Revvity Inc (RVTY) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth-quarter 2012 PerkinElmer earnings conference call. My name is Jeff and I'll be your coordinator for today. At this time all participants are in a listen-only mode. Later, we will facilitate a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Tommy Thomas, Vice President of Investor Relations. You have the floor, sir.

Thanks, Jeff. Good afternoon and welcome to PerkinElmer's fourth-quarter 2012 earnings conference call. With me on the call our 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 investors section of our website at www.PerkinElmer.com. Please note that this call is being webcast live and will be archived on our website until February 14, 2013.

Before we begin we need to remind everyone of the Safe Harbor statements that we have outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any date after today.

During this call we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment we will provide reconciliations promptly. I'm 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. We're pleased to report another great quarter for PerkinElmer. Rounding out an excellent year for the Company in which we delivered strong financial performance while continuing to invest in improving our growth and profitability profile.

Turning first to the financial results in the fourth quarter, reported revenue grew 6% and organic revenue grew 3% in the period. Adjusted operating margins and EPS were roughly in line with our forecast at 18.3% and $0.65 respectively. We were very pleased to deliver such solid performance in the quarter, particularly given the tough comparisons versus the extremely strong fourth quarter we had in 2011. Also during the fourth quarter we made excellent progress on our productivity programs to rationalize our production footprint, shift production to lower-cost regions, and better leverage our G&A expenses.

In addition we continue to make strides in expanding our capabilities in the targeted high-growth markets. For example we completed the acquisition of Haoyuan Biotech, which is based in Shanghai and is a supplier of molecular infectious disease screening technologies. In addition Haoyuan holds only one of five government approved licensing, allowing it to leverage its NAT technology and blood screening centers throughout China. The combination of PerkinElmer's distribution channel and capability and Haoyuan's leading automation assay technology and manufacturing expertise creates a formidable competitor in the large and growing Chinese blood screening and diagnostic markets.

Also in the quarter we announced our entry into the noninvasive prenatal testing market through a collaboration with Verinata Health. We believe that incorporating Verinata's verified test into PerkinElmer's extensive distribution channel will further extend our leadership position within maternal fetal health and help to accelerate the broader adoption of noninvasive prenatal testing.

Now looking back at the full year 2012, reported revenue grew 10%, organic revenue grew 5%, and we expanded adjusted operating margins by 100 basis points. This improved profitability translated into adjusted earnings per share growth for 2012 of 13%, resulting in adjusted EPS growth of over 100% over the last five years. We achieved this strong performance by continuing to strengthen our organization and technical capabilities and focusing on serving customers in attractive high-growth end markets. Through targeted investments such as our new Shanghai headquarters and application centers and our new customer relationship center in Krakow, Poland, in addition to increasing the number of emerging markets based employees from 1,500 to 2,000, we expanded our emerging market presence, which now accounts for nearly 30% of total revenue.

On the innovation front, bolstered by a $38 million increase in R&D spending over the last two years, we have delivered breakthrough solutions across our detection, imaging, and informatics capabilities. A few highlights include the introduction of our direct sample analysis for mass spectrometry that utilizes a disruptive approach to sample preparation, producing results in only seconds allowing advanced chemical analysis of many sorts of samples. The Vectra Imager which allows pathologists to examine several biomarkers simultaneously on a single sample slide sample is seeing terrific adoption. Skin testing was introduced this year as a novel lab and lab offering in California and Florida, expanding the spectrum of available molecular assays for newborn and childhood screening.

And finally our informatics team is incorporating the power of Spotfire visualization software with our various cornerstone offerings to the pharmaceutical, chemical, and other industries for better management of the complex laboratory R&D efforts. Informatics and software continue to be a major effort of R&D at PerkinElmer as we bring useful knowledge to our customers' fingertips through the marriage of innovative sample preparation, advanced instrumental analysis, and leading information technology.

We also took strides last year to improve our operating efficiencies and align closer to our global customer base. These moves included repositioning certain manufacturing and R&D assets as well as organizational changes to allow a more market focused approach with our customers. One of these changes which is effective in the first quarter of 2013 is to better align our informatics and certain portions of our service business to the end markets they serve, which would provide greater synergies of focus to both our customers and PerkinElmer. This change will result in a shift of about 7% of our adjusted revenue from environmental health to human health for 2013. And our website will provide a reconciliation of these changes. As we move into 2013 our approach will be similar to last year and will focus on driving profitable growth and returns to shareholders by strengthening our organizational and technical capabilities, gaining continued traction on our productivity improvements, and targeting attractive high-growth markets.

Turning now to 2013 guidance, we are currently assuming the organic growth rates in our end markets this year will be similar to what we experienced in 2012, with the exception of medical imaging, which due to the strong demand experienced last year will face a significant headwind in 2013. However we expect the investments we made in the latter part of 2012 to offset the lower growth from medical imaging, and accordingly, we are forecasting full-year organic growth to grow in the mid-single digit range of 4% to 6%, with a view more towards the lower end in the first half, and towards the upper end in the back half. Similarly, our operating margin expansion will be skewed to the second half of the year due to continued investment required in two of our productivity programs, which are scheduled to be completed midyear.

In addition we are planning to increase our investments to support several of our recent growth initiatives, including building out Haoyuan's molecular assay menu, expanding Spotfire's capabilities in life science research, and investing in our prenatal channel at our collaboration with Verinata. We are comfortable increasing our investments in both growth and significant productivity programs due to the savings we are already starting to see from our prior programs, as well as our confidence that our growth investments will pay dividends as early as 2014. Consequently, despite these investments pressuring margins in the first half of the year, we believe we can expand adjusted operating margins in the 50 to 75 basis points in 2013, achieve adjusted operating margins of 18% or better in 2014, and provide a stronger foundation to expand growth and profitability beyond 2014.

Given the forecast of organic revenue growth and adjusted margin expansion, we estimate adjusted earnings per share for 2013 in the range of $2.24 to $2.32, representing an increase of 9% to 13% over the prior year. However, and more importantly, executing on our 2013 operating plan will allow us to enter 2014 much better positioned to accelerate both top and bottom line growth over the next several years. I would now like to turn the call over to Andy.

Thanks, Rob and good afternoon, everyone. Consistent with prior quarters I'll provide some additional color on our end markets, a financial summary of our fourth-quarter results, and details around our 2013 first-quarter and full-year guidance, and then we'll open it up for questions.

As Rob mentioned earlier we were pleased with our performance in the fourth quarter, delivering another solid quarter of organic revenue growth, despite a very difficult comparison to the fourth quarter of 2011. Reported revenue for the fourth quarter increased 6% while adjusted revenue increased by 4% to $577 million, as compared to the fourth quarter of 2011. Organic revenue for the quarter increased 3% as compared to the same period a year ago.

Adjusted earnings per share for the fourth quarter was $0.65, driven by in-line organic revenue growth. Adjusted operating margins also came in as expected, with the impact of a higher stock price and long-term compensation expense, offset by a slightly lower tax rate. Organic revenue increased 3% in both our human health and environmental health segments versus the same period last year. By geography, organic revenue in both the Americas and Asia grew at a high-single digit rate, while Europe declined at a high-single digit rate. We continue to experience strong demand in China with organic revenue growth in excess of 20% with some moderation in the rest of the BRIC countries which face their toughest comparisons of the year. As a reminder, we'll continue to cycle up against difficult emerging market comparisons in the first quarter of 2013.

Looking at organic revenue by product category, recurring revenue which includes reagents, consumables, and service grew high-single digits in the quarter, primarily the result of continued demand in our human health segment and strength in our OneSource and informatics offerings. Instruments and components declined at a low-single digit rate, cycling up against low-double digit growth comparisons from the fourth quarter of 2011.

From an end market perspective PerkinElmer's human health segment represented approximately 48% of reported revenue in the quarter. We serve two end markets in human health, diagnostics, which represented 26% of reported revenue, and research, which represented 22% of reported revenue. Organic revenue from our diagnostics business increased mid-single digits during the quarter, with continued contributions from both screening and medical imaging.

Our screening business continues to benefit from the stabilization of US birth rates, and the expansion of our prenatal, newborn, and infectious disease screening solutions in key regions outside the US. We're encouraged with our sales uptake in China, delivering organic growth above 20% in the fourth quarter of 2012.

Our medical imaging business continued to see broad-based organic growth across all see key technologies and applications in the period, with particular strength in our traditional, medical diagnostic imaging offerings. We remain pleased with the growing acceptance of our CMOS imaging technology, which has benefited from numerous design wins in new high-growth verticals such as breast mammography and nondestructive testing for industrial applications. For the full year 2012, medical imaging delivered a very strong double-digit organic growth performance.

Our research business was flat organically in the fourth quarter versus the comparable period in 2011, as fiscal cliff and sequestration uncertainties in the US as well as weak European research markets contributed to softer demand early in the quarter. We are however encouraged by the research business's strong finish to the year.

Moving to environmental health, which represented 52% of reported revenue in the fourth quarter, we serve three end markets, laboratory services, which represented 26% of reported revenue, environmental and safety, which represented 19% of reported revenue, and industrial, which represented 7% of reported revenue.

During the quarter we experienced low-double digit organic growth in the laboratory services segment. Within the environmental and safety segment, we saw flat organic growth while our industrial segment experienced a low-double digit organic revenue decline, as both of these latter segments cycle up against double-digit organic growth comparisons from the fourth quarter last year. We continue to see strong acceptance of our laboratory service and informatics offerings as we help our lab customers better manage their critical laboratory assets and related data needs. Our OneSource offering continues to be a key differentiator for us as evidenced by our ability to expand our presence with key pharmaceutical customers throughout 2012.

Turning to our margin performance in the period, adjusted operating margins in the fourth quarter were 18.3% as compared to 18.5% in the comparable period a year ago. This performance was in line with our expectations, given the growth in productivity investments made in the quarter as well as a very difficult year-over-year comparison, which was further exacerbated by the timing of the Caliper acquisition in the prior year. Adjusted operating income increased 3% in the quarter to $105.6 million.

By segment, adjusted operating margins in our human health business for the quarter were 22%, representing a decline of approximately 100 basis point as compared to the fourth quarter of 2011. This decline was primarily the result of the impact from the Caliper stub period in 2011 and previously announced growth and productivity investments deployed in the fourth quarter of 2012.

Our environmental health segment delivered operating margins of 19%, representing a decrease of approximately 30 basis points. This decline was within our expectations and was primarily due to the growth and productivity investments previously mentioned.

GAAP operating loss from continuing operations was $30.8 million in the fourth quarter of 2012, versus a loss of $25.9 million in the same period a year ago due to charges related to trademark rationalizations as well as the year-end mark-to-market pension plan adjustments. On a non-GAAP basis our adjusted tax rate was approximately 20.5% and we expect our adjusted tax rate for 2013 to be approximately 23%. GAAP loss per share from continuing operations in the fourth quarter 2012 was $0.14, compared to a loss of $0.74 in the fourth quarter of last year. Adjusted earnings per share was $0.65 in the fourth quarter 2012 and at the midpoint of our guidance range.

Turning to the balance sheet, we finished the fourth quarter with approximately $940 million of debt and approximately $171 million of cash. We continue to make progress on our delevering efforts as we exit the quarter with a debt-to-adjusted EBITDA ratio of 2.3 times and a net-debt-to-adjusted EBITDA ratio of 1.9 times. Looking at our cash flow performance, full-year operating cash flow cook from continuing operations was $154 million as compared to $234 million in 2011. Incremental cash tax payments, prepaid royalties, higher receivables due to the timing of revenues in the fourth quarter, and restructuring charges related to our productivity initiatives negatively impacted our performance in both the quarter and the year.

Overall, we are pleased with our performance in 2012 and feel we're on track to deliver on our longer-term organic growth and adjusted margin expansion targets. Looking back at our performance for the year, our reported revenues increased 10% with organic revenue growth of 5%, adjusted operating margins expanded by approximately 100 basis points to 16.5%, despite significant selling and productivity investments, and adjusted earnings per share grew to $2.06, a 13% improvement over the comparable period last year.

Now I'd like to discuss our 2013 guidance in a bit more detail. We expect adjusted revenue for the full year to grow mid-single digits with the second half of the year expected to be slightly higher than the first half. Regarding adjusted operating margins we expect expansion of 50 to 75 basis points, with margin expansion to be more back half weighted due to our continued growth and productivity investments slated for the first half of 2013.

Interest expense is expected to be similar to 2012, our adjusted tax rate as I previously noted is expected to be 23% for the year, and our weighted average diluted share count is assumed to be flat or approximately 115.7 million shares. Based upon these assumptions we expect adjusted earnings per share for 2013 to be in the range of $2.24 to $2.32.

For the first quarter of 2013 we expect adjusted revenues to be in the range of $525 million to $535 million with foreign currency headwinds of a proximally 1% based on current exchange rates and organic revenue of 3% to 4%. Based upon these assumptions we expect adjusted earnings per share to be in the range of $0.46 to $0.48, which assumes the inclusion of the 2013 R&D tax credit, which represents less than $0.01. This concludes my prepared remarks. Jeff, at this time we'd like to open it up for questions.

(Operator Instructions)

Paul Knight, CLSA.

Was the acquisition total in the cash flow statement related to the Chinese transaction?

Yes.

And then --

It was.

And then the follow-up would be on the geographical growth, it was a high-single digit decline in both Europe and US. And what was behind it? pharma?

No. I would say in Europe, it was high single. In the US actually was up mid- to high-single and then of course the Asia portion was also up high single. And I would say the European decline was not restricted to pharma. We also saw it on the industrial side as well.

Okay. Thank you.

Ross Muken, ISI Group.

This is Vijay in for Ross. My first question was actually I wanted to dig a little bit on the subsegments. If you look at lab services, you did comment OneSource has seen tremendous uptake from biopharma. We've seen strong growth in the subsegment. What sort of the outlook as you look forward, how long can we expect to get this strong performance?

I think we can continue to see good growth in OneSource because what we've been trying to do particularly over the last probably six or nine months is to look to expand that beyond pharma. I think we see some opportunities particularly as we combine it with our informatics offerings to go into chemical industries and maybe some of the food and beverage opportunities. So I think we're continuing to believe that we can see mid-single growth, maybe even a little bit better than that in the OneSource area.

Great. And my second question was on the guidance, so what's baked in the guidance in terms of presumptions around sequestration? And do you have anything baked in from the Verinata marketing agreement?

So with regard to sequestration, as you probably know, that's not -- the NIH funding is not a significant exposure for us. We think it's probably in the mid-single digit range from the perspective of revenue exposure. And for purposes of our '13 assumptions, market assumptions, we're assuming that it will look very similar to what we saw in 2012. The way I would describe it is sequestration clearly had an impact on slowing some of the grant and funding down, but probably not as strong a decline as you would expect under call it a full sequestration.

So I guess to give you some kind of sense of impact, it was about 5% of our revenue exposed; if there was a 10% decline it would be about a 50 basis point headwind on organic growth. We're probably assuming something like 50% of that. Which is probably what we saw in 2012. Just to give you some kind of calibration.

With regard to the Verinata arrangement again as I mentioned before, one we're quite excited about, from a long-term implication, however with regard to 2013, we have a de minimis impact on both the top and bottom line.

Great. Thank you.

Isaac Ro, Goldman Sachs.

Just want to touch on innovation for this year. You guys developed a lot of new businesses and acquired other assets. Anything in particular regarding informatics that we might be able to expect from you this year? It's been a little bit on the quiet side there since you made a bunch of acquisitions in 2011. Wondering what's going on in informatics. And also on Kevin's side with Caliper, what can we expect from the franchise this year?

So I would say with regard to the informatics, we're quite excited about this collaboration we announced, and that started in the quarter with Spotfire, so we're investing in and around that to expand out the capabilities in the life sciences area, and we're continuing to build out additional generations of current software releases. So I think you'll continue to see a big investment in and around the informatics area. With regard to the LST area, maybe I'll just have Kevin to talk to that specifically with regard to the innovation.

Isaac, I think the key thing that we were very excited about is the Vectra tissue imaging, which we had very strong growth really in the second half of 2012. And our ability there is to multiplex numerous biomarkers simultaneously, and companies like Genoptix and Novartis, and others have now adopted it for LDT, and are able to do some pretty important test, like the [four score] on breast cancer, so we think that this technology is not only going to get continued adoption in 2013 for tissue, but we also are now moving it to circulating tumor cells and feel that this whole area is going to continue to broaden out. And looking at multiple markers simultaneously is a way to eliminate and reduce false positives and negatives, so we're pretty excited about those advances. I'd say that's the primary area for 2013.

Great. If I could just ask a follow-up on margins, how much as you look at your guidance this year, how much of the margin upside versus your base case scenario would you say is dependent on topline leverage versus maybe other operational improvements that you're working on in the background?

I think it's about 50-50. I think in the past we've said we needed mid-single digit growth to drive 75 to 100 basis points, and I think where we're situated now if we hit the volume now about 50% of that flow through will be related to the volume.

Great. Thanks.

Dan Brennan, Morgan Stanley.

Can you help think about for '13 in terms of segment dynamics what type of growth is implied in your mid-single digit growth across environmental and human health? And any notable tough comps we should be aware of as you see it?

I would say if you went through the three key areas, they all were forecasting we'll probably be in the mid-single range. I think when you think about diagnostics probably the screening business we think will probably be a little bit better in '13 and you alluded a little bit to the fact we are seeing some positive trends on birth rates in the US. We believe in the fourth quarter that we actually went to positive birth rates, probably about 1.5% up on a trailing 12 months.

So we're expecting a little bit better growth on the screening side, but to your point in tough comps, the medical imaging business saw very strong double-digit growth in 2012. Some of that was timing oriented relative to customer ordering patterns and that is going to be a headwind. We don't expect them to obviously be able to repeat that. And so we'll probably experience medical imaging probably in the low-single digits in 2013. So when you put that together with a little bit stronger screening growth, we'll probably be looking at mid-single digits.

Again on the environmental side when you look at both the service and the product side we think that will be mid-single digits, and now particularly with the informatics business, being combined with the historic LST business we think that's probably going to be mid-single as well.

Okay. Great. Maybe just on the little bit more color on the pacing of the investments that you've been making, and are making that are going to lead to this increasing leverage in 2014. Can you help maybe just put a little more details behind these investments and how they translate into margins? Thanks.

Yes. So we've been really talking about probably three major programs, two of them probably dealt more on the cost of sales side with regard to production. One was actually reducing our footprint and the other was shifting production into the lower-cost areas. Those, our anticipation is, will be completed probably at the end of the second quarter, and so you'll see some benefit in the third and fourth quarter of 2013 and then a full-year benefit in '14.

And then the other one we've been talking about is leveraging our general and administrative costs as mostly our back-office and we're moving that into the low-cost regions. That's a project that will start to get some benefit in '13, but will continue to drive some additional changes probably throughout the year, and you probably won't see the full impact of that in 2014. But I think when we've talked about the potential opportunity here, in those three programs alone we're probably in the 50 to 100 basis point margin improvement.

Great. Thanks a lot.

Dan Leonard, Leerink Swann.

Rob, Randy, is there any way you can give us a sense for how much exposure you have to the environmental issues in China in terms of supplying product into that geography?

We've talked about China being about 10% of our revenue. And I would say the portion of our revenue that is at I would call the broader environmental where you include water and soil and air and food, it's probably I don't know, 30% to 40% of our revenue in that area, so it's probably in the $60 million plus.

Okay. That's helpful. And then my follow-up, how are you thinking about things like share repurchases in 2013? Looks like that's not in your guidance but I wanted to at least take your temperature on that.

This is Andy by the way. What I gave the assumptions for guidance, I essentially said flat share counts, so we obviously have some option creep during the year, so our assumption would be we would certainly take that out. We obviously have been looking and continue to look at share repurchases. And we do that vis-a-vis with our capital review and we are also looking at bolt ons and tuck ins. So I think we will keep share count flat I think at a minimum and we'll look at other opportunities as they come up.

Okay. Thank you.

Doug Schenkel, Cowen and Company.

First question is really just a follow-up to Dan's question, could you share anything in terms of how you're thinking about M&A criteria from here? You've got the debt-to-adjusted EBITDA down to 2.3 times. Doesn't sound like you're going to move forward with a more significant buyback. It's been a little while since you've been through a period where you've been a bit more inquisitive. Is this a year where we should expect more or are you thinking more disciplined tuck-in type deals?

I think it's more the latter. I think as we've talked about in the past if you go back to the '08 timeframe we did feel there was some significant gaps in our portfolio that we needed to fill. As I look at the portfolio today I feel much better about it so I don't see any pressing need to go out and do any large deals for that matter.

And so I think what you should expect from us is probably more bolt ons. Now, relative to 2012 where we did very little, I would expect that the pace of small bolt ons to probably increase in '13, but again unlikely for us to do a large size deal in this environment.

Okay. And just going back to your prepared remarks and some of the details that you provided on the different performance across subsegments, I think you guys indicated that research revenue was about flat organically. And I think you attributed this in part to concerns around sequestration and some of the concerns about austerity in Europe. I believe academic government accounts were under one-third of the subsegment sales and you talked about how small your NIH exposure is across the business in response to an earlier question. So I was hoping that you could just talk about really growth in the research subsegment outside of academic government. Was growth materially more robust? And if not is there anything else going on there in terms of price or competitive dynamics? Thank you.

I would say the first thing is whenever you think about our research business you need to keep in mind that $100 million or so of our business is in radiometric detection or radio chemicals. And that was down high-single low-double in the quarter. And so part of that is it is cycling up against some difficult comps relative to on the detection side, with the tsunami in Japan during 2011 we were selling a lot of instruments into that segment. So when you pull that out, the segment actually grew pretty well in the pharmaceutical side call it mid-single digits, but of course it gets pulled down by what's going on in the rad area.

Okay. That's helpful. Thank you.

Jon Wood, Jefferies.

Andy, can you give us some parameters around cash flow for 2013?

Sure. We're obviously going to get the benefit of some of the AR buildup we saw in the fourth quarter, so that will help us a little bit. Always going in our goal is to deliver free cash flow equal to net income. I think it will be slightly below that in 2013 and that's because of finishing out these three projects that will require some restructuring that will impact cash flow. But I think beyond that everything else should be in line with what you would expect from improvement in working capital turns and a 1 times net income.

Understood. Are you willing to quantify, I know you had restructuring charges in '12 related to at least two of those major programs. Can you quantify that? Is that spillover basically into the first half of '13?

A lot of the restructuring especially in some of the latter phases of the manufacturing side as well as some of the back-office consolidation really occur in '13. So it's the incremental piece that's going to impact us. We have not quantified a dollar amount. There's a lot of things going on that we prefer not to. But clearly as we wrap up these projects there's going to be some incremental restructuring as we close some of these facilities.

But year over year that number is lower so there's less restructuring charges in '13?

No. There will be more restructuring charges in '13.

Okay.

There will. Because some of the areas that we're starting to finish up, some of the restructuring charges that began in '12 will bleed over into '13, and we also have some new restructuring charges related to some of these that will commence in the second and third quarter.

Okay. Understood. Just to be clear we're talking about cash flow, right? I'd also wonder if you'd qualify the P&L impact. I know you gave it was 80 basis point last quarter. What did that do to the P&L in the quarter and should we expect that same magnitude in the first half of '13?

Are you talking about the impact from these charges related to these programs?

Yes. You called out in the third quarter you called out 80 basis points of OP margin impact.

It was about 90 basis points in the fourth quarter.

Okay.

And I think we will see that continuing on into the first and second quarter. It will taper off a little bit in the third quarter as the manufacturing programs are completed. We'll still see the back-office consolidations spend continue really through the middle part of the fourth quarter.

Okay. Great. Thanks a lot.

Peter Lawson, Mizuho Securities.

Andy, I just wonder if you could give an outlook for gross margins of 2013 and what was pressuring margins in the quarter? Was it mix shift or --

It was primarily mix and some of the productivity investments we talked about. I think if you look at 2013 we don't normally give gross margin forecast, but I think we'll see some improvement in gross margins as these programs that we talked about are completed. And we'll see the benefit of those and then we won't see the spend associated with it as well, so we should see maybe a little bit of pressure on the gross margins in the first half, and some benefit in the second half, and overall I think it will be a net benefit.

What was the impact of mix on the gross margin? Any way of quantifying that?

I don't have it cut that finely, but it was a large piece of the 110 basis points.

Was there any pricing issues?

Not that I'm aware of. I think pricing for us was fairly steady. Okay. Thanks so much.

Zarak Khurshid, Wedbush Securities.

With respect to Verinata can you just describe how that agreement came to be? You mentioned some investments there. What exactly do those entail?

So we've been in discussions with Verinata for some period of time because being a strong player in prenatal, particularly in the biochemical screening and with the signatures erased and we talked about this in the past where we also are doing some things internally around some R&D projects in noninvasive prenatal, but we're also talking to some of the outsider providers as well. And in looking at at least our assessment of the technology was out there, we thought Verinata have the best technology and the best test, so like I said we've been in discussions with them for some time and consummated that with the announcement a couple weeks ago.

And the questions with regard to the investments, it's largely around just continuing to build out our channel in prenatal. I would say build out the channel and train our sales force. So we're making some investments with regard to that in the first half here.

Great. As a quick follow-up, could you elaborate a little bit on the Haoyuan molecular expansion plans for this year?

Sure. What Haoyuan has is think of that as D&A assays around infectious disease. It's very complementary to what we do today with Sym-Bio. Sym-Bio has immunoassays whereas Haoyuan provides the molecular tests. And today most of Haoyuan testing is done in blood banks, and so our plan is to take those assays, combine them with what we do in Sym-Bio and actually go into the hospital. And what that allows us to do is to tell the subtype with regard to the infectious disease. So it's a very complementary from a testing perspective and we think will be very complementary to our channel access within China again leveraging our Sym-Bio capabilities.

Okay, thanks

Derik De Bruin, Bank of America.

So just actually I wanted to keep on going with some of the questions that were just asked. Could you talk a little bit more about moving your sales channels channel for the newborn screening market and prenatal screening markets and that type? Could you just elaborate a little bit on what customers you're serving, how you're touching, basically how you intend to go to market with this new offering?

Is this with prenatal specifically?

I'm just in general discussion of your assets there, so specifically how you're going to take this new prenatal noninvasive test to customers.

Right. So I think you know, Derik, we call on the doctors today, the MFMs today because we do biochemical screening with NTD. And in many instances in our discussions with the doctors, particularly where it's a high risk expecting mother they've been asking us about an IPT. So I think this is going to be a relatively easy sale for our sales force to basically say to the extent that they want to do a biochemical screen, they go to NTD. To the extent they want to do and an IPT, we give them the verify test. To the extent they want to do a chromosomal analysis we get them in touch with signature genomics. So gain it gives us a terrific complementary offering where depending on what the doctor -- depending on the test that the doctor wants to use, we can offer again whether it is NTD or the verify test, and they'll get all the same billing from PerkinElmer.

Okay. And how many people do you have, how many sales people do have doing this?

On the prenatal side we've got about 50.

Okay. That hits all the US geographies and all the major area territories?

I would say all the major areas.

Okay. That's very helpful. And I know this agreement is for the US only, so can you discuss then do you intend to expand it to into more international markets, and similarly what's your channels in international markets look like?

I wouldn't say anything before we do the US. Another important point to make is in addition to the customer context and the channel, I think maybe even more importantly, is we have the contracts with the healthcare providers. And so I think we've mentioned in the press release that we have close to 170,000 covered lives under contract. So I think that's the other significant opportunity is I think we can accelerate the coverage of an IPT because of the relationships and the contracts we have with providers.

Okay.

So when you go outside the US -- outside the US on a prenatal side we have very extensive capabilities. We're probably the largest prenatal provider in China from the standpoint of a distribution perspective and very strong capability in Europe as well. And so the plan ultimately is to potentially extend some of the things we're doing in the US into global arena.

Okay. Great. Thanks very much.

Tycho Peterson, JPMorgan.

Maybe just one on the services business, can you talk to the OUS service priorities and opportunities, and in general for the service business can you talk about margins, how do you see the margin improvement potential there?

Outside the US we continue to see good growth there. Generally what happens is we start working with some pharmaceutical companies. It's generally in the US and then it gets extended into other sites that they have in Europe and in Asia, et cetera.

Also at the same time we've been building out our capabilities particularly in the PAC rim, so we're continuing to see good growth there, so I expect that to continue. The margin on service, if you're talking about traditional service, the margins there continue to be very strong. I would say above the corporate average. I would say for the multivendor business that's probably a little bit under the corporate average, particularly when we first enter into a contract. But when you look at service together again above the corporate average with regard to operating margins.

And then on the emerging markets for the infectious disease blood testing business, are there catalysts or milestones we should be thinking about? Obviously it's a large market opportunity, you highlighted you're one of several vendors there. How should we think about milestones to attract that business?

The way to think about it first of all is the Chinese government has mandated by 2015 that all blood screening be NAT tested. And so what is occurring between now and then is various tenders that are going on. And so as we think about the milestones between now and 2015 virtually all of the blood screening labs in China will have to adopt one of the five providers. And so I guess that's the way to think about it as these some are obviously larger than others, but it's really thinking about how the tenders -- how we do in the tenders as we get up to 2015.

Last one, can you comment on the med tech tax, how are you thinking about that, impact numbers and --

For us it's a relatively small impact. I think with regard to the product that that is imposed upon it's mostly the newborn screening in the US and so for us it's going to be less than $2 million for the year.

Okay. Thank you.

Dan Arias, UBS.

Maybe just a quick one on the signature genomics business. Can you update us there on a revenue run rate, and maybe the growth that you're seeing there? Seems like there's some favorable technology trends working for you, so it would just be great to try and gauge that.

I would say signature on the postnatal side, it continues to see some decent growth. I think the issue with signature has been historically and I think we've talked about this is we've come out with a new chip in the oncology area and just getting reimbursement from the providers has taken much longer than we had anticipated.

So I would say that on the signature side, wouldn't get into the specific details from a revenue growth and a revenue size, because try not to get into the sort of subsegments of all the businesses, but I would say in some areas we're pleased with the growth, in some of the areas we're a little disappointed like I said because of the uptake in the reimbursement.

Okay. But the constitutional side of things you would say is probably more favorable than not?

Yes. I would say the non-oncology side is probably doing better than the oncology side. That's how I would probably describe it.

Okay. And then you made an interesting comment earlier this month when you talked about the opportunity that you see in newborn screening in rest-of-world areas. If things improve and move beyond the single test, my question is do you see momentum for that happening in the way that you think that test numbers could begin to increase? How realizable is that bigger rest-of-world opportunity?

I would say we in fact have been seeing that. If you look over the last couple years we've gone from probably screening 70 or so countries and now we're doing in the low 90s. So we continue to see the adoption both in countries and even within those countries where they might do one or two expanding into more tests, that's clearly the case in China.

So I think the numbers you're referring to is if you look at the 130 million births across the globe generally, 122 million of those are outside US and Europe. So that's really we see a significant opportunity for us and just to calibrate things, if the rest of the world adopts screening at the level of one-third of what the US does, it becomes a $1 billion opportunity.

Okay. So you do think though -- if you just sort of moderate the expectations a little bit do you think that number could start creeping up closer to 50 from 45 or so in the near-term?

Yes. I think that's correct.

Okay. Thanks a lot.

Jonathan Groberg, Macquarie.

Rob, you talked on the growth and productivity investments this year, you talked a little bit on the productivity side and what you expect, but what about on the growth? Where do you expect the biggest impact in 2014 and what kind of impact could that be on the growth rate?

So if you look at some of the areas that I identified as investments in '13 it was really around emerging markets, particularly in the diagnostic area, so I think we would continue to see significant growth there. It was in the informatics area where I think we are still very bullish about that, and we feel good about that. And it was also in the prenatal channel. And I think by 2014 that could be a significant number for us, so rather than getting specific guidance for 2014, I think you could see an acceleration of our organic growth beyond traditional mid-single digits.

Okay. And then on the prenatal channel I know there were some questions -- just conceptually why did you partner for this test rather than just acquire some off of your own? Seems like the economics would be better to offer your own test, no?

Well, I think as we look at the landscape, obviously there's still some technology risk with regard to IP. And I think by entering into a collaboration with Verinata, as I mentioned before we think it's the best technology and we think they've got a terrific test, it does give us the opportunity to pursue other technology down the road. It's either something comes out as a better technology or again depending on what happens from an IP perspective. So I think it's maintained the flexibility from a test offering perspective but in the short-term here getting our customers probably the best product that's on the market.

And what kind of economics do you get when you sell a test and --

We're not getting into the specifics of the agreement. Basically they're confidential.

Okay. But nothing precludes you from if you wanted to offer your own test from doing that? There's some timeframe that you can't do that, or like you are wed to this test for a certain period of time, or there's nothing that precludes you from if you wanted to --

I think the way to think about it is in the short term I don't see us coming up with a competing test.

Okay. Fair enough. And then sorry, two quick ones on human health, I think you had about a month of Caliper and I think your revenues were up about $15 million sequentially, so what was the impact from Caliper and sorry, what was the impact from Caliper? And then also what was the asset impairment in human health? Seems like that was a fairly decent sized number. Thanks.

Caliper was about $10 million in the quarter. For this year. So it's a little less than $15 million. It had no impact on at all on our organic growth.

Okay.

And the impairment -- the way to think about that is we've had as you know a number of acquisitions over the last couple years. And for a long period of time we were maintaining the brands and the trademarks for that period of time, so Packard and [Ini], et cetera, we made a decision at the end of the year to clean that up. So that's required or resulted in the impairment charge with regard to some of the trademarks that were on the book. It's a non-cash charge, and basically going forward we're going to move toward the PerkinElmer brand.

Okay. Thanks a lot.

Jeff Elliott, Robert W Baird.

In your prepared remarks you mentioned seeing some BRIC moderation. I'm curious what's driving that and when do you think we can see that turnaround?

The biggest part of that is very difficult comparisons. I think for the most part, we didn't see anything structural or otherwise. I think we're going to see the same thing again in the first quarter. Just to give you some perspective we were up north of 30% in the fourth quarter last year so it's really just more comparison related.

Okay. Thank you.

Ladies and gentlemen, that concludes the time we have for questions. I'd now like to turn the call over to Mr. Friel for concluding remarks.

First of all, thank you for your questions and your continued interest in PerkinElmer. In closing as we enter 2013 I'm confident that PerkinElmer is well-positioned for another year during which we will continue to deliver strong shareholder returns and accelerate our growth through our focused approach on building our innovative capabilities and targeting high-growth markets. Again, thank you for your interest in PerkinElmer and have a great day.

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