賽默飛世爾科技 (TMO) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first-quarter 2007 Invitrogen Corporation earnings conference call.

My name is [Chantale] and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over two Ms.

Amanda Clardy, Vice President of Investor Relations and Corporate Communications.

Please proceed ma'am.

Thank you Chantale and good afternoon everyone.

Welcome to Invitrogen's first quarter 2007 earnings conference call.

Joining me on the call today are Greg Lucier, our Chairman and CEO; David Hoffmeister, our Chief Financial Officer and Karen Gibson, our Chief Information Officer.

If you haven't received a copy of today's press release, you may get one from our web site at Invitrogen.com.

Before we begin, I want to remind our listeners that our discussion today will include forward-looking statements including but not limited to statements about future expectations, plans and prospects for the Company.

We believe that these statements are based on reasonable assumptions, that actual results may differ materially from those indicated.

It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995.

Additionally, we will be discussing GAAP and non-GAAP measures.

A full reconciliation of the non-GAAP measures to GAAP can be found in today's press release or on our web site.

On today's call, we will begin with prepared remarks and then open the lines up for questions as time permits.

We will also be referencing a presentation that can be viewed via the web site.

Instructions are on our web site.

And additionally, we'll be posting the presentation following the conference call.

I will now hand the call over to Greg.

Thank you, Amanda.

I'm pleased to report strong first quarter results which is our second consecutive quarter of financial improvement.

We grew revenue 10% to $309 million and non-GAAP earnings per share by 33% to $1.14.

In a moment, we will go into more detail on how these results were achieved.

The plans we had in place for driving revenue growth, minimizing costs and managing cash all delivered the desired results.

Let me just say upfront that obviously this is not always the case in our business and we don't count on this happening every quarter but we are extremely pleased to be starting off 2007 in this position.

In summary, of the first 100 days of 2007, we have achieved quite a bit.

Let me just take you through some of the accomplishments.

First, we enhanced our margins, both gross and operating.

We achieved solid organic growth in both divisions in all regions.

We completed the divestiture by BioReliance and BioSource Europe which had a positive impact to the Company's financial profiles, increased our cash and better aligned management's time to those businesses driving profitable growth.

This is a good example of how we can add value by deciding what businesses we should keep and which ones we should divest.

We also went live with our ERP implementation in North America, which Karen Gibson, our CIO, will tell you has gone well so far.

We returned $100 million of cash to our shareholders via our buyback with purchases of 1.5 million shares, and we made a small tuck-in acquisition of Cascade Biologics.

Cascade Biologics provides us with an additional Cell Culture technologies.

It's an acquisition that while immaterial to the total Company's financial results sets us up for some very exciting offerings in the future.

We finalized the integration in consolidation of the Sentigen acquisition into our drug discovery business unit and our brand in the Company continues to be recognized as the leading company involved in life sciences reagents.

We recently received six life science industry category awards and were a finalist in another six categories.

This quarter, we demonstrated progress against all three of our 2007 focus areas.

We increased organic growth, improved mix and began to see the benefits from our operational efficiency and cost control plans.

I will now spend a moment of time taking about each of these areas for your benefit.

Regarding organic growth, we achieved organic growth across the globe in most product lines.

A few highlights were as follows.

Cell Culture Systems had a good quarter benefiting from large [sera] and media orders from production customers.

This business continues to improve its trajectory and future prospects.

The Americas had a terrific quarter.

Our sales reps have embraced the revised compensation plan, new leadership and enhanced training programs.

This team has been through a lot in the last couple of years and their resilience and ability to come out of the gates as strong as they did this year shows just how good they are.

Asia-Pacific also did very well.

This quarter was not just driven by double-digit growth in the emerging markets, but also by very solid growth in Japan.

The changes to our model in Japan have now shown three straight quarters of results and we remain bullish about the future in this market.

We are extremely pleased with the success of our bench-top instrument, such as a iBlot and Qubit.

Their adoption is continuing to exceed our expectations and these products are having a sizable impact on our growth of reagents.

We have executed upon several measures to optimize price, including price adjustments put in place at the beginning of the year, [essential price desk] and contract negotiations team.

Price has been positive thus far this year.

Moving on to how we will optimized mix this quarter, the plans we've put in place in late 2006 have started to show some positive benefits which is earlier than we expected.

Focusing on the basics within sales and marketing teams is having the desired effect.

As I mentioned, the Americas team has engaged and embraced the changes and begun to demonstrate results.

The compensation plan has helped for sure, but more importantly, the leadership changes we've made in global sales have had a tremendous benefit.

We feel we are on the right path here and we expect further benefits to come in future quarters.

We also restructured our marketing approach to supplement the sales effort in driving the right mix of products.

This has resulted in improving growth rates in some product areas that have historically been struggling.

Now as it relates to operational efficiencies, this quarter we were able to lay the solid groundwork we will need to extract efficiencies in the future.

Some of the areas where we've made progress this quarter were in our antibody facility and low-cost country operations.

Our antibody plant in Camarillo, California is still working on returning to pre-integration effectiveness, but the team there continues to make nice incremental improvements each day.

And we continue to execute upon our low-cost country operations strategy by moving manufacturing of some molecular biology products to China as well as opening up a sourcing office in both Beijing and Shanghai in the past quarter.

Lastly, I will touch upon our full-year guidance which we're reaffirming today.

While the 7% organic growth in the first quarter was at the upper end of our guidance, we believe it's prudent to temper our revenue expectations going into the second quarter due to our North American ERP implementation which Karen will go into more detail in a moment.

Therefore, we're comfortable with our guidance as it stands now and believe the plans we have communicated to drive revenue growth and expand our operating margins are reasonable and achievable.

As we said in our press release, we have now posted revised quarterly financial statements on our web site to exclude discontinued operations from the 2006 income statement.

With the revised financials as the base, we're also providing you with a revised EPS guidance range of 3 to 4 times revenue growth.

This revised range is equivalent to the previous two to three times revenue growth off the as-reported 2006 financials.

David will go into more specifics about the guidance later.

In summary, the results we achieved this quarter were from a combination of thorough action plans, great execution and positive market dynamics.

That's not to say we don't still have work ahead of us, but we're encouraged by what we've been able to accomplish is such a short period of time.

With that, I will now turn the call over to Karen Gibson, our chief information officer, to talk more specifically about the North American ERP implementation completed on April 9.

Karen?

Thank you, Greg.

I am happy to be here updating you on our recent ERP implementation in North America.

As we stated earlier, overall the implementation went as planned with no major business interruptions.

Considering the magnitude of volume and the complexity in this implementation compared to Europe, we're quite pleased with the outcome so far.

However, implementing an ERP system introduces an enormous amount of change in our business and we have experienced some minor issues as expected.

The most visible impacts of the implementation are what we call customer-facing.

This represents all the processes from taking an order through shipping that order.

It's what our customers experience.

This is always the most challenging area of any ERP implementation and it's where we focus our attentions first.

We experienced some initial delivery delays which in turn increased volume at our call center.

This temporary decreased service level clearly impacted our normal daily revenue streams during the first few days of the implementation in April.

However as we've worked through these issues, we are encouraged by the trends as they are climbing back towards our normal service levels.

The challenges that we've seen in the customer-facing area are those unique to North America.

I mention that because the software is not completely new.

The core software operating for the last year in Europe is now also serving the needs of North America.

In terms of our internal operations, we look at our overall cash management and management reporting processes.

At this stage of the implementation, we have experienced significantly fewer issues to date than what we saw in our European implementation.

One of the key areas we focused on during this implementation is change management.

This includes both training as well as reinforcing the need behind the new processes to really operate our business in a new way.

This is critical to the success of the project in order to extract the benefits of the implementation.

We have a team of super users throughout our sites in North America who assisted with the preparation, the cutover and the support.

I believe this one-to-one employee engagement has been crucial to our success so far.

So in summary, we're pleased with the outcome of this implementation considering that the magnitude and complexity of North America far exceeds our initial implementation in Europe.

However, we are also cautious towards declaring complete success just yet.

We have a team in place throughout the end of June as planned to work through any issues specific to this implementation.

We're encouraged with the results to date and we will plan to update you further in our next quarter earnings call.

Thank you, Karen, and good afternoon everyone.

As Greg mentioned we've now completed our divestitures and as such we have moved these business units into discontinued operations.

On you screen should be a first quarter 2006 income statement that has been revised to take this into account.

This is also posted on our web site by quarter and you will notice that as a result of these transactions, our operating margin percent expanded by 120 basis points in the first quarter.

This is somewhat better than we had originally anticipated due to the higher level of shared service costs we were able to eliminate.

In my discussions, I will be referencing revised Q1 2006 financials for all of my comparisons so if you don't have the presentation in front of you, I suggest you reference the revised financials on our web site.

I will now take a moment to discuss our results for the quarter as it relates to revenue growth.

Needless to say, we're very happy with 10% revenue growth, 7.3% without currency.

I think it's important to understand what is behind these results and how we view the rest of the year.

This quarter we made significant process against our goals but we also benefited from the timing of large production orders and other items.

BioDiscovery grew 9% year-over-year, or 6% without currency, to $220 million.

The BioDiscovery segment had good growth as a result of our efforts on price, mix and marketing effectiveness.

Additionally, BioDiscovery growth was positively impacted by favorable royalty revenue, including a $5 million historical settlement.

Further, we believe we benefited from proactive customer communications regarding our ERP implementation.

We wanted to ensure that customers weren't impacted by our implementation so we tried to fulfill some of their needs ahead of time.

Cell Culture Systems also had a strong quarter with 13% growth or 10% without currency and revenues of $89 million.

As we have said before, this is an inherently -- or sorry BioProduction media grew in the double-digits.

All business units in the division grew.

As we've said before, this is an inherently lumpy business which is highly sensitive to order timing, so one quarter of results cannot be used as a trend but we're encouraged by our pipeline and we remain confident in long-term prospects for this business.

Research media had another good quarter of growth, continuing to show the value of marketing of newer technologies.

The sera business also grew in low single-digits.

Sera production declined year-over-year but not as significantly as we anticipated due to order timing.

This decline was more than offset by solid growth in our research sera business which benefited from new leadership and a revised business model.

We still anticipate that the overall sera business will decline this year as demand for production [of] sera continues to decrease.

As it relates to currency, we had an $8 million benefit for the quarter.

However for the year, we are assuming currency will have a neutral impact on overall revenue.

Turning to gross margins, gross margin for the quarter was 64.9%, relatively flat from Q1 2006.

However, sequentially, gross margin percentage improved by 460 basis points, a substantial increase.

The margin expansion was due to volume, improved operations cost as a result of our productivity initiatives, a mix shift within BioDiscovery, pricing and royalty revenue.

However you should not assume that this is an ongoing level for gross margin as we are relatively sensitive to volume and mix fluctuations and we expect our operations cost to increase as we expand production within our Grand Island Cell Culture Systems facility.

Due to these factors, we expect gross margin will range from 62% to 65% in any given quarter going forward.

Moving onto other line items in the P&L, operating expenses increased by $5 million over prior-year levels mainly as a result of higher employee-related expenses and marketing programs.

Operating expenses increased by only $2.5 million sequentially as a result of reductions in outside service fees, including temporary labor and reductions in travel expense and supplies.

These declines were offset by higher employee-related expenses, including an accrual for the company-wide bonus program.

Some of you may ask what we accrued for bonuses this quarter.

We will not be disclosing the exact dollar figure for our bonus accrual each quarter but we have said previously that we anticipate paying bonuses of about $28 million this year.

Our operating expenses will increase in Q2 due to the impact of several items such as headcount-related expense, particularly the annual merit increases; depreciation and planned marketing programs.

The increase could be $5 million to $7 million over Q1 levels.

Operating income was $83 million for the quarter, an increase of 18% year-over-year and 24% sequentially.

Operating margin was 26.8%, a 180 basis point improvement over last year.

The expansion was the result of increased revenue, improved gross margins and modest operating expense increases.

Interest expense was $7.2 million and this is a normalized run rate for the future.

Interest income was $4 million versus $6.5 million last year, a result of lower cash balances due to our continued to share repurchase program.

The tax rate was 30.5% of sales, 1.3 points below last year due to the distribution of income and tax credits passed late in 2006, specifically the R&D tax credit.

Our diluted share count for the quarter was 48.3 million.

We continue to execute upon our share repurchase program, buying about 1.5 million shares for $100 million in the quarter.

We currently have $50 million remaining on our initial authorization.

Going forward, you can use 48 million for the future share count, keeping in mind that we expect to complete the remaining 50 million of the authorization over time.

Non-GAAP earnings-per-share without stock option expense for the first quarter was $1.14, which is a 33% increase over last year.

Non-GAAP earnings per share with stock option expense was $1.01, an increase of 41% over last year levels.

Our net option expense was $6.5 million or $0.13 per share in the first quarter of 2007 versus $7.8 million or $0.14 per share in the first quarter of 2006.

This represents a reduction of 16% in net expense year-over-year and a 7% reduction in ESP impact versus prior year.

GAAP earnings per share were $0.62 compared to $0.34 per share last year.

As a reminder, there is a full year reconciliation between GAAP and non-GAAP measures in today's press release on our web site.

Free cash flow for the quarter was $57 million.

This represents an increase of $38 million over the previous-year level.

The increase was driven by bonus payments made in 2006 that were not made in 2007, improvements in working capital made this year and lower cash taxes.

The timing of our cash tax payment was such that there was none in the first quarter of this year, so there will be two in the second quarter.

Capital expenditures were $12 million, which is lower than our normal run rate.

These will ramp up in future quarters as we expect to spend $60 million to $70 million in 2007.

We ended the quarter with $334 million of cash and short-term investments.

As Greg said, we're very pleased with our Q1 performance.

We're making progress with our plans outlined last year resulting in solid sales growth and operating margin expansion this quarter.

We also benefited from a handful of things that we don't anticipate will continue such as currency, historical royalty payments and the timing of production orders.

As you know, we also experienced some volatility in our performance last year, therefore we're maintaining our guidance for the year at the previous levels at least through the current quarter.

Specifically, we are holding to our full-year revenue guidance of low to mid single-digit growth.

This is off of a base of $1.15 billion which is the revised 2006 revenue excluding divestitures.

This guidance is without currency as we do not anticipate currency to be a benefit on a full-year basis.

Our EPS guidance remains the same as well, two to three times revenue from an as-reported EPS base.

This guidance is roughly equivalent to three to four times revenue growth if you use the revised 2006 financials that we have now provided.

The revised 2006 non-GAAP EPS without stock option expense is $3.45.

Non-GAAP EPS with stock option expense is $2.88.

Our operating margin guidance of a 100 basis point improvement also remains the same.

The 100 basis point improvement is over the as-reported full-year 2006 operating margin of 22.6%.

Other specifics that remain the same as we provided before are a non-GAAP tax rate of 30.9% if you're excluding options expense and 32.5% if you include it, $7.2 million of interest expense per quarter and interest income will fluctuate based on cash balance.

Capital expenditures as I have mentioned previously will be between $60 million and $70 million.

The share count to use for future quarters should be approximately $48 million depending on how many additional shares we repurchase and the remaining $50 million of our buyback over time.

So in conclusion, we're pleased with our Q1 performance and the progress we've made on our improvement plans and we look forward to the rest of 2007.

Now I will hand the call back over to Greg for closing remarks.

Thanks, David, and I will just reiterate some of the comments you also said at the close of your comments.

The repositioning of Invitrogen is taking place faster than we expected.

It's a great quarter and it's very promising in terms of the future and I think it really shows the power of this franchise when things go right.

From here, we are remaining committed to delivering all of 2007, keeping our heads down and executing in a world-class fashion to continue to deliver more to you, our shareholders.

And with that, I will turn it over to you, Amanda, for the close.

Thanks, Greg.

We will now open up the lines for questions.

We request that you ask no more than one or two questions at a time, but if you have further questions you can get back in the queue and we'll address your questions as time permits.

Chantale, we're now ready for questions.

(OPERATOR INSTRUCTIONS).

John Sullivan, Leerink Swann.

Congratulations.

Just wanted to ask -- it looks like in the press release you talked about business migrating well to the Web in the quarter and I'm just wondering what sort of opportunities to improve operations do you think emanate from that sort of a shift?

What do hope to get out of moving business to the Web over a longer period of time?

I think there's a couple of different advantages.

One is that the more we have customers go to our web site, the more we are able to have a direct relationship with them and more broadly market a variety of different products to those users.

So we are very encouraged by what just continues to be a shift from other different channels onto the Web and now we're seeing a large portion of our business really as a Web-based company at this point.

And when you think about it, science purchases are in many ways done best over the Web because it allows the user, the scientist, to really ask questions, learn more and see more on a Web site like ours that really nice blends science and merchandising and then obviously purchasing.

So for us, I think it's all about customer intimacy and really building an ever-tighter connection that we already have with our clients.

The other thing I would say from a back office perspective is that it allows us to really streamline the prediction of orders.

We are able to use computer modeling to have a much better prediction then on what will need to be produced where and be able to move it through our distribution systems in a more effective way.

One last just point while you did ask the question on Web orders.

We implemented an entirely new search technology this past quarter called [FAST] that we think provides unparalleled search capability across a whole range of scientific matters.

And, again, I think it is just another feature of why we are getting ever more traffic onto the Web in this industry.

Thanks very much, just one quick follow-up.

You talked about a concern about or just being prudent regarding ERP implementation, some business was filled ahead of time.

Can you quantitate how much business, what that might have meant to the first quarter in terms of revenues?

You know, we can't even -- I wouldn't say we could measure that.

We're just being prudent on both sides of that April 9th date that a couple of million dollars here, a couple of million dollars may have been lost as we have been implementing the system.

And I think as we move into Q2, it's just prudent for us to be cautious about the revenue guidance in this second quarter.

Thanks very much.

Quintin Lai, Robert W.

Baird.

Nice quarter.

One of the comments you made a little bit about was expanding production in Grand Island and having that maybe a little bit of an impact on gross margins.

Could you elaborate a little bit on some of the expansion in Grand Island?

Is this just planned expansion, is this just maybe going ahead of the curve with expectations of some orders coming up?

Yes, let me talk a little bit about [buyer] production.

At the risk of continuing to dig up 2006 which we all hope to forget, what we did not do well last year was communicate that 2006 for the BioProduction business at least in the first half was going to be flattish due to the timing of our orders, but that this was a great business with great long-term prospects.

We have started to see that in the second half of 2006 and it has continued very strong here into the first quarter.

So as we are now looking forward, we continue to see very strong growth for that BioProduction business, and in the short-term it's causing us to hire a number of new people in that facility to expand our production capacity and in the longer time we'll be investing a lot more into that facility and others to produce the capacity required for a lot of our large biopharmaceutical customers.

So in the near term it's more people related, in the longer term when you implement those changes you obviously have learning curves and kind of break-in periods of new equipment.

So we're just being cautious about mix and economics of that business in the short-term.

Then as a follow-up on just the macro, you kind of touched on the U.S.

and Japan.

Could you give us the review of how Europe was in the quarter?

Europe had a very good quarter and continues to make nice progress across virtually every country in the continent.

So in terms of its overall growth, I think it was 12% in the European region.

Thank you.

Tycho Peterson, J.P.

Morgan.

You talked a little bit about pricing trends being favorable in this quarter.

I'm just wondering now that you have made some progress on the ERP integration how visibility there has improved.

And I guess if you could just comment on some of the underlying pricing dynamics in the market, that would be helpful.

We have been able to do I think a very thorough analysis of our products and where they sit relative to other offerings in the space and we adjusted our product pricing over the last six months and we started to see the benefits of all of that pricing work.

We have also done a number of structural changes to the business.

We have created a pricing desk for more of our highly transactional businesses like Research Sera to allow much more disciplined pricing to take place in the field and we have also added a number of people to a larger pricing team that resides there at our headquarters.

So I would say overall in the last six to eight months, we have put a lot of effort into increasing the sophistication around price and we're starting to see some of the benefit of that.

Just to build on that, Greg, I think you're absolutely right, Tycho, that our ERP implementation gives us much better visibility and easier access to information, and so that should help our pricing as well.

Okay.

And then just a broader question on the portfolio.

Given the early success I guess you've seen with some of the bench-top instruments, how do we think about build-out an instrument portfolio going forward?

Is it going to be on a one-off basis or how do you view that opportunity?

As we've said in the past, we're more interested in instruments that are lower cost, lower price semi-consumable if you will, but certainly consume Invitrogen reagents and we have a fairly broad set of plans to continue to introduce new bench-top instruments this year and increasing it into next year and the subsequent years.

So I think you will see it as a mainstay of Invitrogen now going forward.

Great.

Thank you very much and congratulations.

Derek De Bruin, UBS.

With the sale of BioReliance, you got $210 million.

You had previously indicated that you would consider using some of this for share buybacks.

Is this still the case, or are you going back in the hunt for more acquisitions?

We remain committed to returning money to our shareholders.

As we emphasized here in the first quarter, we purchased another $100 million of our shares in Q1 and we will execute the balance of our initial $500 million authorization here in subsequent quarters.

As David mentioned, I think it's $50 million that remains on that authorization.

We also though are going to continue to make smaller tuck-in acquisitions like we did with Cascade Biologics in the first quarter and we hope to do a few more of those here in the balance of 2007.

But overall we remain committed to returning excess money cash to our shareholders via buybacks.

The only thing I would add, Greg, is specifically to your point Derik on the use the proceeds from BioReliance.

We said at the end of last year we would use the proceeds from BioReliance as well as cash from operations to ensure that our divestitures were EPS neutral and we have done that through the repurchase program at this time.

Okay.

Greg, I guess how confident are you that management's visibility into the business into the general end markets has improved enough so that you don't end up with another nasty surprise later on in 2007?

Well, I think it's a question that is best answered by us being prudent in the guidance we gave in the beginning of the year and that we're reaffirming here today, and it's guidance that we feel comfortable we can achieve that the course of 2007.

Great.

I will get back in the queue.

Dan Leonard.

Good afternoon, just a couple of small questions.

One, David, why are you assuming foreign currency will be neutral for the total of 2007?

We're just not trying to project any type of gain from currency.

I mean, we got an $8 million gain in the first quarter.

We don't have that type of positive benefit built in going forward and we're not counting on it.

And what was your growth rate in Japan?

It was in the low single-digits.

And can you remind me what your percentage of your total revenue is in Japan?

It's about $100 million of the Company.

Thank you very much.

Paul Knight, Thomas Weisel.

When you say they $8 million currency gain, that is the top-line benefit?

Yes.

And then specifically, when you say you're I guess restructuring or changing your sera product line, and your research sera product line specifically, what do you mean by that?

Let me make sure that the words are properly communicated.

What I have used is the word of repositioning the Company and we're really referring to the divestiture of BioReliance and BioSource Europe to now have a really pure scientific reagent company, is now what you see.

In terms of your question of maybe elaborating around the sera business, let me just give a few words.

Sera production, that is sera used in biological production, continues to be on the decline.

At this point, it has become a fairly small business that its declines don't impact the Company overall in an impactful way.

The research sera business is much bigger for us and we've had a change of leadership there.

In the last six months, we have brought in new people to execute a new strategy and that strategy is paying off quite handsomely here in the first quarter and we expect to continue through the course of 2007.

And that is to just help customers do better synthetic media?

No, this is research sera, so it's fetal bovine sera, animal-derived, and it's through a series of running the business a bit more like almost a commodity trading desk in terms of the sophistication of models we're using on supply, demand and pricing.

And again, we've seen a nice impact of those models here in the first quarter.

Okay, thank you.

Derek De Bruin, UBS.

Thanks for taking the follow-up.

So on the BioProduction business in the first quarter, I guess could you just tell us, give us a little bit more detail in terms of where the strength is from?

Is it new drugs that are ramping up?

Is it orders for existing drugs that are on the market or drugs that are being relaunched?

We've actually seen an uptick Derik in really all categories.

So, obviously, most of the growth though comes from existing customers expanding their production, but there are also new biologics that we began production of, that is the media for, in the first quarter.

So I would say it was across really the whole customer continuum, but perhaps if I had to weight what had the most impact, it would be from existing customers with newer biologics but not brand-new ones ramping up production.

Okay, that is helpful.

And on when you look at the R&D expense this quarter at about 8.4% of sales, is that a generally reasonable number down from like the 9% it was last year?

I think for 2007, that is a number that you can model in for now, but I would say as we move towards the end of 2007, we're going to reserve the decision to ramp that up from here.

We went through a fairly rigorous process at the tail end of last year to focus our energies in R&D around projects that were more near-term impact in terms of revenue.

But yet, we have a lot of curiosity and interest on projects that put on hold for now that have longer-term impact and we will be revisiting the funding of those later this year.

Great, thank you very much.

Jon Wood.

Banc of America.

Greg, I just wanted to follow-up on the capital deployment question.

You talked about doing a few tuck-in deals this year.

Does Invitrogen have a rule of thumb of going forward assuming that the operations are back where you want them, what you hope to spend annually in deal spending?

In years past, we've done that, Jon.

I think going forward we're not going to have that same level of public commitment on acquisitions.

It's going to be much more strategic in terms of, if we see something that could really impact the growth trajectory of the business, then I guess we will spend what we spend to do it.

So in the near-term though, we don't anticipate anything large.

We anticipate things that are smaller, more tuck-in and certainly more near the current spaces that we're currently participating in so that we can grow our relative market share in what we're already doing.

Okay.

And do you have a target of what you hope to keep in padding on the balance sheet as far as your cash balance?

What does it takes just in working capital every day to run Invitrogen?

Dave, maybe a couple hundred million (MULTIPLE SPEAKERS)?

Yes, we're saying -- just in terms of cash, Jon, we look at somewhere between $200 million-$300 million.

Okay, alright, thanks a lot.

There are no further questions in queue, and I would like to turn the call back over to Ms.

Amanda Clardy for closing remarks.

Thank you.

This now concludes our first quarter earnings conference call.

This call will be available via replay on our Web site for one week.

We'd also like to extend an invitation to our shareholders and analysts to attend our annual investor day on August 16.

We will be hosting the day at our Molecular Probes facility in Eugene, Oregon.

More specifics will be forthcoming, but you may preregister for this event via our Web site as of today.

Thank you for joining us this afternoon.

Good bye.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.