Revvity, Inc 10-Q for FY2023 Q3
Revvity, Inc. (RVTY)
10-Q
2023-11-07
For: 2023-10-01
View Original
Added on
April 10, 2026
About this 10-Q
Revvity, Inc filed this 10-Q on November 7, 2023, covering the quarter ended October 1, 2023 (FY2023 Q3).
Headline figures
Quarter ended October 1, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $670.74M
- down 5.8% from $711.8M a year earlier
- Net income
- $9.5M
- down 88.9% from net income of $85.35M a year earlier
- Diluted EPS
- $0.08
- down 88.1% from $0.67 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-Q
_______________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 1, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ____________ to ____________
Commission File Number 001-5075
_______________________________________
Revvity, Inc.
(Exact name of Registrant as specified in its Charter)
_______________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(781 ) 663-6900
(Registrant’s telephone number, including area code)
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol (s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | |||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of November 3, 2023, there were outstanding 123,407,288 shares of common stock, $1 par value per share.
TABLE OF CONTENTS
| Page | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
3
PART I. FINANCIAL INFORMATION
Item 1.Unaudited Financial Statements
REVVITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Product revenue | $ | $ | $ | $ | |||||||||||||||||||
| Service revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of product revenue | |||||||||||||||||||||||
| Cost of service revenue | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Operating income from continuing operations | |||||||||||||||||||||||
| Interest and other expense, net | |||||||||||||||||||||||
| Income from continuing operations before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||
| (Loss) income from discontinued operations | ( | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| (Loss) income from discontinued operations | ( | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| (Loss) income from discontinued operations | ( | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Cash dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
REVVITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of income taxes: | |||||||||||||||||||||||
| Amounts recognized in other comprehensive income | ( | ( | ( | ( | |||||||||||||||||||
| Amounts reclassified to earnings | |||||||||||||||||||||||
| Net foreign currency translation adjustments, net of income taxes | ( | ( | ( | ||||||||||||||||||||
| Unrealized (loss) gains on securities, net of income taxes | ( | ||||||||||||||||||||||
| Other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
REVVITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| October 1, 2023 | January 1, 2023 | ||||||||||
| (In thousands, except share and per share data) | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Current assets of discontinued operations | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current liabilities of discontinued operations | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred taxes and long-term liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (see Note 13) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock—$1 par value per share, authorized 1,000,000 shares; none issued or outstanding | |||||||||||
| Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 123,349,000 shares and 126,300,000 shares at October 1, 2023 and January 1, 2023, respectively | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
REVVITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Nine-Month Period Ended October 1, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | |||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | — | — | |||||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, April 2, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plans | — | — | |||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | — | — | |||||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, July 2, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | |||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | — | — | |||||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, October 1, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
7
For the Nine-Month Period Ended October 2, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Balance, January 2, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | |||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | — | — | |||||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, April 3, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plans | |||||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | — | — | |||||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, July 3, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Exercise of employee stock options | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plans | |||||||||||||||||||||||||||||||||||
| Purchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | ( | ( | — | — | |||||||||||||||||||||||||||||||
| Stock compensation | |||||||||||||||||||||||||||||||||||
| Balance, October 2, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
REVVITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | |||||||||||
| October 1, 2023 | October 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Income from discontinued operations, net of income taxes | ( | ( | |||||||||
| Income from continuing operations | |||||||||||
| Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: | |||||||||||
| Stock-based compensation | |||||||||||
| Restructuring and other costs, net | |||||||||||
| Depreciation and amortization | |||||||||||
| Change in fair value of contingent consideration | ( | ||||||||||
| Amortization of deferred debt financing costs and accretion of discounts | |||||||||||
| Change in fair value of financial securities | |||||||||||
| Debt extinguishment income | ( | ( | |||||||||
| Unrealized foreign exchange loss | |||||||||||
| Amortization of acquired inventory revaluation | |||||||||||
| Changes in assets and liabilities which provided (used) cash, excluding effects from companies acquired: | |||||||||||
| Accounts receivable, net | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses and other | ( | ( | |||||||||
| Net cash provided by operating activities of continuing operations | |||||||||||
| Net cash used in operating activities of discontinued operations | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Purchases of investments | ( | ( | |||||||||
| Purchases of marketable securities | ( | ||||||||||
| Proceeds from maturities of marketable securities | |||||||||||
| Proceeds from disposition of businesses and assets | |||||||||||
| Proceeds from notes receivable | |||||||||||
| Cash paid for acquisitions, net of cash acquired | ( | ( | |||||||||
| Net cash used in investing activities of continuing operations | ( | ( | |||||||||
| Net cash provided by (used in) investing activities of discontinued operations | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
9
| Financing activities: | |||||||||||
| Payments on borrowings | ( | ||||||||||
| Proceeds from borrowings | |||||||||||
| Payments of term loan | ( | ||||||||||
| Payments of senior unsecured notes | ( | ( | |||||||||
| Payments of debt financing costs | ( | ||||||||||
| Settlement of cash flow hedges | ( | ||||||||||
| Net proceeds (payments) on other credit facilities | ( | ||||||||||
| Payments for acquisition-related contingent consideration | ( | ( | |||||||||
| Proceeds from issuance of common stock under stock plans | |||||||||||
| Purchases of common stock | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total shown in the condensed consolidated statements of cash flows: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Restricted cash included in other assets | |||||||||||
| Cash and cash equivalents included in current assets of discontinued operations | |||||||||||
| Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | $ | |||||||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
| Contingent consideration accrued in business combination | $ | $ | |||||||||
| Other liability incurred in business combination | |||||||||||
| Non-cash consideration in sale of business | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
REVVITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
Note 2: Revenue
Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical markets and primary end-markets.
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | ||||||||||||||||||||||||||||||||||
| Life Sciences | Diagnostics | Total | Life Sciences | Diagnostics | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Primary geographical markets | |||||||||||||||||||||||||||||||||||
| Americas | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Primary end-markets | |||||||||||||||||||||||||||||||||||
| Life sciences | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Diagnostics | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
11
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | ||||||||||||||||||||||||||||||||||
| Life Sciences | Diagnostics | Total | Life Sciences | Diagnostics | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Primary geographical markets | |||||||||||||||||||||||||||||||||||
| Americas | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Primary end-markets | |||||||||||||||||||||||||||||||||||
| Life sciences | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Diagnostics | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Major Customer Concentration
Revenues from one customer in the Company’s Diagnostics segment represent approximately $12.0 million and $301.6 million of the Company’s total revenue for the three and nine months ended October 2, 2022, respectively. No single customer comprises more than 10% of net revenues for the three and nine months ended October 1, 2023.
Contract Balances
Contract assets: The unbilled receivables (contract assets) primarily relate to the Company’s right to consideration for work completed but not billed at the reporting date. The unbilled receivables are transferred to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in “Accounts receivable, net” in the condensed consolidated balance sheets.
Contract liabilities: The contract liabilities primarily relate to the advance consideration received from customers for products and related services for which transfer of control has not occurred at the balance sheet date. Contract liabilities are classified as either current in “Accounts payable” or “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets based on the timing of when the Company expects to recognize revenue. The contract liability balances at the beginning of each period presented were generally fully recognized in the subsequent three month period.
Contract balances were as follows:
| October 1, 2023 | January 1, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Contract assets | $ | $ | |||||||||
| Contract liabilities | ( | ( | |||||||||
Note 3: Discontinued Operations
On March 13, 2023, the Company completed the previously announced sale of the Business (the “Closing”) to PerkinElmer Topco, L.P. (formerly known as Polaris Purchaser, L.P.) (the “Purchaser”), a Delaware limited partnership owned by funds managed by affiliates of New Mountain Capital L.L.C. (the “Sponsor”), for an aggregate purchase price of up to $2.45 billion. Upon the Closing, the Company received approximately $2.14 billion in cash proceeds, before transaction costs and subject to post-closing adjustments. The Company is entitled to an additional $75.0 million in proceeds that will be paid to the Company in connection with the transfer of the PerkinElmer brand and related trademarks to the Purchaser, and this consideration will be paid to the Company in installments over the next 24 months. The discounted value of the $75.0 million was measured as $68.0 million and was included in the proceeds at Closing. In addition, the Company is entitled to additional consideration of up to $150.0 million that is contingent on the exit valuation the Sponsor and its affiliated funds receive on a sale or other capital events related to the Business. The fair value of this element of consideration was determined to be $15.9 million and was included in the proceeds at Closing. The Company also recorded a receivable of approximately $177.5 million
12
for working capital adjustments that are expected to be settled with the Purchaser during the fourth quarter of fiscal year 2023. The final amount of the receivable related to the working capital adjustments is subject to change.
As the Company is in the process of measuring the calculation of the gain on sale and related income tax provision, additional adjustments may arise that may impact the final measurement of the gain recognized. The elements of the gain calculation that may result in adjustments include the measurement of the proceeds, including the settlement of the working capital adjustment, determination of the basis of certain assets and liabilities, as well as the provision for income taxes. During the three months ended October 1, 2023, the Company recognized an increase in tax reserves of $22.9 million, primarily related to unfavorable developments in respect of an uncertain tax position with a foreign tax authority that is partially related to the Business.
In connection and concurrent with the Closing, the Company has also entered into a Transition Services Agreement (“TSA”) with the Purchaser for a period of up to 24 months from the Closing and a Contract Manufacturing Agreement (“CMA”) for two locations which expired in June 2023. The costs and amounts of reimbursements related to the CMA were not significant. The costs and amounts of reimbursements related to the TSA and other commercial transactions between the parties following the Closing are not expected to be significant.
The Business is reported for all periods as discontinued operations in the Company’s condensed consolidated financial statements. The following table summarizes the results of discontinued operations which are presented as loss (income) from discontinued operations in the Company’s condensed consolidated statements of operations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||
| (Loss) gain on sale | ( | ||||||||||||||||||||||
| Other (expense) income, net | ( | ( | |||||||||||||||||||||
| Total other (expense) income | ( | ( | ( | ||||||||||||||||||||
| (Loss) income from discontinued operations before income taxes | ( | ||||||||||||||||||||||
| Provision for income tax | |||||||||||||||||||||||
| (Loss) income from discontinued operations | $ | ( | $ | $ | $ | ||||||||||||||||||
13
The table below provides a reconciliation of the carrying amounts of the major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the consolidated balance sheets at January 1, 2023.
| January 1, 2023 | |||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Inventories | |||||
| Other current assets | |||||
| Total current assets | |||||
| Property, plant and equipment, net | |||||
| Operating lease right-of-use assets | |||||
| Intangible assets, net | |||||
| Goodwill | |||||
| Other assets, net | |||||
Total long-term assets | |||||
Total assets of discontinued operations | $ | ||||
| Accounts payable | $ | ||||
| Accrued expenses and other current liabilities | |||||
| Total current liabilities | |||||
| Deferred taxes and long-term liabilities | |||||
| Operating lease liabilities | |||||
| Total long-term liabilities | |||||
| Total liabilities of discontinued operations | $ | ||||
The following operating and investing non-cash items from discontinued operations were as follows for the nine months ended:
| October 1, 2023 | October 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Capital expenditures | $ | $ | |||||||||
Depreciation | |||||||||||
Amortization | |||||||||||
Note 4: Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest income | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Change in fair value of financial securities | |||||||||||||||||||||||
| Other components of net periodic pension cost (credit) | ( | ( | |||||||||||||||||||||
| Foreign exchange losses and other expense, net | |||||||||||||||||||||||
| Total interest and other expense, net | $ | $ | $ | $ | |||||||||||||||||||
14
During the three and nine months ended October 1, 2023, foreign exchange (gains) losses of $(0.3 ) million and $23.3 million, respectively, related to the cash proceeds from the sale of the Business that were held offshore are included in Other expense (income), net.
Note 5: Inventories
Inventories consisted of the following:
| October 1, 2023 | January 1, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
Note 6: Debt
The Company’s debt consisted of the following:
| October 1, 2023 | |||||||||||||||||||||||
| Outstanding Principal | Unamortized Debt Discount | Unamortized Debt Issuance Costs | Net Carrying Amount | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||||
| Senior Unsecured Revolving Credit Facility | $ | $ | $ | ( | $ | ( | |||||||||||||||||
€500,000 Principal 1.875% Senior Unsecured Notes due in 2026 (“2026 Notes”) | ( | ( | |||||||||||||||||||||
1.900% Senior Unsecured Notes due in 2028 (“2028 Notes”) | ( | ( | |||||||||||||||||||||
3.3% Senior Unsecured Notes due in 2029 (“2029 Notes”) | ( | ( | |||||||||||||||||||||
| 2.55% Senior Unsecured Notes due in March 2031 (“March 2031 Notes”) | ( | ( | |||||||||||||||||||||
2.250% Senior Unsecured Notes due in September 2031 (“September 2031 Notes”) | ( | ( | |||||||||||||||||||||
3.625% Senior Unsecured Notes due in 2051 (“2051 Notes”) | ( | ( | |||||||||||||||||||||
| Other Debt Facilities, non-current | |||||||||||||||||||||||
| Total Long-Term Debt | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Current Portion of Long-term Debt: | |||||||||||||||||||||||
0.850% Senior Unsecured Notes due in 2024 (“2024 Notes”) | ( | ( | |||||||||||||||||||||
| Other Debt Facilities, current | |||||||||||||||||||||||
| Total Current Portion of Long-Term Debt | ( | ( | |||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
During the three months ended October 1, 2023, the Company paid in full $467.1 million of outstanding 0.550% Senior Unsecured Notes that became due in September 2023 (“2023 Notes”). During the nine months ended October 1, 2023, the Company repurchased $54.1 million in aggregate principal amount of the 2024 Notes in open market transactions. At October 1, 2023, the Company had outstanding U.S. treasury securities with a carrying amount of $293.0 million whose proceeds upon maturity are intended to be utilized to repay outstanding debt securities (see Note 12).
15
| January 1, 2023 | |||||||||||||||||||||||
| Outstanding Principal | Unamortized Debt Discount | Unamortized Debt Issuance Costs | Net Carrying Amount | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||||
| Senior Unsecured Revolving Credit Facility | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| 2024 Notes | ( | ( | |||||||||||||||||||||
| 2026 Notes | ( | ( | |||||||||||||||||||||
| 2028 Notes | ( | ( | |||||||||||||||||||||
| 2029 Notes | ( | ( | |||||||||||||||||||||
| March 2031 Notes | ( | ( | |||||||||||||||||||||
| September 2031 Notes | ( | ( | |||||||||||||||||||||
| 2051 Notes | ( | ( | |||||||||||||||||||||
| Other Debt Facilities, non-current | |||||||||||||||||||||||
| Total Long-Term Debt | ( | ( | |||||||||||||||||||||
| Current Portion of Long-term Debt: | |||||||||||||||||||||||
2023 Notes | ( | ( | |||||||||||||||||||||
| Other Debt Facilities, current | |||||||||||||||||||||||
| Total Current Portion of Long-Term Debt | ( | ( | |||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
Note 7: Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Number of common shares—basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock awards | |||||||||||||||||||||||
| Number of common shares—diluted | |||||||||||||||||||||||
| Number of potentially dilutive securities excluded from calculation due to antidilutive impact | |||||||||||||||||||||||
Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.
Note 8: Segment Information
16
performance of its operating segments based on adjusted revenue and adjusted operating income. Intersegment revenue and transfers are not significant. The accounting policies of the operating segments are the same as those described in Note 1, Nature of Operations and Accounting Policies, to the audited consolidated financial statements in the 2022 Form 10-K.
The principal products and services of the Company’s two operating segments are:
•Life Sciences. As a result of the sale of the Business, the former Discovery & Analytical Solutions segment is now referred to as the Life Sciences segment. This segment provides products and services targeted towards the life sciences market.
•Diagnostics. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets.
The Company has included the expenses for its corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, as well as the activity related to the mark-to-market adjustment on postretirement benefit plans, as “Corporate” below. The Company has a process to allocate and recharge expenses to the reportable segments when these costs are administered or paid by the corporate headquarters based on the extent to which the segment benefited from the expenses. These amounts have been calculated in a consistent manner and are included in the Company’s calculations of segment results to internally plan and assess the performance of each segment for all purposes, including determining the compensation of the business leaders for each of the Company’s operating segments.
The primary financial measure by which the Company evaluates the performance of its segments is adjusted operating income, which consists of operating income excluding the effects of amortization of intangible assets, adjustments to operations arising from purchase accounting (primarily adjustments to the fair value of acquired inventory that are subsequently recognized), acquisition and divestiture-related costs, and other costs that are not expected to recur or are of a non-cash nature, including primarily restructuring actions.
Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Life Sciences | $ | $ | $ | $ | |||||||||||||||||||
| Diagnostics | |||||||||||||||||||||||
| Revenue purchase accounting adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| Segment Operating Income | |||||||||||||||||||||||
| Life Sciences | $ | $ | $ | $ | |||||||||||||||||||
| Diagnostics | |||||||||||||||||||||||
| Corporate | ( | ( | ( | ( | |||||||||||||||||||
| Subtotal reportable segments operating income | |||||||||||||||||||||||
| Amortization of intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Purchase accounting adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Acquisition and divestiture-related costs | ( | ( | ( | ( | |||||||||||||||||||
| Significant litigation matters and settlements | ( | ||||||||||||||||||||||
| Significant environmental matters | ( | ||||||||||||||||||||||
| Restructuring and other, net | ( | ( | ( | ( | |||||||||||||||||||
| Operating income from continuing operations | |||||||||||||||||||||||
| Interest and other expense, net (see Note 4) | |||||||||||||||||||||||
| Income from continuing operations before income taxes | $ | $ | $ | $ | |||||||||||||||||||
17
Note 9: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive loss consisted of the following:
| October 1, 2023 | January 1, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Foreign currency translation adjustments, net of income taxes | $ | ( | $ | ( | |||||||
| Unrecognized prior service costs, net of income taxes | ( | ( | |||||||||
| Unrealized net gains (losses) on marketable securities, net of income taxes | ( | ||||||||||
| Accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
Stock Repurchases:
On July 22, 2022, the Company’s Board of Directors (the “Board”) authorized the Company to repurchase shares of common stock for an aggregate amount up to $300.0 million under a stock repurchase program (the “Repurchase Program”). During the nine months ended October 1, 2023, the Company repurchased 1,004,544 shares of common stock under the Repurchase Program for an aggregate cost of $131.3 million. On April 27, 2023, the Repurchase Program was terminated by the Board and the Board authorized the Company to repurchase shares of common stock for an aggregate amount up to $600.0 million under a new stock repurchase program (the “New Repurchase Program”). The New Repurchase Program will expire on April 26, 2025 unless terminated earlier by the Board and may be suspended or discontinued at any time. No shares remain available for repurchase under the Repurchase Program due to its termination. During the three months ended October 1, 2023, the Company repurchased 1,010,736 shares of common stock under the New Repurchase Program for an aggregate cost of $112.1 million. During the nine months ended October 1, 2023, the Company repurchased 2,159,985 shares of common stock under the New Repurchase Program for an aggregate cost of $244.6 million. As of October 1, 2023, $355.4 million remained available for aggregate repurchases of shares under the New Repurchase Program.
In addition, the Board has authorized the Company to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to the Company’s equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to the Company’s equity incentive plans. During the three months ended October 1, 2023, the Company repurchased 2,702 shares of common stock for this purpose at an aggregate cost of $0.3 million. During the nine months ended October 1, 2023, the Company repurchased 72,445 shares of common stock for this purpose at an aggregate cost of $9.8 million. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value.
Dividends:
The Board declared a quarterly cash dividend of $0.07 per share for each of the first three quarters of fiscal year 2023 and in each quarter of fiscal year 2022. At October 1, 2023, the Company had accrued $8.6 million for dividends declared on July 21, 2023 for the third quarter of fiscal year 2023 that will be paid on November 10, 2023. On October 26, 2023, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2023 that will be payable in February 2024.
Note 10: Goodwill and Intangible Assets, Net
The Company tests goodwill at least annually for possible impairment. The Company completes the annual testing of impairment for goodwill on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss in an amount equal to that excess is recognized up to the amount of goodwill. The Company performed its annual impairment testing for its reporting units as of January 2, 2023 , its annual impairment testing date for fiscal year 2023. There were no impairments measured in the periods presented. While the Company believes that its estimates of current value are reasonable, if actual
18
results differ from the estimates and judgments used, including such items as future cash flows and the volatility inherent in markets which the Company serves, impairment charges against the carrying value of those assets could be required in the future.
The changes in the carrying amount of goodwill for the nine months ended October 1, 2023 were as follows:
| Life Sciences | Diagnostics | Consolidated | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ||||||||||||||
| Foreign currency translation | ( | ( | ( | ||||||||||||||
| Balance at October 1, 2023 | $ | $ | $ | ||||||||||||||
Identifiable intangible asset balances by category were as follows:
| October 1, 2023 | January 1, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Patents | $ | $ | |||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net patents | |||||||||||
| Trade names and trademarks | |||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net trade names and trademarks | |||||||||||
| Licenses | |||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net licenses | |||||||||||
| Core technology | |||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net core technology | |||||||||||
| Customer relationships | |||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net customer relationships | |||||||||||
| In-process research and development | |||||||||||
| Total | $ | $ | |||||||||
Note 11: Derivatives and Hedging Activities
The Company uses derivative instruments as part of its risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments. By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions and has policies to monitor the credit risk of those counterparties. The Company does not enter into derivative contracts for trading or other speculative purposes, nor does the Company use leveraged financial instruments. Approximately 60 % of the Company’s business is conducted outside of the United States, generally in foreign currencies. As a result, fluctuations in foreign currency exchange rates can increase the costs of financing, investing and operating the business.
In the ordinary course of business, the Company enters into foreign exchange contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures from these currencies,
19
with gains and losses resulting from the forward currency contracts that hedge these exposures. Transactions covered by hedge contracts include intercompany and third-party receivables and payables. The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity, and are recorded at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on the Company’s foreign currency contracts are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within the Company’s condensed consolidated statement of cash flows.
Principal hedged currencies include the Chinese Renminbi, British Pound, Euro and Singapore Dollar. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $362.0 million, $476.9 million and $348.3 million at October 1, 2023, January 1, 2023 and October 2, 2022, respectively, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of the nine months ended October 1, 2023 and October 2, 2022.
In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, the Company enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. The Company records these hedges at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within the Company’s condensed consolidated statement of cash flows.
During fiscal year 2018, the Company designated a portion of the 2026 Notes to hedge its net investments in certain foreign subsidiaries. Unrealized translation adjustments from a portion of the 2026 Notes were included in the foreign currency translation component of accumulated other comprehensive income (“AOCI”), which offsets translation adjustments on the underlying net assets of foreign subsidiaries. The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold. As of October 1, 2023, the total notional amount of the 2026 Notes that was designated to hedge net investments in foreign subsidiaries was €497.2 million. The unrealized foreign exchange gains recorded in AOCI related to the net investment hedge were $17.3 million and $5.3 million for the three and nine months ended October 1, 2023, respectively, and $30.8 million and $78.8 million for the three and nine months ended October 2, 2022, respectively.
The Company does no t expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive loss into interest and other expense, net within the next twelve months.
Note 12: Fair Value Measurements
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, derivatives, marketable securities and accounts receivable. The Company believes it had no significant concentrations of credit risk as of October 1, 2023.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the nine months ended October 1, 2023. The Company’s financial assets and liabilities carried at fair value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition and divestiture related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
20
The following tables show the assets and liabilities carried at fair value measured on a recurring basis as of October 1, 2023 and January 1, 2023 classified in one of the three classifications described above:
| Fair Value Measurements at October 1, 2023 Using: | |||||||||||||||||||||||
| Total Carrying Value at October 1, 2023 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Marketable securities - equity securities | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivative assets | |||||||||||||||||||||||
| Foreign exchange derivative liabilities | ( | ( | |||||||||||||||||||||
| Contingent consideration assets | |||||||||||||||||||||||
| Contingent consideration liabilities | ( | ( | |||||||||||||||||||||
| Fair Value Measurements at January 1, 2023 Using: | |||||||||||||||||||||||
| Total Carrying Value at January 1, 2023 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Marketable securities - equity securities | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivative assets | |||||||||||||||||||||||
| Foreign exchange derivative liabilities | ( | ( | |||||||||||||||||||||
| Contingent consideration liabilities | ( | ( | |||||||||||||||||||||
Level 1 and Level 2 Valuation Techniques: The Company’s Level 1 and Level 2 assets and liabilities are comprised of investments in equity, fixed-income and U.S. treasury securities as well as derivative contracts. For financial assets and liabilities that utilize Level 1 and Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including common stock price quotes, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities.
Marketable securities - equity securities: Includes equity and mutual fund investments measured at fair value using the quoted market prices in active markets at the reporting date.
Foreign exchange derivative assets and liabilities: Include foreign exchange derivative contracts that are valued using quoted forward foreign exchange prices at the reporting date. The Company’s foreign exchange derivative contracts are subject to master netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company’s condensed consolidated balance sheet on a net basis and are recorded in other assets. As of both October 1, 2023 and January 1, 2023, none of the master netting arrangements involved collateral.
Level 3 Valuation Techniques: The Company’s Level 3 assets and liabilities are comprised of contingent consideration related to the sale of the Business (see Note 3) and acquisitions. For assets and liabilities that utilize Level 3 inputs, the Company uses significant unobservable inputs. Below is a summary of valuation techniques for Level 3 assets and liabilities.
21
Contingent consideration: Contingent consideration is measured at fair value at the disposition or acquisition date using projected milestone dates, discount rates, volatility, probabilities of success and projected achievement of financial targets, including revenues of the acquired business in many instances. Projected risk-adjusted contingent payments are discounted back to the current period using a discounted cash flow model.
The fair value of the contingent consideration asset was initially measured using a lattice model and recognized upon the sale of the Business on March 13, 2023. In accordance with the terms of the sale of the Business, the Company is entitled to receive up to $150.0 million that is contingent on the exit valuation the Sponsor and its affiliated funds receive on a sale or other capital event related to the Business. Potential valuation adjustments may be made as additional information and market factors that impact the expected exit valuation of the Business becomes available, with the impact of such adjustments being recorded in the Company’s condensed consolidated statements of operations.
A reconciliation of the contingent consideration assets is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 1, 2023 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | |||||||||||||||||||||
| Amount recognized upon the sale of the Business | |||||||||||||||||||||||
| Change in fair value | |||||||||||||||||||||||
| Balance at end of period | $ | $ | |||||||||||||||||||||
The fair values of contingent consideration liabilities are calculated on a quarterly basis based on a collaborative effort of the Company’s operations, finance and accounting groups, as appropriate. Potential valuation adjustments are made as additional information becomes available, including the progress towards achieving the revenue targets, with the impact of such adjustments being recorded in the Company’s condensed consolidated statements of operations.
A reconciliation of the contingent consideration liabilities is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Additions | ( | ||||||||||||||||||||||
| Amounts paid and foreign currency translation | |||||||||||||||||||||||
| Adjustments recognized in goodwill | |||||||||||||||||||||||
| Change in fair value (included within selling, general and administrative expenses) | ( | ( | |||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Financial Instruments Not Recorded at Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. If measured at fair value, cash and cash equivalents would be classified as Level 1.
The Company’s investments in U.S. treasury securities that are classified as held-to-maturity and measured at amortized cost had a fair value of $291.0 million and a carrying value of $293.0 million as of October 1, 2023. All the outstanding investments in U.S. treasury securities had a contractual maturity of less than one year as of October 1, 2023.
The Company’s outstanding senior unsecured notes had a fair value of $3,282.3 million and a carrying value of $3,869.3 million as of October 1, 2023. The Company’s outstanding senior unsecured notes had a fair value of $3,812.3 million and a carrying value of $4,390.5 million as of January 1, 2023. The fair values of the outstanding senior unsecured notes were estimated using market quotes from brokers and were based on current rates offered for similar debt, which are Level 2 measurements.
22
Note 13: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former locations of the Company and, along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $13.4 million and $12.2 million as of October 1, 2023 and January 1, 2023, respectively, which represents its management’s estimate of the cost of the remediation of known environmental matters and does not include any potential liability for related personal injury or property damage claims. These amounts were included in accrued expenses and other current liabilities. The Company’s environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on the Company’s condensed consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the condensed consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
The Company is subject to various claims, legal proceedings, regulatory matters, and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Although the Company has established accruals for potential losses that it believes are probable and reasonably estimable, in the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these contingencies at October 1, 2023 would not have a material adverse effect on the Company’s consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.
23
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report on Form 10-Q, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the condensed consolidated financial statements and notes to the condensed consolidated financial statements that we have included elsewhere in this report. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “intends,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors below under the heading “Risk Factors” in Part II, Item 1A. that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leading provider of products, services and solutions for the diagnostics and life sciences. Through our advanced technologies and differentiated solutions, we address critical issues that help to improve lives and the world around us.
The principal products and services of our two operating segments are:
•Life Sciences. As a result of the sale of the Business, the former Discovery & Analytical Solutions segment is now referred to as the Life Sciences segment. This segment provides products and services targeted towards the life sciences market.
•Diagnostics. Develops diagnostics, tools and applications focused on clinically oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets.
Effective as of April 26, 2023, we changed our name from “PerkinElmer, Inc.” to “Revvity, Inc.”. Effective as of May 16, 2023, we changed the ticker symbol for our common stock to “RVTY” and the ticker symbol for our 1.875% Notes due 2026 to “RVTY 26”.
Overview of the Third Quarter of Fiscal Year 2023
Our total revenue in the third quarter of fiscal year 2023 was $670.7 million which decreased by $41.1 million, or 6%, as compared to the third quarter of fiscal year 2022, reflecting a decrease of $36.1 million, or 9%, in our Diagnostics segment revenue, and a decrease of $4.9 million, or 2%, in our Life Sciences segment revenue. The decrease in our Diagnostics segment revenue for the third quarter of fiscal year 2023 was driven by a decrease in revenue from our COVID-19 product offerings, partially offset by an increase of approximately 1% in revenue due to favorable changes in foreign exchange rates and a 4% increase in revenue from our core product offerings. The decrease in our Life Sciences segment revenue for the third quarter of fiscal year 2023 was primarily a result of a decrease in revenue in our pharmaceutical and biotechnology markets, partially offset by an increase in revenue in our academia and government markets.
Our consolidated gross margins decreased 165 basis points in the third quarter of fiscal year 2023, as compared to the third quarter of fiscal year 2022, primarily due to lower COVID-19 revenue partially offset by productivity gains. For the third quarter of fiscal year 2023, supply chain disruptions and inflation did not materially impact our results of operations as compared to the third quarter of fiscal year 2022 as the effects of our initiatives to reduce transportation costs more than offset the impact of inflation on our raw materials purchases. Our consolidated operating margins decreased from 16% in the third quarter of fiscal year 2022 to 10% in the third quarter of fiscal year 2023, primarily due to lower COVID-19 revenue, partially offset by productivity gains.
In March 2023, we completed the previously announced sale of certain assets and the equity interests of certain entities constituting our Applied, Food and Enterprise Services businesses (the “Business”). The Business is reported for all periods as discontinued operations in our consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accounting for business combinations, long-lived assets, including goodwill and other intangible assets and employee compensation and benefits. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which
24
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. We believe our critical accounting policies include policies regarding business combinations, valuation of long-lived assets, including goodwill and other intangibles and employee compensation and benefits.
For a more detailed discussion of our critical accounting policies and estimates, refer to the Notes to our audited consolidated financial statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 (our “2022 Form 10-K”), as filed with the Securities and Exchange Commission. There have been no significant changes in our critical accounting policies and estimates during the nine months ended October 1, 2023.
Consolidated Results of Continuing Operations
Revenue
Revenue for the three months ended October 1, 2023 was $670.7 million, as compared to $711.8 million for the three months ended October 2, 2022, a decrease of $41.1 million, or approximately 6%, which includes an approximate 1% increase in revenue attributable to favorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for the three months ended October 1, 2023 as compared to the three months ended October 2, 2022 and includes the effect of foreign exchange rate fluctuations. Our Diagnostics segment revenue was $363.1 million for the three months ended October 1, 2023, as compared to $399.2 million for the three months ended October 2, 2022, a decrease of $36.1 million, or 9%, primarily due to decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings. There was a decrease of $20.6 million in our applied genomics revenue, a decrease of $9.3 million in our immunodiagnostics revenue, and a decrease of $6.2 million in our reproductive health revenue. Our Life Sciences segment revenue was $307.9 million for the three months ended October 1, 2023, as compared to $312.8 million for the three months ended October 2, 2022, a decrease of $4.9 million, or 2%, driven by a decrease of $14.9 million in our pharmaceutical and biotechnology markets, partially offset by an increase of $9.9 million in our academia and government markets. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.2 million of revenue for each of the three months ended October 1, 2023 and October 2, 2022 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Revenue for the nine months ended October 1, 2023 was $2,054.7 million, as compared to $2,570.6 million for the nine months ended October 2, 2022, a decrease of $515.9 million, or approximately 20%, which includes an approximate 1% decrease in revenue attributable to unfavorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for the nine months ended October 1, 2023 as compared to the nine months ended October 2, 2022 and includes the effect of foreign exchange rate fluctuations. Our Diagnostics segment revenue was $1,082.6 million for the nine months ended October 1, 2023, as compared to $1,625.7 million for the nine months ended October 2, 2022, a decrease of $543.1 million, or 33%, primarily due to decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings. There was a decrease of $385.1 million in our immunodiagnostics revenue, a decrease of $145.4 million in our applied genomics revenue, and a decrease of $12.6 million in our reproductive health revenue. Our Life Sciences segment revenue was $972.6 million for the nine months ended October 1, 2023, as compared to $945.5 million for the nine months ended October 2, 2022, an increase of $27.2 million, or 3%, driven by an increase of $38.3 million in our academia and government markets, partially offset by a decrease of $11.1 million in our pharmaceutical and biotechnology market. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.6 million of revenue for each of the nine months ended October 1, 2023 and October 2, 2022 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Cost of Revenue
Cost of revenue for the three months ended October 1, 2023 was $298.2 million, as compared to $304.8 million for the three months ended October 2, 2022, a decrease of $6.5 million, or approximately 2%. As a percentage of revenue, cost of revenue increased to 44.5% for the three months ended October 1, 2023, from 42.8% for the three months ended October 2, 2022, resulting in a decrease in gross margin of 165 basis points to 55.5% for the three months ended October 1, 2023, from 57.2% for the three months ended October 2, 2022 due to lower COVID-19 revenue partially offset by pricing actions. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $11.3 million for the three months ended October 2, 2022. Stock compensation expense related to awards given to BioLegend employees post-acquisition added an incremental expense of $0.8 million for the three months ended October 1,
25
2023, as compared to $1.5 million for the three months ended October 2, 2022. The above decreases were partially offset by an increase in amortization of intangible assets which was $35.7 million for the three months ended October 1, 2023, as compared to $35.3 million for the three months ended October 2, 2022. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.1 million for each of the three months ended October 1, 2023 and October 2, 2022.
Cost of revenue for the nine months ended October 1, 2023 was $898.5 million, as compared to $1,017.1 million for the nine months ended October 2, 2022, a decrease of $118.7 million, or approximately 12%. As a percentage of revenue, cost of revenue increased to 43.7% for the nine months ended October 1, 2023, from 39.6% for the nine months ended October 2, 2022, resulting in a decrease in gross margin of 416 basis points to 56.3% for the nine months ended October 1, 2023, from 60.4% for the nine months ended October 2, 2022 due to lower COVID-19 revenue partially offset by pricing actions. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $45.0 million for the nine months ended October 2, 2022. Stock compensation expense related to awards given to BioLegend employees post-acquisition added an incremental expense of $2.5 million for the nine months ended October 1, 2023, as compared to $4.7 million for the nine months ended October 2, 2022. The above decreases were partially offset by an increase in amortization of intangible assets which was $113.0 million for the nine months ended October 1, 2023, as compared to $107.1 million for the nine months ended October 2, 2022. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.4 million for each of the nine months ended October 1, 2023 and October 2, 2022.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended October 1, 2023 were $250.2 million, as compared to $242.7 million for the three months ended October 2, 2022, an increase of $7.5 million, or 3%. As a percentage of revenue, selling, general and administrative expenses increased and were 37.3% for the three months ended October 1, 2023, as compared to 34.1% for the three months ended October 2, 2022. Acquisition and divestiture-related expenses, which primarily consisted of rebranding, legal and integration costs and stock compensation expense related to the awards given to BioLegend employees post-acquisition, added an incremental expense of $10.6 million for the three months ended October 1, 2023, as compared to $5.7 million for the three months ended October 2, 2022. Restructuring and other costs, net, also increased and was $10.8 million for the three months ended October 1, 2023, as compared to $2.8 million for the three months ended October 2, 2022. Purchase accounting adjustments added an incremental expense of $0.7 million for the three months ended October 1, 2023, which primarily consisted of a change in contingent consideration, as compared to decreasing expenses by $2.1 million for the three months ended October 2, 2022. The above increases were partially offset by a decrease in amortization of intangible assets which was $55.2 million for the three months ended October 1, 2023, as compared to $56.2 million for the three months ended October 2, 2022. Legal and settlement costs for significant litigation matters, net of reversals, were $0.6 million for the three months ended October 2, 2022. Excluding the factors above, the net decrease in selling, general and administrative expenses was the result of cost containment and productivity initiatives.
Selling, general and administrative expenses for the nine months ended October 1, 2023 were $765.8 million, as compared to $781.2 million for the nine months ended October 2, 2022, a decrease of $15.4 million, or 2%. As a percentage of revenue, selling, general and administrative expenses increased and were 37.3% for the nine months ended October 1, 2023, as compared to 30.4% for the nine months ended October 2, 2022. Amortization of intangible assets decreased and was $162.5 million for the nine months ended October 1, 2023, as compared to $173.4 million for the nine months ended October 2, 2022. Purchase accounting adjustments added an incremental expense of $1.8 million for the nine months ended October 1, 2023, which primarily consisted of a change in contingent consideration, as compared to decreasing expenses by $0.6 million for the nine months ended October 2, 2022. Legal and settlement costs for significant litigation matters, net of reversals, decreased expenses by $0.6 million for the nine months ended October 2, 2022. The above decreases were partially offset by an increase in acquisition and divestiture-related expenses, which primarily consisted of rebranding, legal and integration costs and stock compensation expense related to the awards given to BioLegend employees post-acquisition, which added an incremental expense of $53.0 million for the nine months ended October 1, 2023, as compared to $17.1 million for the nine months ended October 2, 2022. Costs for significant environmental matters also added an incremental expense of $1.1 million for the nine months ended October 1, 2023. Restructuring and other costs, net, increased and was $15.9 million for the nine months ended October 1, 2023, as compared to $15.4 million for the nine months ended October 2, 2022. Excluding the factors above, the net decrease in selling, general and administrative expenses was the result of cost containment and productivity initiatives.
Research and Development Expenses
Research and development expenses for the three months ended October 1, 2023 were $53.0 million, as compared to $53.5 million for the three months ended October 2, 2022, a decrease of $0.5 million, or 1%. As a percentage of revenue,
26
research and development expenses increased and were 7.9% for the three months ended October 1, 2023, as compared to 7.5% for the three months ended October 2, 2022. The decrease in research and development expenses was primarily driven by the timing of investments in new product development and a decrease in stock compensation expense related to awards given to BioLegend employees post-acquisition, which added an incremental expense of $1.2 million for the three months ended October 1, 2023 as compared to $1.3 million for the three months ended October 2, 2022, and was partially offset by our investments in new product development. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.1 million for each of the three months ended October 1, 2023 and October 2, 2022.
Research and development expenses for the nine months ended October 1, 2023 were $167.0 million, as compared to $167.1 million for the nine months ended October 2, 2022, a decrease of $0.1 million, or 0.1%. As a percentage of revenue, research and development expenses increased and were 8.1% for the nine months ended October 1, 2023, as compared to 6.5% for the nine months ended October 2, 2022. The decrease in research and development expenses was primarily driven by a decrease in stock compensation expense related to awards given to BioLegend employees post-acquisition, which added an incremental expense of $3.5 million for the nine months ended October 1, 2023 as compared to $4.1 million for the nine months ended October 2, 2022, and was partially offset by our investments in new product development. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.2 million for each of the nine months ended October 1, 2023 and October 2, 2022.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest income | $ | (23,450) | $ | (667) | $ | (53,768) | $ | (2,024) | |||||||||||||||
| Interest expense | 25,486 | 25,931 | 74,231 | 81,447 | |||||||||||||||||||
| Change in fair value of financial securities | 13,587 | 5,106 | 12,842 | 14,321 | |||||||||||||||||||
| Other components of net periodic pension cost (credit) | 497 | (2,602) | 4,972 | (7,718) | |||||||||||||||||||
| Foreign exchange losses and other expense, net | 2,505 | 870 | 33,529 | 5,814 | |||||||||||||||||||
| Total interest and other expense, net | $ | 18,625 | $ | 28,638 | $ | 71,806 | $ | 91,840 | |||||||||||||||
The decrease in interest and other expense, net, for the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, was primarily due to an increase in interest income of $22.8 million associated with the cash proceeds from the sale of Business that were invested in bank deposits and short-term investments and higher interest rates.
The decrease in interest and other expense, net, for the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022, was primarily due to a decrease of $7.2 million in interest expense, a decrease in the change in fair value of financial securities of $1.5 million and an increase in interest income of $51.7 million. These were partially offset by an increase in foreign exchange losses and other expense, net of $27.7 million and an increase in other components of net periodic pension cost of $12.7 million. Interest income increased due to an increase in investments and higher interest rates. Interest expense decreased due to $3.4 million of debt extinguishment income for the nine months ended October 1, 2023, as compared to $0.1 million of debt extinguishment expense for the nine months ended October 2, 2022, as well as a result of an overall decrease in debt. Other components of net periodic pension cost increased due to the increases in the applicable discount rates. Foreign exchange losses and other expense, net, increased due to a foreign exchange loss of $23.3 million for the nine months ended October 1, 2023 related to the cash proceeds from the sale of the Business that were held offshore.
Provision for Income Taxes
The provision for income taxes from continuing operations was $18.1 million for the three months ended October 1, 2023, as compared to $12.6 million for the three months ended October 2, 2022. The provision for income taxes from continuing operations was $35.7 million for the nine months ended October 1, 2023, as compared to $98.2 million for the nine months ended October 2, 2022.
The effective tax rate from continuing operations was 35.8% and 23.5% for the three and nine months ended October 1, 2023, respectively, as compared to 15.4% and 19.1% for the three and nine months ended October 2, 2022, respectively. The effective tax rate during the three months ended October 1, 2023 is higher as compared to the prior year period due to projected lower income in certain lower tax rate jurisdictions and an increase in tax reserves of $29.8 million, primarily related to
27
unfavorable developments in respect of an uncertain tax position with a foreign tax authority that was partially related to our continuing operations, offset by a favorable ruling from a foreign tax authority of $15.2 million. The effective tax rate during the nine months ended October 1, 2023 is higher as compared to the prior year period primarily due to projected lower income in certain lower tax rate jurisdictions and an increase in tax reserves of $28.7 million, primarily related to unfavorable developments in respect of an uncertain tax position with a foreign tax authority that was partially related to our continuing operations, offset by a favorable ruling from a foreign tax authority of $15.2 million. The Company expects that the effective tax rate on continuing operations, before discrete items, will be approximately 20% during fiscal 2023.
Reporting Segment Results of Continuing Operations
Life Sciences
Revenue for the three months ended October 1, 2023 was $307.9 million, as compared to $312.8 million for the three months ended October 2, 2022, a decrease of $4.9 million, or 2%, which includes an increase of approximately 1% in revenue attributable to favorable changes in foreign exchange rates. The decrease in our Life Sciences segment revenue was primarily a result of a decrease of $14.9 million in our pharmaceutical and biotechnology markets, partially offset by an increase of $9.9 million in our academia and government markets.
Revenue for the nine months ended October 1, 2023 was $972.6 million, as compared to $945.5 million for the nine months ended October 2, 2022, an increase of $27.2 million, or 3%. The increase in our Life Sciences segment revenue was primarily a result of an increase of $38.3 million in our academia and government markets, partially offset by a decrease of $11.1 million in our pharmaceutical and biotechnology market.
Segment operating income for the three months ended October 1, 2023 was $114.2 million, as compared to $116.9 million for the three months ended October 2, 2022, a decrease of $2.7 million, or 2%. Segment operating margin decreased 28 basis points in the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily due to increased investments in new product development and growth initiatives, partially offset by pricing actions.
Segment operating income for the nine months ended October 1, 2023 was $371.4 million, as compared to $357.7 million for the nine months ended October 2, 2022, an increase of $13.7 million, or 4%. Segment operating margin increased 36 basis points in the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022, primarily due to pricing actions and productivity gains, partially offset by investments in new product development and growth initiatives.
Diagnostics
Revenue for the three months ended October 1, 2023 was $363.1 million, as compared to $399.2 million for the three months ended October 2, 2022, a decrease of $36.1 million, or 9%, which includes a 1% increase in revenue attributable to favorable changes in foreign exchange rates. The decrease in our Diagnostics segment revenue during the three months ended October 1, 2023 was primarily driven by decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings. There was a decrease of $20.6 million in our applied genomics revenue, a decrease of $9.3 million in our immunodiagnostics revenue, and a decrease of $6.2 million in our reproductive health revenue.
Revenue for the nine months ended October 1, 2023 was $1,082.6 million, as compared to $1,625.7 million for the nine months ended October 2, 2022, a decrease of $543.1 million, or 33%, which includes a 1% decrease in revenue attributable to unfavorable changes in foreign exchange rates. The decrease in our Diagnostics segment revenue during the nine months ended October 1, 2023 was primarily driven by decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings. There was a decrease of $385.1 million in our immunodiagnostics revenue, a decrease of $145.4 million in our applied genomics revenue, and a decrease of $12.6 million in our reproductive health revenue.
Segment operating income for the three months ended October 1, 2023 was $81.7 million, as compared to $123.4 million for the three months ended October 2, 2022, a decrease of $41.7 million, or 34%. Segment operating margin decreased 840 basis points in the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily due to lower COVID-19 product sales volume, partially offset by cost controls.
Segment operating income for the nine months ended October 1, 2023 was $241.4 million, as compared to $669.0 million for the nine months ended October 2, 2022, a decrease of $427.6 million, or 64%. Segment operating margin decreased 1,885 basis points in the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022, primarily due to lower COVID-19 product sales volume, partially offset by cost controls.
28
Discontinued Operations
On March 13, 2023, we completed the previously announced sale (the “Closing”) of the “Business to PerkinElmer Topco, L.P. (formerly known as Polaris Purchaser, L.P.) (the “Purchaser”), a Delaware limited partnership owned by funds managed by affiliates of New Mountain Capital L.L.C. (the “Sponsor”), for an aggregate purchase price of up to $2.45 billion. Upon the Closing, we received approximately $2.14 billion in cash proceeds, before transaction costs and subject to post-closing adjustments. We are entitled to an additional $75.0 million in proceeds that will be paid to us in connection with the transfer of the PerkinElmer brand and related trademarks to the Purchaser, and this consideration will be paid to us in installments over the next 24 months. The discounted value of the $75.0 million was measured as $68.0 million and was included in the proceeds at Closing. In addition, we are entitled to additional consideration of up to $150.0 million that is contingent on the exit valuation the Sponsor and its affiliated funds receive on a sale or other capital events related to the Business. The fair value of this element of consideration was determined to be $15.9 million and was included in the proceeds at Closing. We also recorded a receivable of approximately $177.5 million for working capital adjustments that are expected to be settled with the Purchaser during the fourth quarter of fiscal year 2023. The final amount of the receivable related to the working capital adjustments is subject to change.
As we are in the process of measuring the calculation of the gain on sale and related income tax provision, additional adjustments may arise that may impact the final measurement of the gain recognized. The elements of the gain calculation that may result in adjustments include the measurement of the proceeds, including the settlement of the working capital adjustment, determination of the basis of certain assets and liabilities, as well as the provision for income taxes.
In connection and concurrent with the Closing, we also entered into a Transition Services Agreement (“TSA”) with the Purchaser for a period of up to 24 months and a Contract Manufacturing Agreement (“CMA”) for two locations which expired in early June 2023. The costs and amounts of reimbursements related to the CMA were not significant. The costs and amounts
29
of reimbursements related to the TSA and other commercial transactions between the parties following the Closing are not expected to be significant.
The Business is reported for all periods as discontinued operations in our condensed consolidated financial statements. The following table summarizes the results of discontinued operations which are presented as Income from discontinued operations in our condensed consolidated statements of operations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | October 2, 2022 | October 1, 2023 | October 2, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenue | $ | — | $ | 320,616 | $ | 175,423 | $ | 950,821 | |||||||||||||||
| Cost of revenue | — | 208,669 | 124,647 | 639,937 | |||||||||||||||||||
| Selling, general and administrative expenses | — | 72,380 | 74,794 | 223,665 | |||||||||||||||||||
| Research and development expenses | — | 14,174 | 10,434 | 50,575 | |||||||||||||||||||
| Operating income (loss) | — | 25,393 | (34,452) | 36,644 | |||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||
| (Loss) gain on sale | (58) | — | 835,629 | — | |||||||||||||||||||
| Other (expense) income, net | — | (213) | 913 | (640) | |||||||||||||||||||
| Total other (expense) income | (58) | (213) | 836,542 | (640) | |||||||||||||||||||
| (Loss) income from discontinued operations before income taxes | (58) | 25,180 | 802,090 | 36,004 | |||||||||||||||||||
| Provision for income tax | 22,914 | 9,341 | 303,495 | 9,662 | |||||||||||||||||||
| (Loss) income from discontinued operations | $ | (22,972) | $ | 15,839 | $ | 498,595 | $ | 26,342 | |||||||||||||||
The results of discontinued operations during the three and nine months ended October 1, 2023 include the results of the Business through March 13, 2023. During the three and nine months ended October 1, 2023, we recognized an increase in tax reserves of $22.9 million, primarily related to unfavorable developments in respect of an uncertain tax position with a foreign tax authority that is partially related to the Business. During the three and nine months ended October 1, 2023, we recognized divestiture-related costs in gain on sale of $3.6 million and $35.3 million, respectively. During the nine months ended October 1, 2023, we recognized $36.0 million of divestiture-related costs in selling, general and administrative expenses in discontinued operations, as compared to $44.6 million during the nine months ended October 2, 2022, a decrease of $8.7 million.
Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, make strategic acquisitions, service our debt and other long-term liabilities, repurchase shares of our common stock and pay dividends on our common stock. Our principal sources of funds are from our operations, borrowing capacity available under our senior unsecured credit facility and access to debt markets. We anticipate that our internal operations will generate sufficient cash to fund our operating expenses, capital expenditures, smaller acquisitions, interest payments on our debt and dividends on our common stock. However, we expect to use external sources to satisfy the balance of our debt when due, any larger acquisitions and other long-term liabilities, such as contributions to our postretirement benefit plans. The sale of the Business generated approximately $2.14 billion in cash proceeds. We expect to use these proceeds for a combination of satisfying upcoming debt maturities, opportunistic share repurchases and continued strategic and value creating acquisitions.
We and our subsidiaries may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities), in privately negotiated or open market transactions, by tender offer or otherwise, or extend or refinance any of our outstanding indebtedness. Additionally, we intend to purchase U.S. treasury securities whose proceeds upon maturity are intended to be utilized to repay outstanding debt securities, including $717.6 million of the 2024 Notes due in September 2024.
Principal factors that could affect the availability of our internally generated funds include:
•changes in sales due to weakness in markets in which we sell our products and services, and
•changes in our working capital requirements and capital expenditures.
30
Principal factors that could affect our ability to obtain cash from external sources include:
•financial covenants contained in the financial instruments controlling our borrowings that limit our total borrowing capacity,
•increases in interest rates applicable to our outstanding variable rate debt,
•a ratings downgrade that could limit the amount we can borrow under our senior unsecured revolving credit facility and our overall access to the corporate debt market,
•increases in interest rates or credit spreads, as well as limitations on the availability of credit, that affect our ability to borrow under future potential facilities on a secured or unsecured basis,
•a decrease in the market price for our common stock, and
•volatility in the public debt and equity markets.
At October 1, 2023, we had cash and cash equivalents of $1.1 billion, of which $465.7 million was held by our non-U.S. subsidiaries, and we had $1.5 billion of borrowing capacity available under our senior unsecured revolving credit facility. We had no other liquid investments at October 1, 2023. At October 1, 2023, we had investments in U.S. treasury securities with a carrying amount of $293.0 million whose proceeds upon maturity are intended to be utilized to repay our outstanding debt coming due over the next 11 months.
We utilize a variety of tax planning and financing strategies to ensure that our worldwide cash is available in the locations in which it is needed. We use our non-U.S. cash for needs outside of the United States including foreign operations,
capital investments, acquisitions and repayment of debt. In addition, we transfer cash to the United States using nontaxable returns of capital, distributions of previously taxed income, as well as dividends, where the related income tax cost is managed efficiently.
As of the end of fiscal year 2022, we evaluated our undistributed foreign earnings and identified approximately $879.0 million in earnings that we do not consider to be permanently reinvested. We have recorded a provision of approximately $14.4 million for taxes that would fall due when such earnings are repatriated. We repatriated foreign earnings to the United States during fiscal year 2022 and expect to continue the repatriation in fiscal year 2023. As of October 1, 2023, we also plan to repatriate proceeds from the sale of the Business described in Note 3, Discontinued Operations, in the Notes to Condensed Consolidated Financial Statements and have accrued the associated tax expense in discontinued operations. During the nine months ended October 1, 2023, approximately $1.5 billion was repatriated back to the United States. There are other undistributed foreign earnings and outside basis differences for which we have not provided for any taxes as these amounts continue to be indefinitely reinvested, and it is not practicable to estimate the amount of deferred tax liability that would be incurred.
On July 22, 2022, our Board of Directors (our “Board”) authorized us to repurchase shares of common stock for an aggregate amount up to $300.0 million under a stock repurchase program (the “Repurchase Program”). During the nine months ended October 1, 2023, we repurchased 1,004,544 shares of common stock under the Repurchase Program for an aggregate cost of $131.3 million. On April 27, 2023, the Repurchase Program was terminated by our Board and our Board authorized us to repurchase shares of common stock for an aggregate amount up to $600.0 million under a new stock repurchase program (the “New Repurchase Program”). No shares remain available for repurchase under the Repurchase Program due to its termination. The New Repurchase Program will expire on April 26, 2025 unless terminated earlier by our Board and may be suspended or discontinued at any time. During the three months ended October 1, 2023, we repurchased 1,010,736 shares of common stock under the New Repurchase Program for an aggregate cost of $112.1 million. During the nine months ended October 1, 2023, we repurchased 2,159,985 shares of common stock under the New Repurchase Program for an aggregate cost of $244.6 million. As of October 1, 2023, $355.4 million remained available for aggregate repurchases of shares under the New Repurchase Program.
As of October 1, 2023, we may have to pay contingent consideration related to acquisitions with open contingency periods of up to $91.8 million. As of October 1, 2023, we have recorded contingent consideration obligations of $37.4 million, of which $11.7 million was recorded in accrued expenses and other current liabilities, and $25.7 million was recorded in long-term liabilities. The maximum earnout period for acquisitions with open contingency periods is 5.2 years from October 1, 2023, and the remaining weighted average expected earnout period at October 1, 2023 was 4.4 years.
Distressed global financial markets could adversely impact general economic conditions by reducing liquidity and credit availability, creating increased volatility in security prices, widening credit spreads, increasing the cost of borrowings and decreasing valuations of certain investments. The widening of credit spreads may create a less favorable environment for certain of our businesses and may affect the fair value of financial instruments that we issue or hold. Increases in credit spreads, as well as limitations on the availability of credit at rates we consider to be reasonable, could affect our ability to borrow under
31
future potential facilities on a secured or unsecured basis, which may adversely affect our liquidity and results of operations. In difficult global financial markets, we may be forced to fund our operations at a higher cost, or we may be unable to raise as much funding as we need to support our business activities or fund our strategic transactions.
Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. During the nine months ended October 1, 2023, we contributed $10.0 million to our defined benefit pension plan in the United States for the plan year 2022. During the nine months ended October 1, 2023, we contributed $5.1 million, in the aggregate, to pension plans outside of the United States, and expect to contribute an additional $1.7 million by the end of fiscal year 2023. We could potentially have to make additional contributions in future periods for all pension plans. We expect to use existing cash and external sources to satisfy future contributions to our pension plans.
Cash Flows
Operating Activities. Net cash provided by operating activities of our continuing operations was $58.8 million for the nine months ended October 1, 2023, as compared to net cash provided by operating activities of our continuing operations of $545.3 million for the nine months ended October 2, 2022, a decrease of $486.5 million, primarily due to lower profitability from a decreased demand in COVID-19 product offerings and more cash used in working capital during the nine months ended October 1, 2023 as compared to the nine months ended October 2, 2022. The cash provided by operating activities for the nine months ended October 1, 2023 was principally a result of income from continuing operations of $115.9 million, adjustments for non-cash charges aggregating to $417.0 million, including depreciation and amortization of $326.2 million, and a net cash decrease in working capital of $474.1 million. The cash provided by operating activities for the nine months ended October 2, 2022 was principally a result of income from continuing operations of $415.2 million, adjustments for non-cash charges aggregating to $442.5 million including depreciation and amortization of $322.8 million, and a net cash decrease in working capital of $312.4 million. During the nine months ended October 1, 2023, we contributed $10.0 million to our pension plan in the United States and $5.1 million, in the aggregate, to pension plans outside of the United States.
Investing Activities. Net cash used in investing activities of our continuing operations was $346.4 million for the nine months ended October 1, 2023, as compared to $97.7 million for the nine months ended October 2, 2022, an increase of $248.7 million. During the nine months ended October 1, 2023, we made purchases of investments in U.S. treasury securities totaling $831.2 million. For the nine months ended October 1, 2023, the net cash used for capital expenditures and acquisitions were $57.3 million and $2.1 million, respectively, as compared to $59.5 million and $7.8 million, respectively, for the nine months ended October 2, 2022. The capital expenditures in each period were primarily for manufacturing, software, and other capital equipment purchases. During the nine months ended October 1, 2023, purchases of investments were $6.0 million, as compared to $45.0 million for the nine months ended October 2, 2022. The cash used in investing activities during the nine months ended October 1, 2023 was partially offset by proceeds from maturity of U.S. treasury securities totaling $550.0 million, and proceeds from disposition of businesses and assets totaling $0.2 million. The cash used in investing activities during the nine months ended October 2, 2022 was partially offset by proceeds from notes receivable totaling $8.9 million, and proceeds from disposition of businesses and assets totaling $5.7 million.
Financing Activities. Net cash used in financing activities was $927.5 million for the nine months ended October 1, 2023, as compared to $585.1 million for the nine months ended October 2, 2022, an increase in net cash used in financing activities of $342.4 million. During the nine months ended October 1, 2023, we made net payments of $510.8 million on debts, as compared to $508.0 million during the nine months ended October 2, 2022. The changes in both periods reflect our intentions to pay down debt, which we expect to continue throughout fiscal year 2023 and fiscal year 2024. During the nine months ended October 1, 2023, we repurchased shares of our common stock for a total cost of $384.0 million, as compared to $56.1 million in the prior year period. We paid $26.3 million in dividends for the nine months ended October 1, 2023, as compared to $26.5 million in the prior year period. We paid $10.1 million for acquisition-related contingent consideration during the nine months ended October 1, 2023. We paid $0.8 million in settlement of hedges for the nine months ended October 2, 2022. The cash used in financing activities during the nine months ended October 1, 2023 was partially offset by proceeds from the issuance of common stock under our stock plans of $3.7 million during the nine months ended October 1, 2023, as compared to $6.3 million for the nine months ended October 2, 2022.
32
Borrowing Arrangements
During the third quarter of fiscal year 2023, we paid in full $467.1 million of outstanding 0.550% Senior Unsecured Notes that became due in September 2023. Since the beginning of the third quarter of fiscal year 2022, we have repurchased $83.9 million in aggregate principal amount of our 0.850% senior unsecured notes due in September 2024 (the “2024 Notes”). We expect to continue repurchasing outstanding 2024 Notes from time to time, subject to market conditions. See Note 6, Debt, in the Notes to Condensed Consolidated Financial Statements and Note 13, Debt, to our audited consolidated financial statements in the 2022 Form 10-K for a detailed discussion of our borrowing arrangements.
Dividends
Our Board declared a regular quarterly cash dividend of $0.07 per share for each of the first two quarters of fiscal year 2023 and in each quarter of fiscal year 2022. At October 1, 2023, we had accrued $8.6 million for dividends declared on July 21, 2023 for the third quarter of fiscal year 2023 that will be paid on November 10, 2023. On October 26, 2023, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2023 that will be payable in February 2024. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Effects of Recently Adopted and Issued Accounting Pronouncements
See Note 1, Nature of Operations and Accounting Policies, to our audited consolidated financial statements in the 2022 Form 10-K for a summary of recently adopted new accounting pronouncements during the fiscal year ended January 1, 2023.
We have not adopted any new accounting pronouncements during the nine months ended October 1, 2023, and there were no recently issued accounting pronouncements that are expected to have a significant impact on our financial statements.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Market Risk. We are exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, we enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures. We briefly describe several of the market risks we face below. Our market risks are not materially different from the disclosure provided under the heading, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Form 10-K.
Foreign Currency Exchange Risk—Value-at-Risk Disclosure. We continue to measure foreign currency risk using the Value-at-Risk model described in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Form 10-K. The measures for our Value-at-Risk analysis have not changed materially.
Interest Rate Risk. Substantially all of our debt portfolio is comprised of fixed interest debt. As of October 1, 2023, our investments in U.S. treasury securities of $293.0 million earn fixed interest rates, however, the invested portion of our cash and cash equivalents, for which we receive interest at variable rates, were $1.1 billion. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, as they relate to interest, and our earnings. To manage the volatility relating to these exposures, we periodically enter into various derivative transactions pursuant to our policies to hedge against known or forecasted interest rate exposures. However, no such instruments are outstanding at October 1, 2023.
Interest Rate Risk—Sensitivity. Our 2022 Form 10-K presents sensitivity measures for our interest rate risk. The measures for our sensitivity analysis have not changed materially. More information is available in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Form 10-K for our sensitivity disclosure.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter ended October 1, 2023. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that
33
it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of our fiscal quarter ended October 1, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended October 1, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at October 1, 2023 should not have a material adverse effect on our condensed consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.
Item 1A.Risk Factors
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
Risks Related to our Business Operations and Industry
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
The pandemic caused by COVID-19 has had, and may continue to have, a negative effect on the demand for certain of our products and our global operations including our manufacturing capabilities, logistics and supply chain that may materially and adversely impact our business, financial conditions, results of operations and cash flows.
We face risks related to public health crises and pandemics, including the COVID-19 pandemic. The global impact of COVID-19 resulted in an adverse impact on our operations, supply chains and distribution systems, due to significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, and travel restrictions and/or bans.
We have experienced significant reductions in demand for certain of our products due to the COVID-19 pandemic and although the severity and duration of the COVID-19 pandemic cannot be fully estimated at this time, additional impacts that we may experience include, but are not limited to: fluctuations in our stock price due to market volatility; further decreases in demand for certain of our products; reduced profitability; large-scale supply chain disruptions impeding our ability to ship and/or receive product; potential interruptions of, or limitations on manufacturing operations imposed by local, state or federal governments; shortages of key raw materials or components; workforce absenteeism and distraction; labor shortages including those resulting from unwillingness to comply with vaccination or other requirements; customer credit concerns; cybersecurity risks and data accessibility disruptions due to remote working arrangements; reduced sources of liquidity; increased borrowing costs; fluctuations in foreign currency markets; potential impairment in the carrying value of goodwill; other asset impairment charges; increased obligations related to our pension and other postretirement benefit plans; and deferred tax valuation allowances.
Our Diagnostics segment experienced an increase in revenue resulting from increased demand for our immunodiagnostics and applied genomics COVID-19 product offerings during fiscal years 2020 and 2021, as well as from the COVID-19 testing laboratory facilities we developed to service the State of California and the United Kingdom. Both of these laboratories closed in the first half of 2022. As a result of these closures, and the general reduction in COVID-19 testing spending by our customers, the demand for these products and services declined in fiscal year 2022 and in the first three fiscal quarters of fiscal
35
year 2023. We expect demand for COVID-19 related products and services to continue to decline during the remainder of fiscal year 2023 and beyond.
Our growth and profitability is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic and political conditions as well as the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Environmental events and political changes, including war or other conflicts, such as the current conflicts in Ukraine and the Middle East, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.
While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
•accurately anticipate customer needs,
•innovate and develop new reliable technologies and applications,
•receive regulatory approvals in a timely manner,
•successfully commercialize new technologies in a timely manner,
•price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and
•differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.
36
We may not be able to successfully execute acquisitions or divestitures, license technologies, integrate acquired businesses or licensed technologies into our existing businesses, or make acquired businesses or licensed technologies profitable.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
•competition among buyers and licensees,
•the high valuations of businesses and technologies,
•the need for regulatory and other approval, and
•our inability to raise capital to fund these acquisitions.
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. If, for example, we are unable to successfully commercialize products and services related to significant in-process research and development that we have capitalized, we may have to impair the value of such assets. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed in the short term, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
•demand for and market acceptance of our products,
•competitive pressures resulting in lower selling prices,
•changes in the level of economic activity in regions in which we do business, including as a result of the COVID-19 pandemic and other global health crises or pandemics,
•changes in general economic conditions or government funding,
•settlements of income tax audits,
•expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations,
•contract termination and litigation costs,
•differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation,
•changes in our effective tax rate,
37
•changes in industries, such as pharmaceutical and biomedical,
•changes in the portions of our revenue represented by our various products and customers,
•our ability to introduce new products,
•our competitors’ announcement or introduction of new products, services or technological innovations,
•costs of raw materials, labor, energy, supplies, transportation or other indirect costs,
•changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services,
•our ability to realize the benefit of ongoing productivity initiatives,
•changes in the volume or timing of product orders,
•fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans,
•changes in our assumptions underlying future funding of pension obligations,
•changes in assumptions used to determine contingent consideration in acquisitions, and
•changes in foreign currency exchange rates.
A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including commercial airlines, freight carriers, national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers. In addition, a global health crisis or pandemic such as the COVID-19 pandemic, wars, conflicts, or other changes in a country’s or region’s political or economic conditions, could have a significant adverse effect on our supply chain.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives) that may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the
38
turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems or those of our customers, suppliers or other third parties, or cybercrime, resulting in inappropriate access to or inadvertent transfer of information or assets, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our and our third-party service providers' information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers, suppliers or other third parties, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems or cybercrime, resulting in inappropriate access to or inadvertent transfer of information or assets, could result in losses or misappropriation of assets or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of October 1, 2023, our total assets included $9.6 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses and in-process research and development, net of accumulated amortization. We test goodwill at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Life Sciences and Diagnostics segments may result in impairment of our intangible assets, which could adversely affect our results of operations.
Risks Related to our Intellectual Property
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties have in the past and may in the future also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
39
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market, or incur losses for failing to comply with our contractual obligations. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
Risks Related to Legal, Government and Regulatory Matters
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product and other liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, the collection, storage, transfer, use, disclosure, retention and other processing of personal data, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, data privacy and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations,
40
we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Risks Related to our Foreign Operations
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in fiscal year 2022. We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
•changes in actual, or from projected, foreign currency exchange rates,
•a global health crisis of unknown duration, such as the COVID-19 pandemic,
•wars, conflicts, or other changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
•longer payment cycles of foreign customers and timing of collections in foreign jurisdictions,
•trade protection measures including embargoes, sanctions and tariffs, such as the sanctions and other restrictions implemented by the United States and other governments on the Russian Federation and related parties in connection with the conflict in Ukraine,
•import or export licensing requirements and the associated potential for delays or restrictions in the shipment of our products or the receipt of products from our suppliers,
•policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States,
•differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
•adverse income tax audit settlements or loss of previously negotiated tax incentives,
•differing business practices associated with foreign operations,
•difficulty in transferring cash between international operations and the United States,
•difficulty in staffing and managing widespread operations,
•differing labor laws and changes in those laws,
•differing protection of intellectual property and changes in that protection,
•expanded enforcement of laws related to data protection and personal privacy,
•increasing global enforcement of anti-bribery and anti-corruption laws, and
•differing regulatory requirements and changes in those requirements.
Risks Related to our Debt
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
We have a substantial amount of debt and other financial obligations. Our debt level and related debt service obligations could have negative consequences, including:
•requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases;
•reducing our flexibility in planning for or reacting to changes in our business and market conditions;
•exposing us to interest rate risk as a portion of our debt obligations are at variable rates;
41
•increasing our foreign currency risk as a portion of our debt obligations are in denominations other than the U.S. dollar; and
•increasing the chances of a downgrade of our debt ratings due to the amount or intended purpose of our debt obligations.
We may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase. In addition, the market for both public and private debt offerings has experienced liquidity concerns and increased volatility, which could ultimately increase our borrowing costs and limit our ability to obtain future financing.
Restrictions in our senior unsecured revolving credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility, senior unsecured notes due in 2024 (“2024 Notes”), senior unsecured notes due in 2026 (“2026 Notes”), senior unsecured notes due in 2028 (“2028 Notes”), senior unsecured notes due in 2029 (“2029 Notes”), senior unsecured notes due in 2031 (“March 2031 Notes”), senior unsecured notes due in 2031 (“September 2031 Notes”) and senior unsecured notes due in 2051 (“2051 Notes”) include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
•pay dividends on, redeem or repurchase our capital stock,
•sell assets,
•incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us,
•guarantee or secure indebtedness,
•enter into transactions with affiliates, and
•consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.
Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, the 2024 Notes, the 2026 Notes, the 2028 Notes, the 2029 Notes, the March 2031 Notes, the September 2031 Notes, the 2051 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
Risks Related to Ownership of our Common Stock
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
•operating results that vary from our financial guidance or the expectations of securities analysts and investors,
•the financial performance of the major end markets that we target,
•the operating and securities price performance of companies that investors consider to be comparable to us,
•announcements of strategic developments, acquisitions and other material events by us or our competitors,
•changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, inflation, freight costs, commodity and equity prices and the value of financial assets, and
42
•changes to economic conditions arising from global health crises and pandemics, climate change, or from wars or conflicts.
Dividends on our common stock could be reduced or eliminated in the future.
On July 21, 2023, we announced that our Board of Directors (our “Board”) had declared a quarterly dividend of $0.07 per share for the third quarter of fiscal year 2023 that will be paid on November 10, 2023. On October 26, 2023, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2023 that will be payable in February 2024. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchases
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
| Issuer Repurchases of Equity Securities | |||||||||||||||||||||||
| Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Number (or Approximate Dollar Value) Shares that May Yet Be Purchased Under the Plans or Programs(2) | |||||||||||||||||||
| July 3, 2023—July 30, 2023 | 211,455 | $ | 117.14 | 210,736 | $ | 442,849,012 | |||||||||||||||||
| July 31, 2023—August 27, 2023 | 727 | 118.03 | — | 442,849,012 | |||||||||||||||||||
| August 28, 2023—October 1, 2023 | 801,256 | 109.26 | 800,000 | 355,447,935 | |||||||||||||||||||
| Activity for quarter ended October 1, 2023 | 1,013,438 | $ | 110.91 | 1,010,736 | $ | 355,447,935 | |||||||||||||||||
____________________
(1)Our Board of Directors (our “Board”) has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the three months ended October 1, 2023, we repurchased 2,702 shares of common stock for this purpose at an aggregate cost of $0.3 million. During the nine months ended October 1, 2023, we repurchased 72,445 shares of common stock for this purpose at an aggregate cost of $9.8 million.
(2)On July 22, 2022, our Board authorized us to repurchase shares of common stock for an aggregate amount up to $300.0 million under a stock repurchase program (the “Repurchase Program”). During the nine months ended October 1, 2023, we repurchased 1,004,544 shares of common stock under the Repurchase Program for an aggregate cost of $131.3 million. On April 27, 2023, the Repurchase Program was terminated by our Board and our Board authorized us to repurchase shares of common stock for an aggregate amount up to $600.0 million under a new stock repurchase program (the “New Repurchase Program”). No shares remain available for repurchase under the Repurchase Program due to its termination. The New Repurchase Program will expire on April 26, 2025 unless terminated earlier by our Board and may be suspended or discontinued at any time. During the three months ended October 1, 2023, we repurchased 1,010,736 shares of common stock under the New Repurchase Program for an aggregate cost of $112.1 million. During the nine months ended October 1, 2023, we repurchased 2,159,985 shares of common stock under the New Repurchase Program for an aggregate cost of $244.6 million. As of October 1, 2023, $355.4 million remained available for aggregate repurchases of shares under the New Repurchase Program.
43
Item 5.Other Information
Rule 10b5-1 Trading Plans
During the three months ended October 1, 2023, Prahlad Singh, Joel S. Goldberg and Tajinder S. Vohra, each an officer for purposes of Section 16 of the Securities Exchange Act of 1934, adopted a “Rule 10b5-1 trading arrangement” as the term is defined in Item 408(a) of Regulation S-K.
Rule 10b5-1 Trading Arrangements | |||||||||||||||||||||||
| Name | Position | Trading Arrangement Adoption Date | Duration of Trading Arrangement | Aggregate Number of Securities to be Sold under the Trading Arrangement | |||||||||||||||||||
| December 1, 2023 - February 6, 2024 | Up to | ||||||||||||||||||||||
| December 4, 2023 - February 6, 2024 | Up to | ||||||||||||||||||||||
| December 4, 2023 - February 28, 2024 | Up to | ||||||||||||||||||||||
During the three months ended October 1, 2023, none of our directors or officers adopted a “non-Rule 10b5-1 trading arrangement”, or terminated
Item 6.Exhibits
Exhibit Number | Exhibit Name | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | |||||||
____________________________
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Cover Page, Form 10-Q, Quarterly Report for the quarterly period ended October 1, 2023 (ii) Condensed Consolidated Statements of Operations for the three and nine months ended October 1, 2023 and October 2, 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2023 and October 2, 2022, (iv) Condensed Consolidated Balance Sheets at October 1, 2023 and January 1, 2023, (v) Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended October 1, 2023 and October 2, 2022, (vi) Condensed Consolidated
44
Statements of Cash Flows for the nine months ended October 1, 2023 and October 2, 2022, (vii) Notes to Condensed Consolidated Financial Statements, and (viii) the information under Part II, Item 5, Other Information.
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
REVVITY, INC. | |||||||||||
| November 7, 2023 | By: | /s/ MAXWELL KRAKOWIAK | |||||||||
| Maxwell Krakowiak Senior Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||||||
REVVITY, INC. | |||||||||||
| November 7, 2023 | By: | /s/ ANITA GONZALES | |||||||||
| Anita Gonzales Vice President and Controller (Principal Accounting Officer) | |||||||||||
46
EXHIBIT 31.1
CERTIFICATION
I, Prahlad Singh, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Revvity, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | November 7, 2023 | /s/ PRAHLAD SINGH, PhD | ||||||
| Prahlad Singh, PhD President and Chief Executive Officer | ||||||||
EXHIBIT 31.2
CERTIFICATION
I, Maxwell Krakowiak, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Revvity, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | November 7, 2023 | /s/ MAXWELL KRAKOWIAK | ||||||
| Maxwell Krakowiak Senior Vice President and Chief Financial Officer | ||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Revvity, Inc. (the “Company”) for the period ended October 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Prahlad Singh, President and Chief Executive Officer of the Company, and Maxwell Krakowiak, Senior Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Based on my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) Based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: | November 7, 2023 | /S/ PRAHLAD SINGH, PhD | ||||||
| Prahlad Singh, PhD President and Chief Executive Officer | ||||||||
| Dated: | November 7, 2023 | /S/ MAXWELL KRAKOWIAK | ||||||
| Maxwell Krakowiak Senior Vice President and Chief Financial Officer | ||||||||