Earnings Call: Q3 2018

Feb 6, 2018

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 Jerry Gould, Vice President, Investor Please go ahead. Thank you. Good morning, and thank you for joining us for Haemonetics' Q3 fiscal 'eighteen 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 ks we filed today and in our other periodic reports and filings that we make with the SEC. This morning, we posted our Q3 year to date fiscal 'eighteen earnings release to our Investor Relations website. We also posted 2 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 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 3rd quarters and year to date fiscal 'eighteen and fiscal 'seventeen, we excluded restructuring and turnaround charges, a legal charge and certain onetime charges resulting from U. S. Tax reform from adjusted earnings as well as deal related amortization expense. 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. Year to date fiscal 'seventeen, we excluded a noncash impairment charge. Finally, we excluded the tax effects of excluded items. In considering our results, please bear in mind that fiscal 'eighteen total Haemonetics revenue include Nocebra revenue. By comparison, the 3rd quarter year to date fiscal 2017 included $1,600,000 $4,700,000 of Sebra revenue, respectively. Today, we will cite organic revenue growth, which excludes the impact of the CEBA divestiture and excludes the effects of currency. Further details of Q3 and year to date excluded amounts, including comparisons with the same periods of fiscal 'seventeen, are provided in our Form 8 ks and have been posted to our Investor Relations website. Our press release and website also include a complete P and 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, Jerry. Good morning, everyone, and welcome to our Q3 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 our transformation and position Haemonetics for long term growth. Our performance year to date shows continued progress in our multiyear turnaround. Our goal is 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 3rd 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 Q3. We had some non operating items in our adjusted earnings in this Q3, 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 Q3 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 revenue 6%, while the decline in blood center revenue moderated to 5%. We generated $38,000,000 of adjusted free cash flow in the 3rd quarter, dollars 113,000,000 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 3 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 3rd quarter revenue growth was driven both 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 initiative. 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 for 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've previously referred to it, firmware, the NextLink 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 2 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 submission for the embedded 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 NexSysLink DMS and our NexSys PCS will provide the optimal bidirectional fully integrated system. NextLINK DMS makes Haemonetics distinctive because it is industry standard software and it was designed to fit seamlessly with the We developed NextLINK based on our deep customer insights and it is a truly paperless system making quality and compliance easier while supporting increased center productivity. The DMS also boosts donor satisfaction by providing the highest level of compliance, while reducing total donation appointment time. In March 2015, our largest plasma customer selected what is now our NexLink DMS for all its collection facilities worldwide. And we are pleased that we have successfully completed the U. S. Installation of our DMS for this customer. Today, the majority of North America plasma collections are conducted using a Haemonetics provided DMS. With regard to the disposables, the bowl, bottle and harness kits are manufactured to the highest standards of quality and precision. NexSys will leverage the disposable that we produce today. Additionally, we are innovating on both manufacturing and design enhancements to support future growth. Finally, we consider our technical support and customer service to be major assets. Relationships and experience matter and customer satisfaction is paramount. We remain committed to providing a superior caliber of customer facing technical agents backed by in house engineers, computer science experts and supply chain teams working to meet the needs of our customers. Beyond that, we provide services to customers that help increase their productivity in donor centers and build best in class in our operations. We leverage benchmark best practices to provide this service and we are evaluating options to scale that capability as part of our overall platform offerings. As we move forward toward our first commercial launch of the new platform, there are distinct areas of strategic focus, including regulatory milestones, manufacturing and global supply, commercialization, including customer contracts and logistics of phase launch. Let me provide a status for each of these critical elements. As I mentioned, regulatory milestones are on track. We have begun our manufacturing ramp up and are now accumulating our device inventory, some of which is being used for customer experience which I will discuss. Donor center experience programs are underway, and we expect the majority of our customers to participate in these programs within calendar 2018. As a point of clarification, we have previously referred to LMRs, FMRs and customer experiences. Collectively, these are intended to enable customers to use the device, evaluate implementation procedures and advance toward commercial use. These center experience programs will ensure a seamless rollout of our next generation platforms at a pace that supports the internal work for our customers to transition to our new platforms. We've also begun preliminary contract negotiations. We've also begun preliminary contract negotiations. We expect to implement our 1st customer contract for NexSys PCS beginning summer 2018 after the embedded software is approved and released. As previously communicated, that will constitute our first opportunity to realize financial our first opportunity to realize financial benefit on NexSys PCS. Overall, our timelines are on course. This is truly a great time to be at Haemonetics. I'm focused on our future. And now I'll turn it back to Chris. 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 Q3, we drove double digit sales growth in both TEG5000 and TEG6S 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 multicenter blood track 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 7% to negative 10% year on year revenue guidance range. The performance of our business units is enabled and overseen by an increasingly lean hit for purpose corporate center. We have multiple company wide efforts underway to drive performance. Importantly, our complexity reduction initiative announced in November of 2017 is moving forward as planned. It is a comprehensive effort to improve processes and drive productivity to free up resources to invest in growth. We are fundamentally changing the way our teams work and reducing our underlying cost base. We are ramping up a variety of enabling initiatives that are important to the transformation. We continue to streamline our operating model. We have teams focused on reducing cost in our operations, while ensuring the further safety and quality of our products. We are optimizing our new product pipeline as well as our manufacturing and supply network. And we are advancing the next stages of country and SKU rationalization. Strategic outsourcing of many of our back office activities is underway, freeing up capacity and mind share for us to focus on those activities that make us distinctive. Headcount changes are proceeding as planned and we are progressing in a thoughtful way to ensure continuity and minimize customer disruption. Savings will fund important investments in our future and fuel our innovation agenda. This includes the NexSys PCS rollout, R and D, clinical trials that advance the standard of care and bolster our market position, customer facing resources in sales and clinical, network capacity and people development. Our employees are delivering these changes. They're building new capabilities and improving processes that differentiate us in the marketplace and deliver the greatest value to customers, donors, patients and health care providers. As we deliver these changes, we remain committed to the principles of good governance. One of those principles is refreshment. As you saw in our recent announcement, Ellen Zane has rejoined our Board. She is the 4th member to join in the past 18 months, all of whom were selected because they possess a strong mix of operational, strategic and healthcare industry experience. Today, we announced that our Board authorized a $260,000,000 share repurchase program. We are committed to reversing share dilution in an opportunistic and prudent manner. In addition to this share repurchase, we will look at our capital allocation strategy in the context of our plans for next year, prioritizing investments in the business as well as opportunities for inorganic growth. Regarding U. S. Tax reform, Bill will take you through the details of what it means for Haemonetics, but it is a net positive for us and I believe it makes us more competitive globally for several reasons. First, it levels the playing field from a tax perspective and gives us operating flexibility so that we can manage our operations in the best way to be competitive. 2nd, it is more efficient to repatriate overseas cash and there are cash flow benefits associated with fully depreciating capital investments at outset. This will immediately reward for making the necessary investments in capital that are integral to our plans. 3rd, there are strong incentives for U. S.-based IP, which clearly plays to our strengths. Overall, a lower U. S. Tax rate significantly reduces our cost of capital and enhances the potential value of our anticipated investments and M and A. On the strength of our year to date results, we reaffirmed our revenue guidance for flat to slightly positive growth versus prior year on a constant currency basis, and we fine tune the ranges of our business unit estimates. We now expect both plasma and blood center revenues to be at the upper end of previous guidance ranges with hospital falling slightly below the previous range. We expect fiscal 2018 adjusted earnings per share to be in the new range of $1.80 to 1.90 which is $0.15 above our prior guidance and $0.25 above our original fiscal 2018 guidance. The implied 4th quarter earnings per share takes into account some targeted investments we will make to accelerate growth for fiscal 2019 and beyond. In conclusion, we are focused on taking the steps necessary to prepare for accelerated growth. Our products and our services improve patient care and reduce health care costs. We are passionate about this and it motivates us to work like someone's life depends on it because it does. I continue to believe that we have the right strategy and plans, the right products supported by the right processes and the right people and mindset to build a high performing and healthier Haemonetics. With that, I'll turn the call over to Bill. Thank you, Chris, and good morning, everybody. Please refer to the 2 tables we posted to our website with link in our earnings release. We provided specific revenue and income dollar amounts that derive the percentages I will refer to in my comments. As we identified all revenue growth rates, I will discuss our organic. 3rd 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 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 3rd quarter and 19% year to date. Our adjusted operating margin in the Q3 of fiscal 2018 was 17.9%, up 2 70 basis points over the Q3 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 operating margin improvement in the 3rd 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 0.6 $2 in the 3rd quarter, up 44% and $1.44 year to date, up 26%. As we noted in the press release and referenced in Chris' opening comments, we had 3 specific items in our adjusted earnings in this 3rd 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. 2nd, favorable foreign currency added another $0.04 dollars and 3rd, 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 year's Q3 to demonstrate the operating performance of our company in the Q3. Now I'll get into the details behind the results. In the Q3 of fiscal 2018, strong results in Plasma continued as revenue was up 5% organically. On a year to date basis, plasma revenue was up 6% organically. North America plasma disposables revenue was up 8% in the Q3 of fiscal 2018 and up 10% year to date. Revenue from our plasma disposables and software is expected to remain strong and is offsetting declines in liquid solutions. We are updating our fiscal 2018 plasma revenue guidance to approximately 5% growth, which is at the high end of our previous range of 3% to 5%. On an organic basis, we expect plasma revenue growth of approximately 6%. We remain highly confident in the continued market growth underlying our commercial plasma collection business, which continues to be driven by strong end market demand for plasma derived biopharmaceuticals. Hospital revenue was up 6.3% in the Q3 of fiscal 2018, an encouraging performance sequentially following growth at about half that level in the 2nd quarter. On a year to date basis, we had 5.5% growth. TEG Disposables growth was in the low teens or better, both in the Q3 year to date across all geographies. The TEG-6s delivered about half of the revenue growth year to date in fiscal 2018, while TEG-5000 continued to deliver strong growth in China. Also within our hospital business, cell processing revenue increased 1% versus the prior year Q3. For the year to date fiscal 2018, cell processing revenue was flat. We are updating our fiscal 2018 hospital revenue guidance to approximately percent growth, slightly below the low end of our previous 7% to 10% range. Hemostasis management growth that we expect in the 4th quarter will not make up for the shortfall we experienced in the Q2 outside the U. S. Hemostasis management grew 16% in the 3rd quarter and 14% year to date. So we maintain our expectation that hemostasis management will exceed fiscal 2017's growth rate of 14%. Blood Center revenue was down 5% in both the Q3 year to date fiscal 2018, considerably moderated rates from the decline of 14% in fiscal 2017. Year to date fiscal 2018 blood decline was partly by design as it included intentional exits from unprofitable business arrangements mostly outside the U. S. Platelet disposables revenue decreased 5% in the 3rd quarter and 6% year to date fiscal 2018. These declines are mostly attributable to continued adoption of a competitive double dose collection technology in Japan. Approximately 33 percent of platelet units collected in Japan, whereby double dose collection techniques in the Q3 of fiscal 2018 and are expected to continue at similar levels for the remainder of the fiscal year. Red Cell disposables revenue declined 11% in the Q3 year to date fiscal 2018 due mostly to lower pricing inherent in previously announced U. S. Customer contracts and customer consolidations. Whole blood disposals revenue was flat in the Q3 year to date fiscal 2018. The recent moderation in the rate of collection declines continued and we expect this moderating trend to continue over the long term. We are updating our fiscal 2018 Blood Sutter revenue guidance to a decline of approximately 7%, the favorable end of our previous range of a 7% to 10% decline. This revised guidance implies a low double digit percentage decline in the 4th quarter as we had an unusually strong prior year 4th quarter due to customer order patterns. 4th quarter fiscal 2018 Blood Center revenue dollars are expected to approximate the 2nd and third quarter amounts. 3rd quarter fiscal 2018 adjusted gross profit was 47.6%, 3 10 basis points above the prior year 3rd quarter. Year to date adjusted gross profit was 45.9%, 60 basis points above the prior year. We had benefits of product mix, productivity gains and the absence of prior year inventory charges that drove the improved performance. While we will fall short of our operating efficiency goals from cost savings projects for the year in Manufacturing and Global Supply, we continue to focus on stabilizing performance. Adjusted operating expenses increased $3,000,000 or 4% compared with the Q3 2017 and was higher by 50 basis points at 29.8 percent of revenue. The increase in operating expenses was a direct result of the anticipated acceleration of investment spending in the second half of the year. On a year to date basis, adjusted operating expenses declined $6,000,000 or 3% compared with the prior year and improved by 160 basis points to 30.4 percent of revenue. The lower operating expenses on a year to date basis resulted from planned incremental current We continue to evaluate investments to ensure we are prioritizing meaningful projects that will improve future revenue growth. We intend to accelerate planned strategic investments and incur other opportunistic spending in the 4th quarter. Including the accelerated investments, we anticipate spending of $20,000,000 to $30,000,000 of after tax operating expenses, representing $0.50 to $0.60 per share in fiscal 2018, an increase of $5,000,000 or $0.10 per share compared to previous guidance and directly impacting the 4th quarter. We continue to expect that productivity and continuing benefits of our prior year restructuring activities will deliver $0.30 to $0.40 per share of benefit in FY 2018. Our income tax provision on adjusted earnings was 18% in the Q3 of fiscal 2018, significantly lower than the Q3 of the prior year. The lower rate was due to an adjustment to our year to date tax expense to reflect the full year fiscal 2018 tax rate now expect with the impact of U. S. Tax reform. Also, we had an unusually high prior year Q3 rate due to a year to date catch up for unfavorable geographic mix. Our year to date fiscal 2018 tax provision on adjusted earnings was 23.5%, about 370 basis points lower than the same period of the prior year. Benefits of U. S. Tax reform more than offset the impact of a continuing shift in geographic income mix toward the U. S. We expect our full fiscal year 2018 tax rate to approximate our year to date rate. Upon enactment of tax reform, we recorded a $12,000,000 transition tax and a $7,000,000 adjustment of our deferred income tax balances in the Q3. Consistent with common industry practice and our own disclosure policy, the net tax provision of $5,000,000 was excluded from our Q3 and year to date fiscal 2018 adjusted earnings. In the Q3 of fiscal 2018, we incurred approximately $30,000,000 of the $50,000,000 to $60,000,000 restructuring and turnaround charges anticipated by our complexity reduction initiative. This 3rd quarter expense consisted largely of severance costs and was excluded from adjusted earnings. Adjusted free cash flow was $113,000,000 year to date in fiscal 2018 compared with $85,000,000 in fiscal 2017. In addition, we realized proceeds of $9,000,000 from the CEVA divestiture and $36,000,000 from employee share programs. We repaid $44,000,000 of debt, and we funded $5,000,000 for restructuring and turnaround activities, net of tax benefit. We finished the 3rd quarter in a strong cash position with $252,000,000 on hand, an increase of $112,000,000 since the end of fiscal 2017. The combination of improved operating results, disciplined asset management, strong working capital performance and favorable timing of capital expenditures, some materializing in fiscal 2019 instead of fiscal 2018, continue to lead fiscal 2018 to being a very strong cash flow year. We now expect approximately 100 and $25,000,000 in free cash flow generation before restructuring and turnaround costs. We increased our full year adjusted EPS guidance by $0.15 to a new range of $1.80 to $1.90 essentially including the 3rd quarter over performance, partly offset by increased investment levels planned in the 4th quarter. The implied $0.36 to $0.46 4th quarter is consistent with our expectations. The complexity reduction initiative we announced 90 days ago is moving forward as planned, so I will offer just a few brief comments. First, we affirm our expectation for $80,000,000 annualized run rate of savings that we expect to reach by the end of fiscal 2020, implying a full year benefit in fiscal 2021. And second, savings are expected to be minimal in fiscal 2018. And now we will proceed to your questions. And our first question comes from David Lewis of Morgan Stanley. Your line is now open. Well, good morning and thank you. A few quick questions for me. Just one quick question on earned earnings. You had said last quarter, Q4 earnings could actually step up from the Q3. I'm sort of assuming in light of the spending commentary this morning, that's no longer the case. But can you just sort of walk us through a bill of that relative spending and sort of where it's going and just confirm that the Q4 EPS is not going to be higher than the 3rd? And then one more financial for you and then Wendy, one for Chris. Dollars 260,000,000 purchase program, that was a surprise to us. Can you just sort of talk about capital priorities the next 2 years here? You have debt refinancing coming up, potentially 3rd party financing and now this repurchase program. So how you're thinking about your use of cash these next couple of years? And then one more for Chris after that. So David, on the Q3 to Q4, 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, 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 that share count, which you can look at the $0.62 that we have for adjusted EPS that number essentially becomes $0.50 And again, the implied Q4 EPS is $0.36 to 0 point 4 $6 dollars 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 Nexus traction this early. But what can we expect from you as we move forward and see some contracts here in the summer, which frankly is probably about 3 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 we're in. 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 $260,000,000 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. Yes. If I 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 and 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. 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. This is just more favorable product lineup that we're driving forward. So strategy is working, and we're feeling good about it. In terms of the actual rollout and the time line, 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. First one for 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, 2 years or so? Yes. 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%. The 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 purposely. 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 comments, was we do expect the Q4 growth rate to be in the the decline in blood center to be in the low teens. There were some significant order timing cutoffs between Q1 and Q4 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 Thank you. Great. 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 for 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 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 you did the first contracts you think you'll negotiate in the summer of 2018. I just want to verify those. And then do you think we'll get any color in terms of maybe how some of these trialing customer trials are going or any commentary at all when those contracts start to come online, even at just a high level in terms of how that compares to what you expected? Hey, David, 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. I'll let David answer the question directly. Thanks, Chris. So you're right. The timelines are on track. We'll file the 510 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 doing one of the programs and we view that as a precursor to launch. It starts doing one of the programs and we view that as a precursor to launch. It starts with really an office based 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? Yes. 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. We 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 SellSouth 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 is 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 concert with that. But we feel we know a thing or 2 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 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 and 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 it's Philly and Patriot fans there. So that's a good thing. In terms of 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 $31,000,000 versus $50,000,000 to $60,000,000 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 2020, how do you see the restructuring savings rolling in between those 2 years? And then how much will ultimately be reinvested for growth? So on the restructuring savings, Anthony, between the 2 years, we're not ready to disclose exactly what those savings amounts are related to the restructuring program. But just to reiterate what we said is by the time we get to the end of FY 2020, we will be at that $80,000,000 run rate amount. And that's again net of will a portion of that be reinvested or what mix of that do you expect will go to the bottom line versus being reinvested? Yes. 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 Q4 tax rate is sort of a good measure for fiscal 2019 and beyond? And then just a follow-up on plasma. Just anything that you can share in terms of the various different benefits that Nexus is bringing? I mean, what are you hearing is more important? Is it reduced era yield, donor management? Any color there would be helpful. Thanks. So Anthony, on the tax rate, the 23.5% that we're 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. Yes. Thanks, Chris. So consistently, Anthony, we've talked about our value prop involving the goal to reduce the cost to collect a liter of plasma. And that's really supported by 4 of the benefits. 1 is to increase plasma yield per donor. Obviously, that's the focus of the 510 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, a heavily regulated industry with 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 the value prop. And so when you look at our ability to take, the NexSys PCS and NexLink DMS have been designed to work together collectively to support the optimal experience and also support the reduction in cost of producer later. So that's what we're focused on. Thanks, 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 these global products like TAG and fully opportunizing that, 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 U. K. 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 1st green shoots of growth there. It's an interesting thing. We put forth bold plans. The reality is if we look across our 5 largest OUS markets, we're experiencing growth rates that are at or above 20%. However, our forecast done fully a year ago was more ambitious than that. And we now understand kind of the pace of 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 and Company. Your line is now open. Good morning. Can you hear me? Yes, sir. Chris, I assume you wore your Eagles jersey to work yesterday? I did. I actually attended the game, Jim, all of Victoria's 60 minutes of it. And he has his shirt on just to rub it in there. There are a few gentlemanly bets here that, yes. Good, good. I know you're reluctant to give guidance for fiscal 2019, but just one aspect, the tax rate. You said it was going to be lower than it is the Q4. 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 will be lower than what we're projecting for this year. 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 kind of a new level or were there some one times 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. 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 and you may all disconnect. Everyone have a great day.