Haemonetics Corporation — Form 10-Q Summary
Business context and reporting period. Haemonetics provides blood-management products, equipment and software to plasma and blood centers, hospitals, and other healthcare customers. This report covers the 13 weeks ended June 28, 2014 (fiscal 2015 first quarter), compared with the 13 weeks ended June 29, 2013. Amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter ended June 28, 2014 | Comparable 2013 quarter |
|---|---|---|
| Net revenue | $224.5 million | $219.5 million |
| Gross profit / gross margin | $106.3 million / 47.3% | $111.4 million / 50.7% |
| Operating loss | $1.7 million | $6.6 million |
| Net loss | $3.6 million | $7.9 million |
| Diluted loss per share | $0.07 | $0.15 |
| Cash from operations | $13.7 million | $13.4 million |
| Capital expenditures | $37.1 million | $13.1 million |
- Revenue increased 2.3%; disposables rose 2.7% and software solutions rose 5.9%, while equipment and other revenue fell 10.1%.
- Plasma disposables grew 21.3% and diagnostics grew 26.4%. Whole blood disposables declined 26.0%; OrthoPAT fell 14.9%.
- Gross margin contracted 340 basis points, principally due to whole-blood volume and pricing pressure, partly offset by savings from the company’s transformation program.
- Operating expenses declined 8.5% to $107.9 million. SG&A fell 13.3%, while R&D increased 37.2% as the company increased planned product-development investment.
- Restructuring and transformation costs totaled $23.0 million, down from $33.5 million a year earlier. The operating loss and net loss narrowed despite lower gross profit.
Liquidity, debt and balance sheet
- At June 28, cash and cash equivalents were $139.9 million, down from $192.5 million at March 29. Working capital was $403.4 million and the current ratio was 3.4.
- Total debt on the June 28 balance sheet was approximately $430.9 million; net debt was approximately $291.0 million. The company reported covenant compliance.
- Cash decreased $52.5 million during the quarter. Investing activities used $37.0 million, largely reflecting $37.1 million of capital expenditures; financing activities used $28.8 million, including $8.5 million of term-loan repayments and $26.5 million of share repurchases.
- Inventory increased to $207.5 million from $197.7 million. The company reported disposable finished-goods inventory turnover of 4.0, versus 4.2 at fiscal year-end.
Material changes, outlook and risks
- Credit amendment: On June 30, 2014, the company extended the term-loan maturity from August 2017 to July 2019, extended principal repayments, increased the revolving facility limit from $50 million to $100 million, and amended covenants to provide greater flexibility. At June 30, $379.4 million was outstanding on the term loan and $50 million on the revolver. The amendment did not increase total borrowings.
- Business outlook: Management expected U.S. blood-center collections to decline approximately 10% in fiscal 2015. The American Red Cross selected another supplier for certain whole-blood products; Haemonetics anticipated an approximately $25 million annualized revenue reduction, with the principal impact beginning in fiscal 2015’s second quarter. Management also expected yen weakness to continue weighing on fiscal 2015 results.
- Transformation spending: The manufacturing-network plan includes closing or discontinuing manufacturing at Braintree, Ascoli-Piceno and Bothwell; expanding Tijuana; building a Malaysia facility; and using a contract manufacturer. The company estimated approximately $100 million of fiscal 2015 cash payments for VCC-related restructuring, transformation and capital expenditures. Separately, it estimated about $74 million of restructuring and related expense for fiscal 2015; these are different expense and cash-spending measures.
- Other risks: Results remain exposed to blood-product demand and pricing, customer tenders and order timing, competition, execution and supply disruption during manufacturing transitions, foreign exchange, and variable interest rates. A 100-basis-point LIBOR increase was estimated to add $4.3 million of annual interest expense. The filing also describes delays in payments by some foreign government-supported healthcare systems as a potential receivables risk.
- Contingency: Italian employment and union-related claims sought approximately $4.6 million in damages. The company considered the claims without merit, had not accrued a loss, and stated that the outcome could not yet be reliably assessed.
- Repurchases: Under a $100 million authorization, the company had repurchased approximately 834,000 shares by June 28. The filing reports $26.5 million in the cash-flow statement and approximately $26.9 million in the share-repurchase disclosure, which uses trade-date reporting.
- The filing provides no specific full-year revenue or earnings guidance. Management stated that interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether growth in plasma, diagnostics and software can offset ongoing whole-blood declines and the expected American Red Cross contract impact.
- Whether gross margins recover as pricing pressure, product mix and transformation savings evolve.
- Actual cash requirements and execution progress for the manufacturing transformation, including facility transitions and supply continuity.
- Post-amendment debt repayment, revolver usage, covenant headroom and sensitivity to interest-rate and currency movements.
- Developments in the Italian claims and any future costs or liabilities associated with restructuring.