PerkinElmer, Inc. — Q2 2018 Form 10-Q
Filing identity: The supplied filing is PerkinElmer, Inc.’s 10-Q, not a filing under the name Revvity, Inc. The quarter ended July 1, 2018; year-to-date figures cover six months. Dollar amounts are in millions unless stated otherwise.
Business context and reporting period
PerkinElmer operated Discovery & Analytical Solutions (DAS), serving life sciences and applied markets, and Diagnostics. Results include EUROIMMUN, acquired in December 2017. The company adopted ASC 606 revenue recognition on January 1, 2018 using the modified retrospective method; prior-year comparisons remain under the former standard.
Key financial metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $703.4 | $547.0 | $1,347.3 | $1,061.1 |
| Gross margin | 48.4% | 47.1% | 46.9% | 46.9% |
| Operating income | $88.1 | $74.2 | $128.0 | $124.0 |
| Income from continuing operations | $64.7 | $62.7 | $90.7 | $98.8 |
| Diluted EPS, continuing operations | $0.58 | $0.57 | $0.81 | $0.89 |
| Operating cash flow | Not provided separately | Not provided separately | $58.4 | $95.6 |
Q2 net income was $64.1 million versus $204.1 million a year earlier. The prior-year figure included a large gain on the Medical Imaging divestiture; Q2 2018 included a $0.6 million loss on discontinued operations and disposition. Six-month net income was $90.1 million versus $242.7 million.
At July 1, cash and cash equivalents were $163.4 million, down from $202.1 million at year-end 2017. Total debt was approximately $2.00 billion ($17.3 million current and $1,984.0 million long term); current assets were $1.20 billion and current liabilities $712.7 million. The company reported $488.6 million available under its $1.0 billion revolving facility and compliance with applicable covenants. Six-month capital expenditures were $39.6 million; cash used in investing was $79.9 million.
Material changes versus comparable periods
- Q2 revenue rose 29%; management attributed approximately 16 percentage points to acquisitions and divestitures and 2 points to favorable foreign exchange. DAS revenue grew 12%, while Diagnostics grew 66%.
- EUROIMMUN contributed $90.2 million of Q2 revenue and $172.2 million for the six-month period. Diagnostics growth also reflected reproductive health, genetic testing and immuno-diagnostics demand.
- Q2 gross margin improved 126 basis points, attributed to volume leverage and supply-chain initiatives. Operating margin declined 104 basis points, with acquired-intangible amortization and product-development investment partly offset by cost controls.
- Six-month operating cash flow declined to $58.4 million from $95.6 million, with working-capital use and lower cash from accrued expenses and other items among the stated drivers. Inventory increased $43.0 million and accounts receivable increased $18.8 million during the period.
- Six-month interest and other expense increased to $27.8 million from $13.2 million, primarily due to higher interest expense associated with acquisition financing.
- ASC 606 affected reported timing and amounts: for the six months, reported revenue was $22.4 million lower and continuing income $11.0 million higher than the filing’s pro forma amounts without adoption. Adoption had no cash-flow impact.
Outlook, commentary, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management said it believed the company was positioned to benefit from end-market spending trends and its focus on diagnostics and discovery and analytical solutions.
- Management expects internal cash generation to fund operating expenses, capital expenditures, smaller acquisitions, debt interest and dividends; external financing may be needed for larger acquisitions and certain long-term obligations. It expected an additional $4.5 million of non-U.S. pension contributions by year-end, following $4.4 million contributed in the first half.
- Tax accounting for the 2017 Tax Act remained provisional; management warned that further estimates could materially affect income tax expense. Approximately $6.1 million of uncertain tax positions might be resolved within 12 months.
- Goodwill and intangible assets were substantial: goodwill was $2.94 billion and net intangible assets $1.27 billion. The Informatics reporting unit was identified as relatively more exposed to impairment risk because of ongoing weakness and a competitive market, though management did not then expect a material impairment.
- Acquisition-related contingent consideration had an estimated fair value of $74.1 million, with potential payments of up to $85.0 million. Environmental remediation accruals were $9.1 million; management stated known legal and environmental matters were not expected to have a material adverse effect, while acknowledging uncertainty.
- Foreign exchange is significant: approximately 70% of business was conducted outside the United States. Foreign-currency translation adjustments reduced Q2 comprehensive income by $102.6 million, resulting in a comprehensive loss of $38.5 million despite positive net income.
- After quarter-end, the board authorized a new share repurchase program of up to $250 million through July 2020 and declared a $0.07-per-share quarterly dividend. The filing notes dividends may be reduced or eliminated.
Important facts for investors to verify
- Separate acquisition-driven growth from underlying organic growth, particularly in Diagnostics, and assess EUROIMMUN’s contribution and integration costs.
- Evaluate cash conversion and working-capital trends, including the inventory build and lower operating cash flow.
- Track debt, interest costs, refinancing needs and liquidity; verify whether the new repurchase authorization competes with investment or debt-reduction priorities.
- Monitor provisional Tax Act accounting, contingent consideration estimates, and Informatics goodwill impairment sensitivity.
- Reconcile period-to-period performance for ASC 606 adoption and the prior-year Medical Imaging divestiture gain.