Revvity, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended October 1, 2023; comparisons are to periods ended October 2, 2022. Amounts below are in U.S. dollars. The company completed the sale of its Applied, Food and Enterprise Services businesses in March 2023; those businesses are presented as discontinued operations.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $670.7 million | $711.8 million | $2,054.7 million | $2,570.6 million |
| Gross margin | 55.5% | 57.2% | 56.3% | 60.4% |
| Operating income from continuing operations | $69.2 million | $110.8 million | $223.4 million | $605.2 million |
| Income from continuing operations | $32.5 million | $69.5 million | $115.9 million | $415.2 million |
| Net income | $9.5 million | $85.3 million | $614.5 million | $441.5 million |
| Diluted EPS | $0.08 | $0.67 | $4.90 | $3.49 |
Q3 revenue declined 6%; operating margin fell to about 10.3% from 15.6%. For the first nine months, operating margin was about 10.9%, versus 23.5% a year earlier. Nine-month net income includes a substantial gain from the business sale; it is not indicative of continuing-operations earnings.
- Segments: Q3 Life Sciences revenue was $307.9 million, down 2%, and Diagnostics revenue was $363.1 million, down 9%. Nine-month Life Sciences revenue rose 3% to $972.6 million; Diagnostics fell 33% to $1,082.6 million.
- Cash flow: Nine-month operating cash flow from continuing operations was $58.8 million, versus $545.3 million. Management attributed the decline to lower profitability and greater working-capital use. Total cash flow from operations, including discontinued operations, was negative $105.3 million.
- Liquidity and debt: At October 1, cash and cash equivalents were $1.137 billion; current marketable securities were $293.0 million. The company reported $1.5 billion of available revolving-credit capacity. Debt carrying value was $3.880 billion, including $727.5 million current; $717.6 million principal of 0.850% notes was due in September 2024. The company says Treasury security proceeds are intended to repay upcoming debt.
- Capital returns: Nine-month share repurchases totaled $384.0 million and dividends paid were $26.3 million. The quarterly dividend was $0.07 per share; $355.4 million remained under the current repurchase authorization at quarter-end.
Material changes and unusual items
- Lower demand for COVID-19 products was the principal driver of the revenue and margin declines, especially in Diagnostics. Q3 Diagnostics core-product revenue increased 4%, partly offsetting COVID-related weakness.
- The business sale generated approximately $2.14 billion in cash proceeds before costs and post-closing adjustments. The company recognized a $835.6 million pretax gain on sale for the nine-month period and $498.6 million of net income from discontinued operations.
- Sale consideration also includes $75 million for brand and trademark transfers, recorded at a discounted value of $68 million, and contingent consideration of up to $150 million, initially valued at $15.9 million. A roughly $177.5 million working-capital receivable remained subject to settlement and adjustment; the final gain and related tax provision may change.
- Q3 discontinued operations included a $22.9 million loss, largely reflecting an increase in tax reserves related to an uncertain foreign tax position. Continuing-operations effective tax rates were 35.8% for Q3 and 23.5% year to date; the company cited tax reserves and jurisdictional income mix.
- Foreign-exchange losses and other expense included $23.3 million of losses on offshore sale proceeds during the nine-month period. The company paid $467.1 million of notes that matured in September 2023 and repurchased $54.1 million principal of 2024 notes year to date.
Outlook, risks and contingencies
Management expects a roughly 20% effective tax rate on continuing operations for fiscal 2023 before discrete items. The filing provides no clear revenue or earnings guidance. Management expects internally generated cash to cover operating expenses, capital expenditures, smaller acquisitions, interest and dividends; it expects to use external sources for debt maturities, larger acquisitions and certain long-term obligations. Sale proceeds are intended for debt repayment, opportunistic repurchases and strategic acquisitions.
Key risks include continued decline in COVID-related demand, changes in pharmaceutical, biotechnology, academic and government markets, customer order timing and funding, competition and product development, foreign exchange and geopolitical conditions, supply-chain disruption, regulatory and litigation matters, cybersecurity, and the company’s substantial debt and refinancing needs. The company reported $13.4 million of environmental accruals; management did not expect known legal or environmental matters to materially adversely affect the financial statements, while noting outcomes remain uncertain. Goodwill and other intangible assets are substantial, and impairment could result if business performance or valuation assumptions weaken.
Important facts for investors to verify
- Whether the working-capital receivable and other sale adjustments were settled as expected, and how they affect final sale proceeds, gain and taxes.
- Cash generation from continuing operations and working-capital trends, which weakened materially year over year.
- Progress in offsetting COVID-related Diagnostics declines with core products and growth in Life Sciences.
- Funding and repayment plans for the 2024 notes and other debt, including use and maturity of Treasury securities.
- Effects of tax-reserve developments, foreign-exchange exposure, repurchases and acquisition spending on liquidity and reported earnings.