Haemonetics Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter ended December 29, 2018, and nine months ended December 29, 2018. Comparisons are with the corresponding prior-year periods unless stated otherwise. Amounts are in U.S. dollars.
Business context
Haemonetics supplies products and software for plasma collection, blood centers and hospitals. Management identifies Plasma and Hospital as its principal growth opportunities, while seeking to reduce costs and narrow its Blood Center business. The company was continuing the rollout of its NexSys PCS plasma system and NexLynk donor-management software.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $247.4 million, up 5.7% reported and 5.9% constant currency | $718.3 million, up 7.1% reported and 6.7% constant currency |
| Gross profit / margin | $111.2 million / 44.9%, versus 47.6% | $306.3 million / 42.6%, versus 45.9% |
| Operating income / margin | $28.3 million / 11.4%, versus $1.0 million / 0.4% | $59.7 million / 8.3%, versus $41.9 million / 6.2% |
| Net income | $18.3 million, versus a $6.5 million loss | $34.2 million, up 1.5% |
| Diluted earnings per share | $0.35, versus a $0.12 loss | $0.64, versus $0.63 |
Quarterly revenue growth was driven mainly by Plasma; Hospital also grew, while Blood Center declined. For the quarter, Plasma revenue rose 16.6%, Hospital 3.6%, and Blood Center fell 9.5%. Lower operating expenses contributed to higher operating income, including substantially lower restructuring and turnaround costs than in the prior-year quarter, which included $31.3 million of such costs. For the nine-month period, operating income growth was partly offset by impairment and accelerated depreciation charges.
Gross margin contracted by 270 basis points in the quarter and 330 basis points year to date. Management cited accelerated depreciation of PCS 2 devices, unfavorable volume and mix, and, year to date, impairment of the HDC manufacturing line. Restructuring savings and favorable pricing partly offset these pressures.
Cash flow, liquidity and debt
- For the nine months, operating cash flow was $138.6 million, down from $162.7 million. Capital expenditures were $105.2 million, compared with $55.7 million; investing cash outflow was $102.9 million.
- Cash declined to $154.9 million from $180.2 million at March 31, 2018. Working capital was $304.6 million and the current ratio was 2.4.
- Debt was approximately $343.8 million at quarter-end: $345.6 million of term-loan principal, less unamortized financing costs reflected in the balance-sheet debt carrying value. The company reported net debt of $188.9 million, versus $73.5 million at March 31, 2018.
- A $350 million term loan and $350 million revolving facility mature in June 2023; no revolver borrowings were outstanding. The term loan’s effective rate was 3.6%. Interest-rate swaps fixed the rate on 70% of term-loan exposure at 4.05%. The company reported compliance with debt covenants.
- Financing cash flows included $160 million of share repurchases. The company completed its $260 million repurchase authorization during the quarter.
Outlook, commentary and key risks
- No specific revenue or earnings guidance for the fiscal year is provided in the supplied filing text. Management said available liquidity sources were sufficient to fund expected requirements for at least the next 12 months.
- The 2018 restructuring program is expected to incur total charges of $50–$60 million, substantially all cash, through fiscal 2020. Management expects approximately $80 million in annualized savings once completed.
- Management reported continued delays in expanding liquid-solutions production capacity, requiring the company or its customers to use alternative suppliers until capacity is available.
- Two voluntary product recalls may result in further customer-claim charges. Cumulative charges recorded by December 29 were $2.2 million for Acrodose Plus/PL Systems and $1.4 million for whole-blood collection kits.
- The company recorded $19.8 million of impairment on the HDC line after deciding to continue sourcing filter media from Pall, plus $1.4 million of other asset impairment. It also recorded $13.2 million of accelerated depreciation year to date as PCS 2 devices are replaced by NexSys PCS.
- Other relevant risks include Blood Center market declines and contract exits, foreign-exchange exposure, variable-rate debt, higher freight and input costs, and execution and capital needs associated with the NexSys rollout. The company stated there was no substantial doubt about its ability to continue as a going concern.
Most important facts for investors to verify
- Whether Plasma growth and NexSys placements continue at a pace that supports the investment and customer-contract economics.
- Whether liquid-solutions capacity delays, product recalls, and related customer claims lead to additional costs or disrupt sales.
- Whether restructuring delivers the stated annualized savings while staying within the projected $50–$60 million charge range.
- How margin trends develop as accelerated depreciation, product mix, impairments, and freight costs affect profitability.
- Whether cash generation and covenant headroom remain adequate given capital spending, debt service, and the company’s higher net debt.