Haemonetics Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 28, 2019; comparisons are to the periods ended December 29, 2018. Amounts are in U.S. dollars unless noted. Haemonetics supplies hematology products and solutions through its Plasma, Blood Center and Hospital businesses.
Financial performance
| Metric | Three months ended Dec. 28, 2019 | Nine months ended Dec. 28, 2019 |
|---|---|---|
| Net revenues | $259.0 million, up 4.7% reported (5.0% constant currency) | $750.0 million, up 4.4% reported (5.1% constant currency) |
| Gross profit / margin | $128.1 million / 49.4%, versus 44.9% | $371.0 million / 49.5%, versus 42.6% |
| Operating income / margin | $40.9 million / 15.8%, up 44.4% | $77.3 million / 10.3%, up 29.6% |
| Net income | $29.9 million, up 63.6% | $58.9 million, up 72.3% |
| Diluted EPS | $0.58, versus $0.35 | $1.13, versus $0.64 |
| Operating cash flow | Not presented separately for the quarter | $111.8 million, versus $138.6 million |
Business trends: Third-quarter constant-currency revenue rose 7.3% in Plasma and 7.1% in Hospital, while Blood Center rose 0.6%. For the nine months, Plasma grew 9.2% and Hospital 4.9%; Blood Center declined 0.5%. Management cited Plasma disposable volume and Hospital TEG-related disposables as key growth drivers. Hemostasis Management revenue grew 18.6% in the quarter and 15.4% for the nine months.
Liquidity, debt and cash flows
- Cash and equivalents were $126.4 million at December 28, 2019, down from $169.4 million at March 30, 2019. Working capital was $325.9 million; current ratio was 2.3.
- Total reported debt was approximately $371.7 million: $328.1 million under the term loan and $45.0 million under the revolving facility, plus current maturities and other short-term debt. Management’s net-debt measure was $245.3 million. The effective interest rate on total debt was 3.0%; the company was in covenant compliance.
- Nine-month operating cash flow fell $26.8 million year over year, mainly reflecting inventory build, lower accounts payable and accrued payroll, partly offset by collections. Inventory increased to $254.2 million from $194.3 million.
- Nine-month investing cash use was $12.0 million, including $38.1 million of capital expenditures; financing cash use was $142.6 million, including $175.0 million of share repurchases. Cash declined by $42.9 million over the period.
Material changes and unusual items
- Gross margin improved, which management attributed primarily to favorable pricing, product mix and restructuring savings; the prior-year comparison also included impairment charges.
- Nine-month results included a $48.7 million non-cash impairment charge related primarily to transferring Union, South Carolina liquid-solutions manufacturing assets to CSL. Total nine-month asset impairment was $50.6 million.
- The sale of the former Braintree headquarters generated an $8.1 million gain and $15.0 million in net cash proceeds. The company completed its move to leased Boston headquarters during the quarter.
- The company repurchased $175 million of shares in the first nine months under a $500 million, two-year authorization; $325 million remained authorized at quarter-end.
- Effective March 31, 2019, the company reorganized reporting around global Plasma, Blood Center and Hospital business units.
Outlook, management commentary and risks
- No consolidated earnings or revenue guidance is stated in the provided filing text. Management said available liquidity sources were expected to cover cash requirements for at least the next 12 months.
- The 2020 Operational Excellence Program is expected to incur $60–$70 million in aggregate charges, mostly cash, and be substantially completed by fiscal 2023. Management targets $80–$90 million in annualized savings once completed. The company also continues its 2018 restructuring program.
- Management expects Plasma liquid-solutions revenue to decline beginning in fiscal Q4 as it exits that business. Blood Center apheresis order timing benefited the reported period; management expected an approximately $2 million incremental revenue decline in Q4 fiscal 2020 and $17 million in fiscal 2021 versus fiscal 2020 as certain customers switch suppliers.
- Other stated risks include customer concentration and loss of significant customers, product quality or recall events, regulatory approvals and compliance, pricing pressure, supply continuity and raw-material costs, restructuring execution, foreign exchange and interest-rate movements, and debt obligations.
- A voluntary 2018 recall of certain whole-blood collection kits had $1.9 million of cumulative charges; substantially all outstanding customer claims had been paid by quarter-end. The company reported no material change to previously disclosed risk factors and concluded substantial doubt about its ability to continue as a going concern did not exist.
- After quarter-end, Haemonetics acquired the TEG 6s technology from the Cora parties on January 13, 2020, to pursue opportunities beyond hospitals. The filing does not state the purchase price.
Important facts for investors to verify
- Whether reported margin and earnings improvement is sustainable after the non-cash impairment, asset-sale gain, tax benefits and other non-recurring items.
- Whether inventory converts to sales and operating cash flow recovers, given the year-over-year cash-flow decline and inventory increase.
- Whether the 2020 Program achieves its stated savings targets and how much of its estimated charges will require cash.
- The realized revenue impact of Plasma liquid-solutions exit and Blood Center customer losses, including the stated fiscal 2021 apheresis decline.
- Debt repayment capacity, revolving-facility usage, share repurchases and the effect of variable interest rates and foreign exchange.