Haemonetics Corporation — Form 10-Q Summary
Business context and period. Haemonetics is a global medical-products company serving plasma collection, blood centers and hospitals. This unaudited report covers the fiscal second quarter and six months ended October 2, 2021; comparisons are with the corresponding periods ended September 26, 2020. Amounts below are in U.S. dollars.
Financial results
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $239.9 million, up 14.5% | $468.4 million, up 15.6% |
| Gross profit / margin | $122.5 million / 51.1%, versus 50.5% | $230.6 million / 49.2%, versus 48.3% |
| Operating income / margin | $24.5 million / 10.2%, down 58.3% | $25.9 million / 5.5%, down 63.3% |
| Net income | $14.9 million, versus $48.1 million | $10.4 million, versus $58.6 million |
| Diluted EPS | $0.29, versus $0.94 | $0.20, versus $1.15 |
For the quarter, revenue growth was led by Hospital, up 49.7%; Plasma grew 4.5% and Blood Center 2.4%. For the six-month period, Hospital grew 61.6%, Plasma 4.9%, and Blood Center declined 2.0%. Hospital growth primarily reflected the Cardiva acquisition and recovery from pandemic-affected prior-year comparisons.
For the six months, operating cash flow was $41.8 million, investing cash outflow $36.4 million and financing cash outflow $4.9 million. Capital expenditures were $34.7 million. Cash increased $0.1 million to $192.4 million.
At October 2, 2021, working capital was $410.8 million and the current ratio was 2.4. Balance-sheet debt was approximately $780.8 million, compared with cash of $192.4 million; management reported net debt of $588.4 million. Debt included a $293.1 million term loan and $500 million principal amount of 0% convertible notes due 2026 (reported net of deferred financing costs). No revolving-facility borrowings were outstanding. The company was compliant with its debt covenants.
Material changes and drivers
- Revenue increased, but operating income and earnings fell sharply against a prior-year period that included $31.5 million of divestiture gains. Current-period costs included higher Cardiva-related transaction and integration costs, intangible amortization, contingent-consideration expense and inventory step-up amortization.
- Gross margin improved year over year, supported by favorable volumes and mix, productivity savings and lower pandemic-related costs; inflation, freight, pricing adjustments and divestitures partly offset the improvement.
- Cardiva, acquired in March 2021, contributed to Hospital growth. Its purchase-price allocation remained preliminary. Contingent consideration had a fair value of $37.5 million at quarter-end; the maximum remaining potential payment was $39.1 million.
- Cash from operations was nearly flat versus the prior-year six-month period. Higher capital expenditures and the absence of prior-year divestiture proceeds drove investing cash flow from a $13.2 million inflow to a $36.4 million outflow.
Outlook, risks and unusual items
- No specific revenue or earnings guidance for fiscal 2022 is provided in the supplied filing text. Management said it expects hospital procedure volumes to continue recovering, while timing remains uncertain; it also expects plasma collection volumes to recover, potentially after fiscal 2022.
- The revised Operational Excellence Program is expected to incur $95–$105 million of aggregate charges through fiscal 2025 and deliver $115–$125 million of annualized gross savings when complete. Cumulative charges were $41.5 million at October 2, 2021; most charges are expected to require cash outlays.
- CSL Plasma will not renew a supply agreement expiring in June 2022. The contract generated $88.6 million of fiscal 2021 revenue. Haemonetics recorded impairment and accelerated-depreciation charges related to the expected loss.
- Management cited ongoing COVID-19 uncertainty, inflation and higher freight costs, supply-chain and raw-material availability, foreign-exchange exposure, customer concentration and the risk of not achieving acquisition or restructuring benefits. It expects inflationary pressures to continue at least through the remainder of fiscal 2022.
- The company is cooperating with a U.S. Attorney’s Office subpoena seeking documents concerning certain apheresis and autotransfusion devices and related product complaints, adverse-event reporting, regulatory clearances and design changes. Management said it did not believe ordinary-course legal matters would have a material adverse effect.
- Early adoption of convertible-debt accounting guidance in April 2021 changed balance-sheet presentation, including an $80.3 million increase to non-current convertible notes and a $61.2 million reduction to additional paid-in capital. Management concluded substantial doubt about the company’s ability to continue as a going concern did not exist.
Important facts for investors to verify
- How much of Hospital growth reflects Cardiva and recovery-related comparisons, and how the acquired business performs relative to its purchase-price assumptions.
- The revenue and earnings effects of the CSL contract expiration, including the company’s ability to replace the lost business and manage related capacity.
- Whether restructuring savings and the stated cost and timing estimates are achieved, and the resulting cash charges.
- Trends in operating cash conversion, working capital, capital spending and debt repayment obligations.
- Any developments involving the federal subpoena, product quality or regulatory matters, and the potential financial impact of inflation and supply constraints.