Business context and reporting period
This is PerkinElmer, Inc.’s unaudited Form 10-Q for the quarter ended October 2, 2011, with nine-month comparisons to October 3, 2010. The filing is not under the name Revvity, Inc. PerkinElmer reported Human Health and Environmental Health segments; its fiscal year follows a 52/53-week calendar.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $453.7 million | $419.1 million | $1,381.1 million | $1,234.4 million |
| Gross margin | 44.0% | 44.3% | 44.1% | 44.6% |
| Operating income, continuing operations | $34.2 million | $41.4 million | $111.0 million | $105.3 million |
| Net income, continuing operations | $26.7 million | $26.5 million | $80.5 million | $93.4 million |
| Net income, including discontinued operations | $35.3 million | $13.4 million | $87.4 million | $95.4 million |
| Diluted EPS | $0.31 | $0.11 | $0.77 | $0.81 |
- Q3 revenue rose 8%, including approximately 3% from favorable foreign exchange and 2% from acquisitions. Nine-month revenue increased 12%, including approximately 4% from foreign exchange and 2% from acquisitions.
- Q3 operating margin was approximately 7.5%, down 234 basis points year over year. Management attributed pressure to acquisition costs, sales and marketing investment, R&D spending, product mix and freight, partly offset by productivity and cost containment.
- Nine-month operating cash flow from continuing operations was $151.5 million, versus $120.9 million. Total cash from operations, including discontinued operations, was $142.3 million.
- Nine-month investing cash outflow was $302.4 million, including $311.3 million for acquisitions and investments and $25.0 million of capital expenditures. Financing cash outflow was $22.3 million; cash declined $172.0 million to $248.1 million.
- At October 2, cash was $248.1 million; total debt was $508.0 million ($358.0 million on the revolver and $150.0 million of 2015 notes). The $650 million revolver had $279.0 million available after borrowings and letters of credit. The revolver was classified as short-term and initially matured in August 2012.
- Total assets were $3.40 billion, total liabilities $1.46 billion, and stockholders’ equity $1.95 billion. Goodwill was $1.76 billion and net intangible assets $512.3 million.
Material changes and unusual items
- Human Health Q3 sales rose 7% to $207.4 million; segment operating income rose 7% to $26.7 million. Environmental Health sales rose 10% to $246.3 million, but segment operating income fell 48% to $13.6 million, reflecting acquisition-related costs, investment, mix and freight.
- Nine-month interest and other expense was $13.9 million, compared with $11.9 million of income a year earlier. The prior-year period included a $25.6 million gain from remeasuring a previously held joint-venture interest.
- Q3 total net income included $8.6 million from discontinued operations and dispositions, including a $4.8 million tax benefit associated primarily with the repatriation of earnings from divested businesses. Nine-month discontinued-operations income was $6.9 million.
- Business-combination accounting reduced recognized revenue by $9.9 million in Q3 and $16.3 million year to date, primarily for acquired informatics businesses’ deferred revenue.
- During the first nine months, the company completed several smaller acquisitions, including CambridgeSoft for $227.4 million cash at closing. In September it agreed to acquire Caliper Life Sciences for approximately $640 million, with closing expected in Q4 2011. On October 25, after quarter-end, it issued $500 million of 5% senior notes due 2021 and received approximately $496.9 million net proceeds, in connection with the planned Caliper acquisition.
- The company repurchased 4.0 million shares for $107.8 million under its repurchase program during the nine months and paid $0.07 per share in each of the first three quarters.
Outlook, commentary, and risks
Management reported growth in screening, medical imaging, environmental and food safety testing, industrial markets and laboratory services, while noting weaker research-market demand, pharmaceutical customer consolidation, tight public-lab inventories and lower U.S. birth rates. It expressed expectations for continued demand from testing regulations and disease-detection needs, but gave no specific quantified revenue or earnings guidance in the provided filing text. Management expected to refinance the revolving credit facility during Q4 2011 and stated that the company was in covenant compliance at quarter-end.
Key risks include uncertain global economic conditions and customer funding, foreign exchange exposure (about 60% of business outside the U.S.), variable-rate debt and access to credit, acquisition integration and synergy execution, product development and competition, regulatory compliance, intellectual-property disputes, and potential impairment of substantial goodwill and intangibles. The pending Caliper transaction remained subject to closing conditions. The company accrued $6.5 million for known environmental matters and described the long-running Enzo patent and commercial dispute as stayed; management did not expect these matters to materially affect the financial statements, while acknowledging uncertainty. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether and when the Caliper acquisition closed, its final financing and purchase price, and subsequent debt and liquidity levels.
- How much reported growth reflects organic demand versus foreign exchange and acquisitions, particularly in Environmental Health and informatics.
- Whether operating-margin pressure and acquisition-related costs persist, and whether expected growth and integration benefits materialize.
- Revolver refinancing terms, debt covenant headroom, and the effect of the post-quarter $500 million note issuance on leverage and interest expense.
- Cash conversion and working-capital trends, including inventory growth, alongside the company’s ongoing share repurchases and dividend.
- Updates on the Enzo litigation, environmental liabilities, tax examinations and acquisition-related contingent consideration.