Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Haemonetics Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call may be recorded. I would now like to turn the conference over to Gerry Gould, Vice President, Investor Relations. You may begin.

Good morning. Thank you for joining us for Haemonetics Second Quarter Fiscal '19 Conference Call and Webcast. I'm joined today by Chris Simon, 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. 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 second quarter and first half fiscal '19 results to our Investor Relations website. We posted revised fiscal '19 guidance and tables with information that we will refer to on this call. Those tables are within the document entitled Analytical Tables and Supplemental Information to which we provided a link in our release. 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 revised fiscal '19 guidance. 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 costs, charges, asset impairments, and income items from the adjusted financial results, which we'll talk about today. Such items included restructuring and turnaround charges, accelerated device depreciation, deal-related amortization expense, asset impairment, and related charges and a legal charge. In the first half of fiscal '18, we excluded the gain we realized upon sale of our SEBRA line of bench top and hand sealers. Finally, in all periods, we excluded the tax effects of excluded items. Further details of second quarter and first half fiscal '19 excluded amounts, including comparisons with the same periods of fiscal '18, 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'd like to turn the call over to Chris.

Thanks, Gerry. Good morning, and thank you all for joining today's call. We are pleased with our continued strong performance in the second quarter as we execute the accelerated growth phase of our multiyear turnaround. Halfway through the year, our results demonstrate that our three-pronged value-creation strategy to compete in winning segments with market-leading positions and deliver superior performance is building sustainable momentum. We are pursuing our turnaround and in many ways, the company is in launch mode. We are rolling out NexSys PCS and NexLynk DMS, a significant advancement in the marketplace and a major undertaking for our teams. We are expanding TEG 6s as it gains global momentum, and we are executing our corporate-wide complexity-reduction program to improve the way we work, all of which are fundamentally changing our performance. In the second quarter, we grew revenue 7% driven by strong market demand for Plasma and TEG. We benefited from complexity-reduction to deliver adjusted earnings per share of $0.56 compared with $0.48 in the prior year's second quarter. In the first half, revenue grew 8% as reported and 7% in constant currency. Our adjusted earnings per share in the first half increased to $1.15 versus $0.82 last fiscal year. I want to highlight our business unit results, which are evidents that our growth plans are on track. Let's begin with Plasma. Second quarter revenue increased 13% on strong volume growth in the core business driven mostly by North America disposables. Pricing from NexSys PCS began to contribute to growth and is expected to ramp in the back half of the year and beyond. We are mobilizing to keep pace with organic demand to ensure we have the capacity and resources to support and service our customers. We remain focused on NexSys' commercialization and all of our launch work…

Thank you, Chris, and good morning, everyone. Please refer to the tables we posted to our website with a link in our earnings release. We provided specific revenue and income dollar amounts that derived certain percentages I will refer to in my comments. Revenue growth rates I will discuss are in constant currency and compare with the appropriate prior year period. On that basis, we reported 7.2% revenue growth in both the second quarter and first half of fiscal '19. Plasma revenue increased 13.3% in second quarter and 13.6% in the first half of fiscal '19. North America Plasma, which accounts for about 80% of total plasma revenue, was up 17% in the second quarter and first half of fiscal '19. This included disposables growth of 16.2% in second quarter and 15.8% in the first half of fiscal '19. We are expecting these first half trends to continue. And accordingly, we're raising our fiscal '19 guidance for global Plasma revenue growth to 14% to 16%, up from our prior guidance range of 7% to 10%. This revised Plasma revenue guidance includes 17% to 19% growth expected in North America, an increase over the previous guidance of 10% to 14%. We had 11.3% growth in our Hospital business in the second quarter and 8.8% in the first half of fiscal '19. Hemostasis management, our TEG business, grew 22.3% in second quarter and 21.4% in the first half of 2019, an acceleration over the low teens growth achieved in fiscal year '17 and '18. Both Hospital and TEG growth were broad-based geographically with TEG growth rates near or above 20% in key markets of North America, China and EMEA. For China, specifically, a portion of the strong growth was due to distributor order timing in the first half of fiscal '19. Also…

[Operator Instructions]. Our first question comes from the line of Anthony Petrone of Jefferies.

Maybe to start on Plasma, couple questions there. Chris, you mentioned just good productivity enhancements at centers that have NexSys, 2,500 devices installed here at 60 centers. I'm just wondering if there is a bifurcation between those centers that have both NexSys and NexLynk versus just NexSys. And maybe the follow-through there would be, do you envision possibly further share gains on the software end of the business as this cycle continues? And then I'll have a couple of follow-ups.

Yes. Thanks, Anthony. Let me answer in reverse order, if I might. So at this point, 7 of our 9 major customers in North America are operating some version of our donor management software. All of them are in the process of being upgraded to NexLynk, just having done the demos and seeing what we have to offer. I think the system's very compelling and that's certainly the market response, and we feel great about that. As I mentioned last quarter, that includes at least 1 competitive conversion to our systems. We feel great about it. All of the first wave customers, and hence, the data that we were quoting on the prepared remarks, are a combination NexLynk and NexSys enabled centers, and that's why we have such a powerful ability to help manage through all 4 quadrants of our value proposition, yield, cycle time and throughput, the quality and compliance, which is another version of yield and then the donor experience that I commented on.

Maybe the follow-up would be, a couple of weeks ago, Grifols came out with some data on Alzheimer's using both IVIG and albumin. Maybe can you comment on what you're hearing just in the field as it relates to that data? And just anything high level - if this were to go through and obviously, Alzheimer's is a difficult category, but should this go through, what do you think would happen to demand for source Plasma over time? Any comments there would be helpful. And then the last one on restructuring. The goal there was $80 million in pretax savings. I just want - maybe to sort of benchmark it to that number, how much of that has been realized so far? And what do you expect to come in the next, say, 18 months?

Thank you, Anthony. I'll comment on source Plasma and let Bill address the restructuring charges - the restructuring opportunity. Source Plasma demand as you had seen through first half just continues unabated. And there is some variability from one customer to the next. Our largest customers in totality are really driving the bulk of that demand. I think they are to be commended for their commitment to innovation, both in terms of the end markets they serve on biopharmaceutical products, the Grifols release and other releases that have come out now, I'll would speak to that. And I think we're seeing a similar appetite for innovation in their collection center operations. So in the foreseeable future, as our guidance would suggest, we're really bullish on the organic demand in the marketplace.

And Anthony, it's Bill. On the restructuring piece, we're still committed by the end of this fiscal year to achieve the run rate of $40 million coming out of fiscal '19, and then by the end of fiscal '20, coming out with the $80 million on a run rate basis. So we haven't moved it all from any of our expectations regarding the restructuring savings.

Our next question comes from the line of Brian Weinstein of William Blair.

This is actually Andrew on for Brian. Maybe just following up on Anthony's questions there a little bit. Maybe you guys could get a little bit more granular on the drivers of this market demand that you're seeing? And maybe talk about the sustainability of that beyond the second half of this year?

Yes, I think as we think about growth drivers for our business, Andrew, obviously, Plasma in North America looms large. And there's a whole series of downstream opportunities for them, obviously, the work that Grifols is doing on Alzheimer's, but all of our major customers have innovative programs that they've pushed forward and the success they have met with on the regulatory front. We look at it in terms of their fractionation capacity and what they're willing to do in terms of building collection volume to support that fractionation capability. Our strong sense is the demand continues unabated. Most of our leading customers still purchase source Plasma on the open market at a premium for their own collection cost, so that tells us that we haven't exhausted the opportunity to grow organically there. In this quarter, as in the first half, we were also really pleased with the continued strength in our Hospital business. That's first and foremost driven by TEG and really TEG 6s, which over the long-term is going to account for 90% of our growth there, and it's a global story. We grew faster over the first half internationally than we did in the U.S., but in the U.S. alone, we grew in excess of 20%. And I think that's a testament to the investments we've made and the focus and the energy that we've put against it, it's sales and marketing but it's also clinical and R&D more broadly. So we feel quite good that our growth drivers will continue to compel us. And I think increasingly through the complexity-reduction and just better day-to-day management, we're eliminating a lot of the detractors and things that kind of holdback, so see those growth drivers playing an outsized role in propelling us forward.

Great. And then following up on some of the investment commentary that you made, I think you said $0.40 to $0.50 worth of earnings this year. Maybe if you could talk about whether or not we should start penciling that in for next year? Or whether or not that's more of a fiscal 2019 spend?

Yes. Andrew, on the fiscal '20 piece, we're obviously not going to issue any type of indication for what the investments will be. But for this year, going back to the May call, we did say that a lot of the - a lot or most of the complexity-reduction savings will be rolled into investments in the business. And some of those investments, for example, are the capacity expansion that we're undertaking with Plasma right now, as that machine and equipment comes online we'll have depreciation associated with that. And also as we rollout the NexSys PCS devices and as we continue to ramp up the number of devices play, that's a burden of depreciation that we would take. And then last year, in Hospital, we invested significantly in the sales force and clinical specialist, and we're seeing annualization of those cost this year, and we continue to invest more in the Hospital business. But we are on track for the $0.40 to $0.50 in investments overall for the company for fiscal '19.

[Operator Instructions]. Our next question comes from the line of David Lewis of Morgan Stanley.

This is Varun on for David. Just wanted to start out first, again, and I guess, coming back to Plasma guidance. Could you just give us more details there on how much of the guidance raise is the market which you had very positive commentary on earlier? And how much of that do you see as the NexSys ramp into the back half?

Yes. I don't think we're going to break down within our overall guidance on that, Varun. But what I would say is, it's important to think about Plasma along 2 dimensions. There is certainly the North American market demand, which is the primary market worldwide for source Plasma. There is also the international piece, some of which is source Plasma, some of which is what most of our international customers refer to as self-sufficiency for medical use. So there's 2 dimensions there, North America, far and away the larger driver as we've broken out in our guidance. We also think about disposables versus all other, and at the core, disposables are bowls, bottles and harnesses for us. We will also include liquids and we also think about the software both of which are interesting opportunities. The liquid number is a little hard to track just because we have some year-over-year normalization, we've now kind of phased into. And then software is a meaningful upside for us as we convert our customers, as I mentioned earlier, to NexLynk given the power of the integrated platform.

Got it, very helpful. And then last question, and I'll jump back into the queue. To get to the top end of your updated earnings guidance, we're estimating that operating margins maybe have to be flattish into the back half. Is that fair? And is that realistic as the pricing benefit steps up with NexSys even in light of the OpEx dynamics, you and Bill mentioned earlier?

Yes, they way I'd think about it is we set forth and we're very transparent about our goal to grow revenue in all of our categories faster than the market, right, that's what market leaders do and then to grow profit faster than we grew revenue because that's what good stewards do to capture operating leverage. Clearly, we haven't done that in the first half, and we're not guiding or expecting to do that in the second half due to the 4 factors that Bill laid out. What we face into, we feel good about those as investments in the main part, right? So the NexSys rollout, I mean, we're moving aggressively to meet our customer demand there and that's not without cost. There are onetime costs, they'll sunset on the other side of the rollout when we're on the other side of the launch and obviously, we'll return to leverage there. The sales and marketing ramp in Hospital, in particular, again, it's a great investment, you see that in our top line. But as that annualizes and then we gain scale against that, it'll become an increasingly smaller part, but it is a fixed factor. We've added feet on the street clinical commercial otherwise. The freight fees, like a lot of other companies, we're facing into the increased charges per segment and then we've got meaningful volume left on top of it. I think we can do better in terms of what it cost us to move our product around the network, but we need to demonstrate that, and we're working hard at it. I think we'll get better over time. We're not there yet and you see that reflected in our numbers. Then the last piece is incentive comp. We are committed to pay for performance. We did some benchmarking work earlier in the year. We looked at what we were doing with our hourly workforce in the manufacturing sites and the number of our salary positions, and we didn't feel we were competitive in the talent market. So we made increases in the proportion of variable comp. It's directly tied to performance. We're having the performance, and therefore, we have an increased expense associated with it. Again, I feel good calling that an investment.

Our next question comes from the line of David Turkaly of JMP Securities.

Just a follow-up there, you did mention the investments, I think you said sales and marketing, clinical, sales force, R&D. I'm just curious, is that kind of complete now? And if there is any way to quantify, like how many people did you add, maybe specifically to the sales force side? I'm just trying to get a handle on where that stands today given that is now - the growth in now coming back?

Yes, David, it's Chris. We're really encouraged by what we see, and I don't think we've seen the upper limits of that. In fact, we will continue to evaluate the opportunity to evolve our selling model, which in the main is more clinical people per salespeople just to help us drive the utilization revenue per device across the entire portfolio, which I think is the ultimate measure of our relevance with customers, and we're really excited by what we're seeing there. So as long as that continues to expand, we'll continue to challenge ourselves to push the envelope there. In terms of clinical, we're absolutely committed to broadening the shoulders of our product offerings. It's new indications, it's new evidence for existing indication, some of that evidence is pure clinical, some of it's health economics related. And that's the nature to what it takes to compete in today's environment, not only here in the U.S., but globally, and we feel really good that we have a value proposition that we can document and substantiate that value proposition and we're producing evidence that give our commercial teams chance to communicate that credibly in the field. So I don't think you've seen the last of our investments there. We're confident that they have very appropriate breakevens and really nice long-term leverage associated with them.

And I guess, just as a quick follow-up. You know just looking at, obviously, really strong hemostasis management cell processing. Just remind us in the cell processing side, new product cycle and what's going on there specifically to possibly bring that rate higher?

Yes. Thank you, David. So I would be remiss in not keeping on a promise I made to our sales team. We really, internally, we don't even use the cell processing monitor anymore. That's - it's Cells Saver and it's transfusion management. The good news is both product families are delivering. On Cell Saver, we end of life worth of patents. It's a product whose time had come and gone, but what you see in the quarter and the first half results is real stability and some additional equipment sales which bodes well for the future in our Cell Saver line as we've doubled down our focus there and are doing our part to gain back and grow what is rightfully ours in the market. Transfusion management is poised for really exciting growth although that will be disproportionally in FY '20 and beyond for us on the back of several new clinical programs there, either complete or nearing completion, and we're getting to ramp for what we do with that business going forward with a guess the opportunity is surprise positively.

Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.