Good day, ladies and gentlemen, welcome to the Haemonetics Corporation Q3 2016 earnings conference call. At this time, all participants are in the listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require operator assistance during the conference, please press star then 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Gerry Gould, Vice President of Investor Relations. Sir, you may begin.
Good morning. Thank you for joining us for Haemonetics' third quarter fiscal 2016 conference call and webcast. I'm joined today by Ronald Gelbman, Interim CEO, Kent Davies, Chief Operating Officer, and Christopher 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. On today's call, Ron will discuss highlights of our business performance, Kent will provide more detail on the important trends in our commercial operations in the third quarter and year-to-date. Chris will cover financial performance and key elements of our outlook for 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'll talk about today. In the third quarter and year-to-date fiscal 2016, we excluded certain non-cash intangible asset write-downs and the reversal of related contingent consideration. In the third quarters and year-to-date periods of fiscal 2015 and 2016, we excluded pre-tax transformation and restructuring costs associated with our Value Creation and Capture, or VCC initiatives, and related tax effects. The earnings information discussed for all periods excludes deal-related amortization expense.
Further details of third quarter and nine-month fiscal 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. With that, I will turn the call over to Ron.
Thank you, Gerry, and good morning. Over the past four months, I've had opportunities to meet with a number of Haemonetics investors and analysts. Several questions have consistently arisen around the status of both our CEO search and our comprehensive business portfolio review. Both processes continue to move forward on parallel paths. I will provide an update after we have given you some detailed information on the third quarter and the rest of the year. We noted last quarter that we have two fast-growing franchises, plasma and hemostasis management, which today is the TEG family of products. These two franchises and our important China market have been delivering strong constant currency growth, which continued through the quarter. Overall, it was a pretty good quarter. Revenue grew 4% on a constant currency basis on the strength of encouraging performances in the plasma and hemostasis management franchises.
We had revenue growth on a constant currency basis in the Americas, Asia Pacific, and Europe. Our plasma franchise delivered 14% constant currency growth in the third quarter. Our initiatives in this business are focused on optimizing collection, productivity, and yield in addressing specific high-valued customer needs. Together, we continue to keep pace with robust growth in the end market for plasma-derived biopharmaceuticals. We installed over 4,000 plasma collection devices over the past three years, and that pace is accelerating with nearly 1,700 devices installed so far in fiscal 2016. Having recently launched our next-gen plasma collection software, our new collection device is on track for commercial introduction early in fiscal 2018. We expect this combination to deliver differentiated value in each plasma collection event.
Our ability to bring valuable products and services to our customers leads us to expect continued plasma growth above end market rates over our five-year strategic horizon. Our hemostasis management or TEG franchise is well positioned and on an excellent growth trajectory with 18% constant currency growth in this quarter. We are maintaining momentum with our legacy TEG 5000 device even as the limited market release of the new TEG 6s device is ongoing. We expect our TEG family of products, TEG 5000, TEG 6s, and TEG Manager, to continue to deliver and in fact, accelerate growth with existing and new customers on the strength of continued global market penetration. We also had a positive third quarter performance in China with 9% disposables growth in constant currency.
While TEG made up a good part of that growth, platelets comprise over half of our business there. We also enjoyed solid platelet growth in the third quarter. The China healthcare market continues to be very exciting, focused on increasing access to an expanding portion of the population. Now, I will turn the call over to Kent to provide more details about our business performance.
Thank you, Ron, and good morning, everyone. This morning, we reported results for our third quarter of fiscal 2016, and we confirmed our previous full-year revenue and adjusting earnings guidance ranges. Revenue was $233 million in the third quarter, up 1% as reported and up 4% in constant currency. Our growth drivers of plasma, TEG, and emerging markets accounted for about 65% of disposables revenue. In constant currency, these three business elements had combined growth of 12% in the third quarter. Drivers include plasma disposables up 14%, TEG disposables up 18%, and emerging markets, excluding Russia, up 9%. In the third quarter, plasma disposables revenue was $92 million, an increase of approximately $9 million or 11% as reported and 14% in constant currency. Shipments of saline and sodium citrate to CSL contributed about four percentage points of our overall plasma growth in the third quarter.
Additionally, plasma growth was realized in Australia, Europe, and Japan, with softness only in Russia. In the third quarter, blood center disposables revenue declined $6 million or 7% to $78 million. Excluding the impact of currency, blood center disposables declined by 4%. Platelet disposables revenue was $38 million in the third quarter, flat with last year as reported, but up 4% in constant currency due to emerging markets growth. In Japan, our increased market share of single-dose collections was offset by the ongoing shift towards our competitor's double-dose platelet technology. Red cell disposables revenue was $9 million, down $2 million or 15% as reported and 14% in constant currency versus last year's third quarter. Our red cell results were influenced by a new long-term contract with the American Red Cross to achieve 100% of their double red cell business. This means an increase in volume at a lower price.
Pricing concessions granted in advance of anticipated volume gains in that agreement represented a majority of the third quarter's decline. Whole blood revenue was $30 million in the third quarter, declining $4 million or 12% and down 10% in constant currency. Whole blood revenue was $20 million in the Americas, $7 million in Europe and European distribution markets, and $3 million in the Asia-Pacific and Japan markets. The ongoing macroeconomic challenges in Brazil and Russia affected our results. North America whole blood revenue continues to be impacted by declines in the U.S. red cell transfusion rate, which were approximately 10% in each fiscal year 2014 and 2015. That rate of market decline has slowed in fiscal 2016 and appears to be trending within the 5%-8% range we previously communicated. Sales of whole blood products to U.S. blood centers now represent less than 7% of our consolidated revenue.
Hospital revenue was $31 million, essentially flat with the prior year third quarter. Excluding the impact of currency, hospital revenue grew by 2% in the third quarter and 3% year-to-date, following 1% growth in fiscal year 2015. Strong TEG momentum provided growth that more than offset declines in orthopedic cell salvage. We had record TEG disposables revenue of $13 million in the third quarter, up 17% as reported and up 18% in constant currency. We continued to see strong growth of TEG 5000 devices and disposables even as we conduct the TEG 6s limited market release. Globally, customers continue to recognize the value of this innovative hemostasis management technology. The limited market release of TEG 6s and our new TEG Manager software is ongoing following the previously announced regulatory approvals.
Over the past three fiscal years, we sold nearly 1,900 TEG devices and nearly 600 in the first three quarters of fiscal 2016. Surgical disposables revenue was $15 million in the third quarter, down 3% as reported, but up 2% in constant currency. In the first three quarters of fiscal 2016, surgical disposables revenue was up 1% compared with the prior year period in constant currency. An important product enhancement to our Cell Saver Elite+, which will enhance its ease of use and processing capabilities, is currently in customer acceptance trials. Software solutions revenue was $18 million in the third quarter, flat as reported and up 2% in constant currency. Initial customer interest in our BloodTrack HaemoBank system remains encouraging, and it had good growth in North America and Europe in the third quarter. Equipment revenue was $14 million in the third quarter and $38 million in the year-to-date period.
Our installed base of equipment, which is the combination of purchased in-place devices, increased 6% over the last 12 months. The installed bases of plasma and TEG, two of our growth drivers, had increases of 10% and 16%, respectively, over this same trailing 12-month period. Before I turn the call over to Chris, I'd like to address a few important revenue items that continue to underlie our fiscal 2016 guidance. Our plasma team continues to execute at a very high level. While serving the expanding end market for collection equipment and disposables, the team recently began shipping saline and citrate solutions to our largest plasma customer. We have modestly increased our full-year outlook for plasma revenue. Hemostasis management continues to grow. We are pleased with our trajectory and remain excited about the prospects for our growing TEG franchise.
We had $13 million of revenue in Russia in the first three quarters of fiscal 2016, down $9 million or 40% from a year ago. Economic stress and political uncertainty continue in that region. Meanwhile, China continues to perform, and we see our presence there as an important platform for growth. The shift in the Japan platelet market continues with a greater reliance on double-dose collection techniques. Today, this represents about 15% of collection procedures in Japan and is a trend that we're monitoring closely. While this means a reduction in the market utilizing the traditional single-dose technology, we enjoy an increasing majority market share. In software, BloodTrack HaemoBank revenue had positive growth in the third quarter.
While we continue to believe in the prospects for growth of this differentiating platform, other elements of our software offering are not growing as rapidly as previously planned. We have decreased our software growth expectations for the full-year. In summary, with some modification of the mix of revenue elements, specifically the strength in plasma and some offsetting weakness in software, we have reaffirmed our full-year revenue and earnings guidance ranges. With that, I'll turn the call over to Chris Lindop. Chris?
Thanks, Kent. As previously stated, in the third quarter, total revenue was $233 million, an increase of 1% as reported and 4% on a constant currency basis. Currency impacted revenue by roughly 300 basis points as it has throughout fiscal 2016. During the quarter, we had constant currency growth in all geographies except Japan. Strong growth in U.S. plasma and TEG disposables revenue, along with modest growth in platelet and surgical disposables, more than offset declines in blood center disposables on a constant currency basis. Adjusted gross profit was $110 million, down 4% or $4 million year-over-year. A $7 million currency headwind was included. Gross profit increased 3% in constant currency. Third quarter adjusted gross margin was 47.1%, down 210 basis points. On a constant currency basis, gross margin declined only 30 basis points compared with the third quarter of fiscal 2015.
Benefits from our growth drivers and VCC initiatives were offset by lower pricing and share in our North American blood center business and unfavorable product mix. Adjusted operating expenses were $75 million as reported, down $1 million or 1% as compared with the prior year's third quarter, but up $2 million or 3% in constant currency. Savings from organizational and corporate cost reductions permitted ongoing investments in higher impact growth initiatives. Notably, R&D spending increased $1 million to 4.6% of revenue. Adjusted operating income was $35 million in the third quarter, down $3 million, including a $4 million headwind attributable to currency. On a constant currency basis, operating income was up 3%. Adjusted operating margin was 15% in the quarter, down 160 basis points as reported, but down only 10 basis points in constant currency. Adjusted interest expense associated with our loans was $2 million in the third quarter.
Our tax rate was 25% in each of the third quarters of fiscal 2016 and fiscal 2015. Adjusted earnings per share were $0.48, down $0.05 or 9%. We ended the first three quarters with $105 million of cash on hand, down $55 million from our fiscal 2015 year-end. We used $31 million of cash net of tax benefits for VCC and other restructuring and $61 million for the repurchase of shares in the open market. We also announced two non-cash asset write-offs today. First, we recently performed our goodwill impairment test with inputs from our annual strategic planning process. The bulk of this goodwill arose from the whole blood acquisition in fiscal 2013. We established revised long-term expectations for revenue, income, and operating cash flows. As a result of this analysis, we determined that a write-down of goodwill was required.
A non-cash goodwill impairment charge of $66 million was recorded in our European reporting unit in the third quarter. Second, during the third quarter, we updated our assessment of the market potential for the SOLX technology and concluded that it was no longer commercially reasonable to bring this technology to market. We recorded a $14 million net non-cash charge in the third quarter of fiscal 2016 to write down intangible assets and contingent consideration resulting from the SOLX acquisition. These non-cash accounting charges totaled $80 million pre-tax or $73 million after tax, $1.44 per share. It's important to note that these charges will not impact our liquidity, cash flows from operations, future operations, or compliance with debt covenants. They are not in any way intended to be indicative of the results that will come from our ongoing business portfolio review, and they are excluded from our adjusted earnings.
Turning to the full year, we reaffirmed our previous fiscal 2016 revenue guidance, as Kent noted, in the range of $910 million-$920 million, including the benefit of a 53rd week. With about 300 basis points of headwind attributable to currency trends, revenue growth of approximately 4% is expected on a constant currency basis. As we approach year-end, we made fine-tuning revisions to components of our fiscal 2016 revenue outlook, increasing the plasma and decreasing Software Solutions revenue outlooks. The resulting elements of revenue guidance are as follows. Revised expectations for plasma disposable growth of 12%-13% in constant currency, reflecting strength in the Americas. While we've experienced some delays, we expect to meet our targeted annual run rate of saline and sodium citrate shipments under the CSL contract by the end of fiscal 2016. Blood center disposables are still expected to decline 5%-7% in constant currency.
Hospital disposables are still expected to grow 4%-6% in constant currency. Software Solutions growth expectations of 3%-5% in constant currency reflect a further recognition of the revised timeline for market penetration of new products and softness in other parts of our software portfolio. Our full year guidance for adjusted gross margin remains at approximately 47%. Unfavorable mix and currency are expected to continue to offset benefits of VCC initiatives and other structural cost improvements. Adjusted operating margin is still expected to approximate 14%. Our guidance range for adjusted earnings is reaffirmed at $1.65-$1.75 per share. An anticipated currency headwind to our earnings growth rate of about 900 basis points reflects the rates at which we have hedged our fiscal 2016 foreign earnings. In constant currency, we expect fiscal 2016 earnings growth of approximately 4%.
As in the past, our website includes revenue and income statement scenarios, which are based on the elements of the fiscal 2016 guidance provided. We are refining our expectations for fiscal 2016 adjusted free cash flow to approximately $70 million before funding $34 million related to our VCC initiatives. We realized $8 million of incremental VCC savings in the first three quarters of fiscal 2016, and we expect to reach an approximate $40 million cumulative cost savings rate by the end of this fiscal year. As I've explained before, VCC savings realized to date have offset disclosed business adversities, including currency and volume reductions in pricing concessions in our North American donor business. The potential for incremental VCC savings that could be realized beyond fiscal 2016 will be evaluated as part of the ongoing strategic review of our entire portfolio of business.
Regarding fiscal 2017, we expect to provide guidance when we have our annual Investor Day in early May. There were, however, a number of items I provided previously for your consideration in preparing fiscal 2017 estimates. Currency is still expected to have a negative impact on operating earnings in fiscal 2017, currently estimated to be approximately $12 million. Obviously, fiscal 2017 will not include the 53rd week that will benefit fiscal 2016. Customer input and our own observations suggest a continuation of whole blood collection declines into fiscal 2017, though we continue to expect that rate to moderate over time. Our red cell apheresis business in the U.S., price reductions to the American Red Cross, and other share losses will have a negative impact on fiscal 2017 operating earnings of about $10 million as compared to fiscal 2016.
We are monitoring the market shift towards double dose platelet collections in Japan, which may have a negative impact on our fiscal 2017 operating results. On the positive side, we continue to expect double-digit revenue growth in our plasma business, enabled by continued strong U.S. market growth and a full $25 million of saline and citrate revenue under a previously disclosed agreement. We also expect to see another year of significant growth for the TEG business, consistent with meeting our long-term growth expectations for hemostasis management. We continue to have a strong balance sheet and free cash flow, which gives us confidence in our ability to weather the short-term challenges and to exploit the important strategic opportunities that remain ahead of us. With that, I'll turn the call back over to Ron.
Thank you, Chris. As many of you know, our board of directors is conducting a search for a permanent CEO, and that process is moving along well. It is highly likely that we will complete this well before our May investor day event. Concurrently, we are working with McKinsey & Company to complete a thorough evaluation of all the franchises within our business portfolio. We expect this will lead to a set of strategies that guide Haemonetics to deliver consistent revenue and earnings growth over a sustained period of time. Our board of directors met about 10 days ago for a complete update on this business portfolio review. This process with the board is also moving along well. It is likely that we will complete this work before our May investor day event, so that we can share the results with all of you at that time.
We feel strongly that the concurrent pursuit of these initiatives, the CEO search, and the assessment of our portfolio growth opportunities is critically important. Our mission is to put Haemonetics on the path to sustainable and differentiated top and bottom-line growth as soon as possible. Regarding our May investor day event, we have scheduled it for Tuesday, May 10 in Boston, and we will have more details out to everyone soon. We sincerely hope you will mark your calendars and join us. Finally, I thank our employees for their dedication to the needs of our customers and the donors and patients we serve. Their commitment gives me real optimism about turning our potential into better performance. With that, we are happy to take your questions.
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We ask that you please limit your questions to allow everyone the opportunity to ask a question. Thank you. Our first question comes from the line of James Francescone with Morgan Stanley. Your line is now open.
Hey, good morning, thanks for taking the question.
Hey, James.
Hi, James.
James.
With 4% growth this quarter, you had the strongest results since March of 2013. As we think about the business and where it stands today heading into 2017, to what extent do you think that growth of these results at these rates is sustainable? What are some of the puts and takes that could either one, drive faster growth, or two, conversely drag it back down as we head into 2017?
Well, some of the elements, James, that I covered in the tail end of my comments certainly present headwinds. Putting aside currency, because we are talking about constant currency growth rates, we know that we have made concessions and lost market share in North American red cells, we've quantified that as an earnings impact. You can imagine that there's a revenue impact associated with that. We've also highlighted our concerns about the ongoing trend in Japan regarding double-dose collection. Those are two obvious items that will factor into our thinking about growth rates, which will be considered in 2017.
Okay. Just to push on that point a bit more, Chris, I thought that I heard a couple things change on your comments, again, at the tail end of your prepared remarks about 2017 relative to last quarter. I think one you identified, which is the continuation of whole blood declines. Am I right in perceiving that that's gotten a bit worse? Two, am I right in perceiving that you're now mentioning platelet conversions, double collections where you weren't before? Finally, you say that you expect strong growth in TEG, but I didn't hear you commit to that very specific 25% target that you laid out last quarter.
Good listening. I would say, taking your points one by one, whole blood, year to date, we're seeing end market demand, remember, this is a North American phenomenon more than anything else, down about 6% as we measure it with our customers, which is a representative sample of the market. That is slowing, but it's not trending back to zero yet. Until we see it getting close to equilibrium, we're still calling it down next year. That's not a major factor in our overall growth, just because that business itself is only 7% of our revenues. It's a factor, no question. With regard to platelets, we are giving a little bit more color on the Japan situation as we see the penetration of double dose there.
That was covered last quarterly call, I just added it to my list of things to pay attention to as we move into 2017. No, we continue to feel very bullish about TEG. It's all to do, I think, with the pace of the LMR and moving into full market conversion, it's only that that would give us a moment's pause. It's not any concerns about it not having strong double digit potential going forward. Did that answer your question?
Absolutely. Very clear. Thank you, Chris.
Thank you.
Our next question comes from the line of Lawrence Solow with CJS Securities. Your line is now open.
Hi, good morning. Clearly, your strategic directions or your look at across the P&L is progressing. I wonder if you can just maybe discuss the decision to discontinue SOLX, and I sort of gather that I know whole blood, the whole strategy there has not been clearly not optimal from what we thought three years ago, but was that decision is that based on an overall outlook of what you plan to do with whole blood? What made you come to the reality that SOLX is just not going to fit into your plans?
Well, we came to a critical juncture in our evaluation of the technology after we got approval for SOLX with a whole blood filter. What we knew at that moment in time was that the whole blood market in North America trended heavily towards red cell filtration, so that there was an additional development step required. Whenever you make a decision about committing incremental capital and resources towards a long-term development project, you have to ask yourself, has anything changed in the market? We went back out and talked to the customers about the prospects for the product and their willingness to pay for it. The feedback was not positive. We made what I think is a rational business decision.
Okay. Just shifting gears real quick as a second question, just on plasma. Seems like saline is a little bit less than expected this quarter. I think it was supposed to first start coming out towards the latter part of the quarter anyhow. It sounds like the underlying market ex saline for you is actually doing a little better. Is that fair to say?
Yes. We had a good quarter in consumables in North America.
Okay. All right, great. Thanks.
Our next question comes from the line of Brian Weinstein with William Blair. Your line is now open.
Hi, good morning. This is Matt in for Brian. Maybe just the first one, could you talk a little bit about the weakness in the other parts of the software portfolio and what are the key elements to, as we move into 2017, really starting to see some growth in that business?
Yeah. Thanks, Matt. It's Kent here. We had reasonable growth in the software business, about 2% up in the quarter. Within that, we're obviously pleased to see the momentum in BloodTrack HaemoBank, which performed both in the U.S. and in Europe, and also to see the developing pipeline for that business, for which we've had great hopes for some time. We continue to believe that BloodTrack HaemoBank is a positive part of our future and that the hospital software surrounding that asset is an important part of the future for the business. Clearly, connectivity is a strategic asset for the company and an emerging core competence, certainly also the price of admission in the medical device space, and we think we've got some strong resources there. We're looking at the entire portfolio of software as we look at the entire portfolio across the company.
I think we'll be able to parse this for you more clearly in our May investor day.
Okay, thanks, Kent. Just jumping back into the discussion on platelet collection in Japan. I think last quarter you mentioned about 10% was a double dose, and I thought I heard you say 15%. It seems like maybe this is something that is evolving rapidly. Could you just discuss what percentage of overall platelets business is at risk, and what would your response be if this trend continues to evolve this rapidly?
Yeah. One of the things that we've already done to directly respond to this trend is to put in place a new commercial relationship with our major customer in Japan. That has actually worked to our benefit. Certainly, we've gained share and likely significant share in the single-dose segment in Japan, that's the part of the market that we can control most directly. We do expect this to continue to progress at some rate. I think our ability to control it has to do with our ability to react on a commercial level as well as with product and technology, we're certainly focused on doing both of those things every day in this business.
Okay. Thank you, Kent.
Thank you. Our next question comes from the line of David Roman with Goldman Sachs. Your line is now open.
Hi, this is actually Candice calling in, filling in for David. I just wanted to piggyback on the HaemoBank sales, you seem to be positive on that still, has that changed at all in terms of, I know that your software guidance is revised down, how much of an offset did you expect that to happen and maybe did not see that, or what does that look like going forward?
This is Kent again. I think we talked about that in the last quarterly call, certainly on some of the call backs after that event and said that we had been quite optimistic in building our plan for this year, a certain portion of that had been software, we thought, in fact, we'd been a bit too optimistic about building that outlook for the software business. A lot of that had to do with the rate of growth and our ability to generate immediate traction with a new product, BloodTrack HaemoBank, which we were then and continue to be relatively confident in. It's proven that that pipeline development is a bit slower than we expected, although that pipeline is developing. Again, we had very encouraging growth in Europe and in North America for the BloodTrack HaemoBank suite of solutions in the quarter.
We're going to continue to push and do the things that put us in that position to deliver Q3. Hopefully, we'll see similar things from that part of the portfolio in Q4 and going forward. Again, as we said, we're reviewing our entire software portfolio as part of the larger portfolio review for the company.
That's great. Very thankful. Very helpful. One last question on China. You seem still very positive on growth in that area. Do you still believe you can achieve the double-digit growth over the course of the year?
Yeah, we're certainly doing everything we can to sustain our rate of growth in that market. We had 9% constant currency disposables growth in Q3, 10% year to date, and are anticipating a strong close to the year. Platelet market is good. The TEG market is good. The government seems to continue to be supporting the growth and development of the healthcare industry, and we're doing everything we can every day on the ground to deliver ongoing results from China.
Okay, great. Thanks.
Our next question comes from the line of Anthony Petrone with Jefferies. Your line is now open.
Thanks. Good morning. Maybe just to begin with just some of the impairment charges in the quarter and just trying to get a sense of going forward, even from a signaling standpoint, should we expect something more strategic for whole blood specifically going forward? In addition to that, should we expect additional goodwill write-downs going forward? One follow-up.
Anthony, as I said, the actual actions we took in the quarter were unrelated to our portfolio review. Whenever we're looking at a portfolio review, that is a possibility that I can't eliminate completely. What we end up doing, specifically with regard to goodwill, is annually we have a moment in time that we sat with our auditors and with our board for an evaluation. That for us is the first day of the fourth quarter, and that comes shortly after the finalization of our strategic plan. We organize ourself by, if you will, geographic operating units, and that's the basis upon which we do the evaluation against long-term cash flow projections.
This year it just got closer on an intuitive test, we did a more thorough review, took it down a level, did some appraisal work with third parties, and came to this conclusion with our auditors. This is an estimate at the moment because we know that there's a second step of analysis that needs to be done. It's possible that there'll be a tail to this, but we'll update you when we know more.
All right. One follow-up would just be on really R&D investments as you look to 2017. I think some of the focus will shift toward reinvestments into the growth areas of the business, specifically plasma and TEG. It looks like R&D was down here a little bit and you gave some indication of 2017, but certainly not on that front. Where do you expect R&D to go from here? At what point will you begin to reinvest in some of the areas of the business? Thanks.
Well, in fact, on an adjusted basis, the R&D was up about $1 million this quarter. Sometimes the charges which are eliminated from the GAAP results can skew that trend. We are focusing our R&D very much on plasma and TEG. Both of these are obviously areas where we have new product introductions that are easily identified, and we've talked about them a lot. You can imagine that that's a big focus of our spending, and we'll continue to do that going forward because these are very opportunistic and positive portfolios for our business.
Thank you. Our next question comes from the line of Larry Keusch with Raymond James. Your line is now open.
Yeah. Hi, good morning.
Hi, Larry.
Chris, I'm not sure if I have this correct, but did you increase the VCC spend, it looks by maybe $ seven-ish million? If that is correct, are you still on track for the run rate savings that you were talking about, I guess $50 million in 2017 and $65 million by 2018?
Did increase the spend nominally, Larry. Good observation. In terms of being on track, all of the major moves that we've talked about making have started. I would say we're slightly delayed on the Scottish closure as we look forward because that involves a transition to Malaysia. That's more to do with labeling and having product available with the right label for the different countries around the world than anything else. In terms of the overall savings, it's really hard to comment on the future savings from VCC at this moment in time when we're doing the strategic review. All of our franchises are under review, I think when we know the answer to that, we'll know much more about the shape of our manufacturing platform.
Okay, that's helpful. Then just two other ones. Just coming back on TEG. Again, if my numbers are right, I think you did about 18% growth in the third quarter and around 21% at the nine months. I recognize that you are balancing the launch of TEG 6s and trying to keep customers engaged and using the 5000, et cetera. I know there's a bunch of crosscurrents going on, I think there's at least this 25% growth bogey that's been suggested out there. Again, I just wanted to come back and see if there was anything that was changing that would cause you to deviate from that growth objective.
Larry, it's Kent here. The short answer is no, nothing changing for our long-term view for TEG. As we've said a few times in a few different ways in this call, we're pleased with how we're performing with TEG right now. Disposables growth was 21% for the year to date. We think we're on track to deliver our long-term goal, which as we look at it, is more than doubling the TEG business throughout our five-year plan period, that continues. The TEG 6s limited market release is ongoing. We've had excellent feedback from our users about the functionality of the device and the cartridges in their hands, I think all of that tells us we're right on track.
The extent that we've implemented our new TEG Manager software, which has now been at multiple locations, we're also having great feedback on the value and utility of a software overlay for this suite of solutions. TEG is moving in the right direction.
Okay. Last one, this is really just sort of a big-picture question. Obviously, it's great to hear that the board and the senior management are undertaking this portfolio review. I think it's something that's probably been necessary for a long time, maybe the key operative word here is really a comprehensive portfolio review. I wanted to just get a sense of how broad are you willing to look, are you willing, at the end of this review, to potentially make decisions about pruning the portfolio maybe in some businesses that Haemonetics has been in for a long, long time and is associated with. I just wanted to get some understanding of really how deep are you willing to go on this process?
Hi, Larry, it's Ron Gelbman. As I've said before, everything is on the table. We are willing to look at everything in as much depth as you would expect. We're not married to any portfolio or any particular strategy. We just want to get the company back growing top line and bottom line.
Okay, terrific. Thanks for those comments. Appreciate it.
Our next question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.
Good morning. Can you hear me?
Yes, sir.
Yes, Jim.
Great. Little bit of a different topic. I'm sure you're aware that the FDA is reviewing changing some of the rules for blood donations because of the Zika virus, and possibly banning donations from people who've recently been to Central and South America. Do you think this could have any impact on your business here?
Jim, it's Kent. We don't expect much business or much impact at all. We're certainly well aware that the FDA is reviewing their policy. As we look at this virus, the information that we have says that this is a virus that stays in the bloodstream very briefly and that most people who contract the virus have it out of their system within about one week. We have not seen any evidence to date that this is a transfusion-transmissible virus. In theory, it could be, and if in fact it's proven to be, there's a number of different ways that this can be addressed. One, of course, screening of donors with a test. We're not aware of a specific test for the Zika virus at this time.
Most likely what's going to happen is that they're going to screen on travel history, and that could be implemented very quickly. We're not expecting an impact on our business, although we're certainly well aware and are watching the situation closely.
All right. It doesn't sound like you bought any stock back during the third quarter. Do you still have funds available, and what's your thinking there?
Well, Jim, we tend to get a mandate from the board around the time that we formulate our annual operating plan, which includes a capital plan. We had a $100 million mandate, which we finished up, and we're moving deliberately through our planning process, and we'll update you on that when we give you guidance for next year, which is currently expected to be around about our investor day in May.
All right. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press the star and then the number one key on your telephone keypad. Again, that is star one for questions. Our next question comes from the line of Jan Wald with The Benchmark Company. Your line is now open.
Hi. Good morning, everyone. I can say I really only have one question left, it's kind of a big picture question, kind of like what Larry was asking about, but it's related to the software business you have. It seems to me that what you're trying to do is sell sort of a productivity solution, maybe in an environment that's more concerned about pricing right now. Even though you have Blood Bank, BloodTrack, I'm sorry, that may be doing better, what kind of environment are you selling into? How receptive is the market to those kinds of products that you're trying to sell? I'd really be interested in knowing.
Hey, Jan, it's Kent here. I think that's a good question, the response that we get and the value that a customer places on a software solution really depends on the direct benefit that that product provides, as well as the environment within their market space. I think that's why this part of the business, in fact, the entire business, is so ready for a portfolio review at this time. We know as an example that in our plasma segment, the customers are extremely anxious to bring on board our new software solutions. We know that our connectivity capabilities are highly valued and, as I said earlier, really the price of admission in the medical device space these days, we believe we have a great capability.
What we're doing is going through the entire portfolio of end markets of software solutions that the company has to face those end markets, we're asking ourselves the same question that you're asking us, we expect that to be part of the backdrop for our May investor day event. Generally, we remain optimistic and bullish on software as a differentiating capability for the company. While we're looking at it through a more discreet and potentially selective lens, we still think it's a real asset and a real differentiator for Haemonetics.
Thank you very much.
Thank you. Our next question comes from the line of Michael Petusky with Barrington Research. Your line is now open.
All right. Good morning. Just a quick one on Russia. Is essentially the situation there that there's not a whole lot you can do as long as oil is where it is and the economy as a result continues to be soft? Are there steps that you guys are taking or can take that can really meaningfully change that situation in the near term? Thanks.
Yeah, Michael, Kent again here. Well, in some ways, yes. In some ways, no. The macroeconomy is the major driver. We are absolutely operating in the context of a very troubled economy. It has not gotten better, and our overall results are highly unlikely to improve significantly until the economy begins to change in that discreet part of our business. We are doing things, and we're doing things every day in that market to make it better, diversifying our distribution base, both within the country and within the region, and growing in our hospital market, which hasn't traditionally been an area of focus or strength for our company. This new market context has provided an opportunity for us to look in different places and has been quite fruitful in establishing a platform for growth and some good results in the hospital business.
Again, a new part of our portfolio in that region.
Okay, great. Thanks, guys.
I'm not showing any further questions at this time. I would now like to hand the call back to Mr. Ron Gelbman, Chief Executive Officer, for any closing remarks.
Thank you again to all of you. The process for our strategic review continues, and we hope to have a lot more information for you at the May investor event, and we hope to see you there. Thank you again.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.