Haemonetics Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended December 26, 2020; comparisons are to the periods ended December 28, 2019. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $240.4 | $259.0 | $645.4 | $750.0 |
| Gross profit / margin | $120.3 / 50.0% | $128.1 / 49.4% | $316.0 / 49.0% | $371.0 / 49.5% |
| Operating income / margin | $40.4 / 16.8% | $40.9 / 15.8% | $110.9 / 17.2% | $77.3 / 10.3% |
| Net income | $31.9 | $29.9 | $90.5 | $58.9 |
| Diluted EPS | $0.62 | $0.58 | $1.77 | $1.13 |
| Operating cash flow | Not separately presented for quarter | Not separately presented for quarter | $107.3 | $111.8 |
Q3 revenue fell 7.2% year over year; constant-currency revenue declined 8.5%. Nine-month revenue fell 13.9% (14.5% constant currency). Q3 net income rose despite slightly lower operating income, aided in part by lower income tax expense. Nine-month operating income and net income increased substantially, reflecting divestiture gains, lower impairment charges than in the prior year, and cost savings.
Business units
- Plasma: Revenue declined 15.4% in Q3 and 28.3% for the nine months on a reported basis. Lower plasma disposable volumes, particularly in the U.S., were attributed primarily to COVID-19; strategic exits from plasma liquid solutions also reduced sales.
- Blood Center: Revenue declined 3.0% in Q3 and 3.1% for the nine months. Ongoing whole-blood disposable declines and software divestitures were partly offset by apheresis sales. Management cited an expected approximately $17 million fiscal 2021 revenue decline from loss of apheresis business and warned that first-quarter distributor stocking orders could partially reverse.
- Hospital: Revenue increased 4.7% in Q3 and 0.5% for the nine months. Hemostasis Management grew 15.2% in Q3 and 6.2% for the nine months, while Cell Salvage and divested software weighed on results. Hospital procedure volumes improved in the second and third quarters as restrictions eased.
Financial position and liquidity
- Cash and equivalents were $189.0 million at December 26, 2020, versus $137.3 million at March 28, 2020. Working capital was $474.0 million and the current ratio was 3.4.
- Term-loan borrowings were $310.6 million, with a 1.4% effective interest rate; no revolving-credit borrowings were outstanding. The company reported a $120.8 million net cash position, calculated as cash less total debt.
- The company was compliant with its debt covenants. Scheduled principal payments include $8.7 million for the remainder of fiscal 2021. Management said available cash, operating cash flow, and credit facilities were sufficient for expected requirements for at least the next 12 months.
- Nine-month operating cash flow was $107.3 million, down $4.6 million year over year. Investing activities provided $3.7 million, mainly reflecting divestiture proceeds; financing activities used $65.3 million, including debt repayments. Cash increased $51.7 million over the period.
Material changes, outlook, and risks
- COVID-19 materially affected results, especially Plasma collections and hospital procedure activity. Management said the timing of recovery remained uncertain, expected continued negative COVID-19 effects on fiscal 2021 Plasma results, and expressed confidence in the long-term end markets. Manufacturing and supply chains remained operational without significant disruption.
- Gross margin was pressured by lower volumes, unfavorable product mix, higher operating costs, COVID-19, and divestitures; productivity savings and lower depreciation partly offset those effects.
- The Operational Excellence Program is expected to generate $80–$90 million of annualized savings when completed. Aggregate charges are estimated at $60–$70 million, with substantial completion expected by the end of fiscal 2023. Cumulative charges were $22.9 million at quarter end.
- After quarter end, Haemonetics agreed to acquire Cardiva Medical for $475 million upfront, plus up to $35 million contingent on sales growth; closing was expected in Q4 FY2021. Planned funding includes cash, the revolving facility, and an anticipated additional $150 million term loan. The filing does not provide a quantified earnings outlook for the acquisition.
- Also after quarter end, the company agreed to acquire certain HemoAssay intellectual property, with up to $15 million of contingent consideration tied to development and manufacturing milestones.
- Divestitures generated $32.6 million of gains in the first nine months: notably $19.8 million on the Inlog sale and gains on U.S. blood donor management software. Fajardo operations were sold and resulted in a $1.0 million impairment charge plus a $0.4 million closing-adjustment loss.
- During Q3, the company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts seeking documents concerning apheresis and autotransfusion products, including complaints, adverse-event reporting, regulatory clearances, and design changes. The company said it was cooperating.
- Other key risks include continued pandemic disruption, customer concentration and purchasing changes, product quality or regulatory issues, supply continuity and raw-material costs, foreign-exchange and interest-rate movements, and the increased debt expected to fund Cardiva. Management disclosed no material changes to previously reported risk factors.
Important facts for investors to verify
- Whether Plasma collection volumes and hospital procedure activity recover, and how that affects reported revenue and margins.
- Whether Blood Center distributor stocking orders reverse and whether the anticipated $17 million apheresis-related revenue decline is realized.
- Cardiva’s closing, final funding mix, contingent-payment terms, and post-acquisition leverage and returns.
- Progress and cash costs of the restructuring program against its $60–$70 million charge estimate and $80–$90 million savings target.
- Developments in the U.S. Attorney’s Office inquiry and any resulting regulatory, legal, or operational consequences.
- How much of the reported earnings improvement reflects recurring operations versus divestiture gains, lower prior-year impairments, and tax benefits.