Business context and reporting period
This filing is PerkinElmer, Inc.’s unaudited Form 10-Q for the three months ended April 2, 2017. The filing does not identify the registrant as Revvity; investors should verify the entity and period before attributing these results. PerkinElmer reported two continuing segments: Discovery & Analytical Solutions and Diagnostics. Prior-year segment results were retrospectively recast for a reporting realignment and the Medical Imaging Business was classified as discontinued operations.
Financial performance
| Metric | Q1 2017 | Prior-year quarter |
|---|---|---|
| Revenue | $514.1 million | $498.0 million |
| Gross margin | 46.6% | 47.2% |
| Operating income, continuing operations | $51.6 million | $60.6 million |
| Operating margin, continuing operations | 10.0% | 12.2% |
| Income from continuing operations | $36.1 million | $41.7 million |
| Net income, including discontinued operations | $38.6 million | $47.5 million |
| Diluted EPS | $0.35 | $0.43 |
| Cash from continuing operating activities | $41.2 million | $26.3 million |
| Cash and cash equivalents, period end | $288.3 million | $210.7 million |
Revenue increased 3% year over year; management said foreign exchange reduced revenue by approximately 1%. Product revenue was $333.7 million and service revenue was $180.4 million. Continuing operating cash flow less capital expenditures was approximately $35.2 million. Cash declined $70.9 million during the quarter, principally reflecting acquisition-related investing outflows.
Discovery & Analytical Solutions revenue rose 1% to $361.8 million, while segment operating income fell 23% to $30.6 million. Diagnostics revenue grew 8% to $152.4 million; segment operating income was $33.4 million, down 1%. Total debt carrying value was approximately $1.055 billion, versus cash of $288.3 million. The company had no revolving-facility borrowings and reported $988.6 million of additional borrowing capacity.
Material changes, outlook and risks
- Profitability weakened despite higher sales: gross margin contracted 60 basis points and operating margin fell about 213 basis points. Management cited lower-margin product mix and increased investment in product development, partly offset by supply-chain, cost-containment and productivity initiatives.
- Q1 included $9.7 million of restructuring and contract-termination charges. A new plan included workforce reductions of 90 employees; management did not expect further charges for the listed plans, although payments on prior plans may continue through fiscal 2022.
- PerkinElmer acquired Tulip Diagnostics for stated consideration of $127.3 million; acquisition-related cash outflow, net of acquired cash, was $123.6 million. A potential additional payment of up to approximately $25 million is treated as compensation expense over two years, not purchase consideration.
- The Medical Imaging Business sale to Varex for approximately $276 million in cash plus assumption of specified liabilities closed May 1, 2017, after quarter-end. The business contributed $36.1 million in quarterly revenue and $3.8 million in pretax income; it is reported as discontinued operations.
- Management expressed a positive view of demand in environmental, food, laboratory services and diagnostics markets, but provided no specific numerical full-year guidance in the supplied filing text. It cited growth opportunities from regulation-driven testing and expanded screening access.
- Key risks include foreign-exchange exposure (about 60% of business conducted outside the U.S.), market and government-funding variability, competition and product-development execution, acquisition integration, substantial debt, regulation, and potential impairment of goodwill and intangible assets. Informatics goodwill was identified as at increased impairment risk, though no material charge was then expected.
- Environmental remediation accruals were $10.4 million. Management said pending ordinary-course legal matters were not expected to have a material adverse effect, while acknowledging uncertain outcomes. The company reported compliance with applicable credit-facility covenants and effective disclosure controls.
Most important facts to verify
- Confirm the intended issuer: this filing names PerkinElmer, Inc., not Revvity, Inc.
- Check the reported year-over-year declines in continuing operating income, earnings and margins against the one-time restructuring, acquisition-accounting and investment costs.
- Review the final Tulip purchase-price allocation, the contingent/compensation payment terms and integration performance.
- Confirm the final proceeds, liabilities assumed and any gain or other accounting effects from the May 1 Medical Imaging sale.
- Assess cash availability and repatriation constraints: $249.5 million was held by non-U.S. subsidiaries, and approximately $210.4 million could incur U.S. tax if transferred without proper planning.
- Monitor foreign exchange, debt service, Informatics goodwill valuation and environmental or tax contingencies.