NOTES TO CONDENSED CONSOLIDATE
D F
INANCIAL 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, 2018, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Operating results for the three and nine months ended March 31, 2019 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.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued the converged standard on revenue recognition Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), 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 was effective for the Company beginning July 1, 2018. The Company elected to adopt the standard using the full retrospective approach, which resulted in a recasting of revenue and the related financial statement items for FY2017 and FY2018. During transition to the new standard, the Company also elected several practical expedients, as provided by the standard. Contracts that began and ended within the same annual reporting period were not restated. Contracts that were completed by June 30, 2018 that had variable consideration were estimated using the transaction price at the date the contract was completed. The amount of the transaction price allocated to the remaining performance obligations will not be disclosed for prior reporting periods. Contracts that were modified prior to the earliest reporting period will be reflected in the earliest reporting period with an aggregate adjustment for prior modifications.
As a result of the new standard, the Company has changed its accounting policies for revenue recognition. The primary impact of the new standard was classifying bad debt expense of $7.2 and $23.2 for the three and nine months ended March 31, 2018, respectively, as a reduction in revenue rather than as a selling, general and administrative expense. The Company also increased its June 30, 2018 accounts receivable and retained earnings balances by $1.2 as a result of adopting the new standard.
9
Reclassifications
Adoption of new revenue recognition standard impacted the Company’s previously reported results as follows:
|
Three months ended
|
|
Nine months ended
|
|
|
March 31, 2018
|
|
March 31, 2018
|
|
|
As Previously Reported
|
|
ASC606 Adjustments
|
|
As Restated
|
|
As Previously Reported
|
|
ASC606 Adjustments
|
|
As Restated
|
|
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
$
|
191.1
|
|
$
|
(8.0
|
)
|
$
|
183.1
|
|
$
|
571.7
|
|
$
|
(21.9
|
)
|
$
|
549.8
|
|
Selling, general and administrative expense
|
|
115.1
|
|
|
(7.2
|
)
|
|
107.9
|
|
|
345.5
|
|
|
(23.2
|
)
|
|
322.3
|
|
Income tax provision
|
|
4.5
|
|
|
(0.2
|
)
|
|
4.3
|
|
|
(17.0
|
)
|
|
0.3
|
|
|
(16.7
|
)
|
Net Income attributable to Myriad Genetics, Inc. stockholders
|
|
9.7
|
|
|
(0.6
|
)
|
|
9.1
|
|
|
118.0
|
|
|
0.9
|
|
|
118.9
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.14
|
|
$
|
(0.01
|
)
|
$
|
0.13
|
|
$
|
1.71
|
|
$
|
0.01
|
|
$
|
1.72
|
|
Diluted
|
$
|
0.13
|
|
$
|
(0.01
|
)
|
$
|
0.13
|
|
$
|
1.66
|
|
$
|
—
|
|
$
|
1.66
|
|
|
Nine months ended
|
|
|
March 31, 2018
|
|
|
As Previously Reported
|
|
ASC606 Adjustments
|
|
As Restated
|
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Myriad Genetics, Inc. stockholders
|
|
118.0
|
|
|
0.9
|
|
$
|
118.9
|
|
Trade Accounts Receivable
|
|
(42.3
|
)
|
|
(27.9
|
)
|
|
(14.4
|
)
|
|
June 30, 2018
|
|
|
As Previously Reported
|
|
ASC606 Adjustments
|
|
As Restated
|
|
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
98.3
|
|
$
|
1.2
|
|
$
|
99.5
|
|
Retained Earnings
|
|
52.9
|
|
|
1.2
|
|
|
54.1
|
|
In February 2016, the 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 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.
In accordance with the Securities Act Release No. 33-10532, which now requires presenting changes in stockholders’ equity quarterly, the Company has included its condensed consolidated statements of equity.
10
The following tables present detail regarding the composition of the Company’s total revenue by product and U.S. versus rest of world, “RoW”:
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
(In millions)
|
|
U.S.
|
|
|
RoW
|
|
|
Total
|
|
|
U.S.
|
|
|
RoW
|
|
|
Total
|
|
Molecular diagnostic revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hereditary Cancer Testing
|
|
$
|
114.3
|
|
|
$
|
3.3
|
|
|
$
|
117.6
|
|
|
$
|
110.4
|
|
|
$
|
2.7
|
|
|
$
|
113.1
|
|
GeneSight
|
|
|
29.6
|
|
|
|
—
|
|
|
|
29.6
|
|
|
|
30.4
|
|
|
|
—
|
|
|
|
30.4
|
|
Prenatal
|
|
|
30.6
|
|
|
|
—
|
|
|
|
30.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vectra
|
|
|
11.3
|
|
|
|
—
|
|
|
|
11.3
|
|
|
|
15.0
|
|
|
|
—
|
|
|
|
15.0
|
|
Prolaris
|
|
|
6.9
|
|
|
|
—
|
|
|
|
6.9
|
|
|
|
6.3
|
|
|
|
0.1
|
|
|
|
6.4
|
|
EndoPredict
|
|
|
0.5
|
|
|
|
2.3
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
2.1
|
|
|
|
2.3
|
|
Other
|
|
|
1.5
|
|
|
|
0.2
|
|
|
|
1.7
|
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
2.1
|
|
Total molecular diagnostic revenue
|
|
|
194.7
|
|
|
|
5.8
|
|
|
|
200.5
|
|
|
|
164.3
|
|
|
|
5.0
|
|
|
|
169.3
|
|
Pharmaceutical and clinical service revenue
|
|
|
9.7
|
|
|
|
6.4
|
|
|
|
16.1
|
|
|
|
7.0
|
|
|
|
6.8
|
|
|
|
13.8
|
|
Total revenue
|
|
$
|
204.4
|
|
|
$
|
12.2
|
|
|
$
|
216.6
|
|
|
$
|
171.3
|
|
|
$
|
11.8
|
|
|
$
|
183.1
|
|
|
|
Nine months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
(In millions)
|
|
U.S.
|
|
|
RoW
|
|
|
Total
|
|
|
U.S.
|
|
|
RoW
|
|
|
Total
|
|
Molecular diagnostic revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hereditary Cancer Testing
|
|
$
|
351.4
|
|
|
$
|
9.3
|
|
|
$
|
360.7
|
|
|
$
|
344.5
|
|
|
$
|
7.7
|
|
|
$
|
352.2
|
|
GeneSight
|
|
|
82.8
|
|
|
|
—
|
|
|
|
82.8
|
|
|
|
91.0
|
|
|
|
—
|
|
|
|
91.0
|
|
Prenatal
|
|
|
80.0
|
|
|
|
—
|
|
|
|
80.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vectra
|
|
|
36.1
|
|
|
|
—
|
|
|
|
36.1
|
|
|
|
40.1
|
|
|
|
—
|
|
|
|
40.1
|
|
Prolaris
|
|
|
19.1
|
|
|
|
0.1
|
|
|
|
19.2
|
|
|
|
14.3
|
|
|
|
0.1
|
|
|
|
14.4
|
|
EndoPredict
|
|
|
1.2
|
|
|
|
6.2
|
|
|
|
7.4
|
|
|
|
0.3
|
|
|
|
5.8
|
|
|
|
6.1
|
|
Other
|
|
|
5.8
|
|
|
|
0.5
|
|
|
|
6.3
|
|
|
|
5.5
|
|
|
|
0.4
|
|
|
|
5.9
|
|
Total molecular diagnostic revenue
|
|
|
576.4
|
|
|
|
16.1
|
|
|
|
592.5
|
|
|
|
495.7
|
|
|
|
14.0
|
|
|
|
509.7
|
|
Pharmaceutical and clinical service revenue
|
|
|
25.5
|
|
|
|
17.7
|
|
|
|
43.2
|
|
|
|
22.3
|
|
|
|
17.8
|
|
|
|
40.1
|
|
Total revenue
|
|
$
|
601.9
|
|
|
$
|
33.8
|
|
|
$
|
635.7
|
|
|
$
|
518.0
|
|
|
$
|
31.8
|
|
|
$
|
549.8
|
|
The Company performs its obligation under a contract with a customer by processing diagnostic tests and communicating the test results to customers, in exchange for consideration from the customer. The Company has the right to bill its customers upon the completion of performance obligations and thus does not record contract assets. Occasionally customers make payments prior to the Company's performance of its contractual obligations. When this occurs, the Company records a contract liability as deferred revenue. A reconciliation of the beginning and ending balances of deferred revenue is shown in the table below:
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred revenue - beginning balance
|
|
$
|
2.6
|
|
|
$
|
2.6
|
|
Revenue recognized
|
|
|
(5.9
|
)
|
|
|
(13.8
|
)
|
Prepayments
|
|
|
5.6
|
|
|
|
13.8
|
|
Deferred revenue - Ending Balance
|
|
$
|
2.3
|
|
|
$
|
2.6
|
|
Myriad generates revenue by performing molecular diagnostic testing and pharmaceutical and clinical services. Revenue from the sale of molecular diagnostic tests and pharmaceutical and clinical services is recorded at the invoiced amount net of any discounts or contractual allowances. The Company has determined that the communication of test results or the completion of clinical and pharmaceutical services indicates transfer of control for revenue recognition purposes.
In accordance with ASU 2014-09, the Company has elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year. Furthermore, the Company has elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its agreements wherein the Company’s right to payment is in an amount that directly
11
corresponds with the value of Company’s
performance to date. However, periodically the Company enters into arrangements with customers to provide diagnostic testing and/or pharmaceutical and clinical services that may have terms longer than one year and include multiple performance obligations.
As of March 31, 2019, the aggregate amount of the transaction price of such contracts that is allocated to the remaining performance obligations is $3.4, $0.3 of which the Company expects to recognize in fiscal 2019.
Significant judgments are required in determining the transaction price and satisfying performance obligations under the new revenue standard. The Company provides discounts such as financial assistance programs and volume discounts to their patients. In determining the transaction price, Myriad includes an estimate of the expected amount of consideration as revenue. The Company applies this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which it will be entitled. An estimate of transaction price does not include any estimated amount of variable consideration that are constrained. The Company applies the expected value method for sales where the Company has a large number of contracts with similar characteristics.
In addition, the Company considers all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. In determining the expected value under the new standard, the Company considers the probability of the variable consideration for each possible scenario. The Company also has significant experience with historical discount patterns and uses this experience to estimate transaction prices. In accordance with Accounting Standards Update No. 2016-02, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), the Company has elected to exclude from the measurement of transaction price, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer for e.g. sales tax, value added tax etc.
During the three and nine months ended March 31, 2019, the Company recognized $3.6 and $0.7 increases respectively, in revenue for tests in which the performance obligation of delivering the tests results was met in prior periods. The increases were primarily driven by changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payers and patients that was unknown at the time the performance obligation was met and settlements with third party payers.
The Company has elected to apply the practical expedient related to costs to obtain or fulfill a contract since the amortization period for such costs will be one year or less. Accordingly, no costs incurred to obtain or fulfill a contract have been capitalized. The Company has also elected to apply the practical expedient for not adjusting revenue recognized for the effects of the time value of money. This practical expedient has been elected because the Company collects very little cash from customers under payment terms and vast majority of payments terms have a payback period of less than one year.
Acquisition of Counsyl, Inc.
On July 31, 2018, the Company completed the acquisition of Counsyl, Inc. (“Counsyl”), a leading provider of genetic testing and DNA analysis services, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated May 25, 2018. Pursuant to the terms of the Merger Agreement, Myriad Merger Sub, Inc., a newly created wholly-owned subsidiary of the Company, was merged with and into Counsyl, with Counsyl continuing as the surviving corporation and a wholly-owned subsidiary of Myriad. The Company believes the acquisition allows for greater entry into the high-growth reproductive testing market, with the ability to become a leader in women’s health genetic testing.
The Company acquired Counsyl for total consideration of $405.9, consisting of $278.5 in cash, financed in part by the Amendment to the Facility (see Note 8) and 2,994,251 shares of common stock issued, valued at $127.4. The shares were issued and valued as of July 31, 2018 at a per share market closing price of $42.53.
Of the cash consideration, $5.0 was deposited into an escrow account to fund any post-closing adjustments payable to Myriad based upon differences between the estimated working capital and the actual working capital of Counsyl at closing. The working capital was finalized during the second quarter as described below.
Consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. 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 initial allocation of the consideration transferred is based on a preliminary valuation and is subject to potential adjustments. Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible), liabilities assumed, as well as tax-related matters. During the measurement period, the Company may record adjustments to the provisional amounts recognized. During the quarter ended March 31, 2019, there was a reduction in the intangible assets of $2.0 due to updated assumptions related to contributory asset charges associated with the related acquired assets. During the quarter ended March 31, 2019 the beginning balance of deferred tax liabilities increased by $1.2 due to a $1.8 change in NOLs offset by a $0.6 reduction in deferred tax liabilities due to the change in the fair value of intangibles. The offset for the intangible asset and
12
deferred tax liability changes was a $3.2 incr
ease in goodwill. The Company expects the allocation of the consideration transferred to be final within the measurement period (up to one year from the acquisition date).
|
|
Estimated Fair
Value
|
|
Current assets
|
|
$
|
42.5
|
|
Intangible assets
|
|
|
290.0
|
|
Equipment
|
|
|
18.2
|
|
Other assets
|
|
|
0.1
|
|
Goodwill
|
|
|
98.3
|
|
Current liabilities
|
|
|
(19.6
|
)
|
Long term liabilities
|
|
|
(0.1
|
)
|
Deferred tax liability
|
|
|
(8.2
|
)
|
Total fair value purchase price
|
|
$
|
421.2
|
|
Less: Cash acquired
|
|
|
(15.3
|
)
|
Total consideration transferred
|
|
$
|
405.9
|
|
Identifiable Intangible Assets
The Company acquired intangible assets that consisted of developed screening processes, which had an estimated fair value of $290.0. The fair values of these developed screening processes and related useful lives were determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 12.5%, 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 Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of 12 years.
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 expertise with Counsyl’s technology, customer insights, and ability to effectively integrate genetic screening into clinical practice with OBGYNs. Changes in goodwill since the initial purchase as of March 31, 2019 are shown below:
|
|
Carrying
|
|
|
|
amount
|
|
Balance September 30, 2018
|
|
$
|
94.9
|
|
Fair value adjustment to equipment
|
|
|
0.7
|
|
Intangible adjustment
|
|
|
2.9
|
|
Working capital adjustment
|
|
|
(1.1
|
)
|
Change in deferred tax liability
|
|
|
0.9
|
|
Ending balance March 31, 2019
|
|
$
|
98.3
|
|
This goodwill is not deductible for income tax purposes.
Pro Forma Information
The unaudited pro-forma results presented below include the effects of the Counsyl acquisition as if it had been consummated as of July 1, 2017, 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.
13
The unaudited pro forma results do not reflect any operating efficiency or potential cost savings that may result from the consolidation of Counsyl. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not ne
cessarily 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 in
dicative of results that might have been achieved had the acquisition been consummated as of July 1, 2017.
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
216.6
|
|
|
$
|
222.2
|
|
|
$
|
645.9
|
|
|
$
|
652.4
|
|
Income from operations
|
|
|
5.9
|
|
|
|
6.7
|
|
|
|
23.5
|
|
|
|
68.9
|
|
Net income
|
|
|
6.9
|
|
|
|
(1.2
|
)
|
|
|
18.2
|
|
|
|
74.2
|
|
Net income per share, basic
|
|
$
|
0.09
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.25
|
|
|
$
|
1.03
|
|
Net income per share, diluted
|
|
$
|
0.09
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.24
|
|
|
$
|
0.99
|
|
To complete the purchase transaction, the Company incurred approximately $6.8 of acquisition costs, which are recorded as selling, general and administrative expenses in the period incurred. For the three and nine months ended March 31, 2019, Counsyl contributed revenue of approximately $32.6 and $88.1. For the three and nine months ended March 31, 2019, operating expenses related to Counsyl were approximately $43.7 and $132.9 respectively.
(4)
|
MARKETABLE INVESTMENT SECURITIES
|
The Company has classified its marketable investment securities, all of which are debt 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 Company’s cash equivalents consist of short-term, highly liquid investments that are readily convertible to known amounts of cash. 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, 2019 and June 30, 2018 were as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
unrealized
|
|
|
|
|
|
|
|
Amortized
|
|
|
holding
|
|
|
holding
|
|
|
Estimated
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
fair value
|
|
At March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
70.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70.3
|
|
Cash equivalents
|
|
|
14.6
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
14.6
|
|
Total cash and cash equivalents
|
|
|
84.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84.9
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
67.5
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
67.6
|
|
Municipal bonds
|
|
|
18.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.1
|
|
Federal agency issues
|
|
|
12.1
|
|
|
|
—
|
|
|
|
|
|
|
|
12.1
|
|
US government securities
|
|
|
7.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7.3
|
|
Total
|
|
$
|
189.9
|
|
|
$
|
0.2
|
|
|
$
|
(0.1
|
)
|
|
$
|
190.0
|
|
14
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
unrealized
|
|
|
|
|
|
|
|
Amortized
|
|
|
holding
|
|
|
holding
|
|
|
Estimated
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
fair value
|
|
At June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
95.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
95.6
|
|
Cash equivalents
|
|
|
15.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.3
|
|
Total cash and cash equivalents
|
|
|
110.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110.9
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
50.8
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
50.5
|
|
Municipal bonds
|
|
|
29.3
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
29.2
|
|
Federal agency issues
|
|
|
12.6
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
12.5
|
|
US government securities
|
|
|
8.3
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
8.2
|
|
Total
|
|
$
|
211.9
|
|
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
$
|
211.3
|
|
Cash, cash equivalents, and maturities of debt securities classified as available-for-sale securities are as follows at March 31, 2019:
|
|
Amortized
|
|
|
Estimated
|
|
|
|
cost
|
|
|
fair value
|
|
Cash
|
|
$
|
70.3
|
|
|
$
|
70.3
|
|
Cash equivalents
|
|
|
14.6
|
|
|
|
14.6
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
66.3
|
|
|
|
66.2
|
|
Due after one year through five years
|
|
|
38.7
|
|
|
|
38.9
|
|
Due after five years
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
189.9
|
|
|
$
|
190.0
|
|
(5)
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
2.3
|
|
|
$
|
2.4
|
|
Buildings and improvements
|
|
|
18.6
|
|
|
|
19.3
|
|
Leasehold improvements
|
|
|
30.7
|
|
|
|
23.0
|
|
Equipment
|
|
|
116.2
|
|
|
|
112.4
|
|
|
|
|
167.8
|
|
|
|
157.1
|
|
Less accumulated depreciation
|
|
|
(109.1
|
)
|
|
|
(113.9
|
)
|
Property, plant and equipment, net
|
|
$
|
58.7
|
|
|
$
|
43.2
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Depreciation expense
|
|
$
|
3.1
|
|
|
$
|
3.6
|
|
|
$
|
10.6
|
|
|
$
|
11.3
|
|
15
(6)
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
The Company has recorded goodwill of $415.9 from the acquisitions of Counsyl that was completed on July 31, 2018, 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, $350.4 relates to the Company’s diagnostic segment and $65.5 relates to the other segment. The following summarizes changes to the goodwill balance for the nine months ended March 31, 2019:
|
|
Carrying
amount
|
|
Beginning balance July 1, 2018
|
|
$
|
318.6
|
|
Acquisitions (see Note 3)
|
|
|
98.3
|
|
Translation adjustments
|
|
|
(1.0
|
)
|
Ending balance March 31, 2019
|
|
$
|
415.9
|
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased licenses and technologies
|
|
$
|
815.3
|
|
|
$
|
(141.4
|
)
|
|
$
|
673.9
|
|
Customer relationships
|
|
|
4.6
|
|
|
|
(3.6
|
)
|
|
|
1.0
|
|
Trademarks
|
|
|
3.0
|
|
|
|
(1.2
|
)
|
|
|
1.8
|
|
Total amortized intangible assets
|
|
|
822.9
|
|
|
|
(146.2
|
)
|
|
|
676.7
|
|
In-process research and development
|
|
|
22.8
|
|
|
|
—
|
|
|
|
22.8
|
|
Total unamortized intangible assets
|
|
|
22.8
|
|
|
|
—
|
|
|
|
22.8
|
|
Total intangible assets
|
|
$
|
845.7
|
|
|
$
|
(146.2
|
)
|
|
$
|
699.5
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
At June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased licenses and technologies
|
|
$
|
526.4
|
|
|
$
|
(98.0
|
)
|
|
$
|
428.4
|
|
Customer relationships
|
|
|
4.6
|
|
|
|
(3.3
|
)
|
|
|
1.3
|
|
Trademarks
|
|
|
3.0
|
|
|
|
(1.0
|
)
|
|
|
2.0
|
|
Total amortized intangible assets
|
|
|
534.0
|
|
|
|
(102.3
|
)
|
|
|
431.7
|
|
In-process research and development
|
|
|
23.5
|
|
|
|
—
|
|
|
|
23.5
|
|
Total unamortized intangible assets
|
|
|
23.5
|
|
|
|
—
|
|
|
|
23.5
|
|
Total intangible assets
|
|
$
|
557.5
|
|
|
$
|
(102.3
|
)
|
|
$
|
455.2
|
|
The Company recorded amortization expense during the respective periods for these intangible assets as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Amortization of intangible assets
|
|
$
|
15.2
|
|
|
$
|
9.3
|
|
|
$
|
44.0
|
|
|
$
|
28.0
|
|
16
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Employee compensation and benefits
|
|
$
|
53.4
|
|
|
$
|
49.5
|
|
Accrued taxes payable
|
|
|
3.8
|
|
|
|
4.3
|
|
Other
|
|
|
21.6
|
|
|
|
14.5
|
|
Total accrued liabilities
|
|
$
|
78.8
|
|
|
$
|
68.3
|
|
On December 23, 2016, the Company entered into a senior secured revolving credit facility (the “Facility”) as borrower, with the lenders from time to time party thereto. On July 31, 2018, the Company entered into Amendment No. 1 (the “Amended Facility”) which effects an “amend and extend” transaction with respect to the Facility by which the maturity date thereof was extended to July 31, 2023 and the maximum aggregate principal commitment was increased from $300.0 to $350.0. This was accounted for as a modification pursuant to guidance in ASC 470-50.
Pursuant to the Amended Facility, Myriad borrowed revolving loans in an aggregate principal amount of $300.0 with $1.8 in upfront fees and $0.3 debt issuance costs recorded as a debt discount to be amortized over the term of the Amended Facility. The current balance of the net long-term debt is $263.4. There are no scheduled principal payments of the Amended Facility prior to its maturity date.
The proceeds of the Amended Facility were used to: (i) refinance in full the obligations under the Facility, (ii) finance the acquisition of Counsyl (See Note 3), (iii) pay fees, commissions, transactions costs and expenses incurred in connection with the foregoing, and (iv) for working capital and other general corporate purposes.
The Amended Facility contains customary loan terms, interest rates, representations and warranties, affirmative and negative covenants, in each case, subject to customary limitations, exceptions and exclusions. The Amended Facility also contains certain customary events of default.
Covenants in the Amended Facility impose operating and financial restrictions on the Company. These restrictions may prohibit or place limitations on, among other things, the Company’s ability to incur additional indebtedness, create certain types of liens, complete mergers or consolidations, and/or change in control transactions. The Amended Facility may also prohibit or place limitations on the Company’s ability to sell assets, pay dividends or provide other distributions to shareholders. The Company must maintain specified leverage and interest ratios measured as of the end of each quarter as a financial covenant in the Amended Facility. The Company was in compliance with all financial covenants at March 31, 2019.
During the nine months ended March 31, 2019, the Company made $85.0 in principal repayments. The Company borrowed an additional $50.0 to repurchase shares of the Company’s stock as part of an accelerated share repurchase agreement during the quarter ended December 31, 2018.
The Amended Facility is secured by a first-lien security interest in substantially all of the assets of Myriad and certain of its domestic subsidiaries and each such domestic subsidiary of Myriad has guaranteed the repayment of the Amended Facility. Amounts outstanding under the Amended Facility and Facility were as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Long-term debt
|
|
$
|
265.2
|
|
|
$
|
10.0
|
|
Long-term debt discount
|
|
|
(1.8
|
)
|
|
|
(0.7
|
)
|
Net long-term debt
|
|
$
|
263.4
|
|
|
$
|
9.3
|
|
(9)
|
OTHER LONG TERM LIABILITIES
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Pension obligation
|
|
|
6.1
|
|
|
|
6.0
|
|
Other
|
|
|
1.2
|
|
|
|
0.3
|
|
Total other long term liabilities
|
|
$
|
7.3
|
|
|
$
|
6.3
|
|
17
The Company has two non-contributory defined benefit pension plans for certain Clinic employees. Participation in the plans excludes those employees hired after 2002. As of March 31, 2019 the fair value of the plan assets were approximately $0.1 resulting in a net pension liability of $6.1.
(10)
|
PREFERRED AND COMMON STOCKHOLDER’S EQUITY
|
The Company is authorized to issue up to 5.0 shares of preferred stock, par value $0.01 per share. There were no preferred shares outstanding at March 31, 2019.
The Company is authorized to issue up to 150.0 shares of common stock, par value $0.01 per share. There were 73.4 shares issued and outstanding at March 31, 2019.
Common shares issued and outstanding
|
|
Nine months ended
|
|
|
Year ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Common stock issued and outstanding at July 1
|
|
|
70.6
|
|
|
|
68.4
|
|
Common stock issued upon exercise of options and employee
stock plans
|
|
|
4.4
|
|
|
|
2.2
|
|
Repurchase and retirement of common stock
|
|
|
(1.6
|
)
|
|
|
—
|
|
Common stock issued and outstanding at end of period
|
|
|
73.4
|
|
|
|
70.6
|
|
Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed based on the weighted-average number of shares of common stock, including the dilutive effect of common stock equivalents, outstanding.
In periods when the Company has a net loss, stock awards are excluded from the calculation of diluted net loss per share as their inclusion would have an antidilutive effect.
The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used to compute
basic EPS
|
|
|
73.3
|
|
|
|
69.8
|
|
|
|
73.5
|
|
|
|
69.2
|
|
Effect of dilutive shares
|
|
|
1.6
|
|
|
|
2.6
|
|
|
|
2.9
|
|
|
|
2.5
|
|
Weighted-average shares outstanding and dilutive
securities used to compute diluted EPS
|
|
|
74.9
|
|
|
|
72.4
|
|
|
|
76.4
|
|
|
|
71.7
|
|
Certain outstanding options and restricted stock units (“RSUs”) were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. These potential dilutive common shares, which may be dilutive to future diluted earnings per share, are as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Anti-dilutive options and RSUs excluded from EPS
computation
|
|
|
1.0
|
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
Stock Repurchase Program
In June 2016, the Company’s Board of Directors authorized an eighth share repurchase program of $200.0 of the Company’s outstanding common stock. The Company plans to repurchase its common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by the Company’s management. The amount and timing of stock repurchases under the program will depend on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. As of March 31, 2019, the Company has $110.7 remaining on its current share repurchase authorization. During the nine months ended March 31, 2019 the Company used $50.0 to repurchase shares of the Company’s stock as part of an accelerated share repurchase.
18
The Company uses the par value method of accounting for its stock repurchases. As a result of the stock repurchases, the Company reduced c
ommon stock and additional paid-in capital and recorded charges to accumulated deficit. The shares retired, aggregate common stock and additional paid-in capital reductions, and related charges to accumulated deficit for the repurchases for periods ended
March 31, 2019 and 2018 were as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Shares purchased and retired
|
|
|
—
|
|
|
|
—
|
|
|
|
1.6
|
|
|
|
—
|
|
Common stock and additional paid-in-capital reductions
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16.9
|
|
|
$
|
—
|
|
Charges to retained earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33.1
|
|
|
$
|
—
|
|
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act made broad and complex changes to the U.S. tax code that affect the Company, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (6) creating a new limitation on deductible interest expense; (7) revising the rules that limit the deductibility of compensation to certain highly compensated executives, and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period of one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
In connection with the Company’s initial analysis of the impact of the Tax Act and consistent with the requirement to record a provisional estimate when applicable, the Company recorded a discrete net income tax benefit during the quarter ended December 31, 2017 of approximately $32.6 ($0.45 earnings per share increase). This provisional estimate primarily consists of a net benefit for the corporate rate reduction due to the revaluing of net deferred tax liabilities as a result of the reduction in the federal corporate tax rates. The Company’s net deferred tax liabilities represent temporary differences between the book bases of assets which are greater than their tax bases. Upon the reversal of those temporary differences, the future tax impact will be based on the lower federal corporate tax rate enacted by the Tax Act. The Company has now completed its accounting of the income tax effects of the Tax Act. The full impact of the Tax Act is discussed more fully below.
In addition to the discrete benefit recorded during the quarter ended December 31, 2017 for the provisional estimated impact on the Company’s net deferred tax liabilities, the lower federal corporate tax rate reduced the Company’s estimated annual effective tax rate which was applied to year to date operating results in accordance with the interim accounting guidelines. The Company estimates that the reduction in the federal corporate rate will have an ongoing effect to reduce the Company’s income tax expense from continuing operations.
As a result of changes made by the Tax Act, Section 162(m) will limit the deduction of compensation, including performance-based compensation, in excess of $1.0 paid to anyone who, for tax years beginning after January 1, 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding written contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1.0 fiscal year deduction limit if paid to a covered executive. The Company has concluded that there was not a material impact during the fiscal year ended June 30, 2018, as the law is effective for tax years beginning after January 1, 2018. The Company evaluated its binding contracts entered into prior to November 2, 2017, and has determined there is no material impact for adjustments related to deferred equity compensation currently carried as a deferred tax asset on the Company’s balance sheet. Beginning fiscal year ending June 30, 2019, the Company estimates there will be a material impact due to compensation in excess of $1.0. For the period ended March 31, 2019, the Company included the impact in the annual effective tax rate applied to the quarter.
The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-
19
U.S. income taxes paid on such earnings. The Company has concluded that there was not a m
aterial impact during the current or previous fiscal year due to the Transition Tax, as such, no Transition Tax has been recorded.
Other revisions to the taxation of foreign earnings became effective for the Company’s fiscal year ending on June 30, 2019. The Company specifically analyzed both the Global Intangible Low-taxed Income (G.I.L.T.I.) and Base Erosion Anti-Abuse Tax (B.E.A.T.) to determine what, if any, material impact there may be. The Company has determined that both the additional provisions of the Tax Act had no effect on the Company’s fiscal year ended June 30, 2018, as the provisions did not apply, and will have no material effect on the Company’s fiscal year ending June 30, 2019 due to tax elections made by the Company to treat its foreign subsidiaries as disregarded entities. All other foreign provisions were also deemed immaterial or not applicable to the fiscal years ended June 30, 2018 and June 30, 2019.
In order to determine the Company’s quarterly provision for income taxes, the Company used an estimated annual effective tax rate that is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. The Tax Act reduces the federal corporate tax rate to 21% in the fiscal year ended June 30, 2018. Section 15 of the Internal Revenue Code Stipulates that the Company’s fiscal year ended June 30, 2018, had a blended corporate tax rate of 28%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year. For the fiscal year ending June 30, 2019, the Company’s federal corporate tax rate is 21%. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rate from quarter to quarter.
Income tax benefit for the three months ended March 31, 2019 was $3.6, or approximately (109.1)% of pre-tax income compared to $4.3, or approximately 32.3% of pre-tax income, for the three months ended March 31, 2018. Income tax expense for the three months ended March 31, 2019 is based on the Company’s estimated annual effective tax rate for the full fiscal year ending June 30, 2019, adjusted by discrete items recognized during the period. For the three months ended March 31, 2019, the Company’s recognized effective tax rate differs from the U.S. federal statutory rate primarily due to the effect of the release of uncertain tax liabilities, state income taxes, and differences related to the tax effect of equity compensation expense and the deduction realized when exercised, released or sold.
The Company files U.S., foreign and state income tax returns in jurisdictions with various statutes of limitations. The Company is currently under audit by the State of New Jersey for the fiscal years June 30, 2013 through 2017 and Germany for the fiscal years June 30, 2013 through 2015. Annual and interim tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued.
(12)
|
SHARE-BASED COMPENSATION
|
On November 30, 2017, the Company’s shareholders approved the adoption of the 2017 Employee, Director and Consultant Equity Incentive Plan (the “2017 Plan”). The 2017 Plan allows the Company, under the direction of the Compensation Committee of the Board of Directors, to make grants of restricted and unrestricted stock awards to employees, consultants and directors. On November 29, 2018, the shareholders approved an amendment to the 2017 Plan to add 1.0 to the number of shares of common stock available to grant. As of March 31, 2019, 1.5 shares of common stock were available for issuance. In addition, as of March 31, 2019, the Company may grant additional shares of common stock under the 2017 Plan with respect to the 0.6 options outstanding under its 2003 Plan and 4.1 additional shares of common stock with respect to options and restricted stock units outstanding under its 2010 Plan, that expire or are cancelled without delivery of shares of common stock.
If an RSU awarded under the 2017 Plan is cancelled or forfeited without the issuance of shares of common stock, the unissued or reacquired shares, which were subject to the RSU, shall again be available for issuance pursuant to the 2017 Plan.
The number of shares, terms, and vesting periods are determined by the Company’s Board of Directors or a committee thereof on an option-by-option basis. Options generally vest ratably over service periods of four years. Options granted after December 5, 2012 expire eight years from the date of grant, and options granted prior to that date generally expire ten years from the date of grant. In September 2014, the Company began issuing restricted stock units (“RSUs”) in lieu of stock options. RSUs granted to employees generally vest ratably over four years on the anniversary date of the designated day of the last week of the month in which the RSUs are granted. The number of RSUs awarded to certain executive officers may be reduced if certain additional performance metrics are not met. Options and RSUs granted to the Company’s non-employee directors vest in full upon completion of one year of service on the Board following the date of the grant.
20
Stock Options
A summary of the stock option activity under the Company’s plans for the nine months ended March 31, 2019 is as follows:
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
Options outstanding at June 30, 2018
|
|
|
6.3
|
|
|
$
|
24.50
|
|
Options granted
|
|
|
—
|
|
|
$
|
—
|
|
Less:
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(0.8
|
)
|
|
$
|
24.67
|
|
Options canceled or expired
|
|
|
—
|
|
|
$
|
—
|
|
Options outstanding at March 31, 2019
|
|
|
5.5
|
|
|
$
|
24.45
|
|
Options exercisable at March 31, 2019
|
|
|
5.5
|
|
|
$
|
24.45
|
|
As of March 31, 2019, there was no unrecognized share-based compensation expense related to stock options.
Restricted Stock Units
A summary of the RSU activity under the Company’s plans for the nine months ended March 31, 2019 is as follows:
|
|
Number
of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
RSUs outstanding at June 30, 2018
|
|
|
2.2
|
|
|
$
|
31.16
|
|
RSUs granted
|
|
|
1.2
|
|
|
$
|
46.58
|
|
Less:
|
|
|
|
|
|
|
|
|
RSUs vested
|
|
|
(0.8
|
)
|
|
$
|
32.62
|
|
RSUs canceled
|
|
|
(0.2
|
)
|
|
$
|
40.01
|
|
RSUs outstanding at March 31, 2019
|
|
|
2.4
|
|
|
$
|
37.77
|
|
As of March 31, 2019, there was $55.3 of total unrecognized share-based compensation expense related to RSUs that will be recognized over a weighted-average period of 2.2 years. This unrecognized compensation expense is equal to the fair value of RSUs expected to vest.
Employee Stock Purchase Plan
The Company also has an Employee Stock Purchase Plan that was approved by shareholders in 2012 (the “2012 Purchase Plan”), under which 2.0 shares of common stock have been authorized. Shares are issued under the 2012 Purchase Plan twice yearly at the end of each offering period. As of March 31, 2019, approximately 0.6 shares of common stock are available for issuance under the 2012 Purchase Plan.
Share-Based Compensation Expense
Share-based compensation expense recognized and included in the condensed consolidated statements of income and comprehensive income was allocated as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Cost of molecular diagnostic testing
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
Cost of pharmaceutical and clinical services
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Research and development expense
|
|
|
1.7
|
|
|
|
1.0
|
|
|
|
3.9
|
|
|
|
3.1
|
|
Selling, general, and administrative expense
|
|
|
7.4
|
|
|
|
5.3
|
|
|
|
20.0
|
|
|
|
16.2
|
|
Total share-based compensation expense
|
|
$
|
9.5
|
|
|
$
|
6.6
|
|
|
$
|
24.7
|
|
|
$
|
20.0
|
|
(13)
|
FAIR VALUE MEASUREMENTS
|
The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value of contingent consideration related to the Sividon and Assurex
21
acquisi
tions as well as the long-term debt were categorized as a level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the market. The fair value hierarchy prioritizes the use of inputs used in valuation technique
s into the following three levels:
Level 1—
|
quoted prices in active markets for identical assets and liabilities.
|
Level 2—
|
observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.
|
Level 3—
|
unobservable inputs.
|
All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. For Level 3 contingent consideration, the Company reassesses the fair value of expected contingent consideration and the corresponding liability each reporting period using the Monte Carlo Method, which is consistent with the initial measurement of the expected earn-out liability. This fair value measurement is considered a Level 3 measurement because the Company estimates projections during the earn-out period utilizing various potential pay-out scenarios. Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn-out itself, the related projections, and the overall business. The contingent earn-out liabilities are classified as a component of long-term and short-term contingent consideration in the Company’s consolidated balance sheets. Changes to these estimated liabilities are reflected in change in the fair value of contingent consideration in the Company’s consolidated income statement.
Changes to the unobservable inputs could have a material impact on the Company’s financial statements.
The fair value of the Company’s long-term debt, which the Company considers a Level 3 measurement, is estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar borrowing arrangements. The fair value of long-term debt is estimated to be $217.4 at March 31, 2019.
The following table sets forth the fair value of the financial assets and liabilities that the Company re-measures on a regular basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (a)
|
|
$
|
12.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12.1
|
|
Corporate bonds and notes
|
|
|
—
|
|
|
|
67.6
|
|
|
|
—
|
|
|
|
67.6
|
|
Municipal bonds
|
|
|
—
|
|
|
|
18.1
|
|
|
|
—
|
|
|
|
18.1
|
|
Federal agency issues
|
|
|
—
|
|
|
|
12.1
|
|
|
|
—
|
|
|
|
12.1
|
|
US government securities
|
|
|
—
|
|
|
|
7.3
|
|
|
|
—
|
|
|
|
7.3
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
(14.0
|
)
|
|
|
(14.0
|
)
|
Total
|
|
$
|
12.1
|
|
|
$
|
105.1
|
|
|
$
|
(14.0
|
)
|
|
$
|
103.2
|
|
(a)
|
Money market funds are primarily comprised of exchange traded funds and accrued interest
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (a)
|
|
$
|
12.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12.5
|
|
Corporate bonds and notes
|
|
|
2.8
|
|
|
|
50.5
|
|
|
|
—
|
|
|
|
53.3
|
|
Municipal bonds
|
|
|
—
|
|
|
|
29.2
|
|
|
|
—
|
|
|
|
29.2
|
|
Federal agency issues
|
|
|
—
|
|
|
|
12.4
|
|
|
|
—
|
|
|
|
12.4
|
|
US government securities
|
|
|
—
|
|
|
|
8.3
|
|
|
|
—
|
|
|
|
8.3
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
(14.5
|
)
|
|
|
(14.5
|
)
|
Total
|
|
$
|
15.3
|
|
|
$
|
100.4
|
|
|
$
|
(14.5
|
)
|
|
$
|
101.2
|
|
(a)
|
Money market funds are primarily comprised of exchange traded funds and accrued interest
|
22
The following table reconciles the change in the fair value of the co
ntingent consideration during the periods presented:
|
|
Carrying
amount
|
|
Balance June 30, 2018
|
|
$
|
14.5
|
|
Change in fair value recognized in the income statement
|
|
|
1.4
|
|
Translation adjustments recognized in other comprehensive income
|
|
|
(1.9
|
)
|
Ending balance March 31, 2019
|
|
$
|
14.0
|
|
(14)
|
COMMITMENTS AND CONTINGENCIES
|
In February 2018, the Company received a Subpoena from the Department of Health and Human Services, Office of Inspector General, in connection with an investigation into possible false or otherwise improper claims submitted for payment under Medicare and Medicaid. The time period covered by the Subpoena is January 1, 2014 through the date of issuance of the Subpoena. The Company has complied with the Government’s requests for documents and information. The Company has not been served with a complaint. The Company is unable to predict what action, if any, might be taken in the future by the Government or any other regulatory authority as a result of the matters related to this investigation. The Company is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.
In addition, the Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course of its business activities. As of March 31, 2019, the management of the Company believes any reasonably possible liability that may result from the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, operating results, or cash flows.
(15)
|
EMPLOYEE DEFERRED SAVINGS PLAN
|
The Company has a deferred savings plan which qualifies under Section 401(k) of the Internal Revenue Code. Substantially all of the Company’s U.S. employees are covered by the plan. The Company makes matching contributions of 50% of each employee’s contribution with the employer’s contribution not to exceed 4% of the employee’s compensation. The Company recorded contributions to the plan as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Deferred savings plan contributions
|
|
$
|
2.3
|
|
|
$
|
1.9
|
|
|
$
|
6.0
|
|
|
$
|
5.4
|
|
23
(16)
|
SEGMENT AND RELATED INFORMATION
|
The Company’s business is aligned with how the Chief Operating Decision Maker reviews performance and makes decisions in managing the Company. The business units have been aggregated into two reportable segments: (i) diagnostics and (ii) other. The diagnostics segment provides testing and collaborative development of testing that is designed to assess an individual’s risk for developing disease later in life, identify a patient’s likelihood of responding to drug therapy and guide a patient’s dosing to ensure optimal treatment, or assess a patient’s risk of disease progression and disease recurrence. The other segment provides testing products and services to the pharmaceutical, biotechnology and medical research industries, research and development, and clinical services for patients, and includes corporate services such as finance, human resources, legal and information technology.
Segment revenue and operating income (loss) were as follows during the periods presented:
|
|
Diagnostics
|
|
|
Other
|
|
|
Total
|
|
Three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
200.5
|
|
|
$
|
16.1
|
|
|
$
|
216.6
|
|
Depreciation and amortization
|
|
|
17.0
|
|
|
|
1.3
|
|
|
|
18.3
|
|
Segment operating income (loss)
|
|
|
40.6
|
|
|
|
(34.7
|
)
|
|
|
5.9
|
|
Three months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
169.3
|
|
|
$
|
13.8
|
|
|
$
|
183.1
|
|
Depreciation and amortization
|
|
|
11.7
|
|
|
|
1.2
|
|
|
|
12.9
|
|
Segment operating income
|
|
|
34.7
|
|
|
|
(20.9
|
)
|
|
|
13.8
|
|
Nine months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
592.5
|
|
|
$
|
43.2
|
|
|
$
|
635.7
|
|
Depreciation and amortization
|
|
|
50.7
|
|
|
|
3.9
|
|
|
|
54.6
|
|
Segment operating income
|
|
|
96.6
|
|
|
|
(83.4
|
)
|
|
|
13.2
|
|
Nine months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
509.7
|
|
|
$
|
40.1
|
|
|
$
|
549.8
|
|
Depreciation and amortization
|
|
|
35.4
|
|
|
|
3.9
|
|
|
|
39.3
|
|
Segment operating income (loss)
|
|
|
101.8
|
|
|
|
2.5
|
|
|
|
104.3
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Total operating income for reportable segments
|
|
$
|
5.9
|
|
|
$
|
13.8
|
|
|
$
|
13.2
|
|
|
$
|
104.3
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
2.3
|
|
|
|
1.2
|
|
Interest expense
|
|
|
(3.2
|
)
|
|
|
(0.5
|
)
|
|
|
(8.8
|
)
|
|
|
(2.2
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
1.0
|
|
|
|
(1.3
|
)
|
Income from operations before income taxes
|
|
|
3.3
|
|
|
|
13.3
|
|
|
|
7.7
|
|
|
|
102.0
|
|
Income tax provision
|
|
|
(3.6
|
)
|
|
|
4.3
|
|
|
|
(1.0
|
)
|
|
|
(16.7
|
)
|
Net income (loss)
|
|
|
6.9
|
|
|
|
9.0
|
|
|
|
8.7
|
|
|
|
118.7
|
|
Net loss attributable to non-controlling interest
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Net income (loss) attributable to Myriad Genetics, Inc.
stockholders
|
|
$
|
6.9
|
|
|
$
|
9.1
|
|
|
$
|
8.8
|
|
|
$
|
118.9
|
|
(17)
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash paid during the period for income taxes
|
|
$
|
5.3
|
|
|
$
|
10.4
|
|
Cash paid for interest
|
|
$
|
9.1
|
|
|
$
|
2.3
|
|
24