Haemonetics Corporation — Form 10-Q Summary
Reporting period: Three months ended June 27, 2020, the company’s first quarter of fiscal 2021 (not calendar 2020 Q1). Amounts are in U.S. dollars.
Business context and results
Haemonetics supplies products and services for plasma and blood collection and hospital blood management. It reports three segments: Plasma, Blood Center and Hospital. Management said COVID-19 significantly affected quarterly results, particularly Plasma and Hospital, while manufacturing and supply operations continued without significant disruption.
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Revenue | $195.6 million | $238.5 million |
| Gross profit / margin | $90.0 million / 46.0% | $115.9 million / 48.6% |
| Operating income (loss) | $11.7 million | $(13.3) million |
| Net income (loss) | $10.5 million | $(8.5) million |
| Diluted EPS | $0.21 | $(0.17) |
| Cash from operations | $11.8 million | $2.6 million |
Revenue, margins and material changes
- Revenue fell 18.0% reported and 17.5% at constant currency. U.S. revenue declined 29.0%; international revenue grew 3.8% at constant currency.
- Plasma revenue decreased 38.0% at constant currency, primarily due to lower U.S. plasma disposable volumes amid the pandemic, with strategic exits and a prior-year software comparison also contributing.
- Blood Center revenue increased 1.7% at constant currency, helped by international stocking orders and order timing. Management cautioned that elevated stocking could reverse and cited an expected approximately $17 million incremental fiscal 2021 revenue decline from lost apheresis business.
- Hospital revenue declined 3.4% at constant currency, mainly from lower Cell Salvage and TEG disposable sales; management reported some recovery as restrictions eased and hospitals reopened.
- Gross margin contracted 2.6 percentage points. The company attributed pressure to COVID-related manufacturing and supply-chain costs and product mix, partly offset by lower depreciation and productivity savings.
- Operating income improved mainly because the prior-year quarter included $48.7 million of impairment charges related to the Union facility divestiture; current-quarter impairment was $1.0 million. Current results also benefited from cost savings, partly offset by pandemic-related revenue and margin pressure.
Cash, debt and liquidity
- Cash and cash equivalents were $275.7 million at June 27, up from $137.3 million at March 28, 2020. Working capital was $351.6 million; the current ratio was 1.9.
- Operating cash flow was $11.8 million. Investing cash flow was a $23.9 million use, including $16.6 million paid for the enicor acquisition and $7.7 million of capital expenditures. Financing cash flow was a $149.0 million source, primarily reflecting a $150.0 million net increase in short-term loans.
- At quarter-end, $319.4 million was outstanding under the term loan and $210.0 million under the revolving facility; the term loan’s disclosed effective rate was 1.4%. The company reported covenant compliance. It repaid $60.0 million of revolver borrowings in July 2020.
- Management said available cash, operating cash flow and credit availability were expected to cover requirements for at least the next 12 months. It reported a net cash position of $252.5 million using its definition of cash less total debt.
Outlook, actions and risks
- No specific quarterly or full-year revenue or earnings guidance is provided in the supplied filing text. Management expected continued pandemic-related pressure on Plasma and a gradual, uncertain recovery in plasma collection volumes. It anticipated sequential improvement in Hospital procedure volumes, with a return to normal levels expected by fiscal year-end.
- The 2020 Operational Excellence Program is expected to incur $60–$70 million of aggregate charges, mostly cash, through substantial completion by the end of fiscal 2023; targeted annualized savings are $80–$90 million after completion. The company incurred $3.5 million of program restructuring and turnaround costs this quarter.
- Subsequent to quarter-end, Haemonetics sold its Fajardo manufacturing operations for $15.5 million and certain U.S. blood donor management software assets for $14.0 million upfront, with up to $14.0 million additional contingent consideration. It also agreed to sell Inlog Holdings France, subject to financing and customary closing conditions.
- On April 1, the company acquired enicor, maker of the ClotPro coagulation testing system, for $20.5 million total consideration, including contingent consideration. Its post-acquisition contribution was described as immaterial.
- Management identified COVID-19 duration and effects, customer and product demand, supply continuity, regulatory requirements, restructuring execution, divestiture and acquisition benefits, foreign exchange and interest rates, and debt obligations among key risks. The company said it did not anticipate share repurchases in the first half of fiscal 2021.
Important facts for investors to verify
- Whether plasma collection volumes and hospital procedure activity recover as management anticipated, and how prolonged COVID-19 effects alter demand.
- Whether Blood Center stocking orders unwind and the forecast $17 million apheresis-related revenue decline materializes.
- Progress against the restructuring program’s cost, timing and savings targets, including cash outlays.
- Completion and economics of the announced divestitures, including contingent proceeds and ongoing supply or transition arrangements.
- Debt, revolver usage, covenant headroom and liquidity after the reported post-quarter repayment.
- The effect of the $4.0 million discrete stock-compensation tax benefit on the comparability of reported earnings.