ORANGE COUNTY, Calif., April 28 Beckman Coulter, Inc. (NYSE: BEC), a leading developer, manufacturer and marketer of products that simplify, automate and innovate complex biomedical testing, announced today first quarter ended March 31, 2010 results. Reported first quarter revenue, including $115.7 million from the recent Olympus Diagnostics acquisition (Olympus), was $881.1 million, up 27.4% over prior year quarter, or 23.6% in constant currency. On a constant currency basis, recurring revenue increased 23.7%. Recurring revenue, excluding the impact of Olympus, grew 8.4% in constant currency. Reported net earnings were $38.7 million, or $0.54 per fully diluted share. Adjusted for special items related primarily to restructuring charges and acquisition costs, and excluding Olympus intangibles amortization, net earnings were $61.8 million, or $0.86 per fully diluted share, an increase of 21% over prior year quarter. (See "Non-GAAP Financial Measures" and "Reconciling Items to Non-GAAP Financial Measures.")
Product Compliance and Quality Matters
Scott Garrett, Chairman, President and Chief Executive Officer, said "We have committed considerable resources to characterize the factors underlying the product compliance and quality issues, restore troponin to an unambiguous cleared status and ensure that we are on a strong foundation for regulatory compliance in the future.
"As reported through our SEC filings, we have recalled the troponin test, a critical care test used to aid in the diagnosis of cardiac events, from one of our automated immunoassay systems, the DxI, and advised our DxI customers to find an alternate method for troponin testing. In the U.S., we recognized approximately $60 million in total annual revenue from troponin in 2009. Of this total, we estimate that $10 to $15 million is at risk.
"Here's what we know to date:
"Because we value customer feedback, we have engaged customers in a series of regional forums and established a customer advisory group to provide additional insight into both product performance and customer communications," Garrett said.
First Quarter Summary
"I am pleased with the growth in each of our businesses, with especially strong demand in international markets for Immunoassay and Flow Cytometry products. Recurring revenue comprised more than 80% of total revenue and 90% of gross profit. Olympus total revenue for the quarter was on track with our expectations for 2010," Garrett continued.
Recurring revenue increased 23.7% in constant currency, including 15.3% due to the Olympus acquisition. Automated Immunoassay recurring revenue grew 17% in constant currency in the quarter as a result of strong demand in international markets and against a weak prior year quarter.
Cash instrument sales increased 23.3% in constant currency, due to the Olympus acquisition and a strong quarter in Life Science. Life Science cash instrument sales increased 12.4% driven by particularly strong growth in Europe and Asia.
In the quarter, Clinical Diagnostics revenues increased 26.1% in constant currency due to Olympus and robust growth in Europe and Asia. Sales to life science customers increased 7.9% in constant currency against a weak prior year quarter.
On a geographic basis, first quarter revenue in the U.S. increased 12.9%, led primarily by Olympus. In constant currency, international revenue increased 35% due to Olympus and strong demand in Asia.
Operating income in the quarter was $79.9 million. On an adjusted basis, operating income grew to $103.6 million, 57% over prior year quarter. Adjusted operating margin was 11.8%, a 230 basis point improvement over prior year quarter due to Olympus synergies and expense management.
Non-operating expense was $22.5 million (including $8.2 million of interest expense associated with the Olympus acquisition) compared to $21.4 million in the prior year quarter which included a foreign currency loss of $11.8 million related to our hedge for the Olympus purchase. The tax rate in the quarter was 32.6% compared to (13.2%) in the prior year quarter, which benefited from discrete items. The higher tax rate in the first quarter 2010 is primarily due to the write off of a deferred tax asset related to the change in Medicare drug subsidy due to healthcare reform. The adjusted tax rate was 23.8% compared to 19.3% in the prior year quarter; both periods benefited from discrete items.
Net earnings were $38.7 million, or $0.54 per fully diluted share. Excluding Olympus intangibles amortization, restructuring and acquisition-related costs and other items described in the accompanying tables, first quarter adjusted net earnings were $61.8 million or $0.86 per fully diluted share.
Garrett continued, "Strong recurring revenue, careful expense management, and Olympus synergies all contributed to our performance. We are pleased with our progress in cash flow as we approach the five year anniversary of our leasing transition. Adjusted EBITDA for the trailing twelve months increased over 26% to $793 million. Free cash flow for the quarter was $27 million net of a $20 million pension contribution."
Full Year 2010 Outlook
"We are updating our full-year outlook based on the present status of pending product compliance and quality matters and taking into account current foreign exchange rates. We will update our 2010 outlook, as needed, as we work to resolve product compliance and quality matters. Total revenue is now expected to be in the range of $3.75 to $3.85 billion, including $480 to $500 million from Olympus products. Projected recurring revenue growth in constant currency for Beckman Coulter ex-Olympus remains unchanged at 6% to 8%.
"Our expectations for operating margin continue to be about 13.5%. The adjusted tax rate is revised down to approximately 26% reflecting $4 million in discrete items in the first quarter. Non-operating expenses should be about $90 million," Garrett added.
"Based on a share count of 71.3 million, we now expect full-year adjusted earnings per fully diluted share to be in the range of $4.30 to $4.50. Our 2010 outlook excludes Olympus intangibles amortization of $24 million, anticipated restructuring charges associated with the Olympus acquisition and other site consolidation costs of approximately $30 million and the $8 million charge for the tax change on the Medicare subsidy. CAPEX and depreciation and amortization are both estimated to be between $350 to $375 million.
"I remain confident about the soundness of our strategy and the stability and opportunities in our sector. We continue to leverage our channel presence and customer relationships to pursue many significant long-term growth opportunities including those in China, Cellular Analysis and Molecular Diagnostics. Leverage from the Olympus transaction extends our leadership positions as well as strengthens our relative position on a geographic basis. We are determined to resolve our product compliance and quality matters as quickly as possible and are committed to delivering on our long-term goals of recurring revenue growth of 7 to 9 percent and net earnings growth of 9 to 12 percent," concluded Garrett.
Investor Conference Call and Webcast
As previously announced, there will be a conference call and webcast presentation today, Wednesday, April 28, 2010 at 5:00 pm ET to discuss the first quarter 2010 results. The presentation webcast will be available live and is accessible to all investors through Beckman Coulter's website at www.beckmancoulter.com. When accessing the webcast through the Beckman Coulter site, select "go to IR" under Investor Relations and find the call listed under "What's Ahead." The webcast will be archived for future on-demand replay through Friday, May 14, 2010.
About Beckman Coulter
Beckman Coulter, Inc., based in Orange County, California, develops, manufactures and markets products that simplify, automate and innovate complex biomedical tests. More than 200,000 Beckman Coulter systems operate in laboratories around the world, supplying critical information for improving patient health and reducing the cost of care. Recurring revenue, consisting of consumable supplies (including reagent test kits), service and operating-type lease payments, represent about 80% of the company's 2009 revenue of $3.3 billion. For more information, visit www.beckmancoulter.com.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements contain words such as "expect," "anticipate," "should," "estimate," "confident," "enthusiastic," or the negative thereof or comparable terminology, and may include information regarding the company's expectations, goals or intentions regarding the future, including statements regarding expectations of full year earnings per share, total Olympus revenue and statements under the heading "Full Year 2010 Outlook," including expectations for constant currency growth in total revenue, recurring revenue growth, operating margins, non-operating expenses, tax rate, CAPEX, adjusted earnings per diluted share, the impact of our acquisition of the lab-based diagnostics business of Olympus, restructuring and acquisition-related costs, product and geographic leadership, stability of our sector, shareholder returns, growth opportunities, quality, operations and our recurring revenue model, and depreciation and amortization. The outlook provided in this press release reflects Beckman Coulter's current analysis of existing trends and information and represent Beckman Coulter's judgment only as of the date of this press release.
This press release contains the company's unaudited financial results for the quarter ended March 31, 2010. These results may change as a result of further review by the company's independent accountants and management. Final first quarter results will be provided in the company's report to the SEC on Form 10-Q.
Forward-looking statements included in this press release involve certain risks and uncertainties and are based on management's current expectations, estimates, forecasts and projections about the company and are subject to risks and uncertainties, some of which may be beyond the company's control, that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include our ability to compete effectively; legal and regulatory changes, oversight or other activities, product quality and regulatory compliance requirements, including obtaining new 510K clearances for the use of our Troponin I test on our immunoassay systems, and the cost and time factors involved, FDA actions including recalls, warning letters and fines, failures in our internal processes and systems, the effects of healthcare reform; market demand for the company's new and existing products; intellectual property infringement claims by others and our ability to protect the company's intellectual property; difficulty in obtaining materials and components for our products; consolidation of our customer base, formation of group purchasing organizations and changes in customer inventory levels and inventory management practices; reductions in government funding to our customers; foreign currency exchange fluctuations; global market, economic and political conditions and natural disasters; costs associated with our supply chain initiatives; tax risks and regulations; changes in the value of our investment in marketable securities; and our ability to successfully acquire and integrate acquired businesses and realize the anticipated benefits from such acquisitions, including our acquisition of the lab-based diagnostics business of Olympus. Additional factors that could cause actual results to differ are discussed in Part I, Item 1A (Risk Factors) of the company's Form 10-K filed with the SEC on February 22, 2010. Therefore, the reader is cautioned not to rely on these forward-look statements. Forward-looking statements contained in this press release are made only as of the date hereof, and we undertake no obligation to update these disclosures except as required by law.
Non-GAAP Financial Measures
"GAAP" refers to financial information presented in accordance with generally accepted accounting principles in the United States.
To supplement the condensed consolidated financial statements and discussion presented on a GAAP basis, this press release includes non-GAAP financial measures with respect to the quarter ended March 31, 2010 and 2009 and with respect to Outlook for 2010. Management uses non-GAAP financial measures because it believes the appropriate analysis of our profitability cannot be effectively considered while incorporating the effect of unusual items and charges that have not been experienced consistently in prior periods. Also, management believes these non-GAAP measures facilitate our comparison of our historical results to our competitors. The Company reported the following non-GAAP financial measures: "adjusted operating income," "adjusted operating margin," "adjusted net earnings," "adjusted diluted earnings per share," "adjusted tax rate," "free cash flow," "constant currency growth," "adjusted earnings before interest, taxes, depreciation and amortization" and "adjusted EBITDA". The Company also provided its outlook for 2010 for "adjusted operating margin," "adjusted tax rate," and "adjusted earnings per diluted share." These non-GAAP financial measures are not in accordance with or an alternative to GAAP.
Adjusted operating income excludes the impact of charges associated with restructuring or relocations in connection with our supply chain improvement initiatives, acquisition and integration related expenses, environmental remediation, charges associated with acquisitions and upfront license fees, and other operating expense items. Some of the items excluded may be beyond the control of management and are less predictable than our core performance. Management expects to continue to incur restructuring costs associated with the Olympus acquisition and other site consolidation costs through 2010, however as disclosed in the Outlook for 2010, management believes those costs do not reflect the ongoing performance of the core business. Management uses adjusted operating income to prepare operating budgets and forecasts and to measure our performance against those budgets and forecasts. Additionally, the Company uses adjusted operating income to evaluate management performance for compensation purposes. A reconciliation of operating income, the GAAP measure most directly comparable to adjusted operating income, is provided on the attached schedule.
Adjusted operating margin is calculated using adjusted operating income, as described above, divided by revenue. Management uses adjusted operating margin in its analysis of operating budgets and forecasts and to measure our performance against those budgets and forecasts, since this measure is reflective of our operating costs on an ongoing basis and excludes transactions or events that may be beyond the control of management or which are unpredictable. Management uses adjusted operating margin when evaluating the performance trends of our Company compared to others. A reconciliation of operating margin, the GAAP measure most directly comparable to adjusted operating margin, is provided on the attached schedule.
Adjusted net earnings excludes the impact of income and expense items excluded from adjusted operating income and non-operating income and expense items which are considered unusual and the related incremental tax effect of these items. Additionally, adjusted net earnings excludes the impact of a non-recurring charge for deferred tax assets associated with the recently enacted US health care reform legislation related to the Medicare drug subsidy. Adjusted diluted earnings per share exclude the effect of the same items described above from diluted earnings per share. Reconciliations of net earnings, the GAAP measure most directly comparable to adjusted net earnings, and earnings per share, the GAAP measure most directly comparable to adjusted earnings per share, are provided on the attached schedule.
Adjusted EBITDA is a non-GAAP measure that management believes provides useful supplemental information for management and investors. Adjusted EBITDA is a tool that provides a measure of the adjusted net earnings, as described above, of the business before considering the impact of interest, taxes, depreciation and amortization. We believe adjusted EBITDA provides management with a means to analyze and evaluate the profitability of our business and its ability to generate cash flow before the effect of interest, taxes, depreciation and amortization. A reconciliation of net earnings, the GAAP measure most directly comparable to adjusted EBITDA, is provided on the attached schedule.
Adjusted tax rate excludes the incremental tax effect of income and expense items excluded from adjusted net earnings, as described above. A reconciliation of the tax rate, the GAAP measure most directly comparable to adjusted tax rate, is provided on the attached schedule.
Free cash flow is a non-GAAP measure that management believes provides useful supplemental information for management and investors, because it reports the cash provided by operating activities after cash invested in property, plant and equipment. We believe this measure provides management and investors with a measure to determine the health of the business and cash flow generated by the business in excess of the cash needed to be reinvested in the business. A reconciliation of cash provided by operating activities, the GAAP measure most directly comparable to free cash flow, is provided on the attached schedule.
Our discussion of international revenue includes comparisons on a constant currency basis, which we have previously defined in our annual report on Form 10-K. We believe use of this measure aids in the understanding of our operations without the impact of foreign currency. This presentation is consistent with our internal use of the measure, which we use to measure the changes in our operating results against prior periods and against our internally developed targets. We believe our investors also use this measure to analyze the underlying trends in our international operations.
Our Outlook for 2010 adjusted operating income, adjusted operating margin, adjusted tax rate, and adjusted earnings per diluted share exclude the impact of charges or write-offs associated with acquisitions, environmental remediation, restructuring, including relocations in connection with our supply chain improvement initiatives, acquisition and integration related costs, gains or losses upon sale of assets or businesses, the deferred tax charge as a result of healthcare reform and other items that we do not expect to be recurring, because we are unable to forecast such items with reasonable predictability and do not include those items in our operating budgets. Although management expects to continue to incur costs for restructuring associated with the Olympus acquisition and other site consolidations through 2010, estimated to be up to $30 million, management believes those costs do not reflect the ongoing performance of the core business. The Company is not able to provide a reconciliation of projected non-GAAP financial measures to expected reported results due to our inability to forecast charges associated with future transactions and initiatives. However, management believes our Outlook for 2010, using the non-GAAP measures indicated, reflects management's expectation of the performance of the core operations of the Company and believes this information is useful to investors to view our operations through the eyes of management.
The presentation of historical non-GAAP financial measures is not meant to be considered in isolation from or as a substitute for results prepared in accordance with GAAP. We use these non-GAAP measures to supplement net earnings and other corresponding measures on a basis prepared in conformance with GAAP. These non-GAAP financial measures reflect additional ways of viewing aspects of our operations that when viewed with our GAAP results provide a more complete understanding of factors and trends affecting our business. However, investors should understand that the excluded items are actual income and expenses that may impact the cash available to us for other uses. We strongly encourage investors to consider both net earnings and cash flows determined under GAAP as compared to the non-GAAP measures presented and to perform their own analysis, as appropriate.
Reconciling Items to Non-GAAP Financial Measures
The non-GAAP measures described above exclude the following items:
Quarter Ended March 31 -------- 2010 2009 % Chg ---- ---- ----- Reported Results (in millions, except per share) ------------------------------ Total Revenue $881.1 $691.5 27.4% Recurring Revenue $731.3 $573.7 27.5% Operating Income $79.9 $39.6 101.7% Diluted Earnings per Share $0.54 $0.32 68.8% Adjusted Results (revenue growth in constant currency) ----------------------------------- Total Revenue Growth 23.6% Recurring Revenue Growth 23.7% Excluding Olympus 8.4% Operating Income(1) $103.6 $66.0 57.0% Diluted Earnings per Share(1) $0.86 $0.71 21.1%
SOURCE Beckman Coulter, Inc.