PerkinElmer, Inc. — Q1 2016 Form 10-Q
Entity and period: The filing is for PerkinElmer, Inc., for the three months ended April 3, 2016, compared with the three months ended March 29, 2015. Although the request metadata names Revvity, the filing itself identifies PerkinElmer as the registrant. The financial statements are unaudited.
Financial performance
| Metric | Q1 2016 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $538.7 million | $526.9 million | +2% |
| Gross margin | 46.4% | 44.7% | +176 basis points |
| Operating income | $68.8 million | $57.4 million | +20% |
| Income from continuing operations | $47.5 million | $40.3 million | +18% |
| Net income | $47.5 million | $40.3 million | +18% |
| Diluted EPS | $0.43 | $0.36 | +$0.07 |
| Cash from operating activities | $32.0 million | $37.7 million | Down $5.6 million |
Revenue comprised $365.0 million of product sales and $173.7 million of service revenue. Revenue growth included an approximately 2% foreign-exchange headwind; management also reported a net 0.3% revenue benefit from prior-year acquisitions and divestitures. The effective tax rate on continuing operations was 17.6%, versus 16.0%.
Human Health revenue rose 2% to $332.4 million, while segment operating income declined 2% to $54.7 million. Environmental Health revenue rose 3% to $206.2 million, and operating income increased to $25.6 million from $11.3 million. Corporate operating loss was $11.6 million, versus $9.8 million.
Balance sheet, cash flow and capital allocation
- Cash and cash equivalents were $210.7 million at April 3, down from $237.9 million at January 3, 2016. Total assets were $4.21 billion; current assets were $1.05 billion and current liabilities were $554.5 million.
- Total reported debt was approximately $1.12 billion, including $1.1 million current and $1.12 billion long-term debt. The revolving facility had $590 million of borrowings and $98.5 million of available capacity; its effective borrowing rate was 1.55%. The $500 million senior notes bear 5% interest and mature in November 2021. The company reported compliance with applicable debt covenants.
- Operating cash flow was $32.0 million; investing activities used $17.3 million, including $7.8 million of capital expenditures and $10.5 million for acquisitions and investments. Financing activities used $47.7 million. Cash declined by $27.2 million during the quarter.
- The company repurchased 3.2 million shares under its buyback program for $148.2 million and paid $7.8 million in dividends. The quarterly dividend was $0.07 per share; 2.7 million shares remained authorized for repurchase.
- Of $210.7 million cash, $206.5 million was held by non-U.S. subsidiaries. The company said approximately $175.2 million could incur U.S. tax if transferred without proper planning.
Material changes, outlook and risks
Management attributed the gross-margin improvement primarily to favorable product mix and supply-chain initiatives; operating-margin improvement also reflected cost containment and productivity efforts. Consolidated operating margin increased to approximately 12.8% from 10.9%. Environmental Health benefited from product mix, lower costs and a smaller prior-year inventory purchase-accounting charge. Human Health operating income was pressured by product-development investment and acquisition-related costs.
Management cited growth in OneSource services, newborn screening, blood banking and screening, laboratory services, and food and environmental testing. Medical imaging demand declined slightly because of customer ordering patterns. It expects continued market opportunity from earlier disease detection and expanding contaminant regulation and testing. The filing provides no specific numerical revenue or earnings guidance.
- Acquisitions and contingencies: The company acquired a business for $8.8 million in cash during the quarter. Potential acquisition earnouts could total up to $95.3 million; recorded contingent-consideration fair value was $58.6 million. Vanadis milestone and product-development assumptions are significant valuation inputs.
- Foreign exchange and funding: Approximately 60% of business was conducted outside the United States. Currency movements reduced reported revenue; variable-rate debt, credit-market conditions and access to borrowing are additional risks.
- Cash generation and obligations: Operating cash flow fell despite higher earnings, partly due to payment timing for pensions, taxes, restructuring, salaries and benefits. Inventory increased as the company expanded stock at sales locations. Management expected an additional $7.0 million of pension contributions by fiscal year-end.
- Other risks: Environmental remediation accruals were $11.7 million; management did not expect known environmental matters or other disclosed legal proceedings to have a material adverse effect, while noting outcomes remain uncertain. Goodwill and intangible-asset impairment, regulation, customer funding, product development, supply disruptions and international operations remain key risks.
Unusual accounting item: The company adopted ASU 2016-09 and recorded a $14.2 million cumulative increase to opening retained earnings, with a corresponding increase in deferred tax assets. Q1 excess tax benefits were recognized in earnings.
Important facts for investors to verify
- Whether organic, constant-currency revenue and segment trends continued after the reported foreign-exchange headwind.
- Why operating cash flow declined, and whether higher inventory and accrued-expense cash uses reverse in subsequent quarters.
- The effect of the $148.2 million buyback on cash, revolving-credit borrowings, available capacity and leverage.
- Progress and valuation assumptions for Vanadis milestones and other contingent acquisition payments.
- Whether the $14.2 million accounting-adoption adjustment and Q1 tax benefits affect comparability of earnings and EPS.
- Developments in foreign-held cash repatriation, pension funding, environmental remediation and other legal or tax contingencies.