What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-02-04 · 169 added, 179 removed, 165 unchanged (68% of the section changed)

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When used in this report, the terms “we,” “us,” “our” and “the Company” mean Haemonetics.

Our products are organized into three categories for purposes of evaluating and developing their growth potential:

We view our operations and manage our business in three principal reporting segments:

Plasma, Blood Center and Hospital.

For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software and anticoagulant and saline sold to commercial plasma customers that collect plasma primarily for further fractionation into plasma-derived biopharmaceuticals.

“Blood Center” includes blood collection and processing devices and disposables for apheresis (red cells, platelets and plasma) and whole blood that are used primarily for transfusion purposes as well as donor management software.

For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers.

“Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood as well as related donor management software.

"Hospital", which is comprised of Hemostasis Management, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables and blood transfusion management software.

Plasma and Hospital have growth potential, while Blood Center competes in challenging markets which require us to manage the business differently, including reducing costs, rationalizing the current product line, and evaluating opportunities to exit unfavorable customer contracts.

We believe that Plasma and Hospital have growth potential, while Blood Center competes in challenging markets which 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

On January 13, 2020, we purchased the technology underlying the TEG ® 6s Hemostasis Analyzer System from Cora Healthcare, Inc.

and CoraMed Technologies, LLC (the "Cora Parties").

In connection with this transaction, we acquired ownership of intellectual property previously licensed from the Cora Parties on an exclusive basis in the field of hospitals and hospital laboratories.

This acquisition will allow us to pursue site of care opportunities beyond the hospital setting.

On May 21, 2019, we transferred to CSL Plasma Inc.

(“CSL”) substantially all of the tangible assets held by Haemonetics relating to the manufacture of anti-coagulant and saline at our Union, South Carolina facility and CSL assumed certain related liabilities pursuant to the terms of a settlement, release and asset transfer agreement between the parties dated May 13, 2019.

At the closing, we received $9.8 million of proceeds and were concurrently released from our obligations to supply liquid solutions under a 2014 supply agreement with CSL.

We will continue to supply liquid solutions to our customers following the asset transfer agreement pursuant to our supplier arrangements with contract manufacturers.

We recognized an asset impairment in the first quarter of fiscal 2020 of $48.7 million as a result of this transaction.

Share Repurchase Program

In May 2019, the Company's Board of Directors authorized the repurchase of up to $500 million of Haemonetics common shares over the next two years.

In July 2019, the Company completed a $75.0 million repurchase of its common stock pursuant to an accelerated share repurchase agreement ("ASR") entered into with Citibank N.A.

("Citibank") in June 2019.

The total number of shares repurchased under the ASR was 0.6 million at an average price per share upon final settlement of $116.33 .

In October 2019, the Company completed an additional $50.0 million repurchase of its common stock pursuant to an ASR entered into with Morgan Stanley & Co.

LLC ("Morgan Stanley") in September 2019.

The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $124.37 .

In December 2019, the Company entered into an ASR with Bank of America, N.A.

("Bank of America") to repurchase $50.0 million of the Company’s common stock.

Pursuant to the terms of the ASR, in December 2019, the Company paid Bank of America $50.0 million in cash and received an initial delivery of 0.3 million shares of the Company's common stock based on a closing market price on the New York Stock Exchange on December 11, 2019 of $117.55.

This initial delivery of shares represented approximately 80% of the notional amount of the ASR.

On January 23, 2020, the ASR was completed and an additional 0.1 million shares were delivered upon settlement.

The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $114.73.

As of December 28, 2019 , the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $325 million.

COVID-19 Update

We continue to closely manage the impacts of the COVID-19 pandemic on our business results of operations and financial condition.

The progression of the COVID-19 pandemic during the first quarter of fiscal 2021 significantly impacted our financial results.

While the duration and additional implications remain uncertain, the full extent of the impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

Our priorities continue to be business continuity, the safety of our employees and cash preservation while continuing to invest in organic growth opportunities.

Our manufacturing and supply chain remain operational without any shutdowns or significant disruptions and we continue to operate in all of our markets.

Although the pace and timing of the recovery is uncertain, we remain confident in the long term strength of the end markets that we serve across our three business units.

For additional information regarding the expected impacts to our business units and the various risks posed by the COVID-19 pandemic, refer to Results of Operations within Management's Discussion and Analysis and Risk Factors contained in this Quarterly Report on Form 10-Q.

On April 1, 2020, we acquired enicor GmbH ("enicor"), the manufacturer of ClotPro ® , a new generation whole blood coagulation testing system that is currently available in select European and Asia Pacific markets, for total consideration of $20.5 million, which consisted of upfront payments of $16.6 million and the fair value of contingent consideration of $3.9 million.

The contingent consideration, which could total a maximum of $4.5 million, consists of payments related to the achievement of certain revenue and regulatory milestones.

The acquisition of this viscoelastic diagnostic device augments the Company's portfolio of hemostasis analyzers within the Hospital business unit.

Refer to Note 4, Acquisition , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

Fajardo, Puerto Rico Manufacturing Operations

On June 29, 2020, we sold our Fajardo, Puerto Rico, manufacturing operations to GVS, S.p.A ("GVS"), a leading provider of advanced filtration solutions for critical applications for $15.5 million ($8.1 million, net of cash transferred).

Under the terms of the agreement, Haemonetics retained all intellectual property rights to its proprietary blood filters currently manufactured at its Fajardo facility and GVS acquired certain assets consisting primarily of property, plant and equipment, inventory and cash and has assumed certain related liabilities.

In addition, the two parties entered into a long-term supply and development agreement that, among other things, grants GVS exclusive rights to manufacture and supply the blood filters currently produced at the Fajardo facility for Haemonetics.

This divestiture will allow Haemonetics to utilize GVS' experience and scale in filtration to deliver reliable, cost-efficient products to its customers.

Refer to Note 5, Divestitures , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

Blood Donor Management Software

On July 1, 2020, we sold certain U.S.

blood donor management software solution assets within our Blood Center business unit to the GPI Group for an upfront cash payment of $14.0 million ($13.6 million, net of working capital adjustments).

In addition to the cash received upon closing, we may also receive up to an additional $14.0 million, contingent upon the achievement of certain performance measures.

This divestiture better positions Haemonetics for sustainable growth by enabling the Company to focus on its core capabilities while delivering quality products and services where it brings distinct value.

Refer to Note 5, Divestitures , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information

Inlog Holdings France

On July 23, 2020, we entered into a definitive agreement to sell our wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital ("Abénex"), a private equity firm based in France.

Inlog Holdings France SAS, through its subsidiary In Log SAS, develops and sells blood bank and hospital software solutions used predominantly in France and in several other countries outside of the U.S.

This divestiture and the sale of our U.S.

blood donor management software better position us to focus on our growth segments.

This transaction is expected to close in the second quarter of fiscal 2021, subject to Abénex's receipt of financing and the satisfaction of other customary closing conditions.

Restructuring Program

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Savings from the 2020 Program are targeted to reach $80 million to $90 million on an annualized basis once the program is completed.

During the three and nine months ended December 28, 2019 , we incurred $3.9 million and $6.8 million , respectively, of restructuring and turnaround costs under this program.

Relocation of Corporate Headquarters

In December 2018, we entered into a lease for office space in Boston, MA to serve as our new corporate headquarters and replace our prior corporate headquarters located in Braintree, MA.

During the second quarter of fiscal 2020, we sold $7.8 million of real estate and other assets associated with the Braintree corporate headquarters and entered into a lease with the buyer that allowed the Company to leaseback that facility on a rent-free basis through December 31, 2019 until the completion of its relocation to Boston, MA, which occurred during the third quarter of fiscal 2020.

As a result of this transaction, we received net cash proceeds of $15.0 million and non-cash consideration of $0.9 million related to a free rent period ending in December 2019.

The transaction resulted in a net gain of $8.1 million.

Change in Reportable Segments

Effective March 31, 2019, we completed the transition of our operating structure to three global business units - Plasma, Blood Center and Hospital - and accordingly reorganized our operating and reporting structure to align with our three global business units.

This new segment structure has been realigned in accordance with the respective markets to accurately reflect the ongoing performance of each business and excludes service.

The discussion of our results of operations that follows has been revised to reflect our new reportable segments.

During the three months ended June 27, 2020, we incurred $3.5 million of restructuring and turnaround costs under this program.

Financial Summary

Three Months Ended

Nine Months Ended

(In thousands, except per share data)

(In thousands, except per share data) June 27,

2020 June 29,

2019 % Increase/

Net revenues $ 195,577 $ 238,451 (18.0) %

Gross profit $ 90,030 $ 115,906 (22.3) %

% of net revenues 46.0 % 48.6 %

Operating expenses $ 78,315 $ 129,208 (39.4) %

Operating income

Operating income (loss) $ 11,715 $ (13,302) n/m

% of net revenues 6.0 % (5.6) %

Interest and other expense, net $ (3,735) $ (4,423) (15.6) %

Income before provision for income taxes

Provision for income taxes

Income (loss) before provision for income taxes $ 7,980 $ (17,725) n/m

Benefit for income taxes $ (2,547) $ (9,246) (72.5) %

% of pre-tax income (31.9) % 52.2 %

Net income (loss) $ 10,527 $ (8,479) n/m

% of net revenues 5.4 % (3.6) %

Net income per share - basic

Net income per share - diluted

Net revenues increased 4.7% and 4.4% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, net revenues increased 5.0% and 5.1% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Revenue increases in Plasma and Hospital primarily drove the overall increase in revenue during the three and nine months ended December 28, 2019.

Operating income increased for the three and nine months ended December 28, 2019 , as compared with the same periods of fiscal 2019 , primarily due to favorable pricing, product mix and incremental savings from both the 2020 Program and the Complexity Reduction Initiative (the "2018 Program").

The gain recognized on the sale of real estate and other assets associated with the Braintree corporate headquarters also contributed to the increase during the nine months ended December 28, 2019 .

Impairment charges associated with the divestiture of our plasma liquid solutions operations to CSL partially offset increases in operating income during the nine months ended December 28, 2019 .

Net income (loss) per share - basic $ 0.21 $ (0.17) n/m

Net income (loss) per share - diluted $ 0.21 $ (0.17) n/m

Net revenues decreased 18.0% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, net revenues decreased 17.5% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Revenue decreases in Plasma and Hospital due to the COVID-19 pandemic primarily drove the overall decrease in revenue during the three months ended June 27, 2020.

Operating income increased for the three months ended June 27, 2020, as compared with the same period of fiscal 2020, primarily due to impairment charges associated with the divestiture of our plasma liquid solutions operations to CSL in the prior year and incremental savings from the 2020 Program.

The increase was partially offset by the impact of the COVID-19 pandemic on revenue and gross margin, net of savings in operating expenses from cost containment actions taken to offset these negative effects.

Management's Use of Non-GAAP Measures

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Three Months Ended

(In thousands)

Reported growth

Currency impact

Constant currency growth (1)

United States

International

(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."

Nine Months Ended

(In thousands)

Reported growth

Currency impact

Constant currency growth (1)

(In thousands) June 27,

2020 June 29,

2019 Reported growth Currency impact Constant currency growth (1)

United States $ 111,009 $ 156,375 (29.0) % — % (29.0) %

International 84,568 82,076 3.0 % (0.8) % 3.8 %

Net revenues $ 195,577 $ 238,451 (18.0) % (0.5) % (17.5) %

(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.

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Our revenue generated outside the U.S.

was 35.4% and 35.3% of total net revenues for the three and nine months ended December 28, 2019 , respectively, as compared with 36.3% and 37.0% for the three and nine months ended December 29, 2018 , respectively.

was 43.2% of total net revenues during the three months ended June 27, 2020, as compared with 34.4% during the three months ended June 29, 2019.

International sales are generally conducted in local currencies, primarily Japanese Yen, Euro, Chinese Yuan and Australian Dollars.

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Three Months Ended

(In thousands)

Reported growth

Currency impact

Constant currency growth (1)

(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) Hospital revenue includes Hemostasis Management revenue of $24.7 million and $20.8 million for the three months ended December 28, 2019 and December 29, 2018 , respectively.

Hemostasis Management revenue increased 18.6% in the third quarter of fiscal 2020 as compared with the same period of fiscal 2019.

Without the effect of foreign exchange, Hemostasis Management revenue increased 19.8% in the third quarter of fiscal 2020 as compared with the same period of fiscal 2019.

Nine Months Ended

(In thousands)

Reported growth

Currency impact

Constant currency growth (1)

(In thousands) June 27,

2020 June 29,

2019 Reported growth Currency impact Constant currency growth (1)

Plasma $ 68,211 $ 110,422 (38.2) % (0.2) % (38.0) %

Blood Center 77,789 75,803 2.6 % 0.9 % 1.7 %

44,839 47,697 (6.0) % (2.6) % (3.4) %

Service 4,738 4,529 4.6 % 0.1 % 4.5 %

Net revenues $ 195,577 $ 238,451 (18.0) % (0.5) % (17.5) %

(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) Hospital revenue includes Hemostasis Management revenue of $73.9 million and $64.0 million for the nine months ended December 28, 2019 and December 29, 2018 , respectively.

Hemostasis Management revenue increased 15.4% in the first nine months of fiscal 2020 as compared with the same period of fiscal 2019.

Without the effect of foreign exchange, Hemostasis Management revenue increased 17.2% in the first nine months of fiscal 2020 as compared with the same period of fiscal 2019.

Plasma revenue increased 6.9% and 8.8% during the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, Plasma revenue increased 7.3% and 9.2% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

This revenue growth was primarily driven by an increase in volume of plasma disposables due to continued strong performance in the United States during the three and nine months ended December 28, 2019 .

Favorable NexSys PCS pricing and increases in sales of software, partially offset by declines in plasma liquid solutions, also contributed to the overall increase during the three and nine months ended December 28, 2019 .

On May 21, 2019, we transferred to CSL substantially all of the tangible assets held by Haemonetics relating to the manufacture of anti-coagulant and saline at our Union, South Carolina facility.

We will continue to supply liquid solutions to our customers on an as needed basis using contract manufacturers, however, we expect declines in our plasma liquids revenue beginning in the fourth quarter of fiscal 2020 as we continue to exit this business.

Blood Center revenue increased 0.7% and decreased 1.1% during the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, Blood Center revenue increased 0.6% and decreased 0.5% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

The increase during the three months ended December 28, 2019 was primarily driven by increased sales of apheresis products, partially offset by declines in software revenue and whole blood disposables.

The decrease during the nine months ended December 28, 2019 was primarily driven by declines in whole blood disposables and software revenue, partially offset by increases in apheresis products.

The favorable impact of the apheresis business during the three and nine months ended December 28, 2019 was primarily driven by order timing, the benefit of which is expected to reverse in the fourth quarter and to be further compounded by additional declines as certain customers convert to alternative sources of supply.

The expected impact of the loss of this apheresis business is an incremental revenue decline of approximately $2 million dollars in the fourth quarter of fiscal 2020 as compared with the fourth quarter of the prior year and $17 million in fiscal 2021 as compared with fiscal 2020.

Hospital revenue increased 6.4% and 3.8% during the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, Hospital revenue increased 7.1% and 4.9% during the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

The increase for both the three and nine months ended December 28, 2019 was primarily attributable to the growth of disposables associated with TEG ® diagnostic systems, principally in the United States.

In May 2019, we received FDA clearance for the use of TEG 6s in adult trauma settings.

This clearance builds on the current indication for the TEG 6s system in cardiovascular surgery and cardiology procedures, making it the first cartridge-based system available in the U.S.

to evaluate the hemostasis condition in adult trauma patients.

The increase during the three and nine months ended December 28, 2019 was partially offset by declines due to the discontinuance of sales of our OrthoPAT products effective March 31, 2019.

(2) Hospital revenue includes Hemostasis Management revenue of $24.0 million and $24.4 million during the three months ended June 27, 2020 and June 29, 2019, respectively.

Hemostasis Management revenue decreased 1.6% in the first quarter of fiscal 2021, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, Hemostasis Management revenue increased 3.2% in the first quarter of fiscal 2021, as compared with the same period of fiscal 2020.

Plasma revenue decreased 38.2% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, Plasma revenue decreased 38.0% for the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

This revenue decrease was driven by a decline in the volume of plasma disposables, primarily in the U.S., due to the COVID-19 pandemic.

Declines in plasma liquid solutions as a result of certain strategic exits within our plasma liquid solutions business and declines in software revenue due to a one time favorable impact in the prior year period also contributed to the decrease.

We anticipate a continued negative impact from COVID-19 on our fiscal 2021 Plasma results as factors like stay at home orders, limited public transportation and border travel, college campus closures and reticence to donate will continue to impact our revenue throughout the COVID-19 pandemic and recovery.

While we expect a return to historic collection volume growth rates in the future, we anticipate that the recovery of plasma collection volumes will be protracted due to the uncertainty of COVID-19.

We remain confident in the strength of the plasma end market as the long-term global demand for plasma-derived pharmaceuticals is expected to continue.

Blood Center revenue increased 2.6% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, Blood Center revenue increased 1.7% for the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

The increase during the three months ended June 27, 2020 was primarily driven by an increase in apheresis revenue in international indirect markets due to order timing, partially offset by declines in apheresis revenue as certain customers converted to alternative sources of supply.

The expected impact of the loss of this apheresis business is an incremental revenue decline of approximately $17 million in fiscal 2021 as compared with fiscal 2020.

Declines in whole blood disposables and software revenue in the U.S.

also partially offset the overall increase in Blood Center revenue.

During the three months ended June 27, 2020, the impact of COVID-19 on the Blood Center business unit was limited as distributors and blood collectors made large stocking orders in response to the COVID-19 pandemic, particularly in Europe and the Middle East.

Despite the strong first quarter performance, we expect that the benefit of the high stocking orders may reverse as customers' risk aversion returns to normal along with safety stock levels.

While hospital procedures have resumed, we anticipate that it will take time for procedure volumes to fully revert back to pre-COVID-19 levels, which may temporarily reduce the demand for blood products in fiscal 2021.

Hospital revenue decreased 6.0% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, Hospital revenue decreased 3.4% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

The decrease during the three months ended June 27, 2020 was primarily due to a decline in Cell Salvage and TEG disposables revenue due to the COVID-19 pandemic, partially offset by an increase in TEG equipment sales, primarily in Europe.

During the three months ended June 27, 2020, revenue in the Hospital business unit was negatively impacted by several COVID-19 related factors, such as procedure declines, the diversion of hospital resources to critical ICU needs and restricted access for sales teams.

We experienced these declines primarily in China and the U.S., however, as the first quarter of fiscal 2021 progressed, we began to see some recovery in both markets as restrictions in China eased compared with the prior quarter and hospitals in the U.S.

began to reopen.

We believe that the demand for our hospital products is inherently strong and that procedure volumes will continue to improve sequentially quarter over quarter with a return to normal levels anticipated by the end of our fiscal year.

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

2019 % Increase/

Gross profit $ 90,030 $ 115,906 (22.3) %

% of net revenues 46.0 % 48.6 %

Gross profit increased 15.2% and 21.1% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, gross profit increased 15.4% and 22.3% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

The increase in gross profit margin during the three and nine months ended December 28, 2019 was primarily due to favorable pricing driven by the annualization of NexSys PCS device conversions, mix and incremental savings from the 2020 Program.

The absence of impairment charges that were incurred in the prior year period also contributed to the increase during the nine months ended December 28, 2019 .

Gross profit decreased 22.3% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, gross profit decreased 20.5% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

The decrease in gross profit margin during the three months ended June 27, 2020 was primarily driven by increased costs associated with enhanced safety protocols within our manufacturing and supply chain operations and other operational costs incurred as a result of the COVID-19 pandemic as well as product mix.

This decline was partially offset by lower depreciation expense and productivity savings from the 2020 Program.

Operating Expenses

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

2019 % Increase/

Research and development $ 7,750 $ 7,487 3.5 %

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Research and Development

Research and development expenses decreased 22.0% and 18.8% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, research and development expenses decreased 22.0% and 18.7% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

The decrease during the three and nine months ended December 28, 2019 was primarily driven by investments made in clinical programs in the prior year period in order to support FDA clearance for the use of TEG 6s in adult trauma settings, which was received in May 2019.

Research and development expenses increased 3.5% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, research and development expenses increased 4.3% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

The increase during the three months ended June 27, 2020 was driven by restructuring and turnaround costs primarily related to the 2020 Program as well as investments in the TEG portfolio.

The increase was partially offset by cost savings associated with the 2020 Program.

Selling, General and Administrative

Selling, general and administrative expenses increased 5.9% and 0.7% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

Without the effect of foreign exchange, selling, general, and administrative expenses increased 6.5% and 1.5% for the three and nine months ended December 28, 2019 , respectively, as compared with the same periods of fiscal 2019 .

The increase during the three and nine months ended December 28, 2019 was primarily due to an increase in restructuring and turnaround costs, an increase in investments and increases in both share-based compensation and variable compensation expense.

These increases were partially offset by incremental savings from both the 2020 Program and the 2018 Program in the current year periods.

Additionally, the gain recognized on the sale of assets associated with the Braintree corporate headquarters contributed to the partial offset during the nine months ended December 28, 2019 .

Selling, general and administrative expenses decreased 4.7% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

Without the effect of foreign exchange, selling, general, and administrative expenses decreased 3.8% during the three months ended June 27, 2020, as compared with the same period of fiscal 2020.

The decrease during the three months ended June 27, 2020 was primarily due to cost containment actions taken to offset the negative effects related to the COVID-19 pandemic and incremental productivity savings from the 2020 Program.

These decreases were partially offset by share-based compensation and continued investments, primarily in the Hospital business unit.

Impairment of assets

We recognized impairment charges of $1.9 million and $50.6 million for the three and nine months ended December 28, 2019 , respectively.

The impairment charges during the nine months ended December 28, 2019 were primarily due to the transfer to CSL of substantially all of our tangible assets related to the manufacture of anti-coagulant and saline at our Union, South Carolina facility to CSL.

Refer to Note 4, Divestiture , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information pertaining to this agreement.

During the three months ended December 28, 2019 we recorded other asset impairments totaling $1.9 million.

We recognized impairment charges of $1.0 million during the three months ended June 27, 2020 in connection with the sale of our Fajardo, Puerto Rico, manufacturing operations.

During the three months ended June 29, 2019, we recognized $48.7 million of impairment charges in connection with the sale of our Union, South Carolina facility.

Refer to Note 5, Divestitures , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information pertaining to these divestitures.

Interest and Other Expense, Net

Interest expense from our $350.0 million term loan and $350.0 million revolving loan entered into on June 15, 2018, which constitutes the majority of expense, decreased by $0.3 million during the three months ended December 29, 2019 due to higher term loan borrowings in the prior year period, partially offset by a decrease in the effective interest rate.

Interest expense increased by $1.4 million during the nine months ended December 28, 2019 due to an increase in the revolving credit facility balance, partially offset by the decrease in the effective interest rate.

The effective interest rate on total debt outstanding as of December 28, 2019 was 3.0% .

Interest expense from our $350.0 million term loan and $350.0 million revolving loan constitutes the majority of our interest and other expenses.

During the three months ended June 27, 2020, our interest expense associated with this debt declined by $1.2 million despite higher loan borrowings in the current year period due to a decrease in the effective interest rate.

The effective interest rate on total debt outstanding as of June 27, 2020 was 1.4%.

We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to the United States.

1 unchanged sentence

statutory tax rate.

For the three and nine months ended December 28, 2019 , we reported an income tax provision of $7.9 million and $6.3 million, respectively, representing an effective tax rate of 21.0% and 9.6%, respectively.

The effective tax rate for the three and nine months ended December 28, 2019 includes discrete tax benefits recognized from excess stock compensation deductions of $3.1 million and $12.4 million, respectively.

The effective tax rates were also impacted by the jurisdictional mix of earnings and the impact of the divestiture of the Union liquid solutions operation in the first quarter of fiscal 2020.

Refer to Note 4, Divestiture , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information pertaining to this divestiture.

For the three and nine months ended December 29, 2018 , we reported an income tax provision of $7.2 million and $17.6 million, representing an effective tax rate of 28.2% and 34.0%, respectively.

The tax rate for the three and nine months ended December 29, 2018 includes a discrete stock compensation windfall benefit of $1.8 million and $5.8 million, respectively.

The effective tax rate for the nine months ended December 29, 2018 was higher than the U.S.

statutory tax rate primarily due to an asset impairment of $21.2 million recorded in pretax income for which no tax benefit was recognized as a result of the valuation allowance maintained against its deferred tax assets in the impacted jurisdiction.

For the three months ended June 27, 2020, we reported an income tax benefit of $2.5 million, representing an effective tax rate benefit of 31.9%.

The effective tax rate for the three months ended June 27, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $4.0 million.

The effective tax rates were also impacted by the jurisdictional mix of earnings.

For the three months ended June 29, 2019, we reported an income tax benefit of $9.2 million, representing an effective tax rate of 52.2%.

The effective tax rate for the three months ended June 29, 2019 was higher than the U.S.

statutory tax rate primarily due to the jurisdictional mix of earnings, as well as the impact of the divestiture of the Union liquid solutions operation recorded in pretax income which resulted in a worldwide pretax loss for the quarter.

The tax rate for the three months ended June 29, 2019 benefited from a discrete stock compensation windfall benefit of $4.9 million.

Liquidity and Capital Resources

The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:

(Dollars in thousands)

(Dollars in thousands) June 27,

2020 March 28,

Cash & cash equivalents $ 275,725 $ 137,311

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Current ratio 1.9 2.2

$ (252,532) $ (245,182)

Days sales outstanding (DSO) 65 62

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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 2023.

During the three and nine months ended December 28, 2019 , the Company incurred $3.9 million and $6.8 million , respectively, of restructuring and turnaround costs under this program.

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, our Revolving Credit Facility and proceeds from employee stock option exercises.

During the three months ended June 27, 2020, we incurred $3.5 million of restructuring and turnaround costs under this program.

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, our revolving credit line and proceeds from employee stock option exercises.

We believe these sources are sufficient to fund our cash requirements over at least the next twelve months.

Our expected cash outlays relate primarily to investments, capital expenditures, including production of the NexSys PCS and Plasma plant capacity expansions, share repurchases, cash payments under the loan agreement and restructuring and turnaround initiatives.

As of December 28, 2019 , we had $126.4 million in cash and cash equivalents, the majority of which is held in the U.S.

Our expected cash outlays relate primarily to investments, capital expenditures, including production of the NexSys PCS and Plasma plant capacity expansions, cash payments under the loan agreement and restructuring and turnaround initiatives.

As of June 27, 2020, we had $275.7 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.

On June 15, 2018, we entered into a five-year credit agreement which provided for a $350.0 million term loan and a $ 350.0 million revolving loan.

On June 15, 2018, we entered into a five-year credit agreement which provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, the "Credit Facilities").

Interest on the term loan and revolving loan is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio.

Under the Credit Facilities, we are required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants.

At December 28, 2019 , $ 328.1 million was outstanding under the Term Loan with an effective interest rate of 3.0% and $ 45.0 million was outstanding on the Revolving Credit Facility.

We also had $25.4 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of December 28, 2019 .

At June 27, 2020, $319.4 million was outstanding under the term loan with an effective interest rate of 1.4% and $210.0 million was outstanding on the revolving credit line.

In July 2020, we repaid $60.0 million of the outstanding balance on the revolving loan.

We also had $26.2 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of June 27, 2020.

We have scheduled principal payments of $17.5 million required during the remainder of fiscal 2020.

We were in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of December 28, 2019 .

Nine Months Ended

(In thousands)

We were in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of June 27, 2020.

In May 2019, our Board of Directors authorized the repurchase of up to $500 million of Haemonetics common shares over the next two years.

As of June 27, 2020, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $325.0 million.

We continue to manage the ongoing impacts of the COVID-19 pandemic.

While the duration and impacts of the pandemic remain uncertain, we have been successful in preserving cash by implementing a number of actions including restricting travel, reducing certain compensation-related items and non-essential spending and delaying hiring.

We will continue to invest in our business with a bias towards organic growth and innovation that will continue to expand our commercial capabilities.

Our commitment to our shareholders will continue to be an important element of our capital allocation strategy in fiscal 2021, however, our priority will be focused on providing the appropriate levels of funding across our organization and ensuring that we are well positioned to address any challenges that may arise over the course of the pandemic.

As a result, we do not anticipate any share repurchases in the first half of fiscal 2021.

Three Months Ended

(In thousands) June 27,

2020 June 29,

2019 Increase/

Net cash provided by (used in):

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Effect of exchange rate changes on cash and cash equivalents (1)

1,547 304 1,243

Net change in cash and cash equivalents $ 138,414 $ 20,883

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GAAP, we have removed the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents.

Net cash provided by operating activities decreased by $26.8 million during the nine months ended December 28, 2019 , as compared with the nine months ended December 29, 2018 .

The decrease in cash provided by operating activities was primarily due to a working capital outflow driven largely by an increase in inventory build to support the launch of the NexSys PCS devices, a decrease in accounts payable and accrued payroll and the impact of net income, as adjusted for depreciation, amortization and other non-cash charges.

The working capital outflow was partially offset by a decrease in accounts receivable due to the timing of collections.

Net cash used in investing activities decreased by $90.9 million during the nine months ended December 28, 2019 , as compared with the nine months ended December 29, 2018 .

The decrease in cash used in investing activities was primarily the result of a decrease in capital expenditures in the current year period due to spend related to the NexSys PCS launch and manufacturing capacity expansion projects in our Plasma business in the prior year period.

Proceeds received related to the divestiture of our plasma liquid solutions operations and sale of real estate and other assets associated with the Braintree corporate headquarters in the current period also contributed to the decrease in cash used in investing activities during the nine months ended December 28, 2019 .

Net cash used in financing activities increased by $85.0 million during the nine months ended December 28, 2019 , as compared with the nine months ended December 29, 2018 , primarily due to lower borrowings, net of payments, on our Credit Facilities and by increased share repurchases in the current period.

Net cash provided by operating activities increased by $9.2 million during the three months ended June 27, 2020, as compared with the three months ended June 29, 2019.

The increase in cash provided by operating activities was primarily the result of an increase in working capital as compared with the prior year period due to lower increases in inventory build, primarily related to NexSys PCS devices, a large payment to a key service provider in the prior year period and increased collections of accounts receivable.

The reduction in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior year period, partially offset this increase.

Net cash used in investing activities increased by $25.8 million during the three months ended June 27, 2020, as compared with the three months ended June 29, 2019.

The increase in cash used in investing activities was primarily the result of cash paid for the acquisition of enicor and proceeds received related to the divestiture of our plasma liquid solutions operations in the prior year period.

Net cash provided by financing activities increased by $132.9 million during the three months ended June 27, 2020, as compared with the three months ended June 29, 2019, primarily due to a decrease in share repurchases compared with the prior year period and an increase in borrowings on our revolving credit facility, net of payments.

Concentration of Credit Risk

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Foreign Exchange

During the three and nine months ended December 28, 2019 , 35.4% and 35.3% , respectively, of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

During the three months ended June 27, 2020, 43.2% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

We also incur certain manufacturing, marketing and selling costs in international markets in local currency.

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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.

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 Francs, Australian Dollars, Canadian Dollars and Mexican Pesos.

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Standards to be Implemented

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No.

2016-13, Financial Instruments – Credit Losses (Topic 326).

ASC Update No.

2016-13 is intended to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates.

ASC Update No.

2016-13 is effective for annual periods beginning after December 15, 2019, and is applicable to us in fiscal 2021.

We are in the process of determining the effect that the adoption will have on our financial position and results of operations.

In August 2018, the FASB issued ASC Update No.

2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40).

The new guidance will align the accounting implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting for internal-use software licenses.

The guidance is effective for annual periods beginning after December 15, 2019 and is applicable to us in fiscal 2021.

Early adoption is permitted for all entities, including interim periods.

The impact of adopting ASC Update No.

2018-15 is not expected to have a material effect on our condensed consolidated financial statements.

In December 2019, the FASB issued ASC Update No.

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No.

2019-12, Income Taxes (Topic 740).

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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 (the "Exchange Act").

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.

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expected operating results and financial performance;

impacts of the COVID-19 pandemic;

the Company’s strategy for growth;

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regulatory approvals;

the impact and timing of restructuring initiatives including associated cost savings and other benefits;

the impact of planned acquisitions or dispositions;

impact of planned acquisitions or dispositions;

market position and expenditures.

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Investors are therefore cautioned not to rely on these forward-looking statements.

Set forth below 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 Part I, Item 1A.

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.

• The effect of the ongoing COVID-19 pandemic, or outbreaks of communicable diseases, on our business, financial conditions and results of operations, which may be heightened if the pandemic and various government responses to it continue for an extended period of time;

• Failure to achieve our long-term strategic and financial-improvement goals;

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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 and donors;

• 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;

• Pricing pressures resulting from trends toward health care cost containment, including the continued consolidation among health care providers and other market participants;

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• Our ability to develop new products or enhancements on commercially acceptable terms or at all;

• Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the Operational Excellence Program;

• The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected;

Our ability to obtain regulatory approvals in a timely manner consistent with cost estimates;

• The impact of enhanced requirements to obtain regulatory approval in the U.S.

and around the world, including the EU MDR and the associated timing and cost of product approval, and

• Our ability to comply with established and developing U.S.

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• Our ability to execute and realize anticipated benefits from our investments in emerging economies;

Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the 2020 Program and 2018 Program;

• Our ability to retain and attract key personnel;

• Costs and risks associated with product liability and other litigation claims;

Our ability to meet our existing debt obligations and raise additional capital when desired on terms reasonably acceptable to us;

• Our ability to meet our existing debt obligations and raise additional capital when desire on terms reasonably acceptable to us;

• The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses, and resulting margins;

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and international tax laws;

Market conditions and the possibility that the Company’s share repurchase program may be delayed, suspended or discontinued;

The effect of communicable diseases on demand for our products;

• Market conditions impacting our stock price and/or share repurchase program, and the possibility that our share repurchase program may be delayed, suspended or discontinued;

• Our ability to protect intellectual property and the outcome of patent litigation.

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 our Part I, Item 1A.

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 to be a complete statement of all potential risks and uncertainties.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis