Business context and reporting period
Issuer clarification: The supplied filing is PerkinElmer, Inc.’s Form 10-K, not a filing under the name Revvity, Inc. It reports fiscal year 2020, ended January 3, 2021; fiscal 2020 had 53 weeks versus 52 weeks in fiscal 2019. The company operated in Discovery & Analytical Solutions and Diagnostics, serving life sciences, applied markets and diagnostics.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $3.783 billion | $2.884 billion |
| Gross profit / gross margin | $2.110 billion / 55.8% | $1.396 billion / 48.4% |
| Operating income / operating margin | $978.6 million / 25.9% | $362.0 million / 12.6% |
| Net income | $727.9 million | $227.6 million |
| Diluted EPS | $6.49 | $2.04 |
| Cash from operating activities | $892.2 million | $363.5 million |
| Capital expenditures | $77.5 million | $76.3 million |
Revenue increased 31%; management attributed the improvement in gross and operating margins primarily to higher volume, favorable product mix and productivity initiatives. Fiscal 2020 included a $25.4 million pre-tax pension and postretirement mark-to-market loss, recorded in the fourth quarter.
- Segments: Diagnostics revenue rose 82% to $2.067 billion, with operating income of $874.2 million. Discovery & Analytical Solutions revenue declined 2% to $1.716 billion, and operating income fell 23% to $183.5 million.
- Balance sheet: Cash and cash equivalents were $402.0 million; current assets were $2.239 billion and current liabilities $1.652 billion. Total debt carrying value was approximately $1.991 billion, including $380.9 million classified as current. Shareholders’ equity was $3.735 billion.
- Debt and liquidity: The company had $830.4 million available under its $1.0 billion revolving facility and reported compliance with applicable debt covenants. The €300 million 0.6% notes, carried at $366.2 million, matured in April 2021.
- Cash uses: Acquisitions used $411.5 million of cash, and financing activities used $202.9 million net. Dividends paid were $31.2 million; the regular dividend was $0.07 per share per quarter.
Material changes versus the prior comparable period
- COVID-19-related demand drove most of the company’s growth: Diagnostics immunodiagnostics revenue increased $547.4 million and applied genomics revenue increased $398.3 million. The company cited reduced demand in Discovery & Analytical Solutions applied markets, partly offset by growth in life sciences.
- Operating cash flow improved substantially, but working capital absorbed cash: accounts receivable increased $373.9 million and inventory increased $122.5 million, principally reflecting Diagnostics sales and the ramp-up of COVID-19 products.
- Income tax provision rose to $178.3 million from $9.4 million; the effective tax rate was 19.7% versus 4.0%. Fiscal 2019 included larger tax benefits and purchase-accounting and debt-redemption-related items affecting comparability.
- Four businesses were acquired for aggregate consideration of $438.7 million, including Horizon Discovery for $399.4 million late in the year. Acquisition allocations were preliminary; acquired operations were not material to reported fiscal-year results because of timing and integration.
Outlook, risks and unusual items
- Management provided no numerical fiscal 2021 revenue or earnings guidance in the supplied filing. It expected COVID-19 Diagnostics demand to continue into the first half of fiscal 2021, while noting that its duration depended on testing demand, product capacity and the ability to staff and manage testing laboratories.
- Management expected fiscal 2021 capital expenditures to be similar to fiscal 2020. It also expected approximately $10.3 million of pension and postretirement plan income, excluding any mark-to-market adjustment, and planned $7.6 million of contributions to non-U.S. pension plans.
- COVID-19 remained a material uncertainty: management warned of potential effects on demand, manufacturing, logistics, supply availability, staffing and cash flows. It also noted that the Diagnostics revenue increase could prove unsustainable, while certain Discovery & Analytical Solutions markets remained adversely affected.
- Other disclosed risks include dependence on limited or single-source suppliers, foreign exchange exposure, competition and product development, acquisitions and integration, regulatory and product liability matters, cybersecurity, and impairment of goodwill and intangibles. Tulip, with $77.8 million of goodwill, was identified as at increased impairment risk due to ongoing weakness related to COVID-19.
- Environmental remediation accruals were $12.9 million, up from $7.7 million. The company said ordinary-course legal contingencies were not expected to have a material adverse effect, but outcomes remained uncertain.
- After year-end, PerkinElmer agreed to acquire Oxford Immunotec for approximately $591 million in cash, subject to customary closing conditions. It also repurchased 233,000 shares for $33.6 million under its new repurchase program after year-end.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition for the California COVID-19 testing contract was identified as a critical audit matter because of estimates in allocating consideration and forecasting testing volumes.
Most important facts for investors to verify
- Confirm the issuer and ticker: the supplied 10-K is for PerkinElmer, Inc. (PKI), despite the request metadata naming Revvity, Inc.
- Assess whether COVID-19 testing-related revenue and margins persist, particularly beyond the first half of fiscal 2021, and review the economics and revenue estimates for the California testing contract.
- Review the April 2021 maturity of the $366.2 million notes and subsequent refinancing or repayment, as well as debt and liquidity after the Oxford Immunotec acquisition.
- Track receivables, inventory and collections to determine whether the fiscal 2020 working-capital build converts to cash.
- Monitor integration and returns on the 2020 acquisitions, the final purchase-price allocations, and impairment indicators for Tulip and other goodwill-intensive reporting units.