Filing summary
Entity note: The supplied filing is PerkinElmer, Inc.’s Form 10-Q, not a filing under the name Revvity, Inc. It covers the quarter and six months ended July 3, 2016, with comparisons to the periods ended June 28, 2015. Figures below are in U.S. dollars.
Business context and reporting period
PerkinElmer provides products and services to diagnostics, research, environmental, industrial, and laboratory-services markets. Its reportable segments are Human Health and Environmental Health. The statements are unaudited.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $572.7m | $563.9m | $1,111.4m | $1,090.8m |
| Operating income | $71.2m | $68.1m | $140.0m | $125.5m |
| Income from continuing operations | $61.2m | $49.0m | $108.7m | $89.3m |
| Net income | $63.9m | $49.0m | $111.3m | $89.3m |
| Diluted EPS, continuing operations | $0.56 | $0.43 | $0.98 | $0.79 |
| Gross margin | 46.3% | 44.8% | 46.4% | 44.7% |
Q2 revenue rose 2%; operating income rose about 4%. Q2 Human Health revenue increased 4% to $353.5m, while Environmental Health revenue declined 1% to $219.2m. For the six months, revenue increased 2%; Human Health rose 3% and Environmental Health rose 1%. Foreign exchange was a headwind in both periods.
Q2 operating margin was approximately 12.4%, versus 12.1% a year earlier. Management attributed stronger gross margins mainly to favorable product mix and supply-chain initiatives. Selling, general and administrative expense and research and development expense increased, reflecting growth and product-development investments.
For the six months, operating cash flow from continuing operations was $125.7m, up from $101.2m. Capital expenditures were $16.3m; investing cash outflow was $7.8m, including $21.0m of business-sale proceeds. Financing cash outflow was $112.4m, including $151.5m of share repurchases and $15.5m of dividends. Cash and equivalents ended at $248.1m, versus $237.9m at fiscal year-end.
Balance sheet, debt and liquidity
At July 3, 2016, total assets were $4.194bn, total liabilities $2.106bn, and stockholders’ equity $2.088bn. Reported current and long-term debt totaled approximately $1.058bn. The balance included $527m of revolver borrowings, $495.4m carrying value of the 5% notes due 2021, and $37.6m of financing lease obligations. Cash was $248.1m; revolver borrowing availability was $161.5m at quarter-end. The company reported compliance with applicable debt covenants.
On July 19, 2016, after quarter-end, PerkinElmer issued €500m of 1.875% senior notes due 2026 and used the proceeds to repay the revolver in full. It reported $688.5m of revolver availability on that date and expected to replace the existing facility with a five-year facility of up to $1.0bn. About $240.8m of quarter-end cash was held by non-U.S. subsidiaries; approximately $227.1m could incur U.S. tax if repatriated without tax planning.
Material changes, outlook and notable items
- Segment trends diverged: Human Health growth was driven by newborn screening and OneSource services; Environmental Health’s Q2 decline reflected weaker food, environmental and industrial sales, partly offset by laboratory-services growth.
- Human Health operating income fell 5% in Q2 to $57.6m, with higher product-development and purchase-accounting costs. Environmental Health operating income rose 32% to $25.6m, helped by product mix, cost containment and lower restructuring and inventory purchase-accounting charges.
- Q2 restructuring charges were $5.1m, including a new plan affecting 90 employees. Management expects payments under earlier plans to continue through fiscal 2022.
- Q2 earnings included a $7.1m pretax gain on sale of the PerkinElmer Labs investment, a $1.6m pretax asset write-off related to a proposed contribution to a U.K. academic institution, and a $2.5m discrete tax benefit associated with the sale. The six-month effective tax rate was 12.0%, versus 15.1%, reflecting income mix and higher discrete tax benefits.
- Management described growth opportunities in screening, research services and regulated testing, but gave no specific revenue or earnings guidance in the supplied filing text. It cautioned that market demand, customer funding, foreign exchange and working-capital needs may affect results and liquidity.
- Key risks include international and currency exposure (about 60% of business conducted outside the U.S.), Brexit-related uncertainty, debt and variable-rate exposure, product-development and acquisition execution, regulation, competition, and potential impairment of goodwill and intangible assets. Environmental remediation accruals were $11.5m; management did not expect known legal or environmental matters to have a material adverse effect, while acknowledging uncertainty.
- The company adopted share-based compensation guidance in Q1, recording a $14.2m cumulative increase to opening retained earnings and deferred tax assets. It was evaluating the future lease and revenue-recognition standards; adoption impacts were not yet determined.
Important facts for investors to verify
- Confirm the issuer identity: this source is PerkinElmer’s 2016 filing, despite the request metadata naming Revvity.
- Assess whether Human Health growth can persist and whether Environmental Health’s weaker food and environmental markets recover.
- Separate recurring earnings and tax performance from disposition gains, discrete tax benefits, restructuring, and purchase-accounting costs.
- Review the post-quarter euro-note issuance, revolver repayment, planned refinancing, and related foreign-currency hedge accounting.
- Monitor cash availability and capital allocation after substantial share repurchases, alongside contingent acquisition consideration of $62.9m recorded fair value and up to $94.6m potential payments.