Haemonetics Corporation — Q1 FY2022 Form 10-Q
Reporting period: Three months ended July 3, 2021; comparisons are with the three months ended June 27, 2020. Haemonetics provides blood and plasma collection, hospital and related medical products. The quarter’s results are not necessarily indicative of the full fiscal year ending April 2, 2022.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Revenue | $228.5 million | $195.6 million |
| Gross profit / margin | $108.1 million / 47.3% | $90.0 million / 46.0% |
| Operating income / margin | $1.4 million / 0.6% | $11.7 million / 6.0% |
| Net income (loss) | $(4.5) million; $(0.09) per diluted share | $10.5 million; $0.21 per diluted share |
| Cash from operations | $(1.7) million | $11.8 million |
| Cash and cash equivalents | $173.5 million | $192.3 million at April 3, 2021 |
| Total debt / net debt | $784.4 million / approximately $610.9 million | — |
Revenue rose 16.8% reported and 14.0% at constant currency. Gross margin improved 1.3 percentage points, but operating income fell 88.1% and the company moved to a net loss. Higher acquisition-related spending, contingent consideration remeasurement, inventory step-up amortization, impairment charges and intangible amortization weighed on operating results. A $9.6 million divestiture gain partly offset costs. Operating cash flow was negative amid working-capital use, including lower receivable collections and higher inventory.
At July 3, 2021, working capital was $456.0 million and the current ratio was 3.0. Capital expenditures were $13.9 million; operating cash flow less capital expenditures was approximately $(15.6) million. Long-term debt was $767.3 million and current debt $17.0 million. The company had no revolving-credit borrowings, was in covenant compliance, and reported no substantial doubt about its ability to continue as a going concern.
Business unit trends and changes
- Plasma: Revenue increased 4.5% at constant currency, supported by disposable volume and software, partly offset by pricing and liquid-solutions declines. Management said COVID-19-related collection effects remained and anticipated plasma volumes would recover by fiscal year-end.
- Blood Center: Revenue declined 9.6% at constant currency, primarily from divested software assets and continuing whole-blood disposable declines. Management cautioned that prior-year distributor and collector stockpiling could reverse.
- Hospital: Revenue increased 70.3% at constant currency, chiefly reflecting Cardiva vascular-closure revenue and comparison with pandemic-affected prior-year procedures; divestitures partly offset growth. Management expected procedure volumes to continue normalizing.
Cardiva, acquired March 1, 2021, added vascular-closure products to Hospital. Its purchase accounting remained preliminary; acquired identifiable intangible assets were valued at $253.9 million and goodwill at $251.4 million. The company recorded a $9.8 million increase in Cardiva-related contingent consideration expense during the quarter.
Outlook, risks and unusual items
- The revised Operational Excellence Program is expected to incur total charges of $95–$105 million through fiscal 2025 and generate annualized gross savings of $115–$125 million when complete. Q1 restructuring and related costs were approximately $10.1 million; cumulative program charges were $36.9 million.
- CSL notified Haemonetics that it will not renew its plasma supply agreement after June 2022. The agreement generated $88.6 million of fiscal 2021 revenue. The company recorded $2.8 million of additional accelerated depreciation in Q1 related to equipment no longer in use, following prior impairment and other charges.
- Management said cash, operating cash generation and available credit were expected to fund requirements for at least the next 12 months. The company issued $500 million of 0% convertible notes due 2026; the term loan had $297.5 million outstanding at a 1.9% effective rate. Interest-rate and foreign-exchange exposures remain, despite hedging.
- COVID-19 effects and recovery timing remain uncertain. Other stated risks include customer concentration and loss, pricing pressure, supply availability and inflation, product quality and regulatory compliance, acquisition integration, debt obligations, currency and interest-rate changes.
- The company is cooperating with a U.S. Attorney’s Office subpoena seeking records concerning apheresis and autotransfusion devices and related complaints, adverse-event reporting, regulatory clearances and design changes. Management said it did not believe pending claims would materially adversely affect financial condition or results.
- No formal revenue or earnings guidance was provided in the supplied filing text. Management’s recovery and savings expectations are forward-looking and subject to uncertainty.
Important facts for investors to verify
- Whether the expected loss of the CSL contract can be offset by new customers, products or capacity changes before the June 2022 expiration.
- Whether Hospital growth and Cardiva integration deliver expected benefits, and how preliminary purchase accounting or contingent payments may change.
- Whether the Operational Excellence Program achieves its projected savings and stays within its charge range and timetable.
- Whether working-capital pressure, negative operating cash flow and elevated debt improve in subsequent quarters.
- Developments in COVID-19-related demand, potential reversal of prior Blood Center stockpiling, and the federal inquiry into device-related matters.