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: June 29, 2024
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 6, 2024: 51,177,734
HAEMONETICS CORPORATION
INDEX
| PAGE | |||||
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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 | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Net revenues | $ | $ | |||||||||
| Cost of goods sold | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Amortization of acquired intangible assets | |||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| ( | |||||||||||
| Income before provision for income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Net income per share - basic | $ | $ | |||||||||
| Net income per share - diluted | $ | $ | |||||||||
| Weighted average shares outstanding | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Comprehensive income | $ | $ | |||||||||
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)
| June 29, 2024 | March 30, 2024 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowance for credit losses of $ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
Intangible assets, less accumulated amortization of $ | |||||||||||
| 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 | |||||||||||
| Deferred tax liability | |||||||||||
| Other long-term liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| 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.
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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)/Income | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance, March 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of stock options | ( | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | ( | — | — | ||||||||||||||||||||||||||||||||
| Tax withholding on employee equity awards | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||
| Purchase of capped call related to convertible notes | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 29, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss)/Income | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance, April 1, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of stock options | ( | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | ( | — | — | ||||||||||||||||||||||||||||||||
| Tax withholding on employee equity awards | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, July 1, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
| Three Months Ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Non-cash items: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of fair value inventory step-up | |||||||||||
| Share-based compensation expense | |||||||||||
| Gain on repurchase of convertible senior notes, net | ( | ||||||||||
| Inventory reserve adjustment | ( | ||||||||||
| Gains on sales of property, plant and equipment | ( | ( | |||||||||
| 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 (used in) provided by operating activities | ( | ||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Non-cash transfers from inventory to property, plant and equipment for Haemonetics equipment | ( | ( | |||||||||
| Acquisition, net of cash acquired | ( | ||||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Other investments | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from issuance of convertible notes | |||||||||||
| Repurchase of convertible senior notes | ( | ||||||||||
| Purchase of capped call related to convertible notes | ( | ||||||||||
| Term loan borrowings | |||||||||||
| Term loan redemption | ( | ||||||||||
| Payments on revolving facility | ( | ||||||||||
| Repayment of term loan borrowings | ( | ( | |||||||||
| Debt issuance costs | ( | ||||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Cash used to net share settle employee equity awards | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash provided by (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 | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 June 29, 2024 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 29, 2025 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 March 30, 2024.
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 June 29, 2024.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Standards to be Implemented
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2023-07, Segment Reporting (Topic 280). The new guidance requires public entities to provide expanded disclosures over significant segment expenses and additional disclosures related to the chief operating decision maker. ASC Update No. 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The new guidance is applicable to Haemonetics beginning with the fiscal 2025 Annual Report on Form 10-K. The Company is currently evaluating the impact to its interim and annual report disclosures.
In December 2023, the FASB issued ASC Update No. 2023-09, Income Taxes (Topic 740). ASC Update No. 2023-09 requires public entities to provide detailed income tax disclosures, including rate reconciliations and disaggregated income tax payment information, on an annual basis. The updated guidance is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. ASC Update No. 2023-09 is applicable to Haemonetics beginning with the fiscal 2026 Annual Report on Form 10-K and the Company is currently evaluating the impact to its annual report disclosures.
3. ACQUISITIONS AND STRATEGIC INVESTMENTS
Acquisitions
Attune Medical
On March 5, 2024, the Company entered into a definitive agreement to acquire Advanced Cooling Therapy, Inc., d/b/a Attune Medical (“Attune Medical”), the manufacturer of the ensoETM® proactive esophageal cooling device, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of Attune Medical. On April 1, 2024, the Company completed its acquisition of Attune Medical for total consideration of $186.2 million, which included an upfront cash payment of $160.7 million, or $149.2 million net of cash acquired, the fair value of contingent consideration of $25.0 million, and $0.5 million of estimated working capital adjustments. The Company’s purchase price is subject to customary working capital and certain other adjustments as of the closing of the transaction and additional contingent consideration based on sales growth over the next three years, which is uncapped, and the achievement of certain other milestones. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility.
7
Attune Medical's ensoETM technology is designed for use across a range of medical conditions involving patient cooling or warming, including treatment in electrophysiology, critical care, neurocritical care, trauma, burn surgery, spine surgery, and cancer surgery, among others. The Company’s addition of the Esophageal Protection product line through its acquisition of Attune Medical expands the Hospital business unit’s presence in electrophysiology and complements its Vascular Closure product line within Interventional Technologies, which is included in the Hospital reportable segment.
Purchase Price Allocation
The Company accounted for the acquisition as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (Topic 805), recorded the assets acquired and liabilities assumed at their fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed have been recognized based on management’s estimates and assumptions using the information regarding facts and circumstances that existed at the closing date. The assessment of fair value is preliminary and is based on information that was available at the time the Condensed Consolidated Financial Statements were prepared. The most significant open items include the valuation of certain intangible assets, contingent consideration and the accounting for income taxes as the Company is awaiting additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of the Company’s purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by Topic 805. As of June 29, 2024, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities.
The preliminary purchase price of $174.7 million, net of $11.5 million of cash acquired consists of the amounts presented below, which represent the preliminary determination of the fair value of the identifiable assets acquired and liabilities assumed:
| (In thousands) | April 1, 2024 | ||||
| Accounts receivable | $ | ||||
| Inventories | |||||
| Prepaid expenses and other current assets | |||||
| Property, plant and equipment | |||||
| Intangible assets | |||||
| Goodwill | |||||
| Total assets acquired | $ | ||||
| Accounts payable | |||||
| Accrued payroll and related costs | |||||
| Other liabilities | |||||
| Deferred tax liability | |||||
| Total liabilities assumed | $ | ||||
| Net assets acquired | $ | ||||
The Company determined the identifiable intangible assets were developed technology, customer contracts and related relationships and trade names. The fair values of intangible assets were based on valuation techniques with estimates and assumptions developed by the Company. Developed technology was valued using the excess earnings method. Customer contracts and related relationships were valued using the distributor method. The trademark was valued using the relief from royalty method. The cash flows used in the valuation of the intangible assets were based on estimates used to price the transaction. In developing the discount rates applied to the cash flow projections, the discount rates were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital and then adjusted to reflect the relative risk of the asset. As of June 29, 2024, the valuation of the intangible assets is preliminary as the Company is still evaluating information related to the assets’ cash flow projections.
The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. As a result of the acquisition of Attune Medical, the Company recognized goodwill of $69.5 million based on
8
expected synergies from integration into our Hospital business. The goodwill is not deductible for tax purposes and relates entirely to the Hospital reportable segment.
Intangible assets acquired consist of the following:
| (In thousands) | Amount | Weighted-Average Amortization Period | Risk-Adjusted Discount Rates used in Purchase Price Allocation | ||||||||
| Developed technology | $ | % | |||||||||
| Customer contracts and related relationships | % | ||||||||||
| Trade names | % | ||||||||||
| Total | $ | ||||||||||
The Company recorded a long-term net deferred tax liability of $24.6 million primarily related to definite-lived intangible assets which cannot be deducted for tax purposes, partially offset by deferred tax assets primarily related to net operating losses acquired.
Acquisition-Related Costs
The Company incurred $9.8 million of acquisition-related costs for the three months ended June 29, 2024 in connection with the acquisition. These costs related to legal and other professional fees, which were recognized in selling, general and administrative on the Condensed Consolidated Statements of Income.
The Company’s condensed consolidated financial statements include the results of Attune Medical from the date the acquisition was completed. Pro forma financial information has not been presented as the acquisition is not material to the Company’s overall financial results.
OpSens Inc.
On October 10, 2023, the Company entered into an Arrangement Agreement with OpSens Inc. (“OpSens”), a medical device cardiology-focused company delivering solutions based on its proprietary optical technology, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of OpSens. On December 12, 2023, the Company completed its acquisition of OpSens for total consideration of approximately $254.5 million, or $243.9 million, net of cash acquired. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility.
OpSens offers commercially and clinically validated optical technology for use primarily in interventional cardiology. OpSens’ core products include the SavvyWire®, a sensor-guided 3-in-1 guidewire for TAVR procedures, advancing the workflow of the procedure and enabling potentially shorter hospital stays for patients; and the OptoWire®, a pressure guidewire that aims to improve clinical outcomes by accurately and consistently measuring Fractional Flow Reserve (FFR) and diastolic pressure ratio (dPR) to aid clinicians in the diagnosis and treatment of patients with coronary artery disease. OpSens also manufactures a range of fiber optic sensor solutions used in medical devices and other critical industrial applications. The addition of OpSens expands the Hospital business unit portfolio in the interventional cardiology market and is included in the Hospital reportable segment.
Purchase Price Allocation
The Company accounted for the acquisition as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (Topic 805), recorded the assets acquired and liabilities assumed at their fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed have been recognized based on management’s estimates and assumptions using the information regarding facts and circumstances that existed at the closing date.
9
The purchase price of $243.9 million, net of $10.6 million of cash acquired consists of the amounts presented below, which represent the final determination of the fair value of the identifiable assets acquired and liabilities assumed:
| (In thousands) | December 12, 2023 | ||||
| Accounts receivable | $ | ||||
| Inventories | |||||
| Prepaid expenses and other current assets | |||||
| Property, plant and equipment | |||||
| Intangible assets | |||||
| Goodwill | |||||
| Other long-term assets | |||||
| Total assets acquired | $ | ||||
| Accounts payable | |||||
| Accrued payroll and related costs | |||||
| Other liabilities | |||||
| Deferred tax liability | |||||
| Other long-term liabilities | |||||
| Total liabilities assumed | $ | ||||
| Net assets acquired | $ | ||||
The Company determined the identifiable intangible assets were developed technology, customer contracts and related relationships and trade names. The fair values of intangible assets were based on valuation techniques with estimates and assumptions developed by the Company. Developed technology and customer contracts and related relationships were valued using the excess earnings method. Trademarks were valued using the relief from royalty method. The cash flows used in the valuation of the intangible assets were based on estimates used to price the transaction. In developing the discount rates applied to the cash flow projections, the discount rates were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital and then adjusted to reflect the relative risk of the asset.
The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. As a result of the acquisition of OpSens, the Company recognized goodwill of $79.4 million based on expected synergies from integration into our Hospital business. The goodwill is not deductible for tax purposes and relates entirely to the Hospital reportable segment.
Intangible assets acquired consist of the following:
| (In thousands) | Amount | Weighted-Average Amortization Period | Risk-Adjusted Discount Rates used in Purchase Price Allocation | ||||||||
| Developed technology | $ | % | |||||||||
| Customer contracts and related relationships | % | ||||||||||
| Trade names | % | ||||||||||
| Total | $ | ||||||||||
The Company recorded a net long-term deferred tax liability of $14.8 million, primarily as a result of fair value adjustments recorded associated with intangible assets and inventory in which there is no tax basis.
Acquisition-Related Costs
The Company incurred $6.6 million of acquisition-related costs for fiscal 2024 in connection with the OpSens acquisition. These costs related to legal and other professional fees, which were recognized in selling, general and administrative on the Condensed Consolidated Statements of Income.
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The Company’s condensed consolidated financial statements include the results of OpSens from the date the acquisition was completed. Pro forma financial information has not been presented as the acquisition is not material to the Company’s overall financial results.
Strategic Investments
As part of the Company’s business development activities, it holds strategic investments in certain entities. During fiscal 2024, the Company made an additional investment in Vivasure Medical LTD (“Vivasure”) of €5.0 million, resulting in total investment of €35 million. The investments include both preferred stock and a special share that allows the Company to acquire Vivasure in accordance with an agreement between the parties. In addition, the Company made other certain strategic investments totaling $7.6 million during fiscal 2024. The Company’s strategic investments are classified as other long-term assets on the Company’s Condensed Consolidated Balance Sheets and the Company has not
4. REVENUE
As of June 29, 2024, the Company had $28.9 million of 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 77 % of this amount as revenue within the next twelve months and the remaining balance thereafter.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and contract assets, as well as customer advances, customer deposits and deferred revenue (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 June 29, 2024 and March 30, 2024, the Company had contract liabilities of $33.6 million and $31.2 million, respectively. During the three months ended June 29, 2024, the Company recognized $13.3 million of revenue that was included in the above March 30, 2024 contract liability balance. Contract liabilities are classified as other current liabilities on the Condensed Consolidated Balance Sheet. As of June 29, 2024 and March 30, 2024, the Company’s contract assets were immaterial.
5. 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.
Operating Excellence Program
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 expects to incur aggregate charges between $85 million and $95 million by the end of fiscal 2025 under the program. 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 June 29, 2024 and July 1, 2023 the Company incurred $2.4 million and $2.2 million of restructuring and restructuring related costs under this program, respectively. Total cumulative charges under this program are $79.4 million.
Portfolio Rationalization Initiatives
In November 2023, the Company announced its plans to end of life the ClotPro analyzer system within the Hospital business unit and certain products within the Blood Center business unit, primarily in Whole Blood, including the associated manufacturing operations and closure of certain other facilities. In the three months ended June 29, 2024, the Company incurred $4.8 million of restructuring and restructuring related costs related to portfolio rationalization initiatives.
11
The following table summarizes the activity for restructuring reserves related to portfolio rationalization initiatives and the 2020 Program for the three months ended June 29, 2024, which relates to employee severance, other employee costs and inventory reserves:
| (In thousands) | Portfolio Rationalization | 2020 Program | Total | |||||||||||||||||
Balance at March 30, 2024 | $ | $ | $ | |||||||||||||||||
| Costs incurred, net of reversals | ||||||||||||||||||||
| Payments | ( | ( | ( | |||||||||||||||||
Balance at June 29, 2024 | $ | $ | $ | |||||||||||||||||
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) | June 29, 2024 | July 1, 2023 | |||||||||
| Cost of goods sold | $ | $ | |||||||||
| Research and development | ( | ||||||||||
| Selling, general and administrative expenses | ( | ||||||||||
| Total | $ | $ | ( | ||||||||
As of June 29, 2024, the Company had a restructuring liability of $13.3 million, all of which is payable within the next twelve months.
In addition to the restructuring expenses included in the table above, the Company also incurred costs that do not constitute restructuring costs 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.
The tables below present restructuring and restructuring related costs by reportable segment:
| Restructuring costs | Three Months Ended | ||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Plasma | $ | $ | ( | ||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Corporate | |||||||||||
| Total | $ | $ | ( | ||||||||
| Restructuring related costs | Three Months Ended | ||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Corporate | |||||||||||
| Total | $ | $ | |||||||||
| Total restructuring and restructuring related costs | $ | $ | |||||||||
6. 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 differs from the statutory tax rate due to 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. The
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Company’s effective tax rate is adversely impacted by non-deductible expenses including executive compensation and transaction costs.
For the three months ended June 29, 2024, the Company reported income tax expense of $8.3 million, representing an effective tax rate of 17.9 %. The effective tax rate for the three months ended June 29, 2024 includes $3.6 million of discrete tax benefit, primarily related to stock compensation windfalls. The discrete benefit also includes other items such as provision to return differences.
For the three months ended July 1, 2023, the Company reported income tax expense of $10.5 million, representing an effective tax rate of 20.4 %. The effective tax rate for the three months ended July 1, 2023 includes $1.2 million of discrete tax benefit primarily related to stock compensation windfalls.
The decrease in the reported tax rates for the three months ended June 29, 2024, compared to the same period in fiscal 2024, relates primarily to increased discrete tax benefits year-over-year, partially offset by unfavorable impact of jurisdictional mix of earnings and non-deductible acquisition-related expenses.
7. 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) | June 29, 2024 | July 1, 2023 | |||||||||
| Basic EPS | |||||||||||
| Net income | $ | $ | |||||||||
| Weighted average shares | |||||||||||
| Basic income per share | $ | $ | |||||||||
| Diluted EPS | |||||||||||
| Net income | $ | $ | |||||||||
| Basic weighted average shares | |||||||||||
| Net effect of common stock equivalents | |||||||||||
| Diluted weighted average shares | |||||||||||
| Diluted income per share | $ | $ | |||||||||
Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares. Diluted earnings per share is calculated using its weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method and the outstanding 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 applicable initial conversion prices, and consequently no shares have been included in diluted earnings per share for the conversion values of both convertible senior notes. For the three months ended June 29, 2024 and July 1, 2023, weighted average shares outstanding, assuming dilution, excludes the impact of 0.7 0.6 million anti-dilutive shares, respectively.
Share Repurchase Program
In August 2022, the Company announced that its Board of Directors had approved a three-year share repurchase program authorizing the repurchase of up to $300.0 million of Haemonetics common stock, based on market conditions, through August 2025. 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 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. As of June 29, 2024, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $225.0 million.
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8. 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) | June 29, 2024 | March 30, 2024 | ||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work-in-process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total inventories | $ | $ | ||||||||||||
9. PROPERTY, PLANT AND EQUIPMENT
| (In thousands) | June 29, 2024 | March 30, 2024 | ||||||||||||
| Land | $ | $ | ||||||||||||
| Building and building improvements | ||||||||||||||
| Plant equipment and machinery | ||||||||||||||
| Office equipment and information technology | ||||||||||||||
| Haemonetics equipment | ||||||||||||||
| Construction in progress | ||||||||||||||
| Total | ||||||||||||||
| Less: accumulated depreciation | ( | ( | ||||||||||||
| Property, plant and equipment, net | $ | $ | ||||||||||||
Depreciation expense was $14.6 million and $13.3 million for the three months ended June 29, 2024 and July 1, 2023, respectively.
In the first quarter of fiscal 2025, the Company received $19.9 million of cash upon the sale of a manufacturing facility and related assets that previously met held for sale criteria, which resulted in a gain of $14.1 million that was recorded in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income.
10. 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.
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11. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by operating segment for fiscal 2025 are as follows:
| (In thousands) | Plasma | Blood Center | Hospital | Total | |||||||||||||||||||
Carrying amount as of March 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
| Purchase accounting adjustments | ( | ( | |||||||||||||||||||||
| Acquisitions | |||||||||||||||||||||||
| Currency translation | ( | ( | ( | ||||||||||||||||||||
Carrying amount as of June 29, 2024 | $ | $ | $ | $ | |||||||||||||||||||
The decrease in goodwill of $20.0 million for purchase accounting adjustments was primarily related to the Company obtaining additional facts and information to finalize the pre-acquisition tax returns and associated analyses for OpSens. This resulted in the Company revising its estimate of the net deferred tax liability recorded as of the acquisition date. Refer to Note 3, Acquisitions and Strategic Investments, for additional information regarding the acquisitions of OpSens and Attune Medical.
The gross carrying amount of intangible assets and the related accumulated amortization as of June 29, 2024 and March 30, 2024 is as follows:
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||
As of June 29, 2024 | |||||||||||||||||
| Amortizable: | |||||||||||||||||
| Developed technology | $ | $ | $ | ||||||||||||||
| Customer contracts and related relationships | |||||||||||||||||
| Capitalized software | |||||||||||||||||
| Patents and other | |||||||||||||||||
| Trade names | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Non-amortizable: | |||||||||||||||||
| In-process software development | $ | ||||||||||||||||
| Total | $ | ||||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||
As of March 30, 2024 | |||||||||||||||||
| Amortizable: | |||||||||||||||||
| Developed technology | $ | $ | $ | ||||||||||||||
| Customer contracts and related relationships | |||||||||||||||||
| Capitalized software | |||||||||||||||||
| Patents and other | |||||||||||||||||
| Trade names | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Non-amortizable: | |||||||||||||||||
| In-process research and development | $ | ||||||||||||||||
| In-process software development | |||||||||||||||||
| Total | $ | ||||||||||||||||
During the first quarter of fiscal 2025, the Company acquired Attune Medical and recorded $94.0 million of developed technology, $7.6 million of customer contracts and related relationships and $1.8 million of trade name intangibles based on our preliminary purchase accounting valuation. Refer to Note 3, Acquisitions and Strategic Investments, for additional information regarding the acquisition.
In the first quarter of fiscal 2025, the Company announced the commercialization of MVP XL and moved the related in-process research and development intangible asset to developed technologies, and commenced amortization.
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Intangible assets include the value assigned to license rights and other developed technology, patents, customer contracts and relationships and trade names. The estimated useful lives for all of these intangible assets are approximately 5 to 15 years.
Amortization expense was $14.5 million and $9.7 million for the three months ended June 29, 2024 and July 1, 2023, respectively.
Future annual amortization expense on intangible assets for the next five years is estimated to be as follows:
| (In thousands) | ||||||||
| Remainder of Fiscal 2025 | $ | |||||||
| Fiscal 2026 | $ | |||||||
| Fiscal 2027 | $ | |||||||
| Fiscal 2028 | $ | |||||||
| Fiscal 2029 | $ | |||||||
12. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
| (In thousands) | June 29, 2024 | March 30, 2024 | |||||||||
| Convertible notes | $ | $ | |||||||||
| Term loan, net of financing fees | |||||||||||
| Revolving credit facility | |||||||||||
| Other borrowings | |||||||||||
| Less current portion | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
Convertible Senior Notes
2026 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 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased. In the first quarter of fiscal 2025, the Company repurchased $200.0 million of the aggregate principal amount for $185.5 million, resulting in a gain of $14.5 million related to the discount on repurchase. As the repurchase of the 2026 Notes met the criteria for extinguishment accounting, $1.9 million of unamortized debt issuance costs were allocated to the repurchase, resulting in a net gain of $12.6 million, which was recorded in Interest and other income (expense), net on the Condensed Consolidated Statements of Income.
During the first quarter of fiscal 2025, the conditions allowing holders of the 2026 Notes to convert have not been met. The 2026 Notes were therefore not convertible as of June 29, 2024 and were classified as long-term debt on the Company’s Condensed Consolidated Balance Sheets.
As of June 29, 2024, the $300.0 million principal balance was netted down by $2.6 million of remaining debt issuance costs, resulting in a net convertible note payable of $297.4 million. Interest expense related to the 2026 Notes was $0.7 million for the three months ended June 29, 2024, which is entirely attributable to the amortization of the debt issuance costs. The remaining debt issuance costs are amortized at an effective interest rate of 0.5 %.
2029 Notes
On May 28, 2024, the Company issued $700.0 million aggregate principal amount of 2.5 % convertible senior notes due 2029 (the “2029 Notes”). The 2029 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee. The total net proceeds from the sale of the 2029 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were $682.8 million, with a portion of funds used to repay the entirety of the balance on the revolving credit facility under the Company’s second amended and restated credit agreement, to repurchase a portion of the Company’s
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2026 Notes and to complete capped call transactions in connection with the issuance of the 2029 Notes, as described further below. The Company intends to use the remainder of the proceeds for working capital and other general purposes, which may include additional repurchases of the 2026 Notes from time to time following the offering, or the repayment at maturity of the 2026 Notes. The 2029 Notes will mature on June 1, 2029, unless earlier converted, redeemed or repurchased.
Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 1, 2028 only under the following circumstances:
•During any calendar quarter (and only during such calendar quarter) beginning after September 30, 2024, if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter;
•During the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of the 2029 Notes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;
•The Company issues to common stockholders any rights, options, or warrants, entitling them, for a period of not more than 60 days, to purchase shares of common stock at a price per share less than the average closing sale price of 10 consecutive trading days, or the Company’s election to make a distribution to common stockholders exceeding 10 % of the previous day’s closing sale price;
•Upon the occurrence of specified corporate events, as set forth in the indenture governing the 2029 Notes; or
•Prior to the related redemption date if the Company calls the 2029 Notes for redemption.
On or after December 1, 2028, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2029 Notes, in multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances. The conversion rate for the 2029 Notes is 8.5385 shares of common stock per $1,000 principal amount of notes (which is equal to an initial conversion price of approximately $117.12 per share of the Company’s common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, common stock or a combination of cash and common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the notes being converted. If a make-whole adjustment event, as described in the Indenture, occurs and a holder elects to convert its 2029 Notes in connection with such make-whole adjustment event, such holder may be entitled to an increase in the conversion rate as described in the Indenture.
During the first quarter of fiscal 2025, the conditions allowing holders of the 2029 Notes to convert have not been met. The 2029 Notes were therefore not convertible as of June 29, 2024 and were classified as long-term debt on the Company’s consolidated balance sheets.
The 2029 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2027 and on or before the 50th scheduled trading day immediately before the maturity date, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately before the date the Company sends the related redemption notice at a redemption price equal to 100 % of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. Upon the occurrence of certain fundamental changes involving the Company, holders of the 2029 Notes may require the Company to repurchase for cash all or part of their 2029 Notes at a repurchase price equal to 100 % of the principal amount of the 2029 Notes to be repurchased, plus
accrued and unpaid interest.
As a result of the issuance of the 2029 Notes, the Company recorded debt issuance costs of $17.2 million, which will be amortized to interest expense over the contractual term of the 2029 Notes at an effective interest rate of 3.0 %.
As of June 29, 2024, the $700.0 million principal balance was netted down by $17.0 million of remaining debt issuance costs, resulting in a net convertible note payable of $683.0 million. Interest expense related to the 2029 Notes was $1.4 million for the three months ended June 29, 2024, which includes nominal interest expense and the amortization of the debt issuance costs.
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Capped Calls
In connection with the issuance of the 2029 Notes, the Company entered into capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $117.12 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2029 Notes. The Capped Calls have initial cap prices of $180.18 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s common stock upon any conversion of the 2029 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 5.98 million shares of the Company’s common stock. For accounting purposes, the Capped Calls are separate transactions, and not part of the 2029 Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $88.2 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.
Credit Facilities
On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance its credit facilities initially entered into in 2018 and extend their maturity date through June 2025. The amended and restated credit agreement provided for a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility (together, the “2022 Revised Credit Facilities”) with applicable interest rates during the period established using an annual rate equal to the Adjusted Term SOFR Rate plus an applicable rate ranging from 1.125 % to 1.750 % based on the Company’s consolidated net leverage ratio, as specified in the agreement.
On April 30, 2024, the Company entered into a second amended and restated credit agreement with certain lenders to refinance the 2022 Revised Credit Facilities and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan, the proceeds of which, along with $12.5 million of cash on hand, were used to retire the balance of the term loan under the 2022 Revised Credit Facilities, and a $750.0 million senior unsecured revolving credit facility (together, the “2024 Revised Credit Facilities”). Loans under the 2024 Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the second amended and restated credit agreement), which is subject to a floor of 0.0 %, plus an applicable rate ranging from 1.125 % to 1.750 % based on the Company’s consolidated net leverage ratio (as specified in the second amended and restated credit agreement) at the applicable measurement date. 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. The 2024 Revised Credit Facilities mature on April 30, 2029. The principal amount of the term loan under the 2024 Revised Credit Facilities amortizes quarterly through the maturity date at a rate of 2.5 % for the first three years following the closing date, 5.0 % for the fourth year following the closing date and 7.5 % for the fifth year following the closing date, with the unpaid balance due at maturity.
Under the 2024 Revised Credit Facilities, the Company is required to maintain a consolidated leverage ratio not to exceed 4.0 :1.0 or, on up to two occasions during the term of the facility, 4.5 :1.0 for the four consecutive fiscal quarters ended immediately following acquisitions meeting certain criteria specified in the agreement.
The Company applied modification accounting for the credit facility refinancing, which resulted in the capitalization of an additional $5.9 million in lender fees and third-party costs. During the three months ended June 29, 2024, the Company recognized $7.1 million of interest expense and amortization of debt issuance costs related to its credit facilities.
At June 29, 2024, $248.4 million was outstanding under the term loan with an effective interest rate of 6.8 %, which was netted down by the $6.2 million of remaining debt discount, resulting in a net note payable of $242.2 million. The Company has scheduled principal payments of $6.3 million required during the 12 months following June 29, 2024. There were no outstanding borrowings under the revolving credit facilities at June 29, 2024, as the Company paid all outstanding borrowings during the first quarter of fiscal 2025. The Company also had $17.6 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of June 29, 2024.
The Company was in compliance with the leverage and interest coverage ratios specified in the 2024 Revised Credit Facilities as well as all other bank covenants as of June 29, 2024.
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The future aggregate amount of debt maturities are as follows:
| (In thousands) | |||||
| Remainder of Fiscal 2025 | $ | ||||
| Fiscal 2026 | $ | ||||
| Fiscal 2027 | $ | ||||
| Fiscal 2028 | $ | ||||
| Fiscal 2029 | $ | ||||
| Thereafter | $ | ||||
13. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company manufactures, markets and sells its products globally. During the three months ended June 29, 2024, 26.0 % 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 Japanese Yen and Euro, and to a lesser extent, Swiss Franc and 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.
Designated Foreign Currency Hedge Contracts
All of the Company’s designated foreign currency hedge contracts as of June 29, 2024 and March 30, 2024 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 $49.0 million as of June 29, 2024 and $74.0 million as of March 30, 2024. At June 29, 2024, a gain of $0.3 million, net of tax, will be reclassified to earnings within the next twelve months. All currency cash flow hedges outstanding as of June 29, 2024 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 $27.4 million as of June 29, 2024 and $39.9 million as of March 30, 2024.
Interest Rate Swaps
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.
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On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance its credit facilities initially entered into in 2018 and extend their maturity date through June 2025. The 2022 Revised Credit Facilities include a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility. Loans under the 2022 Revised Credit Facilities bear interest at an annual rate equal to the 1-month USD Term SOFR plus 0.10 % and an applicable rate ranging from 1.125 % to 1.750 % based on the Company’s consolidated net leverage ratio. In September 2022, the Company entered into four interest rate swaps, two of which expired in June 2023. The Company has concluded that the two remaining interest rate swaps, which have an average blended fixed interest rate of 4.12 % plus the applicable rate and cover approximately 80 % of the notional value of the unsecured term loan through maturity in June 2025, are effective and qualify for hedge accounting treatment. The interest rate swaps remain unchanged as a result of the 2024 refinancing of the credit facilities.
The Company held the following interest rate swaps as of June 29, 2024:
| Hedged Item | Original Notional Amount | Notional Amount as of June 29, 2024 | Designation Date | Effective Date | Termination Date | Fixed Interest Rate | Estimated Fair Value Assets (Liabilities) | |||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 9/23/2022 | 6/15/2023 | 6/15/2025 | |||||||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 9/23/2022 | 6/15/2023 | 6/15/2025 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
For the three months ended June 29, 2024, the Company recorded a gain of $0.4 million, net of tax, in accumulated other comprehensive loss to recognize the effective portion of the fair value of the swaps that qualify as cash flow hedges.
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. The Company has not experienced significant customer payment defaults, or identified other significant collectability concerns.
The following is a roll forward of the allowance for credit losses:
| Three Months Ended | |||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Beginning balance | $ | $ | |||||||||
| Credit loss | |||||||||||
| Write-offs | ( | ( | |||||||||
| Ending balance | $ | $ | |||||||||
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.
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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.
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 June 29, 2024:
| Derivative Instruments | 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 | |||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Designated foreign currency hedge contracts, net of tax | $ | $ | ( | Net revenues, COGS and SG&A | $ | |||||||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | $ | $ | $ | |||||||||||||||||||||||||||||
| Designated interest rate swaps, net of tax | $ | $ | $ | |||||||||||||||||||||||||||||
The Company did not have fair value hedges or net investment hedges outstanding as of June 29, 2024 or March 30, 2024. As of June 29, 2024, 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, the Company 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 June 29, 2024, 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.
The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of June 29, 2024 and March 30, 2024:
| (In thousands) | Location in Condensed Consolidated Balance Sheets | As of | As of | |||||||||||||||||
| June 29, 2024 | March 30, 2024 | |||||||||||||||||||
| 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 | |||||||||||||||||||
| Designated interest rate swaps | Other long-term assets | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Derivative Liabilities: | ||||||||||||||||||||
| Designated foreign currency hedge contracts | Other current liabilities | $ | $ | |||||||||||||||||
| Non-designated foreign currency hedge contracts | Other current liabilities | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
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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 June 29, 2024 and March 30, 2024.
| As of June 29, 2024 | ||||||||||||||||||||||||||
| (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 | — | |||||||||||||||||||||||||
| $ | $ | $ | — | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | $ | $ | — | $ | |||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| Contingent consideration | — | — | ||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| As of March 30, 2024 | ||||||||||||||||||||||||||
| 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 | — | |||||||||||||||||||||||||
| $ | $ | $ | — | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | $ | $ | — | $ | |||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | |||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
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.
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.
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The level 3 fair value measurements of contingent consideration liabilities include the following significant unobservable inputs:
| Fair Value at | Valuation | Unobservable | ||||||||||||||||||||||||
| (In thousands) | June 29, 2024 | Technique | Input | Range | ||||||||||||||||||||||
| Revenue-based payments | $ | Monte Carlo Simulation Model | Discount rate | |||||||||||||||||||||||
| Projected year of payments | 2025 - 2027 | |||||||||||||||||||||||||
| Regulatory-based payment | $ | Monte Carlo Simulation Model | Discount rate | |||||||||||||||||||||||
| Probability of payment | 50% | |||||||||||||||||||||||||
| Projected year of payment | 2026 - 2028 | |||||||||||||||||||||||||
| Event-based payment | $ | Monte Carlo Simulation Model | Discount rate | |||||||||||||||||||||||
| Projected year of payment | 2028 | |||||||||||||||||||||||||
The fair value of contingent consideration associated with the Attune Medical acquisition was $25.0 million at June 29, 2024. As of June 29, 2024, $5.9 million was included in other current liabilities and $19.1 million was included in other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company has deemed the change in fair value of the contingent consideration liability to be immaterial during the first quarter of fiscal 2025 and therefore did not record any adjustments.
A reconciliation of the change in the fair value of contingent consideration is included in the following table:
| (In thousands) | ||||||||
Balance at March 30, 2024 | $ | |||||||
| Acquisition date fair value of contingent consideration | ||||||||
Balance at June 29, 2024 | $ | |||||||
Other Fair Value Disclosures
The fair values of the 2026 Notes and 2029 Notes were $271.9 million and $688.0 million as of June 29, 2024, respectively, which were determined by using the market price on the last trading day of the reporting period and are considered as level 2 in the fair value hierarchy.
14. 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.
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. The Company removed the case to the United States District Court for the Northern District Illinois. 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 fingerprint on a finger scanner that stored her fingerprint 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 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. In March 2023, the Company filed a second motion to dismiss the complaint, which is pending before the court. During the second quarter of fiscal 2024, the Company entered into a Memorandum of Understanding providing terms that would resolve the litigation and recorded an additional loss contingency related to this matter. In the third quarter of fiscal 2024, the parties
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requested preliminary court approval of a final settlement agreement, which was granted in February 2024, and the Company recorded an immaterial additional loss contingency related to settlement administration, resulting in an accrual of $8.7 million within Other current liabilities in its consolidated balance sheets. In March 2024, notice of the settlement was mailed to class members and the parties are now awaiting the complete administration of the settlement through the third-party administrator. In the first quarter of fiscal 2025, the Company issued payment of the $8.7 million settlement amount following the court's final approval of the settlement agreement and dismissal of the matter with prejudice.
During the fourth quarter of fiscal 2024, a complaint was filed in the U.S. District Court for the District of Delaware by Knoninklijke Philips N.V. and IP2IPO Innovations, Ltd. (together, the “Plaintiffs”) against OpSens, OpSens Medical, Inc., a wholly-owned subsidiary of OpSens, and Haemonetics (1:24-cv-00206-CFC). The complaint alleges, inter alia, that OpSens’ interventional cardiology systems, including its OptoWire and OptoMonitor technology, infringe a single patent held by the Plaintiffs and seeks both injunctive relief and damages. The Company believes it has valid and meritorious defenses to the complaint and plans to vigorously defend against the complaint. During the first quarter of fiscal 2025, the Company recorded a loss contingency related to this matter, which did not have a material impact on its Condensed Consolidated Financial Statements.
Product Recall
In August 2023, the Company issued a voluntary recall of certain products within the Whole Blood portion of our Blood Center business unit sold to customers in the U.S. and certain foreign jurisdictions. In fiscal 2024, the Company recorded cumulative charges of $6.8 million related to inventory, returns and customer claims associated with this recall. Substantially all outstanding claims have been paid as of June 29, 2024.
15. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of Accumulated Other Comprehensive Loss, net of tax, are as follows:
| (In thousands) | Foreign Currency | Defined Benefit Plans | Net Unrealized Gain (Loss) on Derivatives | Total | ||||||||||||||||||||||
| Balance as of March 30, 2024 | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
Other comprehensive income (loss) before reclassifications(1) | ( | ( | ||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss(1) | ( | ( | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||
| Balance as of June 29, 2024 | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
(1) Presented net of income taxes, the amounts of which are insignificant. | ||||||||||||||||||||||||||
16. 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 and operating 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. 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
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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) | June 29, 2024 | July 1, 2023 | |||||||||
Net revenues(1) | |||||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Net revenues in constant currency | |||||||||||
| Effect of exchange rates | ( | ||||||||||
| Net revenues | $ | $ | |||||||||
(1) Beginning in fiscal 2025, the Company integrated service revenue within its three business units. Prior periods were conformed to current presentation. | |||||||||||
| Three Months Ended | |||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Segment operating income | |||||||||||
| Plasma | $ | $ | |||||||||
| Blood Center | |||||||||||
| Hospital | |||||||||||
| Segment operating income | |||||||||||
Corporate expenses (1) | ( | ( | |||||||||
| Effect of exchange rates | ( | ||||||||||
| Amortization of acquired intangible assets | ( | ( | |||||||||
| Amortization of fair value inventory step-up | ( | ||||||||||
| Integration and transaction costs | ( | ( | |||||||||
| Restructuring costs | ( | ||||||||||
| Restructuring related costs | ( | ( | |||||||||
| Digital transformation costs | ( | ( | |||||||||
| Impairment of assets and PCS2 related charges | |||||||||||
| MDR and IVDR costs | ( | ( | |||||||||
| Litigation-related charges | ( | ( | |||||||||
| Gain on sale of property, plant and equipment | |||||||||||
| 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. | |||||||||||
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Net revenues by business unit are as follows:
| Three Months Ended | ||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | ||||||||||||
| Plasma | $ | $ | ||||||||||||
| Apheresis | ||||||||||||||
| Whole Blood | ||||||||||||||
| Blood Center | ||||||||||||||
Interventional Technologies(1) | ||||||||||||||
Blood Management Technologies(2) | ||||||||||||||
| Hospital | ||||||||||||||
Net revenues(3) | $ | $ | ||||||||||||
(1) Interventional Technologies includes Vascular Closure, Sensor Guided Technologies and Esophageal Protection product lines of the Hospital business unit. | ||||||||||||||
(2) Blood Management Technologies includes Hemostasis Management, Cell Salvage and Transfusion Management product lines of the Hospital business unit. | ||||||||||||||
(3) Beginning in fiscal 2025, the Company integrated service revenue within its three business units. Prior periods were conformed to current presentation. | ||||||||||||||
Net revenues generated in the Company’s principle operating regions on a reported basis are as follows:
| Three Months Ended | |||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| United States | $ | $ | |||||||||
| Japan | |||||||||||
| Europe | |||||||||||
| Rest of Asia | |||||||||||
| Other | |||||||||||
| Net revenues | $ | $ | |||||||||
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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 March 30, 2024. 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 is a global healthcare company dedicated to providing a suite of innovative medical technology solutions that improve the quality, effectiveness and efficiency of care. We challenge ourselves to think big and make new possibilities a reality, so that our customers can make it matter for patients, every single day. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services.
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, donor management software and supporting software solutions sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital” is comprised of Interventional Technologies, which includes Vascular Closure, Sensor Guided Technologies and Esophageal Protection products, and Blood Management Technologies, which includes Hemostasis Management, Cell Salvage and Transfusion Management products.
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
Issuance of Convertible Senior Notes
On May 28, 2024, we issued $700.0 million aggregate principal amount of 2.5% convertible senior notes due 2029 (the “2029 Notes”). The 2029 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee. The total net proceeds from the sale of the 2029 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were $682.8 million, of which $230.0 million was used to repay the entirety of the balance on the revolving credit facility under the Company’s current credit agreement, $185.5 million was used to repurchase a portion of our existing 0% convertible senior notes due 2026 and $88.2 million was used to complete capped call transactions, with the remaining proceeds available for working capital and other general purposes. The 2029 Notes will mature on June 1, 2029, unless earlier converted, redeemed or repurchased.
Debt Issuance and Repayment
On April 30, 2024, we entered into a second amended and restated credit agreement with certain lenders to refinance our prior credit facilities and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan, the proceeds of which, along with $12.5 million of cash on hand, have been used to retire the balance of the term loan under our prior credit facilities, and a $750.0 million senior unsecured revolving credit facility.
Acquisition of Attune Medical
On March 5, 2024, the Company entered into a definitive agreement to acquire Advanced Cooling Therapy, Inc., d/b/a Attune Medical (“Attune Medical”), the manufacturer of the ensoETM® proactive esophageal cooling device, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of Attune Medical. On April 1, 2024, the Company completed its acquisition of Attune Medical for total consideration of $186.2 million, which included an upfront cash payment of $160.7 million, or $149.2 million net of cash acquired, the fair value of contingent consideration of $25.0 million, and $0.5 million of estimated working capital adjustments. The Company’s purchase price is subject to customary working capital and certain other adjustments as of the closing of the transaction and additional contingent consideration based on sales growth over the next three years, which is uncapped, and the achievement of certain other
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milestones. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility.
Attune Medical's ensoETM technology is designed for use across a range of medical conditions involving patient cooling or warming, including treatment in electrophysiology, critical care, neurocritical care, trauma, burn surgery, spine surgery, and cancer surgery, among others. The Company’s addition of the Esophageal Protection product line through its acquisition of Attune Medical expands the Hospital business unit’s presence in electrophysiology and complements its Vascular Closure product line within Interventional Technologies, which is included in the Hospital reportable segment.
Acquisition of OpSens Inc.
On October 10, 2023, the Company entered into an Arrangement Agreement with OpSens Inc. (“OpSens”), a medical device cardiology-focused company delivering solutions based on its proprietary optical technology, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of OpSens. On December 12, 2023, the Company completed its acquisition of OpSens for total consideration of approximately $254.5 million, or $243.9 million, net of cash acquired. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility.
OpSens offers commercially and clinically validated optical technology for use primarily in interventional cardiology. OpSens’ core products include the SavvyWire®, a sensor-guided 3-in-1 guidewire for TAVR procedures, advancing the workflow of the procedure and enabling potentially shorter hospital stays for patients; and the OptoWire®, a pressure guidewire that aims to improve clinical outcomes by accurately and consistently measuring Fractional Flow Reserve (FFR) and diastolic pressure ratio (dPR) to aid clinicians in the diagnosis and treatment of patients with coronary artery disease. OpSens also manufactures a range of fiber optic sensor solutions used in medical devices and other critical industrial applications. The addition of OpSens expands the Hospital business unit portfolio in the interventional cardiology market and is included in the Hospital reportable segment.
Financial Summary
| Three Months Ended | |||||||||||||||||
| (In thousands, except per share data) | June 29, 2024 | July 1, 2023 | % Increase/ (Decrease) | ||||||||||||||
| Net revenues | $ | 336,172 | $ | 311,332 | 8.0 | % | |||||||||||
| Gross profit | $ | 174,924 | $ | 167,265 | 4.6 | % | |||||||||||
| % of net revenues | 52.0 | % | 53.7 | % | |||||||||||||
| Operating expenses | $ | 135,168 | $ | 113,606 | 19.0 | % | |||||||||||
| Operating income | $ | 39,756 | $ | 53,659 | (25.9) | % | |||||||||||
| % of net revenues | 11.8 | % | 17.2 | % | |||||||||||||
| Interest and other income (expense), net | $ | 6,957 | $ | (2,069) | n/m | ||||||||||||
| Income before provision for income taxes | $ | 46,713 | $ | 51,590 | (9.5) | % | |||||||||||
| Provision for income taxes | $ | 8,340 | $ | 10,548 | (20.9) | % | |||||||||||
| % of pre-tax income | 17.9 | % | 20.4 | % | |||||||||||||
| Net income | $ | 38,373 | $ | 41,042 | (6.5) | % | |||||||||||
| % of net revenues | 11.4 | % | 13.2 | % | |||||||||||||
| Net income per share - basic | $ | 0.75 | $ | 0.81 | (7.4) | % | |||||||||||
| Net income per share - diluted | $ | 0.74 | $ | 0.80 | (7.5) | % | |||||||||||
Net revenues increased 8.0% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, net revenues increased 8.7% during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. Revenue increases in our Hospital businesses, primarily related to recent acquisitions as well as volume and price benefits, drove the overall increase in revenue during the three months ended June 29, 2024.
Operating income decreased 25.9% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily due to transaction and integration costs related
28
to recent acquisitions, continuous growth investments, increased amortization of acquired intangible assets and increased freight costs, partially offset by operating leverage.
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 in the 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 with U.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 provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.
RESULTS OF OPERATIONS
Net Revenues by Geography
| Three Months Ended | ||||||||||||||||||||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | Reported growth | Currency impact | Constant currency growth (1) | |||||||||||||||||||||||||||
| United States | $ | 248,902 | $ | 237,073 | 5.0 | % | — | % | 5.0 | % | ||||||||||||||||||||||
| International | 87,270 | 74,259 | 17.5 | % | (1.9) | % | 19.4 | % | ||||||||||||||||||||||||
| Net revenues | $ | 336,172 | $ | 311,332 | 8.0 | % | (0.7) | % | 8.7 | % | ||||||||||||||||||||||
(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 the United States, Europe, Japan and other parts of Asia. Our products are marketed in approximately 90 countries around the world through a combination of our direct sales force and independent distributors and agents. During the three months ended June 29, 2024 our revenue generated outside the U.S. was 26.0% of total net revenues, as compared with 23.9% during the three months ended July 1, 2023. International sales are generally conducted in local currencies, primarily Japanese Yen, Euro and Chinese Yuan. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen and Euro relative to the U.S. Dollar. We have placed foreign currency hedges on certain foreign currencies 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.
29
Net Revenues by Business Unit
| Three Months Ended | ||||||||||||||||||||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | Reported growth | Currency impact | Constant currency growth(1) | |||||||||||||||||||||||||||
| Plasma | $ | 135,910 | $ | 139,621 | (2.7) | % | (0.1) | % | (2.6) | % | ||||||||||||||||||||||
| Apheresis | 49,094 | 49,166 | (0.1) | % | (3.0) | % | 2.9 | % | ||||||||||||||||||||||||
| Whole Blood | 17,151 | 20,040 | (14.4) | % | (0.2) | % | (14.2) | % | ||||||||||||||||||||||||
| Blood Center | 66,245 | 69,206 | (4.3) | % | (2.2) | % | (2.1) | % | ||||||||||||||||||||||||
Interventional Technologies(2) | 63,044 | 37,620 | 67.6 | % | (0.4) | % | 68.0 | % | ||||||||||||||||||||||||
Blood Management Technologies(3) | 70,973 | 64,885 | 9.4 | % | (0.6) | % | 10.0 | % | ||||||||||||||||||||||||
| Hospital | 134,017 | 102,505 | 30.7 | % | (0.6) | % | 31.3 | % | ||||||||||||||||||||||||
Net revenues(4) | $ | 336,172 | $ | 311,332 | 8.0 | % | (0.7) | % | 8.7 | % | ||||||||||||||||||||||
(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) Interventional Technologies includes Vascular Closure, Sensor Guided Technologies and Esophageal Protection product lines of the Hospital business unit. | ||||||||||||||||||||||||||||||||
(3) Blood Management Technologies includes Hemostasis Management, Cell Salvage and Transfusion Management product lines of the Hospital business unit. | ||||||||||||||||||||||||||||||||
(4) Beginning in fiscal 2025, the Company integrated service revenue within its three business units. Prior periods were conformed to current presentation. | ||||||||||||||||||||||||||||||||
Plasma
Plasma revenue decreased 2.7% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, Plasma revenue decreased 2.6% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily driven by lower sales volumes in North America relating to a previously announced customer transition and a temporary plasma center outage at one of our customers.
During the third quarter of fiscal 2022, we amended our supply agreement with CSL, which CSL had previously notified us of its intent not to renew and was initially set to expire in June 2022, to allow CSL to continue to use our PCS2 plasma collection system devices and purchase disposable plasmapheresis kits on a non-exclusive basis through December 2023. During the third quarter of fiscal 2023, we further amended our supply agreement with CSL to extend the term through December 2025. CSL has a minimum purchase commitment under the non-exclusive supply agreement of approximately $85 million in fiscal 2025.
Blood Center
Blood Center revenue decreased 4.3% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, Blood Center revenue decreased 2.1% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily driven by declines in our Whole Blood business.
Hospital
Hospital revenue increased 30.7% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, Hospital revenue increased 31.3% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was primarily attributable to the product lines within the Interventional Technologies franchise with benefits from Sensor Guided Technologies and Esophageal Protection that were recently acquired, as well as growth in Vascular Closure.
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Gross Profit
| Three Months Ended | |||||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | % Increase | ||||||||||||||
| Gross profit | $ | 174,924 | $ | 167,265 | 4.6 | % | |||||||||||
| % of net revenues | 52.0 | % | 53.7 | % | |||||||||||||
Gross profit increased 4.6% for the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, gross profit increased 5.8% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was driven by increased revenues in the Hospital business and volume and mix, partially offset by amortization of fair value inventory step-up and restructuring costs related to portfolio rationalization initiatives.
Operating Expenses
| Three Months Ended | |||||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | % Increase | ||||||||||||||
| Research and development | $ | 14,449 | $ | 12,648 | 14.2 | % | |||||||||||
| % of net revenues | 4.3 | % | 4.1 | % | |||||||||||||
| Selling, general and administrative | $ | 108,248 | $ | 93,485 | 15.8 | % | |||||||||||
| % of net revenues | 32.2 | % | 30.0 | % | |||||||||||||
| Amortization of acquired intangible assets | $ | 12,471 | $ | 7,473 | 66.9 | % | |||||||||||
| % of net revenues | 3.7 | % | 2.4 | % | |||||||||||||
| Total operating expenses | $ | 135,168 | $ | 113,606 | 19.0 | % | |||||||||||
| % of net revenues | 40.2 | % | 36.5 | % | |||||||||||||
Research and Development
Research and development expenses increased 14.2% during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. Without the effects of foreign exchange, research and development expenses increased 14.2% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was due to increased headcount as a result of recent acquisitions.
Selling, General and Administrative
Selling, general and administrative expenses increased 15.8% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, selling, general, and administrative expenses increased 15.2% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was primarily driven by transaction, integration and operating costs related to recent acquisitions, as well as increased headcount, partially offset by gains realized on the sale of a manufacturing facility.
Amortization of Acquired Intangible Assets
We recognized amortization expense related to our acquired intangible assets of $12.5 million during the three months ended June 29, 2024 and $7.5 million during the three months ended July 1, 2023. The increase was related to the amortization of the intangible assets acquired in conjunction with the recent acquisitions of OpSens and Attune Medical.
Interest and Other Income (Expense), Net
Interest and other income increased $9.0 million during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. The increase during three months ended June 29, 2024 was driven by the net gain on the repurchase of convertible notes during the first quarter of fiscal 2025, partially offset by higher interest incurred on our term loan and revolving credit facilities as compared with the same period of fiscal 2024.
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Income Taxes
We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to the United States. Our reported tax rate differs from the statutory tax rate due to the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from the U.S. statutory tax rate. Our effective tax rate is adversely impacted by non-deductible expenses including executive compensation and transaction costs.
For the three months ended June 29, 2024, the Company reported income tax expense of $8.3 million, representing an effective tax rate of 17.9%. The effective tax rate for the three months ended June 29, 2024 includes $3.6 million of discrete tax benefit, primarily related to stock compensation windfalls. The discrete benefit also includes other items such as provision to return differences.
For the three months ended July 1, 2023, the Company reported income tax expense of $10.5 million, representing an effective tax rates of 20.4%. The effective tax rate for the three months ended July 1, 2023 includes $1.2 million of discrete tax benefit primarily related to stock compensation windfalls.
The decrease in the reported tax rates for the three months ended June 29, 2024, compared to the same period in fiscal 2024, relates primarily to increased discrete tax benefits year-over-year, partially offset by unfavorable impact of jurisdictional mix of earnings and non-deductible acquisition-related expenses.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
| (Dollars in thousands) | June 29, 2024 | March 30, 2024 | ||||||||||||
| Cash and cash equivalents | $ | 344,429 | $ | 178,800 | ||||||||||
| Working capital | $ | 718,502 | $ | 468,520 | ||||||||||
| Current ratio | 3.8 | 2.6 | ||||||||||||
Net debt position(1) | $ | (879,157) | $ | (628,993) | ||||||||||
| Days sales outstanding (DSO) | 54 | 54 | ||||||||||||
| Inventory turnover | 1.4 | 1.7 | ||||||||||||
(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 and our senior unsecured revolving credit facility. We believe these sources are sufficient to fund our cash requirements over at least the next twelve months and to meet our known long-term cash requirements, including our convertible senior notes due March 1, 2026. Our expected cash outlays relate primarily to acquisitions, investments, capital expenditures, including enhancements to our North American manufacturing facilities, share repurchases, portfolio rationalization initiatives and cash principal and interest payments under our revised credit agreements. As of June 29, 2024, we had $344.4 million in cash and cash equivalents, the majority of which is held in the U.S. or in countries from which it can be repatriated to the U.S.
In the first quarter of fiscal 2025, the Company used a portion of its proceeds from the 2029 Notes to repurchase, for $185.5 million, $200.0 million of the $500.0 million aggregate principal amount of its 0% convertible senior notes due 2026 (the “2026 Notes”), resulting in a gain of $14.5 million related to the discount on repurchase. As the repurchase of the 2026 Notes met the criteria for extinguishment accounting, $1.9 million of unamortized debt issuance costs were allocated to the repurchase, resulting in a net gain of $12.6 million. As of June 29, 2024, the $300.0 million remaining principal balance on the 2026 Notes was netted down by $2.6 million of remaining debt issuance costs, resulting in a net convertible note payable of $297.4 million. Interest expense related to the 2026 Notes was $0.7 million for the three months ended June 29, 2024, which is entirely attributable to the amortization of the debt issuance costs. The remaining debt issuance costs are amortized at an effective interest rate of 0.5%.
On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance its credit facilities initially entered into in 2018 and extend their maturity date through June 2025. The amended and restated credit agreement provided for a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility (together, the “2022 Revised Credit Facilities”) with applicable interest rates during the period established using an annual rate equal to the Adjusted Term SOFR Rate plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio, as specified in the agreement.
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On April 30, 2024, the Company entered into a second amended and restated credit agreement with certain lenders to refinance the 2022 Revised Credit Facilities and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan, the proceeds of which, along with $12.5 million of cash on hand, were used to retire the balance of the term loan under the 2022 Revised Credit Facilities, and a $750.0 million senior unsecured revolving credit facility (together, the “2024 Revised Credit Facilities”). Loans under the 2024 Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the second amended and restated credit agreement), which is subject to a floor of 0.0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the second amended and restated credit agreement) at the applicable measurement date. 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. The 2024 Revised Credit Facilities mature on April 30, 2029. The principal amount of the term loan under the 2024 Revised Credit Facilities amortizes quarterly through the maturity date at a rate of 2.5% for the first three years following the closing date, 5.0% for the fourth year following the closing date and 7.5% for the fifth year following the closing date, with the unpaid balance due at maturity.
At June 29, 2024, $248.4 million was outstanding under the term loan with an effective interest rate of 6.8%. There were no outstanding borrowings under the revolving credit facilities at June 29, 2024, as the Company paid all outstanding borrowings during the first quarter of fiscal 2025. The Company also had $17.6 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of June 29, 2024.
The Company has scheduled principal payments of $3.1 million required during the remainder of fiscal 2025 related to its term loan.
During fiscal 2022, our Board of Directors approved a revised Operational Excellence Program. We estimate that we will incur aggregate charges between $85 million and $95 million in connection with the Operational Excellence 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 ended June 29, 2024, we incurred $2.4 million of restructuring and restructuring related costs under this program.
Cash Flows
| Three Months Ended | ||||||||||||||
| (In thousands) | June 29, 2024 | July 1, 2023 | ||||||||||||
| Net cash provided by (used in): | ||||||||||||||
| Operating activities | $ | (27,421) | $ | 19,086 | ||||||||||
| Investing activities | (139,197) | (15,261) | ||||||||||||
| Financing activities | 333,692 | (598) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents(1) | (1,445) | (1,974) | ||||||||||||
| Net change in cash and cash equivalents | $ | 165,629 | $ | 1,253 | ||||||||||
(1) The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. Dollars. In accordance with U.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents.
Net cash used in operating activities increased by $46.5 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023. The increase in cash used in operating activities was primarily due to the timing of accounts payable payments, decreased net income when considering certain non-cash items, increased inventory balances and a payment in connection with a previously disclosed legal settlement.
Net cash used in investing activities increased by $123.9 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023. The increase in cash used in investing activities was primarily the result of the acquisition of Attune Medical, partially offset by the proceeds from the sales of property, plant and equipment.
Net cash provided by financing activities increased by $334.3 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023, primarily due to the issuance the 2029 Notes, partially offset by the repurchase of a portion of the 2026 Notes, capped call transactions, payments on the revolving credit facility and debt issuance costs.
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Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. Certain markets and industries, however, can expose us to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. In addition, a portion of our trade accounts receivable outside the U.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays and local economic conditions. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies.
We have not incurred significant losses on trade accounts or other receivables. We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
Foreign Exchange
During the three months ended June 29, 2024, 26.0% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S. Dollar. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Our primary foreign currency exposures relate to sales denominated in Japanese Yen, Euro and Chinese Yuan. We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit. The Yen, Euro and Yuan sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies.
Since our foreign currency denominated Yen, Euro and Yuan sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen, Euro or Yuan, there is an adverse effect on our results of operations and, conversely, whenever the U.S. Dollar weakens relative to the Yen, Euro or Yuan, there is a positive effect on our results of operations. For Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit, our primary cash flows relate to product costs or costs and expenses of local operations. Whenever the U.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever the U.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations.
We have a program in place that is designed to mitigate our 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 unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Franc and Mexican Peso. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. These contracts are designated as cash flow hedges. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results.
Recent Accounting Pronouncements
Refer to Note 2, Recent Accounting Pronouncements, to the Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
Cautionary Statement Regarding Forward-Looking Information
Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q and incorporated by reference into this report, constitute “forward looking-statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “foresees,” “potential” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; the Company’s strategy for growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impacts of acquisitions or dispositions; and market position and expenditures.
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Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company’s control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of these and other factors, see Item 1A. Risk Factors in our most recent Annual Report on Form 10-K (as supplemented by Item 1A of Part II of this Quarterly Report on Form 10-Q).
•Our ability to achieve our long-term strategic and financial-improvement goals;
•Demand for and market acceptance risks for new and existing products, including material reductions in purchasing from or loss of a significant customer;
•Our ability to develop, manufacture and market new products and technologies successfully and in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete;
•Product quality or safety concerns, leading to product recalls, withdrawals, regulatory action by the FDA (or similar non-U.S. regulatory agencies), reputational damage, declining sales or litigation;
•Security breaches of our information technology systems or our products, which could impair our ability to conduct business or compromise sensitive information of the Company or its customers, suppliers and other business partners, or of customers’ patients;
•The potential that the expected strategic benefits and opportunities from completed or planned acquisitions, including the Company’s acquisitions of OpSens Inc. and Attune Medical, divestitures or other strategic investments by the Company may not be realized or may take longer to realize than expected;
•Pricing pressures resulting from trends toward healthcare cost containment, including the continued consolidation among healthcare providers and other market participants;
•Disruptions to the continuity, availability and pricing of plastic and other raw materials, finished goods and components used in the manufacturing of our products (including those purchased from sole-source suppliers) and the related continuity of our manufacturing, sterilization, supply chain and distribution operations, including disruptions caused by natural disasters, extreme weather and other conditions caused by or related to climate change, labor strikes, terrorism acts, cyber incidents or other adverse events;
•Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the Operational Excellence Program and portfolio rationalization initiatives;
•The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated timing and cost of product approval;
•Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including the U.S. Foreign Corrupt Practices Act, European Union Medical Device Regulation and In Vitro Diagnostic Regulation and similar laws in other jurisdictions, as well as U.S. and foreign export and import restrictions and tariffs;
•The impact of changes in U.S. and international tax laws;
•Our ability to meet our debt obligations and raise additional capital when desired on terms reasonably acceptable to us;
•The potential impact of our convertible senior notes and related capped call transactions;
•Geopolitical and economic conditions in China, Taiwan, Russia, Ukraine, the Middle East and other foreign jurisdictions where we do business;
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•Our ability to execute and realize anticipated benefits from our investments in emerging economies;
•The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins;
•Our ability to protect intellectual property and the outcome of patent litigation;
•Costs and risks associated with product liability and other litigation claims we may be subject to now or in the future;
•Our ability to retain and attract key personnel;
•Market conditions impacting our stock price and/or our share repurchase program, and the possibility that such share repurchase program may be delayed, suspended or discontinued;
•Our ability to achieve against our corporate responsibility initiatives and meet evolving stakeholder expectations concerning corporate responsibility matters; and
•The impact of actual or threatened public health crises.
Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in Item 1A. Risk Factors in our Annual Report on Form 10-K (as supplemented by Item 1A of Part II of this Quarterly Report on Form 10-Q) to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposures relative to market risk are due to foreign exchange risk and interest rate risk.
Foreign Exchange Risk
See the section above entitled Foreign Exchange for a discussion of how foreign currency affects our business. It is our policy to minimize, for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales and costs. We do not use the financial instruments for speculative or trading activities.
We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. Dollar relative to all other major currencies. As of June 29, 2024, in the event of a 10% strengthening of the U.S. Dollar, the change in fair value of all forward contracts would result in a $3.2 million increase in the fair value of the forward contracts, whereas a 10% weakening of the U.S. Dollar would result in a $3.9 million decrease in the fair value of the forward contracts.
Interest Rate Risk
Our exposure to changes in interest rates is associated with borrowings under our credit facilities, all of which is variable rate debt. Total outstanding debt under our senior unsecured term loan as of June 29, 2024 was $248.4 million with an effective interest rate of 6.8% based on prevailing Term SOFR rates. An increase of 100 basis points in Term SOFR rates would result in additional annual interest expense of $0.4 million. As of June 29, 2024, the notional amount on our two active interest rate swap agreements to effectively convert borrowings under our 2022 Revised Credit Facilities from a variable rate to a fixed rate were $208.6 million. These interest rate swaps are intended to mitigate the exposure to fluctuations in interest rates and qualify for hedge accounting treatment as cash flow hedges.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, as of June 29, 2024, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 29, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the second quarter of fiscal 2024, we implemented the first phase of a new global enterprise resource planning (“ERP”) system, which will continue to be implemented in phases through fiscal 2025. The ERP will replace existing financial systems we have historically relied on. As each phase of the implementation occurs, we will reassess our processes and procedures, which may result in changes to our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this Item may be found in Note 14, Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
We encourage you to carefully consider the risk factors identified below and in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended March 30, 2024, filed with the Securities and Exchange Commission on May 20, 2024. These risk factors could materially affect our business, financial condition, and future results, and they could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.
Risks Related to our Financial Obligations and Indebtedness
We have a significant amount of debt that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur additional debt in the future, which may adversely affect our operations and financial results.
In April 2024, the Company entered into a second amended and restated credit agreement with certain lenders to refinance the existing senior unsecured term loan and senior unsecured revolving credit facility and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan and a $750.0 million senior unsecured revolving credit facility, or together, the 2024 Revised Credit Facilities. In May 2024, the Company issued $700.0 million aggregate principal amount of indebtedness under the Company’s convertible notes due 2029, or 2029 Notes, and used $230.0 million of the proceeds to repay the entirety of the previously outstanding under the Company’s senior unsecured revolving credit facility and $185.5 million of the proceeds to repurchase $200.0 million in aggregate principal amount of the Company’s convertible senior notes due 2026, or 2026 Notes. The 2026 Notes and 2029 Notes are referred below collectively as the Notes. As of June 30, 2024, the Company had $250.0 million of debt outstanding under the senior unsecured term loan, $300.0 million aggregate principal amount of indebtedness under the 2026 Notes, and $700.0 million aggregate principal amount of indebtedness under the 2029 Notes.
Our 2024 Revised Credit Facilities contain financial covenants that require us to maintain specified financial ratios that may limit our ability to borrow additional funds and that require us to make interest and principal payments. As of June 30, 2024, we were in compliance with the covenants pursuant to our 2024 Revised Credit Facilities, and we currently forecast that we will be in compliance with these covenants through the period ending March 29, 2025.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
Under certain circumstances, the noteholders may convert their Notes at their option prior to their respective scheduled maturities. If one or more noteholders elect to convert their Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, holders of our Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the applicable indenture (each, an “Indenture”)), at a repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to but not including, the fundamental change repurchase date. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the applicable Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion. Our failure to repurchase the Notes or to pay the cash amounts due upon conversion when required will constitute a default under the applicable Indenture. A default under an Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, including our 2024 Revised Credit Facilities and the other Notes, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.
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Even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The Capped Call Transactions may affect the value of the Notes and our common stock.
In connection with the issuance of the Notes, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions (the “Option Counterparties”). The Capped Call Transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.
From time to time, the Option Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes.
We are subject to counterparty risk with respect to the Capped Call Transactions.
The Option Counterparties are financial institutions, and we are subject to the risk that one or more of the Option Counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Past global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transactions with such Option Counterparty. Our exposure depends on many factors, but our exposure will generally increase if the market price or the volatility of our common stock increases. In addition, upon default by an Option Counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the Option Counterparties.
In addition, the Capped Call Transactions are complex, and they may not operate as planned. For example, the terms of the Capped Call Transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the Capped Call Transactions.
Provisions in the Indentures could delay or prevent an otherwise beneficial takeover of us.
Certain provisions in the Notes and the Indentures could make a third party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the Notes and the Indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.
Conversion of the Notes may dilute the ownership interest of existing stockholders.
The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect our common stock’s prevailing market prices. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended June 29, 2024, certain of our directors and officers (as defined under Rule 16a-1(f) under the Securities Exchange Act of 1934) adopted or terminated
| Trading Arrangement | ||||||||||||||||||||||||||||||||||||||
| Name and Title | Action | Date(1) | Rule 10b5-1* | Non-Rule 10b5-1** | Number of Shares to be Sold(2) | Expiration Date(3) | ||||||||||||||||||||||||||||||||
| X | ||||||||||||||||||||||||||||||||||||||
* Intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934. | ||||||||||||||||||||||||||||||||||||||
** Not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934. | ||||||||||||||||||||||||||||||||||||||
(1) Reflects the fully-executed date of each trading arrangement, which may differ from the date of first execution by an officer or director. | ||||||||||||||||||||||||||||||||||||||
(2) The number of shares of common stock sold under each trading arrangement, if any, will be net of shares withheld for applicable tax obligations upon the vesting and/or exercise of covered securities as well as for payment of the exercise price upon the exercise of stock options, which amounts are not yet determinable. | ||||||||||||||||||||||||||||||||||||||
(3) Except as otherwise indicated by footnote, each trading arrangement expires upon the earlier of (a) completion of all authorized transactions thereunder and (b) the expiration date listed above. | ||||||||||||||||||||||||||||||||||||||
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Item 6. Exhibits
| Restated Articles of Organization of the Company, reflecting Articles of Amendment dated August 23, 1993, August 21, 2006, July 26, 2018 and July 25, 2019 (filed as Exhibit 3.1 to the Company’s Form 8-K dated July 29, 2019 and incorporated herein by reference). | |||||
| By-Laws of the Company, as amended through June 29, 2020 (filed as Exhibit 3.1 to the Company’s Form 8-K dated June 30, 2020 and incorporated herein by reference). | |||||
| Indenture, dated as of May 28, 2024, between Haemonetics Corporation and U.S. Bank National Association, as trustee. (filed as Exhibit 4.1 to the Company’s Form 8-K dated May 29, 2024 and incorporated herein by reference). | |||||
| Form of certificate representing the 2.50% Convertible Senior Notes due 2029 (included as Exhibit A to Exhibit 4.1) (filed as Exhibit 4.2 to the Company’s Form 8-K dated May 29, 2024 and incorporated herein by reference). | |||||
| Second Amended and Restated Credit Agreement, dated as of April 30, 2024, by and among the Company, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 1, 2024 and incorporated herein by reference). | |||||
| Form of Confirmation of Base Call Option Transaction (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 29, 2024 and incorporated herein by reference). | |||||
| Form of Confirmation of Additional Call Option Transaction (filed as Exhibit 10.2 to the Company’s Form 8-K dated May 29, 2024 and incorporated herein by reference). | |||||
31.1* | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. | ||||
31.2* | Certification pursuant to Section 302 of Sarbanes-Oxley of 2002, of James C. D'Arecca, Executive Vice President, Chief Financial Officer of the Company. | ||||
32.1** | Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. | ||||
32.2** | Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of James C. D'Arecca, Executive Vice President, Chief Financial Officer of the Company. | ||||
| 101* | The following materials from Haemonetics Corporation on Form 10-Q for the quarter ended June 29, 2024 formatted in inline Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Statements of Income and Comprehensive Income, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statement of Stockholders' Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. | ||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). | ||||
| * | Document filed with this report. | |||||||
| ** | Document furnished with this report. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HAEMONETICS CORPORATION | |||||||||||
| August 8, 2024 | By: | /s/ Christopher A. Simon | |||||||||
| Christopher A. Simon, President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| August 8, 2024 | By: | /s/ James C. D’Arecca | |||||||||
| James C. D’Arecca, Executive Vice President, Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
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