What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-08 · 115 added, 60 removed, 212 unchanged (45% of the section changed)

12 unchanged sentences

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 opport unities to exit unfavorable customer contracts.

Recent Developments

Agreement to Acquire OpSens, Inc.

On October 10, 2023, the Company announced it has entered into a definitive agreement to acquire all of the issued and outstanding common shares of OpSens, Inc.

(“OpSens”) for CAD $2.90 per share in an all-cash transaction, representing a fully diluted equity value of approximately USD $253.0 million at the exchange rate on the date of announcement.

Completion of the acquisition is subject to the approval of OpSens shareholders, receipt of court and regulatory approval, as well as certain other closing conditions customary for transactions of this nature.

The transaction is expected to close by the end of January 2024.

OpSens offers commercially and clinically validated optical technology for use primarily in interventional cardiology.

OpSens’ core products include the SavvyWire® that acts as pacing and pressure monitoring wire advancing the workflow of the procedure and enabling potentially shorter hospital stays for patients, and the OptoWire®, a pressure guidewire that aims to improve clinical outcomes by accurately and consistently measuring Fractional Flow Reserve (FFR) and diastolic pressure ratio (dPR) to aid clinicians in the diagnosis and treatment of patients with coronary artery disease.

OpSens also manufactures a range of fiber optic sensor solutions used in medical devices and other critical industrial applications.

The addition of OpSens will expand the Hospital business unit portfolio in the interventional cardiology market.

Portfolio Rationalization Initiatives

In November 2023, the Company announced its plans to end of life the ClotPro system within the Hospital business unit and whole blood inline collection products within the Blood Center business unit, and the associated manufacturing operations.

We do not envision these product rationalization initiatives to materially impact our fiscal 2024 results.

Financial Summary

Three Months Ended

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

Three Months Ended Six Months Ended

(In thousands, except per share data) September 30,

2023 October 1,

2022 % Increase/ (Decrease) September 30,

2023 October 1,

2022 % Increase/ (Decrease)

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Net income per share - diluted $ 0.48 $ 0.64 (25.0) % $ 1.28 $ 1.03 24.3 %

Net revenue s increased 19.1% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, net revenues increased 20.5% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Revenue increases in our Plasma and Hospital businesses, primarily related to volume and price benefits, drove the overall increase in revenue during the three months ended July 1, 2023.

Operating income increased 74.4% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023, primarily due to increased revenues in Plasma and Hospital, partially offset by continuous growth investments, the impact of foreign exchange, digital transformation costs related to the upgrade of our enterprise resource planning system and increased depreciation expense.

Net revenue s increased 7.0% and 12.6% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, net revenues increased 7.6% and 13.6% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Revenue increases in our Plasma and Hospital businesses, primarily related to volume and price benefits, drove the overall increase in revenue during the three and six months ended September 30, 2023.

Operating income de creased 24.5% and during the three months ended September 30, 2023 and increased 14.8% during the six months ended September 30, 2023 as compared with the same periods of fiscal 2023.

The decrease during the three months ended September 30, 2023 was primarily due to continuous growth investme nts, impairments of intangible assets and digital transformation costs related to the upgrade of our enterprise resource planning system, partially offset by increased revenues in Plasma and Hospital.

The increase during the six months ended September 30, 2023 was due to increa sed revenues in Plasma and Hospital and operating leverage, partially offset by continuous growth investments, impairments of intangible assets and digital transformation costs.

Management’s Use of Non-GAAP Measures

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Three Months Ended

(In thousands) July 1,

(In thousands) September 30,

2023 October 1,

2022 Reported growth Currency impact Constant currency growth (1)

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Net revenues $ 318,183 $ 297,485 7.0 % (0.6) % 7.6 %

Six Months Ended

(In thousands) September 30,

2023 October 1,

2022 Reported growth Currency impact Constant currency growth (1)

United States $ 473,418 $ 393,720 20.2 % — % 20.2 %

International 156,097 165,223 (5.5) % (3.0) % (2.5) %

Net revenues $ 629,515 $ 558,943 12.6 % (1.0) % 13.6 %

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

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

During the three months ended July 1, 2023 our revenue generated outside the U.S.

was 23.9% of total net revenues as compared with 30.4% during the three months ended July 2, 2022.

During the three and six months ended September 30, 2023 our revenue generated outside the U.S.

was 25.7% and 24.8% of total net revenues, respectively, as compared with 28.8% and 29.6%, respectively, during the three and six months ended October 1, 2022.

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

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Three Months Ended

(In thousands) July 1,

(In thousands) September 30,

2023 October 1,

2022 Reported growth Currency impact Constant currency growth (1)

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Net revenues $ 318,183 $ 297,485 7.0 % (0.6) % 7.6 %

Six Months Ended

(In thousands) September 30,

2023 October 1,

2022 Reported growth Currency impact Constant currency growth (1)

Plasma $ 280,510 $ 230,274 21.8 % 0.1 % 21.7 %

Whole Blood 34,724 39,488 (12.1) % (1.1) % (11.0) %

Apheresis 100,714 99,889 0.8 % (3.6) % 4.4 %

Blood Center 135,438 139,377 (2.8) % (2.8) % — %

Hemostasis Management 74,818 67,816 10.3 % (1.1) % 11.4 %

Vascular Closure 76,162 59,143 28.8 % (0.1) % 28.9 %

51,771 52,390 (1.2) % (1.3) % 0.1 %

Hospital 202,751 179,349 13.0 % (0.9) % 13.9 %

Net business unit revenues 618,699 549,000 12.7 % (1.0) % 13.7 %

Service 10,816 9,943 8.8 % 0.1 % 8.7 %

Net revenues $ 629,515 $ 558,943 12.6 % (1.0) % 13.6 %

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

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(2) Other includes the Cell Salvage and Transfusion Management product lines of the Hospital business unit.

Plasma revenue increased 35.4% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, Plasma revenue increased 35.5% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

The increase during the three months ended July 1, 2023 was primarily driven by volume and price.

Plasma revenue increased 11.0% and 21.8% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, Plasma revenue increased 10.7% and 21.7% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

The increases during the three and six months ended September 30, 2023 were primarily driven by volume and price.

During the third quarter of fiscal 2023, we amended our supply agreement with CSL, which was scheduled to expire in December 2023, 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 revenu e increased 2.5% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, Blood Center revenue increased 5.8% during the three months ended July 1, 2023 as compared with the same periods of fiscal 2023.

Th e increase was primarily due to an increase in our apheresis business.

Hospital revenue increased 12.6% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, Hospital revenue increased 13.8% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

The increase during the three months ended July 1, 2023 was primarily attributable to increased Vascular Closure and Hemostasis Management revenue.

Three Months Ended

(In thousands) July 1,

Blood Center revenu e decreased 7.6% and 2.8% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, Blood Center revenue decreased 5.1% during the three months ended September 30, 2023 as compared with the same period of fiscal 2023 and was flat for the six months ended September 30, 2023 as compared with the same period of fiscal 2023 .

The decreases during the three and six months ended September 30, 2023 were primarily driven by declines in our Whole Blood business.

Hospital revenue increased 13.5% and 13.0% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, Hospital revenue increased 14.0% and 13.9% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

The increases during the three and six months ended September 30, 2023 were primarily attributable to increased Vascular Closure and Hemostasis Management revenue.

Three Months Ended Six Months Ended

(In thousands) September 30,

2023 October 1,

2022 % Increase September 30,

2023 October 1,

2022 % Increase

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% of net revenues 53.6 % 53.1 % 53.7 % 53.7 %

Gross profit increased 17.6% for the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, gross profit increased 21.8% during the three months ended July 1, 2023 as compared with the

same period of fiscal 2023.

The increase during the three months ended July 1, 2023 was primarily driven by geographic and product mix, volume and price, partially offset by inventory reserves, investments in operations and increased depreciation expense.

Gross profit increased 8.0% and 12.5% for the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, gross profit increased 10.2% and 14.5% d uring the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

The increases during the three and six months ended September 30, 2023 were primarily driven by price, volume and geographic and product mix, partially offset by increases in inventory reserves, investments in operations and increased depreciation expense.

Operating Expenses

Three Months Ended

(In thousands) July 1,

Three Months Ended Six Months Ended

(In thousands) September 30,

2023 October 1,

2022 % Increase/

(Decrease) September 30,

2023 October 1,

2022 % Increase/

Research and development $ 12,665 $ 10,896 16.2 % $ 25,313 $ 21,798 16.1 %

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% of net revenues 2.3 % 2.8 % 2.3 % 3.0 %

Impairment of intangible assets $ 10,419 $ — n/m $ 10,419 $ — n/m

% of net revenues 3.3 % — % 1.7 % — %

Total operating expenses $ 135,207 $ 111,146 21.6 % $ 248,813 $ 222,642 11.8 %

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Research and Development

Research and development expenses increased 16.0% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, research and development expenses increased 15.7% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

This increase was due to increased investments into product innovation across our product portfolio.

Research and development expenses increased 16.2% and 16.1% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, research and development expenses increased 15.5% and 15.6% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

The increases during the three and six months ended September 30, 2023 were due to increased investments into product innovation across our product portfolio.

Selling, General and Administrative

Selling, general and administrativ e expenses increased 1.4% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

Without the effects of foreign exchange, selling, general, and administrative expenses increased 1.8% during th e three months ended July 1, 2023 as compared with the same period of fiscal 2023.

T he increase during the three months ended July 1, 2023 was primarily driven by higher investments in sales and marketing and costs associated with the upgrade of our enterprise resource planning system.

Selling, general and administrativ e expenses increased 14.0% and 7.7% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

Without the effects of foreign exchange, selling, general, and administrative expenses increased 13.9% and 7.7% during th e three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

T he increases during the three and six months ended September 30, 2023 were primarily driven by higher investments in sales and marketing, costs associated with the upgrade of our enterprise resource planning system and litigation-related charges, partially offset by operating leverage.

Amortization of Acquired Intangible Assets

We recognized amortization expense related to our acquired intangible assets of $7.5 million and $8.4 million during the three months ended July 1, 2023 and July 2, 2022, respectively.

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

We recognized amortization expense related to our acquired intangible assets of $7.2 million and $14.7 million during the three and six months ended September 30, 2023, respectively, and $8.2 million and $16.6 million during the three and six months ended October 1, 2022 , respectively.

The decreases were primarily the result of intangible assets that became fully amortized during fiscal 2023.

Impairment of Intangible Assets

We recognized a $10.4 million impairment of intan gible assets in the second quarter of fiscal 2024 related to the enicor GmbH acquisition completed in fiscal 2021 within our Hospital business unit.

Interest and Other Expense, Net

Interest and other expenses decreased 60.8% during the three months ended July 1, 2023 as compared with the same period of fiscal 2023.

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

Interest and other expenses decreased 56.4% and 58.5% during the three and six months ended September 30, 2023, respectively, as compared with the same periods of fiscal 2023.

The decreases were primarily driven by increased interest income on investments due to higher interest rates and foreign currency impact due to market and rate volatility, partially offset by higher interest incurred on our term loan.

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

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statutory tax rate.

For the three months ended July 1, 2023, we recorded 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 , we recorded income tax expense of $5.6 million, representing an effective tax rate of 22.0%.

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

For the three and six months ended September 30, 2023 , the Company reported income tax expense of $7.9 million and $18.5 million, respectively, representing effective tax rates of 24.1% and 21.9%, respectively.

The effective tax rate for the three months ended September 30, 2023, includes $0.1 million of discrete tax benefit primarily related to stock compensation windfalls.

The effective tax rate for the six months ended September 30, 2023 includes $1.3 million of discrete tax benefit primarily related to stock compensation windfalls.

For the three and six months ended October 1, 2022, the Company reported income tax expense of $7.9 million and $13.5 million, respectively, representing effective tax rates of 19.1% and 20.3%, respectively.

The effective tax rate for the three months ended October 1, 2022, include a discrete tax benefit of $0.5 million related to tax rate changes enacted in the quarter and $0.3 million of discrete tax benefit relating to stock compensation windfalls.

The effective tax rate for the six months ended October 1, 2022 includes a discrete tax benefit of $0.5 million related to tax rate changes enacted in the period and $0.3 million of discrete tax expense relating to stock compensation shortfalls.

Liquidity and Capital Resources

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

(Dollars in thousands) July 1,

(Dollars in thousands) September 30,

2023 April 1,

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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 enhancements to our North American manufacturing facilities, share repurchases and cash principal and interest payments under our revised credit agreement.

In addition to the approximately $253.0 million acquisition of OpSens expected to close by January 2024, our expected cash outlays relate primarily to additional 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.

The Company has $500.0 million aggregate principal amount of 0% convertible senior notes due in 2026, or the 2026 Notes.

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

The 2026 Notes have an effective interest rate of 0.5% as of July 1, 2023.

As of July 1, 2023, we had $285.7 million in cash and cash equivalents, the majority of which is held in the U.S.

The 2026 Notes have an effective interest rate of 0.5% as of September 30, 2023.

As of September 30, 2023, we had $351.0 million in cash and cash equivalents, the majority of which is held in the U.S.

or in countries from which it can be repatriated to the U.S.

On 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.

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 credit facility (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.

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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 July 1, 2023, $273.0 million was outstanding under the term loan with an effective interest rate of 6.6%.

There were no borrowings outstanding on the revolving loan.

We also had $19.6 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of July 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 July 1, 2023.

As of September 30, 2023, $269.5 million was outstanding under the term loan with an effective interest rate of 6.7%.

There were no borrowings outstanding on the revolving credit facility.

We also had $19.0 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of September 30, 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 September 30, 2023.

The Company has scheduled principal payments of $7.0 million required during the remainder of fiscal 2024.

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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 three months ended July 1, 2023, we incurred $2.2 million of restructuring and restructuring related costs under this program.

Three Months Ended

(In thousands) July 1,

During the three and six months ended September 30, 2023, we incurred $2.0 million and $4.2 million, respectively, of restructuring and restructuring related costs under this program.

Six Months Ended

(In thousands) September 30,

2023 October 1,

Net cash provided by (used in):

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

Net cash provided by operating activities de creased by $22.9 million during the three months ended July 1, 2023, as compared with the three months ended July 2, 2022.

The decrease in cash provided by operating activitie s was primarily the result of an increase in inventory, partially offset by an increase in net income.

Net cash used in investing activities d ecreased by $43.0 million during the three months ended July 1, 2023, as compared with the three months ended July 2, 2022.

The decrease in cash used in investing activities was primarily the result of lower capital expenditures driven by NexSys PCS device placements that occurred during fiscal 2023 and decreased other investments compared to the first quarter of fiscal 2023.

Net cash used in financing activities decreased by $22.8 million during the three months ended July 1, 2023, as compared with the three months ended July 2, 2022, primarily due to lower contingent consideration payments in the first quarter of fiscal 2024.

Net cash provided by operating activities decreased by $10.8 million during the six months ended September 30, 2023, as compared with the six months ended October 1, 2022.

The decrease in cash provided by operating activities was primarily the result of an increase in inventory, partially offset by a decrease in accounts receivable and an increase in net income.

Net cash used in investing activities decreased by $48.9 million during the six months ended September 30, 2023, as compared with the six months ended October 1, 2022.

Net cash used in financing activities decreased by $41.3 million during the six months ended September 30, 2023, as compared with the six months ended October 1, 2022, primarily due to share repurchases and higher contingent consideration payments in fiscal 2023, which were partially offset by the draw down on the revolving credit facility during the six months ended October 1, 2022.

Concentration of Credit Risk

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Foreign Exchange

During the three months ended July 1, 2023, 23.9% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

During the three and six months ended September 30, 2023, 25.7% and 24.8%, respectively, of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

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

44 unchanged sentences

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

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

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

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

21 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis