REVVITY, INC. quarterly report, Q3 FY2018

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PerkinElmer, Inc. (10-Q for quarter ended September 30, 2018)

Filing identity: The supplied filing is for PerkinElmer, Inc., not a company identified as Revvity, Inc. Investors should confirm the issuer and filing match their intended research. Figures below are in U.S. dollars unless noted.

Business context and reporting period

PerkinElmer reported results for the three and nine months ended September 30, 2018, compared with the three and nine months ended October 1, 2017. Its segments are Discovery & Analytical Solutions (DAS), serving life sciences and applied markets, and Diagnostics. The statements are unaudited and reflect continuing operations unless otherwise indicated.

Financial performance and liquidity

  • Third-quarter revenue: $674.3 million, up 22% from $554.3 million. Product revenue was $474.5 million and service revenue was $199.8 million.
  • Third-quarter earnings: Operating income was $80.2 million versus $78.0 million; income from continuing operations was $75.4 million versus $96.5 million; diluted continuing-operations EPS was $0.68 versus $0.87. Net income was $76.5 million versus $91.1 million, and diluted EPS was $0.69 versus $0.82.
  • Third-quarter margins: Gross margin was 49.3%, up from 48.5%; operating margin was approximately 11.9%, down from approximately 14.1%. Management attributed the gross-margin improvement to volume leverage and supply-chain initiatives, and the operating-margin decline mainly to acquired-intangible amortization and product-development investment.
  • Nine-month results: Revenue was $2.022 billion, up 25%. Operating income was $208.2 million versus $202.0 million; continuing-operations income was $166.2 million versus $195.3 million; diluted continuing-operations EPS was $1.49 versus $1.77. Net income was $166.6 million versus $333.8 million, and diluted EPS was $1.49 versus $3.02. The prior-year period included a substantial gain on the sale of the Medical Imaging business.
  • Segment performance: Q3 DAS revenue rose 5% to $406.2 million and operating income rose 2% to $48.4 million. Diagnostics revenue rose 59% to $268.1 million, while operating income rose 9% to $47.4 million. EUROIMMUN contributed $90.2 million of Q3 Diagnostics revenue. For nine months, DAS revenue rose 9% to $1.233 billion and operating income rose 16% to $149.2 million; Diagnostics revenue rose 63% to $788.3 million, but operating income fell 7% to $104.6 million. EUROIMMUN contributed $262.4 million of nine-month Diagnostics revenue.
  • Cash flow: Nine-month cash from operating activities was $151.6 million ($151.8 million from continuing operations), compared with $160.4 million. Capital expenditures were $60.4 million; continuing-operations investing cash outflow was $71.9 million. Financing cash outflow was $122.0 million. Cash, cash equivalents and restricted cash ended at $152.7 million, down $49.7 million from the start of the period.
  • Balance sheet and debt: September 30 cash and cash equivalents were $149.5 million; current assets were $1.165 billion and current liabilities $686.8 million. Total debt was approximately $1.903 billion, including $20.1 million current and $1.883 billion long-term. Cash less reported debt was approximately $1.753 billion. The $1.0 billion revolving facility had $577.6 million available; the company reported compliance with applicable debt covenants.
  • Capital returns: Dividends declared were $0.07 per share each quarter. A new $250 million share-repurchase authorization was approved in July 2018; no open-market program repurchases had been made through September 30.

Material changes, outlook, and unusual items

  • Revenue growth was substantially acquisition-related: management attributed about 16% of Q3 growth and 15% of nine-month growth to acquisitions and divestitures. EUROIMMUN was the principal contributor; underlying growth was also reported across DAS and Diagnostics offerings.
  • PerkinElmer adopted ASC 606 on January 1, 2018 using the modified-retrospective method; comparative periods were not restated. The new standard increased reported 2018 revenue by $3.2 million for Q3 and $25.6 million for nine months versus the former accounting method, and increased continuing-operations income by $2.3 million and $13.3 million, respectively. It had no cash-flow impact.
  • In Q3, the company sold substantially all assets and liabilities of its multispectral imaging business for $37.3 million and recorded a $13.0 million pretax gain. The sale was not classified as a discontinued operation.
  • Interest and other expense was $2.2 million in Q3 versus $27.0 million of income a year earlier. The comparison was affected by a prior-year $36.3 million foreign-exchange gain associated with EUROIMMUN acquisition hedges, higher interest expense, and the current-period divestiture gain. Nine-month interest and other expense was $29.9 million versus $13.8 million of income.
  • Management said it expected internally generated cash to cover operating costs, capital expenditures, smaller acquisitions, debt interest and dividends; external financing could be used for larger acquisitions and other long-term obligations. No specific revenue or earnings guidance was provided in the supplied filing text.
  • Management cited market demand, order timing, working-capital needs, access to credit, interest rates, foreign exchange, government funding and regulation, competition, product development, acquisition integration, and supply-chain or operational disruptions as risks. About 70% of business was conducted outside the U.S.; Q3 revenue faced an approximately 2% foreign-exchange headwind.
  • Other items to monitor include $67.1 million of recorded acquisition-related contingent consideration (with potential payments up to $76.5 million), an $8.5 million environmental remediation accrual, and provisional Tax Act accounting that management said could still change materially. Management did not expect current legal matters or known environmental exposures to have a material adverse effect, while acknowledging uncertainty.
  • The company identified its Informatics reporting unit as having elevated goodwill-impairment risk because of ongoing weakness, though it did not then expect a significant impairment. A subsequent acquisition of Dani Analitica for €43.1 million was completed after quarter-end.

Important facts for investors to verify

  • Confirm that this PerkinElmer 2018 filing—not a filing under the Revvity name—is the intended issuer and period.
  • Separate acquisition-driven growth, particularly EUROIMMUN, from organic growth and assess whether Diagnostics profitability recovers after the nine-month decline.
  • Review the effects of ASC 606 and purchase-accounting amortization/inventory charges when comparing reported revenue, margins and earnings with prior periods.
  • Track operating cash conversion, working-capital movements, capital spending, debt balances and available revolver capacity.
  • Assess contingent-consideration estimates, Informatics goodwill risk, provisional tax accounting, foreign-exchange exposure, and the terms and funding of the Dani acquisition and repurchase authorization.