Business context and reporting period
The supplied filing is PerkinElmer, Inc.’s unaudited Form 10-Q for the quarter ended July 2, 2017—not a filing under the name Revvity, Inc. PerkinElmer reported two segments: Discovery & Analytical Solutions and Diagnostics. Comparative results are for the quarter and six months ended July 3, 2016; segment comparisons were recast for the company’s realignment.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $547.0 million | $536.2 million | $1,061.1 million | $1,034.3 million |
| Gross margin | 47.1% | 47.3% | 46.8% | 47.2% |
| Operating income from continuing operations | $76.0 million | $66.3 million | $127.6 million | $126.8 million |
| Income from continuing operations | $62.7 million | $57.8 million | $98.8 million | $99.5 million |
| Net income | $204.1 million | $63.9 million | $242.7 million | $111.3 million |
| Diluted EPS | $1.84 | $0.58 | $2.20 | $1.01 |
- Q2 revenue increased 2%; six-month revenue increased 3%. Q2 service revenue rose to $192.0 million from $179.3 million, while product revenue declined to $355.0 million from $357.0 million.
- Q2 operating margin was approximately 13.9%, versus 12.4% a year earlier; six-month operating margin was approximately 12.0%, versus 12.3%. Operating-income improvement in Q2 reflected cost containment and productivity savings, partly offset by increased product-development spending.
- Q2 gross margin fell 20 basis points and the six-month margin fell 40 basis points. Management cited sales mix, including more lower-margin products and fewer higher-margin software sales; supply-chain initiatives partly offset the pressure.
- Q2 net income included a $180.4 million pretax gain on the Medical Imaging sale, reported in discontinued operations. Continuing-operations income is a better indicator of underlying operating performance.
- Six-month cash from operating activities was $101.9 million, including $95.6 million from continuing operations, compared with $128.3 million total and $107.4 million from continuing operations in the prior period. Continuing-operations cash generation was affected by working-capital outflows, accrued liabilities, and payment timing.
- Cash and cash equivalents were $616.3 million at July 2, 2017, up from $359.3 million at January 1, 2017. Current assets were $1.434 billion and current liabilities were $589.4 million.
- Debt carrying value was approximately $1.092 billion, including $2.2 million current and $1.089 billion long-term; cash exceeded debt by approximately $475 million. The $1.0 billion revolving facility had no borrowings and $988.6 million available. The company reported compliance with applicable covenants.
Segment performance
- Discovery & Analytical Solutions: Q2 revenue was $383.1 million, up 0.4%; operating income was $51.5 million, up 24%. Laboratory services growth was partly offset by weaker life-sciences research demand, especially in Europe, where academic funding and customer ordering patterns were soft.
- Diagnostics: Q2 revenue was $163.8 million, up 6%; operating income was $37.6 million, slightly below the prior-year $37.8 million. Newborn and infectious-disease screening supported revenue growth. Six-month segment revenue rose 7% to $316.2 million.
Material changes and unusual items
- The company completed the Medical Imaging business sale on May 1, 2017, receiving approximately $277.4 million, subject to working-capital adjustments. It recorded the $180.4 million pretax disposal gain and related tax expense in discontinued operations; transition services may continue for up to 12 months.
- PerkinElmer acquired Tulip Diagnostics for total consideration of $127.3 million during the first half. It also agreed to acquire up to 100% of EUROIMMUN for aggregate cash consideration of €1.2 billion if completed with full shareholder participation. Closing was anticipated in Q4 2017, subject to customary conditions and regulatory approvals.
- To partly manage the EUROIMMUN purchase-price currency exposure, the company entered into euro forward contracts with an aggregate notional amount of $1.14 billion. A $6.3 million gain was recognized from their fair-value change during the quarter and first half; the contracts were not designated as hedges.
- Six-month restructuring and contract-termination charges were $9.7 million, versus $4.5 million in the prior-year period. Management said it did not currently expect further charges for the identified plans, although residual lease payments could continue through 2022.
Outlook, risks, and contingencies
- No quantified revenue, earnings, or cash-flow guidance is provided in the supplied filing text. Management expressed confidence in growth opportunities in diagnostics and discovery and analytical markets, and anticipated continued growth in newborn and infectious-disease screening.
- Key operating risks include softer academic-market demand and customer order timing, foreign-exchange movements, product mix, competition, regulatory and funding changes, and the execution and integration risks of acquisitions. Approximately 60% of the business was conducted outside the United States.
- Goodwill totaled $2.357 billion. The company reported no impairment in its January 2017 annual test, but identified its Informatics reporting unit as comparatively more exposed because its fair value was only 10%–20% above carrying value amid competitive pressure.
- Environmental remediation accruals were $9.9 million. The company said existing legal and other contingency matters were not expected to have a material adverse effect, while acknowledging that outcomes remain uncertain. Gross tax-effected unrecognized tax benefits were $28.9 million; approximately $3.8 million could be resolved within 12 months.
- Foreign earnings of approximately $1.2 billion remained indefinitely reinvested without a provided U.S. tax cost. The company planned to repatriate about $55 million related to the Medical Imaging divestiture and recorded estimated tax expense, while expecting tax attributes to limit cash taxes.
- The company declared a quarterly dividend of $0.07 per share for Q3 2017. Management noted the board could reduce or eliminate dividends to fund growth, repurchases, or conserve capital.
Most important facts for investors to verify
- Confirm the issuer identity and period: this source is PerkinElmer’s 2017 Q2 10-Q, not a Revvity filing.
- Separate ongoing results from the Medical Imaging disposal gain when assessing earnings and EPS.
- Track EUROIMMUN transaction completion, final purchase price and funding, and exposure from the related currency forwards.
- Monitor continuing-operations cash flow and working-capital trends alongside reported cash, debt, and available revolver capacity.
- Assess whether Diagnostics growth and cost initiatives can offset softer life-sciences demand, foreign-exchange headwinds, and margin pressure.
- Review Informatics goodwill assumptions, tax examinations and repatriation costs, and the company’s environmental and other contingencies.