PerkinElmer, Inc. — Q2 2019 Form 10-Q
Issuer note: The supplied filing is for PerkinElmer, Inc., not an issuer identified as Revvity, Inc. It covers the quarter and six months ended June 30, 2019; comparisons are to the periods ended July 1, 2018. Figures below are in millions of dollars unless noted.
Business context and reporting period
PerkinElmer provides products and services in diagnostics, life sciences, and applied markets through its Diagnostics and Discovery & Analytical Solutions segments. The company completed three acquisitions in the first half, including Cisbio Bioassays SAS, acquired for $219.8 million in cash.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $722.5 | $703.4 | $1,371.3 | $1,347.3 |
| Gross margin | 48.1% | 48.4% | 47.8% | 46.9% |
| Operating income | $91.7 | $88.1 | $145.1 | $128.0 |
| Operating margin | 12.7% | 12.5% | 10.6% | 9.5% |
| Income from continuing operations | $69.1 | $64.7 | $104.6 | $90.7 |
| Diluted EPS, continuing operations | $0.62 | $0.58 | $0.94 | $0.81 |
- Q2 revenue rose 3%; management attributed about 1% growth to acquisitions and divestitures, with foreign exchange reducing revenue by about 3%. Diagnostics revenue increased 6% to $288.6 million; Discovery & Analytical Solutions increased 1% to $434.0 million.
- Q2 gross margin contracted 22 basis points, reflecting product mix and higher amortization, partly offset by manufacturing productivity. Operating margin improved 18 basis points, supported by operating expense leverage.
- First-half net income was $104.5 million, versus $90.1 million. The effective tax rate from continuing operations was 3.7% for both Q2 and the first half, versus 9.8% and 9.5%, respectively, a year earlier; discrete tax benefits contributed to the lower rate.
- First-half operating cash flow was $41.5 million, down from $58.4 million. Capital expenditures were $36.5 million; cash used in acquisitions and investments was $244.7 million. Cash and cash equivalents at quarter-end were $150.0 million.
- At June 30, total debt was approximately $2,112.7 million, including current debt of $8.2 million; cash less total debt was approximately $1,962.7 million. The $1.0 billion revolving facility had $688.8 million outstanding and $299.8 million of additional availability. The company reported compliance with applicable covenants.
- Current assets were $1,337.8 million and current liabilities $706.8 million. Operating lease liabilities recognized under the newly adopted lease standard totaled $204.3 million, including current amounts.
Material changes versus the prior comparable period
- Revenue growth was led by Diagnostics; Discovery & Analytical Solutions’ first-half revenue declined 1%, mainly reflecting weaker applied markets and foreign-exchange effects.
- Diagnostics operating income rose 27% in Q2 and 41% for the first half. Discovery & Analytical Solutions operating income fell 11% in Q2 and 6% for the first half, with product mix and higher R&D and restructuring costs among the pressures.
- First-half operating cash flow declined despite higher earnings, with working-capital outflows including inventory growth of $50.5 million and lower accounts payable of $40.0 million.
- Debt increased from $1,891.5 million at year-end 2018 to $2,112.7 million at June 30, 2019, alongside acquisition spending and higher revolving-credit borrowings.
Outlook, commentary, risks, and unusual items
- No quantified full-year revenue or earnings guidance is provided in the supplied filing text. Management said it believes its end-market positioning and strategic focus support growth, while noting that results depend on market spending and other conditions.
- Management expects internal cash generation to fund operating expenses, capital expenditures, smaller acquisitions, interest, and dividends; it expects external funding may be needed for larger acquisitions and debt maturities. It anticipated an additional $4.1 million pension contribution by year-end 2019.
- First-half restructuring and contract-termination charges were $13.8 million. New 2019 workforce plans covered 149 positions; management did not expect further charges for the plans, while some residual lease payments under prior plans may continue through 2022.
- Adoption of ASC 842 added operating lease right-of-use assets and liabilities to the balance sheet and increased opening retained earnings by approximately $13.3 million; comparative periods were not restated.
- Key exposures include foreign currency movements (about 70% of business is conducted outside the U.S.), market and government-funding variability, acquisition integration and contingent consideration, substantial debt and variable interest rates, product and regulatory risks, and potential impairment of goodwill and intangibles. Environmental remediation accruals were $8.5 million; management said known legal and environmental matters were not expected to have a material adverse effect, while acknowledging uncertainty.
Important facts for investors to verify
- Confirm issuer identity and ticker against the intended investment: this filing names PerkinElmer, Inc. and lists PKI.
- Assess whether Diagnostics growth and profitability can continue and whether weakness in applied markets persists.
- Track operating cash conversion, inventory and payable trends, and acquisition-related cash requirements.
- Review debt maturities, revolving-credit availability, covenant headroom, and refinancing needs.
- Evaluate acquisition integration, Cisbio-related returns, contingent consideration exposure, and the assumptions supporting goodwill and intangible valuations.
- Separate recurring tax performance from discrete tax benefits when evaluating earnings and future tax rates.