賽默飛世爾科技 (TMO) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Life Technologies Corporation earnings conference call.

My name is Dianna and I will be your operator for today.

(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, Ms.

Eileen Pattinson, head of Investor Relations.

Please proceed.

Good morning everyone.

Welcome to Life Technologies' second-quarter earnings conference call.

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

In addition, Mark Stevenson, our Chief Operating Officer, and Bernd Brust, our Chief Commercial Officer, are available during the Q&A portion of the call.

If you haven't received a copy of today's press release, you may obtain one from our website at lifetechnologies.com.

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 these statements are based on reasonable assumptions, but 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 website.

I will now hand the call over to Greg Lucier.

Thank you all for joining us.

Coming off the heels of our Investor Day just a few weeks ago we are going to keep our prepared comments short this morning.

So let's get started.

As you can see from our results, we delivered another quarter of strong top and bottom line growth.

Revenue grew 6% organically to $906 million, 8% excluding the impact of H1N1 sales in 2009.

Operating margins expanded by 290 basis points to reach a record 30.1%.

And earnings per share grew 15% to $0.91 for the quarter.

We are pleased with our results in the second quarter and in the first half of the year, which are a reflection of the fundamental strength of the business and the essential nature of our product offering.

I would like to extend my thanks to our teams around the world for their commitment to excellence and relentless focus on execution.

As I do every quarter, I will take a few moments to talk about these results, give you an update on the integration, and provide some color on the strength of our end markets.

First, we continue to be very focused on the integration, and I'm pleased to report good progress towards our goal of putting actions in place that will generate $175 million in annual synergies by the end of 2010.

In the second quarter we continued to execute on our integration plans, including the placement of over 50 dual branded supply centers around the world, and further optimization of our combined e-business platforms.

We are seeing a good traction from these efforts and achieved new records for the number of total transactions, both in North America and globally, that will process through e-commerce channels.

In terms of synergy captured, these actions, as well as many others, will generate another $15 million in annualized synergies, getting us halfway to our full-year goal.

Looking ahead in the second half of the year, we will continue to optimize the programs already started, as well as implement new initiatives, including additional site consolidations in cities where we have multiple offices, continuing to build out the combined e-business platforms and optimizing our distribution network.

Now beyond these integration activities Life Technologies is well positioned to capture opportunities that will continue to drive strong revenue growth.

Commercial execution, coupled with the broad product offering of innovative tools, ensures that our products are an essential part of our customers' workflows.

Recent launches have gone very well.

Customer response to Attune, our flow cytometry offering, and the ViiA7 PCR instruments have been very positive.

And the sales of our latest CE instrumentation, the 3500, have reinvigorated that business.

Since the launch of the 3500 in Q4 of last year we have placed approximately 400 instruments, and demand continues to be very robust.

I will take a moment now to walk you through more notable points on Q2 performance and give some color on what we are seeing in our end markets.

The Americas delivered 7% organic growth in the quarter, 10% without the impact of H1N1.

End markets in the Americas remained strong with pharma and biotech continuing to pick up steam, evidenced by the strong demand for our discovery and assay services business, and double-digit growth in BioProduction.

On the research side stimulus related revenues for the quarter were approximately $10 million, about the same as we have seen in prior quarters.

Our outlook for the stimulus is unchanged.

We continue to estimate that we will generate more than $100 million in stimulus related revenue over the life of this program.

However, since we have not observed a material ramp up in spending since the third quarter of last year, we estimate that stimulus related revenues will be around $10 million per quarter in the second half of the year, with the rest of the benefit realized in 2011.

Europe grew 4% organically in the quarter.

Growth for the quarter is slightly less than in recent periods due to the uncertainty about future government funding levels.

At this time we have no reason to believe that there will be decline in government funding for our research in major European markets, such as UK, Germany and France.

However, some of our customers have reported that there have been delays in the release of funds from the institutions to researchers.

In addition, researchers seem to be cautious in their spending due to fears that future funding may be curtailed.

As a result spending in these countries on both consumables and instruments softened towards the end of the quarter.

The situation in some of our smaller markets, such as Italy and Spain, is slightly different.

Funding in these countries have been negatively impacted to some degree as a result of the current economic environment.

Revenue growth in these countries was flat during the second quarter.

Looking forward to the second half we expect that for the European region as a whole revenue growth will be in the low single digits or mid-single digits, excluding H1N1.

Moving on to other markets, Asia-Pacific had another strong quarter, growing 19% organically.

End markets in the Asia-Pacific region remain healthy, particularly in India and Greater China, which grew in excess of 30% in the quarter.

We are well-positioned in these markets to continue to drive robust growth.

There is no change in our outlook for Japan.

In the second quarter Japan declined 4% organically as a result of a very difficult year-over-year comparison.

As a reminder, Q2 of last year included revenue from a large police order, as well as H1N1.

Excluding these items, Japan grew 3%, in line with expectations.

Now before I hand it over to David, I am pleased to announced earlier this week our Board of Directors approved a two-year, $350 million share repurchase program, which is consistent with our strategy of balanced capital deployment.

We intend to begin repurchasing shares in the fourth quarter after we have redeemed the 2% convertible notes in August and we are within our target leverage ratio of 2 to 2.5 times EBITDA.

In general, the timing and amount of purchases will depend on quarterly fluctuations in cash associated with operating cash flow, capital expenditures and further debt repayment.

We remain committed to the financial goals we have outlined previously for our priorities, and our priorities for cash remain the same.

We will continue to pay down debt and keep our leverage within 2 to 2.5 times EBITDA, as well as make investments in the business that will drive future growth, and then return excess cash to shareholders.

With that I will turn it over to David.

Thanks, Greg.

This quarter revenue grew 8% to $906 million.

Currency had a positive impact of 1.5 percentage points on reported revenue growth, and acquisitions and divestitures contributed 0.5 points to growth.

Excluding the impact from currency, acquisitions and divestitures, revenue grew 6% organically.

Genetic Systems had revenue of $235 million, representing 7% organic growth.

Sales of CE instruments, including the new 3500 Genetic Analyzer, and sales of CE consumables to research and clinical labs, grew in the mid-single digits.

This was partially offset by a year-over-year decline in CE instruments and consumables sold into the applied markets, as this business experienced a difficult year-over-year comparison due to the Japanese police order received in 2009.

Customer feedback on the SOLiD 4 and EZBead platforms continues to be very positive.

As a result, the next-generation sequencing business demonstrated strong double-digit growth during the quarter.

At this point approximately half of the installed base of SOLiD 3.5 instruments has been upgraded to the SOLiD 4 platform.

Molecular Biology Systems grew 2% organically to $434 million in revenue.

Excluding H1N1 related revenue, organic growth was approximately 6%.

Growth was driven by strong results in the genomic assays and molecular biology reagents businesses.

Demand for genomic assay products grew in the high-single digits.

The Molecular Biology Reagents business grew in the mid-single digits and benefited from strong double-digit growth in Asia Pacific, particularly China.

Cell Systems had revenue of $230 million, representing 13% organic growth, with strong demand across the portfolio.

Double-digit growth in BioProduction was driven by continued improvement in demand from European and North American pharmaceutical customers, as well as the timing of large orders.

The Dynal beads business also benefited from an improvement in pharma, biotech, and clinical diagnostic end markets, resulting in double digit growth for the quarter.

Lastly, our Primary and Stem Cell business grew in the mid-teens, driven by world-wide demand for both media and reagents.

As I mentioned earlier, currency added 1.5 points of growth to revenue for the quarter, including the impact of our hedging program.

The positive impact to EPS was approximately $0.04, including foreign currency effects accounted for in revenue and other income.

Moving on to other items.

Second-quarter non-GAAP gross margin was 67.7%, an increase of approximately 100 basis points over the prior-year quarter.

This improvement was primarily due to positive price realization, synergies, manufacturing productivity, and an increase in royalty revenue, partially offset by mix, particularly increased sales of BioProduction and instruments.

On a sequential basis gross margin decreased by 60 basis points due to currency and increased sales of lower margin BioProduction products.

Second-quarter non-GAAP operating expenses increased 3% over prior-year's levels to $341 million.

This was as a result of headcount additions related to acquisitions, an increase in depreciation resulting from capital expenditures associated with the AB and Invitrogen integration, and currency.

Sequentially, operating expenses declined 1%, mainly due to currency.

Non-GAAP operating income was $272 million, an increase of 19% over prior year, including the impact of currency, and 17% excluding currency.

This quarter operating margins reached a record level of 30.1%, representing 290 basis points of improvement year-over-year.

This operating margin expansion primarily resulted from improved gross margins and synergies.

In terms of other income line items, we had $1 million of interest income; $1 million from currency gains, and interest expense for the quarter was $28 million.

Our non-GAAP tax rate was 29.5%.

Our diluted share count for the quarter was 191 million shares.

As you'll recall, our share count is impacted by our stock price in the quarter due to our convertible debt and employee stock options.

GAAP diluted earnings per share were $0.58, which includes $0.21 per share of acquisition related amortization expense, $0.03 per share of non-GAAP -- of non-cash interest expense associated with the adoption of APB 14-1, and $0.09 per share of integration -- business integration costs and other items.

On a non-GAAP basis, which excludes these items, diluted earnings per share was $0.91.

Moving onto the balance sheet and cash flow.

Our ending cash and short-term investments were $706 million.

This compares to last quarter's balance of $642 million.

Cash from operating activities was $228 million, capital expenditures were $25 million, and free cash flow was $203 million.

Included in our cash flow from operations is approximately $25 million of favorability associated with hedges on intercompany loans as a result of increased volatility and currency rates.

Return on invested capital increased 40 basis points to 9%.

Our ending debt as of June 30 was approximately $2.64 billion.

This balance is made up of our convertible debt of $1.1 billion and our senior notes of $1.5 billion.

For the first half of 2010 revenue increased 8% organically, gross margins expanded 130 basis points, and operating margins expanded 310 basis points.

We feel good about our results this far and our focus on continued execution in the second half of the year.

With that, I will now move on to our expectations for the rest of this year.

EPS is now expected to be in the range of $3.35 to $3.50.

Our full-year guidance for organic revenue growth is unchanged, and is still expected to be in the mid-to high single digits.

Given Greg's commentary on stimulus and end markets, I will provide a bit more color on second-half expectations.

As a reminder, when we provided guidance in the beginning of the year we stated that the difference between mid-and high single-digit organic revenue growth was dependent on the amount of stimulus related revenue that would be recognized during the year.

We have not seen a notable increase in quarterly stimulus related revenue since the third quarter of last year.

As a result, we expect second-half organic revenue growth to be in the mid-single digits.

Revenue from prior acquisitions will add approximately 1 point to growth in each quarter.

In terms of year-over-year comparables, keep in mind that in the second half of 2009 we had $15 million of H1N1 revenue per quarter, approximately $8 million to $9 million per quarter from the Japanese police order, and stimulus revenues of $15 million.

Due to the volatility of currency rates over the last couple of months I will provide some detail on the expected impact of currency on our results.

With rates as of June 30, and including the impact from our hedging programs, currency is expected to have a small negative impact on revenue, and no impact on EPS in the third quarter.

In the fourth quarter currency is expected to have a negative 3 point impact to revenue growth, and EPS is expected to be negatively impacted by $0.04 to $0.05.

Q3 gross margins are expected to be lower sequentially due to lower fixed cost absorption as a result of lower volume in the quarter, and a decline in royalty revenue.

Operating expenses in Q3 are expected to be approximately the same as in Q2.

As we indicated on the last earnings call, we are reinvesting a portion of the operating income impact from stimulus back into the business to fund future growth opportunities.

These investments, which are primarily focused on R&D and commercial projects in emerging markets, began late in the second quarter and will continue through Q3.

As a result, R&D expense as a percentage of sales in the third quarter will be slightly higher than our full-year guidance.

We continue to expect full-year R&D expense to be 10% to 10.5% of revenue.

Q3 operating margins are expected to be approximately the same level as last as last year.

For the full year operating margin expansion is still expected to be within 175 to 225 basis points.

We expect the average diluted share count for the second half of the year to be 192 million to 194 million shares, assuming an average stock price between $45 and $50.

Finally, we have received a number of questions on our hedging programs as it relates to next year.

Because of the continued uncertainty about the global economy and the resulting impact on exchange rates, we opted in June to continue with our currency hedging program in 2011.

At this point we have currency hedges in place for the first seven months of 2011, and intend to execute additional hedges each month until we are hedged for the full 12 months.

The share repurchase program will be used to help mitigate the impact of currency on EPS.

With that, I will now hand the call back over to Eileen for Q&A.

A quick note before we get started.

Recently we have received feedback from a number of you the one-on-one calls are preferable to the post earnings Q & A call.

For this reason we will not be holding a post call today.

If you have questions following this call, please contact me directly.

We have about 30 minutes for Q&A.

So I would like to ask everyone to limit themselves to one question and one follow-up question.

If you have additional questions that you would like to ask, please get back in the queue.

Operator, we are now ready for the Q&A portion of the call.

(Operator Instructions).

Quintin Lai, Robert W.

Baird.

A little bit -- Greg, could you give a little bit more color on what you're seeing, I guess, in Europe?

It sounds like the spending slowed as delay of release of funds.

What kind of visibility do your customers get in terms of when some of those funds are being released -- will be released?

And then what is the long-term forecast for Europe, given the fact that there was a big research mandate that was just put forward in terms of like 2011 budgets?

Right.

Well, thank you, Quintin.

I think what we saw in the second quarter was a reaction to the heightened sensitivity around the whole European fiscal crisis.

So that, seemingly, had a ripple effect through spending at the bench level on a company like ours towards the end of that second quarter.

Now that is kind of a short-term reaction, and that is why our comments are that perhaps that could persist a bit through the second half of the year.

More long-term, to the second-half of your question, it is unclear, but our opinion is that this side of government funding will probably remain intact.

And it centers around what you said in that the larger countries are committed to an agenda of innovation.

Therefore, at least in their public pronouncements that we can understand, they have said they're going to [re-incent] innovation funding.

And so, again, we rely on that to say that over the next couple of years the European business should do okay.

So that is what we know at this point.

We are not predicting dire consequences.

And yet at the same time we think the robust growth we saw the last couple of years may be modulated a bit over the next couple of years.

As a quick follow-up, the improvement that you're seeing in US pharma, is it broad-based or are you seeing maybe increased growth from companies that have completed some of their recent M&A activity?

Yes, that's a good question.

Well, we have always seen in that pharma sector is an account-by-account variability.

Our top accounts are not always our top accounts year-over-year.

It just changes depending on their own particular spending or a situation they find themselves in maybe due to an integration.

So overall we are certainly seeing in aggregate a nice recovery, but the individual companies and their respective growth rates has changed this year versus last year.

Doug Schenkel, Cowen.

Good morning, and thanks for taking the questions.

So let me just get them both out there.

First, in Molecular Biology Systems, that seems to be an area that some folks are pointing to as a blemish on an otherwise good quarter.

By my math when you strip out the impact of H1N1 in Japan, and I think you highlighted this, you did 6% organic growth in the quarter.

I just want to make sure that this was consistent with your expectations given the comps, and make sure that nothing has changed regarding competitive landscape or the environment relative to where you were in Q1.

Then the second question, related to organic growth.

David, if you mentioned this I missed it, but could you just talk about how H1 versus H2 compares organically when you strip out all the one-timers that you mentioned for the first half and the second half?

Thank you.

So on the first part of your question, your math is correct.

The Molecular Biology business had organic growth around 6%.

You have to remember that is a very large franchise.

So that is 6% on a big number.

So actually I think the results were very robust actually.

I think it also is indicative that we continue to invest in Molecular Biology.

Respective in one of those segments and in the PCR franchise we have the broadest product offering by far.

We have millions of assays available on demand.

And it really is the standard that people continue to come to more and more.

So we feel very good, actually, about the Molecular Biology results, so I am glad you clarified that.

David, unto you in terms of the second question Doug asked.

Yes, so Doug, so just let me repeat in terms of what was the impact of H1N1 and the other one-time items on our results for last year on our second-half results.

So H1N1, we had $15 million of revenue per quarter last year.

Another major item was the Japanese police order, and that was approximately $8 million to $9 million per quarter last year.

Then, finally, we had stimulus revenues in the second half of $15 million and that was $5 million in the third quarter and $10 million in the fourth quarter.

Does that answer your question?

Yes, it does.

I guess part of the reason I ask this is there has been some concern in the quarter with some other companies that organic growth optics don't look good and that the organic growth is actually slowing down in the second half.

I am just doing the quick math based on those headwinds, which frankly you did outline last quarter as well, so those are nothing new.

I want to make sure my math is correct that when you strip the headwinds out of the first half, and then you strip the headwinds out of the second half, that it actually looks like, even though you are guiding organic growth to mid-single digits in the second half, that it actually looks like things are accelerating in the second half if you strip everything out.

Is that the right way to think about things?

That is correct.

We don't anticipate any significant change between the first half and the second half.

Tycho Peterson, JPMorgan.

Maybe the first question for David on the margin improvement.

And understanding your comments about the third quarter and how you're going to be reinvesting, but can you talk a little bit about how much of what you are seeing here is sustainable?

And I ask because I know at your Analyst Day you highlighted a lot of the productivity initiatives and you highlighted things like non-refrigerated TaqMan reagents and things that seemingly should have a nice impact on margins going forward.

So can you talk about the sustainability of manufacturing productivity?

And I don't know if you can quantify how much this quarter came from price versus royalty versus some of those productivity enhancements.

Yes, you're absolutely right, we did talk at Investor Day a lot about this.

Nothing has changed.

We continue to expect to get 50 plus basis points of operating margin improvement over the next several years.

So we believe that the changes that we make are sustainable and that we've got further improvements that we can make.

In terms of the impact of price, we continue to get priced improvement that is in line with what we've had in the past.

We are averaging 1 to 2 percentage points of price.

And it has through the upheaval in the economy over the last couple of years not changed, and we are seeing that same type of improvement this year.

Okay.

I mean, from this quarter of the 100 basis points you saw, can you break out how much was from price versus other factors?

You know, I can't do that right off the top of my head at this point.

Okay.

Maybe then just a follow-up for Greg on SOLiD.

As we think about the launch of SOLid HQ later this year, and then obviously the SOLid PI at the lower end, can you talk a little bit about where you're seeing interest from customers in terms of core academic centers and then the nontraditional markets for SOLiD?

You bet.

I have Mark Stevenson here with me.

I will let Mark answer that in more detail.

Good morning.

So we continue to see uptake of genome centers, the smaller genome centers that are getting into this, particularly in the area of cancer, where we see the accuracy that we get with the SOLiD system, really an uptake in that one.

People want to do those kind of experiments.

You saw some of the announcements we made of some of the uptake in some of the cancer centers both here in North America and in Europe during the last quarter.

We expect as we launch the SOLiD PI we will broaden that base, and with the hq bring the cost of the genome down even further, and so we'll continue to see good progress into the market with the SOLiD technology.

We also, as mentioned in the script, have very good feedback on the EZ Bead, which had taken away one of the pain points in our customer in the workflow, much more simple and straightforward, upfront sample preparation now with that EZ Bead system.

Okay, and then just one last one and I will hop off.

Can you talk about BioProduction?

You called that out as being strong.

How sustainable are the trends there, and what is your visibility to the back half of the year for that business?

Yes, we feel good about the BioProduction business.

Again, it is account specific, but the macro environment for us, we continue to uptake across that.

And have actually broadened our portfolio there with the introduction of more assays and products into the BioProduction area, so continue to see that is a good market for us.

Derik De Bruin, UBS Securities.

So just to follow up on some of Quintin's questions on the funding environment, there has also obviously been a lot of concern amongst people about what happens in the US following the midterm elections.

I guess what are you looking at now in terms of what are you hearing on the NIH budget and fiscal 2011 and the initial take on fiscal 2012?

I guess what are your embedded expectations in terms of budget increasing?

Here is what we currently believe, that the NIH budget in 2011 will probably be up by about $1 billion, if the House Appropriations recommendations hold.

So over the next 12, 18 months funding should be pretty good.

Into 2012, I think it is a bit more uncertain.

But potentially the NIH could be flat to slightly down.

Inside of that though I will tell you that a lot of our work is preparing around where the money would be spent, because it won't just be everything 5% or 3% or flat.

There will be changes in how the funding actually gets spent, and we certainly saw this earlier in the Bush administration, and I think we learned pretty smartly on how to navigate that.

So, again, the next couple of years then because of at least stimulus, the 2011 NIH budget being probably okay and growing, and then this changing in funding towards where we see real strength in our portfolio, the next couple of years should be okay in the United States.

Okay, that's helpful.

Thanks for the color on the FX impact for next year.

I guess when we start thinking about where your hedges are in place, what is the euro dollar number that you got -- the exchange you have the hedge (inaudible) so we can kind of watch that?

You're talking about next year?

Next year, yes.

Well, I think we need to go through the second half of the year before we know what our rate is going to be.

But we will provide that, obviously, when we talk about our outlook for next year.

Great.

He had given some general rules of thumb.

I'm looking at the impact of currencies on EPS for this year.

A 10% move has you at -- I think you said it was a $0.06 impact or something like that.

I guess would those same types of rule of thumb hold for these next hedges or is it the bar has reset?

The bar gets reset.

Okay, thank you for the color.

Marshall Urist, Morgan Stanley.

So first question, just more -- I know there has been a lot of questions about this, but maybe to take a step back and just talk about how does Life grow and what are the strategies for growth if, given the exposure to academic -- the academic market and government funding broadly as we think about that for the long term, if it is a flattish funding environment.

How do you guys think about growth opportunities?

Do you deploy capital differently?

What is the strategy and how are you thinking about that?

Well, first of all, about 30% of our portfolio is in what we call the broadly applied biology segment.

So forensics, BioProduction, Animal Health, and those segments are growing very fast, and we see them continuing to grow as a percentage of the portfolio.

So that is a good thing.

Second, in terms of academic funding over the next couple of years, I think if you take my earlier comments, we think it is going to be okay.

It is probably more of the funding environment we saw in the 2003 and 2004 type of timeframe.

And we actually grew okay through that period by a really focusing the portfolio on where the money would be spent.

I think that is a very important point to be made is that all products aren't equal and the funding does get directed then in a certain way, and you just simply have to have the portfolio to capture it.

So I think we are feeling pretty good that we will be able to do well in the overall funding environment in the US and Europe.

Then lastly, importantly, is the geographic aspect, which is we have built a very robust infrastructure across Asia.

I think you can see the benefits of that investment by our continued, very strong growth across Asia.

We are direct in a lot of the main countries.

We are going ever more direct in all of the countries.

We are building logistics centers across the region.

So geographically we are exposed to where higher growth will be.

So when you couple all of that together, Life Technologies will do fine over the next couple of years.

Great, thanks, that is helpful.

Then one other one.

I know you guys had talked about with the convert out of the way starting a buyback program.

And obviously free cash flow will start to inflect in 2011.

So would just be curious as we move past this, maybe you could give your updated high-level thoughts on are buybacks likely to be the major use of capital of this $350 million over two years?

So is that how you guys are thinking?

So is that going to be the major strategy or is there more opportunities on product tuck-in acquisitions?

I think our philosophy and our plans for use of cash are unchanged.

Our number one priority is to pay down our debt.

And as we said many times before, our target is to get and remain within a leverage ratio of 2 to 2.5 times EBITDA.

The second point that you bring out is we are going to continue to invest in the business organically and inorganically.

Then third, our philosophy on excess cash also remains the same.

We intend to return that to shareholders.

The primary vehicle that we have used is share purchases, and we will continue.

Great, thanks guys.

Jon Wood, Jefferies & Co.

So, David, you will be within your target leverage ratio next week, correct, when you pay off the convert?

Actually, there are a variety of ways of calculating the leverage ratio.

So one we have most often use is our credit agreement.

But each of the rating agencies also have a calculation.

Moody's, for example, is slightly different than ours.

That is why we are saying that by the end of the third quarter we will be within our target leverage ratio for all of the rating agencies on all of the calculations, and anticipate to begin the buyback then in the fourth quarter.

Okay, understood.

Then on the cash flow statement, can you just disclose the divestiture proceeds from the mass spec JV, and then talk about whether you have paid the taxes yet on that proceeds number?

That is a good question.

Why do we get the answer to that and we will have a follow-up conversation with you on it.

Okay, thanks a lot.

Jon Groberg, Macquarie Capital.

So just one quick question for you, Greg.

You have often talked about one of the strengths of the portfolio is that it is not that price sensitive in terms of when you tried lowering prices, it hasn't really stimulated a lot of demand.

And that is why you get some price -- a lot of good pricing ability.

I am just curious, specifically within the PCR portfolio, have you tried that over time?

And I'm just curious there has been some -- obviously a lot of announcements around people trying to get more into that business.

I am curious just your view of how effective price is as a mechanism in the PCR space.

Thanks.

I think what gets highlighted is in that particular space there is a lot of the very low end reagents and otherwise.

Actually, they have always been around, at least for the last several years kind of the low end of that segment.

We have products in that segment as well.

So my comments really still pertain globally to this business that the relationship between price and volume is not a direct connection.

That is due to a lot of the friction of publications, previous experiments, there is just inertia to switching.

When you have market leadership, like we certainly do in the PCR business, people are inclined to stay with their products, and so we benefited from that.

Steven Lichtman, Oppenheimer & Co.

A couple of questions.

First, I was wondering the update on single molecule, still expecting to have a beta launch here toward year-end?

Yes, we are still, as we updated at the Investor Day, making good progress in developing the system, and continuing to engage with customers around early access to discussing the experiments and applications that they see for single molecule sequencing.

Okay, thank you.

Then on the CE, it certainly seems like it has picked its head up here a bit more than expected.

Is it really driven by the launch of the 3500?

Anything else in the end markets you can comment on relative to CE?

In CE, as we expected with the launch of the 3500, really goes into markets such as the clinical testing market.

We have the CEIVD mark.

Recently we launched assays that start to go into that, like a BRAF assay.

So we see that uptake falls forward into that CE space.

In addition, in the forensic space, launching more kits, and more geographic expansion.

As you see, franchise is robust in that segment, that it continues to be right technology choice for those applications where you have a couple of genes that are very variable that you want to analyze.

Operator, we have time for one more question.

Tony Butler, Barclays Capital.

David, is there any way to characterize the revenue synergies in the quarter that you may be seeing with the combination of the companies?

Thanks very much.

Would you like to talk about some of the -- I think sources of revenue synergies would be helpful.

Sure, the revenue synergy sources versus we touched on a few in the earlier comments around combined supply centers leveraging our combined websites.

When you look today at the portfolio where many of these types of sources were purely tied to one of the companies.

And our combined selling organization has been restructured where the commercial teams we have consumables sales reps have carried both the AB consumables as well as former Invitrogen consumables.

It gives our instrument teams more time to focus on purely focusing on instrument placements.

[A lot of those] combined they have driven many of the synergies that we have indicated in our earlier calls.

Thanks.

This concludes the question-and-answer session.

I would like to turn the call back to Eileen Pattinson for closing remarks.

Thank you.

This concludes our second-quarter earnings conference call.

If there are any additional questions, feel please feel free to contact me.

This webcast will be available via a replay on our website for three weeks.

Thank you again for joining us this morning.

Ladies and gentlemen, again, this does conclude today's conference call.

Thank you for your participation.

You may now disconnect.

And have a great day.