Morgan Stanley & Co. LLC: Well, good morning, and thank you. A few quick questions for me. Just one quick question on earnings, you had said last quarter fourth quarter earnings could actually step up from the third quarter. I'm sort of assuming in light of the spending commentary this morning that's no longer the case. But could you just sort of walk us through, Bill, that relative spending and sort of where it's going and just confirm that the fourth quarter EPS is not going to be higher than the third? And then, one more financial for you, then, maybe one for Chris. $260 million purchase program, that was a surprise to us. Can you sort of talk about capital priorities the next two years? Here you have debt refinancing coming up, potentially third-party financing, and now this repurchase program, so how you're thinking about your use of cash these next couple of years. Then, one more for Chris after that.

So, David, on the Q3 to Q4, I think what you said is correct. I did say Q3 and Q4 would be slightly different. In Q3, we anticipated higher investment spending, but the timing of that has pushed into Q4. And also, with this – we've made the determination that we'd like to get some other investments and speed up the spending related to those. And that's essentially caused the Q3, Q4 comment to be slightly different, but we do expect Q4 to be less than Q3. In addition, I should just point out one more time that in the Q3 earnings, there were some unanticipated items such as Tax Reform and FX and net share count, which you can look at the $0.62 that we have for adjusted EPS, and that number essentially becomes $0.50. And, again, the implied Q4 EPS is $0.36 to $0.46. David Ryan Lewis - Morgan Stanley & Co. LLC: Okay. And then, the capital priorities, Bill, just the next couple of years. And then, for Chris, you obviously raised Plasma guidance to the high end of the range. It sounds like that's more end market demand than, obviously, NexSys traction necessarily. But, what can we expect from you as you move forward and see some contracts here in the summer which frankly is probably about three months earlier than we were expecting? Thanks so much.

Okay, David. So, as part of our long-term capital resource planning, we're actually in discussions with some of the banks now. Our amortization schedule starts to accelerate by the end of this year, and we'd like to get the refinancing done as soon as possible with the favorable interest rate environment and we're hoping that doesn't switch over too quickly. But also as part of our capital planning, we'll be very, very mindful of share dilution. But so, we have this $260 million planned repurchase and when we go through our capital structure over the next 90-plus days, obviously, we'll have further dilution in mind as we progress through that planning.

Yeah. Well, I'd just pick up on that. We're obviously very focused on capital allocation as part of our planning for next year and beyond. We'll continue to look at this. We obviously are going to make all planned investments and that's contemplated even in this announcement. We'll continue to fund fully all of our value-creating opportunities and proper allocation for inorganic growth through M&A, which is an important part of our strategy. In terms of Plasma, we definitely feel we're going to be at the high-end of the range. That's a combination of the underlying demand that we're experiencing, particularly in North America, but really globally now and for kits in particular. So, our customers are collecting more and we're benefiting that as the share leader. And then, we have some mix benefits as well. There's just more favorable product lineup that we're driving forward. So, the strategy is working and we're feeling good about it. In terms of the actual rollout and the timeline, and we can certainly get into this with David Wilson here in the room, but we're fully on schedule. We're not changing from where we were. Regulatory, logistics, customer negotiations, manufacturing ramp, all proceeding essentially as planned.

Thank you. And our next question comes from Matt Hewitt of Craig-Hallum. Your line is now open.

Good morning, gentlemen. Thanks for taking the questions.

Hey, Matt.

First one from me. Blood Center was a little bit better than we had anticipated. It sounds like the declines have been moderating there. Is this maybe the new run rate? Are we close to a new run rate? Or how should we be thinking about that over the next, call it, two years or so?

Yeah. So, we certainly have benefited by a reduced rate of decline in the number of transfusions in North America in particular. So, we had originally factored in 5% to 7% and what we're experiencing is closer to decline, excuse me. What we're seeing is kind of minus 1% to minus 3%. As we poll the experts both in our Scientific Advisory Committee and our individual customers, there's a healthy range around that and it does depend on which components you're talking about and which geographies you're looking at. But, I think the minus 1% to minus 3% appears to hold for the current period. And based upon that, we're succeeding and benefiting from it. We have also continued to manage that business quite purposefully. So, the individual contracts that we have, that we've continued are contracts that are appreciably more favorable to us and represent a more sustainable base of business for us and for our customers.

And, Matt, if I can just add one thing to that and I said it in my opening comment was we do expect the Q4 growth rate to be in the – decline in Blood Center to be in the low teens. There were some significant order timing cut-offs between Q1 and Q4 of this year and last year. And when you look at the revenue dollars overall that Blood Center is generating in Q4, it's about equivalent with what we did in Q2 and Q3 of this year. So, even though we will see a growth decline in the business greater than the 5% that we've seen year-to-date, it shouldn't be alarming.

Okay. Great. Thank you. Maybe one point of clarification for me on the tax rate, is that all – the benefit that you discussed in your prepared remarks, is that all from the lower income tax rate or does that also include the medical device tax being pushed out again? Thank you.

So, there's no impact from medical device tax in that. The reduction in the rate, we have accounted the Tax Reform in there. Again, it impacts us just for a quarter in that rate. We also had a significant number of stock option exercises in Q3, which are automatically deductible for tax purposes. So, that also drove our rate down.

Great. Thank you.

Thank you. And our next question comes from Dave Turkaly of JMP Securities. Your line is now open.

Great. Thanks. You talked a lot about sort of some of the software associated with Plasma in the prepared remarks. And I just want to be clear, the 510(k) for the embedded software remains on track in terms of when you think you'll get that. And I think you're saying that this will now be – the first contract you think you'll negotiate in the summer of 2018. I just want to verify there's – do you think we'll get any color in terms of maybe how somebody is trialing, customer trials are going or any commentary at all when those contracts start to come on line even at just a high level in terms of how that compares to what you expected?

Dave, it's Chris. Thank you for the question. I'll let David give you a direct response. I do appreciate and we understand the interest in Plasma. We want to be transparent. However, to preserve customer confidentiality and avoid potential competitive conflict, there are some questions or some level of detail in response to your questions that we're going to refrain from just for those reasons, and I'll let David answer the question directly.

Thanks, Chris. Dave, so, you're right. The timelines are on track. We'll file the 510(k) this spring. We expect an expedited review, but obviously, that will really be in the hands of FDA. In parallel with that, we are doing the donor center experience programs. Those are giving our customers an opportunity to get some experience with the device. They have a lot of paperwork and planning to do for full center conversions. So, that's a parallel activity. I can share with you without getting into specifics that the majority of our customers are engaged in doing one of the programs and we view that as a precursor to launch. It starts with really an office space setting, and then eventually, we move to live donor draws and experiences. The high level feedback thus far from all of the staff and the centers, as well as from the donors themselves, has met our expectations. Clearly, we're learning together, that's the phase that we're in, but we're excited about the progress and intent on preserving the timeline and having a great launch as we get into the summer.

Thank you for that. And then maybe one for Carter, if he's there, or just looking at sort of the Cell Processing side. I think you guys talked about that becoming a growth business. I think there were some new products that were going to potentially help reinvigorate that. But any color or comment on the Cell Processing line and new options that might increase the growth rate there.

Yeah, it's Chris. No Carter this morning, so I'll be a stand in, if I might. Obviously, we're very enthusiastic about Hospital across the board and talk a lot about TEG in the script and elsewhere. In terms of the other two lines of business, Cell Salvage and transfusion management, they face different challenges and different opportunities. In Cell Salvage, we're breathing new life into that business, we're very much focused on the individual returns for the equipment. It's driving relevance and use as much as the reach there. And with the new product advancements that we put into the marketplace earlier this year, some enhanced connectivity, some improved features and benefits associated largely with the software that accommodates the Cell Saver line, we're seeing a nice customer response to that. So, that will play forward for us in both revenue and profitability particularly. Transfusion management actually has the potential to be our highest growth venue. It's largely a software offering. There's some hardware in terms of refrigeration in consort with that. But we feel we know a thing or two about helping hospitals with their patient blood management, and that's certainly a thematic interest in the marketplace, and we're pushing hard to help the transfusion management, both BloodTrack and SafeTrace, live up to its full potential. So, it's one that we're excited about particularly as we transition into FY 2019 accelerated growth to come.

Great. Thanks a lot.

Thank you and our next question comes from Anthony Petrone of Jefferies. Your line is now open.

Good morning. Thanks. And congrats on the company being intact after the Super Bowl. I understand there's Philly and Patriot fans there, so that's a good thing. In terms of – a couple for Bill just on restructuring and tax outlook and then, a couple on Plasma. Just on restructuring, it appears just that the costs incurred year-to-date around $31 million versus $50 million to $60 million, that seems to be tracking ahead of expectations, and it sounds like there's going to be a portion of the pre-tax savings that's invested. So, maybe in 2019 and 2020, how do you see the restructuring savings rolling in between those two years and then how much will ultimately be reinvested for growth?

So, on the restructuring savings, Anthony, between the two years, we're not ready to disclose exactly what those savings amounts are related to the restructuring program. But just to reiterate what we've said is by the time we get to the end of FY 2020, we will be at that $80 million run rate amount.

And that's again net of – will a portion of that be reinvested and what mix of that do you expect will go to the bottom line versus being reinvested?

Yeah. I don't think we're going to talk about that specifically, but we've made – we continue to say we're going to make investments in Plasma for the rollout of the devices and everything else that David spoke about this morning, as well as in the Hospital business, we continue to have the clinical trial work that's going on and other developments within the sales force, we're building out the sales force. So, I think we're sticking with what we've said over the last year and a half since I've been here, and there's no change. But, obviously, as any investments come up, we'll always look at those strategically to try to accelerate growth.

Fair enough. And then, last on financials, just on tax, should we assume that the fourth quarter tax rate is sort of a good measure for fiscal 2019 and beyond? And then, just to follow up on Plasma, just anything that you can share in terms of the various different benefits that NexSys is bringing. I mean, what are you hearing is more important? Is it reduced error (48:54) yield, donor management? Any color there would be helpful. Thanks.

So, Anthony, on the tax rate, the 23.5% that we have year-to-date and that we're assuming for the full year, our expectation is we'd be lower in FY 2019.

Okay. Thanks.

Thank you. And our next question comes from Brian Weinstein of William Blair. Your line is now open.

Hi, guys. Good morning. This is actually Andrew, on for Brian this morning. On TEG, Chris, it sounds like OUS is getting better there and the turnaround in that business is going well. But what else more really needs to happen in order to get that back to a point that you're confident in?

Andrew, I'm going to answer your question in just a moment. I just – Anthony Petrone had asked a separate question about Plasma and customer benefits and how we're thinking about that. I'm going to let David from our team respond, and then I'll pick it up on his heels to go through your question.

Great.

Yeah. Thanks, Chris. So, consistently, Anthony, we talked about our value prop involving the goal to reduce the cost to collect a liter of plasma and that's really supported by four of the (50:08) benefits. One is to increase plasma yield per donor. Obviously, that's the focus of the 510(K) submission. Beyond that, we get into a lot of activities around improving center productivity throughput, really focusing on their ability to process more donors each day, and then, ensuring quality and compliance. Obviously, heavily regulated industry with a lot of sensitive donor data, so doing that well, doing that with a paperless system, all digital will be very helpful. And then, donor recruitment and donor retention is key. So, enhancing the overall donor experience has a broad benefit to value prop. And so, when you look at our ability to take the NexSys PCS and NexLynk DMS that have been designed to work together, collectively, they'll support the optimal experience and also support the reduction and the cost to collect a liter (51:07). So that's what we're focused on.

Great. Thanks, David.

Andrew, to your question on TEG, we're obviously very enthusiastic about TEG worldwide. In terms of the performance outside the U.S., you may recall, back in the spring, we pivoted to this new customer-centric business unit configuration, predominantly in our commercial organization. Historically, the company was more regionally focused. And I think consistent with that prior focus, there were trade-offs that were made at the local level and that was then. Our focus is with these global products like TEG and fully opportunizing that, what they can mean in the marketplace. So, we reconfigured, we're looking at this very much like a core markets, largely country-based strategy. And we're seeing that the early benefit of that, we have a number of markets outside the U.S., notably China and the UK, that have responded quite well to this focus and are delivering. We have a handful of other markets, where we see tremendous potential and we're getting the first green shoots of growth there. It's an interesting thing, we put force and bold (52:17) plans. The reality is that if you look across our five largest OUS markets, we're experiencing growth rates that are at or above 20%. However, our forecast done probably a year ago was more ambitious than that. And like we now understand kind of the pace of that change and we're excited. We think we can get back to that. We're not going to get back to that in the current fiscal year.

Understood. Thanks, guys.

Thank you. And our next question comes from Jim Sidoti of Sidoti & Company. Your line is now open. James P. Sidoti - Sidoti & Co. LLC: Good morning. Can you hear me?

Yes, sir. James P. Sidoti - Sidoti & Co. LLC: Chris, I assume you wore your Eagles jersey to work yesterday.

I did. I actually attended the game, Jim, all the glorious 60 minutes of it.

And he has his shirt on just to rub it in here.

There were a few gentlemen (53:15). James P. Sidoti - Sidoti & Co. LLC: Good. Good. I know you're reluctant to give guidance for fiscal 2019, but on just one aspect, the tax rate, you said it was going to be lower than it is in the fourth quarter. Can you give us some boundaries on where you think that tax rate will come in for fiscal 2019?

I'm not going to provide anything else right now other than saying that it'll be lower than what we're projecting for this year. James P. Sidoti - Sidoti & Co. LLC: Okay. And then the gross margin this quarter was quite a bit higher than I expected it and I think than you've had the past couple of quarters. Is this the kind of a new level or were there some onetimes that impacted that?

On a year-over-year basis, there was obviously really strong performance because of the inventory charges that we took last year, and we had good benefits of mix. Our expectation is that we would be in the range where we are in Q3, but we have a restructuring program of which a portion of those savings are pointed towards gross margin improvement. So, over time, we should see an upward movement in gross margin. James P. Sidoti - Sidoti & Co. LLC: All right. All right. Thank you.

You're welcome.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Chris Simon for any closing remarks.

Thank you, all. Just a quick heads-up for calendaring purposes. At this point, we're not planning on having an Annual Investor Day meeting this summer, given our many business priorities that we anticipate playing out during the same time period. If we change that, we'll be back to you, so that you can mark your calendars accordingly. Thank you. Thank you, again, for the time today.

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