Business context and reporting period
This is PerkinElmer, Inc.’s unaudited Form 10-Q for the quarter ended July 5, 2020; the filing does not identify the registrant as Revvity, Inc. PerkinElmer reported two segments: Discovery & Analytical Solutions, serving life sciences and applied markets, and Diagnostics. Comparisons are with the three and six months ended June 30, 2019, respectively.
Financial performance and position
Amounts are in U.S. dollars. Q2 revenue rose 12% to $811.7 million. Product revenue was $601.5 million and service revenue was $210.2 million. Gross profit was $447.3 million, for a 55.1% gross margin versus 48.1%. Operating income increased to $175.6 million from $91.7 million; operating margin was 21.6% versus 12.7%. Continuing-operations income was $137.2 million versus $69.1 million, and diluted EPS was $1.23 versus $0.62. Net income was $137.2 million.
For the first six months, revenue increased 7% to $1.464 billion. Gross margin was 51.6% versus 47.8%; operating income was $220.3 million versus $145.1 million, with operating margin of 15.0% versus 10.6%. Continuing-operations income was $170.9 million versus $104.6 million, and diluted EPS was $1.53 versus $0.94.
Six-month operating cash flow was $198.6 million, up from $41.5 million. Capital expenditures were $37.1 million; cash used in investing activities was $45.6 million and cash used in financing activities was $120.4 million. Cash, cash equivalents and restricted cash totaled $219.9 million at period-end, up from $191.9 million at fiscal year-end 2019. Inventory increased by $120.8 million on the balance sheet to $477.7 million, and the cash-flow statement shows a $126.7 million inventory-related cash use.
At July 5, current assets were $1.531 billion and current liabilities $1.163 billion. Total debt was approximately $1.971 billion, comprising $346.3 million current and $1.625 billion long-term, compared with $2.074 billion at December 29, 2019. The $346.3 million current portion includes the 0.6% notes due April 2021. The company had $766.8 million of additional availability under its $1.0 billion revolving credit facility and reported compliance with applicable debt covenants.
Material changes versus prior comparable periods
- Diagnostics revenue grew 46% in Q2 to $420.7 million and 23% for the first half to $674.7 million. Management attributed growth mainly to COVID-19-related immunodiagnostics and applied-genomics demand; the segment’s Q2 operating income rose to $160.3 million from $49.3 million.
- Discovery & Analytical Solutions revenue fell 10% in Q2 to $391.0 million and 4% for the first half to $789.4 million. Management cited pandemic-related weakness in industrial, environmental, food, academic and government markets, partly offset by pharmaceutical, biotechnology and informatics growth. Q2 segment operating income declined 32% to $39.4 million.
- Q2 gross margin improved on higher volume, product mix, service productivity and pricing initiatives. SG&A rose 9.7% to $221.0 million, while R&D rose 2.4% to $49.5 million. Interest and other expense fell to $10.8 million from $19.9 million.
- The Q2 continuing-operations effective tax rate was 16.8%, versus 3.7% a year earlier; management cited jurisdictional income mix and lower discrete tax benefits. The unusually low prior-year comparison should be considered when assessing earnings growth.
Outlook, commentary, risks and unusual items
The filing provides no quantified revenue or earnings guidance. Management said COVID-19-related Diagnostics demand was expected to continue into Q3, but its sustainability depended substantially on demand for COVID-19 testing. Management warned that pandemic disruption and market volatility could materially adversely affect certain businesses, particularly Discovery & Analytical Solutions, and potentially overall financial condition, results and cash flows.
Other notable matters include a $12.8 million environmental remediation accrual, up from $7.7 million at year-end; management said the recorded exposure was not expected to be materially different from potential exposure, while noting uncertainty. The company recorded $3.6 million of significant litigation costs for the first half. It also reported $13.9 million of restructuring and other liabilities and expected residual restructuring lease payments through fiscal 2022. The first-half tax provision included $5.5 million of net discrete tax benefits. A new share repurchase authorization of up to $250 million was approved July 31, 2020, after the prior authorization expired; the quarterly dividend was $0.07 per share.
Important facts for investors to verify
- Confirm the filing entity: this document is PerkinElmer, Inc., not a filing under the name Revvity, Inc.
- Track whether COVID-19 testing demand persists and how it affects Diagnostics revenue, margins and inventory.
- Assess continued weakness or recovery in applied, academic and government markets and the resulting performance of Discovery & Analytical Solutions.
- Review the April 2021 note maturity, debt refinancing plans, revolving-credit availability and covenant headroom.
- Monitor inventory conversion and working-capital needs, environmental and litigation exposures, and the tax-rate impact of discrete items.