Business context and reporting period
The filing is PerkinElmer, Inc.’s unaudited Form 10-Q for the fiscal quarter ended September 29, 2019; the registrant identifies itself as PerkinElmer, Inc. (NYSE: PKI). Its two segments are Discovery & Analytical Solutions, serving life sciences and applied markets, and Diagnostics, serving clinically oriented markets.
Financial performance and liquidity
Unless noted otherwise, amounts are in U.S. dollars. The table compares the third quarter and first nine months of fiscal 2019 with the comparable 2018 periods.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $706.9m | $674.3m | $2,078.2m | $2,021.6m |
| Gross margin | 48.4% | 49.3% | 48.0% | 47.7% |
| Operating income | $78.7m | $80.2m | $223.7m | $208.2m |
| Net income | $58.6m | $76.5m | $163.1m | $166.6m |
| Diluted EPS | $0.52 | $0.69 | $1.46 | $1.49 |
| Operating cash flow | Not separately stated | Not separately stated | $148.3m | $151.8m |
Q3 revenue grew 5%; nine-month revenue grew 3%. At September 29, cash and cash equivalents were $393.0m, current assets $1,548.4m and current liabilities $1,188.1m. Debt was $2,257.6m in total—$506.7m current and $1,750.9m long-term—before subsequent refinancing activity. Cash, cash equivalents and restricted cash totaled $396.0m. Nine-month capital expenditures were $53.1m; operating cash flow less capital expenditures was approximately $95.2m.
Material changes versus prior period
- Q3 operating income declined despite revenue growth; nine-month operating income increased. Q3 gross margin fell 87 basis points, while nine-month gross margin improved 30 basis points.
- Q3 net income fell $18.0m, partly reflecting interest and other expense of $15.4m versus $2.2m, including the absence of the prior-year $13.0m disposition gain. Nine-month interest and other expense increased to $51.9m from $29.9m.
- Q3 segment revenue rose 5% in Discovery & Analytical Solutions and 4% in Diagnostics. Nine-month segment operating income was $147.0m for Discovery & Analytical Solutions, down 2%, and $128.2m for Diagnostics, up 23%.
- Nine-month investing cash outflow increased to $315.5m, primarily due to $252.6m of acquisitions. Financing activities provided $401.3m, including debt issuance and borrowing.
Outlook, commentary, risks and unusual items
Management expressed confidence in its positioning in Diagnostics and life sciences, citing growth in reproductive health, immunodiagnostics, pharma and biotech, Discovery, Informatics and OneSource. It provided no quantified forward guidance in the supplied filing text. Management attributed foreign-exchange movements an approximate 2% drag on Q3 revenue and 3% on nine-month revenue; approximately 70% of business is conducted outside the United States.
- In September, the company issued $850m of 3.3% senior notes due 2029 and established a new five-year, $1.0bn revolving credit facility, with $957.3m available at quarter-end. The notes funded repayment of the former revolver and the subsequent redemption of $500m of 5% notes due 2021.
- On October 13, 2019, after quarter-end, it redeemed the 5% notes. The redemption generated a disclosed $32.3m pretax non-operating charge, including a $31.3m cash make-whole premium, net of a $1.0m hedge settlement.
- Fiscal 2019 acquisitions included Cisbio and two other businesses for aggregate cash consideration of $258.4m. After quarter-end, the company acquired Meizheng Group for $152.0m, with potential contingent consideration up to $26.0m.
- Restructuring charges were $14.1m in Q3 and $27.9m for nine months; three 2019 workforce-reduction plans were intended to realign resources toward growth initiatives. Management said it did not expect further charges for these plans.
- Other risks include market and government-funding uncertainty, acquisition integration and intangible-asset valuation, debt and covenant exposure, foreign-exchange movements, and regulatory, supply-chain and cybersecurity risks. Environmental remediation accruals were $7.9m; management did not expect pending legal matters to have a material adverse effect, while noting outcomes remain uncertain.
Important facts for investors to verify
- Confirm the issuer identity: this historical filing names PerkinElmer, Inc. and ticker PKI, not Revvity, Inc.
- Assess whether revenue growth can translate into improved margins given Q3 amortization, acquisition-related costs and restructuring.
- Review debt maturities, the 2029-note refinancing and the subsequent $32.3m redemption charge and its cash impact.
- Track acquisition performance, contingent consideration, working-capital use and cash conversion.
- Consider foreign-exchange exposure, the low reported effective tax rates and the role of discrete tax benefits in earnings.