Revvity Inc (RVTY) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PerkinElmer first-quarter 2012 earnings conference call. My name is Maria, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn to conference over to Mr. Dave Francisco, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, and welcome to the PerkinElmer first-quarter 2012 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've 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 877-PKI-NYSE. Please note this call is being webcast live and will be archived on our website until May 10, 2012.

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 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 we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment, we will 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 today. I'm pleased to report that we had another very good quarter in which we delivered strong financial results, while making excellent progress against our 2012 strategic priorities. During the first quarter, we grew adjusted revenue 16% year-over-year delivering better-than-expected growth, despite very difficult comps from the first quarter of last year, particularly in the Environmental Health, which grew 17% organically in the first quarter of 2011. In the first quarter of this year, Human Health increased adjusted revenue by 27% due to the addition of Caliper and solid organic growth from diagnostics and medical imaging. Environmental Health grew by 6%, reflecting notable contributions from our inorganic analysis offerings plus strong end-market drivers, such as water and chemical analysis. Organically, our revenue grew 6%, with Human Health up 9% and Environmental Health up 3%. Our continued focus on improving our operational efficiencies and expanding our operating margins enabled us to exceed our plan for earnings per share in the quarter and deliver adjusted EPS growth of 23%.

Across our end markets, there were two fundamental themes that are changing the behavior and needs of our customers. These themes uniquely position PerkinElmer to play a significant role in improving world health. First, there is an increasing interconnectivity between Human and Environmental Health, resulting in the convergence of our three core end markets, diagnostics, environmental, and life sciences. As the developed world faces increasing healthcare costs, we can leverage our complementary capabilities in these markets for better outcomes and reduced costs. We have the capabilities to aid in both understanding genetic predisposition to disease, as well as helping people avoid potential environmental triggers to disease. Additionally, we can aid in identifying disease as early as possible and help discover more effective, targeted therapies.

The second overarching theme is that as the developing world continues to grow rapidly, it is demanding greater access to health care. While many of the developing countries today are focused on necessities, such as access to clean air and water and safe food, the rising middle class is demanding improved living standards. This will cause many countries to require advanced medical capabilities, such as early disease screening or diagnostic tests. Today there is a great need to serve these customers across the increasing level of the requirements and spanning virtually every region of the globe. PerkinElmer's extensive global channel and footprint enables us to address these needs head on. We have a unique ability to tailor our technologies for the developed world, and then bridge them into the emerging markets.

While we are well positioned to leverage these two macro themes to improve global health, we cannot stand still. Critical to our success is our ability to apply our knowledge and expertise to develop cutting-edge innovations that solve customer needs. In that regard during the quarter, we introduced several innovative new products targeting our core end market. These included the HER2Sense pre-clinical imaging agent, which supports breast cancer discovery research; the Panthera-Puncher for the handling of neonatal blood spots; and Ensemble for Biology, a suite of informatics applications intended to serve as an integrative biology workflow for use in research and development, as well as in quality assurance and control.

Additionally, I'm pleased with how well our recent acquisitions performed in the quarter. Our teams are making excellent progress in driving smooth integrations, including not only streamlining processes and creating greater efficiencies, but equally as important, bringing forward the best of both cultures and combining them together as one entity. In particular, the former Caliper Life Science business performed very well, as revenue growth accelerated from the strong performance in 2011. The life sciences and technology team has done a fantastic job across all aspects of the integration, including global training of the sales force, accelerating customer connectivity, and assessing opportunities to maximize the combined global footprint, which should not only increase efficiencies, but facilitate innovation, which, of course, was a cornerstone of Caliper's culture. In addition, despite difficult comparisons, we continue to see excellent traction with our OneSource laboratory services offerings, especially as customers in emerging territories look to drive improved workflow and asset management in their laboratories.

In summary, I'm very pleased with our strong start to the year and feel the organization is executing well against our priorities. Looking ahead, we maintain our cautious outlook on the macroeconomic environment. As such, we continue to forecast a similar demand profile to what we experienced in the first quarter, but with lower expectations for Europe. Accordingly, we expect full-year revenue growth consistent with what we communicated at the beginning of the year, or in the range of 10% to 12%, representing organic revenue growth in the mid single-digit range. Regarding adjusted earnings per share, given the performance in the first quarter, we are raising the bottom and top end of our forecast range from $1.98 to $2.04 to $2.00 to $2.05. I'd now like to turn the call over to Andy.

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, I will provide some additional color on our end markets and our first-quarter results, and following the prepared remarks, we will open it up for questions. We are pleased with our strong start to 2012 delivering another solid quarter of growth and revenue and adjusted earnings per share. Revenue for the first quarter increased by 14%, and organic revenue increased by 6% as compared to the same period last year. Adjusted revenue for the quarter increased by 16%, as compared to the first quarter of 2011. By segment, organic revenue increased by 9% and 3% in our Human Health and Environmental Health segments, respectively. By geography, organic revenue in the Americas grew low single digits. Europe was up mid single digits, and Asia grew low double digits. We were particularly pleased with our performance in Europe, given the economic uncertainty in that region. Additionally, we experienced continued strong demand from emerging territories, with organic revenue growth in the BRIC countries up over 20%.

Looking at organic revenue by product category, recurring revenue, which includes reagents, consumables, and service, grew mid single digits in the quarter, while instruments and components grew at a high-single-digit rate, despite cycling up against mid-teens growth in the first-quarter of 2011. The stronger-than-expected growth in instruments and components was partially due to favorable shipment timing in the period. From an end-market perspective, PerkinElmer's Human Health segment represented approximately 50% of total revenue in the quarter where we serve two end markets, diagnostics, which represented 27% of total revenue, and research, which represented 23% of total revenue.

Organic revenue from our diagnostics business increased at a low double-digit rate in the first quarter, with notable contributions for both our screening and medical imaging businesses. In our screening business, we experienced solid demand across all major segments of the portfolio. This business continues to benefit from the stabilization of US birth rate estimated to be flat year-over-year in the quarter, as well as expansion of our prenatal, newborn, and infectious disease screening solutions in key regions outside the US.

Our medical imaging business also experienced broad-based growth across all key technologies and applications in the period. Traditional medical diagnostic imaging offerings generated strong growth with additional contribution from our CMOS imaging technology, particularly related to mammography and surgical applications. Furthermore, our therapeutic and non-medical applications also contributed to the strong performance in the period.

Organic revenue in our life sciences and technology business grew mid single digit in the first quarter. As a reminder, LST is comprised of our research and Caliper Life Sciences businesses. As Rob mentioned, within LST, we saw robust demand for our in vivo imaging systems, including the legacy FMT imaging and fluorescent agent offerings, as well as the recently launched Caliper Spectrum CT imaging system, with advanced optical features enabling highly efficient, multi-modal in vivo imaging. PerkinElmer now provides the most complete solution for non-invasive animal imaging, providing researchers the ability to understand biology in a physiological context.

Additionally, we experienced strong growth on our front-end high throughput sample preparation systems, supporting enhanced workflow for next-generation sequencing analysis with our complete, highly flexible solutions to run multiple chemistries to support all sequencing instruments. Furthermore, we experienced continued demand for our suite of radiometric detection equipment that has been primarily utilized for assisting the continued efforts in Japan in identifying and remediating nuclear contamination resulting from last year's earthquake and tsunami.

Turning to Environmental Health, which also represented 50% of our total revenue in the first quarter, we serve three end markets; laboratory services, which represented 23% of total revenue; environmental and safety, which represented 18% of total revenue; and industrial, which represented 9% of total revenue. During the quarter, we experienced low single-digit organic revenue growth across all three market segments as each cycled up against double-digit organic revenue growth comparables from the prior year. As Rob discussed, within Environmental Health, we saw strong demand for our full suite of inorganic analysis solutions, particularly for the analysis of trace metal content and contaminants for environmental applications in water and soil. Additionally, we continue to drive further penetration of our OneSource multi-vendor service into emerging markets with some key early stage wins in Brazil and China, as these high-growth regions recognize the extensive benefits of our unique offering.

Now, looking at our margin performance in the period, adjusted gross margin expanded approximately 230 basis points, driven by volume leverage, favorable mix, robust productivity gains, and the favorable impact of our businesses acquired in 2011. Adjusted operating margins expanded approximately 160 basis points in the first quarter to 15.3%. We were particularly pleased with our performance in the period, as we were able to absorb higher acquisition-related operating expenses and expand operating margins despite an approximate 160 basis-point margin expansion performance achieved in the first quarter of 2011. As stated previously, we are planning additional productivity investments for the balance of 2012, that we believe will further solidify our ability to achieve our stated objective of high teens operating margins by 2014.

By segment, adjusted operating margins in our Human Health business for the quarter were 20.4%, representing an increase of approximately 200 basis points as compared to the first-quarter of 2011. Our Environmental Health segment delivered adjusted operating margins of 14.4%, representing an increase of approximately 30 basis points. The combination of volume leverage, favorable mix, and productivity gains across the Company contributed to the strong performance delivered by both segments.

GAAP operating income from continuing operations was $22.1 million in the first quarter of 2012 versus $27.2 million in the first quarter of 2011. For the first quarter, our GAAP tax rate was approximately 6.3%, and on a non-GAAP basis, our adjusted tax rate was 25%, which is slightly higher than the guidance communicated in February. However, we expect the full year to be approximately 24%. GAAP earnings per share from continuing operations in the first quarter of 2012 was $0.19, compared to GAAP earnings per share of $0.24 in the first-quarter of 2011, primarily due to higher intangible amortization and purchase accounting adjustments related to acquisitions completed throughout 2011. Our adjusted EPS was $0.43 in the first quarter of 2012, up 23% from the prior year and exceeding our guidance for the quarter of $0.39 to $0.41. Our weighted average diluted share count for the quarter of -- first quarter of 2011 was approximately 114.1 million shares, and our ending share count was approximately 113.4 million shares.

Turning to the balance sheet, we finished the first quarter with approximately $934 million of debt and approximately $145 million of cash. Looking at our cash flow performance for the quarter, operating cash flow from continuing operations was $15.3 million, as compared to $47.3 million in the first quarter of 2011, due primarily to a $17 million contribution to our US-defined benefit pension plan and the timing of approximately $13 million of tax items in both the current and prior-year periods. While we did see an increase in receivables, we believe this was primarily related to our strong finish to the quarter. We still expect to deliver greater than 100% of free cash flow to net income for the year and believe our 2012 first half will be in line with our historical cash flow performance. In summary, we are pleased with our financial performance for the first quarter, 14% reported revenue growth; 6% organic revenue growth; approximately 160 basis points of adjusted operating margin expansion, leading to 23% growth in adjusted earnings per share.

Now I'd like to discuss our second-quarter and full-year 2012 guidance in a bit more detail. As Rob mentioned, consistent with our views from earlier in the year, we remain cautious regarding macroeconomic conditions. As such, we are forecasting a similar demand profile to what we experienced in the first quarter of 2012, but with somewhat lower expectations for Europe. We continue to expect full-year 2012 reported growth of 10% to 12% and organic revenue growth to be mid-single digits or in the range of 4% to 6%. For the second quarter, we expect adjusted revenues to be in the range of $530 million to $540 million, with organic revenue to be mid-single digits. Regarding adjusted operating margins, we expect to continue to expand margins in the range of 75 to 100 basis points for the year. As previously mentioned, we are deploying investments throughout the balance of the year, supported by our multi-year productivity initiatives that will be absorbed within our full-year target for adjusted operating margin expansion.

Bringing all these factors together, we are raising our full-year adjusted earnings per share for 2012 from our previously announced range of $1.98 to $2.04 to a new range of $2.00 to $2.05, representing growth of 9% to 12% over the prior year. Additionally, taking into consideration the items just discussed, we expect adjusted earnings per share for the second quarter to be in the range of $0.47 to $0.49, representing growth of 9% to 14%, as compared to the second quarter of 2011. That concludes our prepared remarks. I will turn the call back over to Dave.

Thank you, Andy. Operator, at this time, we'd like to open the call to questions, please.

(Operator Instructions) Your first question comes from the line of Dan Brennan with Morgan Stanley. Please proceed.

There's been some conflicting commentary thus far in the earnings season from some of your instrument peers regarding pharma spending on instruments in the first quarter. Just wondering if you could start off discussing what type of spending you saw from large pharma customers this quarter on instrumentation, whether there was any evidence of different pacing throughout the quarter?

I would say when you look at pharma, and it's difficult to characterize all of the companies as one entity, but I think what we see is against the backdrop of further consolidation, outsourcing, and I would say modest R&D spending, is probably three or four trends that impact our business. The first trend, and one that's probably been going on for some time is this move from small molecule to large molecule. What we see is that benefits us in the area of microfluidics and a lot of our imaging products. Probably puts a little pressure on the high throughput screening readers. And so I think on balance, it probably provides us a little bit of a benefit, but I think that's a trend, again if you look at overall, probably a slight benefit to us, but affects different product lines.

There is clearly a focus on more companion diagnostics and epigenetics. I think that's another area where it helps us in the microfluidics, in our tissue imaging and some of our reagents. And then of course, the continued drive to outsource and drive productivity in our labs helps us in the areas of services and informatics and in developing countries. I think when you look at the trends that are occurring within pharma, some good and some bad, but overall fairly positive for us with our portfolio, with the exception of, of course, we've got the rad reagents that continue to get some drag as people move away from that.

Great. Thanks, and then maybe just one follow-up. In terms of your US economic customers, when you are thinking about the spending level from them as we get to the second half of the year, are you building any conservatism into your own internal budgeting, thinking maybe there might be some slow down in spending from the researchers as they look ahead to '13? Or, I'd be interested to see what you are seeing from those customers.

Again, similar to pharma, I think when we look at the academic spending, you've got to look at where they are spending it. Our assumptions probably for the back half is overall spending is probably flat to maybe down a little bit. More importantly, it's in the areas that we provide products to them, particularly, we are seeing a lot of interest in some of our higher-end imaging, like the IVIS imaging. They are doing large molecule distribution studies. And so there is areas within academic, even though the spending is slowing down, that they are still spending. The key is, obviously NGS is another one, where they look like they're continuing to spend. So, I think the key for us is just making sure that we are in the right places.

Your next question comes from the line of Jon Groberg from Macquarie. Please proceed.

Rob, maybe just on your comments around Europe, you mentioned as well that there was some favorable timing of shipments. Are you seeing anything specific right now that gives you that caution, or are you just -- given all of the macro and headlines that you read out of Europe, you are being cautious. Or are you seeing things slow right now?

I think it's more the latter. I think we continue to, obviously, read the headlines and view the concerns, whether it's around the capital markets or just the overall funding levels of the government. We do expect that at some point that's going to impact demand in Europe. We didn't see it in the first quarter. And, as you know, we didn't see it in the fourth quarter. I would say to a large extent, the timing of shipments that Andy talked about was not necessarily specific to Europe. I would say that was more of a global phenomena. Europe, again, did pretty well for us, but we do think at some point that we will see a slowdown there.

When were the timing of shipments, just because you highlighted it, there must have been -- was that in a particular business? What was that?

We had a very strong month three, Jon. It was really -- I mentioned it more in conjunction with the receivable bill that we saw in the quarter. I think we feel good about our ability to collect that in the second quarter, but there was a bit of an increase in the receivable balance in the first quarter. I think the linearity in the second quarter is probably going to be a little more spread evenly, but we did see a very strong March.

Okay. And then if I could just, one more. You have heard conflicting things around emerging markets as well. I think you said your BRIC countries had 20% growth. Can you maybe just talk about which businesses were driving the growth, and what you saw there?

I would say that we saw a pretty broad base. Our view is China was up over 20% again, another strong quarter from there. So we are not seeing the contraction in the emerging markets. Brazil and South America were strong for us as well. I would say we saw a little bit of a slowdown in Eastern Europe, but I think that was a comp issue as compared to an economic phenomena. So our growth in emerging markets continues to be pretty much across the board.

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

Just with the guidance to maintain full-year top-line guidance, you mentioned Europe being weak. What is the offset from Europe, and then based upon the lower Q2 guidance and revenues, what makes up the delta in the second half?

First of all, let me just clarify. With regards to the second quarter, we are still talking about mid single-digit growth. We are not really talking about changing that. And again, relative to the full year, we are still at mid single digits. So we are basically holding the guidance. I think the only thing we are saying is while 6% was a little better than we thought in the first quarter, we do think that Europe will slow down here a little bit. I think that's fundamentally all we are saying is. We are not saying, let's take the 6% in the first quarter and assume that continues through the whole year.

Got you. And then the fact that Europe is slower for the rest of the year, where is the offset? Is that coming from Asia?

Well, we are just saying that in our assumptions, we are assuming that Europe slows down a little, but relative to the first quarter.

So we are assuming, Peter, that our second, third, and fourth-quarter European performance is in line with our expectations, but not at the level we saw in our first quarter. So overall, our full-year guidance, that's why it hadn't changed dramatically. And by the way, we haven't given second-quarter guidance until today. That's new news for today.

Got you, and then the higher OpEx from particularly R&D, is that coming from Caliper, or is there something else in there?

Yes. Caliper spent a higher percentage of revenue on R&D than PerkinElmer and we're maintaining that high level of R&D.

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

With respect to OneSource, you talked about even moving out to the emerging markets. Rob, as you do so, how are the margins for the services business in those areas compared to the Western markets? Do you need to have a build out, more technicians? How do you scale?

I think that's a fair assumption. As we go into new markets, we need to build. In most cases, we are building capacity ahead of the revenue. So I think that's an investment we are making. We recognize we need to be where our customers are, and as I've alluded to before, we continue to see the pharmaceutical and biotech companies move into those areas with their R&D spending. I think, initially, there will be a little lower margin to those areas as we build out the capabilities, but those things can scale relatively quickly.

All right. With respect to free cash flow, Andy could you go over that again, because the impacts in Q1, and then how you expect that -- the full year to be again?

Sure. Within the first quarter, we had two significant items that impacted the year-over-year comparison. One was we made a contribution to our defined benefit plan of $17 million. We also had some tax items that impacted the quarter by about $13 million. So that's really the difference between 2011, 2012. It was a little bit of a receivable build. Days for both receivables and inventory were pretty consistent year-over-year, but given the shipment linearity, we did see a little bit of a build in receivables, more-so than we wanted. We think the first half will be in line with past years, and we still believe we will generate more than 100% of free cash to net income for all of 2012.

Your next question comes from the line of Zarak Khurshid. Please proceed.

First-time participant in the Q&A. Good to be with you guys. First, I guess on Caliper, can you break out the contribution there? I think you mentioned it accelerated. What's driving that? How fast did it grow? And can you speak to the relative strength of IVIS versus microfluidics and some of the drivers of the acceleration?

So with regard to the contribution, I will start with that. And Kevin is actually here, so I will ask him to drill into some of the performance from a product-line perspective. I think as I mentioned in my prepared remarks, if you look at Caliper in 2011, they grew in mid teens. Actually, for the first quarter, they did a little bit better than that. And the operating margins, we had stated that through the year, there was a plan that they would get to the PerkinElmer average by the end of the year. And I would say based on the first quarter, we are actually tracking ahead of that plan. With regards to the specifics, I will ask Kevin to comment on that.

Zarak, we actually have three different application areas that have been very hot. One is next-gen sequencing. The second is biotherapeutics and vaccines, and the third is imaging. The imaging is primarily the IVIS imagers, and that grew double-digit. I'd say low double-digit. We acquired that business, Xenogen, about five years ago, six years ago. It's really been performing at that mid-teen growth level ever since we acquired it, so it's been a really good ramp and it's been very consistent. Even though a lot of that is going into academia. There's a lot of grant writing, and then there's, I think, 2,400 peer-reviewed science journal articles now further support that build out.

The next-gen sequencing and the biotherapeutics were primarily microfluidics. There we actually saw even a faster growth. We saw more like 20% to 25% growth. Primarily, we are doing sample prep in the next-gen sequencing area, and we continue to build out nice quality control platforms there in [prognostic] with all the big next-gen sequencers, Illumina, Life, primarily being most of the market right now.

And in biotherapeutics, we are seeing growth both in academia and pharma. Interestingly, it's primarily microfluidics, but we also have large molecule bio distribution studies now occurring with our IVIS imagers. So, those are the primary growth areas, but interestingly, you might be surprised to hear their automation also did extremely well in the first quarter from Caliper. It's primarily the linkage up of with next-gen sequencing with our microfluidics. So we sell these platforms at a combination of microfluidics and automation. Automation actually grew the fastest of all three segments in the first quarter. Again, very strong build out occurring in hospitals, particularly children hospitals for next-gen sequencing.

What did Caliper do for the first quarter? Can you break it out, was it $40 million?

It's approximately $40 million.

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

Andy, is there any way to quantify or normalize what the impact of the timing benefit was in the quarter on the total revenue growth rate?

It was probably less than 1%, but it was not immaterial. I would say 1% or less.

Okay. Given that one of your partners/ competitors were [CU] CE marking for a newborn screening product today, could you remind us what the barriers look like in that market and your competitive positioning vis a vis new entrants?

I would say, first of all, the Luminex assays do not really talk about improved performance. It's really just about a workflow. What they've got CE marked in Europe is my understanding was four assays. I believe that they are doing in the US is actually cut it down to three now. So really, the workflow benefit to actually do that is fairly minimal because they are still going to need one of our instruments to do IRT. So we don't really see a real challenge for that in the US Just as a data point, one of the states that ran their instruments has just re-upped for us for another three years. We don't see a significant challenge as a result of the recent announcement.

Thank you. My final question. Where do you stand -- I appreciate the integration process at Caliper has gone well so far, but where do you stand in terms of what inning you are in in the heavy lifting pieces of that process, whether they be customer-facing functions or ordering activity, interface, things like that.

I would say probably in the sixth or seventh inning. I think we've made terrific progress there. We got, as I think we mentioned on the last call, we jumped at this early November, and so we've had a good almost six months now at this. So I think we're at pretty late innings. Maybe, Kevin, you want to comment on that a little bit?

Yes, I think you're right on, Rob. I think the only thing that will be pretty exciting is we got these user group meetings coming up, Dan, you remember those. This year it's going to be really incredible. The first one is going to be in June. We're expecting over 600 customers from around the world, many of them PhDs and MDs. We've got over 60 customer speakers over a two-day track. Then we're going straight from there to the UK. There, we are expecting over 40 speakers from our customers. Then from there to China. I think that's going to be one of the last major integration points, because the customer base here is going to be coming from both sides of PerkinElmer and Caliper. It's got an incredible linkage that we have built with informatics. We even have a lot of newborn dimensions to this, so it's going to be a real showcase of what PerkinElmer has got to bring to the market.

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

Rob, hopefully, you will let Kevin answer this. What was Caliper's OP in the first-quarter?

I don't know if I want to get into this, because as you can imagine, as we integrate these together, that's a little harder to trace. We can trace the revenue pretty well, but I think as we start to benefit from some of these synergies, all I would say is that we are ahead of the plan to reach PerkinElmer's margins by the end of the year.

Jon, f I could make one comment. You may recall there our contribution margins in the Caliper product line are very strong, and the global footprint of PerkinElmer is really bringing a big advantage to this overall revenue acceleration that you are seeing.

Appreciate that. Just looking at the Human Health margins, you are up 200 basis points year-over-year. I would imagine Caliper was still dilutive given that they're coming off of a low base. You comment on maybe in the screening and/or imaging businesses how did the absorption look in the core?

So I would say you are right under the assumption that while we are seeing good progress in Caliper, they're still dilutive to the Human Health margins. But we are seeing very good incremental flow through in the revenue growth. We are seeing it in the diagnostics side both on the screening, because they have a tendency to be very heavily toward reagent. Also, in our medical imaging business, as Andy talked about, had a very good quarter with strong growth. They also are putting up very strong incremental margins as well. So I think one of the nice aspects of the human health business is -- and of course, Caliper now complements that very nicely, is those businesses have a tendency to have nice gross margins and very strong flow through on the incremental revenue.

Got it. Are you willing to, Andy, quantify or parse out imaging versus screening? I think you mentioned all of the diagnostics was low double digits. Can you give us more color?

We haven't historically done that.

Your next question comes from the line of Isaac Ro with Goldman Sachs. Please proceed.

First question was on the newborn screening business. I was wondering if you could maybe parse out US versus ex-US growth in the business' core?

So US was positive, because were starting to see some recovery there in births. We think we have now, hopefully, stabilized. Actually in the February and March timeframe, we actually detect some positive growth there from births. We actually saw probably something in the mid-single digits in the US. Outside the US was probably more in the high single digits, low double.

Great, and then on the medical imaging business, obviously, the new flow on order rates from medical imaging from the big companies has been generally positive but a little mixed. Maybe if you could help us understand in the nontraditional applications for that technology, what you are seeing from an order perspective and how you expect that to play out for the rest of the year.

Andy talked about it. They had a very good quarter, and it was fairly broad-based, so not only on the medical diagnostics side, which again are the larger players like GE, but also in the non-medical applications. And, of course, we are also seeing strong growth from the recent acquisition that put us into the CMOS technology. I think almost across every aspect of that business, we saw good growth in the quarter.

They were up across every aspect double-digit in the first quarter.

Great. Great color. Thanks. Last one for me is on the margins. Obviously, pretty solid operating margin beat versus my numbers. Then if we look back sequentially to the fourth quarter last year, you also had a really solid number. If we look at how you are guiding this year with up to 100 basis points of operating margin improvement, how should we think about the pacing of that improvement, especially given the fourth-quarter comp you have on margins?

I think we feel like that the 75 to 100 is a prudent way to go now. I think we had very good performance in the first quarter. We did see some licensing revenue that probably helped us 30 or so basis points in the first quarter. I would say that we think it's going to be fairly ratably grown over the second and third quarters, maybe a little bit less in the fourth. But keep in mind that we are investing in some of the longer-term productivity initiatives, so there will be a little bit of a back and forth here. I would say at the end of year, we feel pretty good about hitting that 75 to 100 and probably closer to the higher end of that range.

The next question comes from the line of Bryan Brokmeier with Maxim group. Please proceed.

Kevin, you talked a little bit about the growth of microfluidics and the sample prep for NGS. Has that largely been in the higher-end sequencers? How is your penetration of desktop sequencer sample prep compared to the larger, higher-end platforms?

Interestingly, it's still primarily on the higher end, because what you have there is a lot of folks in these core labs would buy the sequencer. And then as they started to get sample flows coming in, that would then start to bottleneck their sequencer, and that's when they would move in with the automation and microfluidics. But I should point out that the same bottleneck is going to occur with the tabletops. Microfluidics really plays to the hand of the smaller sample size, as well as, the speed that's going to be needed for these tabletops.

I think we are well positioned with microfluidics. In fact, I think microfluidics was overkill for many of the large sequencers. We are well-positioned as the tabletops start to command sample flow, and I think that's the real question now. Is how much sample flow is going to come in and when? But we are starting to see that movement already, so we feel good for the future.

Okay, and then secondly, you guys talked about a strong finish to the year. How much of the revenue was back-end loaded, and was that really just some one-time revenue boost at the end, or did that fall through at the beginning of the second quarter?

No, you are talking about the strong finish to the quarter?

Right.

That was really across the board. We just saw an acceleration through the month of March. We see that every once in a while. Some of our customers actually asked for us to ship early in March based on their buying needs. I would probably look as we go out. It will be more normalized, and the linearity will be more similar to prior years.

Your next question comes from the line of Dan Arias with UBS. Please proceed.

Rob or Kevin, I guess on Caliper, I understand the comments you just made about the numbers getting a little blurry as you integrate the business, but if I could, I know at one point, the outlook for margin expansion over the next few years was just under two-thirds OP expense improvement, and then one-third gross margin improvement or so. Is that still how you are looking at that improvement opportunity there?

Are you talking about Caliper specifically or PerkinElmer?

I am.

Caliper, specifically.

I think the interesting part now when you merge is that I think the OpEx opportunities start to -- do get blurred. But the footprint of the revenue acceleration that occurs with the globalness of PerkinElmer's commercial footprint is really going to allow us to get there sooner. So you might actually start to see this OpEx move faster. I think with that said, we continue to launch a lot of new innovation. That's really where we got our gross margin expansion was primarily through new innovation. When we bring that out, like you heard Rob mention earlier, the new Spectrum CT, these products command a much higher gross margin because they are bringing a lot more to the table. I do think we are going to continue to keep pace with gross margin, but I think it will be outpaced, two-thirds, one-third, by the OpEx because of the leverage that we're getting in the synergies of the merger.

Okay. That's perfect. Thank you. I guess you guys have been somewhat active on the legal side of things lately, at least as it relates to [Masbeck], in terms of some of the Branford IP. Should we be thinking about modeling a little bit more in litigation costs given that you have multiple suits ongoing here?

No, I don't think -- we're not expecting that to be a material cost. As you mentioned, we've got some interesting IP in a number of areas, and we just think it's appropriate that we defend that. But I don't think there's going to be material litigation costs.

Your next question comes from the line of Derik De Bruin with Bank of America. Please proceed.

Andy, could you -- you were going a little fast when you are talking about the tax rate. Could you just go over that, the tax rate in the quarter?

Tax rate was 25% in the quarter, adjusted tax rate. And for the year it's 24%, so if you are modeling out, I would use 24% for the next three quarters.

Okay. And it was a little high in the Q1 because of what?

It was basically just distribution of profits. It will fluctuate a little bit.

Got you. So that probably cost you $0.01 in the quarter on the tax. Kevin, since I got you there, I just wanted to ask a question, also to the whole team there. Kevin, I caught the tail end of your talk at AGBT, and you were talking about integrating some of the GeneSifter technologies and Geospiza technologies and the automation platforms and sequencing platforms and some of the services stuff to look at penetrating into the clinic with this. I guess can you give us some -- go back and address that? Basically, outline how you see this going in. I guess, what are you doing for a global market in terms of the clinical approach, and how you are approaching, obviously, the clinical sequencing market? It's a broad question, but I was intrigued by your talk.

Absolutely, Derik. I think one of the key points here is just in general, how fast will next-gen sequencing penetrate the clinical market? I think, certainly, the Roche-Illumina situation is, in my mind, potentially a telling sign around the belief systems around NGS. We see it very much right now being utilized in children's hospitals and some cancer hospitals. They typically will have [CAP] or a [PLIA] type approach. They will be looking at Sanger sequencing to correlate in a parallel lab approach. The economics and the time of answer, as well as the answers you can get by multiplexing are very compelling for NGS. We see that as being game-changing compelling, but the real challenge I think is converting these research reports that you are getting today into medical reports. That is an adoption challenge that you saw with Sanger sequencing that took really quite a few number of years.

What we are encouraged by, we have collaborators, and we will have a couple tracks on this and investors will be invited to attend the user group meetings. What we are encouraged by is that many of the folks that ran these Sanger labs that were able to get medical reports and get adoption from the clinicians are now being moved into these NGS labs. And they are actually starting with the medical report working backward into the workflows.

Now, where we participate is in the sample prep. We actually believe that the sample prep is where so much of the variability is coming from relative to NGS, primarily because you've got this GC bias And many different issues that you have with the samples being taken from the human and getting them into the right kind of library to go into NGS. That's where we are trying to play. So, Geospiza for us was a really nice opportunity to bring informatics into the sample prep. It's both a lens system as well as it can be analysis system. So now, what we are challenging our Geospiza think tank with was helping us evolve this into medical reports. We are very encouraged by -- Rob and the team have acquired three or four different informatics platforms. We have a phenomenal leader in that informatics business. We are seeing the opportunity to leverage across the informatics infrastructure to try to be the company that helped migrate into more of the medical reports. We think it's got real potential starting out in these children hospitals, then we think evolving into cancer where it's more complicated. It's not [medillion] type diseases when you start dealing with cancer. I think that's where right now, there's more pushback from the clinicians and the pathologists.

Your next question comes from the line of Paul Knight with CLSA. Please proceed.

In the Asian markets, I know there's been a lot of excitement in your groups about the 90 to 100 salespeople that can leverage the Caliper products, Kevin. Is that traction occurring now in the sales effort?

Yes, Paul, it's interesting, we had one of -- a lot of this is a cultural thing. I've got to say, we had an APAC meeting back about a month, month and a half ago. I've got to tell you, I've never seen a team come together so excitingly. The folks from the PerkinElmer side were being given some amazingly disruptive products to sell. The folks from the Caliper side were just blown away by the competency of that Asia team. So I think there have been some challenges in certain pockets of that Asian operation historically, which have been filled almost like hand and glove with the merger. So I actually think that we had a strong Q1, and I believe that the ability for us to continue moving products throughout Asia is probably one of the best parts of this merger.

Rob, you had mentioned earlier in the call on analytical instruments in inorganics, or that must be your microscopy businesses. Is that the driver? Is Asia driving that on the environmental side? What's happening in that big analytical piece right now?

I would say probably over the last 18 to 24 months, we've basically, almost have a whole new product line from the inorganic perspective with a number of new products that we've come out with. That combined with a number of new products we've come out in the molecular spectroscopy area I think is really allowing us to do very well in areas like water, food, environmental, and chemical analysis. I would say the growth right now is probably disproportionately higher in the PAC-rim and the emerging markets. Quite frankly, I think we are seeing good growth across the growth fundamentally driven by these new products that have come out fairly recently.

Lastly, Rob, you were conservative about Europe on your last call. You said Eastern Europe was strong, particularly. Are you just continuing that tone, or do you see any change in orders in other parts of Europe?

I would say the one difference in first quarter versus the fourth quarter in 2011 was we saw actually strength in Western Europe in the first quarter. Again, we continue to be surprised to the upside by the resiliency of the European demand, at least particularly with our product set.

Your next question comes from the line of Reggie Miller with CLSSA. Please proceed.

Sorry, I jumped in the queue, but everything set. Thanks.

(Operator Instructions) You have a follow-up from the line of Dan Brennan with Morgan Stanley. Please proceed.

Just one quick one. I think on your last call you discussed the US birth rate that was still flat to down versus the improved outlook now. I'm just wondering, can you discuss what type of birth rate you are seeing today and help us think about the leverage of Perkin's organic growth from an improving US birth rate?

I would describe it as it is stabilized. I just mention the fact that in the latter part of the quarter, we saw some small uptick. It's probably a little early to call the turn here, but I would say, we think it's -- and our assumption through the year is it's going to be flattish for 2012. If we see a little bit better than that, if we see some growth in the back half of the year, I think that will provide us some upside. We are assuming flat birth in the US.

At this time, there are no further questions. I will turn the call over to Rob Friel for closing remarks.

First of all, thank you for your questions and continued interest in PerkinElmer. As some of you know, last week marked the 75th anniversary of PerkinElmer. As we commemorate this important milestone, we are proud of the recognition and the tremendous contributions from our employees, our rich history of scientific innovation, and our commitment to serving our customers, which have shaped our culture over seven decades. On behalf of our 7,000 employees, I'm excited about continuing to significantly improve human and environmental health around the world and help make life better for years to come. With that, I want to thank you, and have a great day.

Ladies and gentlemen, that concludes today's presentation. All parties may now disconnect. Good day.