Revvity(US:RVTY)2022-11-13 16:00PART I. FINANCIAL INFORMATION Unaudited Financial Statements This section presents PerkinElmer's unaudited condensed consolidated financial statements, adjusted for discontinued operations, reflecting decreased revenue and net income due to lower COVID-19 sales Condensed Consolidated Statements of Operations Total revenues for the three months ended October 2, 2022, decreased to $711.8 million, resulting in lower net income of $85.3 million and diluted EPS of $0.67 Condensed Consolidated Statements of Operations (Three Months Ended) | Metric | Three Months Ended Oct 2, 2022 (In thousands) | Three Months Ended Oct 3, 2021 (In thousands) | | :--- | :--- | :--- | | Total revenue | $711,803 | $861,316 | | Operating income from continuing operations | $110,780 | $195,561 | | Income from continuing operations | $69,508 | $107,631 | | Net income | $85,347 | $127,738 | | Diluted EPS from continuing operations | $0.55 | $0.94 | | Diluted EPS (Net income) | $0.67 | $1.11 | Condensed Consolidated Balance Sheets As of October 2, 2022, total assets decreased to $13.82 billion, total liabilities decreased to $6.76 billion, and stockholders' equity remained stable Condensed Consolidated Balance Sheet Highlights | Metric | Oct 2, 2022 (In thousands) | Jan 2, 2022 (In thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $400,741 | $603,320 | | Total current assets | $3,116,480 | $2,440,780 | | Goodwill | $6,373,327 | $6,627,119 | | Total assets | $13,823,764 | $15,000,554 | | Total current liabilities | $1,485,731 | $1,213,744 | | Long-term debt | $3,898,267 | $4,979,737 | | Total liabilities | $6,758,564 | $7,859,309 | | Total stockholders' equity | $7,065,200 | $7,141,245 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $540.7 million, with net cash used in investing and financing activities for the nine months ended October 2, 2022 Condensed Consolidated Statements of Cash Flows (Nine Months Ended) | Cash Flow Activity | Nine Months Ended Oct 2, 2022 (In thousands) | Nine Months Ended Oct 3, 2021 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $540,652 | $1,075,158 | | Net cash used in investing activities | ($107,167) | ($4,052,807) | | Net cash (used in) provided by financing activities | ($585,106) | $3,080,682 | | Net (decrease) increase in cash | ($203,025) | $86,449 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and financial data, covering revenue disaggregation, business combinations, discontinued operations, restructuring, debt, and fair value measurements - In August 2022, the company agreed to sell its Analytical, Food and Enterprise Services businesses to New Mountain Capital for up to $2.45 billion. These businesses are now classified as discontinued operations, and prior period financial statements have been retrospectively adjusted244445 - In fiscal year 2021, the company acquired BioLegend, Inc. for an aggregate consideration of $5.7 billion, consisting of $3.3 billion in cash and $2.6 billion in stock, significantly expanding the Discovery & Analytical Solutions segment33 Revenue by Segment (Three Months Ended Oct 2, 2022) | Segment | Revenue (In thousands) | YoY Change | | :--- | :--- | :--- | | Discovery & Analytical Solutions | $312,783 | +50.7% | | Diagnostics | $399,020 | -39.0% | | Total | $711,803 | -17.4% | - The company initiated several restructuring plans in 2022, involving workforce reductions to realign resources towards growth initiatives and integrate acquisitions, with total charges of $18.8 million for the first three quarters4849 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 financial results, highlighting a 17.4% revenue decrease driven by lower Diagnostics segment sales, partially offset by Discovery & Analytical Solutions growth from acquisitions Overview Q3 2022 total revenue decreased by 17.4% to $711.8 million, driven by a 39% decline in Diagnostics due to lower COVID-19 sales, partially offset by 51% growth in Discovery & Analytical Solutions from acquisitions Q3 2022 Performance Summary | Metric | Q3 2022 vs Q3 2021 Change | | :--- | :--- | | Total Revenue | -17.4% | | Diagnostics Segment Revenue | -39% | | Discovery & Analytical Solutions Segment Revenue | +51% | | Consolidated Gross Margin | -352 bps | | Consolidated Operating Margin | -714 bps | Consolidated Results of Continuing Operations Q3 2022 revenue decreased 17.4% to $711.8 million due to lower COVID-19 sales, impacting gross margin, while SG&A decreased and R&D increased reflecting strategic investments - Q3 2022 revenue decreased by $149.5 million (17.4%) YoY, primarily due to a $231.2 million decline in COVID-19 product revenue from the Diagnostics segment100 - Gross margin for Q3 2022 decreased by 352 basis points to 57.2%, mainly due to increased amortization of intangible assets from acquisitions ($35.3 million vs $28.5 million YoY) and lower high-margin COVID-19 revenue102 - The effective tax rate from continuing operations for Q3 2022 was 15.4%, down from 20.3% in Q3 2021, primarily due to lower income in higher tax jurisdictions and a one-time discrete expense in the prior year116 Reporting Segment Results of Continuing Operations Discovery & Analytical Solutions segment revenue grew 51% to $312.8 million, while Diagnostics segment revenue fell 39% to $399.0 million due to reduced COVID-19 product sales Q3 2022 Segment Performance | Segment | Revenue (In millions) | YoY Change | Operating Income (In millions) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Discovery & Analytical Solutions | $312.8 | +51% | $32.6 | +269% | | Diagnostics | $399.0 | -39% | $94.7 | -60% | Discontinued Operations The company is selling its Analytical, Food and Enterprise Services businesses for up to $2.45 billion, now reported as discontinued operations, generating $320.6 million in Q3 2022 revenue - The sale of the Analytical, Food and Enterprise Services businesses is for cash consideration of up to $2.45 billion, with approximately $2.30 billion payable at closing, expected in Q1 2023128 Discontinued Operations Financial Summary (Q3 2022) | Metric | Amount (In thousands) | | :--- | :--- | | Revenue | $320,616 | | Income from discontinued operations before income taxes | $25,180 | Liquidity and Capital Resources As of October 2, 2022, the company had $400.7 million in cash and $1.5 billion in credit, with net cash from operations at $545.3 million, and plans to use divestiture proceeds for debt, repurchases, and strategic acquisitions - As of October 2, 2022, the company had $400.7 million in cash and equivalents and $1.5 billion of borrowing capacity available under its senior unsecured revolving credit facility132 - The company expects to use the ~$2.23 billion in proceeds from the sale of its discontinued operations to fund debt maturities, opportunistic share repurchases, and strategic acquisitions130 - A new $300.0 million stock repurchase program was authorized on July 22, 2022, expiring in July 2024, with no shares repurchased under this new program during Q3 2022134135 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, managed with derivatives, with no material changes from its 2021 Form 10-K disclosures - The company's primary market risks are changes in interest rates and foreign currency exchange rates147 - The company uses derivative transactions to hedge against known or forecasted market exposures, and these risks have not materially changed since the 2021 Form 10-K147 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of October 2, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of October 2, 2022152 - No material changes were made to the company's internal control over financial reporting during the third fiscal quarter of 2022153 PART II. OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, with management not expecting a material adverse effect on financial statements - The company is subject to various legal proceedings but believes the resolution of these matters will not have a material adverse effect on its financial condition156 Risk Factors This section outlines significant risks including market dependence, COVID-19 impact, global instability, innovation challenges, M&A issues, competition, supply chain disruptions, and regulatory compliance Risks Related to Business Operations and Industry The company faces risks from market downturns, economic conditions, government funding changes, ongoing COVID-19 impacts, global political instability, innovation failures, M&A challenges, competition, and supply chain disruptions - The business is highly dependent on customer markets (pharma, biotech, academic) and is vulnerable to economic downturns, cuts in government funding, and unfavorable regulations157 - The COVID-19 pandemic has reduced demand for certain products and may continue to disrupt operations, supply chains, and manufacturing, with revenue from COVID-19 testing products expected to decline158162 - Failure to successfully execute acquisitions or divestitures, such as the pending sale of the Analytical, Food and Enterprise Services businesses, could dilute earnings and present integration or separation challenges169170 - Disruptions in the supply of critical raw materials from limited or single-source suppliers could adversely affect business operations and customer relationships174 Risks Related to Intellectual Property The company's competitive advantage relies on intellectual property protection, facing risks of patent challenges, inadequate trade secret protection, and loss of licensed technology rights - The company faces risks that its patents may not be issued, may be challenged by third parties, or may not be broad enough to fully protect its products182183 - Loss of licensed rights, through non-renewal or other factors, could require the company to cease selling products or redesign them, potentially losing competitive advantage185 Risks Related to Legal, Government and Regulatory Matters The company faces product liability risks and must comply with extensive FDA and other regulations, with non-compliance potentially leading to recalls, fines, and significant penalties in the highly regulated healthcare industry - The company's operations are subject to extensive regulation by the FDA and other agencies; non-compliance could lead to product recalls, fines, or criminal penalties188 - The highly regulated healthcare industry poses risks of significant fines, penalties, and exclusion from government programs for non-compliance with fraud, abuse, and privacy laws191 Risks Related to Foreign Operations With most revenue from outside the U.S., the company faces risks from foreign currency fluctuations, political instability, trade protectionism, and differing regulations, with Brexit posing ongoing economic uncertainty - With a majority of sales from outside the U.S., the company is exposed to risks including currency fluctuations, political instability, trade sanctions, and differing tax and labor laws192193 - Brexit poses ongoing risks of economic volatility and adverse currency movements (GBP vs USD), which could harm the company's UK and European business195196 Risks Related to Debt Substantial debt levels could reduce available funds, limit flexibility, and expose the company to interest rate and foreign currency risks, with restrictive covenants and potential LIBOR discontinuation impacting expenses - Substantial debt levels could require significant cash flow for debt service, reducing funds for other purposes and limiting operational flexibility197199 - Existing debt agreements contain restrictive covenants that limit the company's ability to pay dividends, sell assets, and incur additional secured debt198200 - The planned discontinuation of LIBOR after June 2023 may increase interest expense on the company's variable-rate debt facilities203 Risks Related to Ownership of Common Stock The company's common stock price is subject to significant volatility due to market conditions and operating results, and future dividends are not guaranteed and may be reduced or eliminated - The company's common stock price is subject to significant price and volume volatility204 - Future dividends are not guaranteed and may be reduced or eliminated by the Board of Directors205 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including a new $300 million program authorized in July 2022, under which no shares were repurchased in Q3 2022, except for tax withholding obligations - A new stock repurchase program for up to $300 million was authorized on July 22, 2022, and will expire on July 22, 2024, with no shares repurchased under this program in Q3 2022207 - During Q3 2022, the company repurchased 624 shares of common stock for $0.1 million to satisfy minimum statutory tax withholding obligations related to employee equity awards208 Exhibits This section lists exhibits filed with the Form 10-Q, including the Master Purchase and Sale Agreement for divested businesses, employment agreements, CEO/CFO certifications, and XBRL data files - Exhibits filed include the Master Purchase and Sale Agreement for the divested businesses, CEO/CFO certifications, and XBRL interactive data files209210