Haemonetics Corp (HAE) 2017 Q3 法說會逐字稿

Welcome to Haemonetics Corporation third-quarter 2017 earnings conference call.

(Operator Instructions)

As reminder, this conference may be recorded.

I would now like to turn the conference over to Gerry Gould, Vice President, Investor Relations. You may begin.

Thank you. Good morning. Thank you for joining us for Haemonetics third quarter FY17 conference call and webcast. I'm joined today by Chris Simon, President and CEO; and Bill Burke, CFO.

Please note that our remarks today will include forward-looking statements. Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form 8-K we filed today and in our latest 10-K filing.

This morning we posted our third quarter earnings release to our Investor Relations website. We also posted three slides that we will refer to on this call. On today's call Chris and Bill will discuss highlights of our strategy and recent business performance; important trends in our commercial markets; key element of financial performance; and our FY17 guidance. Then we will take your questions.

Before I turn the call over to Chris, I would like to mention the treatment in our adjusted results of certain items, which, by their nature and size affect the comparability of our financial results. Consistent with our past practice, we have excluded certain costs and charges from the adjusted financial results, which we will talk about today.

In the third quarter of FY17, we excluded certain restructuring and turnaround charges related to cost-reduction initiatives we launched earlier in the fiscal year. In the third quarter of FY16 we similarly excluded restructuring and related charges as well as goodwill impairment and other asset write-offs we recorded at that time.

In the third quarters of both FY17 and FY16, we excluded deal-related amortization expense and finally, excluded the tax effects of excluded items. Further details of third quarter and year-to-date FY17 excluded amounts, including comparisons with the same periods of FY16, 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.

With that, I will turn the call over to Chris.

Thank you, Gerry. And good morning to all of you on the call. My apologies if we sounds a little hoarse. We had an eventful evening here in New England last night.

Our third quarter FY17 revenue was $228 million, down 2% as reported, and down 1% in constant currency, which strengthened Plasma and Hospital, offset by continued declines in Blood Center. On an adjusted basis, we earned $22.5 million, or $0.43 per share, about 10% below the third quarter a year ago.

Through the first three quarters of FY17, we have achieved our revenue, profit, and cost reduction objectives. While these results are in line with expectations, we are not satisfied with flat to declining performance.

Productivity, including savings from our FY17 restructuring activities, outpaced expectations and our year-to-date adjusted earnings were $1.14 per share, in line with our expectations. We overcame earnings challenges that included $0.08 per share from the first quarter, leukoreduction filter recall, and more recently, $0.06 per share of inventory charges.

We are now confident that we will achieve the upper ends of our ranges of our previously issued fall full-year FY17 revenue and earnings guidance. We are encouraged that year-to-date adjusted free cash flow of $85 million enables us to raise our annual guidance range to $90 million to $95 million, up from a prior range of $65 million to $70 million, as a result of our ongoing focus to improve capital management and ROIC.

I'll turn the call over to our CFO, Bill Burke, to comment on our results and guidance, after which I will discuss progress towards our strategic goals.

Thank you, Chris. Good morning, everyone. Please refer to slide 1 from our website where we provide a breakdown of the revenue changes in the third quarter of FY17.

Revenue was $228 million, down 2% as reported, or down 1% in constant currency. We continued -- we continue our strong results in Plasma in the third quarter. Plasma revenue was $109 million, up 9% in constant currency. After excluding the impact of liquid solutions, virtually all of the remaining growth are about 5% attributable to disposables.

In North America, which represented nearly 80% of total Plasma disposables, revenue grew 13%. About 5% of that 13% growth came from the ramp of liquid solutions as we continued to benefit from the favorable prior-year comparison. The remaining 8% came from the benefit of collection volumes driven by continued strong end market demand for Plasma-derived biopharmaceuticals and some customer order timing that benefited in the FY17 third quarter.

We maintain high confidence in the continued growth of the market underlying our commercial Plasma collection business. Also contributing to Plasma growth in the current quarter was disposables revenue in Japan, which grew 33% in constant currency, as Plasma apheresis collections increased with the ongoing market shift to double dose platelet collections. The use of double dose platelet collections has nearly doubled in the last 12 months.

In our Hospital businesses, Hemostasis Management remained on a strong growth trajectory in the third quarter, with revenue at $17 million, up 19% in constant currency. Importantly, the TEG 6s product offering has become a meaningful part of both Hemostasis Management revenue and a major contributor to its growth in the third quarter, with solid performance in the US and numerous other geographic markets.

The third quarter was our largest revenue quarter to date for TEG 6s device and cartridge sales. TEG is a low global leader in hemostasis management and we're focusing our efforts on the top 10 markets worldwide. The TEG 5000 is approved for a broad set of indications in all of our markets. The TEG 6s and TEG Manager are approved for the same set of indications as the TEG 5000 in Europe, Australia and Japan.

In the US, the TEG 6s is indicated for cardiovascular surgery and we are pursuing the broader set of indications beginning with trauma. Also, within our Hospital business, Cell Salvage and Transfusion Management revenue was $26 million and declined 3% in constant currency over the prior-year third quarter with the decline being entirely due to cell salvage. The positive momentum in Transfusion Management continued with solid growth in BloodTrack and SafeTrace Tx.

The franchises within the Hospital business are at various stages of maturity and have the distinct potential to contribute to our growth and profitability. We believe that these businesses can make a meaningful contribution to our accelerated growth with targeted investments.

Blood Center revenue was $76 million, a 14% decline in constant currency from the prior quarter. Within Blood Center, platelet disposables revenue declined 21% in constant currency, as the trend we identified in previous quarters, the advancement of double dose platelet collections in Japan continue. Approximately 25% of collections, so nearly 50% of platelet units collected in Japan were by double dose collection techniques in the third quarter. This trend is expected to continue in the fourth quarter of FY17 and beyond.

Also, a market shift towards full platelet collections in EMEA decreased the demand for apheresis platelet collections through a more efficient use of collected platelets via whole blood collections. Red Cell Disposables revenue declined 19% in constant currency, due to lower volume and pricing inherent in previously announced US customer contracts. Whole Blood Disposables revenue declined 2% in constant currency, as recent moderation in the rate of collection declines continued, certain US customers have indicated that we should expect this trend to continue over the long term.

We remain committed to stabilizing, separating and optimizing our Blood Center Business, and we have made solid progress toward our goals. We remain diligent in preserving operating income through operations and commercial cost rationalization, as well as a simplification of the business model.

Proceeding to slide 2, I will make a few comments here about the year-to-date revenue results. In the first three quarters of FY17, revenue of $658 million was down 1% as reported and flat in constant currency.

We had 11% constant currency growth in Plasma for the first three quarters, with revenue of $310 million. About half of the growth is attributable to disposables, and the rest from the continuing ramp of liquid solutions. Hemostasis Management revenue of $49 million grew 16% in constant currency, in the first three quarters of FY17.

The year-to-date growth dollars was split about evenly between the TEG 5000 and the TEG 6s. Cell Salvage and Transfusion Management revenue of $78 million represents a decline of 4% in constant currency as the items I cited in the third quarter discussion are relatively unchanged on a year-to-date basis.

Blood Center revenue of $222 million represents a decline of 13% in constant currency. Trends we previously noted, such as the advancement of double dose platelet collections in Japan, pooled platelet collection in EMEA, pricing and volume declines in red cell and the declines in our whole blood business are similar on a year-to-date basis.

Moving on to gross profit. Third-quarter FY17 gross profit was 44.4% of revenue, down 220 basis points from the prior-year third quarter. We incurred inventory charges in the third quarter, resulting from long-standing operational issues that were the major driver of the gross margin decline. The root causes have been identified and remediation is underway. In the third quarter, aside from such inventory charges, we continue to drive productivity efficiencies to offset previously contracted pricing arrangements and unfavorable revenue mix.

Our turnaround involves reviews of all aspects of our business, and as we perform such reviews over the next several quarters, we will evaluate the need, if any, for additional charges. Year-to-date FY17 gross profit was 45% of revenue, down 250 basis points from the prior year. The previously discussed inventory charges and FY17 filter recall costs accounted for approximately half of that decline. Additionally, productivity efficiencies partially offset reduced pricing and unfavorable revenue mix.

Adjusted operating expenses of $67 million were $8 million, or about 11% lower in the third quarter of FY17 and in the third quarter of FY16, and declined 280 basis points as a percent of revenue to 29% in the third quarter. Year-to-date adjusted operating expenses of $210 million were about 7% lower in FY17 than in FY16 and declined by 190 basis points as a percent of revenue. The lower operating expenses demonstrates the benefit of early FY17 cost reduction initiatives.

Our income tax provision on adjusted earnings was 30.5% in the third quarter of FY17, about 500 basis points higher than in the same quarter of FY16 and higher than our expectations. During a detailed review, of the underlying processes associated with our tax rate forecasting, we identified a material shift in geographic income that is expected to result in a greater proportion of our total Company adjusted net income being earned in the US. The geographic income shift is a direct consequence of the ongoing trends in our platelet disposables business and is expected to be sustained going forward, as a result, we are now forecasting a higher adjusted income tax rate for FY17 than we previously indicated. The third quarter income tax rate includes a year-to-date adjustment to reflect our revised geographic income expectations.

We finished in a strong cash position with $130 million of cash on hand. This cash balance represents an increase of $15 million since the beginning of FY17. We have repaid $72 million of debt, including a $40 million reduction in our revolving credit facility as part of our normal cash management process. And we funded $19 million for restructuring and turnaround initiatives net of tax.

Looking at slide 3, we have reported three quarters of solid results and we are indicating that we expect to be at the high end of the range of our original revenue and earnings guidance for FY17. To reiterate what Chris stated, we are now confident with the upper end of our previously issued full-year 2017 revenue and earnings guidance ranges. There continue to be multiple investment opportunities that, with disciplined execution, will not only improve our growth profile but will benefit long-term ROIC. We continue to make strides in improving our forecasting accuracy which will enable better planning of our business objectives and achievement of our stated commitments.

I'll pass the call back over to Chris.

Thank you, Bill. Our strategy remains, one, to compete in winning segments and geographies, those capable of sustaining superior growth in revenue and profitability. Two, to achieve and maintain the number one or number two market position in our segments. And three, to deliver superior short- and long-term operating performance through greater productivity, cash flow, and return on invested capital.

To implement this strategy, we have embarked on a multi-year journey to stabilize the organization and our performance, transform the Company and our businesses, and dramatically accelerate our growth. Phase one stabilization is complete, and we have largely accomplished what we set out to do: creating transparency in business operations, developing detailed plans, and pursuing organic growth and sustainable profitability.

We took the actions necessary to put us on track to exceed our $40 million FY17 cost savings objectives. We removed two layers of management, rightsized our headcount, and reduced our Blood Center cost base to reflect lower business levels. We have prioritized and refocused resources towards our growing businesses.

We are attracting exceptional talent, aligning incentives and motivating our workforce. I have added two new members to my team. Carter Houghton joined us from Hologic to head our Hospital business, he will be instrumental to ensuring we leverage our strength in Patient Blood Management across Hemostasis Management, Cell Salvage and Transfusion management in order to accelerate profitable growth in Hospital.

Kevin O'Kelly-Lynch joined us from Medtronic to lead the newly created Global Business Services function. He is setting priorities to help improve our customer service, increase the utilization of our fleet of devices, and lower the cost of procured items and freight.

Again, we are not content with flat to declining performance but we have revamped and strengthened our forecasting, developed a realistic plan and are making step-wise progression as evidenced by our results. Importantly, we are establishing a culture of delivering on commitments.

We are busy implementing Phase 2 of our strategy: Transformation, which is envisioned to take six quarters, the second half of FY17 and all of FY18. We're laying the foundation for profitable growth in building long-term momentum by executing business unit specific strategies, improving our support processes, and simplifying and streamlining activities across the organization.

We are focusing our direct selling efforts on the top 10 markets worldwide, and leveraging distributors to drive our performance in countries where we have transitioned commercial operations. We are renegotiating complicated, unfavorable contracts to align incentives, reduce complexity and drive our margins.

In May, we had over 1,000 SKUs; today, less than 200. We are revamping our processes to better manage our inventory and substantially reduce our working capital. We are reviewing our R&D pipeline and clinical studies to focus our resources in the areas of highest return. This effort will create a more holistic view of our innovation spending, including research, product design and developments, clinical and medical endeavors, software development programming and support. We're also identifying where to divest or dispose of non-core assets and where to pursue targeted acquisitions.

As we look ahead to FY18, it is clear that we have a considerable opportunity to enable growth, improve efficiencies and cost of goods sold and operating expenses. To realize this potential, the Plasma business will require capital to support disposable growth and to fund PCS 300 device production. It also requires operating expenses for the refurbishment of PCS 2 devices and the rollout of the PCS 300s.

In the Hospital business, we will make improvements in our field course: clinical and health economic studies, regulatory processes and commercial initiatives. At the corporate level, we will facilitate companywide productivity, including our new Global Business Services function.

These expenditures will support and enable revenue growth and margin expansion, as contemplated in our long-term strategic plan. As a result, FY18 investments will include significant capital expenditures and operating expenses. In FY19 and beyond, we plan to transition to Phase 3, accelerated growth.

We aspire to dramatic improvements in our core performance metrics, as outlined in our strategy. We will accomplish this by continuing and expanding the investments initiated in FY18, and we will augment organic growth with required products in segments where we are a national owner.

During this time, the Plasma business will exceed market growth and share gains and expanding margins from the introduction of our new Plasma collection system. We will continue to rapidly grow the Hospital business by broadening our installed base of equipment, and deepening our relevance to improve device utilization rates.

The path forward will not be linear. A series of investments will be followed by an acceleration of growth and over time, the breadth and diversity of our business will provide opportunities to normalize performance. To that end, FY19 and beyond will result in a period of meaningful rebalancing and substantial value creation.

Plasma will eventually return to market growth rates and become a powerful ROIC engine. Hospital has the potential to become a meaningful driver of profitable revenue growth. And an optimized Blood Center will be a viable stand-alone business and a reliable generator of operating income and cash. As previously noted, we see that shift driving a twofold increase in our adjusted operating income from the FY16 level of $120 million, and up to a fourfold increase in adjusted free cash flow, from the FY16 level of $58 million, with a corresponding benefit to ROIC.

We will refine and solidify our plans and provide FY18 earnings guidance in May. We invite you to meet the new management team, and to join us for a more extensive discussion of our strategic plans and our innovation pipeline at our Investor Day meeting on Monday, June 19, here in Boston. Yes, that's right, Boston, the home of the world champion, New England Patriots, who, as you may know, came from behind to score 31 unanswered points and win Super Bowl 51 in overtime last evening.

So I will close by thanking our customers for allowing us to serve them, our employees for their dedication to the needs of those customers, and our investors for their continued trust in us. We appreciate you joining today. We will now proceed to your questions.

(Operator Instructions)

Larry Solow of CJS Securities.

Chris, that was some pounding on the chest of the Patriots but God bless, you deserve it (inaudible). But do remember who those two losses were to. Let's move on. Great game, though. Great game.

Just the -- on the cost-cutting, clearly, you guys are ahead of schedule there. And you've done a great job in expediting that. As you look out, does it appear that not only are you going faster but is the -- are the opportunities significantly greater than putting large opportunities that you outlined six or seven months ago or whatever that was at your Analyst Day?

Let me start and I will invite Bill to comment as well. I would say the work to date is largely rightsizing for business that was lost and adjustments that were needed to be made in our G&A to be more comparable for the base of business that Haemonetics represents. So we moved quickly on that, much of that, I had the good fortune to inherit from Ron and the team in charge who laid this out and took a series of actions back -- dating back to last May.

As we look ahead, the nature of the savings both in COGS and OpEx will be different. But we think they are sizable and that's part of what we'll phase into as part of our FY18 guidance.

Any other thoughts from Bill there?

Yes, the only other comment I would add would be Chris said it was the rightsizing; obviously, going forward, we talk about process efficiency. I think as we continue to look at the processes across the Company and get them better, you will be able to lean out certain costs in the organization.

And on the blood center piece, just on the revenue side, obviously, it looks like it declined the couple of quarters. Have we moderated somewhat? Thoughts there? As we look out in this market, maybe didn't even come to close to flattening in the next 12 to 18 months? Or any thoughts on that?

Yes, I think a couple reactions. So we definitely have benefited by what is an industrywide stabilization of collection volumes. Our customers are collecting more blood and we talked about this back at AABB in October, typically, a point in time in the year where you see a building of inventory to get ready for the unfortunate winter trauma demand and that was not the case.

Most of our customers were chasing demand at that point, trying to keep up with sporadic outages or shortages, at least of -- in certain geographies and certain critical blood types. So we benefited by that, and we are obviously grateful for it. I think we look at that business and say twofold, right?

First, it doesn't change the long-term structural unattractiveness. But it's an important business to us. It contributes a lot of operating income and free cash flow, and we are managing accordingly. Our aspiration, as I stated at JPMorgan, is that we will control the rate of decline, likely in the mid-single digits over our five-year planning period with -- on the top line, with an aspiration to hold our operating income constant in real dollar terms.

Got it. Okay, great. Thanks a lot.

Anthony Petrone of Jefferies.

Thanks. Good morning and obviously, tip the cap to everyone up there. It was a great game. Great Super Bowl. Maybe to begin for Chris and Bill, just the guidance for 2017 and really, the free cash flow guidance and the reconciliation there between the shift in adjusted operating income to the higher end.

But it appears that there is a pretty sizable increase in free cash flow guidance. So just a little bit of color there. Is it mostly CapEx related? Or is something else going on there?

Hi Anthony, it's Bill. On the free cash flow, it's CapEx related. There is some timing in there, but generally, as we roll out the strategic plan here, we want to ensure that all our capital dollars support the strategy. So I think there's a lot more diligence in place on spending.

But yes, there is timing and there. And we are very comfortable on the ranges that we put out now.

Great, and then I know it's a bit premature here but if I'm hearing both of you correctly, there is still leverage within the model for 2018, but there will be incremental OpEx investments as well, so there's a little bit of a push and pull. I know we will get a little bit of more detail later this year, but at this point, should we be expecting leverage in the model into 2018?

And then my last question would be just an update on the Plasma 300 cycle, galaxy cycle and when will we begin to see a turnover of the install base? Thanks.

Yes, so Anthony, thanks for the questions. I think we feel very good that the program we've laid out, which includes six quarters of hard work around this transformation which began last quarter and we are well into it now and we will continue through all of FY18 is this period where we need to make the investments.

They are both increasing our capacity but there are also operating expenses associated with scaling our resources and doing the swap out of the equipment. We will begin to see that in FY18, right? We're having the conversations as scheduled with FDA this Spring and then we will proceed with releases and for the product into the market later this year.

We have already begun to make those investments, including capital outlays to our production facilities to be able to increase our disposable volume but also to be able to have the hardware for the PCS 300.

Larry Keusch of Raymond James.

So Chris, I just want to pick up on the last question there. So obviously, you are articulating and setting the stage for significant CapEx and operating expense investments in 2018 to support the growth in 2019 and beyond. But again, I think that the high-level question is, can you provide any color on whether you anticipate when you take into account those investments leverage in the model in 2018?

Yes, I can answer that Larry. I would say with the investments that Chris went through at a high level, I can't see us having any leverage in 2018 as we invest in growth for 2018 and beyond.

Okay, that's helpful. And I guess you will provide additional information in May as you indicated.

The other two quick questions were just on TEG. If I am thinking about this correctly and I've got my numbers correct, I think year to date, you did 16% growth there. I think the guidance suggests a fairly meaningful acceleration in the fourth quarter.

So I just want to make sure I've actually got the correct, and what drives that, if that is correct. And then the other question is, just as we think about, again, all of the Trump policies that have been talked about over the last since the inauguration I guess, are you guys a net importer or exporter? And again at a high level, how would you think about balancing the potential for lower tax rate and increased cross-border taxes on the Company's taxes?

Yes, thanks Larry. Let me take the first part of that and I will ask Bill to comment on the effects on our tax in aggregate. In terms of TEG, we feel confident with the continued performance. We have, as you may know, we have the full suite of indications for release worldwide on the TEG 6s with the exception of the US. In the US, we are focused heavily on cardiology and cardiovascular surgery with the 6s and trauma across the broader set of indications.

The ramp that we are experiencing, again, obviously as built throughout the year and we'll continue in the fourth quarter, is the natural ramp of placing the -- or selling the equipment and then having the disposable turns against that which is what we are very much focused on. So we feel reasonably confident in that, in our ability to meet both what we forecasted for this year but also over the five-year period. It's a good product and it continues to do well in the market.

Great.

Larry, in terms of the impact of -- from TEGs, so first, let's talk about it on the tax rate. Now granted, I don't exactly know where we are going federally with the tax rates, and if you just look at what he has said, reducing the corporate tax rate from 35% to 15% and then also have this 10% catch up on accumulated earnings internationally, the impact to us could potentially be a benefit of 200 to 300 basis points but it's early right now but we are looking at it.

And second, you had a question about we as net importer. We are a net importer. So obviously, any tariffs on imported goods would have an impact on us. And we are doing some tax planning if something like that happens.

Okay, terrific. Thanks guys.

David Lewis of Morgan Stanley.

For Chris or Bill, just sticking with this theme of 2018 very generally, I think we understand what you're saying on margins. Just as we think about 2017, obviously, limited growth, kind of flattish growth, kind of flattish margins and it sounds like next year will be an investment year for margins. Can you give us a sense how 2018 looks like from a growth perspective? Should we think about low single-digit growth.

And Bill, just given your comments on free cash flow, based on the investment you need to make to support Plasma, could we see free cash flow even flattish or negative, frankly, based on significant investments in 2018? And then I have two quick follow-ups after that.

Yes, David, let me start and see if Bill has any further comment. Our intent is not to issue FY18 guidance today. We will do that in May. In terms of the top-line revenue, we've -- as I've said, I think multiple times and Bill said throughout this call, we're not content with flat to declining absolute performance.

Our aspiration is to return to growth in FY18. I think your suggestion of low single -- low to mid-single digits is probably realistic from where we sit. FY19 and beyond is where we will experience the accelerated growth, a lot more commensurate with our long-term aspirations. With that said, we will put in the plans together.

We'll have a much clearer picture for what this means, top and bottom line and the associated cash flow. What I would say but the updated guidance for 2017 on cash flow is it just shows that appropriately managed, this business has the ability to generate significant free cash flow.

And David, just let me ad two things on cash flow. The major drivers to our cash flow obviously are cash spending in two areas. One would be for expansion, which we've talked about and said we are doing that in the Plasma business, and then also depending on the timing of the rollout of the PCS 300 and how quickly we need to do the build of those devices, that will have an impact.

And then second, working capital. You can see from the comments we made in the script that we've had some areas of concern in our working capital areas and we have initiatives underway to look at all the processes and one of the outcomes of that is we have all intents on driving working capital down that would benefit cash flow.

Okay, that's very helpful, and then two more quick ones. So just gross margin and you talked about some specific items that pressure GMs in the quarter. Can you give us a specific sense of what that issue was? What was the business? What was the issue and your confidence it was resolved?

And then for Chris, just PCS 300 timelines? Do you still feel comfortable in the timelines you have provided to us these last few months? Thank you, I will jump back in queue.

Okay, David. On inventory, we had inventory charges that were primarily due to declines in demand across our Blood Center business. Combined with just poor internal process related to our demand planning. So we have identified what their shortcomings are and we have initiatives in place to get corrective action in place so we don't have these issues going forward.

And in terms of the PCS 300 timelines, we are confident that we are on track. Obviously, there is a lot of moving parts, including FDA release here in the US, customer reception and the ongoing negotiation and ultimately, the rollout that has to be done jointly with their center which is no small undertaking operationally. But at this juncture, all signals are quite positive.

Okay. Thank you very much.

Brian Weinstein of William Blair.

Hi, good morning. Thanks for taking the question. Can you guys talk a little bit about fourth quarter guidance in general? It looks like you are calling for it to be down sequentially on the top and the bottom line? Just wondering if there is anything unique going on in the fourth quarter there that would cause you to not actually increase the guidance range at this point? Thanks.

I think historically, the Q4 is normally a quarter that is a little lighter than Q2 or Q3 so predicting that on the top line. I think, generally, with all the ratios that we have in the P&L, they are driven off of revenue. So I think we're pretty comfortable where we are.

There is no underlying issue in the business, or nothing that we have in the numbers that are outside of what we normally do. So we are looking at a solid fourth quarter is what we reported to get back to the high end of the ranges we provided.

Okay. And then in Japan, you talked about 25% of platelet collections now being double dose in the third quarter, expecting obviously that trend to continue in 2017 and beyond. What is the dollar -- what are the dollars that are still at risk for you guys there as that market fully converts?

Are you asking what the dollars are in the total platelets in total?

I'm just trying to understand, as that market continues to convert to double dose, how you guys see the risk to your revenues if you can quantify it, what is still at risk as that market continues to move to double dose collections.

I don't think we've talked about what our Japanese revenue business is, so I think we prefer not to disclose that.

Okay.

To say that when we look at it, what we observed in the market is, for better or worse, what we forecasted. So we are spot on the forecast and then we have no reason to deviate that -- from that going forward.

Okay, and last one for me is with the TEG success, the trauma indication in the US, maybe I missed it but did you guys talk about when you think you would have that here and who is actually handing that approval? Is that you or is it -- your partner CoreMed?

Yes. So we don't have an update from what we guided to last quarter on the trauma indication. We are obviously still working our way through that. It is a joint submission initiated by CoreMed but as I've said repeatedly to our team, it has our fingerprints all over it. We own it and we will guide and drive it going forward. So we are still on track for where we had communicated last quarter.

Great. Thanks for taking the questions.

(Operator Instructions)

Jim Sidoti of Sidoti & Company.

Just a bookkeeping question to start. You reported a GAAP number of $0.30 but in the text, you said you had $0.09 of expense related to the amortization and $0.09 related to restructuring. And then your adjusted number came out at $0.43, there is a $0.05 or $0.06 delta there. Is that the inventory charge or the tax rate or am I missing something?

I don't know the math you're doing but on the restructuring, we had the amortization charges and we had a few other things in the turnaround. But it could be that the tax amount -- we can owe you a reconciliation on that, Jim.

Okay. All right. And then can you just give us a little sense on the rollout for the PCS 300. Is that going to be several years to get those systems converted? Or do you think you will be able to do that in two or three years, or one or two years?

Jim, it's Chris. We said publicly in the conversations we're having with our customers is we will go just as fast as they are prepared to go. But obviously, no faster, right? So the actual change-out, as you can imagine, is a systemwide change out.

This is literally closed-down operation at one point, hopefully, 7:00 PM in the evening when they cease operations for the day and blitz this so that it's 7:00 AM, they are prepared to open up operating on our new system. We are working through and just how many of those you can do simultaneously is the thing I would want to leave you with on this, is just a appreciation for the rough order of magnitude.

We typically place somewhere between 1,800 and 2,500 units per year. If we do this as planned, we are talking about changing out in excess of 20,000 units. So rough math, about 10 years' worth of placements. Of course, our investors and we would like to do that over the next six quarters. But I think the reality is we're going to move at a pace our customers are prepared to move at, and deliver fully without missing a step along the way.

All right. Thank you.

Thank you. I'm showing no further questions at this time. I will hand the call back over to Mr. Simon for any closing remarks.

Again, thank you for the time this morning. We are available for follow-up, as appropriate, and we appreciate you dialing in.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.