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Item 7. Management’s Discussion and Analysis

2023-05-22 compared with 2022-05-25 · 91 added, 164 removed, 299 unchanged (46% of the section changed)

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blood and plasma component collection, the surgical suite and hospital transfusion services.

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

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

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“Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood.

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

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

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

Operational Excellence Program

During the first quarter of 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.

We now expect to incur aggregate charges between $95 million and $105 million by the end of fiscal 2025 and to achieve total gross savings of $115 million to $125 million on an annualized basis once the program is completed.

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 years ended April 2, 2022, April 3, 2021 and March 28, 2020, the Company incurr ed $28.7 million , $15.1 million and $11.9 million , respectively, of restructuring and restructuring related costs under this program.

Total cumulative charges under this program are $55.7 million as of April 2, 2022.

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

The continuation 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 operational without 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 Item 1A of this Annual Report on Form 10-K.

Share Repurchase Program

In August 2022, we announced that our Board of Directors had approved a new three-year share repurchase program authorizing the repurchase of up to $300.0 million of Haemonetics common stock from time to time, based on market conditions, through August 2025.

In November 2022, 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.

in August 2022.

The total number of shares repurchased under the ASR was 1.0 million at an average price per share upon final settlement of $75.20.

As of April 1, 2023, the total remaining authorization for repurchase of the Company’s common stock was $225.0 million.

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.

Our Revised Credit Facilities include a $280.0 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 $420.0 million senior unsecured revolving credit facility.

In September 2022, we amended two prior interest rate swap agreements and entered into certain supplemental interest rate swap agreements to effectively convert between 70% to 80% of borrowings under our Revised Credit Facilities from a variable Term Secured Overnight Financing Rate (“SOFR”) rate to a fixed rate of interest through June 2025.

Market Trends

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Various factors related to the supply of plasma and the production of plasma-derived biopharmaceuticals also affect collection volume, including the following:

• Biopharmaceutical companies are seeking more yield from the collected plasma to meet growing demand for biopharmaceuticals without requiring an equivalent increase in plasma supply.

• Biopharmaceutical companies are seeking more yield from each plasma collection to meet growing demand for biopharmaceuticals without requiring an equivalent increase in plasma donations.

• Newly approved indications for auto-immune diseases treated with plasma-derived therapies, the growing understanding and diagnosis of these diseases, longer lifespans and a growing aging patient population increase the demand for plasma.

• Geographical expansion of biopharmaceuticals also increases demand for plasma.

During fiscal 2022 the COVID-19 pandemic significantly reduced the number of source plasma collections in the U.S., which materially reduced the demand for plasma products .

We continue to view the impacts of the pandemic on plasma collection as temporary and 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.

B ecause plasma collected in the U.S.

supplies the vast majority of plasma volume demand worldwide, we anticipate continued growth in North America in future periods as collection volumes benefit from an expanding end user market for plasma-derived biopharmaceuticals.

Despite the overall growth in the market, the number of biopharmaceutical companies that collect and fractionate source plasma is low and industry consolidation is ongoing.

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As a result, there are relatively few customers for our Plasma products, especially in the U.S.

where ov er 70% of the world's source plasma is collected and only a few customers provide the majority of our Plasma revenue.

where approximately 70% of the world’s source plasma is collected and only a few customers provide the majority of our Plasma re venue.

However, certain jurisdictions such as Egypt and the United Kingdom have begun to collect or are considering collection of plasma for fractionation for their local needs, which could expand the Plasma market.

Blood Center Market

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Within the Blood Center market, we have seen three trends that have negatively impacted growth of the overall marketplace despite the overall increase in aging populations.

Overall, we continue to expect a decline in this business in the low to mid single-digits.

Overall, we expect a flat to low single-digit decline in this business.

• Declining transfusion rates in mature markets due to the development of more minimally invasive procedures with lower associated blood loss, as well as better blood management.

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Hemostasis Management Market - The use of routine coagulation testing is well established throughout the world in various medical procedures, including cardiovascular surgery, organ transplantation, trauma, post-partum hemorrhage and percutaneous coronary intervention.

While standard tests like prothrombin time, partial thromboplastin time and platelet count have limited

ability to reveal a patient’s risk for bleeding, they do not provide information on the patient’s risk for thrombosis.

While standard tests like prothrombin time, partial thromboplastin time and platelet count have limited ability to reveal a patient’s risk for bleeding, they do not provide information on the patient’s risk for thrombosis.

In addition, these routine tests do not provide specific data about clot quality or stability.

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The HAS-100 is currently commercialized in China.

Vascular Closure Market - Our target markets, coronary and peripheral procedures and electrophysiology procedures, are highly concentrated in the U.S.

Vascular Closure Market - The target markets for our Vascular Closure products, coronary and peripheral procedures and electrophysiology procedures, are highly concentrated in the U.S.

The mature market of coronary and peripheral procedures consists of interventions to diagnose and treat vascular diseases.

Electrophysiology procedures consist of catheter-based interventions to diagnose and treat cardiac arrhythmias.

Electrophysiology procedures consist of catheter-based

interventions to diagnose and treat cardiac arrhythmias.

This procedure category is expected to grow based on the increasing incidence and prevalence of cardiac arrhythmias, mainly in the U.S.

Additionally, our VASCADE and VASCADE MVP vascular closure systems received CE mark clearance in fiscal 2023, providing a pathway for country-specific introduction of these products in the EU.

Cell Salvage Market - In recent years, more efficient blood use and less invasive surgeries have reduced demand for autotransfusion in these procedures and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new markets and sources of growth.

Orthopedic procedures have seen similar changes with improved blood management practices, including the use of tranexamic acid to treat and prevent postoperative bleeding, significantly reducing the number of transfusions and autotransfusion.

Geographically, the Cell Saver has achieved the highest market penetration in North America, Europe and Japan.

However, there are considerable growth opportunities in certain Asia Pacific and other emerging markets as addressable procedure volumes grow and the use of autotransfusion is becoming accepted as a standard of care.

Transfusion Management Market - Revenues from BloodTrack have increased in the U.S.

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We continue to explore opportunities to expand the portfolio internationally.

Geographically, the Cell Saver ® has achieved the highest market penetration in North America, Europe and Japan.

Financial Summary

(In thousands, except per share data) 2023 2022 % Increase/(Decrease)

21 % Increase/(Decrease)

Net revenues $ 1,168,660 $ 993,196 17.7 %

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Interest and other expense, net $ (14,630) $ (17,121) (14.5) %

Income before (benefit) provision for income taxes $ 63,629 $ 72,913 $ 87,152 (12.7) % (16.3) %

Provision (benefit) for income taxes $ 20,254 $ (6,556) $ 10,626 n/m n/m

Income before provision for income taxes $ 141,403 $ 63,629 122.2 %

Provision for income taxes $ 26,002 $ 20,254 28.4 %

% of pre-tax income 18.4 % 31.8 %

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Fiscal years 2023 and 2022 included 52 weeks with each quarter having 13 weeks.

Fiscal 2021 included 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks.

Net revenues for fiscal 2023 increased 17.7% compared with fiscal 2022.

Without the effects of foreign exchange, net revenues increased 20.3% compared with fiscal 2022.

Revenue increases in Hospital, primarily Vascular Closure, drove the overall increase in revenue during the fiscal year ended April 2, 2022.

Net revenues for fiscal 2021 decreased 11.9% compared with fiscal 2020.

Without the effects of foreign exchange, net revenues decreased 12.9% compared with fiscal 2020.

Revenue decreases in Plasma due to the COVID-19 pandemic primarily drove the overall decrease in revenue during the fiscal year ended April 3, 2021.

Operating income decreased during fiscal 2022 as compared with fiscal 2021, primarily due to increased spend related to the acquisition of Cardiva Medical, Inc.

(“Cardiva”), including higher transaction and integration costs, amortization of the fair value inventory step-up, increased intangible amortization expense and an increase in the fair value of contingent consideration, as well as increased freight costs and inflationary pressures, partially offset by productivity savings from the 2020 Program.

Operating income decreased during fiscal 2021 as compared with fiscal 2020, primarily due to the impact of the COVID-19 pandemic on revenue and gross margin, offset by gains on divestitures, incremental savings from the 2020 Program and lower asset impairment charges and depreciation expense.

Revenue increases in our Plasma and Hospital businesses, primarily related to volume and price, drove the overall increase in revenue during the fiscal year ended April 1, 2023.

Operating income increased 93.2% during fiscal 2023 as compared with fiscal 2022, primarily due to increased revenues in Plasma and Hospital, savings from the Operational Excellence Program (“2020 Program”), decreased spending on acquisitions in fiscal 2023 and decreased amortization of acquired intangible assets, partially offset by higher performance-based compensation, 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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Net Revenues by Geography

Fiscal Year Fiscal 2022 versus 2021 Fiscal 2021 versus 2020

(In thousands) 2023 2022 Reported Growth Currency impact Constant currency growth (1)

Reported Growth Currency impact Constant currency growth (1)

United States $ 842,897 $ 639,322 31.8 % — % 31.8 %

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The percentage of revenue generated in our principal operating regions is summarized below:

2022 2021 2020

United States 72.1 % 64.4 %

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Total 100.0 % 100.0 %

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

Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen, Euro and Australian Dollar relative to the U.S.

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

Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen and Euro, relative to the U.S.

We have placed foreign currency hedges to mitigate our exposure to foreign currency fluctuations.

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Net Revenues by Business Unit

Fiscal Year Fiscal 2022 versus 2021 Fiscal 2021 versus 2020

(In thousands) 2023 2022 Reported Growth Currency impact Constant currency growth (1)

Reported Growth Currency impact Constant currency growth (1)

Plasma $ 496,923 $ 351,347 41.4% (0.8)% 42.2%

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See “Management's Use of Non-GAAP Measures.”

(2) Hospital revenue includes Hemostasis Management revenue of $127.4 million, $107.4 million, and $95.7 million for fiscal years 2022, 2021 and 2020, respectively.

(2) Hospital revenue includes Hemostasis Management revenue of $138.9 million and $127.4 million for fiscal years 2023 and 2022, respectively.

Hemostasis Management revenue increased 9.0% during fiscal 2023 as compared with fiscal 2022.

Without the effect of foreign exchange, Hemostasis Management revenue increased 11.3% as compared with fiscal 2022.

Hemostasis Management revenue increased 12.2% during fiscal 2021 as compared with fiscal 2020.

Without the effect of foreign exchange, Hemostasis Management revenue increased 12.8% during fiscal 2021 as compared with fiscal 2020.

Hospital revenue also includes Vascular Closure revenue of $93.8 million and $7.7 million for fiscal years 2022 and 2021, respectively.

Vascular Closure revenue increased 35.1% during fiscal 2023 as compared with fiscal 2022.

Plasma revenue increased 41.4% during fiscal 2023 as compared with fiscal 2022.

Without the effect of foreign exchange, Plasma revenue increased 42.2% during fiscal 2023 as compared with fiscal 2022.

This revenue increase was primarily driven by increase in volume of plasma disposables and an increase in software revenue, partially offset by declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business.

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.

Although we continue to experience the negative impact of COVID-19 on our business, we believe the impacts on plasma collection are temporary.

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.

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.

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.

Plasma revenue decreased 27.6% during fiscal 2021 as compared with fiscal 2020.

There was no foreign exchange impact on Plasma revenue during fiscal 2021.

This revenue decrease was primarily driven by a decline in the volume of plasma disposables, primarily in the U.S., due to the COVID-19 pandemic and declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business.

Declines in software revenue due to a one-time favorable impact in the prior year period also contributed to the decrease.

This revenue increase was primarily driven by volume and price.

During the third quarter of fiscal 2022, we amended our supply agreement with CSL, which CSL had previously notified us of its intent not to renew and was initially set to expire in June 2022, to allow CSL to continue to use our PCS2 plasma collection system devices and purchase disposable plasmapheresis kits on a non-exclusive basis through December 2023.

During the third quarter of fiscal 2023, we further amended our supply agreement with CSL to extend the term through December 2025.

CSL has a minimum purchase commitment under the non-exclusive supply agreement that slightly exceeds $100.0 million in fiscal 2024, and we expect that CSL will continue to provide a meaningful contribution to our Plasma business revenue in fiscal 2025.

Blood Center revenue decreased 6.2% during fiscal 2023 as compared with fiscal 2022.

Without the effect of foreign exchange, Blood Center revenue decreased 1.8% during fiscal 2023.

The decrease was primarily driven by continued declines in whole blood disposables, the divestiture of certain blood donor management software solution assets and the impact of previously discontinued customer contracts in North America as well as an apheresis stocking order in the prior year period.

Blood Center revenue decreased 3.2% during fiscal 2021 as compared with fiscal 2020.

Without the effect of foreign exchange, Blood Center revenue decreased 5.6% during fiscal 2021 primarily due to continued declines in whole blood disposables and the divestiture of certain blood donor management software solution assets.

These declines were partially offset by increases in apheresis revenue, despite certain customers' conversions to alternative sources of supply, due to the impact distributor stocking orders in the first quarter and the 53rd week in fiscal 2021.

The impact of the loss of this apheresis business was an incremental revenue decline of approximately $17.0 million in fiscal 2021 as compared with fiscal 2020.

The decrease was primarily driven by declines in the volume of apheresis disposables, partially offset by an increase in whole blood disposables.

Hospital revenue increased 15.2% during fiscal 2023 as compared with fiscal 2022.

Without the effect of foreign exchange, Hospital revenue increased 17.6% during fiscal 2023.

The increase 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 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.

Hospital revenue increased 8.9% during fiscal 2021 as compared with fiscal 2020 despite the negative impact of COVID-19, primarily in China and the U.S, early in the fiscal year.

Without the effect of foreign exchange, Hospital revenue increased 8.2% during fiscal 2021.

This increase was primarily attributable to a recent acquisition, TEG® disposable revenue in the U.S.

and equipment sales in Europe.

The increases were partially offset by declines in Cell Salvage revenue and the divestiture of certain blood bank and hospital software solution assets.

The increase was primarily attributable to Vascular Closure revenue, as well as increases in Hemostasis Management disposables revenue and Transfusion Management revenue.

(In thousands) 2023 2022 % Increase/(Decrease)

21 % Increase/(Decrease)

Gross profit $ 615,097 $ 505,502 21.7 %

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Without the effects of foreign exchange, gross profit increased 26.1% during fiscal 2023.

The increase was primarily driven by the addition of Vascular Closure, productivity savings from the 2020 Program and favorable volume and product mix.

The increase was partially offset by inflationary pressures and higher freight costs in our global supply chain, increased restructuring and restructuring related costs, the amortization of the fair value inventory step-up related to the acquisition of Cardiva and asset impairments.

Gross profit decreased 17.9% during fiscal 2021 as compared with fiscal 2020.

Without the effects of foreign exchange, gross profit decreased 19.6% during fiscal 2021.

The decrease in gross profit during fiscal 2021 was primarily due to unfavorable volumes and product mix, asset impairments, higher operational costs from the impact of the COVID-19 pandemic, recent divestitures and the amortization of the fair value inventory step-up related to the acquisition of Cardiva.

The decline was partially offset by lower depreciation expense and productivity savings from the 2020 Program, the 53rd week in fiscal 2021 and recent acquisitions.

The increase was primarily driven by volume, price, decreased spend on both restructuring and restructuring related costs and integration and transaction costs, as well as productivity savings from the 2020 Program.

These drivers were partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense.

Operating Expenses

(In thousands) 2023 2022 % Increase/(Decrease)

21 % Increase/(Decrease)

Research and development $ 50,131 $ 46,801 7.1 %

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% of net revenues 32.2 % 34.2 %

Amortization of intangible assets $ 47,414 $ 32,830 $ 25,746 44.4 % 27.5 %

% of net revenues 4.8 % 3.8 % 2.6 %

Impairment of assets $ 577 $ 1,028 $ 50,599 (43.9) % (98.0) %

Amortization of acquired intangible assets $ 32,640 $ 47,414 (31.2) %

% of net revenues 2.8 % 4.8 %

Gains on divestitures and sale of assets $ (9,603) $ (32,812) $ (8,083) (70.7) % n/m

Gains on divestiture $ (382) $ (9,603) (96.0) %

% of net revenues — % (1.0) %

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Without the effects of foreign exchange, research and development expenses increased 7.4% during fiscal 2023.

The increase in fiscal 2022 was 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 EU MDR and EU IVDR requirements, partially offset by cost savings related to the 2020 Program.

Research and development expenses increased 6.4% during fiscal 2021 as compared with fiscal 2020.

Without the effects of foreign exchange, research and development expenses increased 6.1% during fiscal 2021.

The increase in fiscal 2021 was primarily due to increased spend related to EU MDR and EU IVDR costs, recent acquisitions and continued investments in our Plasma and Hospital Business units.

The increases were partially offset by cost savings primarily related to the 2020 Program.

The increase in fiscal 2023 was primarily due to increased investments into product innovation, partially offset by decreased spend on MDR and IVDR.

Selling, General and Administrative

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Without the effects of foreign exchange, selling, general and administrative expenses increased 12.6% during fiscal 2023.

The increase in fiscal 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.

Selling, general and administrative expenses decreased 2.8% during fiscal 2021 as compared with fiscal 2020.

Without the effects of foreign exchange, selling, general and administrative expenses decre ased 3.5% durin g fiscal 2021.

The decrease in fiscal 2021 was primarily due to cost containment actions taken to offset the negative effects related to the COVID-19 pandemic, incremental productivity savings from the 2020 Program and a reduction in restructuring and restructuring related costs.

The decrease was partially offset by higher transaction and integration costs and higher share-based and variable compensation expense.

Amortization of Intangible Assets

We recognized amortization expense of $47.4 million and $32.8 million during fiscal 2022 and fiscal 2021, respectively.

The increase in fiscal 2022 was primarily driven by an increase in intangible assets resulting from recent acquisitions.

Impairment of Assets

We recognized intangible asset impairment charges of $0.6 million and $1.0 million during fiscal 2022 and fiscal 2021, respectively.

The increase in fiscal 2023 was primarily driven by higher performance-based compensation, inflationary pressures and higher freight costs in our global supply chain and increased investments in sales and marketing, partially offset by cost savings related to the 2020 Program and decreased acquisition costs and restructuring and restructuring related costs in fiscal 2023.

Amortization of Acquired Intangible Assets

We recognized amortization expense related to our acquired intangible assets of $32.6 million and $47.4 million during fiscal 2023 and fiscal 2022, respectively.

The decrease in fiscal 2023 is primarily the result of intangible assets that became fully amortized during fiscal 2022.

Gains on Divestitures

We recognized gains on divestitures of $0.4 million and $9.6 million during fiscal 2023 and fiscal 2022, respectively.

Refer to Note 5, Divestitures , to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for information pertaining to these divestitures.

Refer to Note 5, Divestitures , to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

Interest and Other Expense, Net

Interest and other expenses increased 1.7% during fiscal 2022 as compared with fiscal 2021.

Without the effects of foreign exchange, interest and other expenses increased 1.3% during fiscal 2022.

The increase was primarily driven by realized losses due to foreign currency, partially offset by a reduction in interest expense.

Interest and other expenses increased 3.9% during fiscal 2021 as compared with fiscal 2020.

Without the effects of foreign exchange, interest and other expenses increased 4.8% during fiscal 2021.

The increase is primarily driven by realized losses on interest rate swaps due to declining rates, interest and debt issuance costs incurred in connection with short-term financing for the Cardiva acquisition and amortization of the debt discount associated with the 2026 Notes partially offset by a reduction in interest expense from borrowings under our $350.0 million term loan and $350.0 million revolving loan.

The effective interest rate on total debt outstanding for the fiscal year ended April 3, 2021 was 1.4%.

2022 2021 2020 % Increase/(Decrease)

Interest and other expenses de creased 14.5% during fiscal 2023 as compared with fiscal 2022.

Without the effects of foreign exchange, interest and other expenses de creased 15.9% during fiscal 2023.

The decrease was primarily driven by increased interest income on investments due to higher interest rates, lower interest paid on interest rate swaps due to market and rate volatility, partially offset by higher interest incurred on our term loan.

2023 2022 % Increase/(Decrease)

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As of April 1, 2023, we maintain a valuation allowance against certain U.S.

state deferred tax assets that are not more-likely-than-not realizable and have a full valuation allowance against the net deferred tax assets of certain foreign subsidiaries.

state and foreign tax credit carryforwards that are not more-likely-than-not realizable as well as a valuation allowance against the net deferred tax assets of certain foreign subsidiaries.

For the year ended April 1, 2023, we recorded income tax expense of $26.0 million on our worldwide pre-tax income of $141.4 million, resulting in a reported tax rate of 18.4%.

Our effective tax rate for the year ended April 2, 2022 is higher than our effective tax rates of (9.0)% and 12.2% for the years ended April 3, 2021 and March 28, 2020, respectively.

The increase in our tax rate for fiscal 2022, as compared with fiscal 2021, is primarily the result of a deferred tax asset recorded in the prior year related to the U.S.

purchase of intellectual property, a non-recurring tax benefit in the prior year from the release of a portion of the valuation allowance due to taxable temporary differences acquired with the acquisition of Cardiva being available as a source of income to realize certain pre-existing deferred tax assets, greater tax benefits associated with windfall stock compensation deductions in the prior year, and jurisdictional mix of earnings.

Effective for fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize research and development expenses over five years for research activities conducted in the U.S.

Our effective tax rate for the year ended April 1, 2023 is lower than our effective tax rate of 31.8% for fiscal 2022, primarily due to the release of valuation allowance related to U.S.

state deferred tax assets, the absence of provisions related to contingent consideration and decreased disallowed stock compensation expense, partially offset by jurisdictional mix of earnings.

Effective beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize research and development expenses over five years for research activities conducted in the U.S.

and over fifteen years for research activities conducted outside of the U.S.

The Company is evaluating the impact on our effective tax rate.

There was not a material impact on our effective tax rate in fiscal 2023 as a result of this requirement.

Liquidity and Capital Resources

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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 operations, our revolving credit line that expires in the first quarter of fiscal 2024 and proceeds from employee stock option exercises.

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations and our revolving credit facility.

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, share repurchases and cash principal and interest payments under our revised credit agreement.

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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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.

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.

During the fourth quarter of fiscal 2021, the Company entered into an additional $150.0 million term loan under the existing Credit Facilities and borrowed $290.0 million under the Revolving Credit Facility in connection with the acquisition of Cardiva.

Both of these borrowings were subsequently paid in full during the same period using the proceeds from the 2026 Notes.

In connection with the additional $150 million term loan borrowing, the Company and its lenders also 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.

On July 26, 2022, we entered into an amended and restated credit agreement with certain lenders to refinance our prior credit agreement entered into on June 15, 2018, which consisted of a $350.0 million term loan and a $350.0 million revolving loan (together, as amended from time to time, the “2018 Credit Facilities”), and extend the maturity date through June 2025.

Our Revised Credit Facilities include a $280.0 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 $420.0 million senior unsecured revolving credit facility.

Loans under the Revised Credit Facilities 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.

As of April 1, 2023, $274.7 million was outstanding under the term loan with an effective interest rate of 6.3%.

Th ere were no borrow ings outstand ing on the revolving loan.

Th ere were no borrowings outstanding on the revolving loan.

We also had $21.3 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of April 1, 2023.

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 April 1, 2023.

The Company has scheduled principal payments of $12.3 million required during fiscal 2024.

The Company plans to refinance the Credit Facility prior to the maturity date of June 15, 2023.

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 April 2, 2022.

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

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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 2025.

During the fiscal years ended April 1, 2023 and April 2, 2022, the Company incurr ed $11.5 million and $28.7 million, respectively, of restructuring and restructuring related costs under this program.

(In thousands) 2023 2022

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Operating Activities

Net cash provided by operating activities was $172.3 million during fiscal 2022, an increase of $63.5 million as compared with fiscal 2021.

The increase in cash provided by operating activities was primarily the result of higher net income, as adjusted for depreciation, amortization and other non-cash charges compared to the prior year period, decreased inventory driven by higher NexSys PCS device placements and the absence of a payment for a compensation-related liability paid at the closing of the Cardiva acquisition during fiscal 2021, partially offset by increases in accounts receivable during fiscal 2022.

Net cash provided by operating activities was $108.8 million during fiscal 2021, a decrease of $49.4 million as compared with fiscal 2020.

The decrease in cash provided by operating activities was primarily the result of a reduction in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior year period, partially offset by a decrease in working capital outflow as compared with the prior year period due to lower inventory growth, primarily related to NexSys PCS devices, a decline in the build of accounts receivable due to lower sales and improved collection timing, partially offset by a payment for a compensation-related liability paid at the closing of the Cardiva acquisition.

Net ca sh provided by operating activities was $273.1 million during fiscal 2023, an increase o f $100.8 million as compared with fiscal 2022.

The increase in cash provided by operating activities was primarily the result of higher net income, decreased inventory driven by NexSys PCS device placements and increased accrued performance-based compensation, partially offset by increases in accounts receivable during fiscal 2023.

Investing Activities

Net cash used in investing activities was $86.3 million during fiscal 2022, a decrease of $339.1 million as compared with fiscal 2021.

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

Net cash used in investing activities was $143.8 million during fiscal 2023, an increase of $57.4 million as compared with fiscal 2022.

The increase in cash used in investing activities was primarily the result of cash paid for acquisitions.

The increase was partially offset by an increase in proceeds received relating to divestitures and a decrease in capital expenditures.

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 made in fiscal 2023, partially offset by lower proceeds received from divestitures in fiscal 2023.

Financing Activities

Net cash used in financing activities was $15.7 million during fiscal 2022, an increase of $383.2 million as compared with fiscal 2021.

The increase in cash used in financing activities during fiscal 2022 was primarily the result of cash received from issuance of convertible notes in fiscal 2021 and contingent consideration payments in fiscal 2022, partially offset by lower payments of short-term loans during fiscal 2022 as compared to fiscal 2021.

Net cash provided by financing activities was $367.5 million during fiscal 2021, an increase of $498.7 million as compared with fiscal 2020.

The increase in cash provided by financing activities was primarily due to the $500.0 million of proceeds related to the 2026 Notes entered into in March 2021 and a decrease in share repurchases compared with the prior year period.

The increase was partially offset by the repayment of borrowings on our revolving credit facility, the purchase of the Capped Call on the 2026 Notes and higher payments on our term loan.

Net cas h used in financing activities was $100.4 million during fiscal 2023, an increase of $84.6 million as compared with fiscal 2022 .

The increase in cash used in financing activities during fiscal 2023 was primarily due to share repurchases and acquisition-related contingent consideration payments made in fiscal 2023.

Contractual Obligations

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207,079 207,079 — — —

Contingent consideration 30,209 30,209 — — —

Expected retirement plan benefit payments 19,475 1,453 2,826 3,542 11,654

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The majority of our operating expense spending does not require any advance commitment.

The above table does not reflect our long-term liabilities associated with unrecognized tax bene fits of $2.6 million re corded in accordance with ASC Topic 740, Income Taxes.

The above table does not reflect our long-term liabilities associated with unrecognized tax benefits of $3.0 million recorded in accordance with ASC Topic 740, Income Taxes.

We cannot reasonably make a reliable estimate of the period in which we expect to settle these long-term liabilities due to factors outside of our control, such as tax examinations.

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Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies.

We have not incurred significant losses on receivables.

We have not incurred significant losses on trade accounts or other receivables.

We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices.

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For a discussion of our material legal proceedings refer to Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during fiscal 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 throughout fiscal 2023.

We continued to experience rising inflationary pressures in our global supply chain that had an impact on our results of operations during fiscal 2023.

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

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

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.

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

Our primary foreign currency exposures relate to sales denominated in Euro, Japanese Yen, Chinese Yuan and Australian Dollars.

Our primary foreign currency exposures relate to sales denominated in Japanese Yen, Euro and Chinese Yuan.

We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit.

The Yen, Euro, Yuan and Australian Dollar sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies.

Since our foreign currency denominated Yen, Euro, Yuan and Australian Dollar sales exceed the foreign currency denominated costs, whenever the U.S.

Dollar strengthens relative to the Yen, Euro, Yuan or Australian Dollar, there is an adverse effect on our results of operations and, conversely, whenever the U.S.

Dollar weakens relative to the Yen, Euro, Yuan or Australian Dollar, there is a positive effect on our results of operations.

The Yen, Euro and Yuan sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies.

Since our foreign currency denominated Yen, Euro and Yuan sales exceed the foreign currency denominated costs, whenever the U.S.

Dollar strengthens relative to the Yen, Euro or Yuan, there is an adverse effect on our results of operations and, conversely, whenever the U.S.

Dollar weakens relative to the Yen, Euro or Yuan, there is a positive effect on our results of operations.

For Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit, our primary cash flows relate to product costs or costs and expenses of local operations.

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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 Franc, Australian Dollar, Chinese Yuan and the Mexican Peso.

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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Actual results may differ from those estimates.

We consider an estimate to be a “critical

accounting estimate” when (i) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change;

and (ii) the impact of the estimate on financial condition or operating performance is material.

We consider an estimate to be a “critical accounting estimate” when (i) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change;

and (ii) the impact of the estimate on

financial condition or operating performance is material.

The accounting policies and estimates identified as critical are as follows:

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When events result in an expectation of a more favorable outcome than previously expected, our best estimate is changed to a lower amount.

With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable.

There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations or cash flows for that period or on the Company’s financial condition.

Business Combinations

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Our estimates of forecasted revenues in the earn out period include a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors.

These cash flow

projections are discounted with a risk adjusted rate.

These cash flow projections are discounted with a risk adjusted rate.

Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period and adjusted as a component of operating expenses based on changes to the underlying assumptions.

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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-K

Item 7. Management’s Discussion and Analysis