Revvity, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 2, 2023; comparative period ended April 3, 2022. The company changed its name from PerkinElmer, Inc. to Revvity, Inc. effective April 26, 2023. Results distinguish continuing operations from the Applied, Food and Enterprise Services businesses, which were sold and reported as discontinued operations.
Financial performance
- Continuing-operations revenue: $674.9 million, down 29.9% year over year. Product revenue was $592.3 million and service revenue was $82.6 million.
- Segments: Life Sciences revenue rose 7% to $328.4 million; Diagnostics revenue fell 47% to $346.6 million, primarily reflecting lower COVID-19 product demand. Unfavorable foreign exchange reduced consolidated revenue by approximately 3%.
- Profit and margins: Gross margin was 56.5%, down from 61.7%. Operating income was $76.1 million versus $262.0 million, and operating margin was approximately 11% versus 27%. Continuing-operations net income was $24.8 million ($0.20 diluted EPS), compared with $184.1 million ($1.45 diluted EPS).
- Reported net income: $569.5 million ($4.50 diluted EPS), including $544.6 million of income from discontinued operations, substantially driven by the business-sale gain. This reported net income is not representative of continuing operating performance.
- Cash flow: Continuing-operations operating cash flow was $71.7 million, down from $326.1 million. Management attributed the decline primarily to lower profitability and greater working-capital use. Continuing-operations capital expenditures were $20.9 million.
- Liquidity and debt: Cash and cash equivalents were $2.27 billion; marketable securities were $194.0 million. Borrowing capacity under the revolving credit facility was $1.5 billion. Debt carrying value was approximately $4.36 billion, including $479.4 million current and $3.88 billion long-term. The company held $1.9 billion of cash at non-U.S. subsidiaries at quarter-end and subsequently repatriated $855 million.
- Shareholder returns: The quarterly dividend was $0.07 per share. The company repurchased $61.7 million of common stock during the quarter.
Material changes and unusual items
- On March 13, 2023, the company completed the sale of its Applied, Food and Enterprise Services businesses for an aggregate purchase price of up to $2.45 billion. It received approximately $2.14 billion in cash before transaction costs and closing adjustments, recorded an approximately $177.5 million working-capital receivable, and recognized a $866.9 million pre-tax disposal gain.
- Additional sale consideration includes $75 million for the PerkinElmer brand and trademarks, payable over 24 months, and up to $150 million contingent on a future sponsor exit. The filing records $15.9 million fair value for the contingent element. The gain and related tax provision remain subject to measurement adjustments, including settlement of working capital.
- The sold businesses generated $175.4 million of revenue through the sale date in Q1 2023, compared with $296.3 million in the prior-year quarter. They reported a $34.5 million operating loss before the sale gain.
- Foreign-exchange losses included a $26.1 million loss on offshore sale proceeds and contributed to higher interest and other expense, which totaled $46.7 million versus $37.1 million.
- Life Sciences operating income increased 17% to $129.5 million, with margin improvement attributed to pricing, product mix and volume. Diagnostics operating income decreased 75% to $74.4 million as lower sales volume outweighed cost controls.
Outlook, risks and contingencies
- Management expected consolidated operating margin of approximately 30% for fiscal 2023 and an effective tax rate on continuing operations, before discrete items, of approximately 20%. The company expected COVID-19 product demand to continue declining during the remainder of 2023.
- Management said internal operations should fund operating expenses, capital expenditures, smaller acquisitions, debt interest and dividends. Sale proceeds were expected to support debt maturities, opportunistic repurchases and strategic acquisitions. The company stated it expected to continue paying down debt during fiscal 2023 and 2024.
- Key risks include dependence on customer order timing and market conditions; continuing declines in COVID-19-related demand; foreign exchange, inflation and geopolitical exposures; supply-chain and single-source supplier risks; competition and product innovation; cybersecurity; regulatory and legal matters; and substantial debt and related covenants.
- Environmental remediation accruals were $13.5 million. Management did not expect known environmental matters or other disclosed legal contingencies to have a material adverse effect, while noting outcomes remain uncertain.
- The board authorized a new share-repurchase program of up to $600 million on April 27, 2023, replacing the prior program. The new authorization may be suspended or discontinued.
Investor verification checklist
- Track continuing-operations revenue, margins and cash generation separately from discontinued operations and sale-related gains.
- Verify final sale proceeds, working-capital settlement, contingent consideration and final tax effects; the filing’s narrative cites approximately $299.6 million of transaction tax expense, while the discontinued-operations table reports a $288.8 million income-tax provision.
- Assess progress toward the approximately 30% full-year operating-margin outlook and the expected 20% continuing-operations tax rate.
- Monitor debt maturities, debt repayments, cash location and availability, and use of sale proceeds for repurchases or acquisitions.
- Evaluate whether Life Sciences growth and core Diagnostics demand can offset continued COVID-19-related declines.