UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended: July 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number: 001-14041
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(781 ) 848-7100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No x
The number of shares of $0.01 par value common stock outstanding as of August 8, 2022: 51,316,543
HAEMONETICS CORPORATION
INDEX
| PAGE | |||||
2
ITEM 1. FINANCIAL STATEMENTS
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited in thousands, except per share data)
| Three Months Ended | |||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||
| Net revenues | $ | $ | |||||||||
| Cost of goods sold | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Amortization of intangible assets | |||||||||||
| Gains on divestitures and sale of assets | ( | ||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Interest and other expense, net | ( | ( | |||||||||
| Income (loss) before provision for income taxes | ( | ||||||||||
| Provision for income taxes | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Net income (loss) per share - basic | $ | $ | ( | ||||||||
| Net income (loss) per share - diluted | $ | $ | ( | ||||||||
| Weighted average shares outstanding | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Comprehensive income (loss) | $ | $ | ( | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
| July 2, 2022 | April 2, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, less allowance of $2,495 at July 2, 2022 and $2,475 at April 2, 2022 | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, less accumulated amortization of $386,235 at July 2, 2022 and $376,552 at April 2, 2022 | |||||||||||
| Goodwill | |||||||||||
| Deferred tax asset | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable and current maturities of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued payroll and related costs | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current maturities | |||||||||||
| Deferred tax liability | |||||||||||
| Other long-term liabilities | |||||||||||
| Total stockholders’ equity | |||||||||||
| Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 51,315,653 shares at July 2, 2022 and 51,124,240 shares at April 2, 2022 | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited in thousands)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance, April 2, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | ( | — | — | ||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, July 2, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance, April 3, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | ( | — | |||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Balance, July 3, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
| Three Months Ended | |||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Non-cash items: | |||||||||||
| Depreciation and amortization | |||||||||||
| Impairment of assets | |||||||||||
| Share-based compensation expense | |||||||||||
| Amortization of deferred finance costs | |||||||||||
| Benefit for losses on inventory | ( | ( | |||||||||
| Gains on divestitures and sale of assets | ( | ||||||||||
| Contingent consideration expense | ( | ||||||||||
| Other non-cash operating activities | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Change in accounts receivable | ( | ||||||||||
| Change in inventories | ( | ||||||||||
| Change in prepaid income taxes | |||||||||||
| Change in other assets and other liabilities | ( | ||||||||||
| Change in accounts payable and accrued expenses | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisition | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Other investments | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Repayment of term loan borrowings | ( | ( | |||||||||
| Contingent consideration payments | ( | ||||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Other | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ||||||||||
| Net Change in Cash and Cash Equivalents | ( | ( | |||||||||
| Cash and Cash Equivalents at Beginning of Period | |||||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | |||||||||
| Supplemental Disclosures of Cash Flow Information: | |||||||||||
| Non-Cash Investing and Financing Activities: | |||||||||||
| Transfers from inventory to fixed assets for placement of Haemonetics equipment | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Haemonetics Corporation (“Haemonetics” or the “Company”) presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated. Operating results for the three months ended July 2, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 1, 2023 or any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended April 2, 2022.
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events as of or for the three months ended July 2, 2022, except for those discussed in Note 5, Earnings Per Share and Note 9, Notes Payable and Long-term Debt.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Standards Implemented
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2019-12 — Income Taxes (Topic 740). The new guidance improves consistent application of and simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. The Company adopted ASC Update No. 2019-12 effective April 4, 2021. The adoption did not have a material impact on the Company’s financial position or results of operations.
In August 2020, the FASB issued ASC Update No. 2020-06 — Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company early adopted ASC Update No. 2020-06 effective April 4, 2021 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the condensed consolidated balance sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the condensed consolidated balance sheets as of April 4, 2021 is an increase of $1.0 million.
In July 2021, the FASB issued ASC Update No. 2021-05 — Leases (Topic 842). The new guidance requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria of ASC 842 and the lessor would have otherwise recognized a day-one loss. The Company prospectively adopted ASC Update No. 2021-05 effective in the second quarter of fiscal year 2022. The adoption did not have a material impact on the Company’s financial position or results of operations.
Standards to be Implemented
In March 2020, the FASB issued ASU 2020-04 — Reference Rate Reform (Topic 848). The new guidance allows companies to elect certain practical expedients to ease the financial reporting burden during the transition period of reference rate reform. The Company is evaluating the impact of this ASU and the related practical expedients allowed under ASU 848 on the Company's financial position and results of operations.
7
3. RESTRUCTURING
On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify opportunities for efficiencies, enhance commercial capabilities, align its resources and offer its customers better solutions. In order to realize these opportunities, the Company undertakes restructuring-type activities to transform its business.
In July 2019, the Board of Directors of the Company approved the Operational Excellence Program (the “2020 Program”) and delegated authority to the Company’s management to determine the detail of the initiatives that will comprise the program. During fiscal 2022, the Company revised the program to improve product and service quality, reduce cost principally in its 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. The Company now expects to incur aggregate charges between $95 million and $105 million by the end of fiscal 2025. 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 ended July 2, 2022 and July 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.
The following table summarizes the activity for restructuring reserves related to the 2020 Program and prior programs for the three months ended July 2, 2022, substantially all of which relates to employee severance and other employee costs:
| (In thousands) | 2020 Program | Prior Programs | Total | |||||||||||||||||
| Balance at April 2, 2022 | $ | $ | $ | |||||||||||||||||
| Costs incurred, net of reversals | ( | ( | ||||||||||||||||||
| Payments | ( | ( | ( | |||||||||||||||||
| Balance at July 2, 2022 | $ | $ | $ | |||||||||||||||||
The following presents the restructuring costs by line item within our accompanying unaudited Condensed Consolidated Statements of Income and Comprehensive Income:
| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Cost of goods sold | $ | ( | $ | ||||||||
| Research and development | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| $ | ( | $ | |||||||||
As of July 2, 2022, the Company had a restructuring liability of $2.0 million, of which $1.7 million is payable within the next twelve months.
In addition to the restructuring costs included in the table above, the Company also incurred costs that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as restructuring related costs. These costs consist primarily of expenditures directly related to the restructuring actions and include program management costs associated with the implementation of outsourcing initiatives and recent accounting standards.
8
The tables below present restructuring and restructuring related costs by reportable segment:
| Restructuring costs | Three Months Ended | ||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Plasma | $ | ( | $ | ||||||||
| Blood Center | |||||||||||
| Hospital | ( | ||||||||||
| Corporate | |||||||||||
| Total | $ | ( | $ | ||||||||
| Restructuring related costs | Three Months Ended | ||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Corporate | |||||||||||
| Total | $ | $ | |||||||||
| Total restructuring and restructuring related costs | $ | $ | |||||||||
4. INCOME TAXES
The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States. The Company’s reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which it operates have tax rates that differ from the U.S. statutory tax rate.
For the three months ended July 2, 2022, the Company reported income tax expense of $5.6 million representing an effective tax rate of 22.0 %. The effective tax rate for the three months ended July 2, 2022 includes $0.6 million of discrete tax expense relating to stock compensation shortfalls.
For the three months ended July 3, 2021, the Company reported income tax expense of $1.4 million representing an effective tax rate of (48.1 )%. The effective tax rate for the three months ended July 3, 2021 includes $0.8 million of discrete tax expense relating to stock compensation shortfalls.
5. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.
| Three Months Ended | |||||||||||
| (In thousands, except per share amounts) | July 2, 2022 | July 3, 2021 | |||||||||
| Basic EPS | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Weighted average shares | |||||||||||
| Basic income (loss) per share | $ | $ | ( | ||||||||
| Diluted EPS | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Basic weighted average shares | |||||||||||
| Net effect of common stock equivalents | |||||||||||
| Diluted weighted average shares | |||||||||||
| Diluted income (loss) per share | $ | $ | ( | ||||||||
9
Basic earnings per share is calculated using the Company’s weighted-average outstanding common stock. Diluted earnings per share is calculated using its weighted-average outstanding common stock including the dilutive effect of stock awards as determined under the treasury stock method and the convertible senior notes as determined under the net share settlement method. From the time of the issuance of the convertible senior notes, the average market price of the Company's common shares has been less than the initial conversion price, and consequently no shares have been included in diluted earnings per share for the conversion value of the convertible senior notes. For the three months ended July 2, 2022, weighted average shares outstanding, assuming dilution, excludes the impact of 0.9 million anti-dilutive shares. For the three months ended July 3, 2021, the Company recognized a net loss; therefore it excluded the impact of outstanding stock awards from the diluted loss per share calculation as its inclusion would have an anti-dilutive effect.
In August 2022, the Company announced that its Board of Directors had authorized the repurchase of up to $300 million of Haemonetics common shares over the next three years . Under the share repurchase program, the Company is authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by the Company at its discretion, with the intent of beginning activity under the program during fiscal 2023, and will depend on a number of factors, including market conditions, applicable legal requirements and compliance with the terms of loan covenants. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.
6. REVENUE
The Company’s revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration it expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
As of July 2, 2022, the Company had $24.7 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately 76 % of this amount as revenue within the next twelve months and the remaining balance thereafter.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.
As of July 2, 2022 and April 2, 2022, the Company had contract assets of $6.4 million and $5.5 million, respectively. Contract assets are classified as other current assets and other long-term assets on the Condensed Consolidated Balance Sheets.
As of July 2, 2022 and April 2, 2022, the Company had contract liabilities of $25.4 million and $26.8 million, respectively. During the three months ended July 2, 2022, the Company recognized $11.7 million of revenue, respectively, that was included in the above April 2, 2022 contract liability balance.
10
7. INVENTORIES
Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method.
| (In thousands) | July 2, 2022 | April 2, 2022 | ||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work-in-process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total inventories | $ | $ | ||||||||||||
8. LEASES
Lessor Activity
Assets on the Company’s balance sheet classified as Haemonetics equipment primarily consist of medical devices installed at customer sites but owned by Haemonetics. These devices are leased to customers under contractual arrangements that typically include an operating or sales-type lease as well as the purchase and consumption of a certain level of disposable products. Sales-type leases are not significant. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where devices are provided under operating lease arrangements, a substantial majority of the entire lease revenue is variable and subject to subsequent non-lease component (disposable products) sales. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Operating lease revenue represents approximately 3 percent of the Company’s total net sales.
9. NOTES PAYABLE AND LONG-TERM DEBT
Convertible Senior Notes
In March 2021, the Company issued $500.0 million aggregate principal amount of 0 % convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee (the “Indenture”). 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 on March 1, 2026, unless earlier converted, redeemed or repurchased.
During the first quarter of fiscal 2023, the conditions allowing holders of the 2026 Notes to convert have not been met. The 2026 Notes were therefore not convertible as of July 2, 2022 and were classified as long-term debt on the Company’s Condensed Consolidated Balance Sheets.
On April 4, 2021, the Company adopted ASC Update No. 2020-06 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the Condensed Consolidated Balance Sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the Condensed Consolidated Balance Sheets as of April 4, 2021 is an increase of $1.0 million.
As of July 2, 2022, the $500.0 million principal balance was netted down by $9.9 million of remaining debt issuance costs, resulting in a net convertible note payable of $490.1 million. Interest expense related to the 2026 Notes was $0.7 million, which is entirely attributable to the amortization of the debt issuance costs. The debt issuance costs are amortized at an effective interest rate of 0.5 %.
11
Credit Facilities
On June 15, 2018, the Company 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 on June 15, 2023. Interest on the 2018 Credit Facilities is established using LIBOR plus 1.13 % - 1.75 %, depending on the Company’s leverage ratio. Under the 2018 Credit Facilities, the Company is 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. At July 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. The Company also has $20.9 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of July 2, 2022.
The Company was in compliance with the leverage and interest coverage ratios specified in the 2018 Credit Facilities as well as all other bank covenants as of July 2, 2022.
On July 26, 2022, the Company entered into an amended and restated credit agreement with certain lenders to refinance the 2018 Credit Facilities and extend their maturity date through June 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 on June 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.
As a result of the Company’s entry into the Revised Credit Facilities, the Company has reclassified short term debt to long term on the condensed consolidated balance sheet accordance with ASC 470.
The Company has required scheduled principal payments of $5.3 million during the remainder of fiscal 2023.
10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company manufactures, markets and sells its products globally. During the three months ended July 2, 2022, 30.4 % of the Company’s sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.
Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, Chinese Yuan and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.
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Designated Foreign Currency Hedge Contracts
All of the Company’s designated foreign currency hedge contracts as of July 2, 2022 and April 2, 2022 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $49.8 million as of July 2, 2022 and $67.3 million as of April 2, 2022. At July 2, 2022, a gain of $0.9 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of July 2, 2022 mature within twelve months.
Non-Designated Foreign Currency Contracts
The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $44.1 million as of July 2, 2022 and $39.5 million as of April 2, 2022.
Interest Rate Swaps
On June 15, 2018, the Company entered into the 2018 Credit Facilities, which provided for a $350.0 million term loan and a $350.0 million revolving credit facility. Under the terms of the 2018 Credit Facilities, interest is established using LIBOR plus 1.13 % - 1.75 %. As a result, the Company’s earnings and cash flows are exposed to interest rate risk from changes to LIBOR. Part of the Company’s interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company’s objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.
In August 2018, the Company entered into two interest rate swap agreements (the “Swaps”) to pay an average fixed rate of 2.80 % on a total notional value of $241.9 million of debt. As a result of the Swaps, 70 % of the Term Loan previously exposed to interest rate risk from changes in LIBOR is now fixed at a rate of 4.05 %. The Swaps mature on June 15, 2023. As of July 2, 2022, the notional value was $196.0 million. The Company designated the Swaps as cash flow hedges of variable interest rate risk associated with $345.6 million of indebtedness. For the three months ended July 2, 2022, a gain of $3.1 million, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.
On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance the 2018 Credit Facilities and extend the maturity date to June 15, 2025. The Company is in the process of evaluating additional interest rate swap protection that would extend beyond June 2023.
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Trade Receivables
In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.
The Company’s allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating services. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns.
The following is a rollforward of the allowance for credit losses:
| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Beginning balance | $ | $ | |||||||||
| Credit (gain) loss | |||||||||||
| Write-offs | ( | ( | |||||||||
| Ending balance | $ | $ | |||||||||
Fair Value of Derivative Instruments
The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended July 2, 2022:
| (In thousands) | Amount of Gain Recognized in Accumulated Other Comprehensive Loss | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings | Location in Condensed Consolidated Statements of Income and Comprehensive Income | Amount of Gain Excluded from Effectiveness Testing | Location in Condensed Consolidated Statements of Income and Comprehensive Income | |||||||||||||||||||||||||||
| Designated foreign currency hedge contracts, net of tax | $ | $ | Net revenues, COGS and SG&A | $ | Interest and other expense, net | |||||||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | $ | $ | $ | Interest and other expense, net | ||||||||||||||||||||||||||||
| Designated interest rate swaps, net of tax | $ | $ | ( | Interest and other expense, net | $ | |||||||||||||||||||||||||||
The Company did not have fair value hedges or net investment hedges outstanding as of July 2, 2022 or April 2, 2022. As of July 2, 2022, no material deferred taxes were recognized for designated foreign currency hedges.
ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, it uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of July 2, 2022, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.
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The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of July 2, 2022 and April 2, 2022:
| (In thousands) | Location in Condensed Consolidated Balance Sheets | As of | As of | |||||||||||||||||
| July 2, 2022 | April 2, 2022 | |||||||||||||||||||
| Derivative Assets: | ||||||||||||||||||||
| Designated foreign currency hedge contracts | Other current assets | $ | $ | |||||||||||||||||
| Non-designated foreign currency hedge contracts | Other current assets | |||||||||||||||||||
| Designated interest rate swaps | Other current assets | 49 | — | |||||||||||||||||
| $ | $ | |||||||||||||||||||
| Derivative Liabilities: | ||||||||||||||||||||
| Designated foreign currency hedge contracts | Other current liabilities | $ | $ | |||||||||||||||||
| Non-designated foreign currency hedge contracts | Other current liabilities | |||||||||||||||||||
| Designated interest rate swaps | Other current liabilities | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
Other Fair Value Measurements
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value:
•Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
•Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
•Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company’s money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
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Fair Value Measured on a Recurring Basis
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of July 2, 2022 and April 2, 2022.
| As of July 2, 2022 | ||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | — | $ | |||||||||||||||||||||
| Designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Designated interest rate swaps | — | 49 | — | 49 | ||||||||||||||||||||||
| $ | $ | $ | — | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | $ | $ | — | $ | |||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Contingent consideration | — | — | ||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| As of April 2, 2022 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | — | $ | |||||||||||||||||||||
| Designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| $ | $ | $ | — | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | $ | $ | — | $ | |||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Designated interest rate swaps | — | |||||||||||||||||||||||||
| Contingent consideration | — | — | ||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
Foreign currency hedge contracts - The fair value of foreign currency hedge contracts was measured using significant other observable inputs and valued by reference to over-the-counter quoted market prices for similar instruments. The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.
Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves. The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.
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Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of contingent consideration has been classified as level 3 within the fair value hierarchy. The recurring level 3 fair value measurements of contingent consideration liabilities include the following significant unobservable inputs:
| Fair Value at | Valuation | Unobservable | ||||||||||||||||||||||||
| (In thousands) | July 2, 2022 | Technique | Input | Range | ||||||||||||||||||||||
| Revenue-based payments | $ | Discounted cash flow | Discount rate | |||||||||||||||||||||||
| Projected year of payment | 2022 - 2023 | |||||||||||||||||||||||||
The fair value of contingent consideration associated with acquisitions was $0.9 million at July 2, 2022 and was included in other liabilities. A reconciliation of the change in the fair value of contingent consideration is included in the following table:
| (In thousands) | ||||||||
| Balance at April 2, 2022 | $ | |||||||
| Change in fair value | ( | |||||||
| Payments | ( | |||||||
| Currency translation | ( | |||||||
| Balance at July 2, 2022 | $ | |||||||
Other Fair Value Disclosures
The Term Loan, which is carried at amortized cost, accounts receivable and accounts payable approximate fair value. The fair value of the 2026 Notes as of July 2, 2022 was $396.1 million, which was determined by using the market price on the last trading day of the reporting period.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings and claims arising out of the ordinary course of its business. The Company believes that, except for those matters described below, there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. At each reporting period, management evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies, for all matters. Legal costs are expensed as incurred.
During the third quarter of fiscal 2021, the Company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts. The subpoena requests certain documents regarding the Company’s apheresis and autotransfusion devices and disposables, including documents relating to product complaints and adverse event reporting, regulatory clearances and product design changes, among other matters. The Company is fully cooperating with this inquiry.
In the fourth quarter of fiscal 2021, a putative class action complaint was filed against the Company in the Circuit Court of Cook County, Illinois by Mary Crumpton, on behalf of herself and similarly situated individuals. See Mary Crumpton v. Haemonetics Corporation, Case No. 1:21-cv-1402. In her complaint, the plaintiff asserts that between June 2017 and August 2018 she donated plasma at a center operated by one of the Company’s customers, that the center required her to scan her finger print in a scanner that stored her finger print to identify her prior to plasma donation, and that the Company’s eQue donor management software sent her biometric information to a Company-owned server to be collected and stored in a manner that violated her rights under the Illinois Biometric Information Privacy Act (“BIPA”). The plaintiff seeks statutory damages, attorneys’ fees, and injunctive and equitable relief. In March 2021, the Company moved to dismiss the complaint for lack of personal jurisdiction and concurrently filed a motion to dismiss for failure to state a claim and a motion to stay. In late March 2022, the court denied the Company’s motion to dismiss for lack of personal jurisdiction but did not address the merits of the Company’s other positions. The Company believes the allegations in this lawsuit are without merit and will defend vigorously against them. The case is still in an early stage and the Company cannot reasonably estimate a range of potential loss and expense at this time.
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12. SEGMENT AND ENTERPRISE-WIDE INFORMATION
The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company’s reporting structure aligns with its operating structure of three global business units and the information that is regularly reviewed by the Company’s chief operating decision maker.
The Company’s reportable segments are as follows:
•Plasma
•Blood Center
•Hospital
Management measures and evaluates the operating segments based on operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. These items include integration and transaction costs, deal amortization, restructuring and restructuring related costs, impairments, accelerated device depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation (“MDR”) and In Vitro Diagnostic Regulation (“IVDR”), unusual or infrequent and material litigation-related charges and gains and losses on dispositions and sale of assets. Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations that follow. Management measures and evaluates the Company’s net revenues and operating income using internally derived standard currency exchange rates that remain constant from year to year; therefore, segment information is presented on this basis.
Selected information by reportable segment is presented below:
| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Net revenues | |||||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Net revenues by business unit | |||||||||||
Service (1) | |||||||||||
| Effect of exchange rates | ( | ||||||||||
| Net revenues | $ | $ | |||||||||
(1) Reflects revenue for service, maintenance and parts | |||||||||||
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| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Segment operating income | |||||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Segment operating income | |||||||||||
Corporate expenses (1) | ( | ( | |||||||||
| Effect of exchange rates | |||||||||||
| Integration and transaction costs | ( | ||||||||||
| Deal amortization | ( | ( | |||||||||
Restructuring and restructuring related costs | ( | ( | |||||||||
| Impairment of assets and PCS2 related charges | ( | ||||||||||
| MDR and IVDR costs | ( | ( | |||||||||
| Litigation-related charges | ( | ( | |||||||||
| Gains on divestitures and sale of assets | |||||||||||
| Operating income | $ | $ | |||||||||
(1) Reflects shared service expenses including quality and regulatory, customer and field service, research and development, manufacturing and supply chain, as well as other corporate support functions. | |||||||||||
Management reviews revenue based on the reportable segments noted above. Although these reportable segments are primarily product-based, they differ from the Company’s product line revenues for Plasma products and services and Blood Center products and services. Specifically, the Blood Center reportable segment includes plasma products utilized for collection in blood centers primarily for transfusion purposes. Additionally, product line revenues also include service revenues which are excluded from the reportable segments.
Net revenues by product line are as follows:
| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| Plasma products and services | $ | $ | |||||||||
| Blood Center products and services | |||||||||||
| Hospital products and services | |||||||||||
| Net revenues | $ | $ | |||||||||
Net revenues generated in the Company’s principle operating regions on a reported basis are as follows:
| Three Months Ended | |||||||||||
| (In thousands) | July 2, 2022 | July 3, 2021 | |||||||||
| United States | $ | $ | |||||||||
| Japan | |||||||||||
| Europe | |||||||||||
| Asia | |||||||||||
| Other | |||||||||||
| Net revenues | $ | $ | |||||||||
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13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of Accumulated Other Comprehensive Loss are as follows:
| (In thousands) | Foreign Currency | Defined Benefit Plans | Net Unrealized Gain/(Loss) on Derivatives | Total | ||||||||||||||||||||||
| Balance as of April 2, 2022 | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
Other comprehensive income (loss) before reclassifications(1) | ( | ( | ||||||||||||||||||||||||
Amounts reclassified from Accumulated Other Comprehensive Income(1) | ( | ( | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||
| Balance as of July 2, 2022 | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
(1) Presented net of income taxes, the amounts of which are insignificant. | ||||||||||||||||||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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” mean Haemonetics 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 Blood Center competes in challenging markets that require us to manage the business differently, including reducing costs, shrinking the scope of the current product line, and evaluating opportunities to exit unfavorable customer contracts.
Recent Developments
Share Repurchase Program
In August 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
On July 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 through June 2025. The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of
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which have been used to retire the balance of the term loan under our 2018 credit agreement, and a $420 million senior unsecured revolving credit facility.
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 ended July 2, 2022 and July 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 of July 2, 2022.
Financial Summary
| Three Months Ended | |||||||||||||||||
| (In thousands, except per share data) | July 2, 2022 | July 3, 2021 | % Increase/ (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</ | |||||||||||||||||