HAEMONETICS CORPORATION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with both our interim
condensed consolidated financial statements and notes thereto which appear
elsewhere in this Quarterly Report on Form 10-Q and our annual consolidated
financial statements, notes thereto and the MD&A contained in our Annual Report
on Form 10-K for the fiscal year ended April 2, 2022 . The following discussion
may contain forward-looking statements and should be read in conjunction with
the "Cautionary Statement Regarding Forward-Looking Information" in this
discussion.
Introduction
Haemonetics Corporation is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. When used in this report, the terms "we," "us," "our", "Haemonetics" and the "Company" meanHaemonetics Corporation . We view our operations and manage our business in three principal reporting segments: Plasma,Blood Center and Hospital. For that purpose, "Plasma" includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. "Blood Center " includes blood collection and processing devices and disposables for red cells, platelets and whole blood. "Hospital", which is comprised of Hemostasis Management, Cell Salvage, Transfusion Management and Vascular Closure products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables, blood transfusion management software and vascular closure devices.
We believe that Plasma and Hospital have growth potential, while
Recent Developments Share Repurchase Program InAugust 2022 , we announced that our Board of Directors had authorized the repurchase of up to$300 million of Haemonetics common shares over the next three years. This new share repurchase program will help to offset the dilutive impact of recent and future employee equity grants. The timing and amounts of activity under the repurchase program will be at the Company's discretion with the intent of beginning activity under the program during fiscal 2023.
Debt Issuance and Repayment
OnJuly 26, 2022 , we entered into an amended and restated credit agreement with certain lenders to refinance the credit facilities under our 2018 credit agreement (as amended from time to time) and extend the applicable maturity date throughJune 2025 . The amended and restated credit agreement provides for a$280 million senior unsecured term loan, the proceeds of 20 --------------------------------------------------------------------------------
which have been used to retire the balance of the term loan under our 2018
credit agreement, and a
Operational Excellence Program
During fiscal 2022, our Board of Directors approved the revised Operational Excellence Program (the "2020 Program"). The revised program is designed to improve product and service quality, reduce cost principally in our manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic. We now expect to incur aggregate charges between$95 million and$105 million by the end of fiscal 2025 and to achieve total gross savings of$115 million to$125 million on an annualized basis once the program is completed. The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved. During the three months endedJuly 2, 2022 andJuly 3, 2021 , the Company incurred$3.5 million and$9.9 million , respectively, of restructuring and restructuring related costs under this program. Total cumulative charges under this program are$59.2 million as ofJuly 2, 2022 . Financial Summary Three Months Ended July 2, July 3, % Increase/ (In thousands, except per share data) 2022 2021 (Decrease) Net revenues$ 261,458 $ 228,528 14.4 % Gross profit$ 142,263 $ 108,085 31.6 % % of net revenues 54.4 % 47.3 % Operating expenses$ 111,496 $ 106,695 4.5 % Operating income$ 30,767 $ 1,390 2,113.5 % % of net revenues 11.8 % 0.6 % Interest and other expense, net$ (5,273) $ (4,398) 19.9 %
Income (loss) before provision for income taxes
n/m
Provision for income taxes $ 5,617 $ 1,446 288.5 %
% of pre-tax income 22.0 % (48.1) %
Net income (loss) $ 19,877 $ (4,454) n/m
% of net revenues 7.6 % (1.9) %
Net income (loss) per share - basic $ 0.39 $ (0.09) n/m
Net income (loss) per share - diluted $ 0.38 $ (0.09) n/m
Net revenues increased 14.4% during the three months ended July 2, 2022 ,
respectively, as compared with the same periods of fiscal 2022. Without the
effect of foreign exchange, net revenues increased 16.6% during the three months
ended July 2, 2022 , respectively, as compared with the same periods of fiscal
2022. Revenue increases including both volume and price in our Plasma and
Hospital businesses drove the overall increase in revenue during the three
months ended July 2, 2022 .
Operating income increased during the three months ended July 2, 2022 as
compared with the same period of fiscal 2022, primarily due to increased
revenues in Plasma and Hospital and savings from the 2020 Program, as well as
decreased spending on acquisition costs in the current year, partially offset by
lower revenues in Blood Center , increased freight costs in our global supply
chain and increased sales and marketing expense.
Management's Use of Non-GAAP Measures
Management uses non-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"), to monitor the financial performance of the business, make informed business decisions, establish budgets and forecast future results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance withU.S. GAAP. Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency conversion rate. We have provided this non-GAAP financial measure because we believe it 21 --------------------------------------------------------------------------------
provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.
RESULTS OF OPERATIONSNet Revenues by Geography Three Months Ended July 2, July 3, Constant currency (In thousands) 2022 2021 Reported growth Currency impact growth (1) United States$ 181,996 $ 141,028 29.0 % - % 29.0 % International 79,462 87,500 (9.2) % (5.2) % (4.0) % Net revenues$ 261,458 $ 228,528 14.4 % (2.2) % 16.6 % (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." Our principal operations are in theU.S ,Europe ,Japan and other parts ofAsia . Our products are marketed in approximately 90 countries around the world through a combination of our direct sales force, independent distributors and agents. During the three months endedJuly 2, 2022 our revenue generated outside theU.S. was 30.4% of total net revenues, as compared with 38.3% during the three months endedJuly 3, 2021 , respectively. International sales are generally conducted in local currencies, primarily Japanese Yen, Euro, Chinese Yuan and Australian Dollars. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen, Euro and Australian Dollar relative to theU.S. Dollar. We have placed foreign currency hedges to mitigate our exposure to foreign currency fluctuations.
Please see the section entitled "Foreign Exchange" in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
Net Revenues by Business Unit
Three Months Ended
July 2, July 3, Constant currency
(In thousands) 2022 2021 Reported growth Currency impact growth (1)
Plasma $ 102,381 $ 71,844 42.5 % (1.0) % 43.5 %
Blood Center 65,694 72,945 (9.9) % (2.7) % (7.2) %
Hospital (2) 88,494 78,494 12.7 % (2.2) % 14.9 %
Service 4,889 5,245 (6.8) % (4.3) % (2.5) %
Net revenues $ 261,458 $ 228,528 14.4 % (2.2) % 16.6 %
(1) Constant currency growth, a non-GAAP financial measure, measures the change
in revenue between the current and prior year periods using a constant currency.
See "Management's Use of Non-GAAP Measures."
(2) Hospital revenue includes Hemostasis Management revenue of $33.5 million and
$32.2 million during the three months ended July 2, 2022 and July 3, 2021 ,
respectively. Hemostasis Management revenue increased 4.1% in the first quarter
of fiscal 2023, as compared with the same period of fiscal 2022. Without the
effect of foreign exchange, Hemostasis Management revenue increased 5.8% in the
first quarter of fiscal 2023, as compared with the same period of fiscal 2022.
Vascular Closure revenue increased 35.9% in the first quarter of fiscal 2023 as
compared with the same period of fiscal 2022.
Plasma
Plasma revenue increased 42.5% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effect of foreign exchange, Plasma revenue increased 43.5% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. The increase during the three months endedJuly 2, 2022 , as compared with the same period of fiscal 2021 was driven by volume and price. In earlyApril 2021 ,CSL Plasma, Ltd. ("CSL") informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits that was initially set to expire inJune 2022 . In fiscal 2022, revenue under this Supply Agreement was$102.4 million . During the third quarter of fiscal 2022, we amended the supply agreement to allow CSL to continue to use our PCS2 devices and purchase disposables throughDecember 2023 . The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and CSL has committed to a minimum of$88.0 million of disposable purchases in fiscal 2023. 22 --------------------------------------------------------------------------------
Blood Center revenue decreased 9.9% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effect of foreign exchange,Blood Center revenue decreased 7.2% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. The decrease during the three months endedJuly 2, 2022 as compared with the same periods of fiscal 2022 was primarily driven by a decline in the volume of apheresis disposables.
Hospital
Hospital revenue increased 12.7% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effect of foreign exchange, Hospital revenue increased 14.9% during the three months endedJuly 2, 2022 , as compared with the same periods of fiscal 2022. The increase during the three months endedJuly 2, 2022 was primarily attributable to Vascular Closure revenue, as well as increases in TEG disposables revenue in theU.S. and Transfusion Management revenue. Gross Profit Three Months Ended July 2, July 3, (In thousands) 2022 2021 % Increase Gross profit$ 142,263 $ 108,085 31.6 % % of net revenues 54.4 % 47.3 % Gross profit increased 31.6% during the three months endedJuly 2, 2022 as compared with the same periods of fiscal 2022. Without the effect of foreign exchange, gross profit increased 34.4% during the three months endedJuly 2, 2022 , as compared with the same period of fiscal 2022. The increase during the three months endedJuly 2, 2022 was primarily driven by volume and mix, price and productivity savings from the Operational Excellence Program, partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense. Operating Expenses Three Months Ended July 2, July 3, % Increase/ (In thousands) 2022 2021 (Decrease) Research and development$ 10,902 $ 12,701 (14.2) % % of net revenues 4.2 % 5.6 %
Selling, general and administrative
1.1 % % of net revenues 35.3 % 39.9 %
Amortization of intangible assets
(32.4) % % of net revenues 3.2 % 5.4 %
Gains on divestitures and sale of assets $ -
n/m % of net revenues - % (4.2) % Total operating expenses$ 111,496 $ 106,695 4.5 % % of net revenues 42.6 % 46.7 % Research and Development Research and development expenses decreased 14.2% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effect of foreign exchange, research and development expenses decreased 13.6% during the three months endedJuly 2, 2022 , as compared with the same period of fiscal 2022. This decrease was primarily due to the timing of investments across quarters and cost savings related to the 2020 Program. 23 --------------------------------------------------------------------------------
Selling, General and Administrative
Selling, general and administrative expenses increased 1.1% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effect of foreign exchange, selling, general, and administrative expenses increased 2.3% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. The increase during the three months endedJuly 2, 2022 was primarily driven by inflationary pressures and higher freight costs in our global supply chain, and higher investments in sales and marketing, partially offset by cost savings related to the 2020 Program and decreased spend on acquisitions in the current year.
Amortization of Intangible Assets
We recognized amortization expense of$8.4 million during the three months endedJuly 2, 2022 and$12.4 million during the three months endedJuly 3, 2021 . The decrease is primarily the result of intangible assets that became fully amortized during fiscal 2022.
Gains on Divestitures
We recognized gains on divestitures of
Interest and Other Expense, Net
Interest and other expenses increased 19.9% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. Without the effects of foreign exchange, interest and other expenses increased 18.2% during the three months endedJuly 2, 2022 as compared with the same period of fiscal 2022. The increase was primarily driven by higher interest rates which impacted the interest incurred on our term loan.
Income Taxes
We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition tothe United States . Our reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from theU.S. statutory tax rate.
For the three months ended
For the three months endedJuly 3, 2021 , we reported income tax expense of$1.4 million representing an effective tax rate of (48.1)%. The effective tax rate for the three months endedJuly 3, 2021 includes$0.8 million discrete tax expense relating to stock compensation shortfalls.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
July 2, April 2,
(Dollars in thousands) 2022 2022
Cash & cash equivalents $ 214,948 $ 259,496
Working capital $ 507,296 $ 313,765
Current ratio 3.8 1.7
Net debt(1) $ (555,046) $ (514,093)
Days sales outstanding (DSO) 50 54
Inventory turnover 1.5 1.4
(1)Net debt position is the sum of cash and cash equivalents less total debt.
Our primary sources of liquidity are cash and cash equivalents, internally
generated cash flow from operations, our revolving credit line and proceeds from
employee stock option exercises. We believe these sources are sufficient to fund
our cash requirements over at least the next twelve months. Our expected cash
outlays relate primarily to acquisitions, investments,
24
--------------------------------------------------------------------------------capital expenditures, including enhancements to our North American manufacturing facilities, cash payments under our credit agreement and restructuring initiatives.
InMarch 2021 , the Company issued$500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes. The 2026 Notes are governed by the terms of the Indenture between the Company andU.S. Bank National Association , as trustee. The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers' discounts and debt issuance costs, were approximately$486.7 million . The 2026 Notes will mature onMarch 1, 2026 , unless earlier converted, redeemed or repurchased. The 2026 Notes have an effective interest rate of 0.5% as ofJuly 2, 2022 . As ofJuly 2, 2022 , we had$214.9 million in cash and cash equivalents, the majority of which is held in theU.S. or in countries from which it can be repatriated to theU.S. OnJune 15, 2018 , we entered into a credit agreement with certain lenders that provided for a$350.0 million term loan and a$350.0 million revolving loan (together with the term loan, as amended from time to time, the "2018 Credit Facilities") that mature onJune 15, 2023 . Interest on the 2018 Credit Facilities is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio. Under the 2018 Credit Facilities, we are required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants. As ofJuly 2, 2022 ,$280.0 million was outstanding under the term loan with an effective interest rate of 3.4%. There were no borrowings outstanding on the revolving loan. We also had$20.9 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as ofJuly 2, 2022 . Additionally, the Company was in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as ofJuly 2, 2022 . OnJuly 26, 2022 , the Company entered into an amended and restated credit agreement with certain lenders to refinance the 2018 Credit Facilities and extend the maturity date throughJune 2025 . The amended and restated credit agreement provides for a$280 million senior unsecured term loan, the proceeds of which have been used to retire the balance of the term loan under the 2018 Credit Facilities, and a$420 million senior unsecured revolving credit facility (together, the "Revised Credit Facilities"). Loans under the Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the amended and restated credit agreement), which is subject to a floor of 0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company's consolidated net leverage ratio (as specified in the amended and restated credit agreement) at the applicable measurement date. Adjusted Term SOFR Rate loans are also subject to a credit spread adjustment of 0.10% per annum. The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company's consolidated net leverage ratio at the applicable measurement date. Under the Revised Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the amended and restated credit agreement as well as other customary non-financial affirmative and negative covenants. The Revised Credit Facilities mature onJune 15, 2025 . The principal amount of the term loan under the Revised Credit Facilities is repayable quarterly through the maturity date at a rate of 2.5% for the first year and 5% thereafter, with the unpaid balance due at maturity.
The Company has scheduled principal payments of
During fiscal 2022, our Board of Directors approved a revised 2020 Program. We now estimate that we will incur aggregate charges between$95 million and$105 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2025. During the three months endedJuly 2, 2022 , we incurred$3.5 million of restructuring and restructuring related costs under this program.
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