Good day, ladies and gentlemen, and welcome to the Haemonetics Second Quarter Fiscal Year 2018 Financial Results Conference Call. My name is Brian, and I will be your facilitator today. At this time, all participants are in a listen-only mode. Later, we will host a question-and-answer session, and if you'd like to ask a question at that time, please press star and then one on your telephone keypad. If you require operator assistance, please press star then zero, and an operator will be happy to assist you. It is now my pleasure to hand the conference over to Mr. Gerry Gould, VP Investor Relations. Sir, you may begin.
Thank you. Good morning. Thank you for joining us for Haemonetics second quarter fiscal 2018 conference call and webcast. I'm joined today by Chris Simon, President and CEO, and Bill Burke, CFO. Please note that our remarks today will include forward-looking statements. Our actual results may differ materially from anticipated results. Additional information concerning factors that could cause results to differ materially is available in the Form 8-K we filed today and in our latest Form 10-K filing. This morning, we posted our second quarter and first-half fiscal 2018 earnings release to our investor relations website. We also posted two tables with information that we will refer to on this call. Today, Chris and Bill will discuss elements of our financial and business performance, our guidance, trends in our served markets, our strategy, and the new initiative we announced. We will take your questions.
Before I turn the call over to Chris, I would like to mention the treatment in our adjusted results of certain items, which, by their nature and size, affect the comparability of our financial results. Consistent with our past practice, we have excluded certain costs, charges, and income items from the adjusted financial results, which we'll talk about today. In the second quarters and first halves of fiscal 2018 and fiscal 2017, we excluded restructuring and turnaround charges from adjusted earnings, as well as deal-related amortization expense. Also, in the first half of fiscal 2018, we excluded the gain we realized upon sale of our SEBRA line of benchtop and hand sealers. In the first half of fiscal 2017, we excluded impairment charge. Finally, we excluded the tax effects of excluded items.
In considering our results, please bear in mind that fiscal 2018 total Haemonetics revenue and plasma business unit revenue include no SEBRA revenue. By comparison, the second quarter and first half of fiscal 2017 included $2 million and $3 million of SEBRA revenue, respectively. Further details of second quarter and first-half fiscal 2017 excluded amounts, including comparisons with the same periods of fiscal 2017, 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 reconciliations of our reported and adjusted results. With that, I will turn the call over to Chris.
Thank you, Gerry, and good morning. Our comments today will focus on the second quarter and first-half results, our fiscal 2018 guidance revision, and our complexity reduction program. Then we will take your questions. Our first-half fiscal 2018 results demonstrate continued momentum in implementing our strategy to compete in winning segments and geographies, to achieve leading positions in each segment where we compete, and to deliver superior short and long-term operating performance. Our second quarter fiscal 2018 results met our expectations. Second quarter revenue was $225 million, and aside from the divestiture Gerry noted, up 3% both in reported and in constant currency. We had 6% plasma revenue growth, 3% hospital growth, and our blood center business stabilized, declining 4% in constant currency.
On an adjusted basis, operating income increased 100 basis points to 16.2%, up $3 million, or 9%, as we continue to benefit from our ongoing cost savings initiatives. Adjusted net income of $26 million was also up 9%, and earnings per share were $0.48, up 4% above last year's second quarter. We generated $46 million of adjusted free cash flow in the second quarter, $75 million year to date, further validating the ongoing strong cash-generating capability of our business and providing flexibility for the growth investments that we are making. We delivered strong first-half results across our three business units. Plasma and hospital each grew revenue 5% in the first half, and the decline in blood center revenue moderated to 5%, all while pursuing ongoing productivity. These strengths allowed us to overcome inefficiencies in manufacturing operations and underperformance in our hospital business outside the U.S.
We will talk later in the call about the actions we are taking to address these challenges. In plasma, we are focused on the planned rollout of our new PCS system. As you will recall, the NexSys PCS plasmapheresis device received U.S. FDA regulatory clearance in July, a major milestone achievement, allowing us to move forward with the new platform in a timely manner as planned. We remain optimistic about the development of the embedded firmware, which, combined with the NexSys PCS device, our NexLynk DMS proprietary donor management software, our disposables and our technical and operational service support comprise our differentiated offering. The benefits of our new platform will include better quality and compliance, increased yield, higher collection center productivity, improved donor experience, and ultimately, lower cost per liter of plasma collected and more plasma per donor.
We are having discussions with all of our customers about deploying NexSys PCS, and we remain confident in the value proposition for them and for us. We remain fully on track with the development and launch of the new NexSys PCS. In September, we completed the first plasma collections using the new devices at a customer's donor center. Additional customer experience programs are ongoing with several customers. We will initiate the first limited market release this winter, followed by a second, more advanced limited market release in the spring. These experience programs provide early customer insights to inform the commercial launch as planned in fiscal 2019. They strengthen our launch capabilities and help us mitigate executional risk to ensure seamless rollout. We are also working closely with our third-party manufacturers to ramp up production of devices in preparation for staged rollout.
In parallel, we are collaborating with our customers to optimize their use of our existing PCS2 devices, a focus on equipment utilization that is helping to avoid cash outlays and improve capital productivity. Building on a positive trend that started in the first quarter, our hospital business delivered revenue growth of 3.4% in the second quarter and 5.1% in the first half of fiscal 2018 in constant currency. Two-thirds of our hospital revenue in the first half was in North America and China, which grew 10% and 14%, respectively. Conversely, the other third, EMEA and other Asia Pacific, declined 6% in constant currency. Most of the first half revenue growth in the hemostasis management portion of our hospital business was from the TEG 6s.
Our recently formed scientific advisory committee has been instrumental in guiding our ongoing development program for this product. We are committed to making the necessary investments to develop and expand our product profile and realize the full potential of this exciting technology platform. We continue to stabilize performance in our cell salvage business and become more competitive with recent product line enhancements. We are seeing improved performance, including profitability in markets where our focus on equipment utilization is having positive effect. Our transfusion management product line, which includes BloodTrack and SafeTrace Tx, exceeded our expectations through the first half of fiscal 2018. We are benefiting from an expanded, dedicated North America sales team. We are making meaningful investments in software development to further build momentum. Growth in the hospital business outside the U.S. has been mixed.
We remain convinced that our products have differentiated merit and that the performance shortfall is largely a result of internal execution issues. Each market is unique, requiring its own tailored approach. We are taking actions to address this, including a series of targeted sales and clinical excellence initiatives. It is an example of how our turnaround is nonlinear. We are optimistic about the potential of the hospital business. We continue to expect 7%-10% overall growth in fiscal 2018. After being down 14% and 7% respectively in the two prior fiscal years, our blood center revenues were down 5% in constant currency in the first half of fiscal 2018. In large part, the decline resulted from choices we made to exit unprofitable business. We benefited from the slowing rate of decline in transfusions in our major markets.
The blood center team remains focused on product quality and customer service, consistent with our customers' focus on safety, reliability, and cost containment. We are committed to delivering consistent profits from this business, despite the projected ongoing decline in revenues. We have received questions about our blood center manufacturing plant in Puerto Rico, given the magnitude of the recent hurricanes. Fortunately, our people are all safe. Our facility is intact. I want to recognize our employees on the ground in Fajardo and our entire global supply chain, whose extensive preparations, skillful execution, and steadfast resilience in the face of professional and personal hardships ensured uninterrupted customer service and a rapid return to production. We were operational on diesel-powered generators in mid-October. As of this week, we are fully operational with the return of electrical power.
Based on our accomplishments to date, we have confidence in the performance and the health of our businesses. As a result, we are reaffirming our fiscal 2018 revenue guidance while revising our earnings and cash flow guidance upward. We now expect full-year adjusted operating margin in the 14%-15% range, 100 basis points above previous guidance. Earnings per share of $1.65-$1.75, which is $0.10 above previous guidance, and adjusted free cash flow of approximately $100 million, which essentially doubles our previous guidance. Later in the call, I will discuss our efforts to reduce complexity and improve productivity to free up resources for future investments. With that, I'd like to turn the call over to our CFO, Bill Burke, to comment further on our results.
Thank you, Chris, and good morning, everyone. Please refer to the two tables we posted to our website with a link in our earnings release. We provided specific revenue and income dollar amounts that derive the percentages I will refer to in my comments. All revenue growth rates I will discuss are in constant currency. In the second quarter of fiscal 2018, strong results in plasma continued. Plasma revenue was up 6%, including a negative impact of 180 basis points from the SEBRA divestiture. In the first half, plasma revenue was up 5%, including a negative impact of 160 basis points from the Ciber divestiture. North America Plasma Disposables revenue was up 7% in both the second quarter and the first half of fiscal 2018.
We are reaffirming and not raising fiscal 2018 plasma revenue guidance due to customer order timing between the first half and second half, and we expect our customer in Japan to reduce frozen plasma inventories. Growth continues to be driven by strong end market demand for plasma-derived biopharmaceuticals. We remain highly confident in the continued market growth underlying our commercial plasma collection business. We had 3% growth in our hospital business in the second quarter of fiscal 2018. In the first half of fiscal 2018, we had 5% growth, which trailed our internal expectations as we experienced shortfalls outside the U.S. The TEG 6s product offering accounted for about half of hemostasis management growth. Hemostasis management revenue was up 10% in the second quarter, with 12% growth in North America and China, and virtually no growth in EMEA and other Asia-Pacific.
First half growth was 13%, which fell short of our internal expectations with customer order timing on devices favoring the second half of this fiscal year. The TEG 6s delivered the majority of the revenue growth in the first half of fiscal 2018. We maintain our expectation that hemostasis management will exceed fiscal 2017's growth rate of 14%. Also within our hospital business, cell processing revenue declined 1% versus the prior year second quarter. For the first half of fiscal 2018, cell processing revenue was flat. OrthoPAT and Cell Saver declines were offset, albeit off of a small base, by strong growth in BloodTrack and other hospital software products. Blood center revenue was down 4% in the quarter and 5% in the first half of fiscal 2018. These are considerably moderated growth rates from the decline of 14% in fiscal 2017.
About 50% of the first half fiscal 2018 blood center decline was by design, the direct result of exits from unprofitable business arrangements, principally outside the U.S., as contemplated in our strategic plan. Strategic business exits are a trend we expect will accelerate in the second half and a primary reason we are reaffirming and not raising fiscal 2018 blood center revenue guidance. Platelet disposables revenue decreased 9% in the second quarter and 6% in the first half of fiscal 2018. These declines are attributable to continued adoption of a competitor's double dose collection technology in Japan. Approximately 31% of collections, so 48% of platelet units collected in Japan, were by double dose collection techniques in the second quarter of fiscal 2018. Platelet declines over the full fiscal year 2018 are expected as planned at the outset of the year.
Red cell disposables revenue declined 12% in the second quarter and 11% in the first half of fiscal 2018, due mostly to lower pricing inherent in previously announced U.S. customer contracts and customer consolidations. Whole blood disposables revenue grew 7% in the second quarter of fiscal 2018 and was flat in the first half. The filter recall in the prior year resulted in abnormally low whole blood revenue in fiscal 2017, thus an easy comparison. We do note that the recent moderation in the rate of collection declines continued. U.S. customers have indicated that we should expect this moderating trend to continue over the long term. Second quarter fiscal 2018 adjusted gross profit was 46.5% of revenue, down 90 basis points versus the prior year second quarter. First half adjusted gross profit was 45% of revenue, down 70 basis points versus the prior year first half.
We fell short in our operating efficiency goals. We experienced continued delays in the expansion of our liquid solutions production capacity. We are addressing operations performance, including improved management of freight and overhead spending in the second half, and we expect fiscal 2018 adjusted gross profit to be higher on a year-over-year basis. Our team on the ground responded incredibly well. As a result, we had a minimal impact in our operations from the hurricanes affecting Puerto Rico. We are optimistic that any adverse impact in the remainder of the fiscal year will be negligible. Adjusted operating expenses declined $3 million, or 4%, compared with the second quarter of fiscal 2017, and declined 190 basis points to 30.3% of revenue. First half adjusted operating expenses declined $9 million, or 7%, compared with the prior year and declined by 260 basis points to 30.8% of revenue.
As planned, the lower operating expenses resulted from incremental current year productivity, some of which impacted selective R&D spending. We continue to evaluate all investments to ensure we are investing strategically on meaningful projects that will improve future revenue growth. We do not expect the lower R&D spending to impact future revenue growth expectations. We continue to make investments in our plasma and hospital business units. In line with our previous communications, we expect that productivity and continuing benefits of our prior year restructuring activities will deliver $0.30 to $0.40 per share of benefit in fiscal 2018, and anticipating investments include $15 million-$25 million of after-tax operating expenses, representing $0.40 to $0.50 per share. Our income tax provision on adjusted earnings was 27% in the second quarter of fiscal 2018, about 180 basis points higher than the second quarter of the prior year.
For the first half of fiscal 2018, the tax provision on adjusted earnings was 27.4%, about 230 basis points higher than the first half of the prior year. These higher tax rates result largely from a continuing shift in geographic income mix towards the U.S. and the timing of certain tax items from year to year. We expect our fiscal 2018 tax rate to be higher than the fiscal 2017 rate. In summary, the second quarter in the first half of fiscal 2018 resulted in growth in revenue, adjusted earnings, and free cash flow. We are on track to deliver both our productivity targets and our planned investments in operating expenses. Adjusted operating income grew 9% in the second quarter and 18% in the first half. Our operating margin in the first half of fiscal 2018 improved to 14.2%, up 190 basis points over the first half of fiscal 2017.
Free cash flow before restructuring and turnaround activities was $75 million in the first half of fiscal 2018, compared with $41 million in the first half of fiscal 2017. In addition, we realized proceeds of $9 million from the SEBRA divestiture and $12 million from employee share programs. We repaid $28 million of debt, and we funded $6 million for restructuring and turnaround activities, net of tax benefits. We finished the first half in a strong position with $204 million of cash on hand, an increase of $64 million since the end of fiscal 2017. We are evaluating alternatives for deploying this cash advantageously. The strong free cash flow in the early part of the year is important given our plans to ramp investments later in the fiscal year from capital spending and earnings perspectives.
Although we had a meaningful contribution to the increase in free cash flow due to improved management and discipline of capital deployment, the primary driver of the increase in free cash flow compared to our expectations was a shift in timing of capital spending. Certain projects originally planned for fiscal 2018 will now be made in fiscal 2019 and will not affect projected capacity requirements. As a result, the capital expenditure portion of investments planned for fiscal 2018 was reduced by $15 million to a range of $40 million-$50 million. There is no change in the $15 million-$25 million net of tax benefit operating expense component of investments. Our investments will be greater in the second half of fiscal 2018 than in the first half of the year.
The combination of improved operating results, the discipline around asset management, and favorable timing of capital expenditures have led to fiscal 2018 being a very strong cash flow year. We now expect approximately $100 million in free cash flow generation before restructuring and turnaround costs. The complexity reduction initiative we announced this morning will enable us to intensify the investments we are making to fuel our growth. Chris will elaborate on the program itself. I would like to be clear about the $80 million of targeted savings. The $80 million is the full annualized run rate of savings that we expect to reach by the end of fiscal 2020. That implies a full benefit in fiscal 2021 of the $80 million. The savings will be minimal in fiscal 2018.
Beyond this fiscal 2018 indication and the full benefit in fiscal 2021, we are not prepared to disclose fiscal 2019 or fiscal 2020 benefit at this time. As Chris noted, we increased our FY 2018 adjusted earnings guidance to a range of $1.65-$1.75 per share. We expect 2018 third quarter adjusted earnings per share to be lower than in the fourth quarter of fiscal 2018. With that, I'd like to turn the call back over to Chris.
Thank you, Bill. These results show that our strategy is working. We know that we have more to do. As part of our turnaround, we have assessed how we operate. We have identified areas that can be improved. The complexity reduction initiative that we announced today is an important next step as we transform to pursue accelerated growth. These moves will help us increase productivity and lower our cost structure, targeting $80 million of benefit. We will invest savings in the areas that hold the greatest promise for our business. This includes product launches like NexSys PCS and TEG 6s, innovative new R&D programs, acquisitions, clinical and economic evidence to strengthen the value proposition of our products, an expanded sales force, new capabilities such as data and analytics, manufacturing capacity, and overall employee development. This purposeful work is the core of our transformation phase.
Over the past 18 months, we have put the right leadership in place to execute our strategies. We developed in-depth insights about our business. We are not cutting costs for cost's sake. We are changing our operating model, creating a leaner and more agile company, right-sizing our organization, and equipping it with the talent and expertise needed to achieve our goals. This is a comprehensive effort to lower our cost base. The majority of the savings will come from reducing direct materials, indirect spending, freight, and other non-headcount-related costs. The remainder will come from a workforce reduction, which will include both voluntary and involuntary separations. We are changing the way we work, implementing process and productivity improvements, including greater use of external providers. We expect a reduction of about 350 positions globally.
Certain roles in direct selling and clinical support, as well as hourly plant workers, are excluded from this initiative. We will implement these changes in a manner that does not adversely impact the many critical time-bound projects essential to our turnaround. This is a conscious decision to ensure that customers, key programs, and important projects remain staffed as needed for our company's continued success. I want to emphasize that we are committed to supporting our employees, our customers, and our key products in the market. We will be thoughtful and put necessary transition plans in place as we redeploy resources to enable growth. We expect to complete the program over the next 30 months and to reach the full $80 million annual run rate savings by the end of fiscal 2020. The program is expected to cost $50 million-$60 million, of which approximately two-thirds are related to severance.
Now we'll proceed to your questions.
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. If your questions have been answered or you simply wish to remove yourself from the queue, please press the pound key. Once again, ladies and gentlemen, that is star and then one to ask a question. Our first question will come from the line of Anthony Petrone with Jefferies Group. Please proceed.
Thanks, good morning, everyone. Maybe, Chris, to start with the restructuring program announced here, maybe just a breakout of the sort of headcount reductions and savings across the three operating segments, Plasma, Hospital Products, and Blood Center. Then perhaps just an update on your views on Blood Center as it remains as a key part of the portfolio. Do you see a shift in that going forward? Then I have a couple of follow-ups on Plasma. Thanks.
Sure, Anthony, thanks. With regards to the complexity reduction initiative, we are looking at every aspect of the work. We now know, with the benefit of the last year and a half experience and a new leadership team, in detail what we do and how we do it and where we believe that creates value. We're looking across all three of our business units. We're looking across all of our functions, all of our geographies. Importantly, the majority of our savings will actually come from non-headcount related in the areas that we cited in the script. We are also looking at streamlining our processes, leveraging external service providers where it makes sense.
It'll be disproportionately skewed to our general and administrative functions, more so than the line roles, and I've called out a series of things that excluded roles in terms of the hourlies in our plants and our frontline selling and clinical resources. Everything's in scope, and everything will be part of what we advance going forward. Some of the plans behind that are still being developed by the people who will manage it going forward. It's meant to be holistic and comprehensive, and the effect will be as such. You asked a question about blood center. I think we're pleased with our progress. We had talked consistently now about stabilizing, separating, and optimizing. We feel quite good with where we are vis-a-vis the progress against that. We're obviously getting some benefit, which is a slowing of the rate of decline in transfusions, which we're participating fully in.
We're also really focused on delivering value as viewed by our customers, and managing that P&L quite tightly. We're well on track and consistent earnings coming out of that business is the mantra that we run to.
Just to follow up on plasma would be, just any update on timing for the additional clearances needed for NexSys PCS and perhaps when we should begin to see anything on the contracting end for the next cycle? Thanks again.
Yeah. Thank you. We're well on track with, as we described it. We've begun customer experience programs. The first wave of those are already underway. We'll move into limited market release in the winter. We'll have a second and more advanced limited market release where we'll feather in some additional enhancements, both software and more broadly to our platform with the idea that as we move into fiscal 2019, we'll begin those customer discussions and advance the rollout, which is really an FY 2019, 2020, and 2021 event. I think we feel quite good about where we are. We'll feather in the ongoing developments. I described it previously when we received the approval, the clearance for NexSys PCS as the base platform, the disruptive change, which we're now going to do a series of enhancements, firmware, donor management software, our tech support, et cetera.
All of which will get feathered in here over the coming months and quarters and years, because we're not done by any stretch in terms of innovating that platform.
Thank you.
Thank you. Our next question will come from the line of Larry Solow with CJS Securities. Please proceed.
Good morning, guys. Just to follow up on the question about the customer experience programs. Will you need to get several more of these enhancements and will you see the ramp and experience programs occur as these enhancements occur, or are you already getting customer interest without those enhancements?
There's a lot of customer interest and excitement around the new device. It is meaningfully different in appearance and in function.
We talk a lot about the economic benefit and aligning with our customers. That's very important. What the customer experience programs have done for me personally, observing the user interactions and the donor experience, is just how much more user-friendly, kind of fit and form type of things that really play out, and it's useful. We set these experience programs up to learn how to do the rollout, it's reaffirming the voice of customer work that's been done over the past several years to inform the development that went into the device in the first place. A lot of excitement and reaffirms much of what we believe would be the value proposition of the product.
Okay. Any color on that? I know you had a little bit of a change in leadership in the plasma program announced a couple of months ago. Any color on that?
I think we are very much in the early stages of pivoting to value-based approach in our plasma commercialization. We think what we are doing in terms of quality and compliance, yield attainment, center productivity, and an overall donor experience is great value for our customers. I want to make sure that we have a team that is equally thoughtful and purpose-built to convey that value proposition. David Wilson and the team he's assembling bring that to the fore, and we're excited about what David's doing with that business.
Okay. Just a quick question on your cash flow. I guess two-part question. The first on the CapEx push-out. Anything specific on that? I know it's actually a pretty nice improvement in working capital management in the first half of the year. It looks like a year-over-year change of $25 million. Is that something we probably should expect to continue?
Hi, Larry. It's Bill. I apologize for my voice, too. I'm losing my voice here. On the cash flow, I wouldn't be concerned about the timing of the spend. We had very aggressive plans to get our capital expansion up and running.
With the new diligence that we've put in place around how we're selecting vendors associated with capital deployment, it's just causing us a little bit of delay, that spend will trickle into FY 2019, but won't put in jeopardy any of the capacity requirements that we need. As far as working capital, yes, some of the increase that we have in our guidance, against what we previously guided, was due to working capital efficiency. We're focused on it now. When you have focus, you have results. Do we expect it to continue? Absolutely. We don't expect deterioration in our working capital longer term. Obviously, there'll be some fluctuations in that quarter-to-quarter, but we feel good about where we are right now.
Excellent. Great. Thanks, guys. Appreciate it.
Thank you. Our next question will come from the line of John Hsu with Raymond James. Please proceed.
Good morning. Thanks for taking my questions.
Hi, John.
Good morning. First one on hemostasis management. It appears that the TEG's kind of decelerating a bit. This is obviously a key growth driver for you guys. If you could just talk about, give some color around what you're seeing there, and also your level of confidence going forward to accelerate growth through the LRP.
Before Chris makes some comments, I'll just make a few comments on the numbers, too. In Q2 was a little lighter, I think, than what anybody would've expected, but still on a year-to-date basis, we're at 13% growth year-over-year. One quarter I wouldn't characterize as deceleration. For the year, we're still expecting to be above the 14% from fiscal 2017. Chris, make some comments, too.
I think we have experienced the first half/second half dynamic previously. Some of that's just a function of selling more equipment and having the disposable volume, which still makes up the vast majority of our revenues, come through on the heels of that. It's an escalating trend, which is how you deliver the consistent, pretty ambitious growth that we've put against that product. I think we're encouraged by what we see in select markets, certainly North America, our largest market, where we're doing quite well, not only versus prior comps, but against our own plan. We do have a challenge, as I called out in the script, in some of our other international hospital markets outside the U.S., where earlier this spring we reorganized and we created very dedicated teams that are focusing on the commercialization of all of our hospital products.
TEG is a complicated product to master and sell, we're still building capabilities in those markets to achieve performance that we expect to at least rival what we're doing in North America. It's a work in progress. It's something that we're on, I would expect, as we conveyed, we'll be within the guidance range and build momentum that'll carry us nicely into FY 2019 for accelerated growth.
Okay, great. My second question is, as it relates to plasma, what's your reaction to Grifols, which I believe is your largest customer, saying that the plasma market is decelerating? As part of that, maybe you could clarify, just from the earnings release, it looks like you're communicating that overall plasma-derived sales growth is expected to moderate towards plasma drive rates. Just what's the right way to think about long-term growth in plasma?
I think we remain quite bullish on the long-term growth rates in plasma. Obviously, from one customer to the next, there'll be variability as they compete in different end markets. If we just look at the macro trends as forecasted by PPTA and by the individual participants, we're still seeing very robust end market demand. I think the advancements in the technology to treat a broader spectrum of indications, the increased rate of diagnosis, so we push from the most severe patients to mild to moderate. The change in route of administration, specifically greater adoption of sub-Q, which winds up requiring more, not less plasma, are all contributing factors. From where we sit, the collection volumes we're observing, we feel quite optimistic vis-à-vis the ongoing growth rates, as do most of our customers.
Okay, great. Thank you so much.
Thank you. Our next question will come from the line of David Turkaly with JMP Securities. Please proceed.
Thanks. Good morning. I apologize. I've been hopping back and forth on a few. I think you said you had your first collection in September from one of your customer trials, and I wanted to check and see if that was accurate. Then, in terms of how many of these you anticipate running, if there's any detail you can give us on that, and just an estimate maybe of how long you think each of those experience trials will take.
Yeah. Thanks, David. The customer experience program that we referred to was 150 donor collections, very modest in scale, but one that we wanted just to take the first round of beta build devices and make sure that they were operating and the start-up and the go live was everything that we wanted it to be, which it was. We will do several more of those. The experience from a collection center, from the phlebotomist, the center operator, and the donors themselves was overwhelmingly positive. From my vantage point, I'd like to do as many of those as our customers would like to do because it just helps us in this early stage. We do have several ongoing.
We'll do that through the fall, then we move in, as I said, to limited market releases winter and spring, and then we'll move forward with the commercial launch beginning in the summer period and beyond.
Great. Obviously, another restructure program, I just wanted to be clear. I think you announced a three-year one last May, and I think you quantified that for 2018. The savings, I know you're not expecting a lot from this new program in FY 2019, or for FY 2018, I guess I should say. Have you quantified the benefits of that three-year program to next year, next fiscal year, and beyond?
Yeah. The program that was announced in May of 2016, originally it was announced as $40 million of savings in that fiscal year. We obviously exceeded that by a pretty good amount. Going into FY 2018, we had said that we would get $0.30 to $0.40 of productivity, and a big portion of that was because of that initial restructuring savings as well as other programs. With this new program, we're effectively starting the clock running again as of the beginning of FY 2019.
Great. Last one, I know you mentioned the cash position, the push out of some CapEx, and you mentioned advantageous deployment. I guess, just to get your current sense of capacity for M&A and timing, is that something that maybe you have more ability to move forward given some of those comments and where you stand today?
Well, we realize the cash we have on our balance sheet, we're always continuing to look at our capital structure. There's just a lot of moving pieces right now between, we have a refinance that's going to happen in June. We have the financing of the NexSys PCS build, which we've said could be in the $200 million-$250 million range. Obviously, we're always thinking about M&A, and although we don't have a share buyback authorized, it would obviously be something on the table in the future.
Great. Thank you.
You're welcome.
Thank you. Our next question will come from the line of David Lewis with Morgan Stanley. Please proceed.
Good morning. A few questions here. Bill, just for you to start off, I appreciate you're not going to provide the cadence here on this restructuring announcement. If I think about your prior plan, which was to basically double EBIT or add $100 million of EBIT by 2021, this is a plan that overlaps to 2021. How do I think about the $80 million restructuring benefit in 2021 relative to your prior comments that EBIT will double or increase by $100 million from 2016 to 2021?
Yep. The $80 million of savings, we've said that by the end of FY 2020, that we will be at the annualized run rate of $80 million. In FY 2021, you can estimate the $80 million in FY 2021. Now, in terms of the prior communicated 2X operating income goal that we had out there, we're still sticking with that. Obviously, a portion of the $80 million was included in that 2X comment. Just the fact that we have this program, it's going to help de-risk anything else that happens related to the 2X.
I would just add to that-
This is-
What I would say is, three phases, five-year turnaround. The transformation phase that we're headlong into, we just know more, and we are able to do this from a position of strength, therefore not disrupting customer service, not in any way impacting these critical programs that really drive the accelerated growth that begins next year. We wanted to make it more time-bound and more specific. It obviously is reinforcing, but all along it's been contemplated, and we just now have enough information to be able to do it in a purposeful way.
Okay. Very helpful. Bill, I appreciate you're not going to give us information on cadence, which I think is totally appropriate here midway through 2018. The big debate the last six months has been, you need to invest in NexSys. There's going to be components of this year, you're spending on TEG, you're spending a little bit on pre-commercial NexSys and now commercial NexSys. Next year is going to be a significant depreciation load just based on the dynamics of that launch. With this restructuring announcement hitting in fiscal 2019, are you more confident now that 2019 EBIT margins step up over 2018 and the 2020 EBIT margins step up over 2019?
Yeah, David, we're midway through the year here. We're not going to make comments on FY 2019, especially down at the operating margin level. What you said about investments is appropriate. We've been saying all along that we are going to have investments that continue in this business. We're going to manage those investments judiciously and ensure that they result in growth and acceleration of the growth profile we have today.
Just two more questions from me for growth, Chris. The first is just on TEG. Sequentially, that business decelerated, frankly, it was a challenging comp. Momentum looks very stable to us. Are you surprised that TEG 6s in the U.S. has not hit its stride, or is it simply too early? The second question, just a broader question, I think about total guidance in the back half of the year. Momentum is sort of a little down, maybe a point or two in the back half. Is that simply the ex-U.S. issues you discussed and perhaps some conservatism? I just want to give a framework of how you see the back half growth rate versus the first half growth rate, and I'll jump back in queue. Thanks so much.
No, thanks, David. I think with TEG, obviously the TEG 6s is the growth driver disproportionately. That's the past, we didn't call it out in this quarter's results. Obviously in North America, where we have both the TEG 5000, the TEG 6s, and also the TEG Manager, our team is making thoughtful efforts behind each of those. The TEG 6s is obviously the disproportionate growth driver for us going forward in the indications where we have FDA clearance to be able to pursue that. We're excited about what our North American team is doing there, it sets a model for what we want to do across the rest of the world, recognizing there is a different slate of indications approved.
The first half, second half, the dynamic that played out last year, we have every reason to believe it'll play out again this year for the reasons noted in the script and earlier in the Q&A. We remain confident with the overall guidance range. I think where we'll see the greatest uptick in momentum is this very specific and purposeful focus on key markets outside the U.S. We do quite well in China, we have competition that challenges prices as well as share. We're responding accordingly. We're excited about what we're doing in the U.K., we can do more. There are a half a dozen other key markets where we know TEG is the right product and has the potential to really deliver. We're just earlier in our growth trajectory.
Our hope is and our expectation is that the second half of this year will see a meaningful improvement in that trend line as part of this overall range that we've guided to.
Great. Thanks so much.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. Our next question will come from the line of Jim Sidoti with Sidoti & Company. Please proceed.
Good morning. Can you hear me?
Yes, sir. Hi, Jim.
Great. You made some comments about Puerto Rico and the fact that the plant is back up running 100% right now. Can you quantify, was there any impact in the quarter that ended due to the storms on top or bottom line?
Yeah.
Yeah, go ahead, Jim.
Yeah. In terms of impact in the actual end markets demand, some movement. Areas that were unable to collect drew off of other geographies that were, and we were probably a net benefactor of that. For example, what they couldn't collect in Houston and Corpus Christi, we collected with them, with our blood center customers in San Antonio and Austin, and were able to meet demand in that way, which was an important part of the response. We were fortunate, in addition to some thoughtful preparations as noted in the script, that is largely a raw material facility for us. The team made preparations. We ran the facility in earnest prior to the storm, put everything we produced on airplanes. It's a little bit easier because it's media and filters, and we're able to get it off the island before losing the infrastructure there.
As I said in the script, mid-October, fully operational under generators. Just this past weekend, we're able to restore electric power through the local municipality. We're running and there's some expense. We air freighted a bunch of stuff, and we've tried hard to take care of our employees on the ground. There'll be some operating expenses associated with that'll flow through our P&L, some of which was in the second quarter, the majority of which will be third quarter. We don't anticipate that being grounds for putting us outside the ranges we put forth for those businesses.
Okay, thank you. On the $50 million-$60 million you're spending on the restructuring that you announced this morning, will that all be complete by the end of the fiscal year?
We are saying that there'll be spending in this year, in 2019 and lingering into 2020.
Okay, there'll be additional restructuring expense in the next two fiscal years?
Yes.
Okay. Got it. Thank you.
Thank you. Ladies and gentlemen, this concludes our question and answer session today. We would like to thank everyone for their participation on today's conference. You may now disconnect. Everybody, have a wonderful day.