Revvity Inc (RVTY) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the quarter four 2009 PerkinElmer earnings conference call. I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Dave Francisco. Please proceed Mr. Francisco.

Thank you. Good afternoon and welcome to the PerkinElmer fourth quarter 2009 earnings conference call. I'm Dave Francisco, Vice President of Investor Relations and Treasurer for PerkinElmer. With me on the call are Rob Friel, Chairman and Chief Executive Officer, and Andy Wilson, Senior Vice President and Chief Financial Officer.

You have now received a copy of our earnings press release, you may get one from the Investor's section of our web site at www.perkinelmer.com or from our toll free Investor Hotline at 1-877-PKINYSE. Please note that this call is being webcast live and will be archived on our website until February 18, 2010.

Before we begin, we need to mind everyone of the Safe Harbor Statements that we have outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. 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 as an attachment to our earnings press release. To the extent that we use non-GAAP financial measures during this call are not reconciled to GAAP in that attachment, we will provide reconciliations promptly.

Please note that references made to continuing operations in our earnings press release issued earlier today and during this call include the reintegration of our [Photonics] business representing a portion of our specialty lighting business that we discontinued in the fourth quarter of 2008. The Photo Flash business remains in discontinued operations.

I am now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Thanks Dave. Good evening and welcome to our fourth quarter earnings call. I would like to begin the call by saying how pleased we are with our performance in the quarter, which capped a solid year for PerkinElmer. In a moment, Andy will go into more detail on our financial results.

First, let me provide you with an overview of the fourth quarter. Turning first to the financials, we continued to see sequential topline improvement across the Company and solid profitability and cash flow performances. Both revenue and EPS were ahead of our expectations, as we experienced improvement in all of our end markets and benefited from our robust pipeline of products introducing almost as many new products in 2009 than we did in the previous two years combined.

In addition, our solid financial performance in the fourth quarter -- we also made significant strides in driving growth opportunities in attractive end markets investing in innovative technologies and continuing to expand our global footprint.

In Human Health during the quarter, we expanded newborn screening in China through our recent SYM-BIO acquisition and also advanced adoption and capacity of first trimester prenatal screening, setting up national labs in New Zealand, the Philippines, Vietnam and Malaysia.

We leveraged our genetic screening technology into Child Health, with the launch of our new steroid profiling kit, which is the first commercially available kit designed to help diagnose hormonal imbalances and endocrinal-based diseases.

During the quarter, NDD Labs joined the Aetna network, becoming the first exclusive provider of a first trimester Down Syndrome screening protocol using the free beta HCG biomarker.

We also made excellent progress with our continued investment in Diagnostic and Research technologies. In Diagnostics, we launched the only first trimester test available for early onset preeclampsia in Europe and Asia Pacific. And with our new DELFIA express kit, PerkinElmer is well positioned in the early onset market reducing the risks, disabilities and expense caused by the condition.

In the research markets, we are having early success with expanding beyond traditional high (inaudible) screening of drug compounds into the rapidly growing Biologics market. Our innovative Alphalize (inaudible) Reagent technology, which is comprised of a series of advanced (inaudible), has now been expanded to 140 kits to aid in the detection of cancer, diabetes, neurological and other critical disease states.

In addition, we entered into a strategic alliance with Corning to advance the development of next generation Label Free technologies, which will provide researchers with deeper insights into bimolecular and cellar interactions through direct observation. We also launched our enhanced Inspire Multi-Label Readers with luminescence for enabling broader access to improve primary and stem cell research.

In the quarter, we also addressed critical environmental Food and Consumer Safety concerns and continue to partner with our customers to help them meet new more stringent detection requirements as a result of new regulations.

In Europe, we launched new [Falling] Detection solutions, which were developed specifically to ensure compliance with new laws. In greater China, we grew partnership with the Beijing Food Safety Monitoring Center, as the center significantly increased it's food monitoring geographical reach. We expanded our service partnership with the Taiwan EPA Air Monitoring Division, as they expanded to twelve sites.

We were pleased with the continued uptake of our latest environmental health innovations, such as our proprietary wafer technology in the environmental market and our Viper Differential Scanning Calorimetry System for materials characterization, as well as the advancement of hyphenated technologies in the pharmaceutical and academic labs. For example, the new DSC-Raman system combines the strength of our thermal analysis with Raman spectroscopy to provide greater insight into material changes at a molecular level.

We also shipped our first single [QUAD Maspect] to Gillson, who we are collaborating with as part of our long-term strategy to expand our Maspect offerings to key global market segments.

So, the fourth quarter brought the close to the year where global economic conditions created a significant headwind, but one that I feel good about our performance. First of all, we expanded adjusted gross margins by 50 basis points despite a decline in revenue of approximately $150 million, as compared to the prior year, which was a bigger drop than we expected.

In addition, we were able to generate adjusted earnings per share $0.02 above the mid-point of our original full-year guidance provided in January of 2009, which also included approximately $0.04 of dilution from a higher than expected tax rate. Our strategy of deploying a balanced approach of effectively managing costs and continuing to invest in innovative technologies has served us well/ Enabling us to exceed our goals and to exit 2009 as a much stronger Company financially and better positioned strategically.

As we begin 2010, our focus will be in three areas, first, to increase the growth profile of the Company through expanding our global footprint, aggressively increasing our reach through partnerships collaborations and acquisitions, and leveraging our technologies and capabilities into adjacent markets.

Second, continuing to invest in introducing new innovative technologies, for better protection and prevention in Human and Environmental Health.

And third, achieving good financial returns through strong cash flows and maintaining a focused approach on driving operating margin improvement.

Before turning the call over to Andy, let me briefly discuss our financial outlook for 2010. At this time, we believe the worst is behind us, but the recovery will be modest and slow to develop. As such, we expect to accelerate our rate of growth for both revenue and adjusted earnings per share as economic conditions improve and we cycle up against somewhat easier comparisons as we progress through the year. For the full-year, we expect organic revenue to increase at a low to mid single-digit rate and adjusted earnings per share to be in the range of $1.35 to $1.42.

I would like to turn the call over to Andy to give more details on our fourth quarter performance and 2010 guidance.

Thanks Rob. Good afternoon everyone. I will now provide some additional color on our fourth quarter results and after my prepared remarks, we will open up the call for questions.

Before moving into the financial details, I would like 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 fourth quarter of 2009 compared to the fourth quarter of 2008.

As Rob mentioned earlier, we are pleased with our financial performance in the fourth quarter and for the full-year, as we were able to deliver a solid earnings and cash flow performance.

Revenue for the fourth quarter was flat as compared to the same period last year. The favorable impact of foreign exchange was 4% and the favorable impact from acquisitions was 1%, therefore, organic revenue was down 5%, versus the prior year. The remaining analysis in my prepared remarks will be presented net of the favorable impact of foreign exchange and acquisitions.

By segment, organic revenue declined by 5% and 6% in the Human Health and Environmental Health segments, respectively. By geography, organic revenue in the Americas declined at a high single-digit rate, and organic revenue in Europe declined low double-digit.

Although, we experienced sequential improvement in Europe, the Americas and Europe continue to be impacted by economic challenges as well as delays in the release of stimulus monies. Organic revenue in Asia grew low double-digits with all major product lines contributing to the growth. Within the Asia region, organic revenue in China and India both grew well above 20%.

From an end market perspective, PerkinElmer's Human Health segment represented approximately 39% of total revenue in the quarter. Within Human Health, we serve two end markets, Diagnostics, which represented 21% of total revenue and Research, which represented 18% of total revenue.

Organic revenue from our Diagnostics business declined at a mid single-digit rate in the fourth quarter, as continued strength in Genetic Screening was offset by double-digit declines in our medical imaging business.

Organic revenue in Genetic Screening grew at a mid single-digit rate in the quarter, driven by continued strength of our neonatal and prenatal screening systems.

Organic revenue in our Medical Imaging business was down approximately 30% in the quarter, however we experienced sequential improvement across all served markets. With demand trends improving on the base business and solid traction on new OEM relationships, we anticipate continued sequential improvement in organic revenue growth for full-year 2010.

In fourth quarter, organic revenue in our Research business declined at a low single-digit rate, as the business cycled up against a difficult comparison from the fourth quarter of 2008. Consistent with our experience in the third quarter, demand for reagents and low instrumentation was fueled by customers continuing to need to spend on basic research. However, this growth for more than offset by softness in high-end instrument demand, a result of stimulus-related delays.

The Environmental Health business represented 61% of our total revenues in the fourth quarter. Within the Environmental Health business, we serve four end markets, Laboratory Services, Environmental, Safety and Security, and Industrial. Our Laboratory Services business represented approximately 20% of total revenue in the fourth quarter and organic revenue grew at a high single-digit rate.

One Source, our customer focused, multi-vendor offering was a key contributor to this growth in the quarter and delivered a very strong performance for the year. In addition to One Source, we continued to be encouraged by improving demand trends in our traditional service offerings, which we believe are indicative of improving economic confidence at customer labs.

The Environmental market represented approximately 17% of total revenue in the fourth quarter with organic revenue declining low double-digit. We were encouraged by continued sequential improvement in the quarter, however, constrained capital spending in this customer segment continues to dampen demand.

Offsetting this decline was a strong growth in China, a result of the stimulus -- impact of stimulus monies and as Rob stated earlier, key wins for our air monitoring solutions.

Additionally on a global basis, we continue to see strength in development, production and usage of renewable energy technologies, driving demand across a broad array of our Analytical Technology offerings.

The Safety and Security market represented approximately 13% of total revenues in the fourth quarter with organic revenues declining at a high single-digit rate. In this segment, as Rob mentioned, we achieved key food safety wins with government agencies in China, and the new regulations in Food and Consumer Safety recently adopted in the US, will continue to drive strong demand in these key markets.

Additionally in the quarter, we saw strong follow on demand for our thermo (inaudible) sensors in response to the H1N1 virus. Offsetting this growth, is the continued weak demand in fire detection and intrusion alarms and a very difficult comparison in the Defense-related business related to a lifetime buy of optical sensors in 2008.

Our Industrial markets represented approximately 11% of total revenue in the fourth quarter and organic revenue declined high-teens. These markets which include Chemicals, Semi-conductor and Petroleum refining, experienced a significant sequential improvement in the rate of decline. We are pleased to see a continued stabilization in these markets and are encouraged by our customers beginning to rebuild capacity.

Turning to our financial performance, adjusted gross margin was down 10 basis points in the fourth quarter as the benefits of our cost containment actions were offset by unfavorable product mix in the period. Adjusted Research and Development expenses were $27.1 million or 5.4% of revenue in the quarter, up 40 basis points from the prior year.

We have increased our rate of investment in innovative technologies throughout the year, despite the difficult economic environment to fuel future growth in our existing end markets as well as attractive adjacent markets.

Adjusted Selling, General and Administrative expenses increased by $7.7 million, versus the prior year, of which approximately $4 million was attributable to foreign exchange and the remainder due primarily to selling and marketing investments and higher variable base compensation. Adjusted SG&A expenses were up as percentage of sales by approximately 160 basis points compared to the fourth quarter 2008, as cost containment initiatives were offset by the aforementioned items.

GAAP operating profit was $58 million in the fourth quarter of 2009 versus $72.1 million in the fourth quarter of 2008. On a non-GAAP basis, adjusted operating profit was $74.6 million, versus $85.8 million in the fourth quarter 2008. Which as a percentage of sales, represented a decline of 220 basis points year-over-year to 15%.

Interest expense net of interest income for the fourth quarter was $3.9 million, as compared to $23.5 million in the fourth quarter of 2008. This decrease was primarily due to a one time expense in the fourth quarter of 2008 of $17.7 million related to the acquisition of Viacell. Excluding this one time expense, the remaining reduction in net interest is primarily attributable to lower interest rates on outstanding debt balances.

Other income was $800 million in the quarter as compared to an expense of $5.8 million in the fourth quarter of 2008. The expense in the prior year was primarily related to increased foreign exchange costs due to high exchange rate volatility in the fourth quarter of 2008.

For the fourth quarter 2009, we had an effective tax rate of 28.8% on a reported basis versus a previously communicated tax rate of 31%, as we experienced a positive shift in geographic mix of income as well as timing of favorable tax settlements.

GAAP EPS from continuing operations in the fourth quarter of 2009 was $0.33 compared to $0.29 in the fourth quarter 2008, while adjusted EPS was $0.43 in the fourth quarter 2009, down 7% from the same period a year ago. Regarding the weighted average diluted share count, we had 116.9 million shares outstanding in the quarter, which was essentially flat, sequentially.

Turning to the balance sheet, we finished the fourth quarter with approximately $379 million of net debt, which we defined as short and long-term debt minus cash. Adjusted net debt, which excludes the impact of termination of our accounts receivable securitization program in the second quarter of 2009, increased approximately $9 million compared to the prior year, as we were able to utilize our strong operating cash flows to fund our strategic acquisitions through the the year.

At the end of the quarter, we had approximately $180 million of cash and approximately $230 million of undrawn availability under our revolving line of credit, with no mandatory maturities due until 2012.

Looking at our cash flow performance for the quarter, operating cash flow from continuing operations was $64.2 million as compared to $93.4 million in the fourth quarter 2008. This decrease was primarily attributable to timing of payments for restructuring and compensation expenses. For the full-year 2009, we generated $198.3 million of adjusted operating cash flow as compared to $214.5 million in 2008. Working capital turns were essentially flat year-over-year.

In summary, we are pleased with our financial performance for the quarter and for the full-year. Let me now reiterate our 2010 guidance and provide some further detail. As Rob mentioned, we expect economic conditions to gradually improve throughout 2010. These underlying economic assumptions coupled with easier comparisons will allow us to accelerate revenue and earnings growth as we progress through the year.

Organic revenue performance in the fourth quarter of 2009 was down 1% as compared to the first quarter of 2008, a performance due in part to the extra days reflected in the first quarter of 2009. Therefore, we expect the first quarter to be our most difficult organic growth comparison.

Overall, we expect to see continued growth in the markets that have been fairly resilient in the economic downturn, specifically Screening, Lab Services and Food and Consumer Safety Testing. Within our Research business, we expect continued steady performances from our reagents and low instrumentation offering and we now expect to see the impact of stimulus-related growth in our high-end instrumentation beginning in the second quarter.

As mentioned previously, we are encouraged by demand trends in our Medical Imaging business and we anticipate that this business will be able to deliver organic revenue growth by the end of 2010. The Environmental and Industrial markets are expected to continue to improve sequentially as our customers deploy capital to meet growing economic activity.

So, to reiterate what Rob shared earlier, we expect organic revenue growth in the low to mid single-digit range for the full-year and expect the first quarter of 2010 to be essentially flat, including impact of the extra days in the first quarter of 2009. Regarding adjusted operating margins given the expected leverage from anticipated revenue growth and other productivity gains, we expect operating margins to expand in the range of 50 to 100 basis points in 2010.

Additionally, we expect our geographic distribution of income in 2010 to reduce our effective tax rate and therefore, we are estimating our effective tax rate to be approximately 29%.

Bringing all these factors together, we estimate our full-year adjusted earnings per share for 2010 to be in the range of $1.35 to $1.42, with adjusted earnings per share for the first quarter to be in the range of $0.27 to $0.29.

Once again, we are pleased with our performance in the quarter and for the year. The organization executed very well, delivering on the financial commitments set at the beginning of the year for revenue, adjusted earnings per share and operating cash flow. That's the end of the prepared remarks. I would now like to turn the call back over to Dave.

Thanks Andy. Operator, at this time we would like open the call to questions.

(Operator Instructions) Our first question comes from the line of Isaac Ro, please proceed.

This is Jeff in for Isaac. Thanks for taking the question. I was wondering if you could talk a little about the Medical Imaging business? I remember coming out of 3Q, you thought the back half of the year was going to be worse than the back half. Now you're seeing improvement as we go through, GE put up some decent numbers. What are you seeing there that's making you a little bit more confident? You said, let me get this clear, you said it is going to grow organically for the year or just grow at some point organically throughout the year?

So, I would say we are seeing improvement probably across all the end markets in Medical Imaging. Clearly, there has been some recovery in the capital expenditures in hospitals and so I would say we will see growth for 2010. It probably won't occur until sort of the middle of the year though and I think we will grow for the full-year, but we probably won't see positive growth in this business until probably the middle of the year.

Part of that is because we do have a difficult comparison in Q1 and as we talked about it before it was more of a function of how our ordering and our contract patterns work, so that our customers -- it was difficult for them to take their orders down in Q1 2009 as rapidly as what was happening in the market. So, it was still, I would say artificially high in Q1 of 2009 and we will cycle up against that. But, we do think we will return to positive growth, probably around the middle of the year and we do think we will see positive growth for the full-year in Medical Imaging for 2010.

Alright. Thanks and switching gears real quick. You talked about how China was kind of a bright spot not only in Food Safety, but in Environmental Air Quality, as well, can you talk about how big of a proportion of the sales you have over there and what type of investments you are doing? And when you talk about investments, are you meaning mostly green field or are you going to do some brown field as well?

So, China for us actually exceeded $100 million in 2009. So, call it 5% of our revenue. And it's a little bit of both, as you know we made the acquisition of SYM-BIO at the end of last year and they were in the process of building a fairly significant increase to their manufacturing capacity. So, that's coming up online. We will probably have that operational by the second quarter. So, we are investing not only in real estate, but also in people, increasing our capabilities there from a leadership and an employee perspective and we are starting to put more and more R&D investments into china as well. So, across the board, we are putting fairly significant investments in that part of the world.

Alright, thanks a lot, guys.

Our next question comes from the line of Quintin Lai with Robert W. Baird. Please proceed.

Good afternoon, nice quarter.

Good afternoon, thank you.

Rob, when you are looking at the pacing of demand as you went through the fourth quarter, have you seen anything -- was it steady all the way through or we've heard some people that December got kind of slow for Europe. What did you see?

I would say it differs little bit by end market, but I would say probably on the Environmental and Industrial side, we saw increasing demand as the quarter went on. I would say in the area of Research, it was fairly steady, and if anything we saw a little bit off on reagents actually at the end of the quarter. But, we think that may have been some timing and also because some labs, particularly on the reagent side may have shut down between Christmas and New Years. As I mentioned before I think, on the Medical Imaging side we have seen continued improvement through the quarter there. So, I think it varies a little bit, but I would say overall the bias has been to an improving trend during the fourth quarter in the majority of the end markets.

Then with respect to the high-end instrumentation and kind of the visibility of maybe a pick up in Q2, is it just because the orders are now starting to come in that you feel that way or give us a little color on that?

I think that's probably the reason. Again, I wouldn't suggest it's robust growth, but I think clearly things have improved. We did see improved order patterns, as I mentioned, towards the end of the fourth quarter and they seem to be continuing in January as well. So, we feel little bit better about the recovery occurring in those end markets, but as I said, I wouldn't say it's robust, but it's clearly going in the right direction.

Then with respect to your guidance in 2010, mid, low to mid single-digit organic and 50 to 100 bips of operating margin improvement. On the chance that organic revenue growth maybe accelerates a little higher than that, how much extra leverage do you think that you might be able to get or are you -- would you take the opportunity to maybe further invest in some other areas?

I think we would do a little bit of both. I think on the incremental side, I think it would create a fair amount of operating margin leverage as we took cost down in 2009, some of that was volume-related, but I think some of that will be systemic and improve our cost position.

So, I think we would get very good leverage on any incremental revenue growth beyond our forecast. Having said that why we clearly -- some of the drop through the bottom line we see opportunities to invest and the way we tried to build our 2010 operating plan is with a gated view of investment, so as we see the growth we hopefully have been conservative from a top line forecast and to the extent that we see higher growth. Some of that will flow through, but some of that will clearly be invested back in the opportunities we see to continue to expand out into these adjacencies we talked about and also to drive innovative new products into the marketplace.

Our next question comes from the line of Rob Hawkins with Stifel Nicolaus. Please proceed.

Thank you for taking the call. Maybe just to follow on the last piece in terms of the acquisition front. How you characterize your pipeline right now and where sellers attitude are related to price and on that gated view, there has been pick up in semi conductors, maybe even in chemicals, is it -- are you at the point now where you think you feel comfortable maybe even expanding into the Industrial and some of the segments a little faster on the Environmental side?

So, on the first question, I think our acquisition pipeline we feel good about. You have got to look at a lot in order to get a couple done. So, I think it's a pretty robust pipeline. I would say seller valuations -- I don't know that they have changed significantly over the last couple of quarters. I think it's always if you are looking at good properties you are going to have to pay good prices. I would say there hasn't been a significant change there.

As far as increasing our investments into the Industrial area, I think what we are trying to do is be more and more focused in those end markets and those applications where we see the highest growth prospects. So, I think if we saw higher revenue and we wanted to do some more investments, I would say the Industrial area would probably not be an area of significant focus for us. We would probably be in the other areas, like the Food Safety, like the Environmental area -- I think we probably see investment before some of the Industrial areas.

Okay. And then on Imaging, I'm just curious you have seen (inaudible) flow pick up, but in January or now are you seeing any loss of momentum because of some of the uncertainty around legislation, physician fees?

We haven't. Obviously, it's very early to see that change as a result of say Healthcare reform not passing, but I would say we haven't at this point. We continue to sort of keep a close eye on that, but we continue to see pretty good ordering patterns improving in the Medical Imaging business.

Great. Thanks, I will jump back into queue.

Our next question comes from the line of Peter Lawson with Thomas Weisel Partners. Please proceed.

Good afternoon, this is actually Eric filling in for Peter. On the Imaging business, is there a certain amount of lag time that you see between say a General Electric saying that their demand is improving and a time when that actually starts to impact their orders from you significantly?

There is a little bit of lag between, obviously, when they start taking up their orders and then obviously to the extent that they see the revenue and we see the revenue. But, presumably to the extent that their revenue is doing well, we will see a little bit of lag to that, but not that significantly.

Okay. On the Environmental Testing, is there -- are the labs out there, are they reaching a point where they really need to upgrade instruments in order to operate their business efficiently or is there room for them to still maintain say a piece of equipment one, two, three years more and still be able to operate at a level that's okay for them?

Well, obviously it depends a lot by the individual lab, but I would say it really gets down to volume. I would say from if their volume increases fairly significantly, I think that's what is going to drive the demand, the volume through the lab. Most of the labs, I think, they are not in a obsolescence issue relative to the instruments, it's really more of a volume-driven need for the increased capital.

Okay. Great. A final question on the Diagnostic business, is there anything on the horizon whether in the US or outside the US that would drive a uptick in demand, are there new [asays] or new provisions that will be tested for or anything like that legislation wise?

Well, I would say there is always continued new products and new asays we are coming out with. We mentioned Child Health and a number of other areas in the prenatal area, but I would say we really look at that as continuing products in the marketplace that continue to achieve the growth rates that we seen in that business. So, I don't see anything right now that's really a step-function change in the amount of screenings that's being done. We do believe that probably in two years, we may see a step-up in the recommended number of tests for newborn screening going from sort of around 30 now probably stepping up to probably close to 50, but we probably think that's a 2011 time frame.

Would you be prepared for that step-up or do you have to develop those?

We would be prepared for those step-up.

Great. Thank you very much.

(Operator Instructions) Our next question comes from the line of Derik DeBruin with UBS. Please proceed, sir.

Hi, good afternoon. Just for some housekeeping -- you said you reintegrated part of the business you put into Ops and obviously that looked like it had about a $5 million impact relative to what the base was for the prior quarter, for the prior-year quarter. Can you say what you put back in and also what's the right revenue base that we should model off of for Q1, Q2, Q3 and Q4 or Q3? Just to make sure that if the numbers are going to be higher I want to make sure everyone is modeling correctly.

You have those numbers right there?

Derik, this is Andy. The impact year-over-year was about $0.02. It was about $7 million of revenue, as a negative impact year-over-year. Going forward, we assume from an EPS perspective, it's going to be fairly neutral. Maybe slightly positive. I would say modeling is -- that neutral level is probably the best way to go.

Okay. I was saying that -- okay what is -- do you have the Q1 number just as starting point? Is it about a similar like a level similar like about $5 million difference?

We actually put the history on the website today.

I will shut up. I don't have it. That's pretty much irrelevant then. Okay. I guess just what's your biggest -- I think -- where do you see the biggest challenge in terms of potential pitfalls on the quarter or potential (inaudible) on how the year rolls out? Obviously, we think there are a lot of opportunities in terms of things rebounding, how -- is the biggest thing the ramp of improvement or is there something else out there?

That's right. As we think about 2010, based on -- I would say the visibility and the order patterns we are seeing it looks like the first half will trend pretty well. I think there is at least some concern that when we get in to the back half of 2010, there is clearly some risk that we could dip back down, if you start to remove some of this government support -- I will call it -- globally. So, I think we are little cautious about that relative to the back half and I would say that's the biggest risk I see out there now for 2010.

When you were at the one of my competitor's conferences earlier in January you put up some long-term operating margin targets.

Yes.

Could you just talk about that type of outlook for the Company, like a 400 basis point Op margin expansion, if I was correct in seeing that. What are the kind of the drivers of getting to that level of improvement?

I will start and let Andy pick up on that because that's something he has been spending a lot of time, I would say in the last couple of weeks. But, obviously, the operating margin expansion has to come first of all from some volume leverage, but more than that, we are looking at our cost structure across the Company.

And I would describe PerkinElmer as -- if you look historically, I think we did a lot of things within the businesses to improve the cost structure and then trying to be very efficient, but we haven't done historically a lot across the Company because it was ran, I would say, more as separate businesses as a integrated Company. I think as we look at some opportunities across the Company, whether it's back-office types of things, whether it's sourcing, whether it's things we do and some of the various functions that we think there is some opportunities that drive incremental cost reductions. So, those are just some of the things that we are looking at over the next couple of years, but Andy do you want to get a little bit more specific?

Yes, I think that's right. We have got several groups that are focused on specific areas that are kind of corporate related, whether, as Rob mentioned, whether it's around low cost sourcing, whether it's around back-office consolidation, (inaudible) service opportunities, channel efficiencies within selling organizations. There is a team focused on each one of those and we are looking at this over the long-term so we can develop some significant, but consistent and sustainable long-term margin improvement. So, I think if you look at the 13% to 17%, and we are successful on all these initiatives, I would be disappointed we weren't better than that, but I think that the 17% is a reasonable target at this point.

Great. Thanks.

Our next question comes from the line of John Groberg with Macquarie. Please proceed.

Thanks for taking the call. Rob, as you think about 2010, where are you investing in your business?

So, I would say we are focused a lot on improving the growth profile of the Company. So, as I mentioned before, we are putting some additional costs into the technology side of things and as you saw in 2009, we stepped that up as a percentage of sales. I think clearly the global footprint in the emerging areas are areas that we want to continue to invest in and SYM-BIO was a good example of that.

And I would say from an end market perspective, while we like all of our end markets, I think clearly the Diagnostic side is probably the area that will get disproportionate side of our investments dollars just because we think we like the characteristics of the end market better.

There are you talking primarily still about R&D or even more on kind of the commercial structure?

Probably not commercial structure other than through an acquisition, rather than building because I think we are pretty comfortable with the commercial structure in our distribution capabilities today. So, I would say, it will be R&D, but it also will be licensing acquisitions -- what I will call inorganic opportunities, as well as investing in the Company.

And are you talking -- you heard a lot of companies talking about making major investments again and kind of ERPs to improve efficiency. Is that something on the horizon for you?

Yes. We have been doing that for at least the last twelve months, but we continue to invest in the infrastructure of the Company. In 2009, we did a technical upgrade of our SAP platform and we are putting on some additional modules and other things to really sort of drive the efficiency across the Company.

Where might you have incremental hires in 2010?

I think the incremental hires will probably come in the R&D side and probably in the Selling and Marketing area. That will be the area of focus.

Okay. Then just a big part of the proposition that you laid out -- a few people have asked that on margin expansion -- if you think about just this year, outside of volume what would get you to more the 100 basis point expansion versus 50 basis point or is that pretty much all just wherever revenue comes in for the year?

I would say it's volume, but it's also mix. A big driver of our, at least of our gross margin, is what the mix looks like. Clearly, if it's more on the reagent side, that drives it higher. So, I think it's a combination of volume and mix, if we are talking specifically about 2010 maybe some of these plans that Andy talks about we see some benefit towards the end of the year, I don't know that will be a big driver to 2010.

Okay. Great, thanks.

Thanks.

Ladies and gentlemen, that concludes the Q & Q portion of this call. I would like to turn the call over to Mr. Rob Friel for closing remarks.

Okay. Thanks Jeff. Thank you for your questions. In summary, PerkinElmer, I believe has the innovative technologies to global-scale and probably most importantly the people, play a real critical role in improving the health and safety of people in the environment to our focus on providing better detection and therefore, prevention of environmental contaminants and disease.

We feel confident that our focus on driving growth opportunities and the attractive end markets, investing in innovative technologies and generating attractive financials will provide good returns for our shareholders. Thank you for your participation today. This now concludes today's call. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a wonderful day.