mygn-10q_20180331.htm

 

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 March 31, 2018

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:  0-26642

 

MYRIAD GENETICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

87-0494517

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

320 Wakara Way, Salt Lake City, UT

84108

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code: (801) 584-3600

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Check one:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if 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 May 4, 2018 the registrant had 69,906,818 shares of $0.01 par value common stock outstanding.

 

 


MYRIAD GENETICS, INC.

INDEX TO FORM 10-Q

 

 

 

Page

 

PART I - Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2018 and June 30, 2017

3

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended March 31, 2018 and 2017

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended March 31, 2018 and 2017

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2018 and 2017

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

PART II - Other Information

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 

 

 

Signatures

31

 

2


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In millions)

 

 

 

March 31,

 

 

June 30,

 

ASSETS

 

2018

 

 

2017

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

97.4

 

 

$

102.4

 

Marketable investment securities

 

 

59.9

 

 

 

48.3

 

Prepaid expenses

 

 

10.1

 

 

 

12.7

 

Inventory

 

 

33.4

 

 

 

42.2

 

Trade accounts receivable, less allowance for doubtful accounts of $10.3 March 31, 2018 and $8.2 June 30, 2017

 

 

123.7

 

 

 

105.6

 

Prepaid taxes

 

 

3.7

 

 

 

0.2

 

Other receivables

 

 

3.3

 

 

 

5.7

 

Total current assets

 

 

331.5

 

 

 

317.1

 

Property, plant and equipment, net

 

 

48.2

 

 

 

51.1

 

Long-term marketable investment securities

 

 

51.3

 

 

 

48.5

 

Intangibles, net

 

 

467.3

 

 

 

491.6

 

Goodwill

 

 

320.2

 

 

 

316.1

 

Total assets

 

$

1,218.5

 

 

$

1,224.4

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

20.2

 

 

$

22.0

 

Accrued liabilities

 

 

64.1

 

 

 

65.6

 

Short-term contingent consideration

 

 

7.4

 

 

 

127.3

 

Deferred revenue

 

 

2.6

 

 

 

2.6

 

Total current liabilities

 

 

94.3

 

 

 

217.5

 

Unrecognized tax benefits

 

 

27.9

 

 

 

25.2

 

Other long-term liabilities

 

 

6.8

 

 

 

7.2

 

Contingent consideration

 

 

9.6

 

 

 

13.2

 

Long-term debt

 

 

69.3

 

 

 

99.1

 

Long-term deferred taxes

 

 

62.2

 

 

 

84.4

 

Total liabilities

 

 

270.1

 

 

 

446.6

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, 69.9 and 68.4 shares outstanding at March 31, 2018 and

   June 30, 2017 respectively

 

 

0.7

 

 

 

0.7

 

Additional paid-in capital

 

 

889.6

 

 

 

851.4

 

Accumulated other comprehensive income (loss)

 

 

1.8

 

 

 

(5.5

)

Retained earnings (deficit)

 

 

56.2

 

 

 

(68.4

)

Total Myriad Genetics, Inc. stockholders’ equity

 

 

948.3

 

 

 

778.2

 

Non-Controlling Interest

 

 

0.1

 

 

 

(0.4

)

Total stockholders' equity

 

 

948.4

 

 

 

777.8

 

Total liabilities and stockholders’ equity

 

$

1,218.5

 

 

$

1,224.4

 

 

See accompanying notes to condensed consolidated financial statements.

3


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Molecular diagnostic testing

 

$

179.7

 

 

$

185.2

 

 

$

537.6

 

 

$

534.2

 

Pharmaceutical and clinical services

 

 

13.8

 

 

 

11.7

 

 

 

40.1

 

 

 

36.7

 

Total revenue

 

 

193.5

 

 

 

196.9

 

 

 

577.7

 

 

 

570.9

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of molecular diagnostic testing

 

 

36.8

 

 

 

37.9

 

 

 

110.7

 

 

 

109.5

 

Cost of pharmaceutical and clinical services

 

 

7.3

 

 

 

6.4

 

 

 

20.7

 

 

 

19.1

 

Research and development expense

 

 

18.5

 

 

 

17.6

 

 

 

53.1

 

 

 

55.6

 

Change in the fair value of contingent consideration

 

 

(1.2

)

 

 

5.2

 

 

 

(61.3

)

 

 

2.0

 

Selling, general, and administrative expense

 

 

115.1

 

 

 

122.1

 

 

 

345.5

 

 

 

354.3

 

Total costs and expenses

 

 

176.5

 

 

 

189.2

 

 

 

468.7

 

 

 

540.5

 

Operating income

 

 

17.0

 

 

 

7.7

 

 

 

109.0

 

 

 

30.4

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

0.5

 

 

 

0.3

 

 

 

1.2

 

 

 

0.9

 

Interest expense

 

 

(0.5

)

 

 

(1.5

)

 

 

(2.2

)

 

 

(4.8

)

Other

 

 

(0.5

)

 

 

1.5

 

 

 

(1.3

)

 

 

(2.4

)

Total other income (expense):

 

 

(0.5

)

 

 

0.3

 

 

 

(2.3

)

 

 

(6.3

)

Income before income tax

 

 

16.5

 

 

 

8.0

 

 

 

106.7

 

 

 

24.1

 

Income tax provision

 

 

5.2

 

 

 

3.8

 

 

 

(17.7

)

 

 

15.2

 

Net income

 

$

11.3

 

 

$

4.2

 

 

$

124.4

 

 

$

8.9

 

Net loss attributable to non-controlling interest

 

 

(0.1

)

 

 

 

 

 

(0.2

)

 

 

(0.1

)

Net income attributable to Myriad Genetics, Inc. stockholders

 

$

11.4

 

 

$

4.2

 

 

$

124.6

 

 

$

9.0

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.06

 

 

$

1.80

 

 

$

0.13

 

Diluted

 

$

0.16

 

 

$

0.06

 

 

$

1.74

 

 

$

0.13

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

69.8

 

 

 

68.1

 

 

 

69.2

 

 

 

68.1

 

Diluted

 

 

72.4

 

 

 

68.3

 

 

 

71.7

 

 

 

68.5

 

 

See accompanying notes to condensed consolidated financial statements.

4


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income attributable to Myriad Genetics, Inc. stockholders

 

$

11.4

 

 

$

4.2

 

 

$

124.6

 

 

$

9.0

 

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

(0.2

)

 

 

0.1

 

 

 

(0.5

)

 

 

(0.5

)

Change in foreign currency translation adjustment, net of tax

 

 

4.4

 

 

 

3.2

 

 

 

7.8

 

 

 

(0.6

)

Comprehensive income

 

 

15.6

 

 

 

7.5

 

 

 

131.9

 

 

 

7.9

 

Comprehensive income attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Myriad Genetics, Inc.

   shareholders

 

$

15.6

 

 

$

7.5

 

 

$

131.9

 

 

$

7.9

 

 

See accompanying notes to condensed consolidated financial statements.

5


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

 

Nine months ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net Income attributable to Myriad Genetics, Inc. stockholders

 

$

124.6

 

 

 

8.9

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

39.3

 

 

 

35.0

 

Non-cash interest expense

 

 

0.1

 

 

 

0.4

 

Loss (gain) on disposition of assets

 

 

0.1

 

 

 

(0.2

)

Share-based compensation expense

 

 

20.0

 

 

 

22.7

 

Impairment of cost basis investment

 

 

 

 

 

2.4

 

Bad debt expense

 

 

23.2

 

 

 

27.3

 

Loss on extinguishment of debt

 

 

 

 

 

1.3

 

Deferred income taxes

 

 

(24.9

)

 

 

2.0

 

Unrecognized tax benefits

 

 

2.7

 

 

 

0.9

 

Change in fair value of contingent consideration

 

 

(61.3

)

 

 

2.0

 

Payment of contingent consideration

 

 

(20.8

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

2.7

 

 

 

10.9

 

Trade accounts receivable

 

 

(42.3

)

 

 

(40.3

)

Other receivables

 

 

4.1

 

 

 

(3.2

)

Inventory

 

 

8.9

 

 

 

(6.5

)

Prepaid taxes

 

 

(3.7

)

 

 

3.6

 

Accounts payable

 

 

(2.0

)

 

 

2.0

 

Accrued liabilities

 

 

(2.6

)

 

 

(0.6

)

Deferred revenue

 

 

(0.1

)

 

 

1.0

 

Net cash provided by operating activities

 

 

68.0

 

 

 

69.6

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(6.6

)

 

 

(5.4

)

Acquisitions, net of cash acquired

 

 

 

 

 

(216.1

)

Sale of cost basis investment

 

 

 

 

 

2.6

 

Purchases of marketable investment securities

 

 

(79.4

)

 

 

(74.6

)

Proceeds from maturities and sales of marketable investment securities

 

 

65.5

 

 

 

142.9

 

Net cash used in investing activities

 

 

(20.5

)

 

 

(150.6

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net proceeds from common stock issued under share-based compensation plans

 

 

18.2

 

 

 

1.3

 

Net proceeds from revolving credit facility

 

 

53.0

 

 

 

204.0

 

Repayment of revolving credit facility

 

 

(83.0

)

 

 

(37.0

)

Net proceeds from term loan

 

 

 

 

 

199.0

 

Repayment of term loan

 

 

 

 

 

(200.0

)

Payment of contingent consideration recorded in purchase accounting

 

 

(42.4

)

 

 

 

Fees paid for extinguishment of debt

 

 

 

 

 

(0.6

)

Repurchase and retirement of common stock

 

 

 

 

 

(31.6

)

Proceeds from non-controlling interest

 

 

0.5

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(53.7

)

 

 

135.1

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

1.2

 

 

 

1.2

 

Net increase (decrease) in cash and cash equivalents

 

 

(5.0

)

 

 

55.3

 

Cash and cash equivalents at beginning of the period

 

 

102.4

 

 

 

68.5

 

Cash and cash equivalents at end of the period

 

$

97.4

 

 

$

123.8

 

 

See accompanying notes to condensed consolidated financial statements. 

6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars and shares in millions, except per share data)

(1)

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by Myriad Genetics, Inc. (the “Company” or “Myriad”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements in accordance with GAAP. The condensed consolidated financial statements herein should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2017, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. Operating results for the three and nine months ended March 31, 2018 may not necessarily be indicative of results to be expected for any other interim period or for the full year.

The consolidated financial statements include the accounts of the Company’s majority-owned subsidiary, Assurex Canada, Ltd. which is 85% owned by Assurex Health, Inc. (“Assurex”), a wholly owned subsidiary of the Company, and 15% owned by the Centre for Addiction and Mental Health. Assurex Canada, Ltd. is a consolidated subsidiary of Assurex Health, Inc. The value of the non-controlling interest represents the portion of Assurex Canada, Ltd.’s profit or loss and net assets that is not held by Assurex Health, Inc. The Company attributes comprehensive income or loss of the subsidiary between the Company and the non-controlling interest based on the respective ownership interest.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification in the Consolidated Statements of Operations

In connection with the preparation of the financial statements for the three and nine months ended March 31, 2018, the Company determined that the amounts for the change in the fair value of contingent consideration were improperly reported as a component of other income (expense) and should have been reported as a component of operating income on the consolidated statements of operations at March 31, 2017.  As a result, for the three and nine months ended March 31, 2017 total costs and expenses were understated, causing operating income and total other expense to be overstated by $5.2 and $2.0 respectively.  There was no impact to net income or earnings per share.  The Company concluded that the error was not material to the consolidated statements of operations, but has elected to correct the error in the accompanying financial statements for consistent presentation.  The classification error had no effect on the on the previously reported consolidated balance sheets, statements of comprehensive income or cash flows for the three and nine months ended March 31, 2017.

New Accounting Pronouncements

In May 2014, the FASB issued the converged standard on revenue recognition with the objective of providing a single, comprehensive model for all contracts with customers to improve comparability in the financial statements of companies reporting using International Financial Reporting Standards and U.S. GAAP. The standard contains principles that an entity must apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity must recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. An entity can apply the revenue standard retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings (modified retrospective method). The standard will be effective for the Company first quarter of fiscal 2019, with early adoption permitted for annual periods beginning after December 16, 2016.  The Company plans to adopt the standard July 1, 2018 using the full retrospective method.  The Company continues to assess the impact of this standard on its results of operations, financial position and cash flows.  Based on its preliminary assessment, the Company expects the majority of the amounts that have historically been classified as bad debt expense, primarily related to patient responsibility, will be reflected as a reduction of the transaction price and therefore as a reduction in revenue. The Company anticipates an increase in the level of required financial statement disclosures due to the standard.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal 2020. Early adoption of ASU 2016-02 is permitted. ASU 2016-02 requires a modified

7


retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s management is currently evaluating the impact of adopting ASU 2016-02 on the Company’s consolidated financial statements.

(2)

ACQUISITIONS

Assurex

On August 31, 2016, the Company completed the acquisition of Assurex, pursuant to the Agreement and Plan of Merger (as amended, the “Merger Agreement”), dated August 3, 2016. Pursuant to the terms of the Merger Agreement, Myriad Merger Sub, Inc., a wholly owned subsidiary of the Company, was merged with and into Assurex, with Assurex continuing as the surviving corporation, and wholly owned subsidiary of Myriad.  The Company acquired Assurex for total consideration of $351.6, net of cash acquired of $5.5, including a cash payment of $216.1, and two potential performance-based milestones totaling $185.0 with a fair value of $130.0.  The fair value of the performance-based milestones was determined by using the Monte Carlo Method.

Of the cash consideration, $19.1 was deposited into an escrow account to fund (i) any post-closing adjustments payable to Myriad based upon differences between the estimated working capital and the actual working capital of Assurex at closing, and (ii) any indemnification claims made by Myriad against Assurex within 18 months following closing.

Total consideration transferred was allocated to tangible assets acquired and liabilities assumed based on their fair values as of the acquisition date including current adjustments as set forth below.  The Company believes the acquisition establishes the foundation for its neuroscience business and leverages its existing preventative care business unit with the addition of a product, GeneSight, which has growth potential.  These factors contributed to consideration transferred in excess of the fair value of Assurex’s net tangible and intangible assets acquired, resulting in the Company recording goodwill in connection with the transaction.  During the three months ended September 30, 2017 there was a fair value increase as of the date of the acquisition to equipment totaling $0.1 and $0.2 change in the non-controlling interest at the date of acquisition, which resulted in a net increase to goodwill of $0.1 due to updated 3rd party valuations. Also during that period there was a $1.8 increase in the deferred tax liability due to differences in GAAP and tax purchase accounting as of the date of acquisition which increased goodwill by the same amount.  

Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. The allocation of consideration transferred is considered final as of September 30, 2017.  The final purchase price allocation is as follows:

 

 

 

Estimated Fair

Value

 

Current assets

 

$

18.2

 

Intangible assets

 

 

295.6

 

Equipment

 

 

1.9

 

Goodwill

 

 

121.1

 

Current liabilities

 

 

(18.9

)

Deferred tax liability

 

 

(66.3

)

Total fair value purchase price

 

$

351.6

 

Less: Contingent consideration

 

 

(130.0

)

Less: Cash acquired

 

 

(5.5

)

Total cash consideration transferred

 

$

216.1

 

 

Identifiable Intangible Assets

The Company acquired intangible assets that consisted of developed technology which had an estimated fair value of $256.5 and a database with an estimated fair value of $39.1. The fair value of the developed technology was determined using a probability-weighted income approach that discounts expected future cash flows to present value. The fair value of the database was determined using a combination of the lost profits and replacement cost methods.  The estimated net cash flows were discounted using a discount rate of 16% which is based on the estimated internal rate of return for the acquisition and represents the rate that market participants might use to value the intangible assets. The projected cash flows were based on key assumptions such as estimates of revenues and operating profits; the time and resources needed to recreate databases and product and commercial development and approval; the life of the commercialized product; and associated risks related to viability and product alternatives. The Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of 17 years for the developed technology and 5 years for the database. This amortization is not deductible for income tax purposes.  

8


Goodwill

The goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilities assumed and is attributable to the benefits expected from combining the Company’s research and commercial operations with Assurex’s. This goodwill is not deductible for income tax purposes.  Change in goodwill for the period ended March 31, 2018 is shown below:

 

 

 

Carrying

 

 

 

amount

 

Balance June 30, 2017

 

$

119.2

 

Fair value adjustment to equipment

 

 

(0.1

)

Non-controlling interest adjustment

 

 

0.2

 

Change in deferred tax liability

 

 

1.8

 

Ending balance March 31, 2018

 

$

121.1

 

 

Pro Forma Information

The unaudited pro-forma results presented below include the effects of the Assurex acquisition as if it had been consummated as of July 1, 2016, with adjustments to give effect to pro forma events that are directly attributable to the acquisition which includes adjustments related to the amortization of acquired intangible assets, interest income and expense, and depreciation. The unaudited pro forma results do not reflect any operating efficiency or potential cost savings which may result from the consolidation of Assurex. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operation of the combined company would have been if the acquisition had occurred at the beginning of the period presented nor are they indicative of future results of operations and are not necessarily indicative of results that might have been achieved had the acquisition been consummated as of July 1, 2016.

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

$

193.5

 

 

$

196.9

 

 

$

577.7

 

 

$

582.3

 

Income from operations

 

 

17.0

 

 

 

7.7

 

 

 

109.0

 

 

 

23.3

 

Net income (loss)

 

 

11.4

 

 

 

4.2

 

 

 

124.6

 

 

 

(9.1

)

Net income (loss) per share, basic

 

$

0.16

 

 

$

0.06

 

 

$

1.80

 

 

$

(0.13

)

Net income (loss) per share, diluted

 

$

0.16

 

 

$

0.06

 

 

$

1.74

 

 

$

(0.13

)

 

To complete the purchase transaction, the Company incurred approximately $5.0 of acquisition costs, which were recorded as selling, general and administrative expenses for the year ended June 30, 2017.  For the three and nine months ended March 31, 2018, Assurex contributed revenue of approximately $30.4 and $91.0.  For the three and nine months ended March 31, 2018, operating expenses related to Assurex were approximately $29.7 and $88.6.

 

9


(3)

MARKETABLE INVESTMENT SECURITIES

The Company has classified its marketable investment securities as available-for-sale securities. These securities are carried at estimated fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at March 31, 2018 and June 30, 2017 were as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

unrealized

 

 

unrealized

 

 

 

 

 

 

 

Amortized

 

 

holding

 

 

holding

 

 

Estimated

 

 

 

cost

 

 

gains

 

 

losses

 

 

fair value

 

At March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

91.1

 

 

$

 

 

$

 

 

$

91.1

 

Cash equivalents

 

 

6.3

 

 

 

 

 

 

 

 

$

6.3

 

Total cash and cash equivalents

 

 

97.4

 

 

 

 

 

 

 

 

 

97.4

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

 

59.9

 

 

 

 

 

 

(0.3

)

 

 

59.6

 

Municipal bonds

 

 

31.0

 

 

 

 

 

 

(0.1

)

 

 

30.9

 

Federal agency issues

 

 

12.6

 

 

 

 

 

 

(0.1

)

 

 

12.5

 

US government securities

 

 

8.3

 

 

 

 

 

 

(0.1

)

 

 

8.2

 

Total

 

$

209.2

 

 

$

 

 

$

(0.6

)

 

$

208.6

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

unrealized

 

 

unrealized

 

 

 

 

 

 

 

Amortized

 

 

holding

 

 

holding

 

 

Estimated

 

 

 

cost

 

 

gains

 

 

losses

 

 

fair value

 

At June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

83.5

 

 

$

 

 

$

 

 

$

83.5

 

Cash equivalents

 

 

18.9

 

 

 

 

 

 

 

 

 

18.9

 

Total cash and cash equivalents

 

 

102.4

 

 

 

 

 

 

 

 

 

102.4

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

 

45.4

 

 

 

0.1

 

 

 

(0.1

)

 

 

45.4

 

Municipal bonds

 

 

32.7

 

 

 

 

 

 

 

 

 

32.7

 

Federal agency issues

 

 

11.6

 

 

 

 

 

 

(0.1

)

 

 

11.5

 

US government securities

 

 

7.2

 

 

 

 

 

 

 

 

 

7.2

 

Total

 

$

199.3

 

 

$

0.1

 

 

$

(0.2

)

 

$

199.2

 

 

Cash, cash equivalents, and maturities of debt securities classified as available-for-sale securities are as follows at March 31, 2018:

 

 

 

Amortized

 

 

Estimated

 

 

 

cost

 

 

fair value

 

Cash

 

$

91.1

 

 

$

91.1

 

Cash equivalents

 

 

6.3

 

 

 

6.3

 

Available-for-sale:

 

 

 

 

 

 

 

 

Due within one year

 

 

60.1

 

 

 

59.9

 

Due after one year through five years

 

 

51.7

 

 

 

51.3

 

Due after five years

 

 

 

 

 

 

Total

 

$

209.2

 

 

$

208.6

 

 

10


(4)

PROPERTY, PLANT AND EQUIPMENT, NET

 

 

 

March 31,

 

 

June 30,

 

 

 

2018

 

 

2017

 

Land

 

$

2.5

 

 

$

2.3

 

Buildings and improvements

 

 

20.5

 

 

 

17.1

 

Leasehold improvements

 

 

22.7

 

 

 

22.1

 

Equipment

 

 

111.1

 

 

 

106.9

 

 

 

 

156.8

 

 

 

148.4

 

Less accumulated depreciation

 

 

(108.6

)

 

 

(97.3

)

Property, plant and equipment, net

 

$

48.2

 

 

$

51.1

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Depreciation expense

 

$

3.6

 

 

$

3.7

 

 

$

11.3

 

 

$

11.0

 

 

(5)

GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company has recorded goodwill of $320.2 from the acquisitions of Assurex that was completed on August 31, 2016, Sividon Diagnostics GmbH (“Sividon”) that was completed on May 31, 2016, Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG (the “Clinic”) that was completed on February 27, 2015, Crescendo Bioscience, Inc. that was completed on February 28, 2014 and Rules-Based Medicine, Inc. that was completed on May 31, 2011.  Of this goodwill, $253.9 relates to the Company’s diagnostic segment and $66.3 relates to the other segment.  The following summarizes changes to the goodwill balance for the nine months ended March 31, 2018:

 

 

 

Carrying

amount

 

Beginning balance July 1, 2017

 

$

316.1

 

Adjustments to acquisitions (see note 2)

 

 

1.9

 

Translation adjustments

 

 

2.2

 

Ending balance March 31, 2018

 

$

320.2

 

 

Intangible Assets

Intangible assets primarily consist of amortizable assets of purchased licenses and technologies, customer relationships, and trade names as well as non-amortizable intangible assets of in-process technologies and research and development.  The following summarizes the amounts reported as intangible assets:

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

At March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Purchased licenses and technologies

 

$

528.1

 

 

$

(88.9

)

 

$

439.2

 

Customer relationships

 

 

4.7

 

 

 

(3.2

)

 

 

1.5

 

Trademarks

 

 

3.0

 

 

 

(0.9

)

 

 

2.1

 

Total amortized intangible assets

 

 

535.8

 

 

 

(93.0

)

 

 

442.8

 

In-process research and development

 

 

24.5

 

 

 

 

 

 

24.5