What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-02-08 · 108 added, 166 removed, 190 unchanged (59% of the section changed)

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Recent Developments

Share Repurchase Program

In August 2022, we announced that our Board of Directors had authorized the repurchase of up to $300 million of Haemonetics common shares over the next three years.

This new share repurchase program will help to offset the dilutive impact of recent and future employee equity grants.

The timing and amounts of activity under the repurchase program will be at the Company’s discretion with the intent of beginning activity under the program during fiscal 2023.

Debt Issuance and Repayment

On July 26, 2022, we entered into an amended and restated credit agreement with certain lenders to refinance the credit facilities under our 2018 credit agreement (as amended from time to time) and extend the applicable maturity date through June 2025.

The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of

which have been used to retire the balance of the term loan under our 2018 credit agreement, and a $420 million senior unsecured revolving credit facility.

Operational Excellence Program

During the second quarter of fiscal 2022, our Board of Directors approved the revised Operational Excellence Program (the “2020 Program”).

During fiscal 2022, our Board of Directors approved the revised Operational Excellence Program (the “2020 Program”).

The revised program is designed to improve product and service quality, reduce cost principally in our manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic.

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The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved.

During the three and nine months ended January 1, 2022, the Company incurred $5.7 million and $20.2 million, respectively, of restructuring and restructuring related costs under this program.

During the three and

nine months ended December 26, 2020 , the Company incurred $3.1 million and $11.1 million, respectively, of restructuring and restructuring related costs under this program.

Total cumulative charges under this program are $47.2 million as of January 1, 2022.

CSL Contract Loss

In April 2021, CSL Plasma, Ltd.

informed Haemonetics of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits (the “Supply Agreement”) following the expiration of the current term of the Supply Agreement in June 2022.

In fiscal year 2021, revenue under this Supply Agreement was $88.6 million, or 10.2% of total revenue.

As a result of this anticipated contract loss, we recorded a $20.9 million one-time asset impairment charge relating to disposables manufacturing equipment and $5.0 million of additional expenses in the fourth quarter of fiscal 2021.

In the first quarter of fiscal 2022, we incurred an additional $2.8 million of accelerated depreciation expense relating to disposables manufacturing equipment that is no longer in use .

During the third quarter of fiscal 2022, we amended the Supply Agreement to allow CSL to continue to use our PCS2 devices and purchase disposables through December 2023.

The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and we are working with them to quantify their volume requirements over the life of the agreement.

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 fiscal 2022 has 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 the safety of our employees and business continuity while continuing to invest in growth opportunities.

Our manufacturing and supply chain remain ope rational without significant disruptions an d 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 the MD&A contained in this Quarterly Report on Form 10-Q and Risk Factors contained in Item 1A of the Annual Report on Form 10-K for the fiscal year ended April 3, 2021.

During the three months ended July 2, 2022 and July 3, 2021, the Company incurred $3.5 million and $9.9 million , respectively, of restructuring and restructuring related costs under this program.

Total cumulative charges under this program are $59.2 million as of July 2, 2022.

Financial Summary

Three Months Ended Nine Months Ended

(In thousands, except per share data) January 1,

2022 December 26,

2020 % Increase/

(Decrease) January 1,

2022 December 26,

Three Months Ended

(In thousands, except per share data) July 2,

2021 % Increase/

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Interest and other expense, net $ (5,273) $ (4,398) 19.9 %

Income before provision for income taxes $ 31,388 $ 37,374 (16.0) % $ 48,302 $ 100,310 (51.8) %

Income (loss) before provision for income taxes $ 25,494 $ (3,008) n/m

Provision for income taxes $ 5,617 $ 1,446 288.5 %

% of pre-tax income 22.0 % (48.1) %

Net income $ 23,232 $ 31,882 (27.1) % $ 33,634 $ 90,510 (62.8) %

Net income (loss) $ 19,877 $ (4,454) n/m

% of net revenues 7.6 % (1.9) %

Net income per share - basic $ 0.45 $ 0.63 (28.6) % $ 0.66 $ 1.79 (63.1) %

Net income per share - diluted $ 0.45 $ 0.62 (27.4) % $ 0.65 $ 1.77 (63.3) %

Net revenues increased 8.1% and 12.8% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, net revenues increased 7.9% and 11.6% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021 .

Revenue increases in Hospital, primarily Vascular Closure, drove the overall increase in revenue during the three and nine months ended January 1, 2022.

Operating income decreased 11.8% and 44.5% during the three and nine months ended January 1, 2022, respectively, as compared with the same period of fiscal 2021, primarily due to increased spend related to the acquisition of Cardiva Medical, Inc.

(“Cardiva”), including higher transaction and integration costs as well as increased intangible amortization expense, an increase in the fair value o f contingent consideration and increased freight costs.

During the nine months ended January 1, 2022, costs driven by the amortization of the fair value inventory step-up related to Cardiva, asset impairments and gains on divestitures during the prior period also contributed to the decrease.

The decrease during the three and nine months ended January 1, 2022, was partially offset by favorable volumes and product mix and productivity savings from the 2020 Program.

Net income (loss) per share - basic $ 0.39 $ (0.09) n/m

Net income (loss) per share - diluted $ 0.38 $ (0.09) n/m

Net reven ues increased 14.4% during the three months ended July 2, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, net revenues increased 16.6% during the three months ended July 2, 2022, respectively, as compared with the same periods of fiscal 2022 .

Revenue increases including both volume and price in our Plasma and Hospital businesses drove the overall increase in revenue during the three months ended July 2, 2022.

Operating income increased during the three months ended July 2, 2022 as compared with the same period of fiscal 2022, primarily due to increased revenues in Plasma and Hospital and savings from the 2020 Program, as well as decreased spending on acquisition costs in the current year, partially offset by lower revenues in Blood Center, increased freight costs in our global supply chain and increased sales and marketing expense.

Management’s Use of Non-GAAP Measures

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Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency conversion rate.

We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.

We have provided this non-GAAP financial measure because we believe it

provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.

RESULTS OF OPERATIONS

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Three Months Ended

(In thousands) January 1,

2022 December 26,

2020 Reported growth Currency impact Constant currency growth (1)

United States $ 167,270 $ 147,607 13.3 % — % 13.3 %

International 92,499 92,764 (0.3) % 0.6 % (0.9) %

Net revenues $ 259,769 $ 240,371 8.1 % 0.2 % 7.9 %

(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) January 1,

2022 December 26,

(In thousands) July 2,

2021 Reported growth Currency impact Constant currency growth (1)

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Our products are marketed in approximately 90 countries around the world through a combination of our direct sales force, independent distributors and agents.

During the three and nine months ended January 1, 2022 our revenue generated outside the U.S .

was 35.6% and 36.8%, respectively, of total net revenues, as compared with 38.6% and 40.7% during the three and nine months ended December 26, 2020, respectively.

During the three months ended July 2, 2022 our revenue generated outside the U.S .

was 30.4% of total net revenues, as compared with 38.3% during the three months ended July 3, 2021, respectively.

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) January 1,

2022 December 26,

2020 Reported growth Currency impact Constant currency growth (1)

Plasma $ 96,460 $ 101,934 (5.4) % (0.1) % (5.3) %

Blood Center 75,692 80,920 (6.5) % 0.8 % (7.3) %

82,273 52,651 56.3 % (0.6) % 56.9 %

Service 5,344 4,866 9.8 % 0.5 % 9.3 %

Net revenues $ 259,769 $ 240,371 8.1 % 0.2 % 7.9 %

(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 $33.5 million and $28.5 million during the three months ended January 1, 2022 and December 26, 2020, respectively.

Hemostasis Management revenue increas ed 17.5% in t he third quarter of fiscal 2022, as compared with the same period of fiscal 2021.

Without the effect of foreign exchange, Hemostasis Management revenue increas ed 18.4% in t he third quarter of fiscal 2022, as compared with the same period of fiscal 2021.

Hospital revenue also includes Vascular Closure revenue of $24.3 millio n for the three months ended January 1, 2022.

Nine Months Ended

(In thousands) January 1,

2022 December 26,

(In thousands) July 2,

2021 Reported growth Currency impact Constant currency growth (1)

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See “ Management ’ s Use of Non-GAAP Measures.

(2) Hospital revenue includes Hemostasis Management revenue o f $97.2 million and $78.5 million during the nine months ended January 1, 2022 and December 26, 2020, respectively.

Hemostasis Management revenu e increased 23.8% i n the first nine months of fiscal 2022, as compared with the same period of fiscal 2021.

Without the effect of foreign exchange, Hemostasis Management revenu e increased 23.2% in the first n ine months of fiscal 2022, as compared with the same period of fiscal 2021.

Hospital revenue also includes Vascular Closure revenue of $66.8 million for the nine months ended January 1, 2022.

Plasma revenue decreased 5.4% and increased 0.7% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, Plasma revenue decreased 5.3% and increased 0.4% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

The decrease during the three months ended January 1, 2022, as compared with the same period of fiscal 2021 was primarily driven by a decline in plasma liquid solutions and a large stocking order in the prior period.

The i ncrease during the nine months ended January 1, 2022 was primarily driven by increase in volume of plasma disposables and increase in software revenue, partially offset by pricing adjustments and declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business.

Although we continue to experience the negative impact of COVID-19 on our business, we believe the impacts on plasma collection are temporary and anticipate volumes to recover to pre-pandemic levels.

However, the exact timing of the recovery remains uncertain and is expected to occur after the end of fiscal 2022.

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

(2) Hospital revenue includes Hemostasis Management revenue of $33.5 million and $32.2 million during the three months ended July 2, 2022 and July 3, 2021, respectively.

Hemostasis Management revenue increas ed 4.1% in t he first quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hemostasis Management revenue increas ed 5.8% in t he first quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Vascular Closure revenue increased 35.9% in the first quarter of fiscal 2023 as compared with the same period of fiscal 2022.

Plasma revenue increased 42.5% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Plasma revenue increased 43.5% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022 .

The increase during the three months ended July 2, 2022, as compared with the same period of fiscal 2021 was driven by volume and price.

In early April 2021, CSL Plasma, Ltd.

informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits following the expiration of the current term of the Supply Agreement in June 2022.

(“CSL”) informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits that was initially set to expire in June 2022.

In fiscal 2022, revenue under this Supply Agreement was $102.4 million.

During the third quarter of fiscal 2022, we amended the supply agreement to allow CSL to continue to use our PCS2 devices and purchase disposables through December 2023.

Blood Center revenue decreased 6.5% and 3.5% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, Blood Center revenue decreased 7.3% and 5.5% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

The decrease during the three and nine months ended January 1, 2022 as compared with the same periods of fiscal 2021 was primarily driven by continued declines in whole blood disposables and the impact of previously discontinued customer contracts in North America as well as an apheresis stocking order in the prior year period.

The divestiture of certain blood donor management software solution assets in fiscal 2021 also contributed to the decline during the nine months ended January 1, 2022, as compared with the same period of fiscal 2021.

We have not yet experienced the reversal of the large stocking orders made by distributors and blood collectors during the first quarter of fisc al 2021 in response to the COVID-19 pandemic.

The timing and magnitude of potential reversals in the future periods is likely to occur over an extended period of time as customers’ risk aversion returns to normal along with safety stock levels.

Hospital revenue increased 56.3% and 59.7% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, Hospital revenue increased 56.9% and 58.2% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

The increase during the three and nine months ended January 1, 2022 was primarily attributable to Vascular Closure revenue resulting from the acquisition of Cardiva and an increase in TEG disposables revenue in the U.S.

The increase during the nine months ended January 1, 2022 also reflected the impact of the COVID-19 pandemic on the prior year period, partially offset by the divestiture of certain blood bank and hospital software solution assets during the same period of fiscal 2021.

W e believe that the demand for our hospital products is inherently strong and that procedure volumes will continue to improve with a return to normal levels.

Three Months Ended Nine Months Ended

(In thousands) January 1,

2022 December 26,

2020 % Increase January 1,

2022 December 26,

The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and CSL has committed to a minimum of $88.0 million of disposable purchases in fiscal 2023.

Blood Center revenue decreased 9.9% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Blood Center revenue decreased 7.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The decrease during the three months ended July 2, 2022 as compared with the same periods of fiscal 2022 was primarily driven by a decline in the volume of apheresis disposables.

Hospital revenue increased 12.7% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hospital revenue increased 14.9% during the three months ended July 2, 2022, as compared with the same periods of fiscal 2022.

The increase during the three months ended July 2, 2022 was primarily attri butable to Vascular Closure revenue, as well as increases in TEG disposables revenue in the U.S.

and Transfusion Management revenue.

Three Months Ended

(In thousands) July 2,

2021 % Increase

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% of net revenues 54.4 % 47.3 %

Gross profit increased 15.2% and 16.8% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, gross profit increased 14.4% and 14.3% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021 .

The increase during the three and nine months ended January 1, 2022 was primarily driven by the addition of Vascular Closure, favorable volumes and product mix, lower expenses related to the COVID-19 pandemic, currency translation, and productivity savings from the 2020 Program.

The increase was partially offset by recent divestitures in fiscal 2021 and inflationary pressures and higher freight costs in our global supply chain.

The increase during the nine months ended January 1, 2022 was also partially offset by pricing adjustments, the amortization of the fair value inventory step-up related to the acquisition of Cardiva and asset impairments.

Gross profit increased 31.6% during the three months ended July 2, 2022 as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, gross profit increased 34.4% during the three months ended July 2, 2022, as compared with the same period of fiscal 2022 .

The increase during the three months ended July 2, 2022 was primarily driven by volume and mix, price and productivity savings from the Operational Excellence Program, partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense.

Operating Expenses

Three Months Ended Nine Months Ended

(In thousands) January 1,

2022 December 26,

2020 % Increase January 1,

2022 December 26,

Three Months Ended

(In thousands) July 2,

2021 % Increase/

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Research and Development

Research and development expenses increased 33.8% and 52.6% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, research and development expenses increased 33.4% and 51.5% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

These increases were primarily due to increased spend related to investments in our Hospital Business unit, primarily driven by Vascular Closure, as well as costs related to compliance with the European Union Medical Device Regulation (“MDR”) and In Vitro Diagnostic Regulation (“IVDR”) requirements.

The increase during the three and nine months ended January 1, 2022, was partially offset by cost savings related to the 2020 Program.

Research and development expenses decreased 14.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, research and development expenses decreased 13.6% during the three months ended July 2, 2022, as compared with the same period of fiscal 2022.

This decrease was primarily due to the timing of investments across quarters and cost savings related to the 2020 Program.

Selling, General and Administrative

Sell ing, general and administrative expenses increased 23.0% and 29.4% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effect of foreign exchange, selling, general, and administrative expenses increased 23.1% and 27.9% during the three and nine months ended January 1, 2022, respectively, as compared with the same period of fiscal 2021.

The increase during three and nine months ended January 1, 2022 was primarily due to spend related to the acquisition of Cardiva, including the increase in the fair value of contingent consideration.

Higher freight costs also contributed to these increases, which were partially offset by cost savings related to the 2020 Program.

Sell ing, general and administrative expenses increased 1.1% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, selling, general, and administrative expenses increased 2.3% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The increase during the three months ended July 2, 2022 was primarily driven by inflationary pressures and higher freight costs in our global supply chain, and higher investments in sales and marketing, partially offset by cost savings related to the 2020 Program and decreased spend on acquisitions in the current year.

Amortization of Intangible Assets

We recognized amortization expense of $12.2 million and $35.9 million during the three and nine months ended January 1, 2022, respectively and $7.8 million and $24.2 million during the three and nine months ended December 26, 2020, respectively.

The increase was primarily driven by an increase in intangible assets resulting from recent acquisitions.

We recognized amortization expense of $8.4 million during the three months ended July 2, 2022 and $12.4 million during the three months ended July 3, 2021.

The decrease is primarily the result of intangible assets that became fully amortized during fiscal 2022.

Gains on Divestitures

We recognized gains on divestitures of $9.6 million during the nine months ended January 1, 2022.

We recognized gains on divestitures of $1.1 million and $32.6 million during the three and nine months ended December 26, 2020, respectively.

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.

We recognized gains on divestitures of $9.6 million during the three months ended July 3, 2021, with no gains on divestitures during the three months ended July 2, 2022.

Interest and Other Expense, Net

Interest and other expenses increased 39.7% and 24.8% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

Without the effects of foreign exchange, interest and other expenses increased 40.6% and 24.0% during the three and nine months ended January 1, 2022, respectively, as compared with the same periods of fiscal 2021.

The increase during the three and nine months ended January 1, 2022 wa s primarily driven by realized losses due to foreign currency and the amortization of deferred financing fees associated with our March 2021 issuance of $500 million in aggregate principal amount of 0% convertible senior notes, partially offset by a reduction in interest expense from borrowings under our $350.0 million term loan and $350.0 million revolving loan due to lower borrowings.

The effective interest rate on our term loan and revolving loan as of January 1, 2022 was 1.9%.

Interest and other expenses increased 19.9% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effects of foreign exchange, interest and other expenses increased 18.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The increase was primarily driven by higher interest rates which impacted the interest incurred on our term loan.

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

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statutory tax rate.

For the three and nine months ended January 1, 2022, we reported income tax expense of $8.2 million and $14.7 million, respectively, representing effective tax rates of 26.0% and 30.4%, respectively.

The effective tax rate for the nine months ended January 1, 2022 includes discrete tax expense relating to stock compensation shortfalls of $0.9 million, with no discrete tax expense relating to stock compensation shortfalls recorded in the three months ended January 1, 2022.

For the three and nine months ended December 26, 2020, we reported income tax expense of $5.5 million and $9.8 million, respectively, representing effective tax rates of 14.7% and 9.8%, respectively.

The effective tax rates for the three and nine months ended December 26, 2020 include discrete tax benefits recognized from excess stock compensation deductions of $1.0 million and $5.1 million, respectively.

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

During the three and nine months ended December 26, 2020, the Company sold its Fajardo, Puerto Rico manufacturing operations, certain U.S.

blood donor management software solution assets, and its wholly-owned subsidiary Inlog Holdings France SAS.

The tax expense on divestitures, including the associated valuation allowance impacts, were included in the computation of the annual effective tax rate.

For the three months ended July 2, 2022, we reported income tax expense of $5.6 million representing an effective tax rate of 22.0%.

The effective tax rate for the three months ended July 2, 2022 includes $0.6 million discrete tax expense relating to stock compensation shortfalls.

For the three months ended July 3, 2021, we reported income tax expense of $1.4 million representing an effective tax rate of (48.1)%.

The effective tax rate for the three months ended July 3, 2021 includes $0.8 million discrete tax expense relating to stock compensation shortfalls.

Liquidity and Capital Resources

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

(Dollars in thousands) January 1,

(Dollars in thousands) July 2,

2022 April 2,

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(1) Net debt position is the sum of cash and cash equivalents less total debt.

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from ope rations, our revolving credit line that expires in the first quarter of fiscal 2024 and proceeds from employee stock option exerci ses.

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 acquisitions, investments, capital expenditures, including the build out of our new manufacturing facility in Clinton, PA, cash payments under our credit agreement and restructuring initiatives.

Our expected cash outlays relate primarily to acquisitions, investments,

capital expenditures, including enhancements to our North American manufacturing facilities, cash payments under our credit agreement and restructuring initiatives.

In March 2021, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes.

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The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased.

The 2026 Notes have an effective interest rate of 0.5% as of January 1, 2022.

As of January 1, 2022, we had $236.9 million in cash and cash equivalents, the majority of which is held in the U.S.

The 2026 Notes have an effective interest rate of 0.5% as of July 2, 2022.

As of July 2, 2022, we had $214.9 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 (together with the term loan, as amended from time to time, 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.

On June 15, 2018, we entered into a credit agreement with certain lenders that provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, as amended from time to time, the “2018 Credit Facilities”) that mature on June 15, 2023.

Interest on the 2018 Credit Facilities is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio.

Under the 2018 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.

The Company and its lenders agreed to increase the maximum consolidated leverage ratio the Company is required to maintain for the four consecutive quarters immediately following the closing of the Cardiva acquisition to 4.25:1.0, after which the maximum consolidated leverage ratio the Company is required to maintain will revert to 3.5:1.0.

As of January 1, 2022, $288.8 million was outstanding under the term loan with an effective interest rate of 1.9%.

As of July 2, 2022, $280.0 million was outstanding under the term loan with an effective interest rate of 3.4%.

There were no borrowings outstanding on the revolving loan.

We also had $24.7 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of January 1, 2022.

We also had $20.9 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of July 2, 2022.

Additionally, the Company was in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of July 2, 2022.

On July 26, 2022, the Company entered into an amended and restated credit agreement with certain lenders to refinance the 2018 Credit Facilities and extend the maturity date through June 2025.

The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of which have been used to retire the balance of the term loan under the 2018 Credit Facilities, and a $420 million senior unsecured revolving credit facility (together, the “Revised Credit Facilities”).

Loans under the Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the amended and restated credit agreement), which is subject to a floor of 0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the amended and restated credit agreement) at the applicable measurement date.

Adjusted Term SOFR Rate loans are also subject to a credit spread adjustment of 0.10% per annum.

The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company’s consolidated net leverage ratio at the applicable measurement date.

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

The Revised Credit Facilities mature on June 15, 2025.

The principal amount of the term loan under the Revised Credit Facilities is repayable quarterly through the maturity date at a rate of 2.5% for the first year and 5% thereafter, with the unpaid balance due at maturity.

The Company has scheduled principal payments of $5.3 million and $12.3 million required during the remainder of fiscal 2023 and during fiscal 2024, respectively.

The Company was in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of January 1, 2022.

During the second quarter of fiscal 2022, our Board of Directors approved a revised 2020 Program.

During fiscal 2022, our Board of Directors approved a revised 2020 Program.

We now estimate that we will incur aggregate charges between $95 million and $105 million in connection with the 2020 Program.

These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2025.

During the three and nine months ended January 1, 2022, we incurred $5.7 million and $20.2 million, respectively, of restructuring and restructuring related costs under this program.

Nine Months Ended

(In thousands) January 1,

2022 December 26,

During the three months ended July 2, 2022, we incurred $3.5 million of restructuring and restructuring related costs under this program.

Three Months Ended

(In thousands) July 2,

Net cash provided by (used in):

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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 $3.0 million during the nine months ended January 1, 2022, as compared with the nine months ended December 26, 2020 .

The decrease in cash provided by operating activities was primarily the result of higher working capital due to lower collections of accounts receivable, partially offset by an increase in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior period.

Net cash used in investing activities increased by $55.5 million during the nine months ended January 1, 2022, as compared with the nine months ended December 26, 2020.

The increase in cash used in investing activities was primarily the result of an increase in capital expenditures in the current year and lower proceeds received from various divestitures during fiscal 2021 as compared to fiscal 2022, partially offset by decreased acquisition spend.

Net cash used in financing activities increased by $58.3 million during the nine months ended January 1, 2022, as compared with the nine months ended December 26, 2020 , primarily due to a repayment of the revolving credit facility in fiscal 2021.

Net cash provided by operating activities increased by $43.7 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021.

The increase in cash provided by operating activities was primarily the result of an increase in net income, higher collections of accounts receivable and a decrease in inventories driven by NexSys PCS device placements.

Net cash used in investing activities increased by $42.4 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021.

The increase in cash used in investing activities was primarily the result of an increase in capital expenditures, driven by NexSys PCS device placements, and other investments in the current year.

Net cash used in financing activities increased by $21.8 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021, primarily due to acquisition-related contingent consideration payments made in the current year.

Concentration of Credit Risk

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If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.

We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during the nine months ended January 1, 2022.

We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during the three months ended July 2, 2022.

We continue to monitor inflationary pressures generally and raw materials indices that may affect our procurement and production costs.

Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials.

We expect the inflationary pressures we have experienced in our global supply chain to continue into fiscal 2023.

Historically, we have been able to mitigate the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasin g employee productivity and by adjusting the selling prices of products.

We expect the inflationary pressures we have experienced in our global supply chain to continue throughout fiscal 2023.

Historically, we have been able to limit the impact of the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products, but we may not be able to fully mitigate these increases in our operational costs in the future.

Foreign Exchange

During the three and nine months ended January 1, 2022, 35.6% and 36.8%, 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 July 2, 2022, 30.4% 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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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.

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, Chinese Yuan and Mexican Pesos.

This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.

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Risk Factors in our most recent Annual Report on Form 10-K.

and the rest of the world, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and mitigating the economic effects of the pandemic;

• The effect of the ongoing COVID-19 pandemic, or outbreaks of communicable diseases, on our business, financial conditions and results of operations, including the time it will take for vaccines to be broadly distributed and administered worldwide, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and its variants and mitigating the economic effects of the pandemic, including inflationary pressures and higher freight costs in our global supply chain;

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

• Demand for and market acceptance risks for new and existing products, including material reductions in purchasing from or loss of a significant customer;

• Our ability to develop, manufacture and market new products and technologies successfully and in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete;

• Product quality or safety concerns, leading to product recalls, withdrawals, regulatory action by the FDA (or similar non-U.S.

regulatory agencies), reputational damage, declining sales or litigation;

• Our ability to retain and attract key personnel;

• 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;

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• The continuity, availability and pricing of plastic and other raw materials, finished goods and components used in the manufacturing of our products (including those purchased from sole-source suppliers) and the related continuity of our manufacturing, sterilization, supply and distribution;

• 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 our acquisition of Cardiva and any other planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected;

• The potential that the expected strategic benefits and opportunities from completed or planned acquisitions, divestitures or other strategic investments by the Company may not be realized or may take longer to realize than expected;

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

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

and foreign legal and regulatory requirements, including FCPA, MDR/IVDR and similar laws in other jurisdictions, as well as U.S.

and foreign legal and regulatory requirements, including FCPA, EU MDR/EU IVDR and similar laws in other jurisdictions, as well as U.S.

and foreign export and import restrictions and tariffs;

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• The potential impact of our convertible senior notes and related capped call transactions;

• Geopolitical and economic conditions in China, Russia and other foreign jurisdictions where we do business;

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

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

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

• Our ability to retain and attract key personnel;

• Market conditions impacting our stock price and/or share repurchase programs we may enter into from time to time, and the possibility that such share repurchase programs may be delayed, suspended or discontinued.

• Costs and risks associated with product liability and other litigation claims we may be subject to now or in the future;

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

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.

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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