Business context and reporting period
This filing is PerkinElmer, Inc.’s unaudited Form 10-Q for the three months ended April 1, 2018; it is not filed under the name Revvity, Inc. PerkinElmer reported two segments: Discovery & Analytical Solutions (DAS) and Diagnostics. The prior-year comparison is the three months ended April 2, 2017.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $644.0 million | $514.1 million | +25% |
| Gross margin | 45.4% | 46.6% | -1.26 percentage points |
| Operating income | $39.9 million | $49.8 million | -20% |
| Operating margin | 6.2% | 9.7% | -3.49 percentage points |
| Income from continuing operations | $26.0 million | $36.1 million | -28% |
| Net income | $26.0 million | $38.6 million | -33% |
| Diluted EPS | $0.23 | $0.35 | Down $0.12 |
Revenue growth included approximately 14% from acquisitions and divestitures and 5% from favorable foreign exchange. EUROIMMUN, acquired in December 2017, contributed $82.0 million of Q1 revenue. DAS revenue rose 10% to $396.5 million and segment operating income rose 20% to $36.2 million. Diagnostics revenue increased 62% to $247.4 million, while segment operating income fell 44% to $18.4 million.
Cash flow from continuing operations was a use of $14.6 million, versus $41.2 million provided in the prior-year quarter. Capital expenditures were $22.7 million, compared with $6.0 million. Cash and cash equivalents were $180.8 million at quarter-end, down from $202.1 million at year-end 2017. Current assets were $1.234 billion and current liabilities $926.0 million. Debt was approximately $2.077 billion in total carrying value, including $217.8 million current and $1.860 billion long-term; the resulting cash less debt was approximately negative $1.896 billion. The revolving facility had $306.6 million of additional borrowing availability.
Material changes and unusual items
- Costs and margins: Cost of revenue rose 28%, faster than revenue. Management cited unfavorable product mix, higher acquired-intangible amortization and $9.2 million of acquisition-related inventory fair-value expense. SG&A rose 36% and R&D 38%, reflecting growth and product-development investment, partly offset by productivity and cost-containment actions.
- Acquisition effects: Diagnostics growth included EUROIMMUN and other acquisition effects; acquired-intangible amortization and inventory purchase-accounting charges weighed on segment profitability.
- Revenue accounting: PerkinElmer adopted ASC 606 on January 1, 2018 using the modified retrospective method. Q1 revenue was $13.2 million higher and net income $6.8 million higher than under the prior accounting basis, according to the filing’s comparison. The prior-year figures were not restated, limiting direct comparability. Adoption increased opening retained earnings by about $10.2 million.
- Tax: The continuing-operations tax provision was $2.5 million, an 8.7% effective rate. Accounting for the 2017 Tax Act remained provisional; management said refinements could materially affect tax expense. Q1 included $1.5 million of additional expense from remeasuring certain tax balances.
- Currency and hedging: Interest and other expense, net was $11.4 million, including $17.7 million interest expense. The company reported $26.0 million in foreign-currency transaction gains and $22.6 million in net losses on forward currency hedges. It also recorded a $17.5 million translation adjustment on the 2026 notes in interest and other expense.
- Restructuring and contingencies: Restructuring and contract-termination charges were $6.6 million. A new workforce plan covered 47 employees and had $6.0 million of initial charges. Environmental remediation accruals were $9.3 million; the company said ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
Outlook, liquidity and risks
The filing provides no quantified revenue, earnings or cash-flow guidance. Management said it believes its end-market strategy and portfolio position the company for growth, and expects internally generated cash to cover operating costs, capital expenditures, smaller acquisitions, interest and dividends; larger acquisitions and certain long-term obligations may require external financing. It also expects $6.6 million of additional non-U.S. pension contributions by year-end 2018, following $2.2 million contributed in Q1 and a separate $15.0 million U.S. pension contribution.
After quarter-end, the company issued €300 million of 0.6% notes due 2021 and used the proceeds to repay the $200 million term loan and reduce revolving borrowings. The notes issuance and repayment occurred in April, after the April 1 reporting date. The quarterly dividend remained $0.07 per share; the board may reduce or eliminate it to preserve capital or fund other priorities.
Key disclosed risks include foreign-exchange exposure (about 70% of business conducted outside the U.S.), variable-rate debt and substantial indebtedness, market and government-funding variability, competition and product-development execution, acquisition integration and intangible-asset impairment. The Informatics reporting unit was identified as having elevated goodwill-impairment risk, though management did not expect a material impairment based on current assumptions. The company reported compliance with applicable debt covenants at quarter-end.
Investor verification points
- Confirm the issuer and period: this is PerkinElmer’s Q1 2018 filing, not a filing under the Revvity name.
- Assess how much of Diagnostics’ 62% growth is recurring organic growth versus acquisitions and foreign exchange, and track whether its operating income recovers.
- Review operating cash conversion and working capital: receivables and inventory increased, and Q1 continuing operating cash flow was negative.
- Reconcile acquisition-related effects, including acquired-intangible amortization, inventory fair-value charges, and the April refinancing, when assessing underlying earnings and leverage.
- Monitor the final Tax Act accounting, uncertain tax positions, foreign-exchange impacts, and the Informatics reporting unit’s impairment assumptions.