Haemonetics Corporation — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended September 26, 2020; comparisons are with the periods ended September 28, 2019. Amounts are in U.S. dollars.
Business context and results
Haemonetics supplies products and services for plasma and blood collection, surgical blood salvage, and hospital transfusion management. It reports Plasma, Blood Center, and Hospital segments. COVID-19 materially affected first-half results, particularly Plasma.
| Metric | Three months | Six months |
|---|---|---|
| Net revenue | $209.5 million, down 17.1% | $405.1 million, down 17.5% |
| Gross profit / margin | $105.7 million / 50.5% (prior 50.3%) | $195.8 million / 48.3% (prior 49.5%) |
| Operating income / margin | $58.8 million / 28.1% | $70.5 million / 17.4% |
| Net income | $48.1 million; diluted EPS $0.94 | $58.6 million; diluted EPS $1.15 |
| Operating cash flow | Not presented quarterly | $41.0 million (prior $32.5 million) |
Quarterly operating income rose 18.2% and net income rose 28.3%; first-half operating income and net income also increased. These comparisons were significantly affected by divestiture gains in 2020 and prior-year impairment charges. The company recorded $31.5 million of divestiture gains in the first half, versus $8.1 million of asset-sale gains in the prior-year period; excluding these items, reported income growth does not represent underlying revenue performance. Management cited pandemic-related volume and margin pressure, partly offset by cost controls and program savings.
Segments and material changes
- Plasma: Revenue declined 32.4% in the quarter and 35.2% in the first half. Management attributed the decrease primarily to lower U.S. plasma disposable volumes amid reduced donor traffic, strategic exits in plasma liquid solutions, and a prior-year software benefit.
- Blood Center: Revenue declined 8.6% in the quarter and 3.2% in the first half. Drivers included lower apheresis sales, continued whole-blood disposable declines, and divestiture of U.S. donor-management software. Management expects the loss of certain apheresis business to reduce fiscal 2021 revenue by approximately $17 million versus fiscal 2020.
- Hospital: Revenue rose 2.6% in the quarter and declined 1.6% for the first half. Quarterly growth included higher U.S. TEG disposables and European transfusion management; Cell Salvage was weaker.
Gross margin was nearly flat year over year in the quarter but lower for the first half. Management cited lower volumes, unfavorable mix, and pandemic-related operating costs, partly offset by lower depreciation and productivity savings. First-half operating cash flow improved mainly with lower working-capital investment and improved receivables collection timing.
Liquidity, debt, and capital resources
- Cash and cash equivalents were $279.2 million at September 26, 2020, compared with $137.3 million at March 28, 2020. Working capital was $421.7 million; current ratio was 2.2.
- Balance-sheet current and long-term debt totaled approximately $464.0 million. The company reported net debt of $184.8 million using its cash-less-total-debt convention, versus $245.2 million at fiscal year-end.
- At quarter-end, $315.0 million was outstanding under the term loan and $150.0 million under the revolving facility. On October 8, 2020, after quarter-end, the company repaid $150.0 million of revolving borrowings. It was in compliance with its debt covenants at September 26.
- Six-month investing cash flow was $13.2 million, including divestiture proceeds; capital expenditures were $16.0 million. Financing cash flow was $84.6 million, including a $90.0 million net increase in short-term loans. No shares were repurchased during the six-month period.
Outlook, risks, and unusual items
Management provided no specific fiscal 2021 revenue or earnings guidance in the supplied filing text. It expected continued COVID-19 pressure on fiscal 2021 Plasma results and described recovery in plasma collections as uncertain and potentially prolonged. Management anticipated continued improvement in hospital procedure volumes, with a return to normal levels expected by fiscal year-end, while noting that timing remained uncertain. It also warned that Blood Center distributor and collector stocking orders from the first quarter could partially reverse.
The 2020 Operational Excellence Program is expected to incur total charges of $60 million to $70 million, mostly cash, and be substantially completed by fiscal 2023; targeted annualized savings at completion are $80 million to $90 million. The company incurred $8.0 million of restructuring costs and $7.4 million of turnaround costs in the first half. On October 2, 2020, it received FDA 510(k) clearance for NexSys PCS with Persona technology.
Other notable transactions included the sale of Fajardo manufacturing operations, U.S. blood donor management software assets, and Inlog Holdings France. Potential risks include the uncertain pandemic and recovery, customer concentration and demand changes, supply continuity and raw-material costs, foreign-exchange and interest-rate exposure, regulatory requirements, and execution of restructuring and divestitures. Management stated it believed liquidity sources were sufficient for at least the next twelve months and that substantial doubt about going concern did not exist.
Important facts for investors to verify
- Underlying revenue, margins, and earnings excluding the $31.5 million of current-period divestiture gains and other non-recurring items.
- The pace of plasma donor and collection recovery, and the scale and timing of any reversal of Blood Center stocking orders.
- Realization of the $80 million to $90 million annualized restructuring-savings target against expected program costs of $60 million to $70 million.
- Cash and debt balances after the October 8 revolver repayment, scheduled principal payments, and covenant headroom.
- Contingent sale proceeds, including up to $14 million tied to milestones on the U.S. software sale, and the final acquisition valuation and contingent consideration for enicor.