Revvity Inc (RVTY) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2006 PerkinElmer's earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Steven Delahunt, Director of Treasury and Investor Relations. Please proceed sir.

Good afternoon and welcome to the PerkinElmer's second quarter 2006 earnings conference call. If you have not received a copy of our earnings press release, you may get one from our website at perkinelmer.com, or from the FirstCall network, or from our toll-free investor hotline, 1-877-PKI-NYSE.

Please note this call is being webcast live and will be archived on our website until August 10, 2006. Before we begin we need to remind everyone of the Safe Harbor Statement that we've outlined in our earnings press release issued earlier this afternoon, and also those in our SEC filing.

Any forward-looking statements made today 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.

During this call we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available in our earnings press release. To the extent we use non-GAAP financial measures during this call that are not reconciled to GAAP in that press release, we will provide reconciliation promptly.

I'm now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Greg Summe.

Good afternoon everyone. I appreciate you joining us to discuss PerkinElmer's second quarter 2006 results. With me today is Rob Friel, our Vice Chairman and President of Life and Analytical Sciences, and Jeff Capello, our Chief Financial Officer. I will begin by reviewing the highlights of the quarter. Rob will cover the outlook for the Life and Analytical Sciences business. And Jeff will provide more detail on the financial results. After that the three of us will be available for questions, and then we'll close the call.

We're pleased with our progress this quarter, having achieved strong financial results while also making significant investments in our growth platforms. I will first review some of the financial highlights and speak about our recent acquisitions and the outlook for the Optoelectronics business.

Our GAAP earnings per share from continuing operations in the quarter were $0.21. Our cash EPS was $0.26, up 30% over the same period prior year, and in line with Consensus estimates. Our revenue in the second quarter was 377 million, up 2% on both a reported and organic basis. While revenue growth of 2% was similar to our first quarter result, we expect momentum of our growth initiatives to help generate stronger sales growth in the second half of 2006. We expect organic growth in the mid single digits with reported growth being above that number.

We continue to generate very strong operating cash flow, driven by improved profitability and ongoing working capital progress. Our operating cash flow, excluding tax payments for the Fluids divestiture, was $58 million.

Our working capital returns continue to improve, and we have maintained an excellent balance sheet of approximately $124 million in net cash. We have stepped up our investments in growth, both external and internal spend. Internally our R&D is up 13% and our capital expenditures are double the prior year. We're also spending more through the SG&A line and expanding our Asia-Pacific infrastructure.

Looking at our external growth investments we have completed three acquisitions since last quarter. Two of them in Screening and Diagnostics business and one in Service. Today we announced the acquisition of Macri Technologies and NTD Labs, a leader in prenatal risk assessment, that further adds to our expanding capabilities in natal and maternal health.

Macri Technologies brings access to free Beta hCG, a proved and validated marker for first trimester prenatal risk assessment, particularly for Down's Syndrome. As you may beware, the trend is to move prenatal risk assessment from second trimester to the first trimester, and this product helps supports our shift.

NTD Labs the a validated reference laboratory that provides prenatal risk assessments, and would help strengthen our clinical awareness as a result of its strong and established relationships with maternal health care providers.

As we continue to buildout our portfolio of neonatal and prenatal screening capability, we believe there is tremendous value in confirmatory diagnostics testing. And towards direction we completed the acquisition of Spectral Genomics, a leader in molecular karyotyping technology for use in evaluating chromosomal abnormalities related to a range of prenatal and neonatal disorders.

Furthermore, this technology also fits well into our Molecular Medicine business for research use, and has particularly useful for analyzing certain chromosomal diseases such as cancer. We believe the company's proprietary cGH array technology provides excellent insight and productivity versus existing technologies like FISH, which are very labor and time intensive.

To expand our leading position in the service market we acquired C&A Service Solutions, an asset management company serving the pharmaceutical, biotechnology and health care markets. We believe C&A is a proven solution for cost reduction and increasing service levels that complements PerkinElmer's technical expertise for a wide range of equipment platforms. This acquisition, combined with the Biomatic Service acquisition in fourth quarter 2005, furthers our leadership position as the comprehensive service provider to labs across our target industries.

Looking forward to the second half, our Optoelectronics business should see more rapid growth, driven by medical imaging and consumer electronics. Our imaging business returned to double-digit revenue growth in the second quarter, as we continue to make progress on expanding flat-panel capacity. We have accelerated investments in our Santa Clara flat-panel fabrication facility in an effort to satisfy the very robust demand that we are seeing for digital x-ray detectors. We expect this business to continue to generate double-digit growth in the second half of 2006.

In consumer electronics we continue to see the decline of our film-based flash photography business. The third quarter is the last period for this decline, as the film business bottoms out. The good news is our digital flash photography business is growing very rapidly, and we are beginning to ramp up volume production of flash modules for camera phones. We expect to see a significant contribution from camera phones in the fourth quarter.

Looking ahead to the remainder of 2006, our growth investments in both acquisitions and internal programs and R&D and SG&A will have an impact on our full year 2006 EPS forecast. The investments will result in the reduction of our full year cash EPS guidance by $0.05 to $1.15 to $1.20, which will mean profit growth of 21 to 26% for the year. We believe this is the right balance between investments and profit growth to increase customer and shareholder value.

I'm now going to turn the call over to Rob Friel, who will discuss our outlook for Life and Analytical Sciences.

For the second half of this year LAS should see increasing organic revenue growth and a good increase in operating income. The combination of those internal and external investments we have made are providing new products and new markets for us to capitalize on.

Greg mentioned our increasing capabilities in the prenatal area as a result of several recent acquisitions. In neonatal we continue to see states migrating to the recommended standard of care, where we have the only FDA-approved panel. Earlier today we announced we have been selected by the state of Texas to supply their enhanced newborn screening platform. This was a very significant win, as Texas operates the largest newborn screening lab in the world. The recently signed contract is worth approximately $22 million over a five-year period.

Outside the U.S. we also see increasing opportunity to expand neonatal screening. Tomorrow we will formally announce that we have partnered with China's Ministry of Health to bring neonatal screening to 7 underserved provinces in China. Due to the influx of money from higher oil prices, countries like Russia and several former members of the Soviet Union are earmarking more funds for public health, and specifically newborn screening.

Within Analytical Sciences and Molecular Medicine we have and will continue to increase our R&D spending, as well as supplement with Business Development to accelerate new products into the faster growing markets. Two examples of this are our recently introduced JANUS line of liquid handling, which for the second quarter experienced very strong growth. And the Spectrum 100, which is an FDIR instrument that has dramatically functionality, particularly in pharmaceutical QA and QC, and has resulted in driving our infrared productline to growth of double digits.

Our challenge is to do more of these faster, particularly in the reagent area, where we need to offset the decline in our radiation-based products. The addition of the Agilix technology, which allows multiplexing of proteomics analysis on mass spec, our licensing arrangement with Luminex, and some interesting work we were doing in enabling reagents kinase research give us reason to be optimistic about accelerating growth in this area in the back half.

Our service business continues to do very well, and the added capabilities of validation and asset management from the recent acquisitions of Biomatic and C&A will open up opportunities that previously were not available to us.

Finally, we have a fairly robust pipeline of products and technology additions that will further accelerate our move into these faster growing markets. Consequently, we're quite excited at LAS about the second half of 2006.

Now let me turn the call over to Jeff to discuss our financial results for the quarter and future guidance.

Good afternoon. This afternoon I will provide some details on our revenue, costs and cash flow for the second quarter of 2006, then briefly discussed guidance for Q3 and full year 2006, before I open the call to your to questions.

Before I get into the specifics, I want to clarify that whenever I talk about a particular measure being up or down, I'm referring to an increase or decrease in that measure during the second quarter of 2006 compared to the second quarter of 2005. And to the extent that I use any non-GAAP measures, those have been reconciled to the comparable GAAP measure in the appendix to this presentation on our website.

It is important to note that we have elected to apply the impact of FAS 123R, expensing of stock options, in our financial statements on a prospective basis beginning in Q1 '06. Therefore, the results of Q2 '06 and Q2 '05 are not comparable with the impact of the new standard being a pretax charge of 2.1 million or $0.01 per share.

Turning first to revenue, we finished the second quarter 2006 with sales on a reported basis of 377 million, up 2% compared to 368 million in the second quarter of 2005. On an organic basis, which for the purposes of this call excludes the impact from foreign exchange and acquisitions, Q2 2006 revenue also increased 2%.

By segment revenue growth was 3% in LAS and 1% in Optoelectronics. On an organic basis, LAS revenue growth was 2% and Optoelectronics was 1%. Geographically revenue in the Americas, which represented approximately 45% of our revenue for the quarter, was flat organically. Revenue in Europe, which represented about 36% of our revenue for the quarter, was up low single digits organically. And Asian revenue, representing about 19% of our revenue for the quarter, increased mid single digits organically for the quarter.

Gross margins for the second quarter of 2006 were 40.2%, a decline of 90 basis points over 41.1% in the second quarter of 2005. Adjusted for the impact of stock option and amortization expenses, gross margins declined 80 basis points. Gross margins were adversely affected by commodity costs, as well as slightly unfavorable product and geographic mix.

R&D expenses increased 13% to 25 million in the second quarter of 2006 from 22.1 million in the second quarter 2005. The increase was driven by acceleration of activity around new product introductions in our growth platforms. The increase in R&D reflects our continued commitment to invest in our growth platforms. We expect our R&D investment will continue to grow as we move our way through the year.

Selling, general and administrative expenses were 24.6% in the second quarter of 2006, down from 25.2% in the second quarter of 2005. Stock option expense of 1.6 million is included in the quarter ending Q2 '06. Adjusted for stock option and amortization expenses, SG&A decreased 100 basis points. The decline in selling, general and administrative was primarily driven by productivity initiatives and geographic mix of revenues across all entities, slightly offset by the impact of the acquisitions. During the quarter we benefited from a few small gains and a restructuring reversal, all of which helped offset the dilution caused by our recent acquisitions within the quarter.

GAAP operating income for the second quarter of 2006 was 35.7 million compared to 21.7 million in the second quarter of 2005. Excluding intangibles amortization, stock option expense and restructuring activity, operating income in Q2 '06 was 45.3 million, or 12% of sales, up 30 basis points from Q2 2005.

Looking at the expenses' lower operating income, interest income net of interest expense Q2 '06 was $100,000 compared to interest expense of 6.9 million in Q2 2005, due to significant debt reductions over the last 12 months, and continued strong cash generation. Other expense of 2.6 million is comprised of the cost of hedging our foreign currency balance sheet exposures and deal-related expenses.

The tax provision of 7.6 million in the second quarter of 2006 reflects the rate of approximately 22.3%, including the benefit of 740,000 for the resolution of a tax issue. We expect our tax rate to be approximately 24.5% or lower during the remainder of the year, depending on the distribution of actual income and other items.

Net income from continuing operations was 26.3 million in Q2 2006, down from 30.6 million Q2 2005, primarily due to a large onetime tax benefit of 20 million, partially offset by a restructuring charge of 14 million, both occurring in Q2 2005.

The losses from discontinued operations of 600,000 and disposition of discontinued operations of 1.3 million represent the remaining activity related primarily to the divestiture of components of our Fluid Sciences businesses.

Net income decreased to 24.5 million from 28.9 million, principally due to the impact of the tax benefit and restructuring charges discussed earlier. Weighted average diluted shares outstanding for the quarter were 127.4 million, reflecting the full impact of our year-to-date repurchases. We expect to repurchase the remaining 3.9 million shares outstanding under the original approved program in the second half of this year.

GAAP EPS from continuing operations was $0.21 in the quarter. Excluding intangibles amortization, stock option expense and restructuring, EPS was $0.26 in Q2 '06, up 30% from Q2 '05, meeting the FirstCall Consensus estimate, adjusted for stock option expense, and in the middle of our forecasted range of $0.25 to $0.27.

Turning to our segment results, I will briefly describe our Q2 performance. All of the revenue growth that I will discuss is on an organic basis. In LAS revenue in the second quarter was 278.5 million, up 2% organically over the second quarter of 2005. On a GAAP basis LAS operating profit for the second quarter of 2006 was 25.3 million compared to 15.7 million in the second quarter of 2005. Excluding the amortization of intangibles, stock option expense, and restructuring charges, LAS Q2 2006 operating margins were 12.3%, unchanged over Q2 2005. Productivity initiatives, offset by the impact of product mix, commodity inflation, and the impact of acquisitions, drove the operating margin result.

In Genetic screening, which was about 13% of LAS revenue in the quarter, organic revenue increased double digits, continuing its strong momentum of growth. We continue to see good momentum in neonatal screening, which grew strong double digits, driven by the expansion of our Screening platforms. Contributing to the expansion were recent programs wins in Russia, Canada, and Israel. Prenatal screening also grew double-digit in the current quarter compared to Q2 2005, driven by increased adoption of our tests in Europe.

Service, which represented about 24% of our LAS revenue in Q2 '06, grew mid single digits organically, also continuing its upward momentum. We continue to see good growth in our base business, as well as increased demand in both our OneSource and multiyear service offerings. The outlook for our service business continues to be very strong as our customers increasingly see the value proposition of providing solutions, increased productivity, reduced complexity and realize cost savings.

In Environmental and Chemical productline, which represented about 26% of our LAS revenue in the quarter, organic revenue increased in the low single digits. We continue to have very good performance in our ICT and ICT mass spec productline, where we continue to see international demand to improve air, food and water quality.

Biopharma sales, which represented 37% of LAS revenue in the quarter, was down low single digits organically compared to the same period 2005. Within biopharma certain businesses showed strong improvement in year-over-year revenue growth versus Q2 2005, driven by our new product introductions.

Revenue in our IR spectroscopy and UV/Vis spectroscopy productlines increased double digits, driven by new product introductions such as the Spectrum 100 instrument, as well as strong end markets. We also continue to see strong acceptance of our Luminex and CellEx instruments within the Cellular Screening area.

In addition, our new JANUS instrument had another strong quarter, driving sales of liquid handling products up 20% year-over-year. Offsetting the improvements was the decline of our radioactive reading in our instrument products, which continue to suffer from the transition away from rad products. We continue to see progress in portfolio transition within biopharma, and expect that progress could continue in the back half of 2006.

In Optoelectronics revenue for the quarter was 98.5 million, up 1% organically compared to the second quarter of 2005, driven by our imaging business which grew double digits as we continue to adjust capacity issues to meet very strong customer demand. Opto's growth rate was negatively impacted by specialty lighting and sensors, both down low single digits, as we continue to transition product technology.

Optoelectronics' GAAP operating profit for the second quarter of 2006 was 17.4 million or 17.6% of revenues. Excluding intangibles amortization, stock option expense and restructuring charges, operating margins were 17.3%, which represent an increase of 10 basis points compared to the second quarter of 2005.

Productivity gains offset product mix and investments. Within Optoelectronics imaging revenue grew double-digit organically during the quarter, driven principally by strong demand in our amorphous digital X-ray panels. As discussed earlier, we made good progress in adding additional capacity and improving yields in our fab, which have drive imaging growth in the quarter. We expect growth in our amorphous business to remain on an upward trajectory during the second quarter -- second half of 2006.

Specialty lighting was down mid single digits organically compared to Q2 of last year due to continued decline in the sales of single use flash, only partially offset by the increase in digital camera flash units. Fortunately, the third quarter will mark the final quarter of difficult comparables as revenue from single use cameras begin its decline late in the second half of 2005. In addition, as Greg mentioned, we continue to see strong growth in digital flash, and expect to see a strong ramp up in demand for high-resolution camera phones and camera modules in the back half of 2006.

Now turning to the balance sheet and cash flow. During the second quarter of 2006 we had GAAP operating cash flow of 53.2 million. This amount includes tax payments 4.6 million, related to the gains reported in 2005 on the divestiture of Fluid Sciences business. Adjusting for this onetime payment, operating cash flow for the second quarter of 2006 was $57.8 million.

Our focus on working capital continues to pay dividends as we had 0.3 turns improvement year-over-year in our working capital. In particular, we made strong progress in accounts receivable where we drove DSO down three days year-over-year to 67 days sales outstanding.

As Greg mentioned, our continued generation of strong cash flow, coupled with a solid balance sheet, allowed us to make further progress in multiple initiatives. In addition to the acquisitions discussed earlier, we increased our rate of investment, spending 12 million in capital expenditures, up from 6 million last year, and increased R&D spending by 60 basis points over the same period in 2005.

We finished the quarter with total cash of 324 million, and net cash, which we define as total cash less short and long-term debt, of approximately 124 million. The balance sheet strength and cash flow generation provided us with the ability to make a number of strategic acquisitions in the quarter, continues to provide the Company with tremendous flexibility as we look to further expand our growth platforms and return value to our shareholders.

We expect organic growth to improve and result in roughly 3 to 5% of organic growth for the third quarter. Foreign exchange is estimated to be a positive impact on growth by approximately 100 basis points, whereas the impact of the completed acquisitions are expected to add further a 100 basis points, yielding expanded growth on a reported basis from 5 to 7%.

For the third quarter of 2006 we are forecasting GAAP earnings per share from continuing operations of between $0.22 and $0.24. But the impact of stock option expensing is expected to be $0.01, and the impact of amortization of $0.04. Excluding the impact of intangibles amortization and stock option expense, we are forecasting cash earnings per share from continuing operations of between $0.27 and $0.29 for the third quarter of 2006. This would represent an increase of 13 to 21% over the third quarter of 2005 at $0.24 per share.

For 2006 revenue we are forecasting organic growth to be approximately 3 to 4%, with the overall impact of FX expected to be minimal. As Greg referenced, the continued investment in our growth platforms through acquisitions and internal initiatives throughout the year will have an impact on EPS. As a result, our full year GAAP EPS estimate is now between $0.95 and $1, and cash EPS between $1.15 and $1.20. The reduction in guidance of $0.05 is comprised of approximately $0.02 of dilution for acquisitions, and $0.03 for increased investment and operating expenses to drive higher growth.

The estimated impact of intangible amortization is forecasted to be $0.16 per share for the full year 2006, while stock option expenses will have an impact of $0.04 per share for the same period.

Free cash flow is expected to exceed net income, despite a healthy increase in capital expenditures to fuel our growth. I will now open the call to your questions.

(OPERATOR INSTRUCTIONS). Quintin Lai from Robert W. Baird.

With the acquisitions that you have just made of NDT, that looks like a reference lab. Do you see yourselves going down that path of not only making diagnostic tests, but also doing the services for the testing?

I think we do in some limited aspects. It is a reference lab that provides both a great distribution channel for the free beta hCG marker, and helps provide confirmatory testing for broader-based lab distribution. I think the principal benefit of us being in the reference lab business is that it is an additional outlet for us to bring new tests to market. And it is an additional distribution channel in some areas where we don't think the market is being well served.

But it is not a shift to sort of being a full line into the testing business. It is really more of a supporting a supplemental capability to our maternal health and natal health screening business.

And then just another follow-up and then I will jump back into the queue. The increased spending to bulk up some of your long-term projects, how long do you think that that is going to occur until you get to more of a steady-state?

It is difficult to be very precise on that, but I would say we expect to continue to ramp up our R&D as a percent of sales here for awhile, and then kind of flatten it out. As we look at some of the opportunities we have in the market it is clear to us that today we can spend money and get a good return on the incremental R&D investment.

Do you have a long-term target that you envision R&D as a percent of sales?

Yes, 7%.

Paul Knight from Thomas Weisel Partners.

What, besides Diagnostics, are you looking to expand, or where are you putting this R&D money? Is it really in the Diagnostics area or is it the analytical instruments?

It is all of those. We're spending money in Analytical Instruments and we have some interesting MPIs I think in the back half of this year. We're spending money on the research area. If you think about the acquisition of Agilix Technology earlier in the year for mass tagging, that requires a subsequent amount of R&D investment to get a broad line of reagents out and around that.

We're continuing to spend money in the Medical Imaging arena. So I think -- and as you mentioned, the Screening and Diagnostics business. I think those would be the major areas that are seeing this step up in terms of the R&D spend.

In your guidance for the second half of the year in terms of organic growth, is the majority of that coming out of your Diagnostics business?

I wouldn't say the majority of it. And I will start and let Rob comment on it. But I think the Diagnostics business will have a step up in the back half. I think Medical Imaging will have a step up in the back half. I think Analytical Sciences will have a step up in the back half. I think Service will continue on strong. And consumer electronics will have a step up in the back half. Did that get to it, Paul? I don't know, did that cover it?

Derik DeBruin from UBS.

This is [Hal Hold] for Derik. I have a question maybe you have already provided. What is the organic growth rate target for the second half for the full year for each the LAS and the Optoelectronics?

For the third quarter we have given guidance of roughly 3 to 5% organic growth for the Company. And for the fourth quarter the organic growth target would be 7 to 8 -- 7 to 9% for the Company as a whole. By business, that would break out as follows. That would be roughly let's say 3 to 5% for LAS for Q3, 2 to 4% for Opto for Q3. And for Q4 it would be 7 to 9% for both businesses.

My last question is related to, can you guys comment on the biopharmaceutical spending in general? And what do you guys see for the upcoming second half and forward?

I will start, and if Rob wants to chime in here. I guess we don't see a significant change in the momentum in the marketplace, that the pharmaceutical companies have been relatively stable in their spend. The biotechnology companies have been growing faster. And as you know, the funding market for the academic side has been relatively flat, although there are obviously different mix changes in there. Do you want --?

I would say -- so as a result we're not expecting an increase in spending in the back half. Fundamentally what is driving the higher growth is new products that we expect to come out in the market. And we expect those products to hit into some of the faster growth areas within biopharma. As Greg said, we don't expect the spending to be up significantly, but we do believe there are specific areas within either the pharmaceuticals or biotech where they are spending more, and that is really where we're targeting our new products and our efforts.

John Sullivan from Leerink Swann.

A couple of quick questions. First of all regarding the flat-panel manufacturing capacity issue, it sounds like you're past that. Can you just give us some sense of what your capacity is now relative to your runrate of business in that area, in medical imaging?

The capacity -- and both the capacity and the yields have improved. And we expect that to continue on over the next several years. It is, I would say, a very robust demand out there. We're fighting hard to be able to stay up with the demand in this marketplace. I think others are as well. It is kind of a sold out situation in the industry from a supply standpoint.

It sort of depends what timeframe you're looking at it, but we expect to double our capacity over the next couple of years in this marketplace. That won't result in double the revenues because there is a price volume curve here, but that is the direction that we're on.

Do you feel like you have enough capacity now in order to satisfy the next three or four quarters’ worth of demand?

Our capacity continues to -- we are on a track to continue improving our capacity each quarter. And so it is a matter of quarter after quarter taking up capacity, continuing to improve the yields. We have put a lot of investment into the facility. We have new equipment, new instruments. We're doing expansion of the facility. And so we have an outlook that says we should have significant growth in capacity over the next couple of years.

One separate question. Can you -- you talked about the biopharma area being down low single digits I believe. But within that, there was some liquid handling productlines that were actually up significantly. Is that true?

This is Rob. We saw good progress in liquid handling. Jeff mentioned specifically the JANUS. We also saw some pretty good traction within Vision, which is our multi-label detection. I think the offset is really in our radioactive business. That is really what is pulling down the other things that are actually doing quite well.

Can you give us some sense of what the strategy is for that part of the business?

I think the strategy is to continue to look for the incremental revenue growth. But as you are aware, long-term I think that business is sort of challenged. I think the strategy is to continue to grow around it.

Vasavi Vittal from Atlantic Equities.

I had a quick question on operating margin expansion, because in the earlier guidance you mentioned you expect 100 basis point over the next couple of years per year. If you could add more color to what your new expectation is? And also on the share buyback, if you bought any shares this quarter? I wasn't sure if I caught that.

Let's start with the operating margin question first. I think, as we have said, it is our intent to tick up the investment in the business in the back half of the year from an operating expense perspective, both R&D and SG&A. I think we're looking at more or less flat operating margins for the back half of the year. And as Greg had said, we will continue to evaluate that as we go into next year and look to make sure we've got the right balance between growth and profitability.

As it relates to the share repurchases, we did not repurchase any shares in this quarter. But we are planning to complete the remainder of our authorized share repurchase program, which is roughly 3.9 million shares. We will look to do that in the back half of this year.

Paul Knight from Thomas Weisel Partners.

You had 2.6 million of other I guess expense I see here in the quarter. What was that?

That was a combination of FX expense caused by the movement in Europe around the euro and the yen moved more, and deal related expenses.

What do you mean by deal -- oh, M&A.

Transaction expense.

What is your other line looking like? Aren't you a net generator of interest income going forward?

I think given where we are with the acquisitions and the share repurchases I think you can look for a minimal amount of expense in the back half of the year.

But we shouldn't be looking at an expense of 2 million or whatever a quarter?

I wouldn't expect so.

And then my question for Rob Friel is what have you found since you became head of Life Sciences in terms of morale, product development? Where are you right now on where you want it to be?

I would say I found a good organization with an a lot of opportunity. I think we have done some things organizationally to get a little bit better alignment. I think no big surprise in the sort of '03, '04 timeframe we were very focused on cost control, given where we were from an operating margin perspective.

And so one of the things we have done recently is really worked on the organizational alignment and culture around driving more growth. Some examples like R&D and manufacturing were more functionality aligned, now we are having them aligned vertically with the businesses.

We're doing some things like that to really focus more on growth, get the R&D organization more focused on shorter-term projects like reagents. But the short answer is found -- no big surprise -- in a lot of good people and some great assets that I think we just need to turn the direction from one which was focused on driving operating income and margin, so you have that same sort of vigor and excitement around driving growth. That is really what we have been trying to do over the last six months. And hopefully we'll see some of the fruits of that labor in the back half.

Quintin Lai from Robert W. Baird.

The acceleration of organic growth assumption from Q3 to Q4, how much of that represents the anniversaring of the radioactive in Q3, and then not I guess being an impact on Q4?

I think the assumption that we have kind of baked into the plan -- this is Jeff -- for both the third and the fourth quarter is that we don't see much, if any, improvement in the radioactive business. In fact, the plan for the back half of the year is more or less flattish biopharma revenue growth. I think, as Rob had said earlier, we have been investing in certain segments which we feel -- which have started to take off, and which we feel will continue to accelerate, which will compensate for the decline of the rad business.

So if flattish for biopharma for the back half of the year, then most of the growth for LAS would then be coming from genetic screening, or is it also coming from an acceleration in Environmental? You had 7 to 9% organic growth in Q4.

I think it is going to be both. I think you're going to see -- let's deal with the remainder of the three. Service will continue to grow. It had a very strong first half. I think you're going to see Genetic screening's organic growth pick up quite a bit. We talked about some of the Texas program. We won a number of large countries, which I spoke about. And in addition, closing the this acquisition will be helpful. So that is some organic growth we will pick up.

And then E&C I think will pick up as well as a result of some focus on the emerging markets where our orderbook remains very strong, as well as some new products that are coming up in the back half of the year which we think will be very promising.

Then as you have built these assumptions up, you're not really making an assumption of macro turnaround, but just on your product and your current orderbook now?

That's correct.

(OPERATOR INSTRUCTIONS). John Sullivan from Leerink Swann.

Can you just talk for a second about your productline in Environmental? It is an area where we have been seeing good growth out of several competitors in the quarter. And I'm just wondering do you feel like that line is sufficiently refreshed? I know that ITP and ITPMS have been good. Are there other products that you feel like you need to refresh in that area?

This is Rob. I think we have a very good productline up there, particularly in Environmental. When you look across Environmental and Chemical, we had some product lines that have done and continue to do very well.

I think when you piece it apart there was two areas of I would say we underperformed. One was in chromatography. And Jeff alluded to the fact that we think we've got some interesting new products coming out there that will shore that line up.

Then we had a particular issue regionally in Japan where we actually had some recent turnover in management, and we just replaced the President of other leaders there, that we feel good about going forward. But if you really exclude those two areas, actually our Environmental and Chemical area did quite well.

If you excluded those two areas, can you ballpark me what the growth might have been instead of low single digits?

Yes, probably more like high end, sort of 7ish.

(OPERATOR INSTRUCTIONS). At this time there no more audio questions. I would like to turn the call back over to the host for today for closing remarks.

Thank you everyone for your questions. We feel good about the second quarter with both 30% earnings growth, and maybe even more important, significant investments in our key growth platforms. We believe we have a good combination of profit growth, and increased growth investments enhance customer and shareholder value. Thanks for your time today and your interest in PerkinElmer. This call is adjourned. Have a good evening.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.