Haemonetics Corporation (HAE)

Investor Day 2017

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Jun 19, 2017

Good morning. I'm Jerry Gould, Vice President of Investor Relations for Haemonetics. Welcome to our twenty seventeen Investor Day event. We welcome those of you here in person as well as those who are joining us by means of the Internet. On Slide two, we remind you that we supplement our GAAP measures with non GAAP measures to monitor the results of our business. This slide provides information about the reconciliations we provide to the nearest GAAP measures. On Slide three is our cautionary language regarding forward looking statements. So we remind you that some of the statements we'll make today are forward looking. These forward looking statements are based on estimates and assumptions made by the company as of the date of this presentation and are subject to known and unknown risks that could cause actual results to differ materially from those projected or anticipated. You should review the risks and uncertainties on this slide and the details that we provide in our recent public SEC filings. Our guidance and financial expectations are as of today, unless explicitly affirmed in the future. From now through about 12:30, we'll have presentations by our CEO, our business unit leaders, our CFO, all of which we are webcasting live. Those participating by webcast will see the same slides at the same time as those who are here in person. Instead of handing out paper copies, we'll post the entire presentation deck to our Investor Relations website at the end of the presentation around 12:30. In Bill's section, he will include ROIC metrics and the slides we post today will include the ROIC methodology that we employ. The replay of this event will also be made available on our website by the end of the day tomorrow. We'll follow with a question and answer period of thirty minutes or so, which will also be webcast live. So please, if you would hold your questions until then, we'll have roving microphones, which we will ask you to use for the benefit of all, especially those joining us by Internet. We'll provide quite a bit of information this morning about our long term strategy and our turnaround. And for everybody's benefit, please let us address those types of questions relative to those materials in the Q and A. We'll be happy to answer anything else about historical performance separately if you just provide those questions to me. Finally, we'll finish with lunch, and the product demo areas will remain available and open during lunch. With that, I'd like to introduce Chris Simon, our CEO. Thanks, Jerry, and thanks to all of you for joining us here in Boston and on the WebEx for Haemonetics' Annual Investor Day. I'd like to do a few things this morning to get things going. I'm going to provide a bit of a brief overview. And during that overview, I'd like to talk at a higher level about both our corporate and our business unit strategies, strategies that are fully consistent with our mission and focused on value creation for all of the Haemonetics shareholders. We're going outline our plan. It is a multiyear, multiphase plan that is broken down with specific attainable metrics and milestones to guide our progress throughout. Most importantly, perhaps, is a chance to introduce the newly formed leadership team. It's a team that I'm quite proud of and it's a team that is fully committed to managing our turnaround and putting the company on a proper growth trajectory for long term sustainable success. All of that comes together in a bold aspiration, an aspiration that we think is fitting with the intrinsic long term value that is represented in our business. The slide some of you will have seen before, it defines at a high level our overarching corporate strategy and is built upon, I believe, now five or more decades of shareholder value creation in medtech. We aspire to compete in winning markets, those markets that have the ability to drive disproportionate growth in revenue and in income. A rising tide raises all boats. We aspire to the number one or number two market position in every segment we compete. Over a long period of time, leadership begets leadership. We'll capitalize on that advantage and use that to drive disproportionate success over time. And thirdly, we hold ourselves to the highest possible standards for near and longer term performance to reinforce that success. Our portfolio consists of three financially synergistic businesses: plasma, which is going from strength to strength. We have a leading position that we're about to disrupt with our new technology and take that to a completely different level. That successful disruption will drive growth in revenue and margins and over time make Plasma an absolute engine for return on invested capital. Hospital, a newly formed business unit consisting of a breadth of products that give us the ability to be relevant and go deep with our hospital based customers. We see this as a tremendous entrepreneurial growth opportunity with near limitless potential for revenue at a higher, more consistent margin rate that is traditional for hospital based medical devices. And our Blood Center business, historical legacy of the company, more challenged markets to be sure, but with a thoughtful plan that has enabled us to stabilize and manage in a hands off basis of a very consistent and high performing return, a return that generates disproportionate cash to fund our organic growth. Increasingly, we're talking about the role of the corporate center as a fourth pillar of value creation in our strategy. We have three very clearly defined and delineated roles: capital allocation, making sure the money that we deploy is done in the most productive and prosperous manner. Talent management on a global basis, we have 3,000 employees worldwide. Twice a year, including last month, we sit down as a leadership team and review our top 150 managers, 150 capable, aligned, motivated and focused individuals can make a difference in a company of our size. And hopefully, you'll agree the plan we've put forth is enabling them to do so. And we talk about governance and compliance because while each piece has to make its own unique contribution, any one part of the business can create challenges for all of us. And we experienced that last year with our the unfortunate filter recall. So we oversee that centrally as part of our corporate center. As part of transforming the business, you see a half a dozen initiatives outlined on the opposite side of that slide. These are things that we think are game changers in our space, and we'll talk more about each of these as the morning progresses. So multi phase, multi year transformation. We're a year in to this process. We continue to focus on productivity and we see meaningful opportunities to improve so. We are pursuing growth both organically and inorganically, which is a relatively new focus for us now in FY 2018. And we are looking to ensure the sustainability of our organization, our talent base and the strengthening of our culture, all efforts that are well underway. We had a busy year in 2017. We accomplished many things. We had our setbacks to be sure, but we delivered on our goals. We stabilized the company, first and foremost. We acted on our strategies and our plans. We've made it a conscious effort to allocate resources to those aspects of the business that can drive a disproportionate return. And importantly, we are funding our growth through the ongoing performance of the organization. We've set and met clear goals, and we are establishing a culture of individual and collective accountability. Specifically amongst those goals, we had some meaningful leadership changes. We now have an organization and an operating model that fully complements our business unit and corporate strategies. We have assembled a new top team that is both capable and committed and aligned to drive the plans that we have outlined. We are rallying the organization to succeed and the changes in the organization are palpable. FY 2018 promises to be a busy year. We will continue to earn our way by meeting our goals short and longer term and delivering against the milestones that constitute our long term strategic plan. We will drive growth and fundamental change in the business, and we will pave the way for breakout growth going forward. It is a busy year. It will be characterized by investment and transformation. And in so doing, we position ourselves for the breakout growth that we aspire to. At this point, I'm going to transition the presentation to our three business unit leaders, beginning with Tom McCurdy on Plasma. They'll be followed by Bill Burke, our CFO, who will further break down the financials. And I'll come back up with some summary remarks and then move to your Q and A. Thanks. Well, good morning. As Chris alluded, my name is Tom McCurdy, and I am very, very excited to be a part of this conversation. And I want to thank you all for investing the next twenty to twenty five minutes of your time to get a better appreciation and to learn a little bit more about what I consider to be a very exciting business unit, which we refer to as plasma. To put it a little bit into context, I thought it would be helpful to share where does the plasma business fall within the greater or the larger big H or Haemonetics, if you will. Our revenues, we represent about 50% of the global business for Haemonetics. We eclipsed a little over $400,000,000 last year. We're a global business with about 20% of our business being done outside The United States. And the majority of our business, as you can see, is consumed through our disposable business. Now we also have a very attractive software business, and there were lots of questions a couple of moments ago on that. We have shown significant improvement and growth within our software business as well. About a week ago, I was with a customer at PPTA and they said, Tom, I'm curious, you've been in the business now for about a year, year and a half. What is it that gets you excited about the plasma industry itself? And I would say there are a lot of different reasons of why I have such excitement and enthusiasm for this industry on a go forward basis. To try to capture them, categorize them, if you will, into four large areas, I would do as you see on the screen there. First and foremost, the plasma industry itself, as many of you, if not all of you already realize, it's a very attractive market. It's large. It's got a strong base of business with our customers who continue to demonstrate an appetite as related to their own investments into the business themselves, demonstrating that the business has been attractive, remains attractive and for the foreseeable future also has high aspirations and expectations of its overall market appeal. So it's a very attractive market for us. Secondly, we find ourselves in a very unique situation. The ability through the ecosystem, the fully integrated Galaxy system that I've spoken to you about last year and a couple of moments ago and will over the course of this presentation, it really positions ourselves in a very unique manner to create incredible value for our customers. And that value will be referred to as CPL or cost per liter collected. Anything we can do to help drive that CPL or cost per liter collected down will be viewed very favorably by our customers. And examples of driving CPL down, increasing plasma yield, driving center efficiency and improving the overall process and engagement of the donor and the donor experience itself. So attractive market, uniquely positioned ourselves are within and our ability to create value for our customers that in return affords us the opportunity to also enjoy a portion of the value that we are creating for our customers. And then finally, it's a clear path to the end zone. Yes, we have aggressive plans. Yes, we are ambitious as it relates to regulatory, our manufacturing ramp, but we also have confidence in our ability to execute on the implementation plans to get this initiative implemented in an expeditious manner and create greater value for our customers. Now some of you may be wondering what about the plasma business is causing this insatiable growth, this appetite for more collections to be done? Well, there are many different reasons. And if I were to call your attention to the one that our customers tend to focus on, it's IgG or immunoglobulin. There are basically two different illnesses that drive the demand for greater IgG collection. And they are as follows: in neurology, it's CIPD and in immunology, it's PID or peripheral sorry, primary immune deficiency. In both instances, the traditional and typical treatment modality is IgG based therapies. And once that therapy has proven to be successful, the patient tends to be on a lifetime regimen of that drug. Now, as you can see, there are also growth drivers that are helping escalate the need for more IgG to be collected. We know today that patients are better educated and more aware of symptoms, And we know that they're having deeper conversations with their caregivers, resulting in a higher degree and a more frequent diagnosis of these illnesses. We also know that donors I'm sorry, patients themselves are being diagnosed earlier in their lifetimes and also living for longer periods of time, which increases the continued demand for IgG collections. And we also see a shift from traditional IV therapy into subcutaneous or SC IG. And simply what that means is a more robust or a higher dosage of proteins being infused in a more frequent time period, all of which drives for greater consumption of IgG, which puts greater pressure for more collections to take place. You may be wondering, how many collections does it take to treat a patient suffering from either of those two illnesses? Well, the answer is about 130 donations per year to treat a patient with either CIDP or PID. And what we know is that the donors and the patients themselves are being diagnosed earlier and living for longer lifespans, which increases the frequency of donor collections in order to treat those patients. And we're seeing some six percent to eight percent growth expectancy over the foreseeable future. It's our expectation as a result of this integrated ecosystem that we refer to as Galaxy that our growth will eclipse the 6% to 8% that you see on the screen here. So you may be wondering, why do we have such confidence? What are our customers doing to foreshadow their continued interest in this field? Well, I think it's fair to say over the last handful of years, there has been a significant investment in fractionation capacity. You'll see expanding businesses buildings themselves, you'll see new buildings being erected and you'll also see ownership changing. And as recently as just last week with CSL taking a share position within a large fractionation facility in China, hundreds of millions of dollars. These are all indicative of their appetite and their expectations for where this industry will be going. And it's very, very positive from our perspective because as the fractionation capacity increases, the need to collect more and process more donors will follow suit. What you see here on the left side of the screen is the number of plasma centers in The United States supported with Haemonetics technology, slightly over 400 centers. And it is our expectation within the next four years that that number will grow to over 600 devices. And as there are more centers opening up across the country, it goes right back to the number of collections that are going to be increased over that same time period in the high mid to single digit 6% to 8% range. And again, as I've shared earlier, it's our expectation as a result of this ecosystem that our growth will actually eclipse that of the industry growth. It would be malice, it would be mistaken if I were to suggest that our customers will be able to achieve that growth, that accelerated growth without challenge. What I have on the screen here is an illustration to portray the types of challenges that our customers deal with. Two weeks ago, I was with a customer and I used this slide in a conversation, and I said, You may experience some of these challenges yourself. And the customers thought me dead in my tracks and said, You're mistaken, Tom. We don't experience some of these challenges. We experience all of these challenges on a daily basis and then some. Now for those of you who have not stepped foot into a plasma center, I would ask that you allow me a thirty second vignette, time to really bring together what these types of challenges would translate to in a normal day for us. The last time you went to the Department of Motor Vehicle to change or upgrade your or renew your car registration or your license. Let's put a little more fun into it and say it's the last week of the month. So as you drove into the parking lot and you saw that line, that queue out the door, you challenged yourself to say, Boy, do I really want to wait on that line? You had to go through it, so you did, you parked the car, You got through the line, you got inside. Lo and behold, now you see just another line that snakes around the facility. This is where it starts to get real interesting and fun because now you're frustrated because you say to yourself, there has to be a way to do this more efficiently. There has to be a way for us to streamline this process so we can process more people. It is not an exact parallel, but there are many overlays as it relates to the efficiencies or lack thereof within some of the plasma centers. And our donors and our customers' donors get frustrated as a result of the inefficiencies that may exist in some of these centers. Imagine a center or a customer that is expanding 12 to 15 new centers and they take their top players from Center 1 and they move them across town and put them into center two, and then they surround those two leadership teams with new hires, by definition, we've diluted the talent. Said another way, we've slowed down the efficiencies within those centers. Anything we can do from an innovative technology and a collaborative nature to improve those center efficiencies and drive down the cost per liter collected will be received favorably by the industry. I'd like to introduce to you what I refer to as the integrated ecosystem of Galaxy. This may not be new for many of you, but we're closer to our launch. We argue we have the state of the art plasmapheresis devices. Many of you had a chance to come out and talk with me a little bit ago and learn a little bit more about that technology, state of the art. We also have a state of the art donor management system, you can see on the lower left side of your screen, which we refer to as NextGen. And then on the right side of the screen, we have what we refer to as our business optimization group. These are our Lean Six Sigma folks, our folks that not only can streamline processes in an institution or a center, but as they are subject matter experts of the integrated technology, device and software itself, they have the ability to work with the centers and unleash the full horsepower or value of an integrated ecosystem. And that, we argue, positions us very uniquely in the industry. If someone asks me what about this technology, the device and what about the ecosystem itself is it that makes it unique, different than the PCS2 or other options that are available in the market today? There are many, but I'll try to categorize them and capture them in four major themes that resonate very clearly with our customers. First and foremost, it's about plasma yield. You'll see the phrase, yes, yield enhancing solutions. Haemonetics is committed to innovative technologies and software improvements that will drive greater yield on a donor by donor basis, in addition to enhancing the speed in which the overall donor process can be done. Anytime we have the ability to enhance and improve the amount of yield that is collected on a donor by donor basis, that gains favorable attention with our customers. If we moved on to productivity, there were a lot of questions that I addressed a couple of moments ago. This is really the punch line. Our ability to have a favorable impact on door to door processing times is meaningful. The integrated system, the device communicating with the software and the software being able to communicate with the device provides significant advantage for our customers, meaningfully different than what is available today in the industry. And if we have the ability to have a bidirectional information, data flowing to and from, you have to believe that's going to have a significant improvement in terms of the reduction of errors. If we eliminate paper as a result of an integrated solution, quality and compliance will improve. And we would argue more yield in a more efficient and effective productive state at the center level in a more compliant and donor safe environment will lead to a more robust and a more rich experience for the donor themselves, resulting in higher retention rates as well as the ability to attract new donors into the pipeline itself. It's the value in its totality far more than simply I have a device that's faster because this addresses the entire ecosystem. Now what you see on the screen here are examples of work that we currently are doing with four very large customers in the industry. We refer to these as the alpha metrics. Those are the blue boxes, the navy blue boxes, door to door processing time, under draws as well as incomplete donations. So in today's work, without the ecosystem, our business optimization group has been able to demonstrate meaningful improvement in each of these areas. Thirty two minute reduction in processing door to door. That means, Hello, my name is Tom, to thank you very much, I'll see you next Tuesday. You're likely asking yourself the question, Well, thirty two minutes, I don't have context. I don't know if that's a lot of time, a significant improvement, or maybe not so much. For a new donor that may take an hour to roughly an hour and forty to an hour and forty five minutes, if we have the ability to improve that by thirty minutes, that is meaningful. And if you extrapolate that fact out over a 50 or 60 bed center and you identify an extra thirty minutes that is now being able to be added back into a productive workday times six or seven days a week over the course of a year, that annualized number has a significant impact on the ability to process more donors collecting more IgG. Thirty minute improvement. As it relates to underdraws, the underdraws are simply the amount of plasma that a donor is capable of donating. There are many instances where the amount of plasma that is able to be collected is actually not collected. That gap, that delta is what I refer to as plasma being left on the table. When humans are actually doing the information load, the opportunity for mistakes occurs. With the new system, the amount of donations volume is pushed from the donor management system to the device itself, which virtually eliminates overdraws and underdraws. And we've seen a 15% improvement already by simply deploying our business optimization group to work with our customers on that issue. And then incomplete donations. Quite frankly, the donation itself did not finish. We've had the ability to have a 16% improvement on that. So trying to monetize that and moving towards an economic value, I'd call your attention to the right side of the screen. Now we believe it's about $100 to process a donor. And in that $100 hypothetically, if we represented roughly $10 of that for our kit price, roughly 10%, that leaves $90 on the table to try and help our customers reduce that spend. And we would argue these are the three alpha metrics that attack a portion of that $90 Now imagine being able to go after that and driving cost per liter down through greater plasma yield, enhanced center efficiency, improved quality and consequently an enriched and more robust donor experience. You can imagine why our customers are more interested in this ecosystem, this totality of an offering rather than simply the speed in which a donor can get on and off the machine. I'd like to now introduce how our technology, the ecosystem itself, will address those same three alpha metrics. We've talked about the state of the art device on the bottom and we've talked about the state of the art donor management system in the upper left. It's very important and I feel that a number of questions on this. We've made a strategic decision, which enables that device to communicate in an open architect fashion with third party vendors' donor management systems as well as with customers who have their own, what I refer to as their homegrown solution. And now when we go after those same alpha metrics and we introduce this integrated or smart system, the ability to impact the same three alpha metrics is significant. Door to door processing time. Imagine being in that Department of Motor Vehicle example, and the manager of the center walks out and has an iPad and can identify where the traffic patterns are, where the bottlenecks or the choke points are. Having that information, not a week later, not a month later, but on the spot, real time data enables them to deploy and reallocate their staff appropriately to accelerate the experience of getting in and getting out. That is the type of experience that our customers will have as a result of implementing the ecosystem. Real time data enabling better action oriented decisions to accelerate the processing time, which satisfies the donor. In terms of underdraws, as I alluded earlier, the machine will be programmed as a result of the data it receives from our donor management system or the local donor management system, which virtually eliminates underdraws or prevents the ability for plasma to be left on the table. And incomplete donations, another example where the donor may get frustrated. But as an example, with regards to the technology that the device itself will offer, we have the ability to identify interruptions of the collections based upon a color coded beacon where the phlebotomist will recognize the color that the beacon is blinking. And as he or she is working and walking to the donor to the device, they'll be thinking about what the correct solution is to fix that issue and move through the process and correct it at a faster pace. And if they don't know how to resolve it, they'll be prompted when they get to the touchscreen, which will offer three, four or five different solutions on how to address the issue, all in the spirit of reducing incomplete donations, which drives yield up and drives cost per liter down. Now in terms of the activity that we'll be asking our customers to participate on or in, it's significant. We're going to start with a staged rollout. We'll follow that staged rollout with a contracting process on the new technology itself. Once the contracts are put in place, we'll move to center upgrades. Our PCS2s will need to be replaced and upgraded with our PCS300 line. And all of that will tie directly to a far more comprehensive and aggressive campaign relative to fleet management because we believe out of the 19,000 to 20,000 devices that exist in The United States alone, the opportunity for us to manage that differently has a significant ability to favorably impact Haemonetics' return on invested capital. From a manufacturing perspective, we have a long standing customer, contract manufacturing partner who builds all of our PCS2s. Quality, timeliness, etcetera, are all state of art. That same manufacturer will be our partner as we move forward into the PCS-three 100 and the speed in which they will develop this and manufacture this machine will be governed based upon our customers' adoption. And we believe as we drive greater center productivity, in return, we will significantly improve the overall value and efficiencies that our customers themselves will receive. Now, if you were here last year or you saw last year's slides, you'll see some similarities, which is a good thing. What's different this year than last is the progress we've made in the last twelve months. On the bottom side of the slide, you'll see NextGen, which is four point zero. We have that in over 190 centers today. That number changes on a daily basis. You see 4.1 being introduced in the summer, August time period. Above the line, you see our PCS-three and many of you already are aware that we submitted to the FDA for clearance on our device in the April timeframe, which puts us in a projected state estimated state of back half of calendar year 2017, at which point we would begin our staged rollout. Now you may be wondering what exactly is a staged rollout? The staged rollout is a thoughtful pace in which we'll introduce these devices into a handful of centers, so we can test and validate our ability to implement this ecosystem in a rapid and consistent, sustainable manner. Once we've proven we can do that in conjunction and collaboration with our customers, we'll then move to a full market release in the 2018, and we would also anticipate introducing a limited market release outside The U. S. Now one of the things I talked about earlier is the ability for us to be far more effective at managing our return on invested capital. This is a significant and Chris actually referred to it in his slides, plasma is the growth engine and has the ability to unleash a significant amount of value with a more robust management program around our fleet. We are working with customers today with the expectation of improving the productivity of every device today before we even launch the PCS-three 100, and we're aligning more closely with our customers as we introduce performance based contracting. The devices that we recover over the next couple of months will be repurposed. They will be refurbished. And that will allow us to put those devices into customers who may have 24 beds looking to go to 30. It may be put into centers that are brand new. And instead of opening a brand new box and putting more assets on our balance sheet, we'll be able to repurpose and elongate the lifespan of our existing fleet. And then the opportunity for us to use these machines outside The U. S, could be north of the border in Canada, could be Europe, could be Australia, New Zealand. The ability for us to reconfigure the devices to elongate their shelf life only enhances our ROIC. And then finally, as an alternate option, the question can be asked, is there a home within existing blood centers as they look to expand and enter into the market itself? We believe fundamentally our ability to improve ROIC is significant. So as I think about a lot of the questions that I fielded during the hour session a couple of moments ago, and I think about what it is that excites me within this industry, I think we sit with a significant market share globally in excess of 70% with long proven partnership and relationships with our customers. It is clear in the conversations that we are having, the compelling economic value story that this ecosystem is capable of and will deliver to the industry will create value that in return enables us to participate in a portion of that value captured itself. And in closing, it is our expectation that as collections continue to grow in the 6% to 8% range, that business will continue to experience significant growth over the next four to five years. We continue to press forward with our 70% market share and seek to drive that through additional customers adopting this technology. And if we do that properly, the ability to improve our gross margin position and managing our fleet more aggressively, significant opportunity for us to improve the overall ROIC of the business unit. So if we can drive down cost per liter collected with our customers, gain market share, improve gross margins as well as ROIC, our value that we create for the customer will pay itself back in value that the company will capture, which in turn enables us to continue to drive great value to our shareholders. Thank you very much. I'd like to introduce the next presenter, Carter Houghton from the Hospital Business Unit. Thank you, Tom. Good morning, everybody. I'm Carter Houghton, President of the Hospital Business Unit, and it's a pleasure to be here today and to have the opportunity to talk to you about Hospital and its ability to deliver meaningful growth to Haemonetics. The Hospital business unit is a new business unit. It represents about 19% of revenue. And in FY 2017, we delivered $172,000,000 with about half of that coming from outside The United States and about two thirds coming from our disposable product lines. If you remember one thing from my talk today, it should be that hospital is a growth story. The business unit comprises three product lines: cell salvage, hemostasis management and transfusion management, each one with opportunities for growth. Previously, these product lines were managed in different parts of the broader organization, but we decided to bring them together for a number of reasons. First, we wanted to focus on a common customer, the hospital, that's very different than the other two business units today. We also wanted to create a business unit, because of its size, could be very entrepreneurial and growth oriented. Additionally, we wanted to ensure that each product line and our most important geographies were getting the attention they deserved and performing to their potential, and that was not happening previously. The formation of the business unit is important, and it will help us enable us to deliver on our growth objectives. However, ultimately, we will succeed because we have great products. And our philosophy is great products will win the day. So why do I say our products are great? First, each one is ideally suited for today's health care environment. They deliver three things that our customers demand: clinical efficacy, patient safety and economic value. Second, each product has growth potential by themselves. And third, the combination of products actually creates some compelling synergy opportunities as well. The hospital business unit and the combination of these product lines actually creates compelling financial story as well. So first, self salvage. Self salvage is our largest product line today. It has opportunities for growth. And because it's our largest product line, it's actually generating a significant portion of our profits. Hemostasis management is our second largest product line, and it is our fastest growing and has very attractive margins. And transfusion management, which is our smallest product line today, is poised for breakout growth and also with attractive margins. So when you combine these three things together, what you're going to see is as follows. As hospital and transfusion management become more meaningful contributors, two things are going to happen. We're going to see an improvement in our growth rate and we're going to see improving margins, a very compelling story. Now most of you probably saw Haemonetics preannounce our FY twenty eighteen guidance. And what you probably noticed within the Hospital business unit is our growth is already starting to accelerate. In FY twenty seventeen, we delivered 2% revenue growth. And in FY twenty eighteen, we're projecting 7% to 10% growth. But we think with the investments we are making, we can go well beyond that. And right now, we are projecting 13% to 15% growth in this product line over a four year period. Now I mentioned earlier that hospital was a growth story and that we're going to win because of our great products. So I'd like to take a few minutes and talk about our exciting product lines. Each one of the product lines in our portfolio has opportunities for growth, and we fully expect that they will generate revenue in excess of market rates. Why the sense of optimism? Really, there are a few factors. First, we have strong market positions. We're number one and two in every market in which we compete. We also really like the markets that we're in, and we believe these are markets in which we can win. And the thing that excites me the most is the market potential. The combined market potential for our three products today is in excess of $1,500,000,000 which is 9x our current sales. All of our product lines have opportunities for growth, but the other thing that I think is very compelling is the fact that they're ideally suited for today's health care. We all know that health care is changing. Our customers from payers to hospitals to clinicians to the patients themselves, they're demanding more from their partners. And specifically, they're demanding three things that we provide products that deliver clinical efficacy, patient safety and economic value. And fortunately for the hospital business unit, our products deliver all three of those things. So let me talk briefly about cell salvage. Cell salvage is one of the original product lines within Haemonetics' product portfolio. This is a vital product line for this business unit. It is the largest product line. It has well established brands and our largest geographic focus today. This product is used to collect and wash blood that's lost during surgery, which is very important because when patients need to get transfused with blood, it is always better to do it with their own. That's where this product line fits in. We remain very excited about the opportunities within Cell Salvage for a number of reasons. First, if you look across the globe, I mentioned we are geographically diverse and in virtually every market, we are one or two in those markets. The overall market for cell salvage is somewhat limited today. Growth is in the low single digits. However, many of the geographies around the world are actually growing at an accelerated rate, and those markets are very interesting to us. We've also made some investments in this product line. We've made some investments in new technologies. And that's really had two effects. It's addressed some gaps we had in our product line. It also has reenergized this product line. And last, this product line has not gotten the attention it deserves. And so we are bringing renewed focus to it. And with that focus, we believe we can have a positive impact on both the top and the bottom lines. So our strategy for cell salvage is simple. It's about revitalizing this product line and reclaiming market leadership. We are projecting a CAGR in the low single digits, And we really have several key elements to our strategy. So the first is the adoption of our newest products in our portfolio that you see on the screen, Cell Saver Elite Plus and our connectivity platform. That is a huge emphasis for us in FY twenty eighteen. We are also going to do a market share play here. We think there's a real opportunity to grab market share. There are three other competitors in this market, not all of them are as focused on it as we are. And so we believe that's an opportunity and we are going to seize that opportunity, specifically in some of those faster growing markets as well. We also are very focused on both revenue and profitability for this product line. As I mentioned, this is our largest product line. So every growth we see on the top and bottom line enables us to do more things. And so we're looking at things like fleet management and pricing to help us achieve incremental growth. And lastly, there are a number of different products within the cell salvage product line. So we are going to continually assess the attractiveness of these products to ensure that they fit with the business units growth strategy. Hemostasis management. Hemostasis management is the largest growth opportunity for the hospital business unit today. We offer a portfolio of diagnostic products that help clinicians assess bleeding and thrombosis within their patients. We are very bullish on this particular product line for a number of reasons today. First, we have a leadership position, a very strong leadership position. And that leadership is in a market that is growing rapidly. Additionally, we're at the very early stages of adoption of our growth products, TEG 6s and TEG Manager. So we think there's huge potential there as well. Additionally, the regulatory landscape has been changing a bit in The United States. And some people view this as a negative. I actually view this as a positive. We're the first mover in this space. So everything we do, others must follow. And so we're going to seize that opportunity and lead this marketplace. And last, and I would argue the most important piece of attractiveness for this product line is the market potential. We have a market that has the ability to be in excess of $1,000,000,000 And so we're going to go after that growth and drive this market and lead this market. So hemostasis management, it's an attractive market and it is one that's poised for breakout growth. We are making a number of investments in this particular market, and I wanted to be able to articulate what benefit those investments will have. So I want to use this chart to illustrate my point. We're really trying to do two things. The first is we're trying to drive technology adoption. We want more users utilizing our devices. And one of the ways we're going to do that is to make our products much more trusted, much easier to use. And TEG 6s and our TEG Manager platforms, which are showcased outside today, are examples of our ability to do that. The other thing we want to do is expand the indications for our product lines. And so we're investing a lot in clinical trials right now. Now the benefit of expanded indications is actually twofold. That will actually help us drive adoption. It's also going to increase the size of the overall market. And so that's a key part of our strategy. So, I've alluded to this already, but the strategy for hemostasis management is about accelerating adoption of our technologies and investing in market growth. We project a CAGR for this product line in the mid to high teens. And our strategy is really bucketed in a couple of areas. So the first area is around commercial execution. We are investing in our sales team. We're expanding our sales team in most geographies around the world. We're going to focus on accelerating adoption of our growth products. And lastly, we are going to focus on ROIC heavy metrics like device utilization. Those are very important for a business like this. We also are investing in R and D. We're investing in things like the expansion of our TEG-six product line. And as I mentioned, we're investing in clinical and economic studies to help increase utilization and grow the overall market. And last, we are investing in resources as well. This is a business which we need to ensure is set up for success, so we are investing in organizational capabilities to support our growth strategy. Transfusion Management. Transfusion Management is our smallest product line today, but it is poised for breakout growth starting in FY twenty eighteen. It is a portfolio of software products, and these software products help hospitals cost effectively manage their blood supply. We are very excited about the potential for this particular product line for a number of reasons. We have a very strong presence in some of the leading academic hospitals around the world, and we believe as they adopt our technology, others will follow. We also made investments late last year in our North America commercial team. We have a dedicated team now focused solely on this product line, which is a little bit different than the other two products I've talked about. This will be the first full year we get the benefit of those investments and we're already seeing results from them. And lastly, we've done a lot of voice of customer work and the feedback that we have gotten from our customers is very clear. Our products are addressing major needs in the marketplace today. The strategy for transfusion management is about leveraging our existing technology base today and creating a growth market for Haemonetics. We see a CAGR in the low to mid teens for this business, and our strategy is really focused in another a number of different areas. We're going to expand our global sales teams. We are going to focus on key account strategy. We believe this is a market in which you go deep versus wide. Additionally, we have a lot of partners in this space who are helping us drive growth for this market. And lastly, our Fusion project. Our Fusion is our next generation software solution. It's the integration of our SafeTrace and BloodTrack products. And when complete, it will be unparalleled in the marketplace. So I've touched on this briefly, but we are making a number of investments today to drive both growth and ROIC. And we've really bucketed these in three areas: sales and marketing, research and development and manufacturing. I'm not going to go through all these in detail because I've touched on some of them already, but I did want to touch on one, and that is our TEG-six cartridge line expansion. We have a facility in Pennsylvania, and we're investing significant dollars in the automation of that production line. That's going to help us for a couple of different reasons. First, it's going to help us meet the growing demand that we are already seeing and we are projecting for TEG 6s. Additionally, it's going to help us reduce our cost of goods sold. So we're getting a dual benefit from that investment. Now some of these investments will impact us in FY 2018, others will be longer term. But I will tell you, one of the things we are doing is ensuring that these investments are delivering what we think they will. And we will periodically be going back and doing look backs to ensure that we are meeting our original projections. Now I've talked a lot about inorganic growth today. And inorganic growth is really the core to what's driving what I've already shown you. But we are going to be focusing on inorganic growth as well. And inorganic growth is about adding products to our bag. It's about making us more relevant to our customers. And I think this is very important for a number of reasons. First, more product line breadth has a number of benefits. It's going to make us more valuable to our customers. Additionally, we're making investments in our sales and commercial infrastructure, and it's going to allow us to fully optimize that investment. The other thing I should say is inorganic growth is not part of any of the plans that I've shown you previously. It is additive. So any deals we make will be incremental to what I've already shown you. And lastly, we're going to be looking at deals smaller in scale, tuck ins, things that are relevant to us, but probably less relevant to some of the people against whom we compete. In closing, I really want to leave you with four key messages today. The first message is we've designed this business unit with a purpose. It's to be customer focused, growth oriented and global in nature. Second, our products are perfectly suited for today's outcome driven healthcare environment. Three, the combination of products and the products individually will enable us to deliver both top and bottom line growth. And lastly, all of the investments we are making, and we are making investments, have two goals in mind: deliver growth for hospital and improve Haemonetics ROIC metrics. In the end, I'm confident we will become a top performing globally recognized medtech business, and I'm happy to report we are well on our way. With that, I would like to thank you for your time today, and I'd like to introduce Chad Niccol, Vice President of our Blood Center business. Good morning. It's great to see everyone again this year. My name is Chad Niccol, and I manage our Blood Center business. So last year, I sat before this audience and I communicated a pivot in our strategy. So what informed that pivot? And it truly was the voice of the customer. What was the customer telling us as an organization? The customer was saying, I want a safe, efficacious product of high quality standards at a low cost point. Taking that into consideration, that's what drove our change in strategy as we shifted to managing the business and the portfolio for profitability. So what I'd like to do today is walk you through what we learned over the last year, what we've accomplished and what we're going to continue to use as our points as we execute the business going forward. But before I get into that, it's worth taking a look at the business today. So what is the Blood Center business? It represents about one third of the Haemonetics business in totality as measured by revenue at $3.00 $4,000,000 It is our most international business that we have today with about two thirds of revenue being driven OUS. And it fits the model of the razor blade model with about 87% of revenue coming from disposables, which we all know drive high profit levels. So what I'd like to do is I'd like to walk and talk a little bit about the market and what we're seeing today. So we continue to see blood utilization declines in North America, but not as significant as they were in the recent past. Data from our Scientific Advisory Committee is saying that looking forward, we're looking at flat to down three percent. So not the negative 10% we saw in the past, but still declining. In Europe, driven by economics and clinical literature that is saying that pooled platelets are as efficacious and as safe as apheresis platelets, we are seeing a shift back to pooled platelets, something that we haven't seen in The U. S. Market. And in Asia Pacific, we continue to have a maturation of programs and a change in demographics of the population, we're seeing increased multi dose platelet collections more in tune with what we've seen in Europe and The U. S. In the past. So despite the changes that we've seen, one thing that we've noticed is blood continues to be a very resilient product. It's one of the things regardless of what your economic being is in the globe, it's not an optional product. Yes, it can shift with changes in medicine and it can shift with the economics, but it continues to be resilient. And it's a profitable business for Haemonetics. So what does all this mean to Haemonetics? And in the last year, we have taken a purposeful approach, don't drive the market, what's the market telling you and how are you actually going to participate in the market? So North America, utilization rates are actually declining. There isn't a glut of red cells and we want to as a blood center increase the quality of our right type mix. What do we do? We double down on our double red cell apheresis business and we start pushing that program like we haven't pushed in over five years. When you look at Europe, if there is a shift, what do we do? We have products on both sides. We hedge our bets. We can participate in the pooled platelets. We can participate in the apheresis platelets. And in Asia Pacific, if you're pushing towards multi dose platelets, what does it mean? It means you don't have enough platelets to meet your emerging health requirements. We take things that we have started in North America years ago, where 70% of blood is collected in mobiles. We're working with our customers in China to do mobile collections with platelets. It drives everything we're doing, we take decision and we move. So what's our response to the market conditions? Over the last year, it has really been centering around a philosophy that we're putting in place to drive a completely different culture and our focus to the market. First and foremost, and I talked about this last year, a reduction in complexity. Get back to simplicity. Be opportunistic, but only when the returns justify the deal. Better allocation of resources, resources go where the opportunities are and we'll talk a little bit about where the opportunities are in this business. Myself, members of my management team focus to the bottom line, reshaping the organization to drive around this new focus and the final step bring it all together with compensation and alignment to the new business focus. So purpose, fit for purpose. What is the shape of our portfolio today? 54% of our portfolio is an apheresis. Why is that important if you're looking to drive stability? You have capital equipment that must be validated in the customer environment. It must be deployed. Operators must be trained on how to use it. This is not transactional business. It fits the mold of stability. You don't for a 5% reduction in cost of disposables change over your entire capital fleet. Software, making up a minority, but think about how software is put in. Once again, a system that is validated in the customer environment, customized to their unique requirements, People are trained around it. These are areas that you do not make simple changes. Those two areas that are the most sticky in our portfolio drive the highest profitability across the mix. So that's what's driving part of our stability. But then you look and I made the comment earlier from a geographic perspective with this being the most international business we have and it is very, very well allocated on an even basis across the geographies. What does that give us first and foremost? First and foremost, there are going to be regional economic issues. We're diversified. We're diversified. We have a loyal customer base. We are the legacy business within Haemonetics. So what is our strength? Our strength is our channel, our commercial channel. We have a direct sales force and commercial partners that I think most organizations would be envious of. So using that to drive value to our customers. So what are some of the actions that we've taken to date? It really focuses specifically around the customers and getting focus back to the customer and where are we most competitive. So we used to manage a pool of over 3,000 customers and every revenue dollar was viewed equally. If you look at our business, 70% of the revenue comes from 40 customers. So what's changed in the last year? Every month, my team, we have a business review and every single leader does a review of one of these top 40 customers. It's all about securing the contracts. It's all about pricing. It's all about how are we going to partner with these 40 to maintain them in our portfolio. And it's also about how are we going to use this to steer the allocation of resources. For instance, the percentage of commercial resources within the blood center business in North America is going to be going down, stable market, we need to maintain it. Where are we seeing opportunity? Asia Pacific and you're seeing the percentage of resources being deployed in Asia will be going up year over year. Focusing on where we're actually competitive. An example is three years ago, we launched a product called the Universal Platelet Protocol and it is our most contemporary product that we have in our portfolio for platelet apheresis. And we started to roll it out and somewhere along the way we stopped. So why would you go to market in various regions without the best technology you have? We're fixing that today and we're moving forward and we're implementing it on a global basis. Introduction of legacy programs. So where was The U. S. Market ten years ago? U. S. Market was collect all you can collect because you couldn't collect enough. What did we do with patients? We did an operation where you called top them off. You go and you have a knee surgery, we give you an extra red cell, carries oxygen, you're going to feel better. Clinical evidence has changed. We don't need to do that. You have a glut. So a lot of the programs collect all you can collect. How do you redeploy those to Latin America? Those are systems that we have in place. So take from the past, redeploy them in regions where they make sense today and increase focus on reducing the cost of goods sold. So what have we accomplished in the last twelve months? We've taken over $20,000,000 out of direct costs in the Blood Center business. This is not a target. This is not an ambition. It is an accomplishment and it is an annuity that will continue to pay going forward. And it is the way we will continue to manage the business. So how have we gotten after this? Simplifying geographic footprint. Last year, you had five regions globally supporting the Blood Center business. We're down to four regions. Overhead, gone. I manage one of those regions. So double dip, you're really three regions today from a cost structure. Reducing G and A and my team hears this all the time. What do we do? We make good product for customers and we support the customers who purchase it. We've gone through all roles, how much value is that activity driving to those two missions and if it's not directly aligned, it's gone. Simple as that. Realign commercial channel to reduce complexity. Do you need hundreds of distributors and hundreds of small countries? Or do you just start to consolidate distributor ships? And we've made significant strides there. The last one, so eight years of parochial school, I spent four years in the military academy, five years as an officer in the Air Force. I like discipline. And that's something that we've instilled in this. And also what I like is I like investments with high ROIC, high net present value and payback periods in months, not years, short term investments. And if it doesn't fit those metrics, it doesn't belong in this portfolio. So managing for profitability. So on the right, see revenue and we have conceded revenue will go down. We have caught the falling knife, but consciously we are moving on contracts, customers, products, geographies that don't meet our value definition. So we'll move on that. But what we are going to do and what I communicated last year is we are going to continue to maintain the profitability and how are we going to do that? The lean and purposeful team, manufacturing alignment for margin expansion, continued simplification of the business and near term ROIC. So let's talk about each one. Autonomous leadership team. So I don't define leadership teams as being members 20 deep. We have a seven person leadership team that represents three functions: commercial, manufacturing and finance, and that's what leads our business. That team is in place. Our compensation is lined as a group. We make the final decisions on how we manage this business. We move quick. That didn't exist twelve months ago. Direct sales and marketing infrastructure. So for this business, the sales and marketing used to report in through the regions that came into corporate and then we're matrixed into the business, doesn't allow you to move fast. Today, they report directly into me. So we are an aligned organization. Governance and prioritization of R and D projects, not $1 gets spent on an R and D program or a sustainment program unless it's signed off by this leadership team. Those controls didn't exist twelve months ago. Dedicated leadership for manufacturing. So we have a large network of many facilities. We have one leader today that's actually sitting over all the Blood Center facilities and he thinks and sleeps and dreams about Blood Center on a routine basis. And it's I do have to say it is not a position that we added from an overhead perspective. We brought the position in. He actually has oversight. Where he sits, he's actually the Site Director, spans and layers. So manufacturing, we talked about Chris alluded to the filter recall and it's not a secret. We had a little bit of a setback last year. And what did we have to do that was different last year from what we anticipated to do from execution of our plan? We had to reevaluate our processes in manufacturing. We had to identify the root cause. We had to understand what systemically actually happened and we had to implement those learnings across our network. So when you look at it from a cost optimization perspective, it was really about stabilization and ensuring what happened would never happen again. Now as eventful as that was and it was a setback, our partners unilaterally did agree to extend their contract with us. So we're moving on. And where are we moving on? We're looking at zero basing our operations. So once again, we're going after the G and A cost structure. So as I talked about with my Head of Manufacturing, having both site leadership responsibilities and the network, we're doing the same in quality. We're doing the same in supply chain. We're doing the same in planning. We're going across all the functions. Vertical integration, where it actually makes sense. If we have assets in place, are we going to buy assets to bring things in? No. If we have assets that are sitting that are underutilized and we're giving margin away to a partner, we're going to bring that in house. Product rationalization, I'll speak to that, not only in the amount of finished goods we have, but also looking at the components in our manufacturing plants. How many bushings do you need? One. How many do we have? A lot more than one. And then material cost initiatives, more longer term trigger potentially changes that require oversight from regulatory agencies, but looking at a multiyear plan to bring our cost of goods sold. Simplifying the Blood Center business, I showed you these numbers Last year when I stood up here, we were in 110 markets and we sold nine seventy three products. Today, are in 84 products or 84 markets and we sell two fifty products. Why does this matter and how does this tie into cost reduction? Every single time you remove a product from the portfolio, no longer do I need a team that's managing the label, no longer do I need someone that is doing post market surveillance of that product, no longer do I need someone in the market that is actually supporting the customers using it. I start to leverage and get synergies, the less products I have with the customers, with our suppliers and also with the team that supports them. The same holds true for markets and the amount of registration. So we continue to whittle back at that G and A. In investments and high ROIC, excuse me, I've talked a lot about streamlining the organization. That is something that is going to continue into this year. Disposition of underperforming assets. So over the last year, we took a hard look at products that we brought to market at the machinery and the equipment that was actually used to manufacture it. And we did a spring cleaning and we cleaned up our balance sheet. And if an asset doesn't belong in our portfolio going forward, we're going to continue to maintain that discipline and to move forward on it. The last one I want to talk about and this is one that I think there might have been a little bit of misunderstanding last year was, are we going to invest in the blood center business? Yes, we are. But it's going to follow the criteria that I outlined earlier. We must keep our products contemporary to the market. We recently on an existing platform, we delivered a new platelet wash protocol because one of our largest customers, the Japanese Red Cross needed it. We're going to continue to partner with our customers, but only where it makes sense short term, high ROIC, quick payback periods. So what I'd like to leave you with is going forward, continue maturation and management with a lean and purposeful team, first and foremost. Manufacturing alignment for margin expansion. We really believe that when you look and you have a business that has a cost of goods sold in totality of $150,000,000 there's some runway to go after in this space. Simplification of the business, where does it make sense for us? Where does it make sense for our customers? And that's how we're going to drive the business. And then sticking true to the criteria that we've put in place for our investments. So thank you for your time. What I'd like to do is I'd like to introduce our CFO, Bill Burke. Good afternoon, everyone. I'm Bill Burke, CFO of Haemonetics. I've met many of you since I joined the company last August, and I'm pleased to be able to take you through the financial highlights today. The three business units that Chad, Carter and Tom reviewed with you are shown here and clearly each is an important piece of the total. Together, they generated just under $900,000,000 of revenue fiscal year. We are dependent upon no single business unit for more than 50% of our revenue, and they are all important contributors to the overall financial strength of the company in one manner or another. We generated 41% of our revenue outside of The U. S. And 85% of our revenue resulted from selling single use disposables on our fleet of placed and sold devices. Our adjusted operating margin was 13% and free cash flow of $113,000,000 virtually equaled our adjusted operating income of 115,000,000 The starting point of our long term financial goals are the objectives that Chris set forth a year ago, to double our adjusted operating income from its $120,000,000 level in fiscal twenty sixteen to about $240,000,000 and to quadruple our adjusted free cash flow from its $58,000,000 level in 2016 to about $230,000,000 both by fiscal twenty twenty one. We have identified four financial goals whose achievement over this time period are expected to drive us to realize the 2x and 4x. Driving revenue growth is critically important. Focused investments that include the development and deployment of new technology that benefits our customers, activities to drive market expansion, building out our commercial infrastructure and appropriately allocating resources with business requirements is expected to drive our growth to the upper single digits. A significant increase in operating margin is a prerequisite for doubling operating income. Operating margin improvement must be achieved with the goal of driving towards nearly a 20% operating margin in fiscal twenty twenty one. Investments for future growth will be funded with the strong cash generating ability of the company, especially the cash generation within our Blood Center business. Fundamentally, our decision making on investment opportunities will be guided by ROIC optimization. Our fiscal twenty seventeen ended March 2017. We provided revenue guidance of in fiscal twenty seventeen of $850,000,000 to $875,000,000 and actually delivered revenue 1% above the high end of the range. As many of you know, we overcame the cost of filter recall and unanticipated inventory charges, together totaling about $0.15 to $0.20 per share, but we were still able to achieve our commitments. We had set a target of $40,000,000 of cost savings and we ultimately surpassed that enabling operating income to reach $115,000,000 and we reported adjusted EPS of $1.53 which was 2% above the high end of our range. Here's a recap of fiscal twenty eighteen guidance that we provided on May 8. The Plasma business unit guidance of 3% to 5% reflects North America plasma collections expected to be in the high single digits. That's a continuation of the recent strong demand. The plasma growth is negatively impacted by the divestiture of a Sealer product line that accounted for 140 basis points of headwind and an anticipated reduction in Japanese plasma inventory. That's another negative impact of approximately 120 basis points on the plasma growth rate. Most of the expected 7% to 10% growth in our hospital business unit is attributable to TEG 6s gaining traction as Carter detailed in his presentation. And in blood center, we expect stabilizing rates of decline in both The U. S. Market demand for whole blood collections and Japanese reliance on the single dose platelet collection at near current levels. We guided to fiscal twenty eighteen revenue at approximately the same level as fiscal twenty seventeen or $886,000,000 We finished fiscal twenty seventeen at $1.53 adjusted earnings per share and that included $0.15 to $0.20 impact from the filter recall early in the year and unanticipated inventory charges throughout the year. We are not anticipating a recurrence of either of these events in fiscal twenty eighteen. So here, I'm adding them back. We will continue to drive productivity initiatives in fiscal twenty eighteen that include the benefits from prior year restructuring, reductions in indirect spending and efficiencies in the way we manage freight and our manufacturing operations. We expect to benefit from 20,000,000 to $30,000,000 from such programs or about $0.30 to $0.40 per share. All this math gets us to an earnings per share range of about $2 before the investments. We then have $0.04 0 to $0.50 of planned investments for future growth that Tom and Carter detailed in the plasma and hospital unit presentations. We reaffirm our fiscal twenty eighteen adjusted EPS guidance of $1.55 to $1.65 We should see operating margins expand moderately in fiscal twenty eighteen even as we increase spending on the investments. Our free cash on free cash flow, we're guiding 35,000,000 to $55,000,000 for fiscal twenty eighteen after achieving $113,000,000 of free cash flow in fiscal twenty seventeen. We are able to fund total anticipated investments of 70,000,000 to $90,000,000 in fiscal twenty eighteen and still generate positive free cash flow. The zero four zero to zero five zero dollars of investments on the P and L slide that I spoke about earlier translate into $15,000,000 to $25,000,000 of cash investments net of any tax benefit. We expect the capital expenditure portion of the investments, which includes the building of the PCS-three 100 devices and manufacturing capacity expansion in plasma and the hospital business units to approximate $55,000,000 to $65,000,000 Including the ongoing normal capital expenditures, total CapEx for Haemonetics will approximate $120,000,000 in fiscal twenty eighteen. Similar to our adjusted earnings, our fiscal twenty eighteen free cash flow should exceed fiscal twenty seventeen levels before funding investments. So with fiscal twenty seventeen results in the books and fiscal twenty eighteen guidance set, let's move on to the strategic planning period. Our fiscal twenty seventeen revenue was $886,000,000 which was down 1% in constant currency compared to $9.00 $9,000,000 in fiscal twenty sixteen. Depicted here is our objective to reach $1,100,000,000 to $1,200,000,000 in fiscal twenty twenty one with a compound annual growth rate of approximately 7% based on the midpoint of the range. Let me now take you through the drivers for each of the businesses to show you how we are going to achieve this goal. Our fiscal twenty seventeen Plasma revenue was $411,000,000 up 9% in constant currency compared to the prior year. Our objective is achieving to achieve a 10% to 13% compound annual growth rate over a four year period, which would have us reaching 600,000,000 to $675,000,000 in fiscal twenty twenty one. We have high confidence in the continued growth of the underlying market of our commercial plasma business unit with the collections piece. In April, we completed the submission of our five ten filing for the PCS-three 100 to the FDA and the underlying assumptions for growth in our plan include the clearance of this device. We believe that our capabilities of the new plasma collection system are far superior to anything in the market. In addition, working with customers, we need to execute a flawless rollout of the device, a rollout that ensures our customers' expectations are met for interruption free conversions. We have also begun and will soon complete capacity expansions that will position us to keep up with the growing demand of plasma disposables we expect over the next four years. With these key success factors achieved, we should see growth in the plasma business that would be very exciting. Our fiscal twenty seventeen hospital revenue was $172,000,000 up 2% in constant currency compared to the prior year as our hemostasis growth was partially offset by declines in OrthoPat. Depicted here is our objective of achieving a 13% to 15 annual compound growth rate over a four year period, which would have us approximately at $275,000,000 to $300,000,000 by fiscal twenty twenty one. Our hospital business unit is attractive and significant investment will be directed here. We have strengthened our TEG medical and clinical regulatory teams, and we are investing in the trials needed to generate medical evidence critical to drive TEG's market adoption and penetration. We are adding commercial and field based clinical resources and making investments in capital to scale our production of the new disposable cartridge. Both cell salvage and blood track are contributors to growth over the planning period. Our fiscal twenty seventeen Blood Center revenue was $3.00 $4,000,000 which was down 14% in constant currency compared to the prior year. Depicted here is our objective of stabilizing the decline to a 4% to 7% compound annual rate over a four year period, which would have us reaching $230,000,000 to $260,000,000 in fiscal twenty twenty one. This moderated rate of decline is exactly what we mean by stability. It also implies that much of the decline attributable to actions that we've taken such as customer and SKU rationalization are reflected in the fiscal twenty seventeen and 2018 declines. We have assumed moderation beyond fiscal twenty seventeen in the market related declines in transfusion levels in The U. S. And in the adoption of the double dose technology in Japan, platelet technology. We also enjoy the benefit of in place customer contracts to secure or stabilize our share over the next several years. We are anticipating stabilization within the blood center with its continued ability to generate substantial EBITDA and free cash flow, free cash flow that will benefit the growth pillars in plasma and hospital. Our profitability here is protected by the combination of moderating revenue decline, ongoing productivity initiatives and the need for minimal investments. Considering our return on invested capital, we have a really intriguing situation here. We start with low single digit returns that will climb to around 12% to 15% by fiscal twenty twenty one. So the opportunity for improvement couldn't be much more evident. The plasma and hospital growth initiatives, blood center stability, productivity gains and working capital opportunities add up to a meaningful enhancement of not only our operating income, but also our return on invested capital. Our starting point fiscal twenty sixteen operating income was $120,000,000 and here we show our aspiration of delivering up to double that level or $240,000,000 in fiscal twenty twenty one. The five year compounded annual growth rate from fiscal twenty sixteen to 2021 is 15% and would be higher using a three year compounded growth rate off of fiscal twenty eighteen guidance. With attention to the five key areas of opportunity shown here, the aspirational level is within our reach. The three commercial initiatives driving ROIC on the plasma PCS-three 100 placements, realizing profitable growth in our hospital business unit and maintaining profitability in Blood Center, all of which we've covered in our comments already will drive significant operating income growth. Additionally, we believe we can achieve meaningful cost reductions within our cost of goods sold, specifically in our freight cost and procured materials, which command the bulk of our spending. We are also anticipating G and A leverage over the period, and we will drive a culture of operating efficiency by simplifying complexity across the organization. I anticipate us gaining operating expense leverage over the planning period. We will continue to redirect R and D spending to areas offering attractive growth and optimal returns. Our fiscal twenty sixteen free cash flow was $58,000,000 and here we show our aspiration of delivering up to fourfold that level. In addition to the EBITDA growth that will come from doubling operating income, fiscal twenty twenty one is expected to be the post PCS-three 100 rollout year. So the burden of capital expense for the device build will be behind us. Fiscal twenty twenty one and the years immediately thereafter will benefit from relatively low plasma device placements due to the accelerated pace of placements throughout the planning period. There will be requirements to spend capital on capacity expansion to meet the growing demand within the market. Also, we have identified considerable opportunities to improve our working capital management that will benefit cash flow and help we reach our target in fiscal twenty twenty one. With a strong fiscal twenty seventeen free cash flow of $113,000,000 we ended the year with $140,000,000 of cash on our balance sheet, which was a year over year increase of $24,000,000 During the year, we paid down $93,000,000 of debt. Our net debt is $175,000,000 which is equal to one times EBITDA. With strong free cash flow throughout the planning period sufficient to fund our investments and the potential to increase our borrowing capacity should we deem it necessary to do so, we enter a period with a very strong balance sheet. We have financial flexibility, which provides the opportunities for exploring different capital allocation strategies. In summary, this turnaround will require a level of execution that this new management team has the experience of demonstrating, albeit in different environments. We must execute the previously discussed initiatives to realize exciting opportunities for growth in plasma and hospital business units, as well as optimizing operating income in blood center. We must realize plans for meaningful cost savings in cost of goods sold and operating expenses. The benefits of that growth will be amplified by the operating leverage afforded by lean cost structure as well as cash flow from our operations. We are confident that the actions we are taking will enhance value for our shareholders. Thank you for your time today. I'd just like to bring Chris back up on stage for some closing comments. As promised, I'll be brief so we can get to your questions. So it wasn't without some setbacks, but we hope you'll agree we had a good FY 2017. Strategy is working. We're fully on track. FY 2018 is a pivotal year for us. It will be characterized by both investment and fundamental changes to our business. Doing so sets us up well for the breakout growth that will increasingly define the company in FY 2019, 2020 and 2021. You've seen the overlay and how these business units fit together synergistically. They allow us to create a whole that is significantly more than the mere sum of the parts. Much has been made of the 2x operating income and the 4x free cash flow. The way you get there, as you've heard from each of the other presenters on the management team, is this build. Lots of work will be done to disaggregate and determine how much comes from each of the different component parts. But the reality is we expect high level performance across each of these dimensions. On the revenue line, we will absolutely benefit by the winning markets in which we compete and have leadership positions. Where possible, we'll take share when it's a profitable contributor to our overall growth. We will manage our mix appropriately and have a substantial benefit in margin therein. And yes, we will take price where the value conveyed to our customers is sufficient to warrant that. On our cost line, meaningful ongoing reduction in our cost of goods sold from ongoing productivity and an avoidance of the type of missteps that Bill and others have talked about that set us back this past year. We're managing cash differently, aspiring to be outstanding stewards of the resources that we preside over. That along with increased levels of equipment utilization, which are not only to our betterment, to our customers' benefit, will give us the type of uplift in ROIC to take these numbers a reality and beyond. The question I got asked most a year ago was why Haemonetics? Why did you choose to join them after more than two point five decades with your prior employer? The reality is this leadership team inherited a tremendous base business. There is resiliency in competing in markets that are defined by blood, which is the ultimate staple product. The customer agreements, many of them, five, seven, ten years in duration, all representing decades of customer relationships. There's a stability that comes with that and a product portfolio that, as you heard described by each of the business unit presenters, has that much sought after triple threat, safe and efficacious products that advance the standard of care with the data to support it and ultimately aligned customer economics that make using more of our product in every customer's best interest. And then three businesses that fit together synergistically, financially in ways that drive our overall performance. We've put together a plan, a team, strategy behind that and a bold aspiration that we think bring this together in exciting ways. The question I get asked most today is looking back a year, are you glad you did it? The answer is a resounding yes. It's not only for what we are about to do, but it's for what comes beyond that. There is significant optionality associated with the businesses that we are building and the corporation that presides over it. We see tremendous opportunity to reduce complexity and further drive productivity. We're excited about the opportunities that we see with our leadership position to change the game, new business models, new ways of financing that expansion that will have disproportionate benefit to our customers and to our organization and therefore to our shareholders. And as was highlighted by the various presenters before you, this is very much the organic plan. We will, in a stepwise and purposeful way, find opportunities to augment the plan inorganically. We recognize we have to earn our way in so doing, but it's an important part of how we will add to and complement the growth that you've heard described here today. Thanks for the time. At this point, let's move to your questions. Alright. Looks tight up there. So it's David Lewis, Morgan Stanley. So I want to start with Tom and then we move to Bill. So Tom, a couple of things. The first thing is the one number that was missing from your presentation, which was very good, was how much value you think you can create for your customers. Can you share with us a range of value you think is appropriate to think about in terms of how much value this new system can actually add? That was sort of the first question. Second question for you is just other things that were left out of the presentation. Donor fees, you talked about the core center administration fees. The donor fee is something separate. That donor fee has been going up dramatically for your customers, the POSIM center customers. What impact does donor center fees or the donor fee going up impact the commercial launch of PCS-three 100? Great question. So excuse me, I'll start with the second one and work backwards. The donor fees obviously are established by our customers. There are various times in a given year where they may run promotional periods to increase or influence the number of donors that take place over that time period. Anytime that donor fee goes up or escalates, obviously, that drives cost per liter collected up. So our objective with this whole ecosystem is to continue to work with our customers to have greater donor retention And as a result, have a positive impact in terms of their ability to perhaps not raise or increase the total cost for payment of the donor or recruitment of new donors. So again, my message was all about the ecosystem, the totality of the experience, the full body of work. And if we can find ways to drive the cost per liter down by increasing total yield as well as enabling more collections to take place in a given period, that should have a positive impact on driving costs down, which should enable our customers to avoid having to go after short of certain promotional periods and escalation as it relates to donor fees. And then the total value you think you can create for these customers based on PCS-three 100 range would be helpful. Yes. So great question. We get asked that a lot, as you can imagine. And I think that we're not in a position to address it specifically. But the conversations that we've had with most of our customers to this point, it's beyond just the value of the device. It's the totality yet again. It's that I sound like a broken record, but it's the ecosystem of ability to drive the cost per liter down. So that's really what you're asking is the $90 in my presentation, how much of that can we have a positive influence on? So, we're talking dollars in there. If we have the ability to reduce the cost on a per basis by a number of dollars per collection, our expectation would be we would participate in a portion of that savings as well. Yes. If I could just add to that, and then we'll give it to Bill. I think one of the things that has us excited about the upside potential in Plasma is as we look at that, it is a ninety-ten or 80 five-fifteen, somewhere in that range customer by customer. So when Tom and his team drive yield, when they improve the quality and the consistency and the compliance of the collection, when they actually improve the center throughputs, the overall productivity and they increase that donor experience, both the longevity and the frequency of the donor collection. The combination of those four things that works against 100% of that cost base, David, as you know. And I think that's one of the reasons because it is a ninety-ten multiplier, gives us confidence that the pie will be sufficiently larger that figuring out hemodynamic slice of it is actually a relatively easy piece, right? Then Jeff sorry, Chris, I may get confused. The 80 five-ninety or ninety-ten breakdown, were you trying to imply there may be 10% to 15% of that $90 of cost is available to you in terms of savings? Maybe I misunderstood you. Typically, you see, you go back and you look at any of the leading 10 to 12 fractionators, the disposable costs where we participate in the collection is typically between 1015% of their collected cost of goods sold. Okay. Very clear. And then Bill, you did a great job kind of giving us the bridge from point A to point B from fiscal twenty eighteen to fiscal twenty twenty one. Can you help us out just in terms of the progression? It's probably not going to be linear on revenue. It looks like that CAGR may be somewhat linear. But on the free cash flow creation EBIT expansion, it's highly unlikely it is linear from 2018 through 2021. So how should investors think about this? Is this a steady progression 2018, 2019, 2021? Or is it more like a 2018 and 2019 investment period followed by a more substantial expansion in 2020 and 2021? So we are making we started making investments in FY 2017 to a small level that we didn't talk we didn't have to talk about publicly. We just absorbed the charges and made the numbers that we committed to. FY 2018, you can see that there is an uplift in substantial investment. The faster we make that investment, the better position we will be in, in FY 2019, 2020 and 2021 to accelerate the growth. I wouldn't expect growth to be linear though. We have a lot of lot to do. You can see in the presentations, there's an incredible amount of execution that needs to be done and there's a lot of variability of what needs to get done and some of it is out of our hands. We obviously have a very good solid internal plan that guides us to what we've committed to by FY 2021. We're just not ready at this point to share it. We feel like it would be disingenuous or a shot in the dark to say what the nineteen and twenty years would be in there. But we feel like the path we're on is the path we laid out ten months ago, when I started with Chris, and we haven't wavered from that. You. Anthony Petrone from Jefferies. Maybe, Chris, to start with the overall outlook. It looks like you did not include inorganic growth into the 2021 outlook. The net debt to EBITDA is at 1x. I'm just wondering, as you look out at M and A activity, how actively is the company looking at opportunities and what would be sort of the max debt ratio that you can bring that up to? And then a couple of follow ups on plasma and hospital. Sure. I appreciate the question, Anthony. So I think as we think about it, pretty much everything we've described here today is organic growth, and that's by design. That's what we can reach out and touch. And we're fortunate to have two businesses, in particular, in plasma and hospital that have the ability to contribute organically, as you've heard from our business unit leaders there. The way we will augment that is the way we'll think about the portfolio overall. I had a series of things outlined as corporate initiatives. Portfolio optimization is one of them. We will continue to look at our portfolio and challenge ourselves as to whether we're the rightful owner of the assets we have and whether those assets contribute positively to our growth agenda. And where they don't, as was the example this past year with Zebra and a number of our manufacturing facilities, specifically Ascoli, Bothwell and Niles, we made a judgment call to terminate that and outplace them accordingly to somebody who could do better with it. So that will continue. And as part of that, we will look to augment inorganically. The place we're most likely to target that in the near term is going to be in Carter's hospital business because that's where we see the most robust opportunities to add in ways that are accretive, not just financially, but operationally in terms of gaining operational leverage and improving our reach and relevance so that we can really have that leadership position that we aspire to. The actual size of the deals, we're going to be opportunistic. We think they will likely, as Carter described, be tucked ins and things that we can grab and go and make work within our existing portfolio. But the number and the size will do that where we see real value, not before and not different. Follow-up on Plasma. Just the longer term outlook 2021, what is assumed in there for the turnover of the installed base? Is that basically assume that the whole installed base within The U. S. Turns over? And how does that turnover actually look like from $20.17 to $20.21 per systems per year? How aggressively does that happen? And lastly, on price, what's assumed in there for price in the longer term outlook? Thanks. So I'll handle most of that. In terms of the implementation plan, there's roughly, as we said, 19,500 to 20,000 devices that are in the marketplace. We're in discussions now with customers to understand what their interest level is and what their appetite and speed for that implementation upgrading the three PCS-three 100 to the from the PCS-two. Each one of those customers will be making a decision in terms of and thus governing the pace and speed in which we're going to actually execute on that upgrade process. The numbers here would reflect the majority of that 20,000 devices being upgraded over that time line, the period that we've shared with you this morning. Obviously, that's going to require a tremendous amount of precise implementation and staffing appropriately, working collaboratively with our customers, etcetera, in order to execute on that large of a project. It's meaningful. It's a significant endeavor that we'd be undertaking. The expectation is that we would be able to execute on that within that four year period. And then lastly on hospital, just an update on the TEG installed base, the size of that, where it can go over time and then the utilization per device, how does that improve over time? Thanks. Yes. So we are we're not commenting publicly, I believe, on the installed base or utilization rates. I know we have a goal of doubling the business. I believe we publicly communicated in the timing horizon, and that's something that we're targeting. But I don't believe we are providing any specific metrics around either device placements or utilization at this time. That's right. I think it's the mantra around ROIC, I know it plays well to our investor base and to our financial audience. The reality is driving greater utilization of our equipment across all lines of business is part of what we describe around the relevance. So if we had the choice between having 50 devices, one each across 50 different hospital groups or having them concentrated in five groups where we really get to that level of relevance, we're going to aspire to the latter because we know that we have the best opportunity to advance the standard of care, to improve the treatment rates for those patients and to demonstrate our value add to the clinicians and to the institutions that they serve. So it's top of mind even in Carter's business where by and large, we sell the equipment at a reasonable profit as opposed to placing it as we do in other parts of the business. Utilization is a primary focus. John Hsu with Raymond James. Two quick questions, one on plasma and one on TEG. For plasma, based on the information that was presented today, it would appear that without gaining any share, the collection volumes would be in that six to 8% range. So is it fair to imply that kind of looking at the 10% to 13% CAGR that prices kind of the remainder of kind of 4% to 5%? So I would not go on the presumption that share gain does not occur. In other words, I think the numbers are clear in a gross margin improvement, a pricing opportunity as well as a share gain. All of that would contribute to the FY 2021 numbers. Okay, great. And then on TAG, two quick ones. One, where do we stand on the trauma indication? Can you tell us a little bit more about clinical updates, timelines, that type of thing? And then also on the CAGRs built into the LRP, what indications are provided in there or included in there? Because I think you mentioned that some of the incremental investment implies that you could actually expand the market opportunity beyond the 1,000,000,000 Yes. So regarding first, regarding trauma, trauma is something that, at this time, we're not going to comment on specific timing, but trauma is important. It is something we are engaged with discussions with the FDA right now. We have a trial that we are planning that will ultimately support that indication. So it is part of our strategy. It's an investment we are making, and that is critical to success. That said, within trauma, we do have the ability continue to sell into trauma with our TEG-five thousand. So until we have the success approved, we will be using our TEG-five thousand in combination with our success to address the trauma, the trauma indication and meeting customer demand until that happens. So clinical expansion or indication expansion is important. And there are a number of different areas, which we are exploring. We are not going to comment on what's next, but we are looking at a variety of things in a number of different areas where we have approval within TEG-five thousand, but we do not yet within TEG-6S. I would say that would be the initial path. So those are some areas that we're looking at. One area in particular that we're contemplating cardiology, doing some more work in that space. But specific beyond that, I'm not in a position today to really give a detailed timeline of each indication we're going after in what order. One thing I would add to that, if I might, is that as Carter highlighted in his presentation, fully half of that business is outside The U. S. And a disproportionate share of our growth going forward will be outside of The U. S. One piece that gets missed is in the other major markets around the world, certainly, the leading markets in Europe, Japan, Australia, by example, we have the full suite of indications. Those regulatory authorities chose to look at the TEG-five thousand as a predicate product and therefore give us the release across the full spectrum. So we have it in its entirety. We're doing some things to advance TEG Manager there. But those markets already have the benefit and are able to put the 6s, excuse me, into trauma suites as well as the full broader spectrum for implant and for our other indications. So we're getting a pretty good read for the relative opportunity segment by segment across the different markets globally. I got to know from this audience, there has to be other questions. You got to stump Bill with something, please. No, don't. Carter, maybe this is already asked, but I'll get after it in a different way. But if I take your growth rate in TEG and I take 13% to 15%, we grow that, the business doubles in five years, but you're still only at 20% to 25 of this market opportunity that you talked about. So help me understand how we get from $250,000,000 to $1,000,000,000 I think most investors, when they see $1,000,000,000 market opportunity and a $66,000,000 revenue base, there's a disconnect there. There's got to be some disconnect between the number you're talking about and the growth rate you're purporting. So the way we look at it is we look at it in clinical areas where we believe our product has utility. And there are areas in which our product is used today where we have approved indications, but maybe we're just not realizing that potential. And then there are indications where we believe if we invest, we can drive adoption well above that. And that's both from a regulatory standpoint, but also getting into things like guidelines in various countries around the world. So it's actually a combination of things. And so when you look at this market, we look at the market where we're going after today, it's really around where we have approved indications for our current portfolio and where we have the ability to either take share from our direct competitors or from conventional testing. That's how we look at that. Our ability to add additional indications for areas where we're not approved for today, that's really what gets us to this $1,000,000,000 number. And those are areas where, TAG is not widely used, if at all, but we've been given indications from both our advisory council as well as our customer base that there are applications out there where there is utility of our products. But that's really what I'm referring to. So, it's a combination of the existing market we can go after, but also areas where we just we don't have indications today. And those additional indications are really what drive us from going to, let's say, 300 to $400,000,000 where we are today to, let's say, 1,000,000,000. And another question just on blood banking. If I listen to your early preamble, you talked a lot about what I think you're saying is high barriers to customer switching, right? A few number of customers, but it's a sticky business, a sustainable business. And I don't know, torture you for decisions that were made by prior management. But how do I reconcile very sticky business with customers with very sharp price compression in the same business? So majority of the price compression that you saw earlier on was in the manual blood collections business. And I wasn't referring to that. I was actually referring to the apheresis business, correct. Any last questions? Well, you again for joining. You are welcome to join us for lunch where the extended management team will be there to answer any further questions you have. Thanks again. Thank you,

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