Revvity Inc (RVTY) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2014 PerkinElmer earnings conference call. My name is Tony, and I will be your operator for today.

(Operator Instructions)

I would now like to turn the conference over to Mr. Tommy Thomas, Vice President of Investor Relations. Please proceed.

Thanks, Tony. Good afternoon, and welcome to the PerkinElmer second quarter 2014 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 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 through August 14, 2014. Before we begin, we need to remind everyone of the Safe Harbor statement 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. PerkinElmer once again achieved good performance in the second quarter. We increased adjusted earnings per share by 16%, expanded operating margins by 110 basis points, and generated strong cash flow. We grew organic revenue by 2%, which was lower than our expectations going into the quarter, largely due to several market headwinds we encountered, which resulted in an overall slower growth environment than we anticipated.

Specifically, our business in Asia was negatively impacted by timing related issues in China, and we experienced a weaker than expected global academic demand. In addition to the solid financial performance in the quarter, we continue to make progress on our key strategic priorities, including the introduction of a number of innovative new products, creating even greater customer value throughout our end markets. Before Andy covers our second-quarter financial results in more detail, I would like to highlight some of our recent accomplishments in expanding our core capabilities of detection, imaging and informatics.

In detection, we launched several new technologies, including the LabChip GX Touch, which enhances the genomics research process through nucleic acid quantification. And the GXII Touch, which provides better protein quantification to help accelerate biotherapeutic drug development. We also debuted the Insight multi-mode plate reader, the first of its kind to offer labeled and label-free detection, together with well imaging technology on a single benchtop system. Insight will enable researchers to generate more predictive results earlier in the drug discovery process.

During the second quarter, we also launched Elm, an evolution of our detection capabilities that leverages our expertise in environmental monitoring to help transform how air quality is understood. Elm is an innovative air monitoring service that provides local realtime air quality analysis for individuals, smart cities and sustainable communities, opening up adjacent markets outside the lab.

Turning to imaging, we were excited to announce our partnership with Sofie Biosciences to exclusively commercialize and sell benchtop PET/X Ray and three-dimensional CT imaging systems.

PET imaging is an essential pre-clinical research tool for understanding biology of disease, biological impact of drugs, and clinical translation. I would like to emphasize that clearly, it's not just the power of our discrete capabilities that differentiates PerkinElmer. Rather, as customer needs cross our markets and applications, and as our portfolio expands with even more breakthrough innovations, it is the intersection of our capabilities that will drive the greatest value. Our recent announced partnership with Australia's Monash Institute of Pharmaceutical Sciences is a prime example of how leveraging both our detection and imaging solutions can be the deciding factor behind a customer's success.

The Institute will establish Australia's first translational pharmaceutical science research lab, using PerkinElmer's AxION iQT mass spec instrument, our new Insight multi-mode plate reader, and the JANUS workstation, to support the development of new medicines and provide world-class training to pharmaceutical scientists.

Additionally, as we build up our informatics capabilities and bridge those across our entire product portfolio, we were actively carving out new possibilities to offer customers unique, value added solutions for a variety of applications. One of our latest informatics offerings, for example, is the high content profiler, powered by our Spotfire visualization software.

It provides automated high throughput and high content data analysis in a single platform that can be combined with our instruments for better phenotypic screening and biological research and drug discovery. So to recap the first half, despite a slightly lower growth environment than we had originally forecast, we feel good about where we are at this point in the year. We delivered nearly 4% organic growth, 160 basis points of margin expansion, and EPS growth of 22% during the first half of 2014. And we are on track to deliver on a robust list of new product launches.

As we look to the second half, we are assuming that conditions within our markets will mostly remain unchanged. And we remain confident in our ability to deliver our previous full-year commitment of mid-single-digit organic revenue growth, and adjusted EPS of $2.42 to $2.46, which represents growth of 15% to 17% over 2013. I would now like to turn the call over to Andy.

Thanks, Rob, and good afternoon, everyone. As I have done in the past, I'll provide some additional color on our end markets, a financial summary of our second-quarter results, and details around our third-quarter and full-year 2014 guidance. Then we'll open up the call for questions.

Reported revenues for the second quarter increased by 3%, while adjusted and organic revenues both increased by 2%, with essentially no top line impact from acquisitions or foreign exchange. Adjusted revenues were $557 million, as compared to $544 million in the second quarter of 2013. By segment, organic revenue in our human health business grew 1%, while organic revenue in our environmental health business grew 2%.

Looking at our geographic results, organic revenue increased mid single digits in the Americas, low single digits in Asia, and declined low single digits in Europe, due largely to the timing of academic funding and a difficult prior-year comparison. In China, organic revenue increased high single digits, despite the deferral of a number of tenders in the quarter, due to government funding delays resulting from state-mandated internal reorganizations.

From an end market perspective, our human health business represented approximately 55% of reported revenue in the quarter, with diagnostics representing 29% and research representing 26% of reported revenue. Organic revenue growth from our diagnostics business increased high single digits during the second quarter, driven primarily by strength in our newborn and prenatal screening and infectious disease testing solutions, which continue to be in strong demand throughout emerging markets. Birth rates continue to improve with the modest increase in the US and a rebound in China.

Once again, we saw solid performance from our Sym-Bio business, a leader in infectious disease testing in China, as organic revenues grew mid-teens. And Haoyuan, our Chinese blood screening offering, continued to garner a large share of new tenders in the quarter, and the business is now well-positioned for the start of mandatory nucleic acid screening in 2015.

Medical imaging revenues grew organically high single digits in the period, driven by growth in industrial applications, as well as strong demand for our new wireless cassette detector used in diagnostic imaging and veterinary applications. We continue to expect solid growth for the balance of the year, as a result of emerging market investments in healthcare infrastructure and the increasing demand for our advanced medical diagnostics x-ray capabilities.

Our research business declined mid-single digits in the second quarter, driven primarily by softness in academic end markets. We believe the slower release of funding in the first half of the year, plus lighter capital spending in Europe, will start to improve in the second half. Moreover, global pharma and biotech customers are progressively targeting their spend on large molecules and clinical analytics, increasing demand for in-vivo imaging, as well as informatics capabilities for predictive modeling.

Moving to our environmental health business, which represented 45% of reported revenue in the second quarter, we serve three end markets: laboratory services, which represented 20% of reported revenue; environmental, which represented 17% of reported revenue; and industrial, which represented 8% of reported revenue. As I mentioned earlier, organic revenue in our environmental health business grew 2% in the quarter, driven by continued growth in our service offerings, which grew mid single digit organically.

Organic revenue from industrial and environmental end markets was down modestly in the quarter, but is expected to improve as China demand strengthens and as our new product launches gain traction. In addition, we continue to see significant opportunities for our inorganic offerings, as longer-term regulatory changes such as USP 232 for trace metal analysis and prescription drugs are broadly implemented.

On the new product front, the AxION iQT mass spec began shipping in the latter part of the second quarter, and demand for this innovative new mass spec continues to build. Customer feedback has been very bullish. We will continue to focus on the commercial ramp of this product in the back half of 2014. Demand also remains strong for our OneSource offerings, as customers increasingly seek the right partner to help improve productivity in their lab.

Turning to our margin performance in the period, adjusted gross margins in the second quarter were 46.8%. We expect moderate improvement for the balance of the year, as new products gain more traction in the second half. Adjusted operating margins in the second quarter were 16.8%, as compared to 15.7% for the same period a year ago. We continue to experience strong adjusted margin leverage in SG&A and R&D from prior-year restructuring efforts.

As a reminder from last quarter's call, our R&D spend is still expected to ramp higher, albeit more modestly, in the back half of 2014, as we continue to efficiently add resources into our center of excellence in Hopkinton.

By segment, adjusted operating margin in our human health business increased approximately 150 basis points to 23%, as compared to 21.5% in the second quarter of 2013. The increase was primarily the result of sales mix, prior-year productivity initiatives, and restructuring activities.

In our environmental health business, adjusted operating margins expanded approximately 70 basis points to 13.2%, as compared to 12.5% in the second quarter of last year. The increase was primarily the result of savings from prior-year restructuring activities, and improved operating expense controls.

On a non-GAAP basis, our adjusted tax rate for the quarter was approximately 21%, and in line with our previous guidance. Adjusted earnings per share was $0.59 in the second quarter of 2014, at the high end of our guidance range, as a result of strong margin realization on incremental revenues.

Turning to the balance sheet, we finished the second quarter with approximately $895 million of debt and approximately $205 million of cash. We exited the quarter with a debt to adjusted EBITDA ratio of 2.1 times, and a net debt to adjusted EBITDA ratio of 1.7 times. During the quarter, we repurchased 750,000 shares of the Company's stock for approximately $35 million.

Looking at our cash flow performance, operating cash flow from continuing operations was $54 million in the second quarter and $123 million for the first half of 2014. I'm pleased to note that during the quarter, Moody's upgraded our debt rating to a Baa3 stable, and we're now investment grade across all three agencies.

Looking back at the first half of 2014 results, we are pleased with our organic revenue growth in a lower growth environment, strong adjusted earnings per share of 22%, adjusted operating margin expansion of 160 basis points, and very strong cash flow from operations. Operationally, it was a solid first half, and we continue to feel confident in our ability to deliver on our full-year commitments.

Looking to the third quarter of 2014, adjusted revenues are expected to be in the range of $545 million to $555 million. Given our strong first half adjusted operating margin expansion performance, we remain confident in our ability to deliver at least 130 basis points of adjusted operating margin expansion for the year.

Our share count and tax rate are expected to be consistent with the results in the second quarter, and cash flow is expected to remain robust in the second half, as we continue to better leverage our working capital.

In summary, adjusted earnings per share for the third quarter of this year are expected to be in the range of $0.55 to $0.57. For the full year 2014, we continue to expect our adjusted revenues to grow in a mid-single-digit range, and we are reiterating our adjusted earnings per share guidance of $2.42 to $2.46.

This concludes my prepared remarks. Operator, at this time, we'd like to open up the call for questions.

(Operator Instructions) Ross Muken, ISI Group.

This is Vijay in for Ross. Thanks for taking my question. Maybe I'll start off with, on the guidance part [ending up]. So [sort of up], if you do the math on what the implied number for fourth quarter is, based off your 3Q revenue guidance, it implies in a high-single-digit organic in [fourth quarter]. Can you walk us through what gives you the confidence in -- on that back half ramp?

You're talking about on the top line?

Yes.

Actually, on the top line, the way we've modeled the second half is essentially mid single digit.

Okay. Great. And maybe one follow-up on your comments, on the Chinese blood screening market, pretty interesting. Can you help us in trying to size that market? What's the market opportunity? Who do you compete against? And how do you feel about share positioning from a pricing and a market share perspective?

This is Rob. We would say, right now, it is probably about a $50 million market for molecular nucleic acid testing in China. We think probably over the next couple of years, that it probably more than doubles, with a significant pickup or improvement here in 2015.

Relative to competitors, I would say right now, relative to our market share, we think we're probably number two. And we continue to win a number of tenders. I think the one disappointment has been, is I think some of the funding has been delayed, consistent with what I think we're seeing in some of the other areas in China. But we do feel good about the opportunity to expand revenue fairly significantly in 2015.

Thank you. I'll step back in the queue.

Paul Knight, Janney Capital Markets.

This is actually Bryan Kipp on behalf of Paul. I just want to start off on the top line, I think, just going back to the first questions, in line with those. So in context to your commentary, I'm thinking about the European market, specifically, to start. What are you guys seeing there? And do you -- to get to that mid single digit, what are you -- are you expecting a continuation of how it played out in the first quarter, you think -- or second quarter, you think it's going to accelerate from here?

I would say it was -- as we think about Europe, in Q2, it was down 2%. I think for the back half of the year, we think we can get that to flat or maybe slightly positive. And I think generally, when you look at the back half, what we believe will happen, as I mentioned in my comments, not a significant improvement from a market perspective, but really what you're going to see is the impact of the new products start to really drive more positive growth, in both the geographies and the application of the markets.

The other thing I would say is, clearly in Q2, we were impacted, and we saw some slowing, in China, particularly with government tenders. And the area that we saw it fairly significantly impact for us was in the food safety area. As you may know, there's been consolidation of testing labs in China, the CDC, the CIQ and the QTSD was initially supposed to be consolidated in the SFDA. That didn't go particularly well. So it has now been consolidated into a new organization called the Market Supervisory Bureau. I think as a result of those changes, from a government perspective, tenders has been delayed.

We do believe, and we do assume in our forecast, that you see that come back, probably in the latter part of Q3, and clearly in Q4. So we do think we see some release of those tenders in the back half of the year, so China returns to a more normal demand pattern. Because if you look in both environmental and the research area, our China business was relatively flat. And so we expect that to go back into high single, low double digit growth area. The diagnostic business was not really impacted by that, and we continue to see strong growth there. So I would say that's one contributor to the back-end growth.

But probably more importantly, it's the new products getting traction. In Europe, it probably goes from minus 2 to low single digits. In the Americas, which has been growing about 4%, we think that probably stays about the same in the back half. And the big change will be, Asia was low single digits in the second quarter. And we expect that to migrate more to the mid to high single digits in the back half, which is even down from what we've seen historically.

Appreciate it. I guess a follow-up to that is the size of the tender deferral -- deferred tender in China, can you put some additional context behind that, maybe number-wise? And --

Yes. I would say -- go ahead.

I was just going to say, in the split on the core business for PerkinElmer relative to the new products, what your thought is on the back half growth? Whether it's a 50/50 split, or some color there, as well, would be helpful.

Okay, great. So with regard to the impact of the tender, I would say that if you look at how our environmental business in China -- you can break it up into four end markets. You have the industrial, you have the air and water and soil, you have the food, and you have the pharma business. The food business, if you go back to Q2 2013, was 35%, 40% part of our business. And that's the one that, for us, has been significantly impacted. The environmental, the air and water, and the pharmaceutical industrial was less impacted, but we saw a fairly dramatic slowdown in that business, again because of the tender delay.

I would say another impact on that business was that, if you go back to Q2 2013, and clearly there were some tough comps, because of the food scares that occurred in the first half of 2013, that was clearly factored into our guidance. But I don't think the tender delay, or at least the severity of the tender delays, was impacted as much as we experienced.

With regard to the NP -- the new product impact in the second half, we're saying that's probably going to be about a 150 basis point improvement in growth, just to calibrate. So across all the businesses.

Appreciate it. Thanks again.

Greg Schenkel, Cowen and Company.

This is actually Chris on for Doug today. Thanks for taking my question. So I just wanted to quickly talk about China again. When did you start experiencing the China funding delays, given that last quarter you know that it wasn't a big impact? So this was -- this seemed a little bit surprising.

Yes, I would say it was clearly as we got into the second quarter, because we saw a good pipeline of orders. But what was happening was, they kept continuing to be pushed out. And initially, it was -- it will be pushed, but we'll be able to do it within the quarter. But as we got to probably the middle of the quarter, we did see that it was just going to get to the point where that was going to be -- we were unable to do that.

Consequently, we did try and control a little bit of our costs. And that's why you're seeing strong margin improvement in the quarter, and we were able to still show good margin expansion and hit the top line of our guidance from an EPS perspective.

Okay. And then just on the global academic demand weakness, so we haven't really heard this from many of your peers. Can you talk about the specific geographies that were impacted? I know you called out Europe, but also called out global. So I guess, why was there seemingly a delta with your peers?

Yes, I guess I might take a little exception on that one. I think we have heard so many other peers talk about academic weakness, and clearly not academic strength, because we've seen it pretty much across the board. For example, if you look at NIH right now, the success of grants right now is at an all-time low. It's at about 16%, which is running about 50% below the historical trend.

If you go to China, clearly, China's slowing down funding in the research area. Now, we think that's going to start picking up a little bit here. And we have not seen much release in Europe from the Horizon 2020. So we think it's pretty pervasive across the entire globe. And I guess from my read of some of the transcripts, I think there was a number of competitors that pointed that out.

Okay. Great. Thank you so much.

Isaac Ro, Goldman Sachs.

Just wondering if you could talk a little bit about what contribution from new products is baked into your guidance for the second half? I just went through some of the recent transcripts and presentations, and was trying to track down exactly what was in the pipe here. I think you've identified a couple of them, but it sounded like there was also some other, maybe, or perhaps unannounced products in the back half? So I just want to confirm that there's more products on the way, and just wondering how much you think they'll contribute.

We believe right now, from a growth perspective, it adds, let's say, at least 150 basis points. So if you think about a little more than $1 billion in the back half, sort of $1.2 billion, that's approaching $17 million, $18 million. Maybe we'll do better than that, but I at least that's what's built into our forecast.

I would say, if you go through the new products, and I'll try to [hit them] relatively quickly, I mentioned on the imaging side, the Opera Phoenix is -- will be shipping this quarter. The Insight multi-mode plate reader, that's shipping already. The LabChip Touch, that's shipping already. We talked about the Hybrid Torch, which is in our environmental area. And we've got a number of collaborations that we've announced.

Sofie bioscience brings our -- brings us PET imaging. And then also, in the informatics area, we announced a new collaboration internally with our high content screening business, that we think will be -- where we will get some nice traction in the market. And like I said, that's already been introduced. So just to give you a sense of some of the stuff that will be impacting the back half.

Okay. That's helpful. Thanks. And then maybe just on the SG&A side. I think the other question about the expense leverage you got there, it sounded like you were saying that wasn't really sustainable because it's obviously somewhat of a reaction, just sort of the weaker operating environments.

So I'm wondering if you can give us a sense of what's reasonable on the operating leverage, given the back half growth you're looking for. Just want to make sure that we understand the nature of what kind of operating leverage is fundamentally available versus what's short term?

So I think if you look at the second quarter, the operating -- or the incremental flow through was close to 50%. I think historically, we've talked about 35%. And depending on mix, maybe it could be a little bit better than that. We do feel like the new products will be better from a gross margin perspective.

Clearly, when you look at the back half, while we still expect to have, let's say, North of 100 basis point operating margin expansion, in our forecast, we anticipate taking R&D up, and start to fill those jobs, as we talked about previously. So I think in our forecast, we're assuming that will take our operating expenses up, but obviously do it in a prudent manner that still allows us to have good flow through, and probably North of 100 basis point margin expansion.

Got it. Thank you.

Brandon Couillard, Jefferies.

Rob, on the research business, can you peel back the onion a little bit for us? And give us some more color, in terms of the modest decline there between the product categories or customer end markets?

Yes. So I would say first of all, on the academic side, that was down fairly significant for us, as I alluded to before. We really saw, across the board, a pullback. And then combined with this tender issue that clearly impacted the -- our research business as well, that was down low double digits. Pharma was flat, and then what we saw on the informatics side was good growth in the analytics. So the Spotfire and the visualization offerings we have there.

In the ELN area, we saw some softness there. And clearly what's happening is, our customers are moving from client server based applications to both web and cloud-based. We mentioned last quarter that we introduced our elements offering into the academic market, and it will probably take us another quarter or two to get that out into the pharmaceutical industry. So we've got an issue right now where we're seeing an acceleration in the move away from client server, and it will probably take us a couple quarters to catch up to that.

And so that's having some impact on our research market, as well. But fundamentally, difficult headwinds on the academic side, pharma flattish, and informatics a tale of two cities, with analytics doing well and ELN facing some headwinds.

Thanks. And then Andy, gross margins down about 40 bps in the first half of the year. It sounds like you're looking for a nice improvement in the second half. Can you quantify the effects of mix and currency in the second quarter? And then, what you're discounting for the second half of the year?

Yes, we did have -- it was probably equally split between mix, which is primarily a shift to service, and the rest was FX. And that was primarily the move in the pound and the euro, on our cost base. So those combined were about half the miss.

I think we assume, going forward, that we should see some sequential improvement in the third quarter, and some year-over-year improvement in the half, albeit modest probably because of that mix in service. But we think it's going to pick up a bit, because of the new products that should add some growth to the gross margin line on a year-over-year basis.

Okay. Thanks.

Dan Arias, Citi.

Rob or Andy, the instrument business looks like it comes up against some favorable comps next quarter. I think you guys are looking at down mid singles, if I remember correctly. So I guess with that as a backdrop, and given what you're seeing out there, should we look for instruments to be up above the corporate average in 3Q? Or are some of the things you're seeing out there going to have it more in linage with (multiple speakers) --

Our forecast is for the corporate average to be mid single, and so my expectation is, the environmental business will be there, as well. And so it will be, hopefully, a combination of service and instruments. I would say right now, service may be a tad higher and instruments may be a tad lower. But we are expecting a nice rebound in the instrument business and the environmental area, which will be partly easier comps, but also, again, some of the traction from the new products.

Okay. Maybe just a high-level question on China, following the growth questions. Given the business mix that you have there, what do you think the revenue split might be, say, a year from now, just in terms of diagnostics versus core instruments consumables? Just trying to understand the pacing of the business mix.

Based on Q2, the diagnostics grew significantly better. I don't know that that's a normal quarter for us. But if you continued on that trend, within a couple quarters, I don't know within a year, but our diagnostics business could be probably close to the size of our environmental business. But I don't think that's the right trend.

Because I do think our expectation is, environmental comes back and gets to a high-single, low-double-digit growth in the back half, and continuing into 2015. Diagnostics probably continues to grow high teens, maybe low 20%. So clearly, there's going to be a bias towards the diagnostic revenue.

But I think if you go a year out, I think the environmental business will still be greater than 50%. But the diagnostics, I think, continues to have very attractive macro trends, both on the infectious disease side, with obviously the ramp-up in the blood screening. And then of course, we continue to see strong growth in both the newborn and prenatal side.

Okay. That's really helpful. Thanks.

Jon Groberg, Macquarie.

Rob, so maybe just digging in a little bit more, and maybe I didn't hear quite correctly. But in human health, I think overall, you grew about 2% organically. And I think you were saying high single digits in diagnostics and imaging, and then the mid-single-digit decline in academics? Just wanted to --

Yes, mid-single-digit decline in research and high-single-digit growth in diagnostics and medical imaging. That's correct.

Okay.

But to your point, the research decline was driven by the weakness in the academic markets.

Right. I guess it seems like, from the mix of your business, isn't your diagnostic business larger than your research business?

No, actually they're pretty comparable in size.

Okay. Maybe I misheard Andy in terms of mix -- the split of the business. And then specifically on the tenders in China, can you maybe quantify a little bit more, in terms of the impact of that just in the quarter? And any numbers you can put around those?

As I mentioned, it was largely felt in the area of our food safety business. And as I mentioned, if you go back to Q2 2013, that represented some 35% or 40% of our business. That was down year over year over 20%. Now, some of that we knew because of the spike we had last year. But clearly, a lot of that was the delay in tenders. So call it 35% of our environmental business was impacted by the delay in tenders.

And given what's going on in China, still, it seems like a little bit of a mixed bag from listening to everybody. You're expecting that to go from, you grew high single digits this quarter, to going back to growing high double in the second half of the year? Is that correct?

Yes, I would say high teens is what we've experienced. And of course, a big driver to that is diagnostics. Diagnostics continued to do very well in the second quarter; they grew north of 20%. So our expectation is diagnostic continues on as it has been. And that what we'll see is, we'll see both the environmental and the research business return to mid- to single-digit growth. If that occurs, then the overall China business will get more into the mid to high teens.

Okay. And then sorry, lastly, on the -- your leverage levels are back down, you bought a little bit more stock this quarter. But I guess, what are you thinking from an M&A perspective over the next 12 months or so?

I think we're really looking at capital deployment similar to the way we've looked at it in the past. I think our first preference would be acquisitions. I think we -- right now, we've talked about our leverage. We probably, to get to the mid-twos, have $300 million to $400 million of powder. And I think our first priority would be to bring in some acquisitions. Absent that, I think we would look at buybacks. And the third is the dividend, and we continue to review that each quarter. But I think that would probably be the order I would prioritize them.

Okay. Thanks.

Zarak Khurshid, Wedbush Securities.

You mentioned prenatal earlier on the call as a source of strength. Were you referring to NIPT or serum screening? And generally, could you tell us what's going on with the Verinata relationship? We saw that they inked a deal with Progenity. What does that mean for you guys in the marketplace?

So first of all, when I was referring to the prenatal strength, it was -- for us, it was really outside the US. And while we saw strength in Europe, we also saw good strength in the emerging markets, mostly China. So our strength is really coming outside the US, from a prenatal perspective.

I think with the Verinata relationship, I think it's similar to what we've said in the past where we are seeing good uptake of the test, but the reimbursement, or more specifically, getting paid cash, continues to move in the right direction, but it's slow. And so I would say for us, NIPT continues to be somewhat immaterial from a revenue perspective. And our expectation is that probably continues through the majority of the remainder of the year.

Got it. Thanks for that, Rob. And then maybe another one on women's health. How are things going with the Good Start collaboration?

So we're now distributing that, and I would say it's early days. But I would say the thing that excites me about that is, it allows us to really have a complete offering in the whole area of prenatal health.

So obviously, with our NTD biochemical screen, with the NIPT we referenced before, and now bringing in the carrier screening from Good Start, we really, as we have our discussions with our doctors, and fits really well with our channel. It gives us that holistic offering. And so I think that's really important for us. Early days, and we'll just see how it does in the latter part of the year. But like I said, we're -- it's in our channel, and we're starting to sell it.

Sounds good. One last one for me. Just on the Sym-Bio business, sounds like the strength -- there is continued strength there. Could you just talk about, what do you think the potential opportunity, or the total opportunity there is? And what inning do you think we're in today for that business? Thanks a lot, guys.

So I think we're early days. I think there's a significant opportunity, when you look at -- first of all, the growth of the middle class in China, over the next couple years, is going to put tremendous pressure on the healthcare system within China. And so our ability to provide, at a very good cost, and in a very good quality, infectious disease testing. And adding onto that, the ability to do blood screening, we think this is a business which today, call it, $50 million over the next couple years, could be well north of $150 million, $200 million.

Wow. Thanks.

Derik de Bruin, Bank of America-Merrill Lynch.

I hate to keep beating on this. But just on the confidence in the back half ramp, can you give us some sort of backlog number to just give a sense of what you've already -- feel confident that you've booked for the back half?

I would say, with backlog, we haven't given historically, not that we couldn't give it. It's just, it hasn't been as meaningful number, because a good portion of our business is really book and ship. So I guess what I would say is, if you look at orders through the month of July, we're up high single digits.

All right.

So I think that gives us the confidence that we do expect to see a pretty good ramp here in both Q3, and hopefully into Q4. I would say that fact -- and I would say the other thing is, we are seeing good receptivity to almost all the new products that are out there. So I think the combination of that, combined with what we saw was pretty good order strength during the month of July, gives us the confidence to reiterate the guidance for the year. And talk about getting back to mid-single-digit top line growth for Q3 and Q4.

Okay. That's helpful. On the imaging business, I'm talking about the in-vivo imaging. I know there's starting to be some more competitors in that market. And I know there's some patents that are rolling off from some of the Caliper products. Can you talk about how that in-vivo market is -- your expectations for that going forward? And how that is?

And I guess this leads into a question about, if you -- we haven't heard about some of the other aspects of the old Caliper business, in terms of some of the automation platforms (inaudible). So I think, what's going on with that business in the various segments would be helpful.

Yes, so I would say first of all, the expectation for the in-vivo imaging businesses continues to be high single digits. In fact, if you look at the US, it had very nice growth in the US, but had some significant headwinds outside. Again, we think that's unique to Q2 and, as I mentioned, some of the research headwinds are academic headwinds that we face. But I think we continue to feel good about high-single-digit growth. I think the opportunity is to take this business, and particularly some of the other imaging capabilities that we got from Caliper, and move them into some adjacent markets.

And the one that we're fairly excited about is, we think some of the competencies from Caliper, combined with some of the things we historically had at PerkinElmer, can give us a nice offering into the quantitative pathology market. And so I think when we look at the opportunities to broaden out the applicability of our imaging capabilities, we feel very good about single -- high-single-digit growth, and maybe even getting into the low double digits.

Great. Andy, could you just go over the gross margin again for the quarter? I know last quarter it was down about 100 bps because of the FX headwinds impacts. So what -- is it -- was it sort of like just the lower volumes that was the impact on the gross margin this quarter?

There were really two pieces. And the lower volume, obviously, has some impact. But it was primarily FX. And as I mentioned, it was the euro and the pound. And the other piece was the mix within the portfolio, with a higher percentage of service than the instruments, versus prior year. And as I also indicated, we think that will improve in the second half, just given new product introductions, and given some strength we think we see in the order rates on instruments as we go into the third quarter.

Okay. That's it for me. Thanks.

Bill Quirk, Piper Jaffray.

This is Alex Nowak on for Bill. I was hoping we could get an update on how the China newborn screening rollout is going?

I think we continue to see nice growth in China on our newborn. With regard to the rollout, are you talking about our collaboration with the Western provinces? And I would say that continues to go well. It's on track.

And while, as I think we've mentioned in the past, that probably doesn't have a dramatic financial impact in 2014, it really seeds the market for continued growth, as we get into 2015 and later years. But it continues to go well. And as I said, we continue to see very good growth and traction within the newborn business. I would say emerging markets broadly, but specifically in China.

Okay. Great. And then staying on newborn, there was a Wall Street Journal article this morning on the impact of stem cells for treating SCIDS. And how the -- and how more states might be pressured into including their test in the newborn screening requirements. What are your thoughts on this? And what have been the conversations with states that are not currently offering the test?

So one of the challenges with SCIDS has been, there's -- we do not -- we have not received FDA approval yet for our test. It is in with the FDA. And as I'm sure everyone on the phone knows, that's a little bit hard to predict. And so our response has been, because obviously this is a critical need from a healthcare perspective, is when we've been sending out what we call labs in a lab.

And so in a number of the states we actually go in, PerkinElmer employees, and do the testing within the labs. And we've had good success there, but it has limited the ability for the states to do SCIDS testing. So one of the hopes is that, as more and more of these articles come out, maybe it has some impact on accelerating the approval of our FDA kit -- or our kit for SCIDS.

But again, the way we're trying to deal with this is to put our people in the labs to continue to permit or allow the testing of this incredibly debilitating disease that there's a cure for, as you pointed out. And we want to be able to have as many children as possible have the opportunity to be tested for it.

All right. Great. Thanks.

Tycho Peterson, JPMorgan.

Just a couple follow-ups to questions that were asked earlier. Derik's question about imaging got me thinking a little bit about the medical imaging business. Is there a chance you could see some acceleration there? It's been a tough business for a while. But with the work you're doing in PET and CT, do you potentially expect that to pick up a bit?

Yes. I think there is a possibility, as I mentioned before is, we continue to look at adjacencies of where we can take our competencies and our capabilities. So I wouldn't be surprised to see improved growth in those areas.

And then on China, you've had a ton of questions on it. But are you baking anything in for [teasing] net tender, in terms of stocking ahead of mandated testing in 2015?

No, not significantly. I think I said, the one area that's been a little disappointing there is, the funding for that has been somewhat delayed by the Chinese government. And so maybe there'll be the sort of big ramp up in the last five or six months, but we're not baking that into our forecast.

And then how big an opportunity do you think that could be in 2015 for you guys, though? Once they do migrate to net?

It probably goes, in 2015, it is probably a $10 million to $15 million opportunity for us. Today, it is low single millions, so it's --

And then I know you had a question earlier on M&A. And just thinking a little bit about the landscape, can you maybe talk about your appetite for larger deals? You're largely focused on bolt-ons, but how do you think potentially doing (multiple speakers)?

Yes, I think we continue to focus on those deals. I think that they reduce the level of disruption to the business. And so I think our focus, to a large extent, has been on, I would say, smaller-ish deals. As I think I've mentioned in the past, I would like the average size of our deal to go up. I think if you look over the last couple years, our deals have been sub-100, from a value perspective. I'd like to get them up a little bit more meaningful, from a revenue and an OP impact perspective. But I still think that's going to be the major focus of our efforts.

So what's the maximum leverage you think you'd be willing to take on?

I don't know that I've ever want to set a maximum. If you look at the Caliper deal, that put us in the mid-threes. And so we went to that, because we felt pretty confident that we could get back to the mid-twos in a relatively short period of time, which we were able to do. So I don't know, Andy, if there's a different view, but --

Our comfort is in the mid-twos. We would lever up, if we saw an ability to bring that down quickly. But I would say it would be event-specific.

Understood. Okay. Thanks.

Jeff Elliott, Robert W. Baird.

Most of mine have been asked already, but -- so I'll just ask one here on the Elm product. Can you talk about your ability to monetize that product and perhaps expand that into other adjacent markets?

I think those are the things -- we're in discussion right now with some of the cities and some of the other communities. And as I think, when you talked about when we launched it, this is an exciting product. It's got some very interesting capabilities and technologies. And from a financial perspective, while we don't think there's going to be a significant impact in 2014, I think as we get into 2015, we hope to see some revenue. As we have better perspective on whether this is a subscription model, whether we're selling data, so on and so forth. So I think that's still to be worked out. And it may vary a little bit by the individual customer.

Got it. And then, can we just get an update on pricing, what you're seeing across the portfolio?

I would say it varies a little bit by business. But I think for, if you look at the Company in total, it's probably been relatively flat relative to the impact on gross margins.

Okay. Thank you.

Eric Criscuolo, Mizuho.

Filling in for Peter tonight. Just on the -- looks like there was about a $15 million delta between your results and your 2Q guidance for the top line. And I know you said that there was the -- basically, the China timing issue and the academic weakness. Could you maybe quantify or put a percentage on which -- how much came from each basket of the miss?

Yes. So I would say first of all, as we reconciled to, let's say, the midpoint of the guidance, there's a couple million dollars that were associated with Signature that we had to discontinue, not that that was a big number, but just to help reconcile. And then as we think about it, we think there's probably about a $7 million to $8 million impact from China. And probably about a $4 million to $5 million impact from the research slowdown, attributable to the academic. So that's how we would quantify the impact of the two items that I talked about.

Great. That's really helpful. Thank you. And on the academic environment, could you just tease out by geography, North America, Europe, Asia, how those three segments did this quarter?

The three geographic segments by academic?

Yes, just academia.

I would say, clearly, Europe was down fairly significantly. And again, one of the things, when you look at these numbers, is it's also taking into consideration comps year over year. And so Europe, and the research or the academic market, was very strong in Q2. That was driven by some in-vivo imaging placement. So it's a little bit distorted, when you start to go down by segment, by region, because of the comps. But what you see is, US was positive. Europe was down significantly. And APAC was down, largely driven by softness in China.

Got you. And then just lastly, as you went through the quarter, did you start to see signs that the academic trends were improving in those geographies?

I would say that we -- as we went through the quarter, not as much. But as we are now into the third quarter, we are starting to see some improvement in the trends. And I think that's all factored into the 8% growth in orders that we saw through July.

Great. Thank you very much.

Steve Willoughby, Cleveland Research.

The first one's just a follow-up to the last question. As it relates to the improved orders you've seen so far here in the third quarter, I was just wondering what's driving the improvement versus what you saw in the second quarter. It sounds like maybe academia's getting a little bit better. Have you seen any of the orders in China come through yet? If you could just maybe talk about that (multiple speakers).

I would say it's three things. I think we are seeing a little bit of improvement in China, we're seeing some improvement on the research side, and we're seeing the new products. And I think the combination of those three, which is really, I think, the basis for, call it, just under 4% in the first half, to something in the 5% to 6% in the back half.

Okay. Got you. And then just secondly, SG&A, I understand, obviously, the quarter is a little bit slower from the top line. You pulled back a little bit, it sounds like, on operating expenses. As we think about SG&A in dollars in the back half of the year, I would suspect it will probably be up a bit from what you spent -- the $137 million or so you spent this quarter. But how much of a step up are you expecting in the back half of the year, in regards to SG&A?

It will step up for -- in total SG&A, for really a key reason is, in the second half, we're going to be lapping -- first, we have some additional spend because we're -- in R&D. But if you just look at SG&A by itself, we had some restructuring that took place in the second quarter last year. And we'll be lapping that in the second half of this year. And so there will be some headwinds there. So it will be an increase in the percentage, but it won't be a dramatic increase in dollars.

Okay. And then just the final thing is, can you just go through what your thinking is on share repurchases? It was about $35 million this quarter. The couple quarters before that, you hadn't been buying any. So just how do you think about the timing of your share repurchases?

I think what we said at the beginning of this year, and I think where it is consistent is, at a minimum, we said we wanted to keep our share count flat for the year. And I think that still holds true. I think, as we look at the opportunities on the M&A side, I think that will then help us decide what we want to do on the buyback side.

But again, as I mentioned before, I think our first priority is to bring in some acquisitions that can add some profit. And the second would be the share buyback. So -- but we'll be looking at that constantly, as we go through the second half of this year.

Okay. Thanks so much.

Paul Knight, Janney Capital Markets.

Just a quick follow-up. On the Hopkinton facility, I know you guys talked about the step-up in costs. I think you alluded to, in the past, $2.5 million in incremental costs associated with new hires. How far along are we in that? And did you step back in 2Q and expect to ramp in 3Q and 4Q?

Well, there's a couple of factors, Paul. This is Andy. One is, I think the savings we're getting from some of the overhead is a little better than we thought. And we're -- the number of people we're hiring is a little less than we thought. I think we've done a nice job of efficiently building out Hopkinton.

But I think what you'll see is, from the second quarter to the third quarter, it will step up a little over $1 million. And then another million dollars on top of that in the fourth quarter. So the second half is going to be north of $4 million higher than the first half.

Appreciate it.

And then I'm sorry, it's Bryan, not Paul.

Yes, that's all right. Thank you.

There are no further questions in the queue. I would now like to turn the conference back over for closing remarks.

Great. First of all, thank you for your questions. And just in closing, we want to reiterate that we feel very good about our progress to date, and believe we have good traction towards accelerating our growth while creating differentiated value for our shareholders, customers and employees. Thank you for your continued interest in PerkinElmer, and have a great evening.

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