Revvity Inc (RVTY) 2003 Q2 法說會逐字稿

Good day, every one, welcome to the PerkinElmer Second Quarterer 2003 Earnings results Conference Call. Today's conference is being recorded. I would like to turn the conference over to the Vice President of Investor Relations and Corporate Communications, Mr. Daniel J Sotheby. Please go ahead, sir.

Good morning, welcome to the PerkinElmer second quarter 2003 earnings conference call. If you have not received a copy of our earnings press release, you may get one from visiting our website at www.perkinelmer.com or from the First Call Network or from our toll free investor hotline: 1-877-PKINYSE.

Before we begin, we need to remind every one of the following Safe Harbor statements. Various remarks that we may make about the company's future expectations, plans and prospects, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results or events may differ materially from those indicated by these forward-looking statements. As a result of various important factors, including those discussed in our earnings press release filed today and our most recently filed annual report on form 10K, both of which are on file with the S.E.C.

In addition, any forward-looking statements represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any date after today.

I am now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Gregory L. Summe.

Thank you Dan, good morning, every one. I appreciate your taking time today to talk about PerkinElmer second quarter results. With me is Rob Friel, our Chief Finance Officer.

I will begin by reviewing the highlights of the second quarter. Rob will talk in more detail on the financial results at which time we will break for questions and answers and then close the call.

Over all we are pleased with our results this quarter in what continues to be a fairly challenging economy. Our Q2 revenue was $377 million down 2% but up 5% sequentially from Q1. Growth in optical electronics was offset by softness life and analytical sciences and fluid sciences. Our GAAP EPS from continuing operations was 8 cents a share at the high end of 5 to 8 cents range we projected for the quarter. These GAAP EPS results also include 4 cents a share of intangible amortization.

Operating cash flow was very strong at a price of $37 million, an improvement of $25 million from last year. This was driven by excellent performance in inventory, and accounts receivable management and enabled us to continue to strengthen our balance sheet. Integration of our life and analytical science business continues well and is running ahead of plan. We expect to exceed the high end of our cost reduction goal, $45 million in annualized savings by the end of 2004.

Our One Source laboratory service business has also made some good strides this year. We're seeing very positive reactions and feedback from our customers while providing a broad range of services for maintenance and repair, compliance, validation, training and consulting. We are also pleased our One-Source business was recently received a 2003 Customer Value Enhancement Award for drug discovery from the leading industry research firm Frost and Sullivan. We continue to accelerate new product introductions and launched more than 20 new products this quarter.

Lastly analytical science, a couple of examples, we launched the Delfia Celiac Disease hybridization assay, for the fast growing area of Celiac disease research, which is an intestinal inflammation disease. We launched a piezo-array, next generation spotter for the protein array market which was a benchtop instrument. We also developed our new time of flight prep to compliment our proteomic suite of offerings. We have a large scale proteomics collaboration with several leading research centers to study Alzheimer's disease, which is an attractive market for us in adult screening.

We continue to drive innovation in opto-electronics as well. Couple of examples there, we received some nice design wins, including our new 1.4 inch [cermax] lamp, which is used in high end front and rear projection televisions. We also received first design win for a mobile phone with embedded flash. All mobile phones up to this date are using LED structure. Opto-electronics was recognized as globally for superior technology, manufacturing, service and support with three international awards, including two Queen's awards and the 2002 Golden Flag Award from the President of the Republic of Indonesia.

Looking ahead to the rest of 2003, while we have seen some early signs of recovery, the overall capital spending market still remains soft. Consequently our priorities are to stay focused on cost reduction, new products, cash flow. We believe our 2003 EPS guidance from January of $0.37-$0.43 on a GAAP basis which includes 15 cents of intangible amortization still looks reasonable.

I will now turn the call over to Rob Friel who will talk about financial results in greater detail and move on to questions.

Thank you, Greg, good morning. This morning I will provide some details on our financial results for second quarter 2003, discuss guidance for Q3, and then open up the call to your questions.

If you would turn now--now turn to the income statements, sales for the quarter were $377 versus $383 million during the second quarter of 2003. Representing a decrease of $6 million or 2 percent. The effects of foreign exchange increased sales during the quarter by 4 percent over the second quarter of 2002 due primarily to the comparative strength of the Euro in second quarter 2003. About one third of our revenue in Q2 was in Europe and about 16 percent from Asia with the remainder if the Americas.

On a reported basis compared to the second quarter of 2002, revenue in Europe grew 13 percent in the quarter, while Asia was up 1 percent. The Americas were down 9.

Sequentially overall revenue for Q2 '03 grew 5 percent over Q1 '03 Europe up 8 percent, the Americas up 5 percent, and Asia roughly flat. I will give specific segment revenue details later in the call.

Cost of sales in the second quarter of 2003 were $225 million or 59.5 percent of revenue for the period. In Q2 last year, cost of sales were $223 million or 58.3 percent of revenue for the period up about 100 basis points.

Gross margin this quarter was impacted by a higher percentage of service revenue of LAS which has lower gross margin than instruments and reagents. And a shift within fluid sciences to lower margins products offset the soft demand in aerospace and semi-conductor markets. Sequentially from Q1 '03, gross margins have improved 170 basis points due to benefits of our supply chain management and cost reduction initiatives.

Research and development expenses were $21.9 million the second quarter of 2003 or approximately 6 percent of sales, roughly flat compared to the second quarter of 2002. Greg mentioned some of the recent new products as we continue to reprioritize our R&D dollars to the areas that we believe will provide the greatest growth and financial return to the company, with the underlying objective of minimizing time to market.

For Q2 '03, SG&A expenses were $97 million or 25.8% percent of revenue, down 16 million versus $113 million in Q2 02 or 29.5 percent. This is a 370 basis point reduction year over year. The first six months of 2003, SG&A expenses were down just over 30 million or about 14 percent compared to the first six months of 2002. In this display, a weaker U.S. dollar that is increasing reported SG&A cost, about 4 percent year over year.

While each of the SPUs have reduced their SG&A as a percentage of sales by over 300 basis points year to date, as compared to the first six months of 2002, the primary contributor to absolute dollar reduction year over year has been the LAS integration. You recall that we forecasted the benefit of combining our life sciences and analytical instrument business to be between $35 and $45 million of annualized cost reduction by end of 2004 with $12 million to $25 million of these savings to be realized in '03. We now believe we will exceed the $25 million savings target in 2003 as we have both increased the amount of census reductions as well as accelerated the timing to earlier in the year.

In addition, we are experiencing a lower cost to achieve these synergies. Therefore, we now believe we will run below our original cost estimates. At the time we announced consolidation in October of 2002 we estimated that the cost to integrate the two businesses would be 26 million. We currently believe that the estimated cost will be about 23 million. Consequently this quarter we reversed $2.7 million of the original charge which increased reported net income by a penny.

While we are very pleased with progress in cost reductions, our goal was also to strengthen the overall business, enabling us to better serve our customers by capitalizing on the combined businesses scale in sales, service, and R&D capabilities. In addition the combined LAS service business is better positioned to provide our customers with highest levels of responsiveness and support on global basis, backing our broad product and solution offering.

Continuing down the income statement, amortization of intangible assets was $7 million in the quarter flat with the second quarter of 2002. This represents approximately 4 cents of earnings per share on a continued operation basis.

During Q2 '03 we recorded a net gain on sale of real estate of $1.1 million, relating to some excess real estate as a result of the LAS integration. More than offsetting this gain in Q2 '03 were costs recorded in other expenses, aggregating about $1.4 million related to the write down of unconsolidated minority investment of 750,000 and the acceleration of a portion of the previously capitalized debt issuance cost of 600,000 as a result of our prepayment of our debt during Q2 '03. In total, the building gain net of the investment write down and accelerated debt issuance cost amounted to a small loss for Q2 '03.

Operating income for continued operations was 30 million for the second quarter 2003 or 8 percent of revenue, up from 17 million in Q2 '02 or 4.5 percent of revenue for the Q2 '02 period. This 350 basis point expansion in operating margin during the quarter reflects our improved cost position, due to the actions discussed earlier.

Other expense for Q2 '03 was 14 million or 6 -- or up 6 million compared to the second quarter of 2002. Included in other expenses for Q2 '03 were the investment write-off and accelerated debt issuance expense that aggregated 1.4 million, which I discussed earlier. Also included in interest expense is approximately 1 million of the expense associated with the negative [arbitrage] from the portion of our convertible debt that we did not purchase in our December 2002 tender offer, for which we have placed cash and escrow approximately equal to the outstanding balance. We have called the remaining convertible debt for redemption on August 7, 2003. The $12 million balance of other expense for Q2 '03 consists primarily of other net interest expense.

The tax provision of $5.2 million for second quarter of 2003, reflects a tax rate of 32.5 percent, roughly in line with our guidance.

Net income from continued operations for Q2 '03 was 10.7 million or 8 cents per share a GAAP basis. This included intangible amortization of 4 cents per share. Total net income of $8.4 million includes an operating loss from the entertainment lighting business of 600,000 and net loss of 1.7 million from the sale of that business which was completed in Q2. This compares with a net loss of $9.1 million for the second quarter of 2003, or loss of 7 cents per share. The net loss per share of 7 cents for Q2 '02 was comprised of earnings per share for continued operations of 5 cents offset by a loss from discontinued operations of 3 cents per share and a loss from the disposition of this continued operations of 9 cents per share.

I would now like to discuss segment results for the quarter in more detail. If you turn to the segment results we have presented these results for the second quarter of 2003 compared to the same period of 2002 and first six months of 2003 compared to the comparable 2002 period. For this quarter we have presented financial results of life sciences and analytical sciences or LAS, on a combined basis given that this is reflective of how we currently manage the business. For comparative purposes, we have re-presented the results of our life sciences analytical instruments segment for 2002 periods on a combined basis.

Consistent with last quarter, I will provide revenue detail by genetic screening, biopharma, environmental and chemical, and service, which are the key end markets of the combined business, and I will also discuss some details related to the revenue mix of instrument reagents and consumables.

Looking first at LAS, revenue in the second quarter of 2003 was $246 million, down 3 percent from $253 million in Q2 02. On a GAAP basis, LAS operating profit for the second quarter of 2003 was $20.7 million compared to $12.9 million for Q2 '02. As a percentage of sales operating margin was 8.4% percent for Q2 '03 compared to 5.1 percent for the same period 2002. This 330 basis margin expansion reflects cost reduction benefits from the LAS integration and an overall focus on productivity and cost controls. Both quarters included about 6.5 million of intangible amortization.

For the LAS business, instrument sales, which represents 46 percent of sales for the quarter were down 13 percent compared to Q2 '02, with sales growth in the industrial markets partially offsetting declines in the drug discovery market. During the second quarter of 2003, sales of reagents and consumables, which were 32 percent of LAS revenue for the quarter, grew 7 percent. We view this healthy growth in reagents and consumables as a continuing indicator of the strong level of activity in the pharma, biotech and academic research labs. Sales from One-Source laboratory business, which is the remaining 22 percent of LAS revenue, were up 9 percent in the quarter compared to Q2 '02.

During Q2 '03 we were pleased with the business win where Phizer Italy chose PerkinElmer to provide repair, maintenance, and validation services for liquid handling chromatography systems, as well as a number of instruments, some which were originally supplied by eight different manufactures. In addition, PerkinElmer One-Source engineers will be stationed onsite and available as needed to help Phizer Italy's ongoing laboratory instrumentation operations.

In genetic screening, Q2 '03 revenue was up 20 percent compared to Q2 '02, as we continue to gain market share and see good market acceptance of our new products. We also continue to see good growth across the globe, with particularly strong growth during Q2 '03 in Europe. We continue to make investments in China and India, and other developing countries as they increase their awareness of screening as overall health benefit to the population. Also, the U.S. population continues to become more aware of the availability of screening in private labs. And what we see in the future is more potential growth opportunities for U.S. revenues for our genetic screening business.

In environment and chemical, Q2 '03 revenue was up 6 percent, reflecting the third successive quarter of growth. Strong ICPMS and thermal contributions during the quarter were partially offset by some spending pushouts by certain state and local governments as they close their fiscal years this quarter. In environmental, we continue to target opportunities in developing countries, particularly China, where continued investment is planned by the government to improve air, water, overall environmental quality.

In biopharma, revenue for the second quarter of 2003 was down 16 percent from the current year to Q2 '02. Growth in proteomics and pharmacuing QC were offset by lower sales of instruments in the large pharmaceutical and biotech markets. Biopharma revenue was up 4% sequentially as we begin to see some signs of capital spending recovery. We also experienced a nice pickup in orders in the latter part of the quarter which were too late to become revenue in the quarter but gave us cautious optimism for the back half of the year. We also need to make progress during Q2 '03 integrating our LAS customer demo centers in the U.S. as we integrated life sciences products and analytical instrument products at the Shelton Connecticut demo facility.

Turning to opto-electronics, revenue for the quarter 89 million, up 8 percent compared to the second quarter of 2002 revenue of $83 million. We generated revenue growth across all major businesses including digital imaging, especially lighting and sensors. Revenue in our specialty lighting area was up double digits compared to Q2 '02, while sales of sensors were up single digits, reflecting good end-market trends across industrial markets.

Opto-electronics GAAP operating profits for the second quarter of 2003 was 11.1 million or 12.4 percent of revenues, up significantly versus Q2 '02 operating profit of $4.8 million or 5.8 percent of revenues. Both periods included intangible amortization of about 400,000. This 660 basis point expansion and operating margins year over year was driven by higher volume, continued aggressive actions on reducing both SG&A and manufacturing costs.

In fluid sciences, revenue was 42 million, down 12 percent from the 47 million of Q2 '02, reflecting continued weakness in both key end-markets, aerospace and semiconductors. Fluid sciences GAAP operating profits for second quarter of 2003 was $3.1 million or 7.5 percent of revenue versus 3.9 million in Q2 '02 or 8.1 percent of revenue. This business unit continues to focus on improving productivity and streamlining manufacturing processes to offset the effects of lower volume from challenged end-markets. Q2 '03 and '02 operating profit included intangible amortization of about 200,000.

We have begun to see some booking increase in semiconductors during the latter part of Q2, but it is too early to determine when this end market will begin its recovery.

In our aerospace business we announced a contract win with Boeing to supply rigid pneumatic ducking joints to the Boeing military program. This multi-year agreement running through '06 -- beginning in '06 compliments the agreement for the supply of these joints with all current production Boeing commercial airplane programs and have a combined value of approximately of approximately 25 million.

Consistent with prior quarters we have attached a cash flow statement and balance sheet for the corporation. We remain focused on driving strong cash flow across the organization, and continue to drive our C-cubed initiative aimed at compressing the cash cycle and de-levering the balance sheet.

For the second quarter of 2003, free cash flow, which we define as operating cash flow of $37 million plus capital expenditures of $5 million, was 32 million compared to 3 million for the same period of 2002, or an improvement of 29 million. For the first six months of 2003, we generated 53 million of free cash flow, an improvement of nearly 100 million of the first half of last year. We continue to reduce working capital as our working capital terms improved .6 to 4.4 from 3.8 in Q2 '02. Working capital turns in Q2 '03 were also up sequentially .4 turns from Q1 '03. This working capital management generated $34 million of cash during Q2 '03. Working capital levels are down nearly $70 million from a year ago.

Restructuring spending during second quarter of 2003 was $7 million. Depreciation and amortization was 20 million for the quarter. Capex, as I mentioned previously, was 5 million.

The strong cash flow generated in Q2 '03 facilitated another debt reduction of $15 million of our term loan during the quarter, bringing year to date total of pay down of the term debt of 30 million. In addition, our cash and cash equivalents increased by 15 million in the quarter, so that during this quarter our net debt, or our debt net of cash and equivalents was down $30 million.

You will note on the balance sheet that $155 million of restricted cash is held in escrow and earmarked for the redemption of convertible bond that will incur on August 7. The remaining portion of convertible of the debt is characterized as short-term debt.

Turning now to the remainder of the year, while we are seeing positive signs in certain end markets, we continue to run the company as if the economic environment remains challenging and will therefore continue to be aggressively improving our cost position and reducing working capital. For the third quarter of this year we expect revenue to be up slightly, say 2 to 3 percent, over Q3 2002, and expect GAAP EPS to be between 8 and 11 cents. For the full year 2003, we continue to believe the actions we are taking will allow us to achieve EPS of 37 to 43 cents on a GAAP basis, consistent with our January guidance. And this includes the effect of intangible amortization expense of approximately 15 cents per share.

Now let me open the call to your questions.

Thank you, gentlemen. The question and answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star key, followed by the digit 1 on touch-tone. If you are using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us, and will take as many questions as time permits. Once again, please press star 1 if you do have a question. We will take our first question from Larry Neibor with Robert W. Baird.

Good morning, Larry.

Larry, your line is open, please go ahead.

I'm sorry, thank you, good morning.

Good morning.

Could you please expand on the biopharma of the life and analytical science business. You said that was down 16 percent with proteomics and QAQC positive, whereas drug discovery, obviously, must have been down, worse than 16 percent. But then you also said that you are starting to see some orders late in the order, some recovery. Do you see any increased bid activity with those customers on the instrument side? Could you say how much proteomics and QAQC were up?

What we saw in the quarter, particularly early was, and this was a continuation of what I have seen in the last couple of quarters, is fairly significant decrease year over year in what I would call higher end instruments. So this would be areas like liquid handling, some of the higher-end detection instruments, and again, this gets back to a reduction in the capital expenditures or the desire for the pharmaceuticals, biotech, and academic research institutions to really expand the capability or capacity of their labs. We saw a fairly significant reduction of that on year over year basis.

In the latter part of June, starting maybe the second or third week in June, we started to see a significant increase in demand, not only in quotes but also in actual orders, particularly in some of these higher end detection instruments or high through-put instruments, liquid handling instruments, and so a nice pickup particularly in the back half of June. Of course it was a little late to get them out from a shipment perspective, but we are fairly optimistic that that is an indication that the back half will be a little stronger. Of course, this has been fairly depressed now for some 12, 15 months.

I would say in general, Larry, we would look at the order funnels, we would see a lot more strength in terms of higher end capital equipment, call it a high end, is $200,000 and above, you know, through the second quarter. A number of those didn't get released until the end of the quarter. We look at the funnels, we see more enthusiasm for the higher end capital equipment.

What do you attribute that to?

I think it is just an increase in confidence, principally in the large pharmaceutical customers, principal customers for those instruments. So I think, as they have gone through the year results have improved. When they look at taking on capacity or expanding their capacity, they have become a little bit more bullish on the front.

Great. Could I ask one additional question?

Sure.

On your One-Source service business, I guess that was up about 9 percent in the quarter?

Yes.

But you really didn't start that business until midway through the quarter, I guess. Would you look for better growth than 9 percent going forward?

No, I don't think so. I think we were very pleased with that. I think what you saw midway through the quarter, you know, it really kind of a pick on an official branding of the business. We have been driving the underlying activities here for quite some time. We feel good about the reception, as I continue to visit with customers, more and more it has been reinforced they would like to see it. They would like to go in this direction. I think we feel good about the strategic direction and the momentum behind it and I think we feel good about that growth rate in the quarter.

Thank you.

You are welcome.

Moving on we'll hear from Paul Knight with Thomas Weisel partners.

Morning, Paul.

Hi, Greg. Could you address where you are with the integration of PerkinElmer businesses into the life sciences group and also address where you think you are following what was an active 2001 in acquisitions, the full integration based on NEN, Packard , I guess it is two parts, where are you with the major acquisitions of '01, and where are you with the PerkinElmer portion you did late in the in the year of last year.

As you recall, we announced we were combining life and analytical in the October time frame. About nine months ago. I think we, as mentioned, feel very good the progress, we have demonstrated it in some of the cost reductions to the synergy. If you go back and kind of characterize the state of the integration, you know, it starts with, do we have a unified strategic plan for the business. We do, we have a unified management team. We have--then you get into each function by function. If you look at the sales organization, the sales organization is integrated, front end is integrated, operation side is integrated. We continue to work on some of the IT processes. Some of the financial processes, some of the R&D processes to get those fully integrated, I think have made really good momentum across the board.

Relative to NEN, and the Packard acquisitions, to answer the second part of your question, it is hard for us to separate that out. Because I think it's all one now, right? We look at it and view the business differently than it would have been characterized by site, if you will, under that phenomena. But we have moved away from the site structure. So we are organized around markets. So I think those businesses are part and parcel of this integration, really, the overriding one is to finish up the life and analytical sciences, which I would say for all practical purposes, will be complete by the end of this year. There may be a few legal entity consolidations or a few other things, maybe a few IT pieces left, hanging over in 2004. But I mean you sort of look at the momentum, the stability, the focus, you know, the way the processes are working, I think we have come a long way, in the past nine months.

Okay. So I guess the summary is higher level of stability?

Yes. I mean, I think I would say a high level stability, we are seeing real significant synergies on the cost side. We haven't yet got -- you know, begun to see the benefits on the growth side, on the revenue side. That just takes a little longer to work through, obviously, because of it shows up in new products or changed marketing approaches, that takes a little longer to develop.

Thank you.

You are welcome.

Once again, that is star 1 to ask a question. We will now go to State Street Research and Tom Stolberg.

Good morning.

Good morning.

Just a couple of questions, Cap Ex has been relatively low for the first half. Yet somehow in the back of my mind I am thinking it will be marketedly higher than what we have witnessed in the first two Qs. Can you give me your thoughts just for the full year?

I think one of the reasons Cap Ex has been down in the first half is clearly the revenue, growth or revenue has not been as high as we would have thought or like. We have not been adding any capacity from the standpoint of equipment or fixed assets.

Uh-hmm.

I think we will continue to keep that down fairly low. I think for the back half, it potentially could be a little higher than the first half. I wouldn't say significantly higher. So I would say we were on the second half comparable to the first half, maybe a little higher but not significantly higher.

Okay.

One of the ways to view the Cap Ex was through the acquisitions we made over the past couple of years, and even just the combination of LAS, you bring a lot of capacity on stream through those moves. As we have been able to consolidate it. We frankly have been able to unlock some of that capacity. So that has reduced the need for Cap Ex in the shorter term.

Wonderful on the cash flow front.

Yes.

My second question actually was just regarding the very nice progress you have made on your use of working cap and how that has driven some cash flow . I think probably towards the end of the fourth quarter a little seasonality which might use up some cash.

Given what you have achieved so far. Do you think given, let's call it a static revenue level, I know that is not your expectation for the go forward. Do you think you can maintain what you have got or do you think you can actually pull some more out for just operating the base businesses?

I think from a turns basis we can clearly get better. I agree we made nice progress to where we were. I think, from a turns perspective, at around four turns, I think there is a fair amount of progress we can make there. As we look internally at our own processes we can get better, whether its on the inventory side or the receivable side. I think there is continued progress on the turns. We just have to see how we do relative to revenue growth, whether that becomes a use or a source. But my view is for the next couple of years we can make better progress on working capital.

I apologize, I just have one final quickie.

Sure.

On your tax basis, where are you on a cash-tax the basis? Pretty close to reported or is there other stuff, given that you have such a fair chunk of revenues outside of the U.S, I sometimes have a tough time dialing in on what I think your cash taxes are going to be.

Our cash taxes are a little bit less than on a reported basis. The timing of that may be a little off, but they are basically I would say a cash tax rate is more in sort of the 25 percent range, compared to our book that is 32.5.

Thank you very much, gentlemen.

You are welcome.

Moving on we will go to Randy Gold with SharperImage.

Yes, good morning.

Good morning.

I had a question on the revolver availability, could you just provide that.

Sure. We have not drawn down on the revolver. So there is still $100 million available.

Is that letters of creditor is that entirely available?

There are some uses of the letter of credit. Not a significant amount.

Okay. Then the impact of foreign exchange. I might have missed this on the call. Can you give the impact of foreign exchange on revenue and operating income.

On a revenue basis it was about 4 percent, we get a benefit through the top line. Bottom line, relatively small. We match up pretty well from a cost basis overseas as well. Less than a penny benefit on the bottom line.

Then on the 2.7 million reversal that you took in the quarter for the charges, is that actually looking on the segment data, is that in the life and analytical sciences area?

It is.

One more question, that is on the life and analytical science area. I missed some of the numbers you gave, the growth rate and the percent of revenues, reagents, consumers, One-Source, etc. Could you just give those once again?

Sure, the service revenue was 22 percent.

Okay.

That was up 9 percent.

Okay.

The instruments was 46 percent, that was down 13. Reagents, which was 32 percent, was up 7.

Okay. Great. Thank you.

You are welcome.

We will now go to Vivek Khanna with Argus.

Good morning, I want to understand on the opto-electronics strength, could you just highlight where you are seeing that strength from, which products, or which end markets?

Yes, in general, I would say it was fairly broad-based but particularly in the specialty lighting area. Flash, had an excellent quarter. Also, of course, medical imaging for the year continues to be a very strong grower, both in diagnostic side, you think about what our partner, GE, and whether it's digital cardiac, mammogram, angiography, etcetera, or on therapy side, where increasingly we're doing work in radiation therapy, and other non-medical applications. So I think it was just more broadly based, continues to be in the medical imaging area, continues to be in some of the specialty lighting arenas like flash.

And I had a question for Rob, if I may. In terms of the cost savings, Rob, that you highlighted, how much of that have you already seen in '03 or is that still to come in the second half?

Well, I think there is still some more to take place in the second half, if nothing more than some of the timing that we have in the second quarter, of course you will get a full quarter benefit to that in Q3, '04. We still have further actions to be taken through Q3 and Q4. My anticipation is that you will continue to see cost reductions through the year.

Great. Thank you very much.

You are welcome.

Moving on, we will hear from David Cummings with J.P. Morgan.

Yes, good morning. Thanks very much. Nice quarter.

Thank you.

Just a couple of housekeeping items, then one question. The housekeeping items are, where is the off-balance sheet accounts receivable balance of June 30 .

$40 million. That is flat.

Unchanged.

It was flat in the quarter.

The $1.4 million in miscellaneous costs that you mentioned. Could you tell me where that is on the income statement?

It is in interest and other expenses.

Okay. That's what I thought. Great.

The guidance that you gave for third quarter, that would, I guess, just be for operations, are there any other sort of odds and ends items likely to be in third quarter? The 8 to 11 is GAAP, first of all. And so that includes the 4 cents of intangible amortization. We don't anticipate anything in discontinued operations going forward with the sale of entertainment lighting.

Okay. Thanks very much.

You are welcome.

We will now hear from Scott Kirkpatrick with Eaton Capital.

Great quarter in a tough environment. I wonder if you could elaborate and maybe even quantify on some of the upticks in orders that you saw, in the two parts of the business that remain under a lot of pressure.

Yes, I'll try here. So going back to life and analytical, Rob sort of broke it apart into genetic screening, environmental and chemical, the service business, and then the biopharma. I think where we saw the weakness historically has been in biopharma, particularly in the drug discovery piece. So I think a couple of things happened.

One, you start to see more orders released in the academic and research markets because of NIH funding and so forth that went through. And then second, we saw that the pharma companies were stepping up capability or capacity which shows up in the higher-end instruments.

To give you an example, we sell something called and ultra-view, which is a life-cell imager, and in the first quarter I think we sold two, second quarter we sold 16. Or took orders for it. So it really stepped up.

On the fluid sciences business, that is both aerospace and semi-con. And I think aerospace is kind of bouncing along the bottom. Also, semi-con as well. But I think we are more bullish on where semi-con is going in the short term. We see signs of life in semi-con booking increases. We saw it really in the back half of last year, and so actually there was a bit of premature recovery, it went up and then back down the fourth quarter of this year. But we are seeing more bullishness from some of the OEMs out there. With what they are doing in the semi- con. We expect that to pick up reasonably soon and the -- in aerospace over a longer period. Certainly not that short in aerospace but we don't see that getting any worse.

Can you put the bookings in perspective in terms of a book to bill for us?

Yes, one of the things we look at is on a monthly basis, or a quarter over quarter, what is happening with our bookings or our order rate, so if you looked in Q1, we would historically have seen a pickup from the second month of the quarter to the third month of the quarter. If you looked at Q1. I will talk to just sort of drug discovery or biopharma here, you would have seen a 50 percent recovery from February to March. In the May to June timeframe we saw 110 percent increase. That is what we are talking about as far as a fairly significant increase in the month of June from a bookings perspective.

Great. That is exciting to hear. I wonder if you also wouldn't mind helping me discern whether the improvement that you have seen has gone past the close of the quarter into the current quarter or are you just talking about up to the last day of the quarter?

Well, the data that I have given here is just to the end of the quarter.

And would you care to comment beyond, you know, going into this quarter, whether you have seen the strength?

I would say it is a little early to sort of make a conclusion about this quarter at this point.

Thank you very much.

You are welcome.

Moving on, we will take a follow-up question with Larry Neibor with Robert W. Baird.

Okay.

Larry, your line is open, please go ahead.

Sorry. Thanks. Could you give us an idea how your new mass-spec product is doing and how you intend to expand that product line?

The mass-spec product hits revenue service this quarter. Most of our activity has been working with potential customers to qualify their applications on the product. So it is really sort of a gut feel here, I don't have a lot of numbers that I can give you in terms of actuals, because of the timing. But we feel very good about performance of the product, and potential customers feel very good about it.

We see this as a very integral part of our whole Proteomic suite, that is where we are developing it. We want to have the broadest range of mass-spec. We are really driving on the strategy that says we have the most comprehensive capability in the proteomics area. We will look at additional products where we come along relative to that strategy as opposed to trying to fill out a long line of mass-spec.

Thank you.

We have no further questions at this time. I will turn the conference over back to Mr. Gregory L. Summe.

Thank you. As I said in my earlier remarks we feel good about our progress in Q2. And are optimistic about the remainder of the year. We will continue to stay on the same priorities that we have. Continuing to drive the cost, the cash flow and new products out in the marketplace.

I want to thank you for your time today and your interest in PerkinElmer. This call is adjourned have a good day.

That concludes today's teleconference. We thank you for your participation