Haemonetics Corp (HAE) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Q4 2016 Haemonetics Corporation earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this call will be recorded.

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

Thank you, Catherine. Good morning. Thank you for joining us for Haemonetics fourth-quarter fiscal 2016 conference call and webcast. I am joined today by Ron Gelbman, 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 8-K we filed today as well as in our recent 10-K 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 2016 results. These comments cover much of what we will 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 will 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 have excluded certain costs and charges from the adjusted financial results which we will talk about today.

In the fourth quarter of fiscal 2016, we excluded certain non-cash charges in reserves related to the recent strategic review of our business franchises. In fiscal 2016, we excluded certain intangible and other asset write-downs, the reversal of related contingent consideration and other non-cash charges and reserves. In the fourth quarters and fiscal years 2015 and 2016 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 the fourth quarter and fiscal year 2016 excluded amounts including comparisons with applicable periods of fiscal 2015 are provided in our Form 8-K and have been posted to our investor relations website. Our press release and website also include a complete P&L and balance sheet 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 2016 have an extra week compared with fiscal 2015.

With that I will turn the call over to Ron.

Thank you, Gerry, 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 2016.

We finished fiscal 2016 with revenue of $910 million, 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 Plasma and Hemostasis Management franchises continue but unfortunately so did declines in the donor business. Our North America franchise plasma franchise deliver 25% growth in the fourth quarter completing a fiscal year with 17% growth including 6% from liquid solutions and 2% from the 53rd 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-generation Plasma collection software is commercially available in the US 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 2018. 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 5000 device is driving this growth and we are drawing closer to the full global launch of our new TEG 6000 device. We expect our TEG family of products, TEG 5000, TEG 6000 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 $0.03. These few items caused us to report $1.63 adjusted earnings per share instead of $1.70 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.

Thanks, Ron. Good morning, everyone. This morning we announced fourth-quarter revenue of $243 million, 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 million of revenue growth in the fourth quarter and $38 million of revenue growth in fiscal 2016.

In the fourth quarter, Plasma disposables revenue was $91 million, an increase of approximately $15 million or 20% as reported and 23% in constant currency. Shipments of saline and sodium citrate and the 53rd week each contributed about 8 percentage points of our Plasma growth in the fourth quarter. Plasma growth was realized in each of our four geographic regions.

Hospital revenue was $32 million 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 million of decline in orthopedic cell salvage in the fourth quarter fiscal of 2016. We had record TEG disposables revenue of $14 million 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 5000 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 2500 TEG devices including 800 in fiscal 2016. Surgical or Cell Saver disposables revenue was $15 million in the fourth quarter, down 4% as reported but up 2% in constant currency.

In fiscal 2016, Cell Saver disposables revenue was up 1% in constant currency compared with the prior year. In fiscal 2016, hospital revenue was $125 million, flat with fiscal 2015. Strong TEG growth more than offset a decline of $6 million in orthopedic cell salvage. In the fourth quarter, our donor or Blood Center disposables revenue was flat at $86 million. Excluding the impact of currency, donor disposables grew by $3 million or 3% in the quarter.

Platelet disposables revenue was $40 million in the fourth quarter, up $3 million over last year as reported and up $5 million 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 toward our competitor's double dose platelet technology and our platelet revenue was flat with the prior full fiscal year.

Red cell disposables revenue was $10 million, down $1 million or 11% as reported and down 10% in constant currency versus last year's fourth quarter. We continued 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 million in the fourth quarter down, $2 million or 4% as reported and down 2% in constant currency. Whole blood revenue was $24 million in the Americas, $8 million in Europe and European distribution markets and $4 million in the Asia-Pacific and Japan markets. North American whole blood revenue continues to be impacted by declines in the US 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 2016 within the 5% to 8% range we previously communicated.

Sales of whole blood products to US blood centers now represent less than 6% of our consolidated revenue. In fiscal 2016, donor disposables revenue was $312 million, down $27 million or 8% as reported. Excluding the impact of currency Blood Center disposables revenue was down by 5%. Platelet disposables revenue was $143 million, down $9 million or 6% from last year as reported and down 1% in constant currency. Red cell disposables revenue was $39 million, down $3 million or 8% as reported and down 7% in constant currency.

Finally, whole blood disposables revenue was $129 million with a decline of $15 million or 10% as reported and down 8% in constant currency. Software solutions revenue was $20 million in the fourth quarter, up 9% as reported and up 10% in constant currency. Initial customer interest in our BloodTrack HaemoBank system remains encouraging.

Equipment revenue was $14 million in the fourth quarter and $52 million in the year. Our installed base of equipment which is the combination of purchased and placed devices increased 7% in fiscal 2016. The installed basis of plasma and TEG, our two fastest-growing franchises, had increases of 11% and 17% respectively in fiscal 2016.

Before I close, I would 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 will turn the call over to Chris Lindop. Chris?

Thanks, Kent. As noted in the fourth quarter, total revenue was $243 million, an increase of 7% as reported and 10% on a constant currency basis. In fiscal 2016, total revenue was $910 million, 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 2016.

During the quarter, we had constant currency growth in all geographies except Europe, strong growth in US plasma, TEG 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.

Towards the end of the fiscal year, the Italian government enacted a law retroactive to January of 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 $1.4 million 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 million recorded in the fourth quarter which reduced gross profit.

Fourth-quarter adjusted gross profit was $100 million, down 9% or $10 million year on year. A $5 million currency headwind was included so gross profit decreased by $5 million or 5% in constant currency.

Fourth-quarter adjusted gross margin was 41.1%. In currency headwinds, the Italian rebate and the inventory related charges impacted gross margin negatively by 490 basis points in the quarter. Fiscal 2016 gross margin was 46.2%, down 260 basis points. Currency headwinds contributed 220 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 million as reported, down $1 million or 1.4% as compared with the prior year's fourth quarter. Fiscal 2016 adjusted operating expenses were $300 million, down $6 million or 2%. The fourth quarter and full-year reductions were achieved despite incurring an extra $5 million of operating expenses in the 53rd week.

Savings from organizational and corporate cost reductions permitted ongoing investments in higher impact growth initiatives, notably R&D spending increased to 4.9% of revenue in fiscal 2016 up from 4.7% last year due to the accelerated funding for the new plasma collection device, the TEG 6s and software connectivity.

Adjusted operating income was $26 million in the fourth quarter, down $9 million including a $4 million headwind attributable to currency. The $5 million 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 220 basis points attributable to the donor inventory charges. Fiscal 2016 operating income was $120 million, down $18 million. Operating margin was 13.2%. Currency was a $10.4 million 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 $2.4 million in the fourth quarter. Our tax rate was 18.5% in the fourth quarter of fiscal 2016 compared with 25% in fiscal 2015 as tax reserves estimates were finalized at year-end and resulting adjustments benefited the fourth quarter.

Fourth quarter fiscal 2016 adjusted earnings per share were $0.37, down $0.10 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 $0.02 per share and the donor inventory related charges which were approximately $0.08. These items all flowed through the fourth-quarter results.

Fiscal 2016 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 million of cash on hand, down $46 million from fiscal 2015 year end. We used $38 million of cash for VCC and other restructuring and $61 million for the repurchase of shares in the open market. We reported free cash flow before transformation and restructuring costs of $58 million in fiscal 2016. We completed spending under our VCC programs in fiscal 2016 and as I have explained before, VCC savings realized have offset disclosed business adversities including currency and volume reductions and pricing concessions in our North American donor business.

Now regarding fiscal 2017, 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 provided previously for your consideration in preparing your fiscal 2017 estimates.

Currency trends are now expected to a negative impact of $14 million in operating income in fiscal 2017. Obviously fiscal 2017 will not include the 53rd week that benefited fiscal 2016 which will impact operating income negatively by roughly $2 million year-over-year.

And in our donor franchise, several identified adverse trends or events will also impact the fiscal 2017 earnings outlook. Customer input and our own observation suggests a continuation of whole blood collection declines into fiscal 2017 which we currently estimate will reduce operating income by approximately $5 million.

Our red cell apheresis business in the US, price reductions to the American Red Cross and other share losses will have a negative impact of about $12 million on fiscal 2017 operating income. We have been monitoring the market shift towards double dose platelet collections in Japan which is now estimated to have a negative impact of approximately $10 million on our fiscal 2017 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 2017 is going to be a challenging year.

So we look forward to sharing the results of our recent strategic review and our complete fiscal 2017 outlook on May 10. With that, I will turn the call back over to Ron.

Thanks, Chris. 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.

(Operator Instructions). Larry Solow, CJS Securities.

Good morning. Wonder if you could maybe just -- the last subject you mentioned in terms of the challenges to 2017, can you maybe just bucket the numbers you mentioned and what they were prior? So I think currency trends you say are now minus 14. I think you had given a minus 10. That was the last update on that.

I think 12 was the last one.

And then on whole blood, you have said $10 million, now it is $12 million on the red blood cells?

On the red cells, yes, a little worse than we originally estimated.

And whole blood, you never had really -- that is a new number, the $5 million?

We haven't quantified it but the adversity in the business was there.

In terms of this quarter, just looking at if I strip out the charges in gross profit and inventory charges, gross profit is still d 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?

Yes, you point out mix. Of course that is a factor and then pricing in the red cell business that is high calories if you will when you give up pricing.

Just lastly, it looks like you reduced some operating expenses a pretty significant amount at least compared to what I was looking at considering you had 13th week. Was there anything in there timing related that will push into 2017 or was it just basically your ability to manage expenses?

Not timing, no. On the contrary, we see that continuing into 2017.

Okay, great. Thanks.

Karen Koski, BTIG.

Thanks for taking the questions. A couple for me. I guess first, I know you will be giving us some more detail next week about the portfolio review that has 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 is going to be more about execution than continuously going back to the drawing board and making sure that nothing was missed?

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?

I guess I'm going to take that one, Karen. On the last one, I think everyone has been clear that we would like to get someone in place as soon as we can but I have 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 are not convinced of that after Tuesday, you should talk to me about that.

Now would you repeat the first part again, please?

Just about I know that I think you said in your last comments that you have completed the portfolio review at this point. But how confident are you that going forward, additional discrepancies are not going to be identified and that you have to go back and do more work on the identification side? Is the new plan going to be all about execution basically?

Well, 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 couldn't sit here today and tell you that there won't be any more issues that we are going to have to deal with in 2017.

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.

Okay. And then just this 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? 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?

Karen, it is 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 have all seen this trend to double dose collection happen over time. It is a big part of the US market already. It is a meaningful part of the European market and the trend is beginning in Japan.

The great news is that even with the 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 is really great news. That says we have a customer who is very engaged with our business and it says that we have a team on the ground there that is doing everything they can to execute.

We also believe that that is 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 impact of 2017. So this is not a completely benign factor but one that we are addressing through strong commercial actions and a strong partnership with our customer every day.

Thanks, guys. See you next week.

David Roman, Goldman Sachs.

Thank you, good morning, everyone. I know you are going to provide formal guidance next week but I can't help but try to be a little impatient here and ask about fiscal 2017, Chris, as I sort of add up all the moving parts that you provided. If I am reading this correctly, you are saying that about $43 million of pretax headwinds related to the extra week, the donor situation, Japan, FX, etc. 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 one-time items, that is $0.44 which would annualize to $1.76 and then do I take off $0.60 or get to a starting point for FY17? Is that the right math to think about as we formulate our models after this call?

I think it is also very important to keep in sharp focus my comments about management of investments and business infrastructure. We will give more details on that next week and it will become clearer. But I don't want to get into qualifying the 2017 guidance more than I have already. We will 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 franchise this will also contribute to the bottom line next year.

Okay, understood. Maybe just a second strategic follow-up. I think it has 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 am wondering if that is something that management has come to recognition of and how you are going to handle that as we think about the strategic plan that you present next week?

Well, the only thing I would say, David, this is Ron, is that it is apparent to people inside the Company too, not just those who are outside the Company. So Tuesday we will tell you exactly how we are going to handle that reality.

Okay, we will look forward to more details then.

Larry Keusch, Raymond James.

Hi, good morning, everyone. Wanted to start if I could on TEG. Obviously nice growth in the fourth quarter of 20%. Was wondering if you could help us understand what that looks like without the 53rd week because it is certainly a bit slower than I think than you guys have been targeting over time. I know that a couple of years ago we were looking at -- or the beginning of this year I should say 30% growth and 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 6s might be impacting the overall business?

Yes, Larry, it is Kent here. So as we have said, we continue to be very pleased with our TEG trajectory and despite the impact of the fourth quarter, the 53rd 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. 5000 remains a very important part of the equation here with the TEG family growing. As you know it now includes the TEG 5000 device, its disposables and their appropriate place in our customer base.

TEG 6000, we are 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 are in the early stages of TEG 6s 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 step wise over the next several quarters.

So thank you for that. I guess what I was trying to get at was is TEG 6s resulting in any customers 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 growth constant currency without that 53rd week for the fourth quarter is kind of the right way to look at the base business growth there?

Yes, it is a fair point and certainly one that we have observed and talked about here internally. And I think we have been clear over the last quarter or so that we believe that there has been for some time some element of hold back and some element of anticipation of the new device. But meanwhile we are continuing to place and drive disposable sales against all of our systems. So that will continue until we are in our full market release globally which will really be in the second half of this fiscal year.

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 that you will provide more detail next week but you have been talking about $10 million of VCC savings in 2017 for a while. Just wondering if you could provide an update there?

Yes, Larry, it is Kent again. I will take the first part of that. So Japan order timing was very positive for the quarter, it relates to this relationship 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.

VCC?

Yes, in terms of VCC, as we look at the programs that we put in place, they have 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 million in savings is a reasonable estimate for this year.

Thank you.

Anthony Petrone, Jefferies.

Thanks and good morning. Maybe just back on the strategy plan a bit there. When we look toward next week, I am just wondering if you can give a little bit of a preview on how much of what you will 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 bolting on additional assets onto one of the existing growth businesses?

And to that end on the latter point, can 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?

Hi, Anthony, it is Ron. I'm going to take a stab at the first part and let Chris have the second part. If I interpret your defensive and going on the offense comments, you are going to hear what I have 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 are going do need to find resources in 2017 which we have to accelerate our investment in those two franchises. So that is what I would consider or 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 is responsible for our franchise also go through some information with you which just shows how we are facing the reality of the marketplace. We are not trying to transform the marketplace. We are facing the reality of it. And we could your term defensive or we could use other words to describe how we have to face those realities and protect the income and we will get more into that with you next Tuesday.

In terms of our debt, Anthony, we are at about 2.2 times EBITDA on the covenant. That is really the only meaningful covenant that we have. We are very comfortable up to 3 times EBITDA in terms of leverage. Obviously we have cash on the balance sheet we have elements of our debt facility undrawn. So we have the liquidity but I think it is 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.

Great. Then just one follow-up maybe on plasma. It seems that saline is I think annualizing close to $25 million by my math so maybe just a recap on that. And on just the plasma cycle with the very same customers, where are you in the current cycle, is there a major contract up for renewal anytime soon? Thanks again and we will see you next week.

So I think our plasma business remains to be not only a stable but a rapidly growing and high contributing part of the business. That is the image 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-generation donor management system software, our new collection device and new disposables and a myriad of other software solutions around that Galaxy platform will allow was 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.

Thanks.

James Francescone, Morgan Stanley.

Good morning. Thanks for taking the question. Wanted to touch on some of the moving pieces that you provided for fiscal 2017 particularly in plasma and TEG. You mentioned you expect strong growth out of those businesses but previously you had given an outlook that is a little bit more quantitatively precise to be specific. You had said that you are expecting double-digit growth in plasma and about 25% growth in TEG. Are those still the right numbers to be thinking about?

Yes, they are.

Okay, perfect. That is very clear. 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 an inventory write-down? And then secondly, does that reflect any broader decision you have made about that business?

It is a relatively routine thing, James, to evaluate inventories especially as you push and 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 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?

I think so. That is helpful. That is all for me. Thank you.

(Operator Instructions). Jim Sidoti, Sidoti & Company.

Good morning. 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's 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?

I guess it is up to me. It is Ron. Where to start in all of that? This has been quite a process. It is carried out by the Board and it is just a mixture of factors that just try to go into 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 is just taking longer than you or I would have expected.

Qualifications, again, the Board has looked at a number of things and we want somebody obviously who has healthcare experience. But the other qualifications I am just going to leave to any comments that the Board might want to offer on the subject. But we are moving ahead and I know it is of importance to you folks for 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 are moving ahead inside but I understand the sensitivity with those of you who are on the phone.

You said you are looking for someone with healthcare experience but are you looking for someone outside the traditional blood collection industry?

This whole blood collection area you are talking about whole blood and platelets what we call donor? Are you narrowing it to that?

No, I'm asking if somebody has to have experience in either the whole blood or in the hospital cell salvage?

No, not at all.

All right. Thank you.

Thank you. I am showing no further questions at this time. I would like to turn the call back to Ron Gelbman for any closing remarks.

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 Haemonetics where both you and our management want it to be. So thanks again and see you next week.

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.