Haemonetics Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2022, ended January 1, 2022; comparisons are with the corresponding periods of fiscal 2021. Unaudited results are presented under U.S. GAAP.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Net revenue | $259.8 million, up 8.1% | $728.2 million, up 12.8% |
| Gross profit / gross margin | $138.6 million / 53.3%, versus 50.0% | $369.2 million / 50.7%, versus 49.0% |
| Operating income / margin | $35.7 million / 13.7%, down 11.8% | $61.6 million / 8.5%, down 44.5% |
| Net income | $23.2 million, down 27.1% | $33.6 million, down 62.8% |
| Diluted EPS | $0.45, versus $0.62 | $0.65, versus $1.77 |
| Operating cash flow | Not presented for the quarter | $104.2 million, versus $107.3 million |
Quarterly revenue growth was led by Hospital, particularly vascular closure following the Cardiva acquisition. In the quarter, Hospital revenue was approximately $82.3 million, up 56.3%; Plasma was $96.5 million, down 5.4%; and Blood Center was $75.7 million, down 6.5%. These business-unit growth rates are reported growth rates.
For the nine months, investing activities used $51.8 million, including $61.4 million of capital expenditures; financing activities used $7.0 million. Cash increased $44.6 million to $236.9 million. At January 1, working capital was $374.0 million and the current ratio was 2.1, down from 2.7 at April 3, 2021. Total debt was approximately $777.2 million, making the company’s net debt approximately $540.3 million.
Material changes and notable items
- Revenue growth was concentrated in Hospital; Plasma and Blood Center declined in the third quarter. Management attributed Blood Center weakness to declining whole-blood disposables, discontinued customer contracts and prior-period stocking orders.
- Operating income fell despite higher revenue. Management cited Cardiva-related transaction and integration costs, increased intangible amortization, higher contingent consideration, freight costs and, for the nine-month comparison, prior-period divestiture gains. Favorable volume and mix and restructuring savings partly offset these pressures.
- Cardiva’s acquisition contributed to Hospital growth and added substantial intangible assets and goodwill. The company recorded a $10.3 million increase in contingent-consideration fair value during the nine months, as selling, general and administrative expense.
- The nine-month comparison includes a $9.6 million gain from divestiture-related contingent consideration in the current period; the prior-year period included $32.6 million of divestiture gains. These items affect year-over-year operating-profit comparisons.
- Gross margin improved, but operating-expense growth outpaced revenue growth. Nine-month operating expenses rose 50.0%, including higher R&D, SG&A and amortization expenses.
Liquidity, debt and outlook
Cash and cash equivalents were $236.9 million. The company had $288.8 million outstanding under its term loan, no revolving-credit borrowings and $500.0 million principal amount of 0% convertible notes due 2026. The term loan’s effective interest rate was 1.9%; the credit facilities mature in June 2023. Scheduled term-loan principal payments include $214.4 million in fiscal 2023. The company was in compliance with its debt covenants and stated that liquidity sources should cover requirements for at least the next 12 months.
The revised Operational Excellence Program is expected to incur total charges of $95 million to $105 million through fiscal 2025 and deliver annualized gross savings of $115 million to $125 million when complete. Cumulative charges were $47.2 million as of January 1, 2022; $20.2 million was incurred in the first nine months of fiscal 2022.
CSL Plasma had previously indicated it would not renew a supply agreement representing $88.6 million of fiscal 2021 revenue. The agreement was amended to allow use of PCS2 devices and purchases of disposables through December 2023; volumes remain to be determined. Management expects plasma-collection volumes to recover to pre-pandemic levels, but timing is uncertain and recovery is expected after fiscal 2022. It expects supply-chain inflationary pressures to continue into fiscal 2023. The filing provides no explicit full-year revenue or EPS guidance.
Risks, contingencies and other disclosures
- Management said COVID-19 continued to affect results, with the extent and timing of future impacts uncertain. Supply-chain availability and pricing, inflation, freight, customer demand and foreign-exchange movements also pose risks.
- The company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts concerning apheresis and autotransfusion devices and related complaints, adverse-event reporting, regulatory clearances and design changes. The company stated it is cooperating. Management said ordinary-course legal matters were not expected to have a material adverse effect.
- Foreign-exchange and interest-rate exposure are partly hedged, but hedges do not eliminate volatility. The filing estimates that a 100-basis-point LIBOR increase would add approximately $0.9 million to annual interest expense.
- The nine-month effective tax rate was 30.4%, versus 9.8% in the prior-year period; the comparison reflects differing jurisdictional earnings, divestiture effects and prior-year stock-compensation tax benefits.
- Management concluded that substantial doubt about the company’s ability to continue as a going concern did not exist. Disclosure controls were reported effective, with no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Hospital growth, including Cardiva and vascular closure, can offset continued weakness in Plasma and Blood Center.
- CSL’s eventual volume requirements through December 2023 and the longer-term revenue impact of the customer relationship.
- Progress, cash costs and realized savings from the Operational Excellence Program, against its stated charge and savings targets.
- Debt repayment needs, particularly the scheduled fiscal 2023 term-loan payment, and liquidity as capital expenditures and restructuring outlays continue.
- Developments in the federal subpoena inquiry and any resulting regulatory, legal or product-related consequences.
- Whether inflation, freight and COVID-related effects persist as management described, and how these affect margins and cash conversion.