Business context and reporting period
This is PerkinElmer, Inc.’s unaudited Form 10-Q for the quarter ended September 28, 2014, with year-to-date results for the first nine months of fiscal 2014. The filing is from PerkinElmer, not a filing under the name Revvity. The company reported Human Health and Environmental Health segments.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $542.0 million | $522.1 million | $1,628.8 million | $1,565.7 million |
| Operating income from continuing operations | $58.8 million | $58.0 million | $180.2 million | $134.9 million |
| Income from continuing operations | $42.9 million | $40.8 million | $129.9 million | $100.8 million |
| Net income | $42.3 million | $40.2 million | $127.0 million | $100.3 million |
| Diluted EPS | $0.37 | $0.36 | $1.12 | $0.88 |
- Q3 revenue grew 4%; gross margin was 44.9%, up 21 basis points, while operating margin was approximately 10.8%, down 26 basis points.
- For nine months, revenue grew 4%; gross margin was 44.6%, down 3 basis points. Operating margin was approximately 11.1%, versus 8.6% a year earlier.
- Continuing-operations operating cash flow was $185.7 million for nine months, versus $88.3 million. Capital expenditures were $22.2 million. Cash and equivalents were $203.7 million at quarter-end.
- Total reported debt was approximately $859.7 million, comprising $1.2 million short-term and $858.6 million long-term debt. Cash less reported debt was approximately $656 million net debt.
- Current assets were $1,074.3 million and current liabilities $567.4 million. The company had $368.8 million of additional borrowing availability on its $700 million revolving facility and reported compliance with applicable covenants.
Material changes versus prior periods
- Q3 Human Health revenue rose 4%, led by diagnostics; research revenue declined. Environmental Health revenue rose 4%, primarily from laboratory services, while environmental and industrial product demand was flat.
- Nine-month Human Health revenue rose 5% and segment operating income rose 40% to $141.7 million. Environmental Health revenue rose 3% and operating income rose 19% to $74.0 million.
- Q3 operating income increased only modestly despite higher revenue; management cited growth-investment costs, partly offset by volume, mix and productivity. Q3 restructuring charges were $11.1 million, versus $1.1 million a year earlier.
- Nine-month results benefited from lower restructuring charges and lower interest expense. The prior-year period included $15.6 million in discrete tax benefits, compared with $5.8 million in 2014; this contributed to the year-over-year change in the effective tax rate.
- Foreign-currency translation reduced other comprehensive income by $32.9 million in Q3 and $29.6 million year to date.
Outlook, commentary, risks and unusual items
- No specific consolidated revenue or earnings guidance is provided in the filing. Management expected continued growth in disease screening and laboratory services, while noting weak global academic research demand and funding delays in China affecting environmental and industrial markets.
- Management expected more than $9 million in annual savings from fiscal 2013 restructuring actions beginning in fiscal 2015. A new Q3 2014 restructuring plan reduced headcount by 152; remaining severance payments were estimated at $12.4 million, largely to be paid by the end of Q3 fiscal 2015.
- The quarter included $7.5 million in cash revenue from a microfluidics technology license and $2.6 million of other consideration related to a collaboration modification. The filing says there are no future performance obligations for the license.
- The company paid $7.0 million into escrow to settle Enzo litigation; $6.6 million of settlement and related litigation expenses were recorded in the first nine months. The filing also reports $12.3 million accrued for known environmental remediation matters and $32.1 million of gross tax-effected unrecognized tax benefits.
- Risks highlighted include market and government-funding variability, foreign exchange exposure (about 60% of business conducted outside the U.S.), variable-rate debt, competition and product development, regulatory and reimbursement changes, supply disruptions, and potential impairment of goodwill and other intangible assets. Management reported no goodwill impairment in its annual test.
- The board authorized a new repurchase program for up to 8 million shares in October 2014. The quarterly dividend remained $0.07 per share; management noted the board could reduce or eliminate dividends.
Important facts for investors to verify
- Confirm the issuer and period: the supplied filing is PerkinElmer’s Q3 2014 10-Q, not a Revvity filing.
- Assess the sustainability of earnings and cash-flow improvement, including the effects of restructuring, discrete tax benefits, working-capital movements and the microfluidics license revenue.
- Review debt maturities, revolving-credit terms and exposure to variable interest rates, alongside the company’s cash location and potential U.S. tax costs of repatriation.
- Track demand in diagnostics and laboratory services against ongoing weakness in academic research and China-related environmental and industrial markets.
- Check subsequent restructuring payments and savings realization, environmental and tax contingencies, and the effect of foreign-currency movements.