Haemonetics Corporation — Form 10-Q Summary
Reporting period: Second quarter and six months ended October 2, 2010 (fiscal 2011); comparisons are to the corresponding 2009 periods. Haemonetics provides blood-management devices, disposables, software and related services.
Key financial results
| Metric | Q2 FY2011 | Q2 FY2010 | Six months FY2011 | Six months FY2010 |
|---|---|---|---|---|
| Revenue | $166.8 million | $157.1 million | $329.9 million | $311.2 million |
| Gross profit / margin | $87.8 million / 52.6% | $81.0 million / 51.5% | $174.2 million / 52.8% | $163.9 million / 52.7% |
| Operating income / margin | $28.9 million / 17.3% | $27.0 million / 17.2% | $53.1 million / 16.1% | $53.4 million / 17.1% |
| Net income | $21.3 million | $18.1 million | $39.3 million | $36.1 million |
| Diluted EPS | $0.85 | $0.69 | $1.54 | $1.37 |
For the six months, operating cash flow was $44.3 million, versus $61.5 million a year earlier; capital expenditures were $24.1 million, versus $32.9 million. Cash and equivalents were $115.0 million at October 2, down from $141.6 million at April 3. Working capital was $248.5 million and the current ratio was 3.2. Total debt was approximately $16.1 million, leaving reported net cash of $98.9 million.
Cash declined by $26.5 million over the six months. Financing used $47.3 million, primarily reflecting the $50.0 million share repurchase; investing used $23.8 million. The company reported $44.3 million in operating cash flow, including cash outflows for inventory, accrued expenses and restructuring.
Changes versus prior comparable periods
- Revenue grew 6.2% in Q2 and 6.0% for the six months. Acquisitions contributed 4.6% and 4.4% to growth, respectively; foreign exchange reduced reported growth by 0.4 and 1.4 percentage points.
- Six-month disposable revenue declined 0.7%, while software solutions rose 85.6% and equipment and other revenue rose 25.9%. Plasma disposables fell 5.0%; platelet disposables rose 6.3% and diagnostics rose 23.8%.
- Q2 net income increased 18.2%; six-month net income increased 8.7%. Six-month operating income was down 0.5% despite revenue growth, and operating margin fell to 16.1% from 17.1%.
- Gross margin improved year over year in Q2, aided by product mix as plasma sales declined. The improvement was partly offset by manufacturing variances and scrap from lower-than-expected efficiency in new plasma automation in Pittsburgh.
Management commentary, outlook and risks
- Management said cash, internally generated funds, borrowings and option exercises should be sufficient for requirements for at least the next 12 months, including capital spending, development, working capital and repurchases. No specific revenue or earnings guidance is provided.
- The company expects $6.4 million of additional cash restructuring costs in FY2011 and approximately $2.0 million of integration costs; $1.4 million of integration costs had been incurred in the first six months.
- Global Med’s purchase-price allocation remained preliminary. Revised estimates reduced goodwill by a net $10.3 million; final valuation could change goodwill, acquired asset and liability values, and amortization.
- A $1.9 million gain from remeasurement of Neoteric contingent consideration increased reported operating income. The remaining contingent-consideration liability was $1.9 million.
- Foreign exchange is a significant exposure: approximately 52% of sales are generated outside the U.S. Designated currency hedges had $165.0 million of contract value; management cautions that hedging does not eliminate currency volatility.
- Plasma collection demand weakened in North America and Japan. Hospital capital spending, competitive pressure, procedure volumes, market conditions and the integration of acquired businesses also affected results. Management identifies regulatory, product-acceptance, competition, economic, currency and international-market risks.
- In ongoing Fenwal patent litigation, an appeals court reversed the prior claim construction and vacated the jury finding and $18 million damages award, remanding the case. Haemonetics says it continues to believe infringement occurred; related U.S. and German actions are ongoing. The company believes other legal matters will not materially affect its financial position or results.
Important facts for investors to verify
- Whether software growth and acquired revenue translate into sustainable organic growth, particularly as disposables were flat to down and plasma demand weakened.
- Whether plasma automation efficiency improves and manufacturing variances and scrap decline.
- Actual restructuring and integration costs, and the timing and benefits of Global Med integration.
- Final Global Med purchase accounting and the effect of resulting amortization or valuation adjustments.
- Operating cash flow, working-capital trends and liquidity after the completed $50 million repurchase.
- Developments in the Fenwal litigation and their potential financial or competitive implications.