Haemonetics Corporation (NYSE:HAE) reported second quarter fiscal 2017 revenue of $220.3 million, flat with the second quarter of fiscal 2016 as reported, and up 1% in constant currency.
The Company reported net income of $19.8 million and $0.38 per share, up 54% and 52%, respectively, in the second quarter of fiscal 2017 compared to the same period of the prior year. Excluding restructuring, turnaround and deal amortization expenses detailed below, adjusted net income was $23.5 million and adjusted earnings per share were $0.46, up 4% and 5%, respectively, compared to the prior year second quarter.1
First half fiscal 2017 revenue was $430.2 million, down 1% as reported and up 1% in constant currency compared to the prior year first half. The Company reported first half net income of $9.5 million and net income per share of $0.18, both down 25% compared to the prior year first half. Exclusive of restructuring, turnaround and deal amortization expenses detailed below, adjusted net income was $36.4 million and adjusted earnings per share were $0.71, both down 10% compared to the prior year first half.1
Included in second quarter and first half fiscal 2017 results, both GAAP and adjusted, were $0.9 million or $0.02 per share and $4.3 million or $0.08 per share, respectively, of expenses related to a previously-reported leukoreduction filter recall.
Christopher Simon, Haemonetics’ CEO, stated: “Our first half revenue achievement and cost reduction initiatives position us well to achieve our full year projections. The June leukoreduction filter recall had a modest negative revenue impact in the second quarter and added $4 million of expenses in the first half.
Despite this challenge, our team delivered results in line with our expectations and we are reaffirming our full year guidance.”
Mr. Simon continued: “As we have said previously, this is a multi-year journey with all the associated challenges and uncertainties. We are implementing our strategic plan and we are gaining momentum in our businesses. Our focus for the first half of fiscal 2017 has been on stabilizing the company and we are on track to achieve our $40 million annual savings target. Going forward, we will increasingly pivot to transforming our business through product innovation and reallocation of resources to growth businesses. We are restructuring our operating model, streamlining our organization and driving productivity.”
SECOND QUARTER REVENUE
Plasma
Plasma franchise revenue was $103.6 million, up $10.5 million or 11% over the prior year second quarter and up 12% in constant currency. North America Plasma disposables revenue was up 14%, with 6% growth in plasma collection sets and the remainder from increased saline and sodium citrate solutions shipments. Plasma collection volume strength continued, reflecting robust end user markets for plasma-derived biopharmaceuticals. Outside North America, plasma collection growth was strong in Japan.
Hospital: Hemostasis Management
Hemostasis Management franchise revenue was $16.5 million, up $2.1 million or 15% over the prior year second quarter and up 18% in constant currency. TEG disposables revenue was similarly up 15% and up 18% in constant currency, with strong growth in the U.S. and China.
The TEG installed base continued to increase, benefiting from expanded adoption in new and existing accounts. The TEG family of products – TEG 5000, TEG 6s and TEG Manager™ software – remains well positioned for continued revenue growth, consistent with the Company’s long term outlook.
Hospital: Cell Processing
Cell Processing (“surgical”) franchise revenue was $26.0 million, down $2.1 million or 8% versus the prior year second quarter and down 6% in constant currency. The revenue decline resulted primarily from continued OrthoPAT disposables volume decline, and was partly offset by Blood Track software growth.
Blood Center
Blood Center franchise revenue was $74.3 million, down $10.0 million or 12% versus the prior year second quarter with no effect from currency.
Platelet disposables revenue was $30.9 million, down 10% with no effect from currency. A continued market shift toward double dose collection techniques in Japan drove the decline.
Red cell disposables revenue was $7.4 million, down 20% with no effect from currency. Lower volume, as well as pricing and volume changes associated with previously announced U.S. customer contracts, accounted for the declines.
Whole blood disposables revenue was $26.5 million, down 13% and down 12% in constant currency. Declines in the U.S. whole blood collection market and global price erosion continued.
Geographic
Second quarter fiscal 2017 revenue was up 3% in North America with no currency effect. Revenue in Asia Pacific was up 3% or 6% in constant currency, Japan was up 1% or down 5% in constant currency and EMEA and global distribution markets revenue was down 9% or 5% in constant currency.
OPERATING RESULTS
Second quarter fiscal 2017 gross margin on a GAAP basis was 47.3%, down 60 basis points. Unfavorable currency, reduced pricing in U.S. red cells and unfavorable product mix were only partially offset by productivity benefits.
Operating expenses on a GAAP basis were $79.5 million and $86.1 million in the second quarters of fiscal 2017 and 2016, respectively, a decrease of $6.7 million. Restructuring, turnaround and deal amortization expenses decreased by $4.2 million to $8.6 million versus $12.8 million in the prior year second quarter. The benefit from cost reduction initiatives implemented earlier in fiscal 2017 and timing of R&D investments more than offset increased costs of variable compensation.
Second quarter fiscal 2017 GAAP operating income was $24.8 million, up $5.6 million or 29% over the second quarter of the prior year. Adjusted operating income was $33.4 million, up $0.3 million or 1% over the second quarter of the prior year, and included $1.1 million of negative currency effects and $0.9 million of leukoreduction filter recall expenses.
The GAAP income tax provisions were 13.2% of the second quarter fiscal 2017 pre-tax income and 22.4% of the second quarter fiscal 2016 pre-tax income, while the income tax rates were 25.2% and 26.5% of adjusted pre-tax income in the second quarters of fiscal 2017 and 2016, respectively.
Balance Sheet and Cash Flow
Cash on hand was $139 million, an increase of $24 million during the first half of fiscal 2017. The Company utilized $20 million of cash for debt repayment in the first half of fiscal 2017 and expects to repay another $24 million of debt in the second half. The Company also utilized $18 million of cash, less $5 million of cash tax benefits, for restructuring and turnaround initiatives.
First half fiscal 2017 free cash flow was $28 million, inclusive of the aforementioned net restructuring funding requirements, and $41 million before such funding.
RESTRUCTURING AND TURNAROUND EXPENSES AND DEAL AMORTIZATION
The Company announced and has been implementing a turnaround plan to optimize growth and profitability. For fiscal 2017, that plan includes a repositioning of the Company’s organization and cost structure. The Company indicated that the plan includes, in fiscal 2017, charges and expenses that are expected to total $26 million pre-tax or $18 million net of tax benefit, representing approximately $0.35 per share impact on fiscal 2017 GAAP earnings. In the second quarter of fiscal 2017, the Company incurred $2 million of such expenses pre-tax, or approximately $0.02 per share. In the first half of fiscal 2017, the Company incurred $20 million of such expenses pre-tax, or $14 million net of tax benefit of such charges, approximately $0.27 per share.
The Company excludes acquisition related amortization expenses from adjusted operating income and adjusted earnings per share. Excluded from second quarter pre-tax adjusted earnings were $7.0 million in fiscal 2017 and $7.4 million in fiscal 2016, or $0.10 per share in each second quarter. Excluded from first half pre-tax adjusted earnings were $14.1 million in fiscal 2017 and $14.8 million in fiscal 2016, or $0.20 per share in each first half.
Fiscal 2017 Guidance
The Company reaffirmed its previously provided fiscal 2017 guidance ranges, summarized as follows.
Revenue, including 1.7% impact of having one less week in the Company’s fiscal 2017 calendar than in the prior fiscal year:
| • | Total revenue: $850-$875 million, down 4-7% vs. prior year on a reported basis and down 2-4% in constant currency. |
| • | Plasma: 7-9% revenue growth as reported or 8-10% in constant currency. |
| • | Hemostasis Management: 17-20% revenue growth as reported or 20-23% in constant currency. |
| • | Cell Processing: approximately 10% revenue decline as reported, 6% in constant currency, with flat revenue in Cell Saver, growth in BloodTrack and a continuing decline in OrthoPAT. |
| • | Blood Center (whole blood, red cell and platelet): 19-23% revenue decline as reported or 16-20% decline in constant currency. |
Operating margin: 6-7% of revenue and, exclusive of restructuring and related expenses, 13% adjusted operating margin.
Income taxes: 20-21% of pre-tax income (guidance originally issued was 17-18%) and 25-26% of adjusted pre-tax income.
Acquisition related amortization: $27 million pre-tax or $0.39 per share.
Earnings per share: $0.70-$0.80 and, exclusive of restructuring charges, turnaround expenses and acquisition related amortization, $1.40-$1.50 on an adjusted basis.
Free cash flow: $47-$52 million, including the funding of $18 million of after-tax restructuring charges and turnaround expenses; $65-$70 million before funding such charges and expenses.
CONFERENCE CALL AND ADDITIONAL COMMENTARY
Haemonetics will host a webcast to discuss second quarter results on Monday, November 7, 2016 at 8:00am Eastern Time. Interested parties may participate at: http://edge.media-server.com/m/p/wcn22ipf.
The Company is posting this press release and additional commentary to be discussed on the webcast entitled Comments on 2nd Quarter and Year-to-Date Fiscal 2017 Results to its Investor Relations website.
These comments can be accessed by the following direct link: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzU2MzQ0fENoaWxkSUQ9LTF8VHlwZT0z&t=1&cb=636132771875970279.
About Haemonetics
Haemonetics (NYSE:HAE) is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions for our customers, to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite, and hospital transfusion services. To learn more about Haemonetics, visit www.haemonetics.com.
