Press Release Details

BRAINTREE, Mass., April 28, 2014 /PRNewswire/ -- Haemonetics Corporation (NYSE: HAE) today reported revenue for the fourth quarter fiscal 2014 of $241.1 million, down 4%.  Excluding currency impact, revenue was down 2% in the quarter.¹  The Company's base revenue, exclusive of the recently acquired whole blood business, increased 2% on a constant currency basis in the quarter. 

Fourth quarter GAAP net income was $10.2 million and earnings per share were $0.19.  Adjusted net income, exclusive of transformation, integration and deal amortization expenses detailed below, was $24.2 million, down 17%, and adjusted earnings per share were $0.46, down 18%. 

For the fiscal year ended March 29, 2014, Haemonetics reported revenue of $938.5 million, up 5%.  Excluding currency impact, revenue was up 7% in the fiscal year.¹  Base revenue, exclusive of the whole blood business, increased 1% on a constant currency basis. 

Fiscal year 2014 GAAP net income was $35.1 million and earnings per share were $0.67.  Adjusted net income, exclusive of transformation, integration and deal amortization expenses detailed below, was $114.4 million, up 10%, and adjusted earnings per share were $2.19, up 10%. 

The Company's Board of Directors exercised discretion over variable compensation and approved partial payments to eligible employees, excluding the CEO.  Variable compensation approximated $11 million, roughly 55% of target or $0.16 per share for the full year.   

Brian Concannon, Haemonetics' President and CEO, stated:  "An environment characterized by mounting pressure emerged in the U.S. hospital and blood center markets in fiscal 2014.  The resulting rapid rate of change was not reflected in our planned targets for the year. In recognition of this, we felt it was appropriate to partially fund our variable compensation program." 

"It has been our long held view that our shareholders should be paid first and this is a practice we have honored in the past and will continue to honor in the future.  However, under the circumstances, we concluded it was necessary to consider external elements which were beyond the control of our employees and which influenced fiscal 2014 results."

FISCAL 2014 STRATEGIC AND PRODUCT GROWTH HIGHLIGHTS

• Strong constant currency revenue increases in identified growth drivers
  • 11% growth in plasma disposables revenue
  • 21% growth in TEG^® diagnostics disposables revenue
  • 20% growth in emerging markets disposables revenue
• With key contract extensions, 80% of commercial plasma business under agreement through the third quarter of fiscal 2019
• Next generation TEG platform submitted to FDA
• Value Creation and Capture ("VCC") initiatives progressing on schedule
  • Additional steps identified and expected savings increased

Mr. Concannon commented:  "Three elements of our business which represent 53% of our disposables revenue – Plasma, diagnostics and emerging markets – grew 13% in fiscal 2014.  This growth was offset by the impact of blood management practice improvements on our whole blood and cell salvage businesses, and currency headwinds.  Our strategy remains unchanged and we expect our growth drivers to continue to deliver double-digit growth, while the identified headwinds abate in fiscal 2016."

FOURTH QUARTER 2014 REVENUE BREAKDOWN

Plasma

Plasma disposables revenue was $74.1 million in the fourth quarter, up $5.9 million or 9%, and up 10% in constant currency.  North America collection volumes continued to benefit from a robust end user market for plasma-based biopharmaceuticals.    

Blood Center

Platelet disposables revenue was $38.9 million in the quarter, down 12% on a reported basis and 9% on a constant currency basis.  In addition to currency, the revenue decline was attributable to order timing in the emerging markets.     

Red cell disposables revenue was $12.3 million in the quarter, down $1.7 million or 12% below the prior year quarter, attributable to continued decline in U.S. red cell transfusion rates.

Whole blood disposables revenue was $44.8 million in the fourth quarter, down $10.1 million or 18% below the prior year quarter.  This decline was attributable to the previously announced loss of a European tender and the weakening U.S. transfusion rates.  

Hospital

Surgical disposables revenue was $17.6 million, flat for the quarter and up 3% on a constant currency basis with strength in the emerging markets. 

Disposables revenue from the OrthoPAT^® orthopedic perioperative autotransfusion system was $6.1 million for the quarter, down $1.9 million or 24%.  Market trends toward the adoption of tranexamic acid to treat and prevent post-operative blood loss continued to lessen hospital use of OrthoPAT disposables.   

Diagnostics disposables revenue was $9.2 million for the quarter, up $2.0 million or 28%, with considerable strength in North America and China.  With a TEGThromboelastograph^® Hemostasis Analyzer installed base that is up nearly 50% from two years ago, prospects for continued double-digit disposables revenue growth remain strong.

Software and Equipment

Software Solutions revenue was $19.0 million in the fourth quarter, up $0.4 million or 2%.  The pipeline of BloodTrack^® and other blood management software opportunities is accelerating.

Equipment and other revenue was $19.2 million for the quarter, up $1.7 million or 10%, as certain annual equipment orders received in the third quarter of fiscal 2013 occurred, as expected, in the fourth quarter of fiscal 2014.  Equipment revenue is influenced by the timing of tenders and capital budgets. The installed base of equipment, including devices sold and those placed for use with customers, increased 7% in fiscal 2014.

Geographic

Haemonetics reported flat fourth quarter revenue in Europe, with declines of 1% in Asia Pacific, 3% in North America and 14% in Japan.  In North America, strength in the Plasma business was offset by declines in the Blood Center business, where growth in the European distribution markets was offset by the previously announced loss of a European whole blood tender.  Weakness in Japan was attributable to the Yen exchange rate, which contributed 11 percentage points of the decline in the fourth quarter.    

OPERATING RESULTS

Adjusted gross profit was $117.6 million, down $6.6 million from the prior year fourth quarter and included a $3.2 million unfavorable currency impact.  Adjusted gross margin was 48.8%, down 90 basis points including 60 basis points of unfavorable currency impact.  Gross margin improvement driven by productivity programs was more than offset by mix and currency.  

Adjusted operating expenses inclusive of variable compensation were $83.4 million in the quarter, unchanged from the prior year.  Organizational and corporate administrative cost reductions, made in response to revenue pressures, were offset by continued investments in emerging markets.  Importantly, R&D spending remained unchanged year over year.    

In the fourth quarter, adjusted operating income was $34.2 million, down $6.6 million or 16%, including variable compensation and $1.7 million attributed to currency headwinds, primarily the Japanese Yen.  Adjusted operating margin in the quarter was 14.2%, down 210 basis points.  For the full fiscal year, adjusted operating margin was 17.0%, an increase of 20 basis points over the prior year.  

The adjusted income tax rate was 23.5% compared with 22.7% in the prior year fourth quarter.  Interest expense on loans was $2.4 million.

BALANCE SHEET AND CASH FLOW

Cash on hand was $192 million, an increase of $13 million during the fiscal year.  The Company reported fiscal 2014 free cash flow, before transformation and integration costs, of $123 million, an increase of $53 million over fiscal year 2013, primarily due to the need in the prior year for investment following the whole blood acquisition. 

During fiscal 2014, the Company utilized $73 million of cash before $16 million of cash tax benefits, to fund VCC and other restructuring initiatives, $23 million to complete the acquisition of Hemerus Medical and $37 million to repay debt. 

VALUE CREATION & CAPTURE ACTIVITIES

Plans to pursue identified Value Creation & Capture ("VCC") opportunities, including transformation of the Company's manufacturing operations, productivity and commercial excellence initiatives, continue to progress according to schedule and are expected to deliver benefits as previously indicated. 

Today the Company announced plans to begin consultation with employee representatives regarding ceasing operations and closure of its manufacturing facility in Bothwell, Scotland during the current fiscal year 2015.  Disposables currently produced in Bothwell would be transferred to other Haemonetics' manufacturing facilities.   

VCC investments are still expected to approximate $160 million.  We now expect savings beginning in fiscal 2015 of $30 million, ramping up to approximately $60-$65 million of annual cost savings by fiscal 2018.  The full schedule of planned investments and expected benefits are summarized in a schedule posted to the Company's Investor Relations website at the link which follows:  http://phx.corporate-ir.net/phoenix.zhtml?c=72118&p=irol-guidance.

FISCAL 2015 GUIDANCE

Overall fiscal 2015 revenue is expected to grow 0-2% in constant currency and decline 0-2% on a reported basis.  The Company expects $40-$50 million of revenue growth from its identified growth drivers of Plasma, TEG and Emerging Markets.  More than offsetting this growth, however, will be $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.

Plasma collections remain strong and the Company expects 7-9% growth in Plasma disposables in fiscal 2015.  Blood center revenue in the U.S. will continue to be pressured by lower volumes and pricing, as hospitals focus on improving blood management and decreasing the frequency of allogeneic transfusions, so the Company expects blood center revenue to decline 10-12%.  Hospital disposables are expected to grow 4-6%, with double-digit percentage growth in TEG, and Software Solutions is expected to grow 2-4%. 

Adjusted gross margin is expected to approximate 50% due principally to the factors affecting revenue.  

Adjusted operating income of $140-$150 million is expected in fiscal 2015 driving an operating margin of approximately 16%.  A full bonus compensation accrual is planned in fiscal 2015.  Acquisition related amortization is expected to approximate $28 million or $0.38 per share, and is excluded from adjusted operating income and adjusted earnings per share.

Income taxes are expected to approximate 26% of pre-tax adjusted income.  Adjusted earnings per share, excluding VCC transformation expenses and acquisition related amortization, are expected in the range of $1.85 to $1.95. 

Fiscal 2015 free cash flow is expected to approximate $120-$130 million before funding restructuring and capital investment for transformation activities.  The Company anticipates investing approximately $80 million of free cash flow to fund additional capital expenditures and cash transformation expenditures associated with its VCC initiatives in fiscal 2015. 

Approximately $60 million of cash transformation expenditures and other cost reduction initiatives, plus up to $15 million of non-cash asset write-offs associated with planned plant closures, will be excluded from adjusted earnings in fiscal 2015.  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 expects to return to a mid-single digit revenue growth rate and mid to high-teens adjusted earnings per share growth rate in fiscal 2016.  The VCC investments are planned to be completed in fiscal 2016, with only $10-$15 million of incremental investment expected in that year.  

Mr. Concannon added:  "With our suite of blood management products and services, we are well positioned to provide our customers with competitive advantages in this evolving healthcare environment.  We continue to consider fiscal 2015 a transitional year, with revenue and earnings below fiscal 2014 levels.  However, we are encouraged with both revenue enhancement and cost reduction programs, and expect to return to our historical growth profile in fiscal 2016 and beyond."

ADJUSTMENTS TO REPORTED EARNINGS

In total $15 million of pre-tax charges, comprised of $12 million of VCC transformation and $3 million of integration and other restructuring activities, were excluded from adjusted earnings in the fourth quarter of fiscal 2014.  The Company excluded $17 million of pre-tax integration, restructuring, transformation and transaction costs from adjusted earnings in the fourth quarter of fiscal 2013.

In the full fiscal year 2014, $85 million of pre-tax charges, comprised of $65 million of VCC transformation and $20 million of integration and other restructuring activities, were excluded from adjusted earnings compared with $72 of pre-tax integration, restructuring and transaction costs excluded from fiscal 2013 earnings.

The Company also excluded acquisition related amortization expenses from its adjusted earnings and EPS, beginning in fiscal 2014, and prior period amounts have been conformed to permit comparison.  Excluded from fourth quarter adjusted earnings were $7.0 million in fiscal 2014 and $5.9 million in fiscal 2013, or $0.10 and $0.08 per share, respectively.  On a year-to-date basis, $28.1 million in fiscal 2014 and $20.8 million in fiscal 2013, or $0.38 and $0.28 per share, respectively, of such costs were excluded.

CONFERENCE CALL

Haemonetics will host a webcast to discuss the first quarter results on Monday, April 28, 2014 at 8:00 am Eastern time.  Interested parties can participate at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=72118&eventID=5122981.    

ABOUT HAEMONETICS

Haemonetics (NYSE: HAE) is a global healthcare company dedicated to providing innovative blood management solutions for our customers.  Together, our devices and consumables, information technology platforms, and consulting services deliver a suite of business solutions to help our customers improve patient care and reduce the cost of healthcare for blood collectors, hospitals, and patients around the world.  Our technologies address important medical markets: blood and plasma component collection, the surgical suite, and hospital transfusion services.  To learn more about Haemonetics, visit our web site at http://www.haemonetics.com.

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements that involve risks and uncertainties, including the effects of disruption from the manufacturing transformation making it more difficult to maintain relationships with employees and timely deliver high quality products, unexpected expenses incurred during our Value Creation and Capture program, technological advances in the medical field and standards for transfusion medicine and our ability to successfully implement products that incorporate such advances and standards, demand for whole blood and blood components, product quality, market acceptance, regulatory uncertainties, including in the receipt or timing of regulatory approvals, the effect of economic and political conditions, the impact of competitive products and pricing, blood product reimbursement policies and practices, foreign currency exchange rates, changes in customers' ordering patterns including single-source tenders, the effect of industry consolidation as seen in the plasma and blood center markets, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate and other risks detailed in the Company's filings with the Securities and Exchange Commission. The foregoing list should not be construed as exhaustive. 

Forward-looking statements are based on estimates and assumptions made by management of the Company and are believed to be reasonable, though inherently uncertain and difficult to predict.  Actual results and experience could differ materially from the forward-looking statements. Information set forth in this press release is current as of today and the Company undertakes no duty or obligation to update this information.        

¹ A reconciliation of GAAP to adjusted financial results is included at the end of the financial sections of this press release as well as on the web at http://www.haemonetics.com.