WALTHAM, Mass.--(BUSINESS WIRE)--PerkinElmer, Inc. (NYSE: PKI):
“We are pleased with our performance for the second quarter of 2010 as we generated significant revenue and EPS growth as well as strong cash flow” •Revenue of $498 million, reported and organic revenue growth of 14% •Operating income from continuing operations of $43 million; Adjusted operating income of $66 million, up 120 basis points •GAAP earnings per share from continuing operations of $0.46; Adjusted earnings per share of $0.38, up 36% •Raises full year guidance
PerkinElmer, Inc. (NYSE: PKI), a global leader focused on improving the health and safety of people and the environment, today reported financial results for the second quarter ended July 4, 2010. The Company reported GAAP earnings per share from continuing operations of $0.46, as compared to $0.20 in the second quarter of 2009. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the Company announced adjusted earnings per share of $0.38, exceeding the Company’s prior guidance of $0.32-$0.34, representing an increase of 36% as compared to the second quarter of 2009.
Revenue in the second quarter of 2010 was $497.8 million, up 14% as compared to the same period a year ago. Organic revenue, which includes the adjustments noted in the attached reconciliation, increased 14% as compared to the second quarter of 2009. Revenue in the Human and Environmental Health segments increased by 7% and 19%, respectively, as compared to the same period a year ago. As compared to the second quarter of 2009, organic revenue, which includes the adjustments noted in the attached reconciliation, increased 6% in the Human Health segment and increased 19% in the Environmental Health segment.
“We are pleased with our performance for the second quarter of 2010 as we generated significant revenue and EPS growth as well as strong cash flow,” said Robert Friel, chairman and chief executive officer of PerkinElmer. “During the first half of this year we have made very good progress against our strategic priorities of increasing the growth profile of the company through leveraging adjacent markets and geographic expansion as well as establishing a framework to drive higher profitability.”
GAAP operating profit from continuing operations for the second quarter of 2010 was $42.6 million, as compared to $38.2 million for the same period a year ago. Adjusted operating profit, which includes the adjustments noted in the attached reconciliation, increased by 120 basis points as a percentage of revenue to $65.8 million, as compared to $52.5 million in the second quarter of 2009.
Financial Overview by Reporting Segment
Human Health
•Revenue of $197.5 million for the second quarter of 2010, as compared to $184.9 million for the second quarter of 2009. •GAAP operating profit of $25.8 million, as compared to $24.1 million for the same period a year ago. •Adjusted operating profit of $40.6 million, as compared to $35.0 million in the second quarter of 2009. •Adjusted operating profit was 20.5% as a percentage of revenue, an increase of approximately 160 basis points as compared to the second quarter of 2009. Environmental Health
•Revenue of $300.4 million for the second quarter of 2010, as compared to $253.4 million for the second quarter of 2009. •GAAP operating profit of $24.8 million, as compared to $22.8 million for the same period a year ago. •Adjusted operating profit of $33.2 million, as compared to $26.1 million in the second quarter of 2009. •Adjusted operating profit was 11.1% as a percentage of revenue, an increase of approximately 80 basis points as compared to the second quarter of 2009. Financial Guidance
“Given the broad based strength we have experienced in the first half across many of our served markets, we have increased our full year adjusted earnings per share guidance to $1.49 to $1.54 which now represents a year-over-year growth of 17% to 21%,” said Robert Friel, chairman and chief executive officer of PerkinElmer.
For the full year 2010, the Company forecasts GAAP earnings per share from continuing operations in the range of $1.29 to $1.34 representing an increase from the Company’s prior forecast of $1.08 to $1.13. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the Company forecasts adjusted earnings per share in the range of $1.49 to $1.54 representing an increase from the Company’s prior forecast of $1.43 to $1.48.
Conference Call Information
The Company will discuss its second quarter results and its outlook for business trends in a conference call on August 5, 2010 at 5:00 p.m. Eastern Time (ET). To access the call, please dial (857) 350-1676 prior to the scheduled conference call time and provide the access code 62854397. A playback of this conference call will be available beginning 8:00 p.m. ET, Thursday, August 5, 2010. The playback phone number is (617) 801-6888 and the code number is 54019467.
A live audio webcast of the call will be available on the Investor section of the Company’s Web site, www.perkinelmer.com. Please go to the site at least 15 minutes prior to the call in order to register, download, and install any necessary software. An archived version of the webcast will be posted on the Company’s Web site for a two week period beginning approximately two hours after the call.
Use of Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings announcement also contains non-GAAP financial measures. The reasons that we use these measures, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these measures are included below following our GAAP financial statements.
Factors Affecting Future Performance
This press release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements relating to estimates and projections of future earnings per share, cash flow and revenue growth and other financial results, developments relating to our customers and end-markets, and plans concerning business development opportunities. Words such as “believes,” “intends,” “anticipates,” “plans,” “expects,” “projects,” “forecasts,” “will” and similar expressions, and references to guidance, are intended to identify forward-looking statements. Such statements are based on management’s current assumptions and expectations and no assurances can be given that our assumptions or expectations will prove to be correct. A number of important risk factors could cause actual results to differ materially from the results described, implied or projected in any forward-looking statements. These factors include, without limitation: (1) markets into which we sell our products decline or do not grow as anticipated; (2) fluctuations in the global economic and political environments; (3) our failure to introduce new products in a timely manner; (4) our ability to execute acquisitions and license technologies, or to successfully integrate acquired businesses and licensed technologies into our existing business or to make them profitable; (5) our failure to adequately protect our intellectual property; (6) the loss of any of our licenses or licensed rights; (7) our ability to compete effectively; (8) fluctuation in our quarterly operating results and our ability to adjust our operations to address unexpected changes; (9) significant disruption in third-party package delivery and import/export services or significant increases in prices for those services; (10) disruptions in the supply of raw materials and supplies; (11) the manufacture and sale of products and services may expose us to product liability claims; (12) our failure to maintain compliance with applicable government regulations; (13) regulatory changes; (14) our failure to comply with healthcare industry regulations; (15) economic, political and other risks associated with foreign operations; (16) our ability to retain key personnel; (17) significant disruption in our information technology systems; (18) restrictions in our credit agreements; (19) our ability to realize the full value of our intangible assets; (20) significant fluctuations in our stock price; (21) reduction or elimination of dividends on our common stock; and (22) other factors which we describe under the caption “Risk Factors” in our most recent quarterly report on Form 10-Q and in our other filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.
About PerkinElmer
PerkinElmer, Inc. is a global leader focused on improving the health and safety of people and the environment. The company reported revenue of approximately $1.8 billion in 2009, has about 8,800 employees serving customers in more than 150 countries, and is a component of the S&P 500 Index. Additional information is available through 1-877-PKI-NYSE, or at www.perkinelmer.com.
PerkinElmer, Inc. and Subsidiaries CONSOLIDATED INCOME STATEMENTS
Three Months Ended Six Months Ended
(In thousands, except per share data) July 4, 2010 July 5, 2009 July 4, 2010 July 5, 2009
Sales $ 497,839 $ 438,270 $ 962,931 $ 873,427
Cost of sales 285,035 250,199 551,495 496,818 Research and development expenses 27,039 25,812 54,128 52,046 Selling, general and administrative expenses 133,294 124,039 265,388 253,174 Restructuring and lease charges, net 9,850 - 9,850 7,848
Operating income from continuing operations 42,621 38,220 82,070 63,541
Interest income (169 ) (176 ) (350 ) (653 ) Interest expense 4,230 4,229 8,301 8,817 Gain on step acquisition (25,586 ) - (25,586 ) - Other expense (income), net 154 128 (347 ) 854
Income from continuing operations before income taxes 63,992 34,039 100,052 54,523
Provision for income taxes 10,137 10,799 20,090 16,601
Net income from continuing operations 53,855 23,240 79,962 37,922
Income (loss) from discontinued operations, net of income taxes 937 (1,336 ) (406 ) (3,870 ) Gain (loss) on disposition of discontinued operations, net of income taxes 2,851 (399 ) 2,478 (1,988 )
Net income $ 57,643 $ 21,505 $ 82,034 $ 32,064
Diluted earnings (loss) per share: Continuing operations $ 0.46 $ 0.20 $ 0.68 $ 0.33
Income (loss) from discontinued operations, net of income taxes 0.01 (0.01 ) (0.00 ) (0.03 ) Gain (loss) on disposition of discontinued operations, net of income taxes 0.02 (0.00 ) 0.02 (0.02 )
Net income $ 0.49 $ 0.18 $ 0.69 $ 0.28
Weighted average diluted shares of common stock outstanding 118,304 116,268 118,118 116,410
ABOVE PREPARED IN ACCORDANCE WITH GAAP
Additional Supplemental Information: (per share, continuing operations)
GAAP diluted EPS from continuing operations $ 0.46 $ 0.20 $ 0.68 $ 0.33 Amortization of intangible assets, net of income taxes 0.09 0.08 0.17 0.15 Purchase accounting adjustments, net of income taxes (0.20 ) 0.00 (0.19 ) 0.01 Gain on sale of building, net of income taxes (0.02 ) - (0.02 ) - Restructuring and lease charges, net of income taxes 0.06 - 0.06 0.05 Adjusted EPS $ 0.38 $ 0.28 $ 0.70 $ 0.54
PerkinElmer, Inc. and Subsidiaries SALES AND OPERATING PROFIT (LOSS)
Three Months Ended Six Months Ended
(In thousands) July 4, 2010 July 5, 2009 July 4, 2010 July 5, 2009
Human Health Sales $ 197,488 $ 184,850 $ 386,060 $ 362,114 OP$ reported 25,779 24,069 47,627 36,756 OP% reported 13.1 % 13.0 % 12.3 % 10.2 % Amortization of intangible assets 11,391 10,227 22,357 20,006 Purchase accounting adjustments 908 718 1,090 1,083 Gain on sale of building (3,356 ) - (3,356 ) - Restructuring and lease charges, net 5,858 - 5,858 4,774 OP$ adjusted 40,580 35,014 73,576 62,619 OP% adjusted 20.5 % 18.9 % 19.1 % 17.3 %
Environmental Health Sales 300,351 253,420 576,871 511,313 OP$ reported 24,816 22,763 51,743 42,970 OP% reported 8.3 % 9.0 % 9.0 % 8.4 % Amortization of intangible assets 4,142 3,792 8,130 7,418 Purchase accounting adjustments 255 (456 ) 1,264 596 Restructuring and lease charges, net 3,992 - 3,992 3,074 OP$ adjusted 33,205 26,099 65,129 54,058 OP% adjusted 11.1 % 10.3 % 11.3 % 10.6 %
Corporate OP$ reported (7,974 ) (8,612 ) (17,300 ) (16,185 )
Continuing Operations Sales $ 497,839 $ 438,270 $ 962,931 $ 873,427 OP$ reported 42,621 38,220 82,070 63,541 OP% reported 8.6 % 8.7 % 8.5 % 7.3 % Amortization of intangible assets 15,533 14,019 30,487 27,424 Purchase accounting adjustments 1,163 262 2,354 1,679 Gain on sale of building (3,356 ) - (3,356 ) - Restructuring and lease charges, net 9,850 - 9,850 7,848 OP$ adjusted $ 65,811 $ 52,501 $ 121,405 $ 100,492 OP% adjusted 13.2 % 12.0 % 12.6 % 11.5 %
SALES AND REPORTED OPERATING PROFIT PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Six Months Ended
(In thousands) July 4, 2010 July 5, 2009 July 4, 2010 July 5, 2009
Operating activities: Net income $ 57,643 $ 21,505 $ 82,034 $ 32,064 Add: (income) loss from discontinued operations, net of income taxes (937 ) 1,336 406 3,870 Add: (gain) loss on disposition of discontinued operations, net of income taxes (2,851 ) 399 (2,478 ) 1,988
Net income from continuing operations 53,855 23,240 79,962 37,922 Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations:
Stock-based compensation 4,426 4,363 7,970 8,175 Restructuring and lease charges, net 9,850 - 9,850 7,848 Amortization of deferred debt issuance costs 635 635 1,270 1,270 Depreciation and amortization 24,929 22,417 48,518 44,092 Amortization of acquired inventory revaluation - - - 215 Gains on step acquisitions and dispositions, net (28,942 ) - (28,942 ) - Changes in assets and liabilities which (used) provided cash, excluding effects from companies purchased and divested:
Accounts receivable, net (13,645 ) (23,518 ) (15,208 ) (2,064 ) Inventories, net (4,970 ) (1,259 ) (20,563 ) (13,910 ) Accounts payable 10,912 6,018 22,823 (15,448 ) Accrued expenses and other 11,964 8,303 15,459 (9,888 ) Net cash provided by operating activities of continuing operations 69,014 40,199 121,139 58,212 Net cash provided by (used in) operating activities of discontinued operations 1,653 (3,924 ) (1,080 ) (6,992 ) Net cash provided by operating activities 70,667 36,275 120,059 51,220
Investing activities: Capital expenditures (8,845 ) (7,520 ) (18,547 ) (12,643 ) Proceeds from dispositions of property, plant and equipment, net 11,014 - 11,014 - Changes in restricted cash balances (1,200 ) - (1,200 ) 1,412 Payments for acquisitions and investments, net of cash and cash equivalents acquired (123,639 ) (20,911 ) (126,728 ) (49,222 ) Net cash used in investing activities of continuing operations (122,670 ) (28,431 ) (135,461 ) (60,453 ) Net cash provided by (used in) investing activities of discontinued operations 11,809 (70 ) 11,689 (579 )
Net cash used in investing activities (110,861 ) (28,501 ) (123,772 ) (61,032 )
Financing Activities: Payments on debt (49,500 ) (114,047 ) (111,500 ) (185,611 ) Proceeds from borrowings 139,000 92,000 171,000 197,000 Payments of debt issuance costs (72 ) - (72 ) (7 ) Payments on other credit facilities (37 ) (71 ) (74 ) (81 ) Payments for acquisition related contingent consideration - - (2,980 ) - Tax benefit from exercise of common stock options - 101 24 25 Proceeds from issuance of common stock under stock plans 613 1,775 13,047 2,079 Purchases of common stock (57 ) (10 ) (995 ) (14,587 ) Dividends paid (8,247 ) (8,153 ) (16,474 ) (16,358 ) Net cash provided by (used in) financing activities 81,700 (28,405 ) 51,976 (17,540 )
Effect of exchange rate changes on cash and cash equivalents (7,586 ) 9,921 (12,306 ) (419 )
Net increase (decrease) in cash and cash equivalents 33,920 (10,710 ) 35,957 (27,771 ) Cash and cash equivalents at beginning of period 181,744 162,049 179,707 179,110 Cash and cash equivalents at end of period $ 215,664 $ 151,339 $ 215,664 $ 151,339
PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
(In thousands) July 4, 2010 January 3, 2010
Current assets: Cash and cash equivalents $ 215,664 $ 179,707 Accounts receivable, net 365,175 365,629 Inventories, net 232,476 215,074 Other current assets 108,417 112,723 Current assets of discontinued operations 2,136 10,885 Total current assets 923,868 884,018
Property, plant and equipment: At cost 595,252 594,726 Accumulated depreciation (389,663 ) (391,278 ) Property, plant and equipment, net 205,589 203,448 Marketable securities and investments 1,138 2,287 Intangible assets, net 459,429 459,055 Goodwill 1,525,098 1,462,824 Other assets, net 30,917 44,057 Long-term assets of discontinued operations - 3,351 Total assets $ 3,146,039 $ 3,059,040
Current liabilities: Short-term debt $ 147 $ 146 Accounts payable 174,943 158,673 Accrued restructuring and integration costs 19,660 15,187 Accrued expenses 313,916 315,028 Current liabilities of discontinued operations 5,247 8,170 Total current liabilities 513,913 497,204
Long-term debt 620,138 558,197 Long-term liabilities 368,296 374,682 Total liabilities 1,502,347 1,430,083
Commitments and contingencies
Total stockholders’ equity 1,643,692 1,628,957 Total liabilities and stockholders’ equity $ 3,146,039 $ 3,059,040
PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions except per share data) PKI Three Months Ended July 4, 2010 July 5, 2009
Adjusted gross margin: GAAP gross margin $ 212.8 42.7 % $ 188.1 42.9 % Amortization of intangible assets 10.8 2.2 % 9.2 2.1 % Purchase accounting adjustments 0.2 0.0 % 0.2 0.0 % Adjusted gross margin $ 223.8 44.9 % $ 197.4 45.0 %
Adjusted SG&A: GAAP SG&A $ 133.3 26.8 % $ 124.0 28.3 % Amortization of intangible assets (4.3 ) -0.9 % (4.3 ) -1.0 % Purchase accounting adjustments (1.0 ) -0.2 % (0.1 ) 0.0 % Gain on sale of building 3.4 0.7 % - 0.0 % Adjusted SG&A $ 131.3 26.4 % $ 119.6 27.3 %
Adjusted R&D: GAAP R&D $ 27.0 5.4 % $ 25.8 5.9 % Amortization of intangible assets (0.4 ) -0.1 % (0.5 ) -0.1 % Adjusted R&D $ 26.6 5.3 % $ 25.3 5.8 %
Adjusted operating profit: GAAP operating profit $ 42.6 8.6 % $ 38.2 8.7 % Amortization of intangible assets 15.5 3.1 % 14.0 3.2 % Purchase accounting adjustments 1.2 0.2 % 0.3 0.1 % Gain on sale of building (3.4 ) -0.7 % - 0.0 % Restructuring and lease charges, net 9.9 2.0 % - 0.0 % Adjusted operating profit $ 65.8 13.2 % $ 52.5 12.0 %
PKI Three Months Ended July 4, 2010 July 5, 2009
Adjusted EPS: GAAP EPS $ 0.49 $ 0.18 Discontinued operations 0.03 (0.01 ) GAAP EPS from continuing operations 0.46 0.20 Amortization of intangible assets, net of income taxes 0.09 0.08 Purchase accounting adjustments, net of income taxes (0.20 ) 0.00
Gain on sale of building, net of income taxes (0.02 ) - Restructuring and lease charges, net of income taxes 0.06 - Adjusted EPS $ 0.38 $ 0.28
PKI FY 2010
Adjusted EPS: Projected GAAP EPS $ 1.27 - 1.32 Discontinued operations 0.02 GAAP EPS from continuing operations $ 1.29 - 1.34 Amortization of intangible assets, net of income taxes 0.35 Purchase accounting adjustments, net of income taxes (0.19 ) Gain on sale of building, net of income taxes (0.02 ) Restructuring and lease charges, net of income taxes 0.06 Adjusted EPS $ 1.49 - 1.54
Human Health Three Months Ended July 4, 2010 July 5, 2009
Adjusted operating profit: GAAP operating profit $ 25.8 13.1 % $ 24.1 13.0 % Amortization of intangible assets 11.4 5.8 % 10.2 5.5 % Purchase accounting adjustments 0.9 0.5 % 0.7 0.4 % Gain on sale of building (3.4 ) -1.7 % - 0.0 % Restructuring and lease charges, net 5.9 3.0 % - 0.0 % Adjusted operating profit $ 40.6 20.5 % $ 35.0 18.9 %
Environmental Health Three Months Ended July 4, 2010 July 5, 2009
Adjusted operating profit: GAAP operating profit $ 24.8 8.3 % $ 22.8 9.0 % Amortization of intangible assets 4.1 1.4 % 3.8 1.5 % Purchase accounting adjustments 0.3 0.1 % (0.5 ) -0.2 % Restructuring and lease charges, net 4.0 1.3 % - 0.0 % Adjusted operating profit $ 33.2 11.1 % $ 26.1 10.3 %
PKI Q2 2010
Organic revenue growth: Reported revenue growth 14 % Less: effect of foreign exchange rates -2 % Less: effect of acquisitions 2 % Less: effect of transfers of product lines between segments - Organic revenue growth 14 %
Human Health
Q2 2010
Organic revenue growth: Reported revenue growth 7 % Less: effect of foreign exchange rates -2 % Less: effect of acquisitions 4 % Less: effect of transfers of product lines between segments -1 % Organic revenue growth 6 %
Environmental Health Q2 2010
Organic revenue growth: Reported revenue growth 19 % Less: effect of foreign exchange rates -1 % Less: effect of acquisitions - Less: effect of transfers of product lines between segments 1 % Organic revenue growth 19 %
Organic Revenue and Organic Revenue Growth
We use the term “organic revenue” to refer to GAAP revenue, excluding the effect of foreign currency translation and acquisitions, and including the effect of product lines transferred between segments. We use the related term “organic revenue growth” to refer to the measure of comparing current period organic revenue with the corresponding period of the prior year. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the performance of our investments in technology, to evaluate the long-term performance trends and to assess our ability to invest in the business. Organic revenue growth also provides for easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying trends. We exclude the effect of acquisitions because acquisition activity can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the performance of our operations. We include the effect of product lines transferred between segments because this activity can vary between reporting periods, which we believe makes comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the performance of our operations.
Adjusted Gross Margin and Adjusted Gross Margin Percentage
We use the term “adjusted gross margin” to refer to GAAP gross margin, excluding amortization of intangible assets, and including estimated revenue from contracts acquired in the acquisition of ViaCell, Inc., or ViaCell, that will not be fully recognized due to business combination accounting rules. We use the related term “adjusted gross margin percentage” to refer to adjusted gross margin as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the performance of our investments in technology, to evaluate the long-term profitability trends and to assess our ability to invest in the business. We exclude amortization of intangible assets from these measures because intangibles amortization charges do not represent what our management and what we believe our investors consider to be costs of producing our products and could distort the additional value generated over the cost of producing those products. We include estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized because our GAAP revenue for the periods subsequent to our acquisition do not reflect the full amount of storage revenue on these contracts that would have otherwise been recorded by ViaCell. The non-GAAP adjustment is intended to reflect the full amount of such revenue. Our management and we believe our investors will use this adjustment as a measure of the ongoing performance of the ViaCell business because customers have historically renewed these contracts, although there can be no assurance that customers will do so in the future.
Adjusted Selling, General and Administrative (SG&A) Expense and Adjusted SG&A Percentage
We use the term “adjusted SG&A expense” to refer to GAAP SG&A expense, excluding amortization of intangible assets, changes to the fair values assigned to contingent consideration, other costs related to business acquisitions, and the gain on sale of building. We use the related term “adjusted SG&A percentage” to refer to adjusted SG&A expense as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the cost of the internal operating structure, our ability to leverage that structure and the level of investment required to grow our business. We exclude amortization of intangible assets, changes to the fair values assigned to contingent consideration, other costs related to business acquisitions, and the gain on sale of building from these measures because intangibles amortization charges, changes to the fair values assigned to contingent consideration, other costs related to business acquisitions, and the gain on sale of building do not represent what our management and what we believe our investors consider to be costs that support our internal operating structure and could distort the efficiencies of that structure.
Adjusted Research and Development (R&D) Expense and Adjusted R&D Percentage
We use the term “adjusted R&D expense” to refer to GAAP R&D expense, excluding amortization of intangible assets. We use the related term “adjusted R&D percentage” to refer to adjusted R&D expense as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better understand and evaluate our internal technology investments. We exclude amortization of intangible assets from these measures because intangibles amortization charges do not represent what our management and what we believe our investors consider to be internal investments in R&D activities and could distort our R&D investment level.
