Haemonetics Corporation (NYSE: HAE) — FY2020 Form 10-K
Reporting period: Fiscal year ended March 28, 2020 (52 weeks). The filing also reports fourth-quarter results for the three months ended March 28, 2020. Amounts below are in U.S. dollars.
Business context and reporting period
Haemonetics supplies blood and plasma collection products, hemostasis diagnostics, surgical blood salvage systems and transfusion-management software. It reports three segments: Plasma, Blood Center and Hospital. Management views Plasma and Hospital as growth businesses; Blood Center faces structural declines and cost and contract challenges.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | $988.5 million | $967.6 million |
| Gross profit / margin | $484.5 million / 49.0% | $417.5 million / 43.2% |
| Operating income / margin | $103.4 million / 10.5% | $83.5 million / 8.6% |
| Net income | $76.5 million | $55.0 million |
| Diluted earnings per share | $1.48 | $1.04 |
| Cash from operating activities | $158.2 million | $159.3 million |
| Capital expenditures | $48.8 million | $119.0 million |
| Cash and cash equivalents at year-end | $137.3 million | $169.4 million |
| Total debt at year-end | $382.5 million | $350.1 million |
| Working capital / current ratio | $328.8 million / 2.2 | $340.4 million / 2.4 |
FY2020 revenue increased 2.2% reported (2.8% at constant currency). Plasma revenue rose 7.5% to $458.7 million, Blood Center revenue fell 3.6% to $317.8 million, and Hospital revenue rose 0.6% to $193.4 million. Hemostasis Management revenue grew 11.7% to $95.7 million. Gross-margin improvement reflected pricing, product mix, program savings and the absence of prior-year impairment charges. Operating income also benefited from an $8.1 million gain on the Braintree headquarters sale; a $50.6 million asset impairment partly offset improvement.
Operating cash flow was nearly flat year over year; inventory build for the NexSys PCS launch and lower payables and accrued payroll were key uses of working capital. Inventory was $270.3 million, up from $194.3 million. At year-end, $323.8 million was outstanding on the term loan and $60.0 million on the revolving facility; the reported effective interest rate was 2.9%. In April 2020, the company borrowed another $150 million, taking cash to approximately $300 million and leaving $131.7 million of revolver capacity, according to management. It reported compliance with debt covenants at year-end and stated it expected to remain compliant through April 3, 2021 under its forecast.
Fiscal Q4 snapshot: Revenue was $238.5 million versus $249.3 million in Q4 FY2019; operating income was $26.0 million versus $23.9 million; net income was $17.6 million versus $20.8 million. COVID-19 effects were limited in FY2020 overall but began affecting demand in the fourth quarter.
Material changes versus the prior comparable period
- Revenue growth slowed to 2.2% from 7.0% in FY2019, with Plasma and Hospital growth offset by Blood Center declines.
- Gross margin increased 580 basis points to 49.0%; operating income increased 23.7% and net income increased 39.1%.
- Interest and other expense rose to $16.2 million from $9.9 million, reflecting lower capitalized interest, realized swap losses and borrowing costs.
- Cash declined by $32.0 million during FY2020, compared with a $10.8 million decrease in FY2019; capital spending fell substantially.
- Total debt rose to $382.5 million, while stockholders’ equity declined to $587.1 million from $667.9 million, including the effect of $175 million in share repurchases.
Outlook, management commentary, risks and unusual items
- COVID-19: Management expected a greater impact in FY2021. Plasma disposable demand was exposed to lower donor volumes and collection-center capacity; Hospital products, particularly Cell Saver and TEG, faced reduced elective procedures, trauma cases and hospital access. Blood Center demand could be volatile as collections and hospital blood use diverge. Recovery timing remained uncertain.
- Business outlook: Management described long-term plasma-derived pharmaceutical demand and Hospital markets as attractive, and expected Blood Center to decline at a low- to mid-single-digit rate. No specific consolidated FY2021 revenue or earnings guidance is provided in the supplied filing text.
- Restructuring: The Operational Excellence Program is expected to incur $60–$70 million in aggregate charges, mostly cash, and target $80–$90 million in annualized savings when complete; substantial completion is expected by FY2023. FY2020 charges and related turnaround costs totaled $19.9 million.
- Customer and product concentration: The ten largest customers represented about 54% of revenue; CSL and Grifols together represented about 27%. Three large Plasma customer contracts were subject to renewal before FY2022. A lost Blood Center apheresis business is expected to reduce FY2021 revenue by a further $17 million.
- Unusual items and transactions: The company recorded a $48.7 million non-cash impairment related mainly to transferring liquid-solutions manufacturing assets to CSL, alongside $1.9 million of other asset impairments. The Braintree property sale produced an $8.1 million gain. Haemonetics paid $35 million for TEG 6s technology in January 2020 and acquired ClotPro manufacturer enicor GmbH on April 1, 2020.
- Other risks: Risks include regulatory approvals and EU MDR compliance costs, product quality or recall exposure, cybersecurity and privacy, supply-chain and plastics availability, foreign-exchange and variable-rate debt exposure, and the execution and returns of NexSys adoption and restructuring. The company reported cumulative charges of $1.9 million for a 2018 whole-blood-kit recall, with substantially all outstanding claims paid by year-end.
Important facts for investors to verify
- Whether COVID-19 recovery restores plasma collections and hospital procedure volumes, and how that translates into FY2021 revenue and cash flow.
- Plasma customer contract renewals, concentration exposure and the expected $17 million Blood Center apheresis revenue decline.
- Progress on NexSys customer conversions, device supply, pricing and returns on the platform investment.
- Operational Excellence Program cash costs, timing and realized savings versus its $80–$90 million annualized target.
- Post-April 2020 borrowing, liquidity headroom, variable interest-rate exposure and covenant compliance under weaker operating scenarios.
- Assumptions supporting goodwill and deferred-tax-asset valuations; the auditor identified these as critical audit matters. The auditor gave unqualified opinions on the financial statements and internal controls.