Haemonetics Corporation Reports 2nd Quarter Fiscal 2015 Revenue Of $228 Million And Adjusted EPS Of $0.47; Reaffirms Revenue And Earnings Guidance
BRAINTREE, Mass., Nov. 3, 2014 /PRNewswire/ -- Haemonetics Corporation (NYSE: HAE) today reported second quarter fiscal 2015 revenue of $227.6 million, down 3.5%. In constant currency, revenue declined 2.6% in the quarter. The Company reported second quarter GAAP net income of $7.5 million and GAAP net income per share of $0.14. Exclusive of transformation, restructuring and deal amortization expenses detailed below, adjusted net income was $24.3 million and adjusted earnings per share were $0.47, both down 29%.[1]
First half fiscal 2015 revenue was $452.1 million, down 1%, and flat in constant currency. The Company reported first half GAAP net income of $3.8 million and GAAP net income per share of $0.07. Exclusive of transformation, restructuring and deal amortization expenses detailed below, adjusted net income was $44.1 million and adjusted earnings per share were $0.85, both down 24%.[1]
2Q FISCAL 2015 HIGHLIGHTS
- Continued solid constant currency revenue increases in growth drivers
- 7% growth in plasma disposables revenue
- 23% growth in TEG® diagnostics disposables revenue
- 7% growth in China disposables revenue
- Key new product advances
- Next generation Plasma software receives 510(k) approval; long term contract signed with first customer
- Next generation BloodTrack® software receives 510(k) approval
- BloodTrack® HaemoBank introduced at 2014 AABB Annual Meeting
- Long term saline and sodium citrate solutions supply contract signed with CSL Plasma, Inc.
- $8 million of share repurchases in the quarter
- Value Creation and Capture ("VCC") initiatives progressing on schedule
GROWTH DRIVERS UPDATE PLASMA, TEG®, EMERGING MARKETS
Combined disposables revenue increase for growth drivers was 11% in the first half of fiscal 2015, and 9% when adjusted for the impact of a favorable Plasma comparison resulting from the acquisition of the Company's Australian plasma distributor in the first half of fiscal 2014. In the second quarter, orders in emerging markets were impacted by labeling changes which limited disposables revenue growth in the combined growth drivers to 5%. These labeling changes are expected to be completed within fiscal 2015, benefiting second half revenue growth.
Brian Concannon, Haemonetics' President and CEO, stated: "Our growth drivers represent 57% of our disposables revenue, growing 9% in the first half of fiscal 2015 when adjusted for the prior year's Plasma comparison.
"We expect double-digit revenue increases in our growth drivers to continue through fiscal years 2015 and 2016, positioning us well to extend a five year history of double digit compounded annual growth. For the remainder of fiscal 2015, this growth will continue to be offset by headwinds including the impact of blood management practice improvements, as well as lower share and lower pricing in our U.S. whole blood business. We expect these headwinds to moderate in fiscal 2016."
SECOND QUARTER AND FIRST HALF 2015 REVENUE ELEMENTS
Plasma
Plasma disposables revenue was $80.4 million in the second quarter, up $4.6 million, or 6% on a reported basis and 7% in constant currency. North America Plasma disposables revenue was up 12%, as collection volumes continued to benefit from a robust end user market for plasma-derived biopharmaceuticals. Excluding the favorable impact of the distribution model change in Australia last year, Plasma revenue growth was 11% in the first half of fiscal 2015.
Blood Center
Platelet disposables revenue was $39.4 million in the quarter, down 1% on a reported basis and up 4% on a constant currency basis. First half constant currency revenue growth of 9% was attributable to strong demand in the emerging markets.
Red cell disposables revenue was $10.2 million in the second quarter, flat with the prior year, and $20.4 million in the first half, up 1% over the prior year.
Whole blood disposables revenue was $33.7 million in the second quarter of fiscal 2015, down $13.5 million or 29%, and $71.7 million in the first half, down $26.8 million or 27%. Previously disclosed market share losses, pricing and the termination of an OEM supply contract negotiated at the time of the whole blood acquisition contributed to the first half decline. These headwinds will anniversary by the first quarter of fiscal 2016. Declines in North American transfusion rates of roughly 10% contributed approximately $5 million of the first half decline. This trend is expected to continue through fiscal 2015 and moderate in fiscal 2016.
Hospital
Surgical disposables revenue was $15.7 million in the second quarter, down 4% as reported and down 2% on a constant currency basis. First half fiscal 2015 surgical disposals revenue of $31.3 million was down 4% reported and 2% in constant currency. Strength in the emerging markets was offset by declines in the developed markets in the second quarter and first half.
Disposables revenue from the OrthoPAT® orthopedic perioperative autotransfusion system was $4.9 million for the quarter, down $1.4 million or 22%. First half OrthoPAT® revenue was $10.3 million, down $2.3 million or 18%. Market trends toward the adoption of tranexamic acid to prevent post-operative blood loss continued to lessen hospital use of OrthoPAT® disposables.
Diagnostics disposables revenue was $10.0 million for the quarter and $19.6 million in the first half of fiscal 2015, up $2.1 million and $4.1 million respectively, both up 26% on a reported basis and 23% in constant currency. Strength continued in both new and existing accounts in North America and China. The TEG® Thromboelastograph® Hemostasis Analyzer installed base increased by 16% in the trailing 12 months, positioning the TEG® business for continued double-digit disposables revenue growth.
Software and Equipment
Software Solutions revenue was $18.1 million in the first quarter, up $1.0 million, and $36 million in the first half, up $2 million, a 6% increase in both periods. BloodTrack® in the U.K. and North America drove this growth and the pipeline for blood management software opportunities remains strong.
The Company is optimistic about continued revenue growth from software solutions and cited a number of recent advances. First, the next generation plasma software gained 510(k) approval during the second quarter of fiscal 2015. Following this approval, the Company completed a long-term contract with a customer for the customization of the new software during fiscal 2016, to be used in their collection facilities in the future.
Additionally, the Company announced 510(k) approval of a cross donation check system for the plasma collection industry. This automated system, requested by the Plasma Protein Therapeutics Association, will enhance the plasma suitability assessment process. This will enable plasma collectors to track and check donor viability using a single reliable source. Initial software revenue is expected to be realized in fiscal 2016.
Finally, the Company announced that its next generation BloodTrack® software gained 510(k) approval during the second quarter. This software has been incorporated into a new BloodTrack® HaemoBank device, forming a powerful new blood management tool. This represents the first new point-of-care blood management technology developed in the Company's ongoing strategic OEM partnership with Helmer Scientific. This new software and hardware combination was recently introduced at trade shows in the U.K. and U.S. Its limited market release is expected late in the second half of fiscal 2015.
Equipment and other revenue was $15.2 million, up $0.3 million or 2%. Equipment revenue is influenced by timing of tenders and capital budgets. The installed base of equipment, including devices sold and placed for use with customers, increased sequentially 2% in the quarter, 3% in the first half of fiscal 2015 and 7% in the last 12 months.
Geographic
In the second quarter of fiscal 2015, Haemonetics announced revenue declines of 1% in North America, 2% in Europe, 3% in Asia Pacific and 18% in Japan on a reported basis. On a constant currency basis, the Company had revenue declines of 5% in Europe, 5% in Asia Pacific and 5% in Japan.
In North America, strength in Plasma and TEG® diagnostics was offset by declines in the Blood Center business. Order timing associated with labeling changes contributed to declines in Europe and whole blood revenue declined in Asia Pacific. Weakness in Japan was attributable to the Yen exchange rate, which contributed 13 percentage points of the decline in the second quarter.
OPERATING RESULTS
Adjusted gross profit was $111.0 million, down $12.3 million from the prior year second quarter and included a $2.7 million unfavorable currency impact. Adjusted gross margin was 48.8%, down 350 basis points. As expected, adjusted gross margin improvement, driven by productivity programs including VCC initiatives, continued to be more than offset by lower U.S. whole blood disposables pricing, lower volume in certain manufacturing facilities, product mix and currency.
Savings from VCC programs and other identified cost reductions are expected to contribute to increased earnings in the second half of fiscal 2015.
Adjusted operating expenses were $75.9 million in the quarter, up $1.5 million or 2% over the prior year second quarter. Critical investments continued and were offset by organizational and corporate administrative cost reductions.
In the second quarter, adjusted operating income was $35.1 million, down $13.9 million or 28.3%, reflecting the gross margin headwinds cited. Adjusted operating margin in the quarter was 15.4%, down 540 basis points, as gross margin pressures more than offset cost savings.
Adjusted interest expense on loans was $2.0 million. The adjusted income tax rate was 25.7% compared with 26.2% in the prior year second quarter.
Mr. Concannon said: "We continue to see fiscal 2015 as a transitional year, with revenue and earnings below fiscal 2014 levels. We are encouraged with progress in the first half toward our revenue targets and cost reduction programs. Revenue growth in our hospital business, resolution of emerging market order timing and a concurrent ramp in cost savings will contribute to the expected step-up in earnings in the second half of the year. We reaffirm our fiscal 2015 revenue and earnings guidance.
"We recently entered into a long-term contract with CSL Plasma, Inc. to supply saline and sodium citrate solutions needed in their plasma collection process. Shipments will commence in fiscal 2016.
"The opportunity to serve this Plasma customer, combined with the recent software advances in our Plasma and hospital businesses, enables us to be confident in reiterating our expectation of returning to growth in fiscal 2016 and beyond."
BALANCE SHEET AND CASH FLOW
Cash on hand was $130 million, a decrease of $62 million during the first half of fiscal 2015. The Company reported free cash flow, before transformation and restructuring costs, of $28 million, a decrease of $20 million compared with the first half of fiscal 2014.
During the first half of fiscal 2015, the Company utilized $65 million of cash before $12 million of cash tax benefits, to fund VCC and other restructuring initiatives, $34 million to repurchase shares in the open market and $9 million to repay debt.
FISCAL 2015 SHARE REPURCHASE PROGRAM
The Company repurchased 1,034,800 shares in the open market at an average price of $32.89, for a total spend of $34 million in the first half of fiscal 2015. As previously announced, the Board of Directors approved the repurchase of up to $100 million of shares in the open market.
VALUE CREATION & CAPTURE ACTIVITIES
Plans to pursue identified Value Creation & Capture ("VCC") opportunities, designed principally to transform the Company's manufacturing and distribution operations, and to support its productivity and commercial excellence initiatives, continue to progress according to schedule.
VCC investments are still expected to approximate $160 million in total and to generate approximately $60-$65 million of annual cost savings by fiscal 2018. The planned investments and expected benefits are summarized in a schedule posted to the Company's Investor Relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=72118&p=irol-guidance.
FISCAL 2015 GUIDANCE
Overall fiscal 2015 revenue is reaffirmed at a decline of 0-2%, with $40-$50 million of revenue growth from identified growth drivers more than offset by $50-$55 million of revenue headwind from net volume and pricing declines in the U.S. blood center business and weakness in the Japanese Yen.
The Company reaffirms its guidance for 7-9% growth in Plasma disposables, a decline in blood center revenue of 10-12%, hospital disposables growth of 4-6% and Software Solutions growth of 2-4%.
The Company reaffirms its full year expectations for adjusted gross margin of approximately 50%, adjusted operating income of $140-$150 million, and adjusted earnings per share in the range of $1.85 to $1.95. Previous free cash flow guidance of approximately $120-$130 million, before funding restructuring and capital investment for transformation activities, is adjusted to approximately $100-$110 million. Elements impacting this change include higher solutions inventories and capital expenditures required to meet the needs of the new saline and sodium citrate contract announced this morning, and a ramp-up of Plasma devices to support anticipated growth.
More information on fiscal 2015 guidance, including income statement scenarios underlying the lower and upper ends of the adjusted earnings per share guidance range, can be found in the Investor Relations section of our web site at http://www.haemonetics.com.1
FISCAL 2016 PRELIMINARY OUTLOOK
The Company reiterates its expectations of returning to a mid-single digit revenue growth rate and double digit adjusted operating income and earnings per share growth rates in fiscal 2016. The VCC investments are on track to be completed in fiscal 2016.
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