Haemonetics Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2018, ended December 30, 2017; compared with the corresponding fiscal 2017 periods. Haemonetics supplies blood and plasma collection, processing, and transfusion-management products and software.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Revenue | $234.0 million, up 2.7% reported (1.1% constant currency) | $670.4 million, up 1.9% reported (1.4% constant currency) |
| Gross profit / margin | $111.3 million / 47.6%, versus 44.4% | $307.5 million / 45.9%, versus 45.0% |
| Operating income / margin | $1.0 million / 0.4%, versus $21.2 million / 9.3% | $41.9 million / 6.2%, versus $38.1 million / 5.8% |
| Net income (loss) | $(6.5) million; diluted EPS $(0.12), versus $15.4 million and $0.30 | $33.7 million; diluted EPS $0.63, versus $24.9 million and $0.48 |
| Operating cash flow | Not reported separately for the quarter | $162.7 million, versus $125.2 million |
Quarterly earnings fell sharply primarily because restructuring and turnaround costs increased, with higher variable compensation also contributing. The quarter included $31.3 million of restructuring and turnaround costs. Nine-month operating income improved, helped by prior-year cost savings, favorable mix, and prior-period inventory and recall charges. Gross margin improved in both comparisons.
By business unit, nine-month revenue rose 4.7% in Plasma and 14.2% in Hemostasis Management, while Blood Center fell 4.5%; Cell Processing rose 1.3%. International constant-currency revenue declined 1.5% for the quarter and 2.9% year to date.
Cash, debt, and liquidity
- Cash and equivalents were $251.6 million at December 30, versus $139.6 million at April 1, 2017. Working capital was $265.5 million; current ratio was 1.8.
- Total debt was approximately $270.2 million: $151.5 million current and $118.7 million long-term. The company reported net cash of $18.6 million. No revolving-credit borrowings were outstanding.
- Nine-month capital expenditures were $55.7 million. Cash increased by $112.0 million during the period.
- Term Loan and Revolving Credit Facility mature July 1, 2019. The company reported covenant compliance and a 2.6% effective interest rate on debt. A 100-basis-point LIBOR increase was estimated to add $2.7 million in annual interest expense.
Outlook, risks, and unusual items
- The company expects $50–$60 million of total charges for its 2018 Complexity Reduction Initiative, substantially all cash costs, with actions continuing through fiscal 2020. It expects approximately $80 million of annualized savings after completion.
- Management expects continued Blood Center market pressure, including declines in platelet and red-cell revenue and a competitive, price-focused whole-blood market. Delays expanding liquid-solutions capacity require alternate sourcing, reducing revenue and increasing service costs.
- NexSys PCS had FDA 510(k) clearance and limited production had begun. A broader rollout is expected to require significant capital investment and customer contracts reflecting suitable pricing and volumes.
- The Tax Cuts and Jobs Act generated a provisional $5.4 million net tax expense, including a $12.3 million net transition-tax expense partly offset by $6.9 million of deferred-tax benefits. Tax accounting was incomplete, and estimates could change.
- A voluntary whole-blood-kit recall had generated $7.2 million of cumulative net charges after insurance recoveries. A January 2018 mediation process with customers was ongoing.
- The company settled SOLX arbitration claims in January 2018 for $0.4 million plus transfer of related intellectual property, alongside a supply agreement. It also reported settlements relating to Italian employment litigation and a customer contract.
- Management concluded disclosure controls were ineffective because a material weakness in inventory-related internal controls had not been fully remediated. Additional procedures were performed for these financial statements.
- After quarter-end, the board authorized repurchases of up to $260 million of common stock through March 30, 2019. The authorization is discretionary and may be suspended or discontinued.
Key facts for investors to verify
- Whether restructuring costs, timing, and the projected $80 million annualized savings develop as planned.
- Progress on liquid-solutions capacity, NexSys PCS deployment, and associated capital requirements and customer economics.
- Revenue and margin trends in Blood Center and the sustainability of growth in Plasma and Hemostasis Management.
- Final tax-reform accounting, including the transition-tax estimate and deferred-tax adjustments.
- Remediation of the inventory-control material weakness and the status of recall-related customer claims and insurance recoveries.
- Debt repayment, liquidity, and the effect of any share repurchases on cash and covenant flexibility.