Revvity Inc (RVTY) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 PerkinElmer earnings conference call. My name is Marcella, and I will be your Operator for today. At this time, all participants are in a listen-only mode. Later we will conduct 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 conference over to your host for today, Mr. Dave Francisco, Vice President of Investor Relations and Treasurer. Please proceed.

Thank you. Good afternoon. Welcome to the PerkinElmer third quarter 2010 earnings conference call. With me on the call are Rob Friel, Chairman and Chief Executive Officer, and Andy Wilson, Senior Vice President and Chief Financial Officer.

If you have not received a copy of our earnings press release, you may get one from the Investor section of our website at PerkinElmer.com, or from our toll-free investor hotline at 1-877-PKI-NYSE. Please note this call is being webcast live, and will be archived on our website until November 18, 2010.

Before we begin, we need to remind everyone of the Safe Harbor statements that we've 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 refer to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call for 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 that are not reconciled to GAAP in that attachment, we'll provide reconciliations promptly.

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

Thanks, Dave.

Good afternoon, and thank you for joining us for the PerkinElmer third quarter 2010 earnings call. We are pleased with our performance in the third quarter, delivering another strong quarter of both top and bottom line growth. Organic revenue grew 10%, adjusted operating margins expanded 110 basis points, and adjusted net income increased 20%. In addition to exceeding our financial commitments, I'm especially pleased with our progress on two of our key strategic priorities, increasing the growth profile of the Company and expanding operating margins.

Touching briefly on our end markets, in environmental health, we experienced 14% organic growth, with the growth being fairly broad-based, as all of our market segments and geographic regions grew double digits. In human health, organic revenue grew 5%, as our diagnostic businesses grew in the high single digits, led by medical imaging, maternal and fetal health, and infectious disease diagnostics in China. However, in the research markets we were flat, as growth in academic labs was offset by lower CapEx spending in pharma.

Given Andy will discuss our growth in the individual segments and specific financial results in more detail, I would like to focus my remarks on our recent progress in increasing the growth profile of the Company, and our success in expanding our operating margins. Turning first to growth, as we have mentioned throughout the year, we are focused on four areas to improve our top-line growth rate. These include emerging territories expansion, leveraging our capabilities into adjacent markets, new product innovation, and business development. In the third quarter, we made significant progress in all of these areas. In the emerging territories we continue to experience strong growth, as our revenue from China, India and Brazil grew over 20%, and we had several significant customer wins.

For example, last week we received a major purchase commitment in western China to ensure pharmaceutical manufacturing compliance with recently-implemented Chinese quality assurance regulations. China's State Food and Drug Administration is in the process of outfitting 130 labs with over 200 PerkinElmer instruments, to ensure that drug companies meet the new quality assurance standards. Through our relationship with the SFDA, and their recognition of our commitment to quality and service, we are able to help ensure safer drugs throughout western China. This win represents a strong validation of our ability to combine our analytical technologies and application-based expertise into a turnkey solution for our customers.

This quarter, we also made progress in expanding into adjacent markets. For example, our medical imaging business continued to expand into new applications, adding 16 new OEMs since the beginning of the year. And our One Source service offering continues to expand outside of the pharma industry, diversifying our customer base and expanding our addressable market.

During the third quarter, we continued to invest in innovative new products, and I thought I would highlight a few products recently introduced. Our new NexION IC-PMS is targeted at environmental analysis needs, and has an innovative orthogonal geometry, and also allows samples to be analyzed directly or following program collisions with either neutral or reactive gases. We also expanded our AlphaLISA homogenous ASSAY system to include epigenetic markers, which is one of the newest trends in biomedical research and drug development, and is valuable in understanding gene regulation.

We are seeing strong demand in the academic markets for our new EnSpire multimode reader, and through our previously-announced collaboration with Corning, we will provide our customers the unique dimension of label-free technology on our platform.

Finally in the business development area, we completed our acquisition of VisEn Medical in the third quarter. VisEn is a pioneer is fluorescent-based molecular imaging. By combining VisEn's in vivo imaging expertise and PerkinElmer's strength in cellular imaging, we can bring innovative solutions to monitoring cancer drug efficacy, and penetrate further down the drug discovery process.

Regarding operating margins, every quarter this year we have expanded adjusted operating margins at least 75 basis points over the comparable prior year period. While the volume leverage is contributing, we're benefiting from good traction in our operating margin expansion initiative that is focused on increasing productivity and simplification, as well as improving our product mix to higher value offerings. As a result, we continue to be encouraged with our ability to achieve our goal of 17.5% adjusted operating margins by 2014.

During the third quarter we also announced a definitive agreement to sell our Illumination and Detection Solutions business, which we anticipate will close by year-end. By selling IDS, we reduce the complexity of the Company and free up capital to increase our capabilities in our remaining businesses. In addition, we believe the sale will reduce the cyclicality of the Company, improve our growth profile, as well as increase the percentage of our revenue coming from service and consumables to 60%.

As we look to the end of the year, we expect our organic revenue growth for the fourth quarter to continue at a high single-digit rate, despite cycling up against a more difficult prior-year comparison. Based on this outlook, and coupled with the progress we have made on our long-term productivity initiatives, we are raising our full-year guidance for adjusted EPS from $1.24 - $1.29 to $1.29 - $1.31, representing greater than 20% growth over the prior year.

In summary, we were pleased with our financial performance and our progress against our strategic initiatives. Through targeted investments, portfolio repositioning, and a tremendous amount of excellent work by the organization, we continue to deliver strong financial results and solidify PerkinElmer's position as a leader in human and environmental health.

I will now turn the call over to Andy to talk you through our end market and financial performance in more detail.

Thanks, Rob and good afternoon, everyone.

I'll now provide some additional details on our third quarter results, and after my prepared remarks we'll open it up for questions. Before moving into financial details, I'd 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 third quarter of 2010 compared to the third quarter of 2009. Additionally, as a reminder, our results for continuing operations exclude the financial results of our Illumination and Detection Solutions business, as that business is now classified as a discontinued operation. The remaining commentary in my prepared remarks will be presented for our continuing operations unless otherwise specified.

As Rob mentioned, we had another solid quarter of revenue in our earnings growth over the prior year period. Revenue for the third quarter increased 11% as compared to the same period last year. The 11% was comprised of a 1% unfavorable impact from foreign exchange, and a 2% favorable impact from acquisitions, resulting in organic revenue growth of 10% versus the prior year.

The remaining revenue analyses in my prepared remarks will be presented net of the unfavorable impact of foreign exchange and the favorable impact of acquisitions. By segment, organic revenue increased by 5% and 14% in the human health and environmental health segments, respectively. By product category, our recurring revenue, which includes our reagents, consumables and services, represented approximately 60% of total revenue in the quarter, and organic revenue grew at a high single-digit rate. Instruments and components represented approximately 40% of total revenue in the third quarter, and organic revenue grew in the mid-teens. By geography, organic revenue in both the Americas and Asia were up low double digits, and Europe grew at a high single-digit rate.

From an end market segment, PerkinElmer's human health segment represented approximately 40% of total revenue in the quarter. Within human health we served two end markets, diagnostics, which represented 28% of total revenue, and research, which represented 18% total revenue. Organic revenue from our diagnostics business grew at a high single-digit rate in the third quarter, with a strong contribution from our medical imaging business. This business continues to benefit from the combination of pent-up demand for capital equipment in major hospitals, deeper penetration into non-medical applications, and an easy comparison from the prior year.

During the quarter we were pleased to announce our joint development program with Lunatech, a leading cancer radiotherapeutic device manufacturer. This collaboration will include the development of digital imaging subsystems for OEM sales, as well as products allowing clinicians to upgrade their legacy film-based systems. Within our screening business we continued to see strong growth from our maternal and disease screening operations. However, as Rob mentioned, offsetting this growth was the unfavorable impact from lower US birth rates and state and national cost pressures impacting our neonatal screening business.

In our research business, we experienced solid growth in the academic sector in the third quarter. Our academic customers continue to prioritize their capital allocation to critical technologies that will help them maximize their research productivity. As a result, we continue to see demand for our high-end Opera cellular imaging systems, and our EnSpire plate readers, that are targeted specifically for this market. Additionally, our investment in emerging territories is gaining traction through close connectivity with government-backed research institutes and academic labs.

In Brazil, a rapidly evolving base for pharmaceutical research, we've won a number of large contracts with government-funded labs for automated sample handling and direct discovery research. These early wins are providing a foundation for future growth in these attractive markets and geographies. However, for the quarter pharma capital spending remained weak, and as a result organic revenue for our research business in total was essentially flat in the period.

The environmental health business represented 54% of our total revenue in the third quarter. As the IDS business is now reported as a discontinued operation, we have decided to reduce the number of reported market segments within environmental health from four to three, by combining the environmental market with the safety and security market. We have enacted this change to better reflect our addressable markets based on two fundamental reasons. First, we no longer have exposure to the security market as a result of the IDS divestiture; and second, the environmental and safety markets have much greater connectivity in the analytical instrument business within the addressed applications, and in certain cases to customers themselves. As a result, we'll now report three end markets -- environmental and safety, laboratory services, and industrial.

Our lab services business represented approximately 20% of our total revenue in the third quarter, and organic revenue grew in the mid-teens. One Source continued its strong top-line performance with another quarter of robust organic revenue growth, as the business further leverages its ability to tailor its unique offerings to the challenging asset management needs of major laboratories around the world. The environmental and safety market represented approximately 18% of total revenue in the third quarter, with organic revenue increasing at a low double-digit rate, as we experienced strong growth across all analytical technologies. The continued global need for robust contaminate identification solutions, particularly for trace metals analysis in water, drove demand for a leading inorganic analysis solution, such as our Optima 7000, and our recently launched NexION ICPMS.

In addition, we saw continued demand for the identification and monitoring of volatile organic compounds, particularly related to air quality. During the quarter, we won a major order from a large southern state, as we continue to their expand capabilities to comply with the strict standards of the Clean Air Act. Our ozone precursor analyzers, which combine our Clarus gas chromatography system with our leading Turbomatrix Thermal Desorber, were chosen for their unique ability to capture low concentrations of organic compounds in the atmosphere to monitor air quality in urban and industrial areas.

Furthermore, we continue to experience robust demand for quality and safety assurance testing in food and pharmaceuticals throughout the global supply chain. As with our human health business, our investments in emerging regions continue to gain traction in environmental health as well, particularly around the build-out of improved testing and monitoring programs in remote areas of the world, an example of which was the recent SFDA win in China Rob highlighted earlier in the call.

Our industrial markets represented approximately 8% of total revenue in the third quarter, and organic revenues increased at a high teens rate. The industrial market continues to benefit from the cyclical recovery, with strong demand from our chemical, petrochemical and semiconductor customers, requiring analytical testing for purity at the nanometric level.

Turning to our financial performance, adjusted operated margin was up 110 basis points in the third quarter, due primarily to volume leverage and productivity gains. GAAP operating profit was $41.4 million in the third quarter of 2010, versus $21.9 million in the third quarter of 2009. Adjusted operating profit in the quarter was $57.5 million, 21% higher than the same period a year ago.

For the third quarter we had a GAAP tax rate of 23.6%, and on a non-GAAP basis our adjusted tax rate was 26.8%, consistent with our full year guidance. GAAP EPS from continuing operations in the third quarter of 2010 was $0.22, as compared to $0.11 in the third quarter of 2009. Adjusted EPS was $0.31 in the third quarter of 2010, up 15% from the prior year, and our weighted average diluted share count was approximately 118.2 million shares.

Regarding discontinued operations, as Rob mentioned, the divestiture of IDS remains on track to close prior to year end. This business continues to perform very well, benefiting from the rebound in their served markets. As a result, IDS's operating results exceeded our expectations in the quarter. However, upon discontinuing the IDS business, certain adjustments were required under US GAAP that resulted in a net after tax loss in the period. This loss was predominantly the result of tax expense recorded in the period required under US GAAP, as the accumulated earnings of certain foreign subsidiaries no longer qualify for deferral as permanently reinvested. This tax expense is essentially the differential between the US corporate tax rate and the tax provision of certain foreign subsidiaries applied to all unremitted earnings since inception.

Turning to the balance sheet, we finished the third quarter with approximately $419 million of net debt, which we define as short and long-term debt minus cash. This reflects an increase in net debt of approximately $16 million as compared to the second quarter of 2010. At the end of the quarter, we had approximately $251 million of cash.

Looking at our cash flow performance for the quarter, operating cash flow from continuing operations was $6.9 million, as compared to $22.2 million in the third quarter of 2009. During the third quarter of 2010, our operating cash flow was impacted by a $30 million contribution to our US-based defined benefit pension plan. This voluntary contribution provided a dual benefit of improving the funded status of the defined benefit plan, as well as allowing us to realize a beneficial tax provision included in the Worker Homeownership and Business Assistance Act of 2009. Working capital turns improved slightly year-over-year.

In summary, we're pleased with our financial performance for the quarter, as we drove strong revenue and earnings growth as well as solid cash flow generation.

Now let me discuss our 2010 guidance and provide some further detail. As Rob mentioned earlier, we continue to see positive trends in many of our served markets, and we expect organic revenue to grow in the high single-digit range for the fourth quarter, resulting in full-year 2010 growth in the high single digits as well. Regarding adjusted earnings per share, we continue to gain traction on our multi-year operating margin improvement initiatives, and expect to finish the full year on the higher end of our 2010 margin expansion goals.

As a result, excluding IDS we now estimate our full-year adjusted earnings per share for 2010 to be in the range of $1.29 to $1.31, versus our previous guidance of $1.24 to $1.29, which represents year-over-year growth of adjusted earnings per share in the 22% to 24% range. This full-year guidance assumes adjusted earnings per share for the fourth quarter to be in the range of $0.40 to $0.42.

Before I turn the call back over to Dave, I want to highlight that as a convenience to our analysts and our investors, we have placed on our website under the Investor section our historical results excluding the IDS business, including GAAP results as well, as a reconciliation to adjusted results.

This concludes my prepared remarks. I'd now like to turn the call back over to Dave.

Thanks, Andy. At this time, we'd like to open the call for questions, please.

(Operator Instructions)

Your first question comes from the line of Ross Muken with Deutsche Bank. Please proceed.

Good afternoon, guys.

Good afternoon, Ross.

For the most part, performance across-the-board was quite good. If you look into the research piece of the business, it's been a bit all over the map the last several quarters. So when we think about growth in that business going forward, or your sort of focus there in terms of turning the corner, I mean, what kind of strategic efforts are we seeing internally now to kind of revitalize that business? Because I know we've had some good product momentum there over the last few years; what's kind of the next step?

I'll tell you, Ross, the focus is really probably three-fold. One is to continue to broaden out in the academic area to offset some of the pressure that is on the pharmaceutical; I think we've made pretty good progress there, where now it's pretty much a 50/50 split between pharmaceutical and academic, so we'll continue to expand in that area. Clearly from a geographic perspective, continuing to build out capabilities in China and India, because I think there's going to be higher growth there.

And then the third area, strategically as you know, a lot of our products have been around high throughput screening, and we need to move those into -- sort of downstream into the pre-clinical area, because there is not a lot of investment going into drug discovery around high throughput screening. So you've seen that in the way of cellular imaging, with the Opera and the Operetta, and some of the moves with our reagents going into cellular analysis, and of course now with VisEn. So again what you'll see is a move into the pre-clinical area, into academics and into the developing areas.

Great. In terms of some of the more cyclical businesses that remain in the environmental, and some in the industrial and security, what end market groups stood out in terms of whether it was order flow or, you know, revenue snap-back?

Well, I would say, first of all, service continues to do very well on the environmental side. We continue to see good growth there. And then I would say, when you look at more of the instrument side, we continue to see strong demand in the environmental area; so, you know, whether it's in water analysis or water quality applications, whether it's in food safety, you know, you're just continuing to see public pressure and expansion on testing requirements, whether it's additives or packaging materials. So I think those are continuing to drive good demand for the analytics in those areas.

Great, thanks guys.

And your next question comes from the line of Jon Groberg with Macquarie. Please proceed.

Hi, guys. This is actually [Dane] in for Jon.

How are you doing?

Pretty good. Congratulations on the quarter. I had a question. You mentioned the strong growth in China, India and Brazil; how much -- what percentage of revenues is that now?

You know, I would say for the quarter, those three are about $50 million of revenue for us.

Okay. And just quickly, is there -- you know, what's kind of your current thinking on cash use now? Is that -- should we continue to see things in the same vein as VIsEn or --

You know, I think, particularly with the IDS proceeds coming in relatively soon, we're clearly looking to ramp up the acquisition targets. They may be a little larger in size, I would say. You know, from a strategic perspective, you know, VisEn, I think you'll continue to see things like that, but I would say from a size perspective we would like to do some things a little bigger than VisEn. And of course, the other use of the cash as we've talked about is we're looking at stock buybacks as well. So it will be a combination bolt-on acquisitions, hopefully a little larger than VisEn, and then stock buyback.

Great. Thank you.

Your next question comes from the line of Peter Lawson with Mizuho Securities. Please proceed.

Just wondering if you could talk though, the organic growth you state in the 10%, is that just ex-divestitures and FX, or is there any kind of one-time that's taken out of it?

Just with FX and acquisitions adjusted for it. There's no one-time. Now of course, IDS is pulled out from the 2010 results as well as the 2009 results, but --

So that would be pure organic growth on the ongoing operations.

Then for 4Q, are there any hard comps in there, H1N1, stimulus?

I don't think there's any one-timers, other than obviously Q4 2009 was a better quarter for us than Q2 and Q3 2009, so we cycle up against a little bit more difficult comparisons; but there's no, you know, specific one-time items that were in Q4 2009. More seasonality than anything else?

Yes. And also, you know, we were starting to see the recovery begin in Q4 last year.

And then any stimulus benefits this quarter?

No. I mean, I think we fairly consistently talked about the fact that the stimulus benefits were pretty small for us. I would say the one benefit, if you can call it, from this, from the money being distributed is that we were running into some issues where a number of lines were holding up making purchases to see whether they were, in fact, being funded or they getting additional grants, and I think now with the money being distributed it's now, I think, freed up the opportunity to purchase instruments and products. So I would say that, you know, may be some of the benefit we've seen. But as far as purchases coming directly from stimulus funds, very small.

Perfect. Thanks so much.

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

It is actually Matt in for Quintin. Congratulations on the quarter.

Thanks, Matt.

Just wanted to circle off on some commentary. It was a really strong quarter kind of across-the-board. The one area that was, I guess, less strong was Europe. I was wondering if you could kind of classify how demand ebbed and flowed across the end markets there over the course of the quarter?

So, Matt, Europe for us was around high single digits, so you could say, relative to US and Asia, which was sort of low double, it was a little weaker, but we still -- New York is pretty good growth at the high single-digit level. So -- and I would say it was fairly consistent through the quarter. So we are not seeing any signs of weakness at this point coming out of the European continent.

Yes. That's kind of what I was referring to, because I mean, when you reported Q2, the space was kind of -- it was in flux. There was a lot of different comment commentary at the time that didn't turn out as bad. Really just my follow-up would be on ViaCell, how has that been business been tracking?

If you look at it historically it's been growing sort of mid to high single digits; it was a little lower this quarter, still growing positively, but obviously a business that has also been impacted by the reduced or negative US birthrate. But it's still growing positively and still good profitability.

Thanks.

Your next question comes from the line of Dan Leonard with Leerink Swann. Please proceed.

Hi. Thank you. My first question, now that you've divested IDS, what portion of your environmental health business would you say is driven by cyclical factors as opposed to secular?

Well, I would say, first of all, as we mentioned in the press release, we haven't closed IDS yet, but we do expect that to close in the fourth quarter. But I would say it's a little difficult for us to partial out what's cyclical and what's secular. As we tried to spell out in the press release, we've got 8% to 10% of our revenue tied to the industrial markets. So I would say those are probably the ones that have a tendency to be more cyclical, whereas I think the environmental and safety ones are probably more secular.

Okay, thank you. Then also on that win in China you mentioned of north of 200 instruments, was that something that was a material impact in the quarter, or is that something that went into your backlog? And then how large an opportunity do you think that is, and what inning are we as far as outfitting Chinese pharma with your instruments?

I would say some of that was in Q3, but probably the majority of it would be in Q4 and maybe a little bit's going into 2011.

Okay. Thank you.

And your next question comes from the line of Derik De Bruin with UBS. Please proceed.

Hi, good afternoon. You've basically had a flat gross margin from like the last couple of quarters, and just was wondering in Q4, do we expect to see the same type of historical seasonality? You guys said we have a peak on it, I mean some of that is volume driven and there is some other stuff in there, but you expect an uptick in Q4 like -- typically?

Yes, I think we would. And the talk to the gross margin is -- a lot of that is just mix, and of course when you see environmental health growing significantly more than human health, as you know well, the gross margins are much better in the human health area. So it's really more of a mix issue from a gross margin perspective than it is anything going either from a price or cost perspective.

Fair enough. And looking at -- going back to the capital deployment question and, you know, you talked about using some of the shares for share buybacks. I guess could you elaborate a little bit more? Are you thinking of doing an ASR, are you thinking of just buying on the open market, and just -- I don't recall off the top of my head what you currently have outstanding on your authorization, but I'm just kind of curious as to how that will flow through as we start thinking about, you know, the impact on the share count on the 2011 numbers?

This is Andy. We have an authorization right now of 13 million. We had another 5 million approved by the Board in the quarter. And our philosophy right now is, you know, we do have an opportunity to buy back shares, but we also have what I think our preference would be, and I think that's an opportunity to, you know, add via acquisition to our earnings, so I think that's our first priority. I think we are looking at possibly some float out, but I think overall, acquisitions are going to be number one.

I thought that some of you -- some of the income from the sales of business was going to be used to help offset some of the share count -- some of the dilution from the divestiture?

We use that really for modeling purposes for the analysts, and that could end up being the case; but again, you know, given the pipeline we have right now on the acquisition front, I think that will be our first priority.

Okay. Thank you.

Your next question comes from the line of Tony Butler with Barclays Capital. Please proceed.

Thanks very much. Rob, you talked about building out India and China. I'm just curious how -- and I've heard other companies say that, but how to you actually do this organically? The second question is, can you comment about the plan in diagnostics, given that segment is so Western-focused focused? You made some allusions about growth in emerging markets, but I would submit that that might take a vast number of years before it can really gain traction, or am I wrong? Thanks a lot.

Let me first talk about how you grow in China. Our intentions would be to do it both inorganically and organically, and as you recall, we bought some biosciences last year; that added a significant amount of capability to us, not only people, but in contacts and facilities in China, and we acquired a small lab in India. So I would say, first of all, our intentions -- and clearly, we would like to see some portion of the acquisitions done in the future in the emerging areas. But -- and how you do it organically is just continue to hire people, and to build out the capability from a local perspective. As you know, we had Dan Marshak, our Chief Scientific Officer, over in Shanghai for two years, and he was instrumental in continuing to build out our infrastructure there in China.

With regard to your second question, I think you're seeing very significant growth in the diagnostic markets today, and I think you'll continue to see it. I'm sure you've seen these statistics as well, they spend right now about a dollar per person in China on diagnostic tests; and, you know, in developed areas, it's, you know, a significant multiple of that. And so I think you're going to see, and you are seeing, a significant ramp-up in --whether it's infectious disease testing or oncology in China.

I mean, to give you a perspective, there's more people in China that smoke cigarettes than there are total population in the United States. So I think there's going to be a significant growth in China in diagnostic testing, and so we're investing there to capture our fair share of that growth.

Your next question comes from the line of John Wood with Jefferies. Please proceed.

Thanks. This is actually been Brandon Couillard in for John. What type of working capital impacts, if any, should we anticipate from the IDS divestiture? I mean, is the working capital profile of IDS similar to the rest of the core business?

No, it actually typically requires a greater -- yes. It ends up requiring a greater amount of working capital than the rest of the business, so we would see less working capital required.

Is the gross margin on the one source, or is PKI's service gross margin significantly different than the rest of the business?

Yes. The gross margin for our service business is lower than the overall average. Now, having said that, the operating margins are better, because you don't have R&D. You obviously have a very small selling function associated with that. So it's lower gross margins, but higher on the operating margin side.

Thanks. And then one more following -- once the IDS divestiture closes, I mean, is it fair to say that you will not be immediately active on the share repurchase front and will be more, I guess, opportunistic in how you deploy --

No, I don't know that I would say that. I think, as we've talked about in the past, I think we'll look at both.

At this time you have no more questions. I would like to turn the conference back over to Mr. Rob Friel for closing remarks.

Thank you for your questions.

In third quarter, PerkinElmer delivered another quarter of solid performance. Our long-term growth prospects continue to be driven by compelling market tailwinds, significant internal capabilities, and substantial capacities to employ capital and drive shareholder value. I look forward to discussing our end of year performance and progress against our strategic priorities during our fourth quarter earnings call. Thank you for your participation in today's call, and continued interest in PerkinElmer.

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