Gerry Gould - Vice President, Investor Relations Brian Concannon - President and CEO Chris Lindop - Executive Vice President, Business Development and CFO.

Matt Larew - William Blair Larry Solow - CJS Securities James Francescone - Morgan Stanley Jim Sidoti - Sidoti & Co. David Roman - Goldman Sachs Anthony Petrone - Jefferies Jan Wald - Benchmark & Company Dave Turkaly - JMP Securities.

Good day, ladies and gentlemen. And welcome to the Haemonetics Corporation Second Quarter Fiscal Year 2015 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. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today’s conference, Gerry Gould, Vice President, Investor Relations. Please go ahead..

Thank you. Good morning. Thank you for joining Haemonetics second quarter fiscal '15 conference call and webcast. I'm joined by Brian Concannon, President and CEO; and Chris Lindop, CFO and Executive Vice President of Business Development. 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 actual results to differ materially is available in the Form 8-K we filed this morning, as well as in our recent 10-K and 10-Q filings.

On today's call, Brian will review the highlights of the quarter and the outlook for our performance going forward. Chris will cover second quarter and first half operating performance, as well as guidance for the full fiscal year in more detail. Then Brian will close with the review of our strategic initiatives and some 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 costs from the adjusted financial results we'll talk about today.

In the first and second quarters and first halfs of fiscal '14 and '15, we have excluded pre-tax transformation, integration and restructuring costs associated with our Value Creation and Capture program and other productivity initiatives. Additionally, the earnings information discussed for all periods excludes deal-related amortization expense.

Further details of excluded amounts, including comparisons with the applicable periods of fiscal '14, 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, 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. This morning we reported results for our second quarter of fiscal ’15, which similar to our first quarter, I characterize is being in line with our expectations.

We saw continued progress in our identified growth drivers and our whole blood business declines were consistent with previously disclosed trends. There are some revenue elements I would like to highlight. First, revenue decreased 3.5% as reported, but only 2.6% in constant currency. First half was down 1% as reported and flat in constant currency.

We still anticipate zero to 2% decline in revenue that we initially projected for fiscal ’15.

Second, our growth drivers place Plasma, TEG and emerging markets which represent more than half of our disposables revenue grew in constant currency at combined 5% of the second quarter and 11% in the first half with Plasma 14%, TEG up 23% and emerging markets growing 1% year-to-date.

We had some orders in emerging markets pointing to certain countries labor requirements. We anticipate the resolution in the back half of fiscal ’15. Third, Plasma growth in the first half benefited from the Australia and New Zealand distribution change during Q1 a year ago.

Adjusted for the impact of this change, Plasma grew 11% and our combined growth drivers grew 9% in the first half. These are both in line with expectations and position us well for double-digit growth in our growth drivers again this year.

Fourth, the anticipated headwinds which more than offset the performance of our growth drivers in the quarter, included reduced pricing, market share losses, the previously disclosed end of an OEM supply contract and overall market declines in demand for red cells in our U.S. blood center business together with currency pressure.

We expected and guided that these would overwhelm the real growth of our growth drivers. We saw that happen and we expect to see in the second half also. We expect to anniversary the impact of U.S. blood center pricing by the beginning of fiscal ’16, the market share losses early in fiscal ‘16 and the OEM contract expiration in mid-fiscal ’16. The U.S.

whole blood business represents only 10% of our revenue, so any risk of continued decline in transfusions is contained. We still expect the declines in U.S. transfusion rates to moderate in fiscal ‘16 turning to levels in the low 30s per 1,000 of population.

In summary, as we look forward to fiscal ’16, we believe that the ongoing momentum of our growth drivers will become more evident as most of the headwinds are anniversaried and U.S. whole blood market condition moderate. So as we’ve said, we expect to return to revenue growth in the mid-single digits in fiscal ’16.

We also continue to make important software device and customer contract advances, 510(k) approval was received for our next-generation Plasma software offering and a long-term contract was executed with one of our Plasma customers for its customization during fiscal 2016 for use in their collection facilities in the future.

We developed a cross donation check system for the Plasma collection industry. This automated system was requested by the Plasma Protein Therapeutics Association and has received 510(k) approval.

510(k) approval was also received our next-generation BloodTrack software, which was incorporated into a new HaemoBank smart refrigerator developed in an ongoing OEM partnership with Helmer Scientific. We registered the new TEG success device for sale in Japan and we continue to expect a limited market release in the U.S.

before the end of the current fiscal year. And finally, we're excited to announce a key long-term contract with CSL Plasma for saline and sodium citrate needed in their Plasma collection process. This will require capital investments that we are willing to make to serve this market need identified by our customers.

Chris will discuss these investments in more detail in a moment. Further, reflecting on our results. We earned $0.47 adjusted earnings per share in the second quarter of fiscal ‘15 and $0.85 in the first half. The first half earnings approximate 45% of our full year EPS guidance and that's what we expected going into the year.

Our Value Creation and Capture or VCC programs, advanced test plans and together with certain revenue ramps, which Chris will detail are expected to drive sequential growth and earnings in the second half of the fiscal year.

This was a solid quarter and we are reaffirming revenue and adjusted operating income and earnings per share guidance for fiscal ‘15. We also remain confident in our outlook for fiscal ’16, a mid single-digit revenue growth and double-digit adjusted operating income and earnings per share growth.

Even more importantly, we are encouraged from a strategic perspective and our progress in new product development, and recent new product approvals in software and devices. Our customers have told us what they need and they are rewarding us with long-term contracts as we deliver on our commitments. I’ll discuss these further in a moment.

But let me turn the call over to Chris Lindop, who will review the financial highlights and our current thoughts on guidance in more detail.

Chris?.

Thank you, Brian. In the second quarter total revenue was $228 million, a decrease of 3.5% as reported and 2.6% on a constant currency basis. For the first half of fiscal ‘15 total revenue was $452 million, down 1% as reported and flat in constant currency. Our full year expectation still contemplate topline currency headwind of 1% to 2%.

Plasma disposables revenue was $80 million in the quarter, an increase of $5 million or 6% as reported and 7% in constant currency. North American Plasma disposables revenue grew 12% in the quarter, 13% in the first half and our customers continue to be optimistic about end-market demand.

Outside the U.S., the delays Brian mentioned attributable to labeling requirements caused Plasma revenue in emerging markets to decline in the quarter to the benefit of the second half.

Nonetheless aside from the impact of the Australia and New Zealand distributor change over a year ago, which Brian mentioned, Plasma revenue grew 11% in the first half of fiscal ‘15. Our guidance range for Plasma growth in fiscal 15 is 7% to 9%, reflecting somewhat tougher comps as the year progresses.

Blood center disposables revenue declined 14% to $83 million with red cell flat platelets down 1% and whole blood down 29%. Platelet disposables revenue was $39 million in the quarter and $78 million in the first half increasing 4% in the first half, principally in the emerging markets where platelet growth was 9%, impart due to order timing.

The red cell disposables revenue, which was $10 million in the quarter and $20 million in the first half grew 2.6% in the first half in North America. The market trends we've discussed previously, decline in transfusion of red cells continues in our full year fiscal ‘15 guidance takes that into account.

Whole blood revenue declined 29% to $34 million with $22 million in North America, $9 million in Europe and European distribution markets and $3 million in the Asia Pacific and Japan markets.

North America whole blood revenue declined by $10 million, reflecting the trends in demand for red cells, the impact of the transitional OEM supply contract with Pall Corporation that recently expired, lower pricing in the Hemic Cell contract and lower American Red Cross volume.

The lost American Red Cross whole blood business was fully transitioned to our competitor late in the first quarter. So that $25 million annual run rate of the lost business or the $6 million quarterly revenue impact was felt in the second quarter and will continue to affect us in the back half of the year.

We still expect our blood center business to be down between 10% to 12% in fiscal ‘15. It's important when assessing the post transition fiscal '16 year to consider that the American Red Cross lost business, the Hemic Cell price decline and the OEM contract expiration will all be anniversaried by mid-fiscal ‘16.

The only remaining headwind to consider is the U.S. market decline which was approximately 10% in fiscal ‘14 and which is trending down approximately 10% in fiscal ‘15. The business affected by that market decline, which is our U.S. whole blood business now represents only 10% of consolidated revenues.

And this market decline is expected to moderate in fiscal ‘16. Hospital revenue was $31 million in the second quarter, flat with the prior year and $61 million in the first half of fiscal ‘15, up 1%. Growth in TEG offset declines in surgical and orthopedics cell salvage in both the second quarter and the first half.

Surgical disposals revenue were $16 million in the quarter and $31 million in the first half, down 4% as reported and 2% in constant currency in both time periods. Strength in the emerging markets was offset by weakness in developed markets.

In diagnostics, we enjoyed record TEG disposables revenue of $10 million in the quarter and $20 million in the first half, both up 26% as reported and 23% in constant currency, driven by increases in North America and China.

We installed over 1800 TEG devices in the last three fiscal years, a 72% increase and we fully expect strong disposables growth to continue.

Given current and anticipated trends in surgical ongoing OrthoPAT market headwinds and accelerating strong growth in TEG, we are confirming expected revenue growth of 4% to 6% in our hospital disposables business for fiscal ‘15 consistent with prior guidance.

Software solutions revenue was $18 million in the quarter and $36 million in the first half, both up 6% driven by BloodTrack orders. BloodTrack revenue nearly doubled in the second quarter with the delivery of a large order to prestigious U.S. hospital.

We continue to see a steady pipeline of software opportunities as hospital customers increasingly recognize software's importance in identifying and implementing blood management solutions. We continue to expect 2% to 4% software revenue growth in fiscal ‘15. Equipment revenue was $15 million in the quarter and $26 million in the first half.

Our installed base of equipment, which is the combination of purchased and placed devices increased 7% in fiscal ‘14 and another 3% in the first half of fiscal ‘15. This bodes well for future growth in disposables revenue. Second quarter fiscal ‘15 adjusted gross profit was $111 million, down $12 million for the -- from the prior year quarter.

Adjusted gross margin was 48.8%, down 350 basis points year-over-year, of which 50 basis points of decline related to currency. The remainder is attributable to lower pricing in volume in the U.S. whole blood business and mix towards lower gross margin Plasma revenue.

These headwinds more than offset productivity gains achieved from our VCC initiatives. Adjusted operating expenses were $76 million, up 2% over the prior year second quarter. We continued key R&D and emerging markets commercial investments, enabling critical product and market development.

And we accrued $4 million greater variable compensation than in the second quarter last year, offsetting most of the increase we benefited from ongoing organizational cost reductions. There were no significant effect of currency on operating expenses in the second quarter. Adjusted operating income was $35.1 million in the quarter, down $13.9 million.

Adjusted operating margin in the second quarter was 15.4%, down 540 basis points as the pricing and volume pressures in the U.S. whole blood business outpaced the ramp of benefits from VCC and other cost-saving initiatives.

Adjusted operating income and margin reflect these business headwinds as well as currency headwinds of $3 million in the second quarter related to the devaluation of yen denominated revenues. Settling yen hedge rates in the quarter were 23% weaker than the prior year rates.

Additionally, operating margin of 20.8% in the prior year second quarter was unusually high due to the timing of investments in key R&D projects, which began in the third quarter of last year. Interest expense associated with our loans was $2 million in the second quarter. Our tax rate was 25.7% compared with 26.2% in the second quarter a year ago.

We continue to benefit from the ongoing implementation of our global tax strategy. For the full fiscal year ’15, we expect the tax rate of approximately 26%, reflecting our relative profitability in certain tax efficient jurisdictions in the near-term.

Adjusted earnings per share were $0.47, down 29% attributed primarily to the immediacy of the whole blood pricing and volume declines versus an anticipated steady ramp in VCC and other cost benefits throughout the year.

Turning to guidance, we still see fiscal ’15, as a year of transition, with profitable growth and identified growth drivers -- Plasma, TEG and emerging markets, offset by earnings headwinds in the U.S. blood collection market, currency and bonus funding.

Our fiscal ‘15 revenue guidance on a reported basis includes Plasma disposables growth of 7% to 9%, a decline in blood center disposables, including whole blood of 10% to 12%, hospital disposables growth of 4% to 6% and software growth of 2% to 4%. Overall, we expect revenue to be flat, to down 2% on a reported basis.

Increasing gross profit related to both mix and the planned realization of our VCC initiatives and continued operating expense discipline in the second half will drive accelerated earnings later in the year. We are reaffirming the full year adjusted EPS guidance range of between $1.85 and $1.95 per share.

As in the past, our website includes revenue and income statement scenarios, which are based on the elements of guidance provided in my comments for the full year. We ended the first half of fiscal ’15 with $130 million of cash on hand, down $62 million from our fiscal ‘14 year end.

We used $54 million, net of cash tax benefits for VCC and other restructuring. $9 million for net debt repayment and $34 million for the repurchase of over 1 million shares in the open market under the current $100 million share repurchase authorization.

For the full fiscal year, we previously expected free cash flow generation of between $120 million and $130 million before funding $80 million of restructuring and capital investments related to our VCC activities.

We are adjusting our free cash flow expectation to a range of between $100 million and $110 million to invest in funding of capital expenditures and inventory related to the production, and sale of saline and sodium citrate to satisfy the new long-term contract with CSL Plasma and for devices to support the future growth in our Plasma business.

By fiscal ’18, incremental annual VCC savings, over and above the $30 million planned to be realized and reflected in our guidance for fiscal ’15, are expected to approximate $30 million to $35 million, for a total of $60 million to $65 million in annual savings.

For fiscal ’16, we are confirming our expectation to return to mid single-digit revenue growth and double-digit adjusted operating income and earnings per share growth. Our confidence in our ability to do this is bolstered by the recently signed long-term software and solutions contracts.

Significant benefit from these opportunities will not be recognized in fiscal ‘16, due to the implementation timeframes involved. The VCC and restructuring investments should be coming to a conclusion in fiscal ‘16, helping to drive margin expansion and a more competitive cost position for our products around the world.

With that, I'll turn the call back over to Brian..

Thank you, Chris. The first half of fiscal ‘15 was in line as far as our financial performance goes. We delivered what we expected and we are well-positioned to achieve full year guidance and expectations.

It's also been a six-month period with encouraging progress toward building out the suite of products and services we need to achieve advances consistent with our vision. A cornerstone of that vision is the integration of software and devices to deliver quality and economic benefits for collecting, processing and supplying blood.

We first saw this in our commercial Plasma business. This continues and it remains a key driver of growth in that important market. And we are now beginning to see this emerge with our hospital and blood collection businesses.

At out Annual Investor Day in May, we announced plans to develop four new products in fiscal ‘15, positioning our company for accelerated growth in subsequent years. These plans include a next-generation software product for commercial Plasma collection and a next-generation TEG device with enhanced operating and connectivity features.

In the important whole blood space, our plans include a comprehensive software product for donor recruitment, and retention that will complement the Donor Doc Phlebotomy already in the market and continued work with the FDA toward approval for the SOLX red cell storage solution with our own filtration.

Additionally, we indicated that we would pursue a major upgrade of our BloodTrack software offering. Halfway through the year, we remain on track in our pursuit of all these advances.

Our next-generation Plasma software received 510(k) approval in the second quarter, and we entered into a long-term contract with the Plasma customer to customize this new software to be used in their collection facilities in the future. We are optimistic about the prospects for similar contracts with other Plasma customers.

In the second quarter, we also completed a working prototype of the new Plasma collection device that was introduced at our recent investor day. Its capabilities are aligned with our customers’ vision of the Plasma collection center of the future. The next-generation TEG device, the TEG success, was completed and approved for sale in Japan.

And we expect CE Mark for sale in Europe during the second half of fiscal ’15. We continue to expect a limited market release in the U.S., before the end of the current fiscal year.

The software product for our donor recruitment and retention, that will complement the Donor Doc Phlebotomy product already in the market, is in progress and on track and expected to be complete in late ‘fiscal 15.

And the SOLX solution work needed to submit final data to the FDA is ongoing and on track for completion of recruitment and testing in December. The major upgrade of the BloodTrack software offering was completed and 510(k) approval came in the second quarter as well.

We announced a strategic OEM partnership with Helmer Scientific, a partner whose commitment to quality, service and support sets them apart. Together, we will design point of care blood management technologies, the first one being our BloodTrack HaemoBank device.

The BloodTrack software and HaemoBank device combined to form a powerful blood management tool that we introduced at a trade show in the U.K. last month and at the AABB Annual Meeting in Philadelphia last week. Hospital and blood center customer interest is encouraging. The new products we discussed at our May Investor Conference remain on track.

These products are all integral to responding to the ongoing needs of our cost position in our industry with the capabilities to do this. We announced today that we've entered into a long-term contract with CSL Plasma to provide the supply of saline and sodium citrate solutions needed in their collection process. Shipments will commence in fiscal ‘16.

This is an opportunity to begin to serve CSL with our sodium citrate product and to meet their complete solution needs by entering the important saline market as well.

Finally, we're pleased to announce 510(k) approval for a cross donation check system for the Plasma collection industry, fulfilling a request of the Plasma Protein Therapeutics Association. This automated system will enhance the Plasma suitability assessment process.

This will enable Plasma collectors to track and check donor viability using a single reliable source. Software is of the utmost importance to the advancement of blood management. Software and device capabilities are increasingly inseparable, and, together with our customers, were clearly moving software development and deployment up the priority list.

Haemonetics no longer introduces standalone devices. We introduce software and devices that will be inseparable in meeting our customer's needs.

In a market with partnerships aligning and price points changing, our customers were reaching us to prioritize BloodTrack and additional software development ahead of other projects, such as the automated whole blood collection device.

We stress the importance of software advancement and our customers are reinforcing it in the demands what really meets their needs. So the timetable for software is accelerating, while the timetable for the whole blood collector will extend into fiscal '17.

The software progress I am discussing with you today is encouraging for our company and our customers alike.

Meanwhile, work continues to bring value engineering to our whole blood kits, reducing their costs and allowing us to better compete in markets throughout the world, markets that are embracing leukoreduced technology and markets that are three times larger than the U.S. market.

Our VCC initiatives will streamline our operations, improve quality and deliver by fiscal '18 expected annual savings of $60 million to $65 million over fiscal '14 levels. These important initiatives remain on track. Many of our current headwinds will moderate early in fiscal '16 and the real strength of this business will emerge.

Strength that we expect will translate into a return to mid-single-digit revenue growth and double-digit adjusted operating income and earnings per share growth.

Our business fundamentals remain strong and expanding global footprint, differentiating new products advancing through the R&D pipeline, and increasingly advantageous cost structure and the broadest array of products and services in the blood industry.

We are increasingly well-positioned to meet the needs of our customers, capture global market share and drive sustainable profitable growth with meaningful domestic and international opportunities on the horizon.

Earlier this year our Board of Directors demonstrated confidence in our strategy by authorizing the repurchase of up to $100 million of Haemonetics shares. We completed $34 million of that program in the first half of fiscal '15 at an average price of $32.89 per share. This program continues and we will provide another update next quarter.

I will finish by thanking our employees again for maintaining a constant focus on the current and longer-term needs of our customers. They continue to earn my respect and appreciation. With that, we are happy to take your questions..

(Operator Instructions) Our first question comes from the line of Brian Weinstein from William Blair. Your line is now open..

Hi, good morning. Thanks for taking the question. This is Matt Larew in for Brian right now. So I want to follow up quickly Brian on the CSL opportunity.

Wonder if you could provide any additional detail about the size or the nature of that? How that came about? Was that a competitive bid process? And then, would you expect that there were other opportunities for the similar market for you?.

Yeah, Matt. Well, I think it’s clearly well-known what’s taken place with saline out in the market. I won’t believe at that point a question that's come up to us in the past, but I think any of you that follow our Plasma customers know how serious an issue this has been in the market for them.

We were approached by CSL asking us to consider expanding our solutions operation to meet their needs, some very seriously needs. We agreed to do that with a long-term contract with them. Roughly that contract is worth about $25 million per year.

We need to make some capital investments to bring ourselves up to speed to be able to produce that product and the quantities that they need and require. And yes, there’s other opportunities in the Plasma industry. We’re in discussions with a number of customers to meet their needs. Obviously for us the Plasma market is an extremely important market.

And because that industry has come for us, we’re responding to meet, not just CSL needs but continuing to build to meet the needs of the rest of the industry as well..

Okay. Thanks for that detail there, Brian. And then just quick following up here on AABB. One of the themes we picked up on was clearly blood banks looking for ways to diversify their revenue. And one thing that came up several times in our discussions was this idea of sourced Plasma and then perhaps greater participation in that market.

Has that something that any of your blooming customers have talked to you about as an opportunity? And it would seem that it would be sort of a very well -- like you mentioned be very well positioned in that market if you were to expand.

Could you talk a little bit about that?.

Well, it should be noted that the blood center customers have always provided recovered Plasma to fractionators as a part of the normal cost course of their business. Now you see two phenomenons happening.

One of them is that with the decline in whole blood collection, the amount of recovered Plasma has gone down, so you're seeing a voracious Plasma going up as a way to respond to that. That’s reflected in the numbers you're seeing from us.

But you're also seeing your blood collection customers who have a pool of donors looking for ways to generate revenue for themselves as well as they look to serve not only their market, their customers, but a growing market on the commercial Plasma side. And so we're in conversations with a number of customers.

And in fact, there is one blood center customer in the United States that has built its own Plasma collection center and that’s up and running with our devices and disposables being used..

Thank you. Our next question comes from the line of [John Hsu] (ph) from Raymond James. Your line is now open..

Good morning..

Good morning, John..

Good morning. Just a quick one on the gross margin.

I know you mentioned the puts and takes there and the 50 basis point impact from FX, but I was hoping you could break out the remaining segments from lower pricing volume as well as productivity gain?.

Well, we wouldn’t give that level of detail, but those -- all of those items that you have articulated contributed to the decline is well understood that we saw a significant pricing pressure in the whole blood market and obviously that our Plasma products have a lower gross margin than our other products.

And so, strong Plasma performance and the pricing pressures from the whole blood are both significant contributors to that decline..

Okay, great. And then a quick one on currency.

Just for the yen and the euro, what are you assuming for the second half of fiscal year? And again how should we think about the currency impacts going forward?.

We’re seeing, obviously, continued yen weakening, which will -- but we're hedged through the rest of year. So we have a fairly clear line of sight to the impact on our -- at least our operating income through our hedges for yen and for euro..

Thank you. Our next question comes from the line of Larry Solow from CJS Securities. Your line is now open..

Hi. Good morning, guys..

Hi, Larry..

On Plasma actually had a pretty solid quarter especially considering the label changes, with those label changes I assume just to the Plasma market, just to the emerging markets in Europe and what exactly were they?.

There were two principal label changes, one in South America, one in Russia, one affecting Plasma, the largest affecting Plasma and the other one affecting whole blood products..

Fair.

And anyway you can, I mean, the impacts sort of couple of $1 million, $2 million somewhere in that range?.

In the aggregate around $2 million..

Okay. Okay.

Just maybe early in the game, what sort of margin profile would you get on some of these -- the saline solutions contract and stuff, would that be a lower margin when it’s at full ramp?.

Yeah. We’re still getting our arms around all of the impact of that Larry. But we're looking at is something that will be lower margins when you compare to the rest of our products. But actually, operating margins that will be at least, as good as if not creative to where we are today..

Okay.

I imagine actually there is probably some leverage on that, so if you get more opportunities, I assume you get better margin?.

Yeah..

Yeah. And there is a high cost to investment there as well. But its clearly -- we’re entering this with our eyes open. It’s important to note that this is something our Plasma customers have asked us to do, because of what’s taken place in that market and this is an important product for them in their collection process..

Thank you. Our next question comes from the line of James Francescone from Morgan Stanley. Your line is now open..

Hey. Good morning. Thanks for taking the question..

Hi, James..

Hi, James..

First, wanted to return to gross margin in a forward-looking fashion? If you look at what you’ve done in the first half of the year, you're coming in, obviously, below 49%? To get even to the lower end of your range for the full year, it looks like you need to do 51% or better for the back half of the year? I mean, how do you think about bridging from where gross margin is been the first half to where gross margin seems as if it needs to get in the back half?.

Well, a lot of it, it is two factors, James, one is the ramp in the VCC activity and the second is mix. We’re obviously looking for acceleration in our surgical products, which have -- carry a higher gross margin -- higher standard gross margin in the back half.

And we’re obviously also seeing the benefit, maybe not obviously, but certainly we are seeing the benefit of a steady improvement in our cost position as we close factories in high-cost areas and start to get product coming through the lower cost areas and we are -- we've completed the transition, like 95% completed the transition of Braintree to Mexico at this point in the year..

Okay.

And then the emerging market labeling and timing issues, does any of that impact the hospital business or is that purely Plasma and whole blood?.

Plasma and whole blood..

Okay. And so in that respect, again, I would say, looking at the growth rates for the hospital business in the first half so far, just about flat, maybe slightly positive.

And you're saying, you’re going to get to the mid-single digits the whole year? So what gives you that confidence in the back half you are going to get it -- get to mid to high single-digit growth rates for hospital?.

Well, we have focused on and we think, we may have mention this on quarter's call, but we focused on specific clinical programs in emerging markets where devices had been placed and we’re now turning on those devices during the clinical sell to increase the penetration or the activity of those devices within the locations where they’re settled.

So it’s a very targeted program. We’re working on it hard. The resources have been deployed and we expect to get results..

Okay. Thanks very much..

Thank you. Our next question comes from the line of Jim Sidoti from Sidoti & Co. Your line is now open..

Good morning.

Can you hear me?.

Yes, Jim. Go ahead..

Great. Can you just remind me what’s steps are left to get the TEG and SOLX products improved in the U.S.

and what’s an update on the timeline for those steps?.

Sure. So we’re completing the transfer of manufacturing of our consumables to our Pittsburgh facility. That’s what I’d call a validation process. We are finishing up responding to FDA and their questions. I think, actually one of those responses went back if not last week the week before.

And as we've said before we’re planning, we've done (indiscernible) trials. We will do a thorough limited market release and plan to be in the market with the full market released in fiscal ‘16 and so all of that is sort of happening as we -- generally as we expect to know -- but generally as we expected.

So we continue to have those expectations and we’ll gather..

And the SOLX piece Jim, again, we expect to ramp up what we’re working on with the work to submit by the end of this calendar year, so that remains on track. So these are both products that we are excited about. What I tell you in general with our new product development, you're seeing first of all a big bite of the Apple.

We said, we come out with four products. We’re now up to five. We’re on our timelines. Those that we’ve now begun to introduce are receiving very solid response from our customers. So we’re really pleased with the progress we’ve been able to make here..

All right.

And with the new -- excuse me, the new saline solution, which plan will that be made in?.

That will be made in our Union of South Carolina facility..

All right. Thank you..

Welcome..

Thank you. Our next question comes from the line of David Roman from Goldman Sachs. Your line is now open..

Thank you. Good morning, everybody..

Good morning, David..

Hi David..

Chris, maybe just come back to FX for a second and understanding the hedger that you have in place around the yen.

But is there any directional help you can give us or rule of thumb we can use to understand the FX translation to the bottom line given -- just given the volatility that we’re seeing in a number of these different currencies? Are there any parameters that you can set out for us just to frame in analytical basis?.

Yeah. The Japanese business -- I think this is a well understood statistic is about 13% of our revenues, 13% to 14% of our revenues. And so as the yen moves, we hedge the bottom line David. So the way that we do that is we take a portion of our yen denominated sales and sell the proceeds forward one year, so we have great deal of predictability.

That leads a little bit of volatility on the topline because we obviously have yen denominated OpEx as well that offsets that OpEx and other cost of good. So we try to hedge that net operating income exposure. We have good visibility to that, through the end of the year based on the hedges that we placed last year at this time.

And we’re -- we don't speculate with our hedges, we just systematically step in to them. So we’re stepping into this currency trends on a business that’s about as I said, about 13% or 14% of revenues regularly month-by-month..

Yeah. And that’s being generous. Our Japan revenue probably, of course, right at the bottom, 11..

11.

I think it’s come back a little bit. So yeah, so that's how that works..

Okay. And then maybe, secondly on the share repurchase activity, the $34 million that you’ve done today.

I think in the press release you reported about fairly attractive price for stock relative to where it is right now? But maybe more broadly on capital allocation, as you kind of look into fiscal ‘16, it sounds like you're predicting a return to sort of more normalized-type stable growth in the business after -- after a challenging year here.

How should we think about share repurchases on a go-forward basis and any interest as you move into more of a stable growth period on implementing dividend?.

I think, we’ve got a pretty decent history of what we've done relative to share repurchase although as we've gone through a year of using lot of cash to transform the business following the Pall Transfusion Medicine acquisition. It would have some puts and takes relative to the demands on cash.

We typically try to cover the dilution minimally and that's our focus. We’ll continue to do that. We believe on our strategy. We believe on what we’re doing very strongly. The board believes in that. In terms of cash, we believe this continued opportunity to move into adjacencies from an M&A standpoint.

But we don't rule out any alternatives that exist there. Our objective here is to create and sustain shareholder value and we will do it in the ways in which we feel best reflects the circumstances in the business environment or whatever..

Thank you. (Operator Instructions) Your next question comes from the line of Anthony Petrone form Jefferies. One moment and your line is now open..

Thank you. A couple, one on Plasma and then a couple on whole blood. On Plasma and maybe, as we look into 2015, we know that Grifols, the fractionation plan in Ohio is actually complete and that will be up and running in 2015.

So, I’m just wondering how that plays into the current contract that you have with Griflos and what are your expectations in collections from that actual plan heading into 2015?.

I’d answer it, Anthony, more in the broad context of the market versus any specific customer. Every one of these customers is increasing fractionation. Every one of them is increasing their collections. But it’s all being driven by end market demand for the Plasma derived by our pharmaceuticals. The market is a strong market.

It’s continuing to grow strong and it’s a market we continued to be excited about. I mean, our move into saline should certainly signal couple of things. Number one, our support to this important customer base. This is a basic customers that asked us to start to do something for them we haven't done in the past.

And that's an important response from us and an important request from those customers. So you will continue to see that happen. Plasma would continue to be a significant growth driver for us going forward, more on the end market demand than anything else.

And when you look at our revenue in total going back to the question James asked, yes, I think we’re seeing the challenges in the first half in surgical. But we expect that to recover in the back half. But we also are seeing strength in Plasma. We are seeing strength in software.

We’re seeing strength in other parts of the business that continues to give us confidence in the overall guidance we've given to the business that flat to down 2%..

That’s helpful. And maybe on to whole blood, a couple of questions there and maybe an update on U.S.

transfusions where they sit in terms of 1,000, the trigger year or the goal you are looking forward which is an all 30s? And what gives you confidence that as we look into ’16, that you will -- the market will get to a point of moderating declines and then one follow-up to that?.

Yeah. So you are seeing a market that’s seen two years of about a 10% decline. We've always said that we expect this to moderate in fiscal ‘16. And why do we think that? I don't think it's going to be flat. But I don't think it's going to be another 10% decline either.

There is a lot of banter out there about what people expect to see in that market, somewhere in a 5% to 8% decline range. You’re looking at the market today that by anybody's estimation is collecting about 11.5 million units of blood per year. You can do the math at a population of $320 million in the U.S.

At 33 per 1000, you can do the math what that represents. So you're talking about a decline of somewhere in the neighborhood of another million or so. And as they get the best demonstrated practices around the world, it would be a little further than that down to 30, which I don’t think any of us expect but it could happen.

We’ll continue to moderate that as we go forward. The important piece here is that the U.S. whole blood business represents about 10% of our total combined revenues. Whatever happens there, we're going to know and understand and appreciate what’s happening. We’re going to be able to understand its impact on us better.

We consider that as we get our outlook for fiscal ‘16. It's included in that outlook of mid single-digit revenue growth. We continue to see that the partner that we won the business with HemeXcel continue to be aggressive in the marketplace.

They have acquired two blood centers over the course of the first half of the year and so we're seeing the benefit of that. So this is the progress we see in that space. We believe we understand that fairly well and what it means to us.

And the new opportunities that exist out there with BloodTrack and this product as it’s grown with TEG, that continues to grow rapidly with Plasma. We are excited about what that means in terms of our return to growth..

That’s helpful. And then the follow-up on just HemeXcel, you touched on it, Brian, is their consolidation efforts. You mentioned the two centers in the beginning of the year. What is the outlook for HemeXcel in terms of their share gains in the U.S. market? Thanks again..

Yeah, Anthony, it’d be inappropriate for me to speak for HemeXcel. I think that some of you have had conversations with them. They continued to remain very aggressive in the market.

They believe that, for them to be successful as they go forward, they need to not only focus on, how do they maintain the cost of their collections at levels consistent with the pricing needs of their end market customers, the hospitals.

But they believe that they have an opportunity to become more relevant in that space and take out a fair amount of cost that’s consistent with the four logistics that exist today and how blood is serviced between hospitals and blood centers. So that's our sweet spot. We’re excited to work with them about that.

We think that bodes well for our future with them..

Thank you. Our next question comes from the line Jan Wald from Benchmark & Company. Your line is now open..

Good morning, everyone..

Good morning, Jan..

Hi. A couple of questions. Most of the ones that I was going to ask have been answered.

But in terms of the labeling changes that were requested, could you talk a little bit about what they are and why they came about and when do you think they are going to be completed?.

Sure. As we said, we fully expect them to be resolved within the second half and therefore the second half to benefit from those revenues. What they are is what -- they are not one monolithic thing there, but they reflect changing regulations within countries that we have to respond to. Each of these products are regulated.

The label has a great deal of information on it. And if a country decides that they want some additional piece of information on it, then we have to make sure that that happens. And those types of changes don't happen with the click of a switch, they take time to work through processes because we have SOPs that govern that.

And we just have to remain and stay very close to our markets and make sure that we’re tightly coordinated between our marketing efforts and our regulatory efforts..

And just my last question.

Do you have any information on what blood tenders -- whole blood tenders may be out there for the rest of this year going into next year?.

Yeah, Jan. And that question got asked last quarter as well. And as you can appreciate, we have pretty decent visibility to what opportunities are out there. We’ve not talked publicly about these. We don’t plan to talk publicly about these, but it’s well-known within the industry and we will continue to be aggressive in the pursuit of those..

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

Thanks. I think in your prepared remarks you guys mentioned something about automated whole blood.

I wanted to just ask is where that currently stands and where does it stand with the FDA right now?.

We’ve not submitted anything on the automated whole blood collector to the FDA, Dave. What we said was the demands for software continue to accelerate. You saw a couple of things there. We talked about BloodTrack and how that’s accelerated. We also talked about this donor check system that the PPTA asked us to write.

It should be noted that some of them came to us about last summer. We received 510(k) approval for it last quarter. So our speed on these is getting better. Our ability to meet, to understand the needs of our customers work with our customers to develop products that can be rapidly develop to meet their needs is getting better.

Software is definitely up on the checklist of all of our customers, not just Plasma but our whole blood, or I should say our blood center and hospital customers. And so all except we’ve done is from a priority standpoint, spending standpoint moved the collector out into fiscal '17 as these demands continue.

And that’s reflective of what our customers believe the importance is relative to their business..

And just a quick follow-up. So longer-term, no decline in the enthusiasm there. I know automate whole blood is a big driver and that you guys have identified.

Is that still the case? I mean, just pushing it out a little further, is that how we should look at it?.

Yeah, I guess let me explain it to you this way, David, is our blood center customers are starting to understand and embrace what we've talked about. So the automated whole blood collector is going to target the cost of the collection. So if you got a cost of a collection at $200 and a hospital is targeting the cost of a transfusion at $1,100.

What you’re seeing in terms of shifting priorities is the blood centers' desire to become more relevant in that $1,100 transfusion working with their hospital customers. That is software and solution driven to get at that versus just the price of a collection. And so that's all that reflects. Our enthusiasm hasn’t waned.

The importance of that hasn’t waned just in terms of its relative position to all the other priorities that we face..

Thanks a lot..

You’re welcome..

Thank you. And at this time, I am not showing any further questions and would like to turn the call back over to Brian Concannon..

Thanks, Charlotte. With the first half behind us, we’re off to a good start in fiscal '15. Our identified growth drivers representing over half our disposables revenue continue to drive growth. This is being offset in the near term by declines in our U.S. whole blood business consistent with known trends.

Most of these headwinds will pass by mid fiscal '16. Software advances and sodium citrate and saline solutions capabilities have emerged to further strengthen our important Plasma franchise. And new product initiatives of both software and devices are catching the attention of our customers.

Plans to bring four new products to market in fiscal '15 remain on track. And our product offering now includes new BloodTrack software and the BloodTrack HaemoBank. Our VCC initiatives also remain on track to provide the acceleration in earnings expected in the second half of the fiscal year.

We reaffirmed our revenue and earnings guidance for fiscal '15 and our outlook for fiscal '16, and we remain focused on execution. Thank you for your attention this morning..

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