Revvity Inc (RVTY) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen welcome to the second-quarter 2012 PerkinElmer earnings conference call. My name is Keith, and I will be your operator for today. At this time all participants are in a listen-only mode. Later on we will conduct a question and answer session. (Operator Instructions) As a reminder today's conference is being recorded for replay purposes. And with that I would now like to turn the conference over to your host for today, Mr. Tommy Thomas, Vice President of Investor Relations. Please go ahead sir.

Thank you, Keith. Good afternoon, and welcome to PerkinElmer's second-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 have not received a copy of our earnings press release, you may get one from the Investor section of our website at www.perkinelmer.com or from our toll-free investor hotline at 1-877-PKI-NYSE. Please note that this call is being webcast live, and well be archived on our website until August 16, 2012.

Before we start we need to remind everyone of the Safe Harbor statements that we are outlined in our per 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 and 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 we use non-GAAP financial measures during the call that are not reconciled to the GAAP in the attachment, will provide reconciliations promptly. I am now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel. Rob?

Thanks Tommy. Good afternoon, and thank you for joining us today. Once again we are reporting another excellent quarter in which we delivered solid financial results, while making excellent progress against our strategic priorities. During the second quarter our adjusted revenue grew 10% year-over-year, adjusted operating margins expanded 240 basis points, we generated excellent cash flow, and adjusted earnings per share increased 23%, which exceeded both our guidance and consensus. We continue to be extremely pleased with how we are improving both the operating efficiencies and profitability of the Company, while also delivering very strong top line growth. Our ability to deliver this impressive financial performance, particularly in light of the current difficult macroeconomic conditions, is due to several factors.

First of all, we serve many end markets that are less economically sensitive. In addition, within these markets, we provide products that are critical to our customers. Whether it is assisting in the screening of newborns, helping improve the productivity of labs, or keeping drinking water safe, our products continue to be sought after even in an unstable global financial situation, as global interest in both human and Environmental Health continues to grow. And with our recent acquisitions, we have further bolstered this advantage by expanding our capabilities in the areas of informatics, molecular analysis, imaging, and sample prep, positioning us well to address both current and future needs of the global human and environmental communities.

The second factor is our significant global reaching capabilities, particularly in emerging markets. As many of our products are instrumental to expanding health care services and improving environmental conditions, we continue to experience strong demand for many of our products in these areas of the world where there is a focus on developing fundamental environmental and health care needs. I'm especially pleased that our sales into the emerging markets now represents approximately 28% of our total sales, and we are responsible for over half of the Company's total organic growth during the second quarter. For example, our China business once again showed strong growth with organic revenues increasing more than 20%, and with adjusted operating margins greater than the corporate average, China continues to be an important contributor to both our revenue and earnings growth.

In particular, our Chinese diagnostic business continues to gain traction with both new and existing customers, adding approximately 40 new customers in the quarter as the country increases its efforts to help combat infectious disease such as hepatitis and HIV. What's important to note here, is that we sold double-digit sequential organic growth and feel that we are still only in the early stages of a very big opportunity. A major part of China's 12th five-year plan is focused on improving both Human and Environmental Health, and we believe that we are well prepared to capitalize on this trend.

A third contributing factor is our ability to provide innovations into the marketplace by leveraging our strong detection, imaging, and software technologies with our extensive application knowledge. In the first half of the year, new products introduced in the last three years represented 22% of our total revenue, and 32% of our product revenue, which excludes our revenue from service. During the second quarter we introduced a revolutionary technology that enables any sample form, whether it is gas, liquid, or solid to be introduced into a mass spectrometer with minimal sample prep. Our spectrum CT, which combines optical imaging and 3D X-ray, is enabling researchers to pursue unique strategies in oncology research.

In the Informatics area, we introduced; the Ensemble platform, which enables real-time control and automation of laboratory processes, helping laboratories to decrease errors and speed the delivery of results; as well as the Asset Genius, which provides customers with the critical information they need to make informed decisions on lab asset deployment. Also during the quarter, we launched our new OneSource Scientific IT service, which leverages the strength of our service expertise and informatics capabilities. Customers such as Merck Resource Laboratories are now turning to PerkinElmer for this new and unique service to substantially improve the efficiencies and supportability of their lab technology and their overall lab environment.

The fourth, and most important, factor is our people. We would not be as well positioned as we are today without the hard work, passion, and outstanding contributions of our 7,200 employees, who everyday are committed to driving our growth, innovation, and mission to improve the health and safety of people and the environment. It is truly an exciting time to be part of PerkinElmer. Through the first half of this year our organic growth was at the high end of our original guidance, while our adjusted operating margins have increased by 200 basis points, significantly greater than we expected. Some of the higher margin expansion was due to a more favorable mix of revenue and better profitability of the former Caliper products.

However a portion of the higher adjusted margin expansion was a result of the re-timing of some growth and productivity investments, due to both uncertainties surrounding Europe and the significant amount of integration activity underway. Due to the strong first half and our rapid integration of Caliper and other acquisitions from last year, we are planning to accelerate our spend against these initiatives in the third and fourth quarters, as we continue to see great opportunities to improve the operating margin and growth profile of the company. Even with this increased investment in the back half, and the significant headwind from the stronger dollar, we feel comfortable maintaining our adjusted EPS guidance of $2.00 to $2.05. I would now like to turn the call over to Andy, who will provide more details on the quarter and our Q3 guidance.

Thanks, Rob, and good afternoon. Consistent with prior quarters, I will provide some additional color on our end markets and our second-quarter results, and then I will open it up for questions. As Rob mentioned earlier, we were pleased with our performance in the second quarter, delivering another solid quarter of growth in both revenue and adjusted earnings per share. Reported revenue for the second quarter increased 9%, while adjusted revenue for the quarter increased by 10%, to $532.3 million as compared to the second quarter of 2011. Organic revenue increased 5% as compared to the same period in 2011. This performance was at the high end of our guidance range of $530 million to $540 million, after adjusting for the negative impacts of approximately $7 million of FX headwinds, arising subsequent to the guidance we provided on our first-quarter earnings call.

For the quarter, adjusted earnings per share increased 23% to $0.53, $0.05 better than the midpoint of our guidance. By segment, organic revenue increased by 4% and 5% in our Human Health and Environmental Health segments respectively. By geography, organic revenue in the Americas and Asia both grew at a high single-digit rate, while Europe declined low single-digits, but within our expectations. We experienced continued strong demand from emerging territories with organic revenue growth in the brick countries up high teens despite an even higher comparison in prior year. As Rob noted, we remain pleased with our performance in China, with revenues up more than 20% on a year-over-year basis, despite similar growth in the prior year. Looking at organic revenue by product category; recurring revenue, which includes Reagents, Consumables and Service grew high single-digits in the quarter, while Instruments and Components grew at a low single-digit rate when compared to the second quarter of 2011.

From an end-market perspective PerkinElmer's Human Health segment represented approximately 49% of total revenue in the quarter. We serve two end markets in human health, Diagnostics which represented 27% of total revenue, and Research which represented 22% of total revenue. Organic revenue from our Diagnostics business increased mid-teens during the quarter, with notable contributions from both our Screening and Medical Imaging businesses. In our Screening business we continue to experience solid demand across all major segments of the portfolio. This business is benefiting from the stabilization of US birth rates and the expansion of our prenatal newborn and infectious disease screening solutions in key regions outside of the US.

We continue to see strong uptick of our portfolio in China and feel that we are well positioned to benefit from China's 12th five-year plan. Our Medical Imaging business continued to see broad-based growth across all key technologies and applications in the period, with particular strength in traditional medical diagnostic imaging offerings. We also saw a healthy contribution from our CMOS imaging technology primarily focused on surgical applications. Organic revenue in our Research business declined high single-digits in the quarter, the result of a difficult year-over-year comparison, ongoing declines in our radioisotope offering, and Softstar pharm demand.

Caliper organic revenue grew mid single-digits on a difficult buyer year comparison of more than 20%, and finished the first half with low-teens organic growth and operating profit ahead of our acquisition model expectations. Our Research business continues to gain traction's in new areas such as biotherapeudics, next gen sequencing, and epigenetics, and customer acceptance remains high as evidenced by the strong increase in our backlog as we exited the second quarter.

Moving to Environmental Health, which represents 51% of total revenue in the second quarter, we serve three end markets; Industrial, which represented 8% of total revenue; Environmental & Safety, which represented 18% of total revenue; and Laboratory Services, which represented 25% of total revenue. During the quarter we expensed low single-digit organic growth in the environmental safety segment, a low single-digit decline in the Industrial segment, and high single-digit growth in the Laboratory Services business. We were particularly pleased with our performance in China, which continues to benefit from environmental applications, specifically focused on inorganic analysis solutions for the analysis of metal content and contaminants in water and soil.

In addition we continue to see good acceptance in our Laboratory Service and Informatics platforms, as we help our lab customers manage their critical laboratory assets and their related data output. As Rob mentioned earlier, our new OneSource Scientific IT services helps customers improve the efficiency of their lab computing environment and the safety of their scientific data. Now looking at the margin performance in the period, adjusted gross margin expanded approximately 200 basis points. This was driven by volume leverage, favorable mix, robust productivity gains, and the favorable impact from our businesses acquired in 2011. Adjusted operating margins expanded approximately 240 basis points in the second quarter, to approximately 17%. As Rob mentioned earlier, given the significant amount of integration activity underway at the end of the first quarter and the uncertainties surrounding Europe at that time, we would like to differ some of our growth and productivity investments originally slated for the second quarter.

Delayed timing of this spend contributed about 80 basis points to our strong margin expansion performance in the quarter, and is expected to negatively impact second half margins as we re-accelerate our spend against these initiatives in the third and fourth quarters. By segment, adjusted operating margins in our human health business for the quarter were 22%, representing an increase of approximately 130 basis points as compared to the second quarter of 2011. Our Environmental Health segment delivered adjusted operating margins of 16%, representing an increase of approximately 210 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 $49.8 million in the second quarter of 2012 versus $39.4 million for the same period a year go. Our GAAP tax rate for the second quarter was approximately 13%, and on a non-GAAP basis our adjusted tax rate was approximately 23%, which is slightly lower than our previous guidance communicated in April. We now expect our tax rate for the second half to be approximately 23%. GAAP earnings per share from continuing operations in the second quarter of 2012 was $0.29, compared to GAAP earnings per share from continuing operations of $0.26 in the second quarter of 2011.

Adjusted EPS was $0.53 in the second quarter of 2012, up 23% from the prior period, and exceeding our guidance range for the quarter of $0.47 to $0.49, despite FX headwind of a proximally $0.02 per share, which was partially offset by approximately $0.01 per share from the lower tax rate. Our weighted average diluted share count for the second quarter of 2012 with approximately 114.6 million shares, and our ending share count was approximately 113.6 million shares. Turning to the balance sheet, we finished the second quarter with approximately $911 million of debt, and approximately $171 million of cash. We continue to make progress on our de-levering efforts as we exit the quarter with a debt to EBITDA ratio of 2.5 times, and a net debt to EBITDA ratio of approximately 2 times. Looking at our cash flow performance, operating cash flow from continuing operations was $77.4 million, as compared to $54.9 million in the second quarter of 2011.

We made good progress managing our working capital and cash collections in the quarter, delivering greater than 118% of free cash to net income. We believe that our second-half 2012 cash conversion will be slightly below our stated goal due to increased cash taxes, as a result of the settlement of certain foreign tax audits, as well as higher inventory levels resulting from the move of manufacturing operations to lower cost regions. In summary, as Rob indicated, we feel good about our performance in the quarter, as we delivered 5% organic revenue growth, approximately 200 basis -- 240 basis points of adjusted operating margin expansion, and 23% growth in adjusted earnings per share.

Now I'd like to discuss our third-quarter and full-year 2012 guidance in a bit more detail. Consistent with our view from earlier in the year, we remain cautious regarding macroeconomic conditions, specifically with regard to both Europe and the strength of the US dollar. As a result of current FX rates, we now expect full-year 2012 reported revenue growth to grow high single-digits and organic revenue growth to be in the mid single-digit range, which is consistent with our original guidance provided at the beginning of the year. Regarding adjusted operating margins, we expect to expand margins above our stated range of 75 to 100 basis points full year. For the third quarter, we expect adjusted revenue growth of $495 to $505 million, with organic revenue growth being in the range of 3% to 5%, with foreign currency headwinds of approximately 4% based on current exchange rates.

As we mentioned, we are planning additional productivity and growth investments for the balance of 2012, which we believe will further solidify our ability to achieve our longer-term growth and margin expansion objectives. These investments will have a dilutive impact on our adjusted operating margin expansion in the second half of this year, and as a result, we expect adjusted operating margins for the second half to expand more modestly. Based on these assumptions, we are maintaining our full-year adjusted earnings per share guidance for 2012 of $2.00 to $2.05, despite FX headwinds of approximately $0.06 per share. Additionally, we expect adjusted earnings per share for the third quarter to be in the range of $0.42 to $0.44, which assumes the negative impact of approximately $0.02 from FX headwinds. That concludes my prepared remarks. Keith, at this time we can open it up for questions.

(Operator Instructions) Jon Groberg, Macquarrie Capital.

Thanks a million, and congratulations on a strong quarter in what has been, obviously, a tougher environment. So can you -- just a couple of just clarification things, I'm turning to understand. So on Caliper, they did about $38 million last year, It looks like if you're saying about 8% acquisition, that's what did this quarter. So with that 5% organic and it was offset with currency? I'm just trying to understand what they did in the quarter.

Caliper was a little less -- Caliper grew mid single-digit organically. It's a little hard to kind of break out Caliper now that its being integrated with the larger business, but its impact to overall PerkinElmer organic was fairly minimal this quarter. But the rationale, or the reason behind that; Caliper had a very strong 20% plus organic growth quarter last year, so it was a little bit lower, but the first half, we're seeing caliper generating about 13% organic growth.

Okay. And then just one other quick clarification and then -- I'm sorry, one question. I think in the past you have said you are basically have -- you are pretty neutral from a currency standpoint, I remember on a lot of calls. Has that changed as you have gone through this, or was it just the mix of currency, just talk about -- I think you said (multiple speakers) impact --.

I think what we talked about is that we are fairly neutral from the standpoint of revenue and expense across the various regions. But of course, what you have is the profitability. So when we talk about the currency impact, think about it as just at a high level, Europe is close to 30% of our revenue and call that our profitability. So if 30% of our profitability is going through a, sort of, 15% decline, so as you convert that profit in Europe, $2.00, that is where the impact is, your converting that at a much lower rate.

Okay that's helpful. I just was trying to triangulate with -- because we have had a lot of those questions of the past. The Rob for you, that last question, Europe was kind of down, China seems really strong, can you, maybe, give a little bit more detail? You mentioned some diagnostic businesses, is that primarily the postnatal screening or at the neonatal screening? What else is going on there and can you maybe -- others have seen a slowdown there, sounds like you haven't, can you maybe just talk about what you're seeing and what you're outlook for that business is?

So in the diagnostic area, we fundamentally have two businesses. One, we have, as you said, the newborn screening, and that continues to grow. But more importantly, when we bought SymBio in 2009 we also got a business that is involved in infectious disease, so hepatitis and HIV. And that continues to see very strong growth and we continue to come out with new products there. You may recall we talked about the building out a big production capacity there, so we've continued to invest there, and that is contributing a big portion of the growth in China. I would also say on the environmental side, we see strong growth there as well. So, I would say mostly on the environmental side and on the diagnostic side is what is driving the over 20% growth in China.

So even in some of the more instrument related markets, like thermal analysis maybe, and some of the monitoring environmental monitoring, that for you is still very strong in China? You don't see that slowing?

I would say it is still strong, I would say it has little bit in the second quarter. And of course we also have some new products coming out, particularly in ICP-MS area and those types. So that's -- we're seeing, I would say, good growth in China, it's probably slowed a little bit relative to what we saw, I'm talking specifically on the environmental side, relative to Q4 and Q1.

Great, thanks a lot.

Dan Leonard, Leerink Swann.

I was just hoping you could give us some flavor of the types of growth investments you are planning for the back half of the year.

I would put them into some categories, some buckets. So I would say, first of all, we continue to invest in some interesting areas around detection capabilities. So we talked about -- or I talked a little bit about this sample introduction technology for mass spec. So, I would say that is one area. Clearly, continuing to expand out our menu in the screening area is an area that is going to get some investment here in the back half. I think in the research area, biotherapeutics and epigenetics are two areas that we feel very good about, and of course, we announced recently our expansion of a personal health innovation center in focusing in Hopkinton, focus in those areas and a couple other ones. And of course, informatics in another area that I think you will continue to see us investing here in the back half.

Okay thank you. And then my follow-up question; in terms of what you're seeing from the pharmaceutical market, is the weakness you are seeing there in the research product business, is that -- is it worsening and is your strength in the services more than enough to offset that going forward?

I would say from a market perspective, it's maybe worsening a little bit on the pharma side, particularly in the small molecule area. And our focus is to continue to migrate into some of these higher growth areas like biotherapeutics, epigenetics, next gen sequencing. Obviously that was one of the big incentives, or benefits, of buying Caliper. So I would say that's flowing a little bit. I would say, to be fair, also in Q2, we made some switches with the Caliper integration, we went on the SAP, and a number of other things, and probably that, maybe, cost us a little bit of growth. And I think as Andy mentioned, we built some nice backlog. So our expectation is that the Research business probably returns to positive growth in the back half.

Okay, thank you.

Ross Muken, ISI.

Particularly on some of your shorter-cycle businesses, maybe in the Industrial side, can you talk a bit about the pacing through the quarter, and what you saw in the latter half, and how you think about that in the context of your 3Q assumptions and full-year organic growth guidance?

I would say that where we saw the biggest change through Q2 was in Europe. So, as you recall, Europe in Q1 for us was mid-single growth. And in Q2 it was actually a decline of low single-digits. And so we saw that occur from the April to May time frame, and into June. I would say since mid June to July here, that has been fairly similar. And so, other than Europe, I would say the trends in most of our end markets has been fairly consistent over the last couple months.

Thanks, Rob. And Andy, on the SG&A line, it just seems like a heroic performance there, in terms of what that line is doing, given all of the moving parts from the deals and the organic. I know you are putting in some investments back half of the year, but if you had to tease out the components of how you've managed that, Q-two-Q for the last few quarters, it's been relatively flattish to modestly up. What would be the key deltas of why we are not seeing that line inflate more?

We have been talking about some of the productivity initiatives that we have been putting in place, and if you really look at a lot of our ability to expand margins, it's really been levering that G&A base. So as we grow we are able to basically keep our headcount fairly flat, and obviously that translates into good margin expansion. We did get a little bit of a help from FX in the quarter, so if you are just looking specifically second quarter. I think overall though, it's really been a corporate focus on tying to make sure we're efficient with spend. And I think that it's taken hold, and over the last several quarter we have continued to see that gain traction. And I think we've got some spending that we are going to be doing, some heavier lifting, over the next two to three quarters that we think will further enhance that as we look to -- on the gross margin line, to move things, move some of the manufacturing from developed to developing economies, as well as really leveraging more of the back office in certain parts of the world. We feel good about the progress; some heavy lifting left to do, but a lot more opportunity as well, and I think we still feel pretty good about our ability to get to high teens operating margin by '14.

Thanks, and Tommy, welcome to the call.

And welcome back to you.

Thank you.

Daniel Brennan, Morgan Stanley.

I was wondering first, just on your instrument business, in particular, we are hearing from some other peers about signature levels rising up and I know you have already commented on some of the pacing in the quarter. But you mentioned it to your call specifically on your instrument side, do see any change there in the dynamic about CFO-type levels being more inclined to wait on spending the money?

I would say that's a trend that has been around for at least a couple quarters. I would say the one area where we are seeing some changes on the instrument side is some more aggressive pricing by some of the competition. So I would say that, for us, seems to be a more recent change. But as far as higher level approvals, within our customer base, I think that's been around for a couple quarters.

Thanks. And then just maybe on the big user-group meeting that you had up in your headquarters, I think it was attended by over 500 customers. Is there anything -- any kind of notable feedback you can share in terms of whether it would be products or applications that seemed to be in the highest demand? Anything surprise you in terms of traction, maybe, coming out of the meeting? Just mention what some of the highlights from that were.

Kevin is here, that was Kevin's meeting to some extent. Maybe I will ask him to comment on some of the take aways from that.

Yes Dan, it was actually well attended, and we had a meeting in the UK the following week as well, which was well attended. And so we've had over 800 customers, and I would say that next gen sequencing, biotherapeutics, as well as epigenetics which PerkinElmer is uniquely qualified to address because it's really how the environment is affecting health, those topics seemed to really resonate. We actually had a track as well, on informatics, and that was -- the rooms were completely full on informatics. And I think that the combination of those four topics with about, I would say 65 presentations from customers, really created, we think, good demand for the second half as well as next year. And with us opening up the new personalized health innovation center, we think that there is great momentum for a lot of these newer, hotter markets in the positioning that we have inside of them.

Great, thanks a lot. Maybe, can I just sneak one more in; just in terms of the gross margins in the quarter, I know you mentioned you had some mixed benefit but it seemed like they were up really significantly year-over-year. Can you just flush out specifically, again, what the key driver was of that expansion?

Of the 200 basis points, about 80 of that was just the higher gross margins of the acquisitions we acquired in 2011. So they contributed 80 basis points and then the rest of it was strictly around productivity, with some of the initiatives I had talked about earlier within the factory. And I think we did also see in the quarter a bit of an increase from a mixed perspective and some licensing revenues, as well as some Informatic revenues, which are higher gross margin than the average.

Great, thanks a lot.

Dan Arias, UBS.

Just a question on Environmental Health. Rob, can you talk broadly about your applied-market customer base and the overall tone that you had there right now? We have come to think of those markets as pretty secular and pretty steady over time, but there has been some discussion about some fluctuation in certain areas. How are your food and beverage, and environmental safety customers thinking about purchasing in this environment? And how much visibility do have there?

I would say in this quarter we saw a much more severe bifurcation between emerging markets and developed markets. I think if you look historically, as you mentioned, the difference might have been 200 basis points between the growth we saw in developed versus emerging. This year we saw much greater differentiation, so clearly in the emerging markets they are continuing to spend. Particularly in the environmental area, and I were to say also in the food safety area. We saw a little bit of a pullback, or let say less growth, in the developed world. So that's how I would characterize some of the change you're seeing now. And, of course, Europe is a big part of that, so that's a large contributor to it. But we did see a much larger gap between the two -- the developed and the emerging markets.

Okay. And then Andy, did I hear you say the US was up in the teens in the quarter? And if so, can you comment just a bit broadly on that strength?

It was -- the US was actually up high single-digit.

Okay.

In the quarter. And we had some strong Informatics revenue in the quarter, which was a piece of that. But overall, it was a very solid quarter.

Okay. And maybe one more for Kevin. You mentioned some momentum in next get sequencing. When you think of the Caliper business, do think that the pieces are in place there for the move to clinical sequencing and taking medical genomics to the next level, as they say?

I think that we are still investing in this area. We were watching carefully the evolution of, kind of the centralized, next gen sequencer to the bench top and looking at accuracy and precision rates. But most importantly we are seeing that sample prep is playing an important role in that overall accuracy. So we are continuing -- PerkinElmer is continuing to make strong investments in sample preparation, not only to improve the precision to help it get into the clinic more productively, but also the sample sizes in general are getting smaller. We had many physicians at our user conference talking about circulating tumor cells as well as fine needle aspirate biopsies, as opposed to large biopsies, and as these sample sizes get smaller, I think our microfluidica state is well-positioned to really help the sample preparation of these smaller samples, and eliminate biasnesses, which has been a big issue, which is important for getting into the clinics. So I think we are -- we've got strategic relationships with all of the major NGS' and we now have an Informatics platform from Geospiza that's really focused on trying to create medical reports as opposed to research reports from the data. So I think both on informatics and sample prep, we are well-positioned, but we are continuing to make investments as we want to improve accuracy rates.

Okay, very good, thank you.

Isaac Ro, Goldman Sachs.

Wondering if you could, first off, maybe touch on the pace of business in Europe during in the quarter. I think there's been some debate there across the industry regarding, whether or not conditions there really deteriorated, or if it was a steadily pressured environment. So any color you can put on the European pacing across the various businesses would be great.

First of all, when I talk about our Europe business, we actually had our Diagnostic business continue to grow. So what we saw -- we actually saw growth on the Diagnostic side. Where we saw a decline was more on the instrument-based businesses, so both the Environmental and Research side. And as I mentioned before, we did see -- now, of course we grew in the first half as well, as I said mid single-digits, so we did see a fairly steady, consistent decline beginning early Q2, into early June, and then, like I said, it stabilized a little bit, and our sense is, at least for the first couple of weeks here in the third quarter it is more stable. That's how I would describe our experiences in Europe.

Okay, that's helpful. And secondly, on the Informatics, Kevin can you maybe comment on a little more detail regarding how product integration there is progressing, and the overall trends that you are seeing in the OneSource business as well?

I think overall, we're very encouraged by the acquisitions that have been put together. First of all, that integration is ahead of schedule. And I think there's a strong focus now towards applications. Using these Informatics capabilities that are somewhat unique, and as I think Andy and Rob both mentioned, there are some really nice, in OneSource, new technology, new informatics to really help customers with utilization rates of their assets, and to better optimize those investments. And I think both in OneSource, as well as future application opportunities and next gen sequencing, and even biotherapeutics, we are seeing nice integration opportunities with some of the Caliper product lines with the informatics. And so overall I would say that's going very well and we see it as a major piece of the future growth profile for PerkinElmer.

That's great. And then last one for me; just generally for either Rob or Andy. Can you maybe update us on the latest thoughts from the Board regarding future management incentives that might go in regarding ROIC-based metrics? I think that is one area where a lot of investors would have pretty positive response, if we got a path there.

I would just say Isaac, generally we -- to the extent we are going to do anything on incentive come, we would do that the latter part of the year. I would say no current plans to change it, but again, those discussions usually occur at our December Board Meeting.

Okay. Fair to say it's a possibility?

I think it is a possibility, we've had some discussions about it but I would say nothing definitive at this point.

That's fair enough, thanks very much.

Jon Wood, Jefferies.

You got about a $4 million dollar benefit from deferring some of the investments in the second quarter. So my question is; are you actually incrementally stepping up in the second half, or are you just basically adding back that benefit you got in the second quarter, if you will?

I would think of it more as adding back the benefit in the second quarter. And again, we will evaluate that as we go along. That's the plan right now into Q3, and we will reassess that depending on how we do in Q3. But I would think of it as taking it from the first half and moving it into the second.

Okay great. Andy, you commented that acquisitions were 80 BPS in gross margins. Do have that impact on OP margins?

It was negative 30 basis points on operating margins.

Okay, so diluted --

It was accretive to gross and dilutive to op.

Okay, great. And then Rob, how are you thinking about the Imaging business in the second half of the year? Obviously, you had a pretty strong first half. However you model that second half given what we have seen from some of the bigger imaging players?

I think our sense is that will continue to grow the back half, probably moderate a little relative to what we have seen here in the first half, but we feel like we will still continue to see pretty good growth there. They do have a very strong growth in Q4 that will make it a little bit more of a difficult comparison. I think they were up mid-teens organically in the fourth quarter of '11. But generally speaking, that business continues to do well and we see good demands there.

Okay, great. Last one for Andy; de-levered about $23 million, is there any reason why that wasn't higher? Is it just timing? I think you had talked about $150 million for the year of deleveraging. Just looking for some color on pacing there.

It's in line with the timing we set in place at the beginning of the year. It may be a little off, but not much. So, I think we are still on track. I think there is obviously two components to it as well. There is the EBITDA and the debt de-levering, and we are doing a little better on the EBITDA as well. There's a bit of a mix there, but I think overall we're on track.

All right, good, thank you.

Peter Lawson, Mizuho Securities.

Good afternoon, this is Ira [Kryscul] filling in for Peter. On the investments in the second half that are going to increase. Is that going to be focused more on R&D or SG&A?

I think its going to be both, and I think there well also be some on the cost of sales line as well, which will be some of these productivities, but I would say R&D and selling, as Andy talked about before, we are trying to be fairly aggressive on trying to reduce our G&A. I would say it's on those two areas most, and then also you will see it in cost of sales.

Okay and on the share count; it's been creeping up little over these past two quarters. Is that going to continue to increase incrementally or is it -- is there a way to stem (multiple speakers)?

I think for modeling purposes, I would keep it fairly steady at that level. I don't think it -- we are going to let a go any higher.

Okay, great, thank you. And then any color on the volumes or activity in the -- in your sequencing center that just got the CLIA certification?

As we said, it continues to grow nicely, it's off of a very low base but as far as growth rates, it continues to do well. I think the CLIA certification opens up some additional business we can get. Again, this is largely focused in the research area and pharmaceutical company, so we have had requests in the past were they wanted some of the samples to be done under CLIA because they are either going into pre-clinical or clinical tests. And so I think it's, again, really focused on the research and mostly pharma side.

Great, thank you.

Brian Brockmeier, Maxim Group.

First, you commented earlier about the -- you are actually seeing diagnostic growth in Europe. Is most of that in Eastern Europe or is there positive growth in -- sorry, is most of that in Eastern Europe or are also seeing positive growth in Western Europe?

We are actually seeing it in both regions.

And is that across the infectious disease and prenatal?

In Europe, it's fundamentally newborn and prenatal.

Okay and also the -- are you bringing your infectious disease products into new markets, or is a lot of the strong growth that you are seeing in markets that you have traditionally had a presence in, including China?

I would say specifically in infectious disease it is mostly in China.

Mostly in China? Okay.

Yes.

And just real quickly, last the -- have you started to shift any of your -- any of the sales of any of the Caliper products from distributors to your sales force in some international markets.

We have, I would say it's still small. I would say we have targeted that more, sort of, the latter part of this year, so we've started to move some but it's been very small. I don't know if you want to --.

I think that while it has been small, we've had really strong relationships with the distributors and we have been able to rationalize multiple distributors into single distributors. And the growth at those accounts and those distributors are continuing to ramp nicely, so we do feel like, while we are waiting to make the final conversions, we are making nice progress with a lower number of distributors.

Okay, sounds good, thank you.

Derik De Bruin, Bank of America.

So on -- you were fairly conservative, you were up a little but more so than a lot of your peers were on this, I guess. Europe generally in line with where you thought it would be, did it get incrementally worse or are you expecting incrementally worse from where you originally guided?

No, I don't think so. I think, particularly when you look at the strength in the first quarter and average that over the year, our assumption is that Europe will be flat to down slightly.

Okay. So last quarter, some of the companies that supply stuff to the sample prep market for next gen sequencing reported some pricing pressures and some competition there, Caliper didn't see that headwind. Has - are you still seeing good demand there in the market? Is there going to be any change to the competitive dynamic in the sample prep area?

I think the term sample prep, Derek, does get used a lot. Many of the large NGS providers are actually providing their own sample prep reagents for certain steps. We are upstream of that, and we haven't seen any slowdown and all. It's been strong double-digit growth occurring for next gen sequencing sample prep for us, and we actually have pretty good visibility to the future here as well, and we are seeing really strong demand for this. So both -- I would say expansion into Asia, as well as just primarily North American markets we see really nice sample prep demand.

And is there any demarcation between some of the big-box machines and the bench-top machines? Are you supplying to both of those? Could you talk about how that market is?

Interestingly, it's probably as expected, the larger machines initially were acquired by our customers and then many of them started coming to our shows and realizing that the bottleneck became the sample preparation, and so mostly they would buy those as secondary investments after they bought their first unit. But now that they have had experience, many of the same steps are needed for the bench-top as well, and so they have now gone into those investments a little but more knowledgeable about the need for sample prep. And so we do see, in many cases, we've got relationships with Life, with Elumina, with PacBio and others, but primarily Life and Elumina, when that initial acquisition is maid now on the bench-top version, you will see sample prep being brought in right away.

Great, thank you very much.

Zarak Khurshid, Wedbush Securities.

Nice quarter. It's the year of noninvasive prenatal diagnosis. Clearly it's a little bit early for any impact on your business, but can you just remind us how large, how important is your prenatal screening franchise today and how are you thinking about that business given the rapid evolution of the field?

I think from a size, I don't know if we got into the specifics of how big that businesses is specifically, but I would say it is clearly less than 5% of our revenue. And I think we've talked about this on other calls. We are really pursuing two alternatives. We are pursuing some things internally, in this specific case we're using some technology, actually that Caliper had, combined with some capability that we had, to see if we can orchestrate around some of the difficult IP issues in this area. And then of course the other thing is, we are watching that very closely because I think one of the challenges with some of the current providers is there seems to be an IP minefield right now. I would say we are analyzing that as well as doing some things internally to potentially have our own offering.

Interesting. And then, maybe a question for Kevin; it sounded like the caliper microfluidics business was pretty robust in the quarter. Can you maybe just talk about the comparison versus the in vivo imaging side? As we look further out, how are you thinking about the runway of growth in that in vivo imaging segment? Thank you.

You actually have hit upon the two -- if you look at it from a product or technology standpoint, you have hit upon the two double-digit growth components of the old Caliper that have now been integrated with some product lines and technologies from PerkinElmer, which I think increases our menu. So when you look at microfluidics, we have had very strong ramp in next gen sequencing and biotherapeutics. And when you look at the in vivo imaging, we have had very strong ramp in biotherapeutics, where there is a lot of distribution studies as well as continued focus on oncology and add expanding now, into inflammation and metabolic. We are seeing nice growth across all regions of the world. And we are seeing nice growth across those market segments, which were very concentrated. And now we are starting to pull along some of the traditional legacy PerkinElmer products into those newer markets, which was one of the strategies that Rob had outlined for the acquisition. I think that the areas where the growth has not been as strong, are probably in area of small molecule. And there were some assets Caliper technology for small molecule, but the good news is that, that is now rapidly moving over to large molecule and even epigenetics. I think across the board in the two categories you mentioned, we still feel we have strong growth and good visibility for the future. And these shows we've had with customers, most of the talks, if you looked at the 65 talks we had, I would say that 70% of them hit those two product lines, the in vivo imaging and microfluidics. And I should also mention that we are having two major shows in two weeks in China. One in Shanghai, one in Beijing, and then we are going to be having two more shows out on the West Coast that investors will be invited to those, as well as our customers, over the next two months.

Sounds good, thank you.

Jeff Elliott, Robert W Baird.

Your OneSource offering continues to do well and you keep adding to that offering. With competitors increasing their focus here, how will you continue to win with new and existing customers?

I think it's just continuing to be able to differentiate what we do, and I think that drove us, to some extent, into some of these informatics capabilities. I mentioned the current collaboration with our informatics business and OneSource, that we have now come up with a very interesting product that, for example, Merck is using. I think it is just continuing to build out our differentiated capabilities. I would say that's one, I think the other thing is just to continue to expand geographically. Historically, OneSource was adopted in developed world, and now is -- almost all of our customers seem to move a lot of their lab activity into the emerging markets, we continue to build our capability there. I think that really, is how we will continue to grow.

Okay, thank you.

(Operator Instructions) Steve Willoughby, Cleveland Research.

Just wondering, it looks like the past couple of quarters here, you have benefited in your diagnostic business from some larger equipment placements. I remember a couple quarters ago you mentioned Russia, sounds like this quarter maybe China. Just wondering what's going on there and what does the future look like for those larger orders?

Let me just clarify. I would say in the case of China, that wasn't a large equipment, that was just continued growth; I talked about expansion of more customers there. In Q2 we did not have a necessarily large interim placement. But a lot happens -- what happens periodically is we will build some large, in most cases newborn screening labs, I think Egypt was one we mentioned last year. But I would say in Q2 that was not the case.

Okay, thanks very much.

We have no other questions at this time so I will turn the call back over to Mr. Rob Friel for closing remarks.

Great, thank you, Keith, and thank you all, for your questions and continued interest in PerkinElmer. In summary, let me just say I believe we are very well positioned, but given the attractiveness of our end markets and the criticality of our offerings, our ability to continue to provide a differentiated innovation to our customers and our focus on providing strong financial results, while investing in the long-term growth aspects of the company. Again, I look forward to updating you on our continued progress at the end of next quarter. Thank you and have a great day. This call is now adjourned.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us. You may now disconnect. Have a great day, everyone.