Haemonetics Corporation — Form 10-Q Summary
Business context and reporting period. Haemonetics is a global healthcare company serving plasma collection, blood center and hospital markets. This filing covers the three months ended June 29, 2019, the first quarter of fiscal 2020, compared with the three months ended June 30, 2018. The company reorganized its reporting structure into three global business units: Plasma, Blood Center and Hospital.
Financial results
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net revenue | $238.5 million | $229.3 million |
| Gross profit / margin | $115.9 million / 48.6% | $83.2 million / 36.3% |
| Operating income (loss) | $(13.3) million | $5.3 million |
| Net income (loss) | $(8.5) million | $(2.8) million |
| Diluted loss per share | $(0.17) | $(0.05) |
| Cash from operating activities | $2.6 million | $23.1 million |
- Revenue increased 4.0% as reported and 5.0% in constant currency. Plasma grew 11.1% as reported (11.6% constant currency); Hospital grew 1.5% (2.9% constant currency); Blood Center declined 3.8% (2.3% constant currency).
- Reported gross margin rose 12.3 percentage points, primarily because the prior-year quarter included $21.2 million of impairment charges in cost of goods sold. The current quarter’s $48.7 million Union facility impairment was recorded in operating expenses, not cost of goods sold.
- Operating loss reflected the $48.7 million non-cash impairment charge related to the transfer of Union, South Carolina liquid-solutions manufacturing assets to CSL. Operating expenses also included $2.0 million of restructuring and turnaround costs.
- Interest and other expense was $4.4 million, versus $2.0 million a year earlier. The income tax benefit was $9.2 million; the reported effective tax rate was 52.2%, affected by the worldwide pretax loss, jurisdictional earnings mix and a $4.9 million stock-compensation windfall benefit.
Liquidity, debt and cash flow
- Cash and cash equivalents were $190.2 million at June 29, 2019, up from $169.4 million at March 30, 2019. Working capital was $321.6 million and the current ratio was 2.1, versus $340.4 million and 2.4, respectively, at fiscal year-end.
- Debt outstanding under the credit facilities comprised $332.5 million of term loans and $105.0 million on the revolving facility. The effective interest rate was 3.8%. The company reported compliance with its leverage, interest-coverage and other bank covenants.
- Operating cash flow fell to $2.6 million, principally due to inventory build for the NexSys PCS launch and lower accounts payable and accrued liabilities. Capital expenditures were $8.2 million; cash after capital expenditures was approximately negative $5.6 million before other investing items.
- Investing activities provided $1.9 million, including $9.8 million of proceeds from the CSL asset transfer. Financing activities provided $16.1 million, including $90.0 million of net short-term borrowing, partly offset by $75.0 million of share repurchases.
Material developments, outlook and risks
- Divestiture: In May 2019, Haemonetics transferred substantially all tangible assets related to liquid-solutions manufacturing at Union to CSL for $9.8 million and was released from its supply obligations under a 2014 agreement. Haemonetics said it would continue supplying customers through contract manufacturers. The $48.7 million impairment was non-cash.
- Restructuring outlook: A new Operational Excellence Program was approved in July 2019. Management estimates charges of $60 million to $70 million, mostly cash, with execution expected to be substantially complete by the end of fiscal 2023. Targeted annualized savings upon completion are $80 million to $90 million. These are targets, not guaranteed outcomes.
- Capital returns: The board authorized up to $500 million of share repurchases over two years. The company paid $75.0 million under an accelerated repurchase agreement; it was settled on July 30, 2019, with approximately 0.6 million total shares repurchased at an average price of $116.33. Remaining authorization was $425 million as of August 6, 2019.
- Business trends: Plasma growth reflected U.S. disposable volume and NexSys PCS pricing. Blood Center weakness was associated in part with Japan’s shift toward double-dose platelet collection. Hospital growth included TEG disposables; the company received FDA clearance for TEG 6s use in adult trauma settings in May 2019. OrthoPAT sales were discontinued effective March 31, 2019.
- Key risks and contingencies: The company cited foreign-exchange and variable-rate debt exposure, customer concentration in Plasma, supply and raw-material continuity, regulatory and product-quality risks, and execution risks for restructuring and divestitures. A voluntary 2018 recall of certain whole-blood collection kits had cumulative charges of $1.9 million; substantially all outstanding claims had been paid by June 29, 2019. Management stated that it believed liquidity sources were sufficient for at least the next twelve months and that substantial doubt about going concern did not exist.
- Other: The company adopted the new lease standard on March 31, 2019, recognizing $22.9 million of right-of-use assets and $22.7 million of lease liabilities at transition. A separate Boston headquarters lease of $98.6 million is expected to commence during fiscal 2020. No material subsequent events were reported in the financial-statement note; the July restructuring approval and ASR settlement are described elsewhere in the filing.
Important facts for investors to verify
- Whether Plasma growth and Hospital product momentum continue, and whether Blood Center declines stabilize.
- Whether the $60 million to $70 million restructuring cost estimate and $80 million to $90 million annualized savings target are achieved on the stated timetable.
- Cash conversion and working-capital trends, particularly inventory buildup, alongside planned capital spending and share repurchases.
- Debt repayment capacity, revolving-credit usage, covenant headroom and sensitivity to interest-rate and foreign-exchange movements.
- Whether the CSL transition and contract-manufacturer arrangements maintain liquid-solutions supply without further material costs or disruption.