Haemonetics - Earnings Call - Q4 2016
May 2, 2016
Transcript
Speaker 0
Good morning, ladies and gentlemen, and welcome to the Q4 twenty sixteen Haemonetics Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr.
Jerry Gould, Vice President of Investor Relations. Please go ahead.
Speaker 1
Thank you, Catherine. Good morning. Thank you for joining us for Haemonetics' fourth quarter fiscal 'sixteen conference call and webcast. I'm joined today by Ron Geldman, Interim CEO Kent Davies, Chief Operating Officer and Chris Lindop, CFO. Please note that our remarks today will include forward looking statements.
Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form eight ks we filed today as well as in our recent 10 ks and 10 Q filings. This morning, we posted our earnings release to our Investor Relations website. Additionally, we posted comments on fourth quarter and full year fiscal twenty sixteen results. These comments cover much of what we'll discuss on this morning's call.
In future quarters, we plan to post the commentary to our website, enabling us to abbreviate our prepared remarks on the quarterly call and to proceed more directly to your questions. On today's call, Ron will discuss highlights of our business performance and Kent will provide more detail on the important trends in our commercial operations in the fourth quarter and fiscal year. Chris will cover key elements of the financial performance of the business. After some brief closing comments, we'll take your questions. Before I turn the call over to Ron, I would like to mention the treatment in our adjusted results of certain items which by their nature and size, affect the comparability of our financial results.
Consistent with our past practice, we've excluded certain costs and charges from the adjusted financial results which we'll talk about today. In the fourth quarter of fiscal 'sixteen, we excluded certain non cash charges and reserves related to the recent strategic review of our business franchises. In fiscal 'sixteen, we excluded certain intangible and other asset write downs, the reversal of related contingent consideration, and other non cash charges and reserves. And in the fourth quarters and fiscal years 'fifteen and 'sixteen, we excluded pretax transformation and restructuring costs and related tax effects. The earnings information discussed for all periods also excludes deal related amortization expense.
Further details of fourth quarter and fiscal year 'sixteen excluded amounts, including comparisons with applicable periods of fiscal 'fifteen, are provided in our Form eight ks and have been posted to our Investor Relations website. Our press release and website also include a complete P and L, balance sheet and a summary statement of cash flows, as well as reconciliation of our GAAP and adjusted results. Finally, as we pointed out in our earnings release, please note that the fourth quarter and full year fiscal twenty sixteen have an extra week compared with fiscal twenty fifteen. With that, I'll turn the call over to Ron.
Speaker 2
Thank you, Jerry, and good morning to all of you. As we noted last quarter, we have two attractive growth franchises, plasma and hemostasis management, our TEG family of products. These two growth franchises have delivered strong constant currency growth consistently over the past several years and this trend continued in fiscal twenty sixteen. We finished fiscal twenty sixteen with revenue of $910,000,000 flat with the prior fiscal year and up 3% in constant currency. This was in line with the guidance range we had provided, albeit at the lower end.
In the fourth quarter, total company revenue grew 10% on a constant currency basis, with about two thirds of that growth attributable to an extra week in the fiscal year, which landed in the fourth quarter. For the full year, revenue grew 3% on a constant currency basis, with about half of that growth attributable to that extra week. Strong performances in the plasma and hemostasis management franchises continued, but unfortunately, so did declines in the donor business. Our North America franchise, plasma franchise, delivered 25% growth in the fourth quarter, completing a fiscal year with 17% growth, including 6% from Liquid Solutions and 2% from the fifty third week. We are focused on working with our customers on optimizing collection productivity and yield, while benefiting from continued growth in the end market for plasma derived pharmaceuticals.
Our next gen plasma collection software is commercially available in The U. S. Market and continues to gain customer interest. We now have four contracts signed, including one with our largest customer. Our new collection device is targeted for commercial introduction in fiscal 'eighteen.
This combination will deliver differentiated value to each plasma collection event. Our hemostasis management, or TEG franchise, is well positioned and on a healthy growth trajectory. TEG Disposables grew 22% in constant currency this quarter, closing out a year in which 21% growth was achieved. Our legacy TEG 5,000 device is driving this growth and we are drawing closer to the full global launch of our new TEG 6s device. We expect our TEG family of products, TEG 5,000, TEG 6s, and TEG Manager to continue to deliver growth with existing and new customers as we penetrate the global market.
Much more will follow on our plasma and hemostasis management franchises, as well as other aspects of our portfolio at our Investor Day in Boston next week. As we highlighted in our earnings release, there were notable items in the fourth quarter that decreased our earnings by about $0.10 per share. On the other hand, we benefited from a lower tax rate than planned and gained about $03 These few items caused us to report 1.63 adjusted earnings per share instead of $1.7 which would have been the midpoint of our earnings guidance range. All things considered, this was a reasonable finish to a very tough year. Now I will turn the call over to Kent to provide more details about our business performance.
Speaker 3
Thanks, Ron, and good morning, everyone. This morning, we announced fourth quarter revenue of $243,000,000 up 7% as reported and up 10% in constant currency. Our growth franchises of plasma and hemostasis management or TEG continued their solid performances. These two business franchises delivered $17,000,000 of revenue growth in the fourth quarter and $38,000,000 of revenue growth in fiscal 'sixteen. In the fourth quarter plasma disposables revenue was $91,000,000 an increase of approximately $15,000,000 or 20% as reported and 23% in constant currency.
Shipments of saline and sodium citrate in the fifty third week each contributed about eight percentage points for plasma growth in the fourth quarter. Plasma growth was realized in each of our four geographic regions. Hospital revenue was $32,000,000 in the fourth quarter, down 1% versus the prior year. Excluding the impact of currency, hospital revenue grew by 3% in both the fourth quarter and the full fiscal year. Strong TEG momentum provided growth that more than offset $2,000,000 of decline in orthopedic cell salvage in the fourth quarter of fiscal 'sixteen.
We had record TEG Disposables revenue of $14,000,000 in the fourth quarter, up 20% as reported and up 22% in constant currency. In the fourth quarter, we continued to see growth of TEG 5,000 even as we shipped TEG 6s devices, disposables and software in preparation for full market release. Over the past three fiscal years, we sold nearly 2,500 TEG devices including 800 in fiscal twenty sixteen. Surgical or Cell Saver Disposables revenue was $15,000,000 in the fourth quarter, down 4% as reported, but up 2% in constant currency. In fiscal 'sixteen, Cell Sabre Disposables revenue was up 1% in constant currency compared with the prior year.
In fiscal 'sixteen, hospital revenue was $125,000,000 flat with fiscal 'fifteen. Fiscal Strong TEG growth more than offset a decline of $6,000,000 in orthopedic cell salvage. In the fourth quarter, our donor or blood center disposables revenue was flat at $86,000,000 Excluding the impact of currency, donor disposables grew by $3,000,000 or 3% in the quarter. Platelet disposables revenue was $40,000,000 in the fourth quarter, up $3,000,000 over last year as reported and up $5,000,000 or 13% in constant currency due in part to emerging markets growth. Additionally, in Japan, fourth quarter order timing and our increased market share of single dose platelet collections offset the ongoing shift towards our competitors' double dose platelet technology.
And our platelet revenue was flat with the prior full fiscal year. Red Cell Disposables revenue was $10,000,000 down $1,000,000 or 11% as reported and down 10% in constant currency versus last year's
Speaker 2
fourth quarter.
Speaker 3
We continue to implement our long term contract with the American Red Cross during the fourth quarter. Through this agreement, we expect to achieve 100% of the ARC's double red cell business achieving greater volume at a lower price. Within the red cell business pricing represented the majority of the fourth quarter's revenue decline. Whole blood revenue was $36,000,000 in the fourth quarter, down $2,000,000 or 4% as reported and down 2% in constant currency. Whole blood revenue was $24,000,000 in The Americas, 8,000,000 in Europe and European distribution markets and $4,000,000 in the Asia Pacific and Japan markets.
North America whole blood revenue continues to be impacted by declines in The U. S. Red cell transfusion rate, which were approximately 10% in each fiscal year 2014 and 2015. That rate of market decline slowed to approximately 7% in fiscal twenty sixteen within the 5% to 8% range we previously communicated. Sales of whole blood products to U.
S. Blood centers now represent less than 6% of our consolidated revenue. In fiscal twenty sixteen, donor disposables revenue was $312,000,000 down $27,000,000 or 8% as reported. Excluding the impact of currency, blood center disposables revenue was down by 5%. Platelet disposables revenue was $143,000,000 down $9,000,000 or 6% from last year as reported, and down 1% in constant currency.
Red cell Disposables revenue was $39,000,000 down $3,000,000 or 8% reported and down 7% in constant currency. Finally, whole blood disposables revenue was $129,000,000 with a decline of $15,000,000 or 10% as reported and down 8% in constant currency. Software Solutions revenue was $20,000,000 in the fourth quarter, up 9% as reported and up 10% in constant currency. Initial customer interest in our BloodTrack Hemovanc system remains encouraging. Equipment revenue was $14,000,000 in the fourth quarter and $52,000,000 in the year.
Our installed base of equipment, which is the combination of purchased and placed devices, increased 7% in fiscal twenty sixteen. The installed bases of Plasma and TEG, our two fastest growing franchises, had increases of 1117% respectively in fiscal twenty sixteen. Before I close, I'd like to highlight a few additional elements of our commercial performance that we believe are noteworthy. Our North America Plasma business completed another strong year with disposables revenue growing faster than the expanding end market and strong interest in our next gen donor management system software from multiple customers. Hemostasis management continues to grow.
We are pleased with our trajectory and remain excited about the prospects for our TEG family of innovative devices, disposables and connected software solutions. We delivered another positive result in China with constant currency revenue growth of 18% in the fourth quarter and 10% in the fiscal year. TEG made up an important part of that growth and we also enjoyed solid surgical cell salvage growth in the fourth quarter. With that, I'll turn the call over to Chris Lindock. Chris?
Speaker 4
Thanks, Ken. As noted, in the fourth quarter, total revenue was $243,000,000 an increase of 7% as reported and 10% on a constant currency basis. In fiscal 'sixteen, total revenue was $910,000,000 flat with the prior year as reported and up 3% in constant currency. Currency impacted revenue by roughly 300 basis points in the fourth quarter as it did in each quarter of fiscal twenty sixteen. During the quarter, we had constant currency growth in all geographies except Europe.
Strong growth in U. S. Plasma, TAG, and platelet disposables revenue and software, along with modest growth in Cell Saver disposables, offset declines in red cell and whole blood disposables on a constant currency basis. Toward the end of the fiscal year, the Italian government enacted a law retroactive to January 2015 requiring medical device companies to reimburse the Italian government for a portion of its healthcare budget overrun. For accounting purposes, the reimbursement is treated as a rebate reducing revenue.
We recorded a $1,400,000 reduction of revenue in the fourth quarter, which impacted our gross and operating profits. Also as part of the review of our business portfolio, we reconsidered expectations for revenue in the whole blood and apheresis businesses collectively our donor franchise. And this led to the establishment of inventory valuation reserves of approximately $5,000,000 recorded in the fourth quarter, which reduced gross profit. Fourth quarter adjusted gross profit was $100,000,000 down 9% or $10,000,000 year on year. A $5,000,000 currency headwind was included, so gross profit decreased by $5,000,000 or five constant currency.
Fourth quarter adjusted gross margin was 41.1%. Currency headwinds, the Italian rebate, and the inventory related charges impacted gross margin negatively by four ninety basis points in the quarter. Fiscal twenty sixteen gross margin was 46.2%, down two sixty basis points. Currency headwinds contributed two twenty basis points of this decline. The balance of the decline is attributable to the donor inventory valuation reserves discussed previously.
Adjusted operating expenses were $74,000,000 as reported, down $1,000,000 or 1.4% as compared with the prior year's fourth quarter. Fiscal 'sixteen adjusted operating expenses were $300,000,000 down $6,000,000 or 2%. The fourth quarter and full year reductions were achieved despite incurring an extra $5,000,000 of operating expenses in the fifty third week. Savings from organizational and corporate cost reductions permitted ongoing investments in higher impact growth initiatives. Notably, R and D spending increased to 4.9% of revenue in fiscal 'sixteen, up from 4.7% last year due to accelerated funding for the new plasma collection device, the TEG 6s and software connectivity.
Adjusted operating income was $26,000,000 in the fourth quarter, down $9,000,000 including a $4,000,000 headwind attributable to currency. The $5,000,000 of donor inventory adjustments also contributed to the reduction in operating income in the quarter. Adjusted operating margin was 10.6% in the quarter. Reported operating margin was adversely impacted 170 basis points due to currency and approximately two twenty basis points attributable to the donor inventory charges. Fiscal 'sixteen operating income was $120,000,000 down $18,000,000 Operating margin was 13.2%.
Currency was a $10,400,000 headwind for the full fiscal year, with the balance of the decline attributable to the Italian rebate and the donor inventory write downs. Adjusted interest expense associated with our loans was $2,400,000 in the fourth quarter. Our tax rate was 18.5 in the fourth quarter of fiscal 'sixteen compared with 25% in fiscal 'fifteen as tax reserves estimates were finalized at year end and resulting adjustments benefit the fourth quarter. Fourth quarter fiscal twenty sixteen adjusted earnings per share were $0.37 down zero one zero dollars or 21%. The favorable earnings per share impact of the lower tax rate was more than offset by the unfavorable impact of the Italian rebate approximately $02 per share and the donor inventory related charges, were approximately $08 These items all flow through the fourth quarter results.
Fiscal 'sixteen adjusted earnings per share were $1.63 down $0.22 of which $0.15 is attributable to currency with the balance of the decline attributable to the fourth quarter donor inventory charges and the Italian rebate. We ended the year with $115,000,000 of cash on hand, down $46,000,000 from fiscal 'fifteen year end. We used $38,000,000 of cash for VCC and other restructuring and $61,000,000 for the repurchase of shares in the open market. We reported free cash flow before transformation and restructuring costs of $58,000,000,000 in fiscal twenty sixteen. We completed spending under our BCC programs in fiscal twenty sixteen.
And as I've explained before, BCC savings realized have offset disclosed business adversities including currency and volume reductions and pricing concessions in our North American donor business. Now regarding fiscal 'seventeen, we expect to provide guidance when we have our Annual Investor Day next Tuesday, May 10. However, I do want to reiterate and in some cases expand upon a number of items I've provided previously for your consideration in preparing your fiscal twenty seventeen estimates. Currency trends are now expected to have a negative impact of $14,000,000 in operating income in fiscal 'seventeen. Obviously, 'seventeen will not include the fifty third week that benefited fiscal 'sixteen, which will impact operating income negatively by roughly $2,000,000 year over year.
And in our donor franchise, several identified adverse trends or events will also impact the fiscal 'seventeen earnings outlook. Customer input and our own observations suggest a continuation of whole blood collection declines into fiscal 'seventeen, which we currently estimate will reduce operating income by approximately $5,000,000 Our red cell apheresis business in The U. S, price reductions to the American Red Cross and other share losses will have a negative impact of about $12,000,000 on fiscal 'seventeen operating income. We've been monitoring the market shift towards double dose platelet collections in Japan, which is now estimated to have a negative impact of approximately $10,000,000 on our fiscal twenty seventeen operating income. On the positive side, we plan to mitigate these negatives to the greatest extent possible by addressing investments and business infrastructure spend in our donor franchise.
While we also continue to expect strong revenue growth in our plasma business and expect to see another year of significant growth in hemostasis management, fiscal 'seventeen is going to be a challenging year. So we look forward to sharing the results of our recent strategic review and our complete fiscal 'seventeen outlook on May 10. And with that, I'll turn the call back over to Ron. Thanks, Chris.
Speaker 2
Our Board of Directors continues to conduct its search for a permanent CEO. That process is moving along and we will announce the results as soon as the final decision is reached. Our work to evaluate all of the franchises within our business portfolio has concluded, as have most of our plans to implement the initial phase of our strategy. Our goal is to put Haemonetics on the path to sustainable and differentiated top and bottom line growth. We will share the results with all of you at our Investor Day event.
Regarding that event, it will be next Tuesday, May 10 in Boston. We have sent invitations and we sincerely hope you will join us. We will webcast a portion of the event and that is available through our Investor Relations website, just in case you cannot take part in the entire event in person. Once again, I thank our employees. Their commitment and their dedication to the needs of our customers give me real optimism that we can turn our potential into superior performance and create real value for our shareholders.
With that, we are happy to take your questions.
Speaker 0
Thank you, ladies and gentlemen. If you have a question at this time, please press the star then the one key on your touchtone telephone. If your question has been answered or you wish you removed yourself from the queue, press the pound key. And our first question comes from Larry Solow with CJS Securities. Your line is open.
Speaker 5
Good morning.
Speaker 1
Good morning Larry.
Speaker 6
I'm doing well. I wonder if you could maybe just the last stuff you mentioned in terms of the challenges to 'seventeen. Could you maybe just bucket the numbers you mentioned So I think currency trends you say now are minus 14. I think you had given a minus 10.
And that was the last update on that?
Speaker 4
I think '12 was the last one.
Speaker 6
Okay. And then on whole blood, you had said $10,000,000 right now. It's $12,000,000 the red because you're on the red blood cell?
Speaker 4
On the red cells, A little worse than we originally estimated.
Speaker 6
And whole blood you never had really. That's a new number, the $5,000,000 Yeah.
Speaker 4
We hadn't quantified it, but the adversity in the business was there.
Speaker 6
Okay. In terms of this quarter, just looking at if I strip out gross of the charges and gross profit and inventory charges, gross profit is still down to like 45%. I realize plasma is higher margin and did better than everything else. Is there anything else in there that caused the pressure on gross margin?
Speaker 4
Yeah. I mean, you point out mix of course, that's a factor. And then pricing in the red cell business, that's high calories if you will when you give up price.
Speaker 6
Okay. And just lastly, looks like you got to you reduced some operating expenses a pretty significant amount at least compared to what I was looking at considering you had a thirteenth week. Was there anything in there timing related that will push into 2017? Or was it just basically just your ability to manage expenses?
Speaker 4
Not timing, no. On the contrary, we see that continuing into 2017.
Speaker 6
Okay. Great. Thanks.
Speaker 0
Thank you. Our next question comes from Karen Koske with BTIG. Your line is open.
Speaker 7
Hi guys, thanks for taking the questions. A couple for me. I guess first, I know you'll be giving us some more detail next week about the portfolio review that's been underway the last several months. But how confident are you at this point that you have in fact identified all of the issues under the areas that need attention? And going forward, it's going to be more about execution than continuously going back to the drawing board and making sure that nothing was missed?
And then just as a follow-up to that question, how much of a limiting factor is not having a permanent CEO identified at this point given he or she is likely going to be the one that has to come in and execute a lot of these changes going forward?
Speaker 2
I guess I'm going to take that one, Karen. How are you
Speaker 4
this morning?
Speaker 7
Doing well,
Speaker 2
thanks. On the last one, yeah, I think everyone's been clear that we would like to get someone in place as soon as we can. But I've also indicated to you that that won't slow us down. And next Tuesday, you will hear how we are beginning to implement the portfolio review into actual action plans next week. So I think if you're not convinced of that after Tuesday, should talk to me about that.
Now, would you repeat the first part again, please?
Speaker 7
Just about, you know, I know that you said that, I think you said in your last comments that you've completed the portfolio review at this point. But how confident are you that going forward, you know, discrepancies are not going to be identified and that you have to go back and do more work on the identification side? You know, is the new plan going to be all about execution, basically?
Speaker 2
Well, you know, in this situation, I don't think we can be 100% confident. But I think we are mostly confident that we have found most of the things that we wanted to find. We are moving forward. But no, I don't, I couldn't sit here today and tell you that there won't be any more issues that we're going to have to deal with in 'seventeen. Having said that though, Karen, it is going to be about execution.
And next Tuesday we will explain to you exactly how we plan to execute.
Speaker 7
Okay. And then just one specific follow-up about your platelet business. Can you just remind us what percentage of your platelet business is in Japan and then what your market share is in the single dose collection piece of the market? And then is there any logical feeling for the percentage of collections that move to double dose? Or could it eventually be the majority of the market over time?
Speaker 3
Yes, Karen, it's Kent here. So our platelet business in Japan is roughly 25% or so of our total platelet business. And you know this industry very well. And so we've all seen this trend to double dose collection happen over time. It's a big part of The U.
S. Market already. It's a meaningful part of the European market and the trend is beginning in Japan. The great news is that even with a significant competitive push, we maintained our platelet business in Japan in FY16 year over year. So our platelet business was actually flat year over year in FY16 in Japan.
And that's really great news. That says we have a customer who's very engaged with our business. And it says that we have a team on the ground there that's doing everything they can to execute. We also believe that that's going to continue, that trend is going to continue over time. And you saw some of the numbers that Chris shared just a few minutes ago about the
So this is not a completely benign factor, but one that we're addressing through strong commercial actions and a strong partnership with our customer every day.
Speaker 7
Thanks guys.
Speaker 0
See you next week.
Speaker 3
Thank you.
Speaker 0
Thank you. Our next question comes from David Roman with Goldman Sachs. Your line is open.
Speaker 8
Thank you. Good morning everyone. I know you're going to provide formal guidance next week, but I can't help but try to be a little impatient here and ask about fiscal twenty seventeen, Chris, as I sort of add up all the moving parts that you provided. If I'm reading this correctly, you're saying there are about $43,000,000 of pretax headwinds related to the extra week, the donor situation, Japan FX, etcetera. And that gets me to about a $0.60 negative impact on next year's numbers.
So if I take the fourth quarter EPS you provided, adjust for some of the onetime items, that's zero four four dollars which would annualize to $1.76 And then do I take off $0.60 to get to a starting point for FY 'seventeen? Is that the right math to think about as we formulate our models after this call?
Speaker 4
I think it's also very important to keep in sharp focus my comments about management of investments and business infrastructure. We'll give more details on that next week and it will become clear. But, you know, I don't want to get into qualifying the 'seventeen guidance more than I have already. We'll give you full clarity next week. But bear in mind that we do have the ability to manage our business infrastructure.
And also you have to consider that the growth franchises will also contribute to the bottom line next year.
Speaker 8
Okay. Understood. And maybe just a second strategic follow-up. I mean, I think it's become increasingly clear to most people outside the company that the blood business is facing what appear to be more structural rather than transient declines. And I'm wondering if that's something that management has come to a recognition of and how you're going to handle that as we think about strategic plan that you present next week.
Speaker 2
Well, the only thing I would say, David, this is Ron, is that it's not just those who are outside the company. So Tuesday we will tell you exactly how we're going to handle that reality.
Speaker 8
Okay. We'll look forward to more details then.
Speaker 2
Thank you.
Speaker 0
Thank you. Our next question comes from Larry Couch with Raymond James. Your line is open.
Speaker 5
Yeah, hi. Good morning everyone.
Speaker 2
Good
Speaker 5
morning. Morning. Wanted to start if I could on TEG. Obviously nice growth in the fourth quarter of 20%. I was wondering if you could help us understand what that looks like without the fifty third week because it is certainly a bit slower I think than you guys have been targeting over time.
I know that a couple years ago we were looking at, or beginning of this year I should say, 30% growth and then it moved kind of into the mid-20s. Now this obviously feels lower. And I just want to understand if I could how the beginning shipments of TEG success might be impacting the overall business.
Speaker 3
Yeah Larry, it's Kent here. So as we've said, we continue to be very pleased with our TEG trajectory. And despite the impact of the fourth quarter, the fifty third week in the fourth quarter, which was about 6.8% or so of sales in that quarter, It was a good year. And as we look across the entire business, we see TEG continuing to charge ahead. 5,000 remains a very important part of the equation here, but the TEG family is growing.
As you know it now includes the TEG 5,000 device and its disposables in their appropriate place in our customer base. TEG success is we're in the early stages of our market release. And then what we believe is very important to all of our products and is certainly proving to be very important to TEG, our TEG Manager software which provides connectivity and the ability to look at multiple devices in multiple locations across the facility and even remote monitoring of test procedures. So we're in the early stages of Tech's success, but the feedback from our customers remains excellent. We have a nice pace of distribution across the world And we expect this to continue to roll out stepwise over the next several quarters.
Speaker 5
So thank you for that. And I guess what I was trying to get at was is TEG 6S resulting in any customers, I guess, holding back on placing orders at this point until they can get that? Or is, perhaps said another way, do you think the kind of roughly 13 ish percent growth constant currency without that fifty third week for the fourth quarter kind of the right way to look at the base of the business growth now?
Speaker 3
Yes, Larry. It's a fair point and certainly one that we've observed and talked about here internally. And I think we've been clear over the last quarter or so that we believe that there has been for some time some element of holdback and some element of anticipation of the new device. But meanwhile we're continuing to place and drive disposable sales against all of our systems. So that will continue until we're in our full market release globally, which will really be in the second half of this fiscal year.
Speaker 5
Okay, great. And then, two other quick ones. You guys mentioned, some Japan order timing in the donor business. I was wondering if you could just, expand on that and whether that was a positive for the quarter or actually a negative for the quarter. And then for, Chris, again, I don't know how much you want to get into this, and I understand you'll provide more detail next week.
But you had been talking about $10,000,000 of VCC savings in 'seventeen for a while. Was just wondering if you could provide an update there.
Speaker 3
Yes, Larry, it's Ken again. I'll take the first part of that. So Japan order timing was very positive for the quarter. It relates to this relationship that we have with our key customer in that market over the platelet business and our increasing share of the single dose platelet collection market, but the ongoing incursion of the double dose platelet technology in that market. So platelets globally were actually up about 13 in Q4 and a meaningful portion of that had to do with increased shipments to our major customer in Japan in the quarter as we completed the first year of a contractual commitment.
Speaker 5
Great. VCC? Yeah, in
Speaker 4
terms of VCC, as we look at the programs that we put in place, they've moved forward. There have been some delays, specifically the move from Bothwell to Malaysia. But they continue to move forward according to in general according to the original plans. And yes, the order of magnitude of $10,000,000 of savings is a reasonable estimate for this year.
Speaker 5
Thank you.
Speaker 0
Thank you. Our next question comes from Anthony Petrone with Jefferies. Your line is open.
Speaker 9
Thanks and good morning. Maybe just back on the strategy plan a bit there. When we look toward next week, I'm just wondering if you could give a little bit of a preview on how much of what you'll talk about is more defensive in portfolio restructuring? And then maybe as you look out to the growth businesses, how much of what we may learn next week may be offensive in terms of maybe bolting on additional assets into one of the existing growth businesses? And to that end on the latter point, I mean, you just review sort of the debt ratio and credit ratings and sort of the ability to maybe bring on additional debt capacity to fund acquisitions?
Speaker 2
Hi Anthony, it's Ron. I'm going to take a stab at the first part. I'm going let Chris have the second part.
Speaker 4
Sure.
Speaker 2
If I interpret your defensive and going on the offense comments, you're going to hear what I've been talking about now for six months, which is we have the two excellent franchises that we need to continue to invest in. And we're going to need to find resources in 'seventeen, which we have, to accelerate our investment in those two franchises. So that's what I would consider hope you mean by being on the offense. In the donor business, I will go through a more lengthy explanation and we will have the person who's responsible for our franchise also go through some information with you, which just shows how we are facing the reality We're not trying to transform the marketplace.
We're facing the reality of it. And we could use your term defensive or we could, you know, use other words to describe how we have to face those realities and protect the income. And we'll get more into that with you next Tuesday.
Speaker 4
In terms of our debt, Anthony, we're at about 2.2 times EBITDA on the covenant. That's really the only meaningful covenant that we have. We're very comfortable up to three times EBITDA in terms of leverage. We obviously have cash on the balance sheet. We have elements of our debt facility undrawn.
So we have the liquidity. But I think it's safe to say that a lot of our focus near term will be on the execution of the real growth opportunities embedded in the growth franchises and on managing our donor business differently.
Speaker 9
Great. And then just one follow-up maybe on plasma. It seems that saline is I think annualizing close to $25,000,000 by my math. So maybe just to recap on that. And on just the plasma cycle with the various end customers, where are you in the current cycle?
Is there a major contract up for renewal anytime soon? Thanks again and we'll see you next week.
Speaker 3
Yes. So I think our plasma business remains to be not only stable but rapidly growing and high contributing part of the business. That theme should bring very clear. There are no major contracts that represent risk to the business on the horizon. We believe that our Galaxy technology solutions, so the combination of our new next gen donor management system software, our new collection device and new disposables, and a myriad of other software solutions around that Galaxy platform will allow us to renew all customer relationships and potentially form new customer relationships in the plasma market.
So plasma remains an absolute bright spot of the business both from a day to day commercial performance as well as a technology and new product development standpoint.
Speaker 0
Thanks. Thank you. Our next question comes from James Franscone from Morgan Stanley. Your line is open.
Speaker 10
Good morning. Thanks for taking the question. I wanted to touch on some of the moving pieces that you provided for fiscal twenty seventeen particularly in plasma and TEG. You mentioned you expect strong growth out of those businesses, but previously you'd given an outlook that is a little bit more quantitatively precise to be specific. You said that you're expecting double digit growth in plasma and about 25% growth in TEG.
Are those still the right numbers to be thinking about?
Speaker 3
Yes, they are.
Speaker 10
Okay, perfect. Very clear. Then secondly, on the decision to establish a valuation allowance for inventories in the donor business, can you talk a little bit more about exactly what led you to reflect your concerns about the donor business specifically through inventory write down? And then secondly, does that reflect any broader decision you've made about that business?
Speaker 4
It's a relatively routine thing, James, to evaluate inventories, especially as you approach an audit in the fourth quarter. We had a lot of data coming out of our strategic review about both the long term prospects of the donor business and our direction with that business. And that analysis, that information factored into our thinking about our inventories on hand. So there was a kind of a collision of those two events, one of which is routine and planned and one of which came out of the strategic review that was commissioned back in October and really kept rolling right through until quite recently. Does that answer your question?
Speaker 10
I think so. I think so. That's helpful. That's all for me. Thank you.
Okay.
Speaker 0
Thank you. Our next question comes from Jim Sidoti with Sidoti and Company. Your line is open.
Speaker 11
Good morning. Can you hear me?
Speaker 1
Yes sir. Yes, thanks.
Speaker 11
I was wondering if you could give us a little more color on the process for the CEO search. I know I for one thought that there would be a new CEO in place by next week Investor Day. Can you let us know if there were any hiccups along the way there? And what qualifications are you looking for in a new CEO?
Speaker 2
Hi Jim, I guess it's up to me. It's Ron. Well, see where to start in all of that. You know, this has been quite a process. It is carried out by the board.
And, you know, I think it's just a mixture of factors that just try to go in to get the right person for this position. You have to have a certain desire to get into an organization and start executing and be willing to work through, quite frankly, some of the issues that we need to work through. So it's just taking longer than you or I would have expected. It's, you know, qualifications. You know, again, the Board has looked at a number of things.
And, you know, we want somebody else who has healthcare experience. But the other qualifications, I'm just going to leave to any comments that the board might want to offer on this subject. But we are moving ahead, and I know it's of importance you folks for, you know, continuing to build our credibility. But it really hasn't affected our ability within the company to do what we needed to do with the review and to set out all of our implementation plans that are in place. And we will describe them to you next week.
And they will be actioned sometime in the next week or two. So we're moving ahead inside, but I understand the sensitivity with those of you who are on
Speaker 5
the phone.
Speaker 11
Right. And you said you're looking for someone with healthcare experience, but are you looking for someone outside the traditional blood collection industry?
Speaker 2
This whole blood collection area, you're talking about whole blood and platelets, what we call donor? Are you narrowing it to that or are you also
Speaker 11
No, no. I'm asking if somebody has to have experience in either the whole blood or in the hospital cell salvage.
Speaker 2
No, not at all.
Speaker 11
Alright, thank you.
Speaker 0
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Ron Geldman for any closing remarks.
Speaker 2
Well thanks again for listening in to our results on what has been a challenging year. As I said, we look forward to seeing you next week where we can outline what we are going to do to begin this journey that we need to take in order to get humanetics where both you and our management want it to be. So thanks again and see you next week.
Speaker 0
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.