HAEMONETICS CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS HAEMONETICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited in thousands, except per share data) Three Months Ended July 1, 2023 July 2, 2022 Net revenues $ 311,332 $ 261,458 Cost of goods sold 144,067 119,195 Gross profit 167,265 142,263 Operating expenses: Research and development 12,648 10,902 Selling, general and administrative 93,485 92,227 Amortization of acquired intangible assets 7,473 8,367 Total operating expenses 113,606 111,496 Operating income 53,659 30,767 Interest and other expense, net ( 2,069 ) ( 5,273 ) Income before provision for income taxes 51,590 25,494 Provision for income taxes 10,548 5,617 Net income $ 41,042 $ 19,877 Net income per share - basic $ 0.81 $ 0.39 Net income per share - diluted $ 0.80 $ 0.38 Weighted average shares outstanding Basic 50,542 51,224 Diluted 51,340 51,683 Comprehensive income $ 41,905 $ 13,114 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents HAEMONETICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited in thousands, except share data) July 1, 2023 April 1, 2023 ASSETS Current assets: Cash and cash equivalents $ 285,719 $ 284,466 Accounts receivable, less allowance for credit losses of $ 5,047 at July 1, 2023 and $ 4,932 at April 1, 2023 177,117 179,142 Inventories, net 289,207 259,379 Prepaid expenses and other current assets 49,564 46,735 Total current assets 801,607 769,722 Property, plant and equipment, net 304,467 310,885 Intangible assets, less accumulated amortization of $ 427,521 at July 1, 2023 and $ 417,422 at April 1, 2023 268,146 275,771 Goodwill 465,910 466,231 Deferred tax asset 4,875 5,241 Other long-term assets 117,253 106,975 Total assets $ 1,962,258 $ 1,934,825 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 13,572 $ 11,784 Accounts payable 78,134 63,929 Accrued payroll and related costs 32,970 64,475 Other current liabilities 112,263 111,628 Total current liabilities 236,939 251,816 Long-term debt, net of current maturities 751,381 754,102 Deferred tax liability 37,342 36,195 Other long-term liabilities 71,980 74,715 Stockholders’ equity: Common stock, $ 0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,705,779 shares at July 1, 2023 and 50,448,519 shares at April 1, 2023 507 504 Additional paid-in capital 609,610 594,706 Retained earnings 284,017 253,168 Accumulated other comprehensive loss ( 29,518 ) ( 30,381 ) Total stockholders’ equity 864,616 817,997 Total liabilities and stockholders’ equity $ 1,962,258 $ 1,934,825 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents HAEMONETICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited in thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Total Stockholders’ Equity Shares Par Value Balance, April 1, 2023 50,449 $ 504 $ 594,706 $ 253,168 $ ( 30,381 ) $ 817,997 Employee stock purchase plan 40 — 2,871 — — 2,871 Exercise of stock options 145 2 5,858 ( 5,233 ) — 627 Issuance of restricted stock, net of cancellations 140 2 ( 2 ) — — — Tax withholding on employee equity awards ( 68 ) ( 1 ) ( 812 ) ( 4,960 ) ( 5,773 ) Share-based compensation expense — — 6,989 — — 6,989 Net income — — — 41,042 — 41,042 Other comprehensive income — — — — 863 863 Balance, July 1, 2023 50,706 $ 507 $ 609,610 $ 284,017 $ ( 29,518 ) $ 864,616 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Total Stockholders’ Equity Shares Par Value Balance, April 2, 2022 51,124 $ 511 $ 572,476 $ 202,391 $ ( 25,954 ) $ 749,424 Employee stock purchase plan 57 — 2,459 — — 2,459 Exercise of stock options 3 1 126 — — 127 Issuance of restricted stock, net of cancellations 131 1 ( 1 ) — — — Share-based compensation expense — — 5,299 — — 5,299 Net income — — — 19,877 — 19,877 Other comprehensive loss — — — — ( 6,763 ) ( 6,763 ) Balance, July 2, 2022 51,315 $ 513 $ 580,359 $ 222,268 $ ( 32,717 ) $ 770,423 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents HAEMONETICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited in thousands) Three Months Ended July 1, 2023 July 2, 2022 Cash Flows from Operating Activities: Net income $ 41,042 $ 19,877 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash items: Depreciation and amortization 23,032 22,447 Share-based compensation expense 6,989 5,299 Amortization of deferred financing costs 830 797 Inventory reserve adjustment ( 1,785 ) ( 2,075 ) Other non-cash operating activities 682 1,192 Change in operating assets and liabilities: Change in accounts receivable 1,010 10,358 Change in inventories ( 29,396 ) 15,240 Change in prepaid income taxes 1,595 2,118 Change in other assets and other liabilities ( 9,986 ) ( 6,079 ) Change in accounts payable and accrued expenses ( 14,927 ) ( 27,181 ) Net cash provided by operating activities 19,086 41,993 Cash Flows from Investing Activities: Capital expenditures ( 9,663 ) ( 45,467 ) Acquisition — ( 2,850 ) Proceeds from sale of property, plant and equipment 402 498 Other investments ( 6,000 ) ( 10,395 ) Net cash used in investing activities ( 15,261 ) ( 58,214 ) Cash Flows from Financing Activities: Repayment of term loan borrowings ( 1,750 ) ( 4,375 ) Contingent consideration payments ( 849 ) ( 21,593 ) Proceeds from employee stock purchase plan 2,871 2,459 Proceeds from exercise of stock options 627 127 Cash used to net share settle employee equity awards ( 1,483 ) — Other financing activities ( 14 ) ( 13 ) Net cash used in financing activities ( 598 ) ( 23,395 ) Effect of exchange rates on cash and cash equivalents ( 1,974 ) ( 4,932 ) Net Change in Cash and Cash Equivalents 1,253 ( 44,548 ) Cash and Cash Equivalents at Beginning of Period 284,466 259,496 Cash and Cash Equivalents at End of Period $ 285,719 $ 214,948 Supplemental Disclosures of Cash Flow Information: Non-Cash Investing and Financing Activities: Transfers from inventory to fixed assets for placement of Haemonetics equipment $ 1,982 $ 38,022 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Haemonetics Corporation (“Haemonetics” or the “Company”) presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated. Operating results for the three months ended July 1, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 30, 2024 or any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended April 1, 2023. The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events as of or for the three months ended July 1, 2023, except for those discussed in Note 8, Inventories . 2. RECENT ACCOUNTING PRONOUNCEMENTS Standards Implemented There are currently no recent accounting pronouncements that the Company expects to have a material impact on its financial position and results of operations. 3. STRATEGIC INVESTMENTS As part of the Company’s business development activities, it holds strategic investments in certain entities. During fiscal year 2023, the Company made investments in Vivasure Medical LTD (“Vivasure”), totaling € 30 million. The investments in Vivasure include both preferred stock and a special share that allows the Company to acquire Vivasure in accordance with an agreement between the parties. The Company made certain other strategic investments totaling $ 6.0 million during the first quarter of fiscal 2024. The Company’s strategic investments are classified as other long-term assets on the Company’s Condensed Consolidated Balance Sheets and the Company has not recorded any adjustments to the carrying value of the strategic investments during three months ended July 1, 2023 . 4. REVENUE The Company’s revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 606, Revenue from Contracts with Customers . Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration it expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation. As of July 1, 2023, the Company had $ 24.6 million of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately 80 % of this amount as revenue within the next twelve months and the remaining balance thereafter. 7 Table of Contents Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and contract assets, as well as customer advances, customer deposits and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheets. The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities. As of July 1, 2023 and April 1, 2023, the Company had contract liabilities of $ 32.9 million and $ 30.2 million, respectively. During the three months ended July 1, 2023, the Company recognized $ 13.5 million of revenue that was included in the above April 1, 2023 contract liability balance. Contract liabilities are classified as other current liabilities on the condensed consolidated balance sheet. As of July 1, 2023 and April 1, 2023, the Company’s contract assets were immaterial. 5. RESTRUCTURING On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify opportunities for efficiencies, enhance commercial capabilities, align its resources and offer its customers better solutions. In order to realize these opportunities, the Company undertakes restructuring-type activities to transform its business. In July 2019, the Board of Directors of the Company approved the Operational Excellence Program (the “2020 Program”) and delegated authority to the Company’s management to determine the detail of the initiatives that will comprise the program. During fiscal 2022, the Company revised the program to improve product and service quality, reduce cost principally in its 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. The Company expects to incur aggregate charges between $ 95 million and $ 105 million by the end of fiscal 2025 under the program. 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 months ended July 1, 2023 and July 2, 2022, the Company incurred $ 2.2 million and $ 3.5 million, respectively, of restructuring and restructuring related costs under this program. Total cumulative charges under this program are $ 69.4 million. The following table summarizes the activity for restructuring reserves related to the 2020 Program and prior programs for the three months ended July 1, 2023, substantially all of which relates to employee severance and other employee costs: (In thousands) 2020 Program Prior Programs Total Balance at April 1, 2023 $ 1,810 $ 340 $ 2,150 Costs incurred, net of reversals ( 11 ) — ( 11 ) Payments ( 589 ) — ( 589 ) Balance at July 1, 2023 $ 1,210 $ 340 $ 1,550 The following presents the restructuring costs by line item within our accompanying unaudited Condensed Consolidated Statements of Income and Comprehensive Income: Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Cost of goods sold $ 206 $ ( 206 ) Selling, general and administrative expenses ( 217 ) 162 $ ( 11 ) $ ( 44 ) As of July 1, 2023, the Company had a restr ucturing liability of $ 1.6 million , of which approximately $ 1.2 million is paya ble within the next twelve months. In addition to the restructuring expenses included in the table above, the Company also incurred costs that do not constitute restructuring costs under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as restructuring related costs. These costs consist primarily of expenditures directly related to the restructuring actions. 8 Table of Contents The tables below present restructuring and restructuring related costs by reportable segment: Restructuring costs Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Plasma $ ( 256 ) $ ( 211 ) Hospital 242 — Corporate 3 167 Total $ ( 11 ) $ ( 44 ) Restructuring related costs Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Plasma $ 169 $ 640 Blood Center 45 2 Hospital 49 89 Corporate 1,941 2,791 Total $ 2,204 $ 3,522 Total restructuring and restructuring related costs $ 2,193 $ 3,478 6. INCOME TAXES The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States. The Company’s reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which it operates have tax rates that differ from the U.S. statutory tax rate. For the three months ended July 1, 2023, the Company reported income tax expense of $ 10.5 million, representing an effective tax rate of 20.4 %. The effective tax rate for the three months ended July 1, 2023 includes $ 1.2 million of discrete tax benefit primarily related to stock compensation windfalls. For the three months ended July 2, 2022, the Company 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 of discrete tax expense relating to stock compensation shortfalls. 7. EARNINGS PER SHARE The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. Three Months Ended (In thousands, except per share amounts) July 1, 2023 July 2, 2022 Basic EPS Net income $ 41,042 $ 19,877 Weighted average shares 50,542 51,224 Basic income per share $ 0.81 $ 0.39 Diluted EPS Net income $ 41,042 $ 19,877 Basic weighted average shares 50,542 51,224 Net effect of common stock equivalents 798 459 Diluted weighted average shares 51,340 51,683 Diluted income per share $ 0.80 $ 0.38 9 Table of Contents Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares. Diluted earnings per share is calculated using its weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method and the convertible senior notes as determined under the net share settlement method. From the time of the issuance of the convertible senior notes, the average market price of the Company's common shares has been less than the initial conversion price, and consequently no shares have been included in diluted earnings per share for the co nversion value of the convertible senior notes. For the three months ended July 1, 2023 and July 2, 2022, weighted average shares outstanding, assuming dilution, excludes the impact of 0.6 million and 0.9 million anti-dilutive shares, respectively. Share Repurchase Program In August 2022, the Company announced that its Board of Directors had approved a three-year share repurchase program authorizing the repurchase of up to $ 300.0 million of Haemonetics common stock, based on market conditions, through August 2025. Under the share repurchase program, the Company is authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by the Company at its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and compliance with the terms of loan covenants. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. As of July 1, 2023 , the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $ 225.0 million. 8. INVENTORIES Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method. (In thousands) July 1, 2023 April 1, 2023 Raw materials $ 129,419 $ 115,016 Work-in-process 16,314 12,572 Finished goods 143,474 131,791 Total inventories $ 289,207 $ 259,379 In August 2023, the Company issued a voluntary recall of certain products within its Whole Blood business sold to customers in the U.S. and certain foreign jurisdictions. The Company recorded a charge of $ 3.4 million related to inventory with respect to this recall in the first quarter of fiscal 2024. The Company continues to evaluate the impact of this recall and may record additional incremental charges in future periods. 9. PROPERTY, PLANT AND EQUIPMENT (In thousands) July 1, 2023 April 1, 2023 Land $ 5,474 $ 5,358 Building and building improvements 126,960 127,634 Plant equipment and machinery 196,398 194,539 Office equipment and information technology 124,340 123,611 Haemonetics equipment 457,297 463,706 Construction in progress 32,189 29,367 Total 942,658 944,215 Less: accumulated depreciation ( 638,191 ) ( 633,330 ) Property, plant and equipment, net $ 304,467 $ 310,885 Depreciation expense was $ 13.3 million and $ 11.7 million for the three months ended July 1, 2023 and July 2, 2022, respectively. 10 Table of Contents 10. LEASES Lessor Activity Assets on the Company’s balance sheet classified as Haemonetics equipment primarily consist of medical devices installed at customer sites but owned by Haemonetics. These devices are leased to customers under contractual arrangements that typically include an operating or sales-type lease as well as the purchase and consumption of a certain level of disposable products. Sales-type leases are not significant. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where devices are provided under operating lease arrangements, a substantial majority of the entire lease revenue is variable and subject to subsequent non-lease component (disposable products) sales. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Operating lease revenue represents approximately 3 percent of the Company’s total net sales. 11. NOTES PAYABLE AND LONG-TERM DEBT Convertible Senior Notes The Company has $ 500.0 million aggregate principal amount of 0 % convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee. The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $ 486.7 million. The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased. During first quarter of fiscal 2024, the conditions allowing holders of the 2026 Notes to convert have not been met. The 2026 Notes were therefore not convertible as of July 1, 2023 and were classified as long-term debt on the Company’s Condensed Consolidated Balance Sheets. As of July 1, 2023, the $ 500.0 million principal balance was netted down by the $ 7.2 million of remaining debt issuance costs, resulting in a net convertible note payable of $ 492.8 million. Interest expense related to the 2026 Notes was $ 0.7 million for the three months ended July 1, 2023, which is entirely attributable to the amortization of the debt issuance costs. The debt issuance costs are amortized at an effective interest rate of 0.5 %. Credit Facilities On June 15, 2018, the Company 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 loa n, as amended from time to time, the “2018 Credit Facilities”) that were each scheduled to mature on June 15, 2023. 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 their maturity date through June 2025. The amended and restated credit agreement provides for a $ 280.0 million senior unsecured term loan, the proceeds of which have been used to settle the balance of the term loan under the 2018 Credit Facilities, and a $ 420.0 million senior unsecured revolving credit facility (together, the “Revised Credit Facilities”). 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. The Company applied modification accounting for the credit facility refinancing. For the term loan under the Revised Credit Facilities, for fiscal 2023, the Company recognized interest expense of $ 0.5 million for third party fees incurred and capitalized $ 0.2 million of lender fees related to the term loan. For fiscal 2023, the Company capitalized $ 1.1 million of lender fees and third-party costs incurred in the refinancing related to the revolving credit facility under the Revised Credit Facilities. At July 1, 2023, $ 273.0 million was outstanding under the term loan with an effective interest rate of 6.6 %. The Company has scheduled principal payments of $ 14.0 million required during the 12 months following July 1, 2023. There were no 11 Table of Contents outstanding borrowings under the revolving credit facility at July 1, 2023. The Company also had $ 19.6 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of July 1, 2023. The Company was in compliance with the leverage and interest coverage ratios specified in the Revised Credit Facilities as well as all other bank covenants as of July 1, 2023. 12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS The Company manufactures, markets and sells its products globally. During the three months ended July 1, 2023, 23.9 % of the Company’s sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward 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 and Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. Designated Foreign Currency Hedge Contracts All of the Company’s designated foreign currency hedge contracts as of July 1, 2023 and April 1, 2023 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 32.3 million as of July 1, 2023 and $ 51.8 million as of April 1, 2023. At July 1, 2023, a gain of $ 1.4 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of July 1, 2023 mature within twelve months. Non-Designated Foreign Currency Contracts The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $ 31.2 million as of July 1, 2023 and $ 44.7 million as of April 1, 2023. Interest Rate Swaps Part of the Company’s interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company’s objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations. On June 15, 2018, the Company entered into the 2018 Credit Facilities, which provided for a $ 350.0 million term loan and a $ 350.0 million revolving credit facility. In August 2018, the Company entered into two interest rate swap agreements to pay an average fixed rate of 2.80 % plus the applicable rate on a total notional value of $ 241.9 million of debt, or 70 % of the notional value of the unsecured term loan. As a result of the Company’s refinancing of the 2018 Credit Facilities in July 2022, as discussed below, the 2018 interest rate swaps were amended in September 2022 to align with the Term Secured Overnight Financing Rate (“SOFR”) rate rather than LIBOR (the “Amended Swaps”). In order to avoid dedesignation, the Company elected certain practical expedients under ASC 848. As a result, the Company’s earnings and cash flows are exposed to interest rate risk from changes to SOFR. The Amended Swaps matured on June 15, 2023. 12 Table of Contents On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance the 2018 Credit Facilities and extend their maturity date through June 2025. The Revised Credit Facilities include a $ 280.0 million senior unsecured term loan 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 1-month USD Term SOFR plus 0.10 % and an applicable rate ranging from 1.125 % to 1.750 % based on the Company’s consolidated net leverage ratio. In September 2022, the Company entered into four additional interest rate swaps, which when combined with the Amended Swaps, resulted in an average blended fixed interest rate of 3.57 % plus the applicable rate on 70 % of the notional value of the unsecured term loan until mid-June 2023 and 4.12 % plus the applicable rate thereafter on 80 % of the notional value until the maturity date in June 2025. On June 15, 2023, two of the Company’s interest rate swaps entered into during September 2022 matured concurrently with the Amended Swaps. The Company has concluded that the two remaining interest rate swaps entered into during September 2022, which cover 80 % of the notional value of the unsecured term loan through maturity in June 2025, are effective and qualify for hedge accounting treatment. The Company held the following interest rate swaps as of July 1, 2023 : Hedged Item Original Notional Amount Notional Amount as of July 1, 2023 Designation Date Effective Date Termination Date Fixed Interest Rate Estimated Fair Value Assets (Liabilities) (In thousands) 1-month USD Term SOFR 109,900 109,900 9/23/2022 6/15/2023 6/15/2025 4.08 % 1,326 1-month USD Term SOFR 109,900 109,200 9/23/2022 6/15/2023 6/15/2025 4.15 % 1,217 Total $ 219,800 $ 219,100 $ 2,543 For the three months ended July 1, 2023, the Company recorded a gain of $ 2.8 million , net of tax, in accumulated other comprehensive loss to recognize the effective portion of the fair value of the swaps that qualify as cash flow hedges. Trade Receivables In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance. The Company’s allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating se rvices. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns. The following is a roll forward of the allowance for credit losses: Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Beginning balance $ 4,932 $ 2,475 Credit loss 151 146 Write-offs ( 36 ) ( 126 ) Ending balance $ 5,047 $ 2,495 13 Table of Contents Other Fair Value Measurements Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value: • Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities. • Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs. • Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. The Company’s money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Fair Value of Derivative Instruments The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended July 1, 2023: Derivative Instruments Amount of Gain Recognized in Accumulated Other Comprehensive Loss Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings Location in Condensed Consolidated Statements of Income and Comprehensive Income Amount of Gain Excluded from Effectiveness Testing Location in Condensed Consolidated Statements of Income and Comprehensive Income (In thousands) Designated foreign currency hedge contracts, net of tax $ 1,434 $ ( 560 ) Net revenues, COGS and SG&A $ 282 Interest and other expense, net Non-designated foreign currency hedge contracts $ — $ — $ 1,308 Interest and other expense, net Designated interest rate swaps, net of tax $ 2,789 $ 1 Interest and other expense, net $ — The Company did not have fair value hedges or net investment hedges outstanding as of July 1, 2023 or April 1, 2023. As of July 1, 2023, no material deferred taxes were recognized for designated foreign currency hedges. ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures , by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of July 1, 2023, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments. 14 Table of Contents The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of July 1, 2023 and April 1, 2023: (In thousands) Location in Condensed Consolidated Balance Sheets As of As of July 1, 2023 April 1, 2023 Derivative Assets: Designated foreign currency hedge contracts Other current assets $ 2,508 $ 1,401 Non-designated foreign currency hedge contracts Other current assets 110 302 Designated interest rate swaps Other current assets 2,442 1,110 Designated interest rate swaps Other long-term assets 101 — $ 5,161 $ 2,813 Derivative Liabilities: Designated foreign currency hedge contracts Other current liabilities $ 17 $ 24 Non-designated foreign currency hedge contracts Other current liabilities 12 58 Designated interest rate swaps Other long-term liabilities — 1,807 $ 29 $ 1,889 Fair Value Measured on a Recurring Basis Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of July 1, 2023 and April 1, 2023. As of July 1, 2023 (In thousands) Level 1 Level 2 Level 3 Total Assets Money market funds $ 119,912 $ — $ — $ 119,912 Designated foreign currency hedge contracts — 2,508 — 2,508 Non-designated foreign currency hedge contracts — 110 — 110 Designated interest rate swaps — 2,543 — 2,543 $ 119,912 $ 5,161 $ — $ 125,073 Liabilities Designated foreign currency hedge contracts $ — $ 17 $ — $ 17 Non-designated foreign currency hedge contracts — 12 — 12 $ — $ 29 $ — $ 29 As of April 1, 2023 Level 1 Level 2 Level 3 Total Assets Money market funds $ 132,341 $ — $ — $ 132,341 Designated foreign currency hedge contracts — 1,401 — 1,401 Non-designated foreign currency hedge contracts — 302 — 302 Designated interest rate swaps — 1,110 1,110 $ 132,341 $ 2,813 $ — $ 135,154 Liabilities Designated foreign currency hedge contracts $ — $ 24 $ — $ 24 Non-designated foreign currency hedge contracts — 58 — 58 Designated interest rate swaps — 1,807 — 1,807 Contingent consideration — — 863 863 $ — $ 1,889 $ 863 $ 2,752 15 Table of Contents Foreign currency hedge contracts - The fair value of foreign currency hedge contracts was measured using significant other observable inputs and valued by reference to over-the-counter quoted market prices for similar instruments. The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows. Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves. The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows. Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of contingent consideration has been classified as level 3 within the fair value hierarchy. Other Fair Value Disclosures The Term Loan, which is carried at amortized cost, accounts receivable and accounts payable approximate fa ir value. The fair value of the 2026 Notes as of July 1, 2023 was $ 428.4 million, which was determined by using the market price on the last trading day of the reporting period. 13. COMMITMENTS AND CONTINGENCIES The Company is a party to various legal proceedings and claims arising out of the ordinary course of its business. The Company believes that, except for those matters described below, there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. At each reporting period, management evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies, for all matters. Legal costs are expensed as incurred. During the third quarter of fiscal 2021, the Company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts. The subpoena requested certain documents regarding the Company’s apheresis and autotransfusion devices and disposables, including documents relating to product complaints and adverse event reporting, regulatory clearances and product design changes, among other matters. The Company has fully cooperated with this inquiry. On August 16, 2022, the U.S. Department of Justice (“DOJ”) filed a motion on behalf of the United States and 31 states reflecting their decision to not i ntervene in the underlying qui tam action captioned United States ex rel. Berthelot et al. v. Haemonetics Corp., 1:20-cv-11062-ADB, pending in the U.S. District Court for the District of Massachusetts, indicating that the DOJ had completed its investigative activity based on then available information. The qui tam case was unsealed by order dated August 18, 2022. During the first quarter of fiscal 2024, the Company recorded an additional loss contingency related to this matter, which did not have a material impact on its condensed consolidated financial statements. In the fourth quarter of fiscal 2021, a putative class action complaint was filed against the Company in the Circuit Court of Cook County, Illinois by Mary Crumpton, on behalf of herself and similarly situated individuals. See Mary Crumpton v. Haemonetics Corporation, Case No. 1:21-cv-1402 . In her complaint, the plaintiff asserts that between June 2017 and August 2018 she donated plasma at a center operated by one of the Company’s customers, that the center required her to scan her finger print in a scanner that stored her finger print to identify her prior to plasma donation, and that the Company’s eQue donor management software sent her biometric information to a Company-owned server to be collected and stored in a manner that violated her rights under the Illinois Biometric Information Privacy Act (“BIPA”). The plaintiff seeks statutory damages, attorneys’ fees, and injunctive and equitable relief. In March 2021, the Company moved to dismiss the complaint for lack of personal jurisdiction and concurrently filed a motion to dismiss for failure to state a claim and a motion to stay. In March 2022, the court denied the Company’s motion to dismiss for lack of personal jurisdiction but did not address the merits of the Company’s other positions. In March 2023, the Company filed a second motion to dismiss the complaint, which is pending before the court. The Company believes it has valid and meritorious defenses to the complaint. During the first quarter of fiscal 2024, the Company recorded an additional loss contingency related to this matter, which did not have a material impact on its condensed consolidated financial statements. 16 Table of Contents 14. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of Accumulated Other Comprehensive Loss are as follows: (In thousands) Foreign Currency Defined Benefit Plans Net Unrealized Gain/(Loss) on Derivatives Total Balance as of April 1, 2023 $ ( 33,935 ) $ 4,075 $ ( 521 ) $ ( 30,381 ) Other comprehensive income (loss) before reclassifications (1) ( 2,801 ) — 4,223 1,422 Amounts reclassified from accumulated other comprehensive income (1) — — ( 559 ) ( 559 ) Net current period other comprehensive income (loss) ( 2,801 ) — 3,664 863 Balance as of July 1, 2023 $ ( 36,736 ) $ 4,075 $ 3,143 $ ( 29,518 ) (1) Presented net of income taxes, the amounts of which are insignificant. 15. SEGMENT AND ENTERPRISE-WIDE INFORMATION The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company’s reporting structure aligns with its operating structure of three global business units and the information that is regularly reviewed by the Company’s chief operating decision maker. The Company’s reportable and operating segments are as follows: • Plasma • Blood Center • Hospital Management measures and evaluates the operating segments based on operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. These items include integration and transaction costs, amortization of acquired intangible assets, restructuring costs, restructuring related costs, digital transformation costs related to the upgrade of our enterprise resource planning system, impairments, accelerated device depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation (“MDR”) and In Vitro Diagnostic Regulation (“IVDR”) and unusual or infrequent and material litigation-related charges. Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations that follow. Management measures and evaluates the Company’s net revenues and operating income using internally derived standard currency exchange rates that remain constant from year to year; therefore, segment information is presented on this basis. Selected information by reportable segment is presented below: Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Net revenues Plasma $ 138,482 $ 103,042 Blood Center 67,306 66,573 Hospital 99,536 89,184 Net revenues by business unit 305,324 258,799 Service (1) 5,764 5,137 Effect of exchange rates 244 ( 2,478 ) Net revenues $ 311,332 $ 261,458 (1) Reflects revenue for service, maintenance and parts 17 Table of Contents Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Segment operating income Plasma $ 75,698 $ 55,126 Blood Center 26,283 30,377 Hospital 40,943 34,722 Segment operating income 142,924 120,225 Corporate expenses (1) ( 75,309 ) ( 81,584 ) Effect of exchange rates 2,613 6,245 Integration and transaction costs ( 1,115 ) 758 Amortization of acquired intangible assets ( 7,473 ) ( 8,367 ) Restructuring costs 11 44 Restructuring related costs ( 2,204 ) ( 3,522 ) Digital transformation costs ( 3,705 ) — Impairment of assets and PCS2 related charges 141 350 MDR and IVDR costs ( 1,166 ) ( 3,186 ) Litigation-related charges ( 1,058 ) ( 196 ) Operating income $ 53,659 $ 30,767 (1) Reflects shared service expenses including quality and regulatory, customer and field service, research and development, manufacturing and supply chain, as well as other corporate support functions. Management reviews revenue based on the reportable segments noted above. Although these reportable segments are primarily product-based, they differ from the Company’s product line revenues for Plasma products and services and Blood Center products and services. Specifically, the Blood Center reportable segment includes plasma products utilized for collection in blood centers primarily for transfusion purposes. Additionally, product line revenues also include service revenues which are excluded from the reportable segments. Net revenues by business unit are as follows: Three Months Ended (In thousands) July 1, 2023 July 2, 2022 Plasma $ 138,610 $ 102,381 Whole Blood 20,040 19,595 Apheresis 47,300 46,099 Blood Center 67,340 65,694 Hemostasis Management 37,820 33,497 Vascular Closure 37,620 29,568 Other (1) 24,168 25,429 Hospital 99,608 88,494 Net business unit revenues 305,558 256,569 Service 5,774 4,889 Net revenues $ 311,332 $ 261,458 (1) Other includes the Cell Salvage and Transfusion Management product lines of the Hospital business unit. 18 Table of Contents Net revenues generated in the Company’s principle operating regions on a reported basis are as follows: Three Months Ended (In thousands) July 1, 2023 July 2, 2022 United States $ 237,073 $ 181,996 Japan 11,773 13,878 Europe 39,387 40,457 Rest of Asia 22,040 24,424 Other 1,059 703 Net revenues $ 311,332 $ 261,458 19 Table of Contents