Earnings Call: Q2 2018

Nov 7, 2017

Good day, ladies and gentlemen, and welcome to the Haemonetics Second Quarter Fiscal Year 2018 Financial Results Call. My name is Brian, and I will be your facilitator today. At this time, all participants are in a listen only mode. Later, we will host a question and answer session. It is now my pleasure to hand the conference over to Mr. Gary Gould, VP, Investor Relations. Sir, you may begin. Thank you. Good morning. Thank you for joining us for Haemonetics' 2nd quarter fiscal 2018 conference call and webcast. I'm joined today by Chris Simon, President and CEO and Bill Burke, CFO. Please note that our remarks today will include forward looking statements. Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form 8 ks we filed today and in our latest Form 10 ks filing. This morning, we posted our second quarter and first half fiscal 'eighteen earnings release to our Investor Relations website. We also posted 2 tables with information that we will refer to on this call. Today, Chris and Bill will discuss elements of our financial and business performance, our guidance, trends in our served markets, our strategy and the new initiative we announced. Then we will take your questions. Before I turn the call over to Chris, I would like to mention the treatment in our adjusted results of certain items, which by their nature and size affect the comparability of our financial results. Consistent with our past practice, we have excluded certain costs, charges and income items from the adjusted financial results, which we'll talk about today. In the 2nd quarters and first halves of fiscal 'eighteen and fiscal 'seventeen, we excluded restructuring and turnaround charges from adjusted earnings as well as deal related amortization expense. Also in the first half of fiscal twenty eighteen, we excluded the gain we realized upon sale of our Sebra line of benchtop and hand sealers. In the first half of fiscal twenty seventeen, we excluded impairment charge. Finally, we excluded the tax effects of excluded items. In considering our results, please bear in mind that fiscal 2018 total Haemonetics revenue and Plasma business unit revenue include no Sebra revenue. By comparison, the second quarter and first half of fiscal twenty seventeen included $2,000,000 $3,000,000 of CEBRA revenue, respectively. Further details of 2nd quarter and first half fiscal year, excluding 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 will turn the call over to Chris. Thank you, Jerry, and good morning. Our comments today will focus on the 2nd quarter and first half results, our fiscal 2018 guidance revision and our complexity reduction program, and then we will take your questions. Our first half fiscal twenty eighteen results demonstrate continued momentum in implementing our strategy to compete in winning segments and geographies to achieve leading positions in each segment where we compete and to deliver superior short and long term operating performance. Our Q2 fiscal 2018 results met our expectations. 2nd quarter revenue was $225,000,000 and aside from the divestiture Jerry noted, up 3% both in reported and in constant currency. We had 6% plasma revenue growth, 3% hospital growth and our blood center business stabilized, declining 4% in constant currency. On an adjusted basis, operating income increased 100 basis points to 16.2%, up $3,000,000 or 9% as we continue to benefit from our ongoing cost savings initiatives. Adjusted net income of $26,000,000 was also up 9% and earnings per share were $0.48 up 4% above last year's Q2. We generated $46,000,000 of adjusted free cash flow in the 2nd quarter, $75,000,000 year to date, further validating the ongoing strong cash generating capability of our business and providing flexibility for the growth investments that we are making. We delivered strong first half results across our three business units. Plasma and hospital each grew revenue 5% in the first half and the decline in blood center revenue moderated to 5%, all while pursuing ongoing productivity. These strengths allowed us to overcome inefficiencies in manufacturing operations and underperformance in our hospital business outside the U. S. We will talk later in the call about the actions we are taking to address these challenges. In plasma, we are focused on the planned rollout of our new PCS system. As you will recall, the NexSys PCS plasmapheresis device received U. S. FDA regulatory clearance in July, a major milestone achievement allowing us to move forward with the new platform in a timely manner as planned. We remain optimistic about the development of the embedded firmware, which combined with the NexSys PCS device, our NexLink DMS proprietary donor management software, our disposables and our technical and operational service support comprise our differentiated offering. The benefits of our new platform will include better quality and compliance, increased yield, higher collection center productivity, improved donor experience and ultimately lower cost per liter of plasma collected and more plasma per donor. We are having discussions with all of our customers about deploying NexSys PCS and we remain confident in the value proposition for them and for us. We remain fully on track with the development and launch of the new Nexus PCS. In September, we completed the 1st plasma collections using the new devices at a customer's donor center. Additional customer experience programs are ongoing with several customers. We will initiate the 1st limited market release this winter, followed by a second more advanced limited market release in the spring. These experience programs provide early customer insights to inform the commercial launch as planned in fiscal 2019. They strengthen our launch capabilities and help us mitigate executional risk to ensure seamless rollout. We are also working closely with our 3rd party manufacturers to ramp up production of devices in preparation for staged rollout. In parallel, we are collaborating with our customers to optimize their use of our existing PCS2 devices, a focus on equipment utilization that is helping to avoid cash outlays and improve capital productivity. Building on a positive trend that started in the Q1, our hospital business delivered revenue growth of 3.4% in the 2nd quarter and 5.1% in the first half of fiscal twenty eighteen in constant currency. 2 thirds of our hospital revenue in the first half was in North America and China, which grew 10% 14%, respectively. Conversely, the other third, EMEA and other Asia Pacific, declined 6% in constant currency. Most of the first half revenue growth in the hemostasis management portion of our hospital business was from the TEG 6S. Our recently formed Scientific Advisory Committee has been instrumental in guiding our ongoing development program for this product, and we are committed to making the necessary investments to develop and expand our product profile and realize the full potential of this exciting technology platform. We continue to stabilize performance in our self salvage business and become more competitive with recent product line enhancements. We are seeing improved performance, including profitability in markets where our focus on equipment utilization is having positive effect. Our transfusion management product line, which includes BloodTrack and SafeTrace Tx, exceeded our expectations through the first half of fiscal twenty eighteen. We are benefiting from an expanded, dedicated North America sales team, and we are making meaningful investments in software development to further build momentum. Growth in the hospital business outside the U. S. Has been mixed. We remain convinced that our products have differentiated Merit and that the performance shortfall is largely a result of internal execution issues. Each market is unique, requiring its own tailored approach. We are taking actions to address this, including a series of targeted sales and clinical excellence initiatives. It is an example of how our turnaround is nonlinear, but we are optimistic about the potential of the hospital business and we continue to expect 7% to down 14% and 7%, respectively, in the 2 prior fiscal years, our Blood Center revenues were down 5% in constant currency in the first half of fiscal twenty eighteen. In large part, the decline resulted from choices we made to exit unprofitable business, and we benefited from the slowing rate of decline in transfusions in our major markets. The Blood Center team remains focused on product quality and customer service, consistent with our customers' focus on safety, reliability and cost containment. We are committed to delivering consistent profits from this business despite the projected ongoing decline in revenues. We have received questions about our blood center manufacturing plant in Puerto Rico, given the magnitude of the recent hurricanes. Fortunately, our people are all safe and our facility is intact. I want to recognize our employees on the ground in Farhato and our entire global supply chain, whose extensive preparations, skillful execution and steadfast resilience in the face of professional and personal hardships ensured uninterrupted customer service and a rapid return to production. We were operational on diesel powered generators in mid October. And as of this week, we are fully operational with the return of electrical power. Based on our accomplishments to date, we have confidence in the performance and the health of our businesses. As a result, we are reaffirming our fiscal 2018 revenue guidance, while revising our earnings and cash flow guidance upward. We now expect full year adjusted operating margin in the 14% to 15% range, 100 basis points above previous guidance earnings per share of $1.65 to $1.75 which is $0.10 above previous guidance and adjusted free cash flow of approximately $100,000,000 which essentially doubles our previous guidance. Later in the call, I will discuss our efforts to reduce complexity and improve productivity to free up resources for future investments. With that, I'd like to turn the call over to our CFO, Bill Burke, to comment further on our results. Thank you, Chris, and good morning, everyone. Please refer to the 2 tables we posted to our website with a link in our earnings release. We provided specific revenue and income dollar amounts that derive the percentages I will refer to in my comments. All revenue growth rates I will discuss are in constant currency. In the Q2 of fiscal 2018, strong results in plasma continued. Plasma revenue was up 6% including a negative impact of 180 basis points from the CEVA divestiture. In the first half, Plasma revenue was up 5%, including a negative impact of 160 basis points from the Zebra divestiture. North America plasma disposables revenue was up 7% in both the second quarter and the first half of fiscal twenty eighteen. We are reaffirming and not raising fiscal 2018 plasma revenue guidance due to customer order timing between the first half and second half, and we expect our customer in Japan to reduce frozen plasma inventories. Growth continues to be driven by strong end market demand for plasma derived biopharmaceuticals. We remain highly confident in the continued market growth underlying our commercial plasma collection business. We had 3% growth in our hospital business in the Q2 of fiscal 2018. In the first half of fiscal twenty eighteen, we had 5% growth, which trailed our internal expectations as we experienced shortfalls outside the U. S. The TEG6S product offering accounted for about half of hemostasis management growth. Hemostasis management revenue was up 10% in the 2nd quarter, with 12% growth in North America and China and virtually no growth in EMEA and other Asia Pacific. First half growth was 1st half growth was 13%, which fell short of our internal expectations with customer order timing on devices favoring the second half of this fiscal year. The TEG6S delivered the majority of the revenue growth in the first half of fiscal twenty eighteen. We maintain our expectation that hemostasis management will exceed fiscal 2017's growth rate of 14%. Also within our hospital business, cell processing revenue declined 1% versus the prior year's Q2. For the first half of fiscal twenty eighteen, cell processing revenue was flat. ORTHOPAT and Cell Saver declines were offset, albeit off of a small base, by strong growth in BloodTrack and other hospital software products. Blood center revenue was down 4% in the quarter and 5% in the first half of fiscal twenty eighteen. These are considerably moderated growth rates from the decline of 14% in fiscal 2017. About 50% of the first half fiscal 2018 Blood Sutter decline was by design, the direct result of exits from unprofitable business arrangements, principally outside the U. S. As contemplated in our strategic plan. Strategic business exits are a trend we expect will accelerate in the second half and a primary reason we are reaffirming and not raising fiscal 2018 Blood Center revenue guidance. Platelet disposables revenue decreased 9% in the second quarter and 6% in the first half of fiscal twenty eighteen. These declines are attributable to continued adoption of a competitor's double dose collection technology in Japan. Approximately 31% of collections, so 48% of platelet units collected in Japan were by double dose collection techniques in the Q2 of fiscal 2018. Platelet declines over the full fiscal year 2018 are expected as planned at the outset of the year. Red Cell disposables revenue declined 12% in the second quarter and 11% in the first half of fiscal Whole blood disposables revenue grew 7% in the Q2 of fiscal 2018 and was flat in the first half. The filter recall in the prior year resulted in abnormally low whole blood revenue in fiscal 2017, thus an easy comparison. We do note that the recent moderation in the rate of collection declines continued. U. S. Customers have indicated that we should expect this moderating trend to continue over the long term. 2nd quarter fiscal 2018 adjusted gross profit was 46.5 percent of revenue, down 90 basis points versus the prior year second quarter. First half adjusted gross profit was 45% of revenue, down 70 basis points versus the prior year first half. We fell short in our operating efficiency goals and we experienced continued delays in the expansion of our liquid solutions production capacity. We are addressing operations performance, including improved management of freight and overhead spending in the second half, and we expect fiscal 2018 adjusted gross profit to be higher on a year over year basis. Our team on the ground responded incredibly well and as a result, we had a minimal impact in our operations from the hurricanes affecting Puerto Rico. We are optimistic that any adverse impact in the remainder of the fiscal year will be negligible. Adjusted operating expenses declined $3,000,000 or 4% compared to Q2 of fiscal 2017 and declined 190 basis points to 30.3 percent of revenue. First half adjusted operating expenses declined $9,000,000 or 7% compared with the prior year and declined by 260 basis points to 30.8 percent of revenue. As planned, the lower operating expenses resulted from incremental current year productivity, some of which impacted selective R and D spending. We continue to evaluate all investments to ensure we are investing strategically on meaningful projects that will improve future revenue growth, and we do not expect the lower R and D spending to impact future revenue growth expectations. We continue to make investments in our plasma and hospital business units. In line with our previous communications, we expect that productivity and continuing benefits of our prior year restructuring activities will deliver $0.30 to $0.40 per share of benefit in fiscal 2018 and anticipating investments include $15,000,000 to $25,000,000 of after tax operating expenses, representing $0.40 to $0.50 per share. Our income tax provision on adjusted earnings was 27% in the Q2 of fiscal 2018, about 100 and 80 basis points higher than the Q2 of the prior year. For the first half of fiscal twenty eighteen, the tax provision on adjusted earnings was 27.4%, about 230 basis points higher than the first half of the prior year. These higher tax rates result largely from a continuing shift in geographic income mix towards the U. S. And the timing of certain tax items from year to year. We expect our fiscal 2018 tax rate to be higher than the fiscal 2017 rate. In summary, the second quarter and the first half of fiscal 2018 resulted in growth in revenue, adjusted earnings and free cash flow. We are on track to deliver both our productivity targets and our planned investments in operating expenses. Adjusted operating income grew 9% in the 2nd quarter and 18% in the first half. Our operating margin in the first half of fiscal twenty eighteen improved to 14.2%, up 190 basis points over the first half of fiscal twenty seventeen. Free cash flow before restructuring and turnaround activities was $75,000,000 in the first half of fiscal twenty eighteen compared to $41,000,000 in the first half of fiscal twenty seventeen. In addition, we realized proceeds of $9,000,000 from the Seba divestiture and $12,000,000 from employee share programs. We repaid $28,000,000 of debt and we funded $6,000,000 for restructuring and turnaround activities net of tax benefits. We finished the first half in a strong position with $204,000,000 of cash on hand, an increase of $64,000,000 the end of fiscal 2017. We are evaluating alternatives for deploying this cash advantageously. The strong free cash flow in the early part of the year is important given our plans to ramp investments later in the fiscal year from capital spending and earnings perspectives. Although we had a meaningful contribution to the increase in free cash flow due to improved management and discipline of capital deployment, The primary driver of the increase in free cash flow compared to our expectations was a shift in timing of capital spending. Certain projects originally planned for fiscal 2018 will now be made in fiscal 2019 and will not affect projected capacity requirements. As a result, the capital expenditure portion of investments planned for fiscal 2018 was reduced by $15,000,000 to a range of $40,000,000 $15,000,000 to $25,000,000 net of tax benefit operating expense component of investments. Our investments will be greater in the second half of fiscal twenty eighteen than in the first half of the year. The combination of improved operating results, the discipline around asset management and favorable timing of capital expenditures have led to fiscal 2018 being a very strong cash flow year. We now expect approximately $100,000,000 in free cash flow generation before restructuring and turnaround costs. The complexity reduction initiative we announced this morning will enable us to intensify the investments we are making to fuel our growth. Chris will elaborate on the program itself. I would like to be clear about the $80,000,000 of targeted savings. The $80,000,000 is the full annualized run rate of savings that we expect to reach by the end of fiscal 2020. That implies a full benefit in fiscal 2021 of the $80,000,000 The savings will be minimal in fiscal 2018. Beyond this fiscal 2018 indication and the full benefit in fiscal 2021, we are not prepared to disclose fiscal 2019 or fiscal 2020 benefit at this time. As Chris noted, we increased our FY 2018 adjusted earnings guidance to a range of $1.65 to $1.75 per share. We expect 18 Q3 adjusted earnings per share to be lower than in the Q4 of fiscal 2018. With that, I'd like to turn the call back over to Chris. Thank you, Bill. These results show that our strategy is working, but we know that we have more to do. As part of our turnaround, we have assessed how we operate and we have identified areas that can be improved. The complexity reduction initiative that we announced today is an important next step as we transform to pursue accelerated growth. These moves will help us increase productivity and lower our cost structure, targeting $80,000,000 of benefit. We will invest savings in the areas that hold the greatest promise for our business. This includes product launches like Nexus PCS and TEG 6S, innovative new R and D programs and acquisitions, clinical and economic evidence to strengthen the value proposition of our products and expanded sales force, new capabilities such as data and analytics, manufacturing capacity and overall employee development. This purposeful work is the core of our transformation phase. Over the past 18 months, we have put the right leadership in place to execute our strategies and developed in-depth insights about our business. We are not cutting costs for cost sake. We are changing our operating model, creating a leaner and more agile company, rightsizing our organization and equipping it with the talent and expertise needed to achieve our goals. This is a comprehensive effort to lower our cost base. The majority of the savings will come from reducing direct materials, indirect spending, freight and other non headcount related costs. The remainder will come from a workforce reduction, which will include both voluntary and involuntary separations. We are changing the way we work, implementing process and productivity improvements, including greater use of external providers. We expect a reduction of about 3 50 physicians globally. Certain roles in direct selling and clinical support as well as hourly plant workers are excluded from this initiative. We will implement these changes in a manner that does not adversely impact the many critical time bound projects essential to our turnaround. This is a conscious decision to ensure that customers, key programs and important projects remain staffed as needed for our company's continued success. I want to emphasize that we are committed to supporting our employees, our customers and our key products in the market. So we will be thoughtful and put necessary transition plans in place as we redeploy resources to enable growth. We expect to complete the program over the next 30 months and to reach the full $80,000,000 annual run rate savings by the end of 2020. The program is expected to cost $50,000,000 to $60,000,000 of which approximately 2 thirds of the year is related to severance. And now we'll proceed to your questions. Thank you, And our first question will come from the line of Anthony Petrone with Jefferies Group. Maybe Chris to start with the restructuring program announced here. Maybe just a breakout of the sort of headcount reductions and savings across the 3 operating segments, plasma, hospital products and Blood Center? And then perhaps just an update on your views on Blood Center as it remains as a key part of the portfolio. Do you see a shift in that going forward? And then I have a couple of follow ups on plasma. Thanks. Sure, Anthony. Thanks. With regards to the complexity reduction initiative, we are looking at every aspect of the work. We now know with the benefit of the last years and a half experience and a new leadership team in detail what we do and how we do it and where we believe that creates value. So we'll look we're looking across all three of our business units. We're looking across all of our functions, all of our geographies. Importantly, the majority of our savings will actually come from non headcount related in the areas that we cited in the script. We are also looking at streamlining our processes, leveraging external service provider where it makes sense. It will be disproportionately skewed to our general and administrative functions more so than the line roles. And I've called out a series of things that excluded roles in terms of the hourlies in our plants and our frontline selling and clinical resources. But everything is in scope and everything will be part of what we advance going forward. Some of the plans behind that are still being developed by the people who will manage it going forward. So it's meant to be holistic and comprehensive, and the effect will be as such. You asked a question about Blood Center. I think we're pleased with our progress. We had talked consistently now about stabilizing, separating and optimizing. We feel quite good with where we are vis a vis the progress against that. We're obviously getting some benefit, which is a slowing of the rate of decline in transfusions, which we're participating fully in, but we're also really focused on delivering value as viewed by our customers and managing that P and L quite tightly. So we're well on track and consistent earnings coming out of that business is the mantra that we run to. And then just a follow-up on Plasma would be just any update on timing for the additional clearances needed for Nexus and perhaps when we should begin to see anything on the contracting end for the next cycle? Thanks again. Thank you. So we're well on track as we described it. We've begun customer experience programs. The first wave of those are already underway. We'll move into limited market release in the winter. We'll have a second more advanced limited market release where we'll feather in some additional enhancements, both software and more broadly to our platform with the idea that as we move into fiscal 2019, we'll begin those customer discussions and advance the rollout, which is really an FY2019, 2020 2021 event. I think we feel quite good about where we are. We'll feather in the ongoing developments. I described it previously when we received the approval, the clearance for Nexus PCS as the base platform, the disruptive change, which we are now going to do a series of enhancements, firmware, donor management software, our tech support, etcetera, all of which will get feathered in here over the coming months quarters years because we're not done by any stretch in terms of innovating that platform. Thank you. Thank you. And our next question will come from the line of Larry Solow with CJS Securities. Please proceed. Good morning, guys. Just to follow-up on the question about the customer experience programs. Will you need to get several more of these enhancements? And will Serbia will you see the ramp in experience programs occur as these enhancements occur? Or are you already getting customer interest without those enhancements? There's a lot of customer interest and excitement around the new device. It is meaningfully different in appearance and in function. And we talk a lot about the economic benefit and aligning with our customers. That's very important. What the customer experience programs have done for me personally observing the user interactions and the donor experience is just how much more user friendly kind of fit and form type of things that really play out. And it's useful. We set these experience programs up to learn how to do the rollout, but it's reaffirming the voice of customer work that's been done over the past several years to inform the development that went into the device in the first place. So a lot of excitement and reaffirms much of what we believe would be the value proposition of the product. Okay. And any color on that? I know you had a little bit of a change in leadership in the plasma program announced a couple of months ago. Any color on that? I think we are very much in the early stages of pivoting to value based approach in our plasma commercialization. We think what we are doing in terms of quality and compliance, yield attainment, center productivity and an overall donor experience is great value for our customers. Proposition. David Wilson and the team, he's assembling, bring that to the floor, and we're excited about what David's doing with that business. Okay. And just a quick question on your cash flow. I guess 2 pound question. The first on the CapEx push out, anything specific on that? And then I know it's actually a pretty nice improvement in working capital management in the first half of the year. It looks like a year over year change of $25,000,000 Is that something we probably should expect to continue? Hi, Larry. It's Bill. I apologize for my voice too. I'm losing my voice here. On the cash flow, I wouldn't be concerned about the timing of the spend. We had very aggressive plans to get our capital expansion up and running. And with the new diligence that we put in place around how we're selecting vendors associated with capital deployment, it's just causing us a little bit of delay and that spend will trickle into FY 'nineteen, but won't put in jeopardy any of the capacity requirements that we need. As far as working capital, yes, some of the increase that we have in our guidance against what we previously guided was due to working capital We had we're focused on it now. When you have focus, you have results. So do we expect it to continue? Absolutely, we don't expect deterioration in our working capital longer term. Obviously, there'll be some fluctuations in that quarter to quarter, but we feel good about where we are right now. Excellent. Great. Thanks, guys. Appreciate it. Thank you. And our next question will come from the line of John Hsu with Raymond James. Please proceed. Good morning. Thanks for taking my questions. Hi, John. Good morning. First one on hemostasis management. It appears that the TEGS kind of decelerating a bit. This is obviously a key growth driver for you guys. So if you could just talk about give some color around what you're seeing there and also your level of confidence going forward to accelerate growth to the LRP? So before Chris makes some comments, I'll just make a few comments on the numbers too. In Q2, it was Q2 was a little lighter, I think, than what anybody would have expected. But still on a year to date basis, we're 13% growth year on year. So 1 quarter, I wouldn't characterize as deceleration. And for the year, we're still expecting to be above the 14% from fiscal 2017. But Chris will make some comments too. Yes. I think we have experienced the first half, second half dynamic previously. Some of that's just a function of selling more equipment and having the disposable volume, which still makes up the vast majority of our revenues, come through on the heels of that. It's an escalating trend, which is how you deliver the consistent, pretty ambitious growth that we've put against that product. I think the we're encouraged by what we see in select markets. Certainly, North America, our largest market, where we're doing quite well, not only versus prior comps but against our own plan. We do have a challenge, as I called out in the script, in some of our other international hospital markets the commercialization of all of our hospital products. PEGS is a complicated product to master and sell, and then we're still building capabilities in those markets to achieve performance that we expect to at least rival what we're doing in North America. But it's a work in progress. It's something that we're on. And I would expect, as we've conveyed, we'll be within the guidance range and build momentum that will carry us nicely into FY 2019 for accelerated growth. Okay, great. And then my second question is as it relates to plasma, what's your reaction to Grifols, which I believe is your largest customer, saying that the plasma market is decelerating? And as part of that, maybe you could clarify just from the earnings release, it looks like you're communicating that overall plasma derived sales growth is expected to moderate towards plasma derived rates. So just what's the right way to think about long term growth in plasma? I think we remain quite bullish on the long term growth rates in plasma. Obviously, from one customer to the next, there'll be variability as they compete in different end markets. But if we just look at the macro trends as forecasted by, PPTA and by the individual participants, we're still seeing very robust end market demand. I think the advancements in the technology to treat a broader spectrum of indications, the increased rate of diagnosis that we push from the most severe patients to mild to moderate, the change in route of administration, specifically greater adoption of subcu, which winds up requiring more, not less plasma, are all contributing factors. But from where we sit, the collection volumes we're observing, we feel quite optimistic vis a vis the ongoing growth rates as do most of our customers. Okay, great. Thank you so much. Thank you. And our next question will come from the line of David Turkaly with JMP Securities. Please proceed. Thanks. Good morning. I apologize. I've been hopping back and forth on a few. But I think you said you had your first collection at a in September from one of your customer trials. And I just I wanted to check and see if that was accurate. And then in terms of how many of these you anticipate running, if there's any detail you can give us on that and just an estimate maybe of how long you think kind of each of those experience trials will take? Yes. Thanks, David. The customer experience program that we referred to was 150 donor collections, so very modest in scale, but one that we wanted just to take the 1st round of beta build devices and make sure that they were operating and the start up and the go live was everything that we wanted it to be, which it was. So we will do several more of those. The experience from a collection center, from the phlebotomist, the center operator and the donors themselves was overwhelmingly positive. From my vantage point, I'd like to do as many of those as our customers would like to do because it just helps us in this early stage. We do have several ongoing. We'll do that through the fall and then move in, as I said, to limited market releases, winter and spring. And then we'll move forward with the commercial launch beginning in the summer period and beyond. Great. And then obviously another restructuring program. I just wanted to be clear. I know that I think you've announced a 3 year one last May and I think you quantified that for 2018, but the savings I know you're not expecting a lot from this new program in fiscal 2019 or for fiscal 2018, I guess I should say. But have you quantified the benefits of that 3 year program to next year, next fiscal year and beyond? Yes. So the program that was announced in May of 2016, originally it was announced as like $40,000,000 of savings in that fiscal year. We obviously exceeded that by a pretty good amount. And then going into FY 2018, we had said that we would get $0.30 to $0.40 of productivity and a big portion of that was because of that initial restructuring savings as well as other programs. With this new program, we're effectively starting the clock running again as of the beginning of FY 'nineteen. Great. And last one, I know you mentioned the cash position to push out of some CapEx and you mentioned advantageous deployments. I guess just to get your current sense of sort of capacity for M and A and timing, is that something that maybe you have more ability to move forward given some of those comments and where you stand today? Well, we realize the cash we have in our balance sheet and we're always we're continuing to look at our capital structure. There's just a lot of moving pieces right now between we have a refinance that's going to happen in June. We have the financing of the NexSys PCS build, which we've said could be in the $200,000,000 to $250,000,000 range. And obviously, we're always thinking about M and A. And although we don't have a share buyback authorized, it would obviously be something on the table in the future. Great. Thank you. You're welcome. Thank you. And our next question will come from the line of David Lewis with Morgan Stanley. Please proceed. Good morning. A few questions here. Bill, just for you to start off, and I appreciate you're not going to provide the cadence here on this restructuring announcement. But if I think about your prior plan, which was to basically double EBIT or add $100,000,000 of EBIT by 2021, this is a plan that overlaps to 2021. So how do I think about the $80,000,000 restructuring benefit in 2021 relative to your prior comments that EBIT will double or increase by $100,000,000 from 16 to 21? Yes. So, the $80,000,000 of savings, we've said that by the end of FY 2020 that we will be at the annualized run rate of $80,000,000 So in FY 2021, you can estimate $80,000,000 in FY 'twenty one. Now in terms of the prior communicated 2x operating income goal that we had out there. We're still sticking with that. Obviously, the $80,000,000 a portion of the $80,000,000 was included in that 2x comment. And just the fact that we have this program, it's going to derisk anything else that happens related to the 2x. I would just add to that. What I was saying is 3 phases, 5 year turnaround, the transformation phase that we're headlong into, we just know more and are able to do this from a position of strength, therefore, not disrupting customer service, not in any way impacting these critical programs that really drive the accelerated growth that begins next year. So we wanted to make it more time bound and more specific. It obviously is reinforcing, but all along has been contemplated and we just now have enough information to be able to do it in a purposeful way. Okay. Very helpful. And then Bill, I appreciate you're not going to give us information on cadence, which I think is totally appropriate here midway through 2018. But the big debate the last 6 months has been, you need to invest in Nexus. There's going to be components of this year you're spending on TAG, you're spending a little bit on pre commercial Nexus and now commercial Nexus. Next year is going to be a significant depreciation load just based on the dynamics of that launch. With this restructuring announcement hitting in fiscal 2019, are you more confident now that 2019 EBIT margin step up over 2018 and the 2020 EBIT margin step up over 2019? Yes, David, we're midway through the year here. We're not going to make comments on FY 2019, especially down at the operating margin level. But what you said about investments is appropriate. We've been saying all along that we are going to have investments that continue in this business. We're going to manage those investments judiciously and ensure that they result in growth and acceleration of the growth profile we have today. Okay. And just two more questions for me for growth, Chris. So first is just on TEG. I mean sequentially, that business decelerated, but frankly, it was a challenging comp. So momentum looks very stable to us. But are you surprised that Take 6 in the U. S. Has not hit its stride or is it simply too early? And the second question, just a broader question, if I think about total guidance in the back half of the year, your momentum is sort of a little down, maybe a point or 2 in the back half. Is that simply the ex U. S. Issues you discussed and perhaps some conservatism? Just want to give a framework of how you see the back half growth rate versus the first half growth rate, and I'll jump back in queue. Thanks so much. Thanks, David. So I think with PEG, obviously, the 6s is the growth driver disproportionately. And as I said in the past, and we didn't call it out in this quarter's results. But obviously, in North America, where we have both the 5000, the 6s and also the Tag Manager, our team is making thoughtful efforts behind each of those. The 6S is obviously the disproportionate growth driver for us going forward in the indications where we have in the indications where we have FDA clearance to be able to pursue that. So we're excited about what our North American team is doing there, and it sets a model for what we want to do across the rest of the world recognizing there is a different slate of indications approved. The first half, second half, there is a dynamic. It played out last year. We have reason to believe it will play out again this year for the reasons noted in the script and earlier in the Q and A. So we remain confident with the overall guidance range. I think where we'll see the greatest uptick in momentum is this very specific and purposeful focus on key markets outside the U. S. We do quite well in China, but we have competition. And competition that challenges prices as well as share, we are responding accordingly. We are much we're excited about what we're doing in the UK, but we can do more. And then there are half a dozen other key markets where we know TEG is the right product and has the potential to really deliver. We're just earlier in our growth trajectory. Our hope and expectation is that the second half of this year, we'll see a meaningful improvement in that trend line as part of this overall range that we've guided to. Great. Thanks so much. Thank you. Our next question will come from the line of Jim Sidoti with Sidoti and Company. Please proceed. Good morning. Can you hear me? Yes, sir. Hi, Jim. Great. You made some comments about Puerto Rico and the fact that the plant is back up running 100% right now. Can you quantify, was there any impact in the quarter that ended due to the storms on top or bottom line? Yes. On in terms of impact in the actual end markets demand, some movement, areas that were unable to collect drew off of other geographies that were, and we were probably a net benefactor of that. For example, what they couldn't collect in Houston and Corpus Christi, was an important part of the response. We were fortunate, in addition to some thoughtful preparations, as noted in the script, that is a largely a raw material facility for us. The team made preparations. We ran the facility in earnest prior to the storm, put everything we produced on airplanes, a little bit easier because it's media and filters, and we're able to get it off the island before losing the infrastructure there. And then as I said in the script, October, fully operational under generators. And then just this past weekend, we're able to restore electric power through the local municipalities. So we're running and there's some expense. We air freighted a bunch of stuff, and we've tried hard to take care of our employees on the ground. There'll be some operating expenses associated with that, that will flow through our P and L, some of which was in the Q2, the majority of which will be Q3. But we don't anticipate that being grounds for putting us outside the ranges we put forth for those businesses. Okay. And then on the $50,000,000 to $60,000,000 you're spending on the restructuring that you announced this morning, will that all be complete by the end of the fiscal year? We are saying that there'll be spending in this year and then in 2019 and lingering into 2020. Okay. So there'll be additional restructuring expense in the next 2 fiscal years? Yes. Okay, got it. Thank you. Thank you. Ladies and gentlemen, this concludes our question and answer session today. We would like to thank everyone for their participation on today's conference. You may now disconnect. Everybody have a wonderful day.