Revvity, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended July 2, 2023. Amounts below are in U.S. dollars; financial results are unaudited. The company changed its name from PerkinElmer, Inc. to Revvity, Inc. in April 2023. Following the March sale of its Applied, Food and Enterprise Services businesses, those operations are reported as discontinued operations; continuing results principally reflect Life Sciences and Diagnostics.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue from continuing operations | $709.1M | $895.6M | $1,383.9M | $1,858.8M |
| Gross margin | 56.7% | 61.6% | 56.6% | 61.7% |
| Operating income from continuing operations | $78.1M | $232.5M | $154.2M | $494.5M |
| Income from continuing operations | $58.6M | $161.6M | $83.5M | $345.7M |
| Net income, including discontinued operations | $35.6M | $179.2M | $605.0M | $356.2M |
| Diluted EPS, continuing operations | $0.47 | $1.28 | $0.66 | $2.73 |
- Q2 continuing revenue declined 20.8% year over year. Diagnostics revenue fell 34% to $372.9M, mainly from lower COVID-19 product demand; core product growth partly offset the decline. Life Sciences revenue increased 3% to $336.4M.
- Q2 operating margin was approximately 11%, versus 26% a year earlier. Management attributed the decline chiefly to lower COVID-19 sales. Lower sales mix also reduced gross margin by 486 basis points.
- Q2 segment operating income: Life Sciences $127.8M, down 2%; Diagnostics $85.2M, down 65%. Life Sciences margin pressure reflected investment in product development and growth; Diagnostics was affected by lower COVID-19 volume, partly offset by cost controls.
- Six-month net income included a $521.6M after-tax gain from discontinued operations, mainly the sale gain. Thus net income and EPS for that period are not representative of continuing operating performance.
Cash flow, balance sheet and capital allocation
- For the six months, operating cash flow from continuing operations was $28.0M, down from $423.4M. Management cited lower profitability and greater working-capital use. Consolidated operating cash flow, including discontinued operations, was negative $71.9M.
- Investing cash flow was positive $1.29B overall, principally reflecting $2.07B of investing cash inflows from discontinued operations, partly offset by $771.8M used in continuing operations. Continuing operations purchased $831.2M of U.S. Treasury securities.
- At July 2, cash and cash equivalents were $1.332B; marketable securities were $739.1M. The company reported $1.5B of available revolving-credit capacity. It intended Treasury maturities to fund upcoming debt repayments.
- Total debt carrying value was approximately $4.36B, including $478.9M classified as current; stockholders’ equity was $7.87B. The company repurchased $273.3M of shares and paid $17.6M in dividends during the six-month period.
- The quarterly dividend was $0.07 per share; a third-quarter dividend of the same amount was declared for payment in November 2023. The new share repurchase authorization was $600M, with $467.5M remaining at quarter-end.
Sale, outlook, risks and unusual items
- The March 13 sale generated approximately $2.14B in cash proceeds before transaction costs and post-closing adjustments. Additional consideration includes $75M for transfer of the PerkinElmer brand, payable over 24 months, and up to $150M contingent on a future sale or capital event. A roughly $177.5M working-capital receivable was expected to be settled in the second half of fiscal 2023.
- The sale gain and related tax provision remained subject to measurement and possible adjustment. The company recorded a $31.2M pretax disposal loss in Q2, reflecting additional transaction costs. The six-month discontinued-operations results included an $835.7M pretax gain on sale and $280.6M of related income tax provision.
- Management expected the fiscal 2023 effective tax rate on continuing operations, before discrete items, to be approximately 20%. The filing provides no broader revenue or earnings guidance.
- Management said supply-chain disruptions and inflation did not materially affect Q2 results compared with the prior-year quarter; transportation-cost initiatives more than offset raw-material inflation. It expected COVID-19 product demand to continue declining during the remainder of fiscal 2023.
- Key risks include volatile demand and government funding, continued decline in COVID-related products, foreign exchange exposure, competition and product-development execution, supply-chain interruptions, regulatory and legal matters, substantial debt, and possible impairment of goodwill or other intangible assets. The company reported $9.7B of net intangible assets and goodwill; no impairment was recorded in the periods presented.
- Environmental remediation accruals were $13.5M. Management said known legal and environmental matters were not expected to have a material adverse effect, while acknowledging that outcomes remain uncertain.
Important facts for investors to verify
- Whether Diagnostics core-product growth can offset continued COVID-19-related declines, and whether Life Sciences growth and margins persist.
- Final settlement of the sale’s working-capital adjustment and any changes to the recorded sale gain, consideration or tax provision.
- Cash conversion and working-capital trends, given the sharp decline in continuing operating cash flow.
- Repayment or refinancing of the 2023 debt maturity and the company’s use of sale proceeds, including further debt reduction and share repurchases.
- Progress against management’s approximately 20% fiscal 2023 tax-rate expectation and the impact of foreign-exchange movements.