賽默飛世爾科技 (TMO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Life Technologies Quarter 2 2012 earnings conference call.

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

Later, we will conduct a question-and-answer session with instructions to follow at that time.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to your host for today, Ms. Carol Cox, Vice President of Investor Relations.

Carol, you may begin.

Thank you, Ben, and good afternoon, everyone.

Welcome to Life Technologies' second quarter 2012 earnings conference call.

We issued our press release today at 1.00 PM Pacific time, or 4.00 PM Eastern time, posted it on our website at lifetechnologies.com, and also filed it on Form 8-K with the Securities and Exchange Commission.

In addition, we posted a deck of slides to accompany today's webcast, which may be found on the "Events and Presentations" section of the Life Technologies Investor Relations website, with our other earnings materials.

Joining me on today's call are Greg Lucier, our Chairman and CEO; Ronnie Andrews, President of our Medical Sciences Division; and David Hoffmeister, our Chief Financial Officer.

Mark Stevenson, our Chief Operating Officer, will also be available during the Q&A portion of today's call.

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

I would also like to remind everyone listening today that our discussions will include forward-looking statements, including, but not limited to, statements about future expectations, plans, prospects for the Company.

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

Important factors which could cause actual results to differ materially from those in the forward-looking statements are detailed in the filings made by Life Technologies with the SEC.

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 may be found in today's press release or on our website.

I will now hand the call over to Greg.

Thanks, Carol, and thank you to everyone joining us today, as we provide an overview of our second quarter results and expectations for the second half of the year.

As Carol mentioned, Ronnie Andrews will be on the call today to provide an update on our diagnostic strategy and details around our two recent tuck-in acquisitions in this very exciting area.

We finished the first half of 2012 in line with our expectations, as continued strength across several of our businesses contributed to results.

Revenue for the quarter came in slightly higher than expected, at $950 million, as increased sales in our BioProduction and Ion Torrent businesses drove results and enabled us to grow revenue by 1% as reported in the second quarter, and a total of 5%, if you exclude the nearly $40 million in headwinds from expected declines in the sales of our SOLiD 5500 product and qPCR royalties.

We were able to expand our gross margins year-over-year to 65.4%, and our operating margin by 80 basis points to 28.6%, which helped drive an 8% increase in non-GAAP earnings per share.

Our EPS came in at $0.96.

Overall, our end markets largely remained in line with our expectations.

We saw strength in our emerging markets and in Asia-Pacific, where we continue to expand our operations.

In the US, we continued to see a cautious, but stable environment.

At the end of the second quarter, we did start to see a weakening in our Western European operations, as customers became more cautious with their spending in the research market.

Our 2012 growth expectations for the European region, which includes all of Europe and emerging markets in Russia, the Middle East and South Africa, have been in the low-single-digits.

For the first half of 2012, we recorded growth in this range driven by strength in our BioProduction and Forensics businesses, which was partially offset by slower growth in our Research Consumables business.

As we look to the second half of the year, we are still calling for growth, but take a more conservative outlook and now expect overall growth in Europe at the low end of our range, closer to 1%.

Our emerging markets continue to perform extremely well.

A year ago, we saw a temporary slowdown in greater China, as we moved to enhance our dealer model and supplement it with our own sales force.

Through our efforts over the last 12 months, we have normalized operations in greater China and are seeing consistent growth in the high teens on a percentage basis.

During the second quarter, we completed the acquisition of Beijing Maojian United Star Technology Company, Life's distributor covering mainly the Invitrogen brand reagent portfolio in Beijing and the rest of North China.

This acquisition now creates one of the largest direct selling forces in the Life Sciences reagents market in China and further optimizes our channel in the region.

In addition to finding ways to expand our market opportunities, we're also finding better ways to improve our customer experience, increase our productivity, and lower our costs.

Asia-Pacific is one of our fastest growing geographies, and with this growth, our volume of items shipped per day in the region has increased fourfold over the last two years.

To address this increasing demand, we are further expanding our distribution centers in both Singapore and China.

We are also expanding our manufacturing center of excellence in Singapore to provide our global customers innovative technologies more efficiently, while helping them advance their research even faster.

The center will design and manufacture Life products, including ion next-generation sequencing and molecular diagnostic instruments for thousands of customers within the region and outside Asia-Pacific.

The facility expansion is taking the total square footage up from 75,000 to 133,000 square feet.

We are already beginning to see the benefit of producing products internally with higher margins and faster turnaround for our customers.

It also has added the benefit of providing further tax efficiencies.

During the quarter, we continued to deliver on our innovation pipeline, launching new Ion AmpliSeq clinical research products for cancer and inherited disease, and expanding our capabilities to commercialize novel stem cell technologies.

We also continue to make progress with our new QuantStudio instrument, shipping a record number of units in the quarter.

QuantStudio does more than just genotyping, it does gene expression genotyping and digital PCR and is taking share from genotyping and gene expression arrays.

It combines flexible throughput capabilities with a streamlined work flow.

The QuantStudio 12K Flex system takes customers from targeted discovery through confirmation and screening, all on a single platform.

In fact, we are seeing an increasing number of open array technology applications that are cannibalizing the current genotyping array business.

Additionally, we continue to make compelling progress in throughput, read length and data quality for our Ion PGM Bench top Sequencer.

In the first year, Ion Torrent doubled read-length to 200 bases and increased throughput 100-fold to 1 gigabase.

In the second quarter, we released new 200-base kits and upgraded the Torrent Suite 2.2 Data Analysis software, which further scales throughput and improves data quality to the Q30 quality level.

We also released data sets demonstrating 400 base read-length with data quality sustained at the Q30 level across long reads, which we intend to launch in the second half of this year.

These performance improvements spur the development of new applications that can be run on the Ion PGM Sequencers at basic and clinical research labs all over the world.

We also reached two important milestones in the quarter.

First, we have increased our membership to 10,000 in our ion community, actively sharing methods, data and applications.

Second, we have now installed well over 1,000 Ion PGM Sequencers in labs around the world, making Ion Torrent the leading next-generation bench top sequencer.

In the second quarter, we continued to see strong demand for the PGM instrument and our associated consumables.

We saw significant year-over-year growth in the PGM platform, as we continued to enjoy strong competitive positioning and high demand from customers.

I also have some updates related to the Proton.

We are currently running exomes on the Proton I chip and began sharing data sets with customers in July.

We are very pleased with the progress we have made and expect to make continued improvements similar to our experience with the PGM chips.

You may recall, when we launched the first 314 chip, we were seeing 10 Megabases of throughput.

Now, 18 months later, we have iterated on the technology and have proved throughput on the 314 chip to 100 Megabases.

Nothing gets better faster than our semiconductor technology.

We're now on track to begin shipping the Proton instrument that will run the Proton I chip in September, well within our internal time line.

We have over 100 orders already in the queue and continue to take additional orders.

Our expectation is that we will ship a substantial number of units in the third quarter, as we continue to ramp production and expect to ship further backlogs in the fourth quarter.

We are extremely pleased with the customer interest and demand for Proton so far.

Earlier today, we announced that the New York Genome Center had purchased four Ion Proton Sequencers for its new innovation center.

We are pleased that the New York Genome Center has joined a growing list of prestigious research-focused hospitals and institutions around the world that are rapidly adopting our Ion technology.

The units will be housed at the ISM Memorial Sloan-Kettering Cancer Center and used to accelerate its research on the genetic mechanisms of cancer.

The feedback from our customers is that Proton will be a game-changer in research, because it will be able to sequence runs in as little as 90 minutes.

Currently, the research market focuses on work with exomes while the diagnostic testing market is using gene panels.

We are addressing the clinical markets with the PGM and are planning on submitting a 510(k) with the FDA.

Next, in September, we'll be hosting a scientific forum to speak about the benefits of ion semiconductor sequencing and its multiple applications.

At the forum, we will be featuring our PGM and Proton products and hosting speakers and scientific poster sessions to highlight cutting edge research across the full landscape of genomics research.

We will also feature the use of PGM system to advance clinical research and we expect customers to present the Proton data at that meeting.

During the quarter, our businesses continued to generate very strong free cash flow of $232 million, and we remain on track to deliver $650 million to $675 million free cash flow for the year.

As I've been saying all year, our management team and Board of Directors remains committed to a balanced approach to deploying capital and we continue to review all options of how best to do so.

During the second quarter, and through July, we spent an additional $150 million to repurchase shares, to bring our year-to-date total spend on purchases to $335 million.

We are enhancing our commitment to returning capital to shareholders as evidenced by our announcement today that our Board of Directors has authorized an additional $750 million share repurchase program.

We expect to execute against this new authorization beginning in the second half of 2012.

The market dynamics we saw in the first half of 2012 were largely in line with our expectations.

As we now look to the second half of the year, we have dynamics that are causing us to take an incrementally more conservative outlook.

Currency has become more of a headwind, as the euro has weakened significantly since the beginning of the year, and the macro outlook for most of Europe continues to worsen.

Additionally, while we have not seen any further slowdown than expected in the research spend from our NIH-funded customers, we are watching the situation very closely.

We read the same sequestration and budget cliff headlines that all of you and our customers are reading, and we are monitoring for any potential hold back in spending.

With these factors in mind, as well as our recent medical sciences acquisitions, we are revising our guidance.

We are now expecting our organic revenue growth to be at the low end of the 2% to 4% range we have provided, really closer to 2%.

We're also lowering the top end of our non-EPS by $0.05, and are now expecting earnings per share in the range of $3.90 to $4.00 a share.

We believe that we have made the necessary adjustments to our guidance to best reflect the macro factors, as well as those that are specific to Life.

We have already pulled back in some areas on discretionary spending and will continue to monitor our end markets and developments in Washington.

If we see any deterioration in the current trends, we're prepared to take additional actions to quickly preserve profitability.

We understand that these are uncertain times and we're doing our best to weather a challenging environment in the near term.

However, we are committed to diversifying our exposure and leveraging our Life Science expertise across geographies and into growth areas like next-generation sequencing in medical sciences.

We are continuing to make the investments we believe are necessary to make us increasingly more competitive and healthy in 2013 and 2014 and the years beyond.

With that, I will turn the call over to Ronnie to provide an overview of our medical sciences strategy.

Thanks, Greg.

I appreciate the opportunity to join today's call to provide an update on our medical sciences strategy and to speak about our recent efforts to build out our offerings and assets in the diagnostics area.

Since I joined Life in late February, we've been moving very rapidly to develop our strategy and begin engaging companies and potential partners to create organizational velocity.

We've made terrific progress in establishing a plan that will capitalize on Life's deep base of technology and become a solid growth engine for the country, as well as ensuring we are good stewards by focusing on partnerships and tuck-ins where possible versus larger, more capital intensive acquisitions.

To date, we've been able to attract strong talent from the molecular diagnostics industry to bolster our commercial operations and our regulatory efforts, and we combine with a team that's already in place.

We're well on our way to having one of the strongest teams in the industry.

For those of you who know me, you know how passionate I am about the opportunities that lie ahead of us in molecular medicine.

I truly believe we are in a major inflection point in the way we manage complex disease, and with the breadth of Life's technology portfolio, I'm confident we can play a major role in democratizing disease-changing diagnostic information to clinicians around the world.

Our vision for medical sciences business is to become the most relevant provider of high value information to assist physicians in the management of complex diseases.

Diseases such as cancer require the assimilation and synthesis of fast amounts of diagnostic data, and we're excited to be expanding our product offering into the area of informatics and testing services that will allow community-based physicians to have access to information and expert consultation when they need it.

Over time, we plan to offer a full range of products to diagnose, aid in therapy selection, and treat and monitor these complex diseases.

We intend to leverage Life's tremendous instrument installed base, with over 7,500 placements of Genetic Analysis platforms in clinical settings today that enable hospitals and reference labs to provide important information to their physician communities.

The important point here, though, is that our placements span across our CE, qPCR, SOLiD, [fish], immuno-history chemistry and Ion PGM technologies and platforms.

Life's global channel access is a powerful advantage as we build out our molecular diagnostics business.

Our technology breadth well positions us to support assay development and information synthesis in five key areas where we believe we can create value, oncology, inherited disease, neurological disorders, transplant diagnostics, and infectious diseases.

Our future lies in bringing value to the physician/patient interface by delivering disease management information to the treating physician, information generated by our portfolio of products and synthesized through our bio-informatics engine and then distributed via an industry-leading physician portal.

Over the last several weeks, you've seen a series of announcements from us on partnerships and acquisitions related to our diagnostics effort in the verticals of inherited disease and oncology.

In June, we announced that we're collaborating with two premier research institutes.

The Hospital for Sick Children in Toronto and Boston Children's Hospital, both of which will start to adopt the Ion Proton platform as their choice of sequencing technology, as they study inherited diseases.

Under these collaborations, the institutions will use the Ion Torrent platform to develop next-generation sequencer applications for clinical research in pediatric diseases.

We, then, gain the rights to share the tools, the methods, and the protocols that result from these collaborations via kits and consultation with other customers, to accelerate adoption and to add value to the Ion platform for our users.

Over the last 30 days, we have made significant progress in building out our diagnostics franchise with the tuck-in acquisitions of Navigenics and Pinpoint Genomics, which together will allow us to operate lung cancer, molecular sub-classification tests to the pathology and oncology community via a powerful physician portal.

Navigenics brings us an established CLIA-certified laboratory licensed throughout the US.

This asset will play a central role in delivering our diagnostics model in the following ways.

The CLIA-certified lab will be used for design and validation of new high value and high impact diagnostic assays and to offer proprietary applications that address current, unmet needs in the management of complex diseases like cancer.

Our CLIA lab is a means to an end, not an end to itself.

The goal is to take panels and products developed here and utilize the lab to gain standard of care for the proprietary test, while we take the test through the regulatory processes so we can ultimately democratize the labs globally.

Navigenics' software infrastructure assets will also allow us to accelerate development of medical informatics solutions to enable data capture, clinical annotation, and physician interpretation.

Finally, we intend to continue to build partnerships with pharmaceutical companies for companion diagnostic development, including participating in early phase clinical trials, all of which has enabled by our own CLIA lab acquisition.

We also acquired Pinpoint Genomics, which has an early-stage non-small cell lung cancer test that can help doctors identify and treat those early-stage patients at risk for progression to late-stage disease, who today, are not typically given follow-on treatment post-surgery.

Although medical research has realized impressive gains against many forms of cancer, the survival rate for lung cancer has not changed in 30 years, with nearly half of the early-stage patients not surviving beyond five years.

Lung cancer continues to be the leading cause of cancer deaths worldwide, claiming close to 1.5 million lives each year.

Clearly, this disease could benefit from better differential diagnosis and more efficient treatment protocols.

The Pinpoint lung cancer test is designed to detect micrometastases, a predictor of disease progression in early stage lung cancer patients.

The [14G] panel was validated using two independent, blinded retrospective studies of approximately 1,500 patients, a significantly powered study compared to the studies used to launch other proprietary diagnostic tests that are available in other cancer areas today.

By ordering the Pinpoint test, doctors will be able to identify which patients have a high chance of recurrence and treat them more aggressively.

Another important point to note is that the Pinpoint gene panel was developed on a Life qPCR platform, and, therefore, can be transitioned from a CLIA LBT to an IVD CE-marked kit.

We plan to launch the test commercially later in 2012 as an LBT to ensure that lung cancer patients, who today worry about their risk for occurrence, will now have access to information that will help them and their physician make an informed choice about the need for adjuvant therapy.

We will begin immediately, though, to work on transitioning the test to a kit-based offering, which we will launch through our global channel allowing us to access our large installed base of qPCR platforms currently being used in clinical labs outside the US today.

The addition of the Pinpoint test is a great start, as we move into the world of targeted molecular diagnostics.

It aligns extremely well with Life's goal of providing relevant information to treating physicians for the management of complex diseases, and takes advantage of the industry-leading qPCR platform placements.

In addition, with the emergence of the Ion PGM Dx for next-generation sequencing, that's a technology ready for clinical development, we will stand alone in our industry as a Company that can empower labs with content and platforms across the genome, transcriptome and proteome.

While we are still in the early stages of building out this business, we're very encouraged with the progress we have made in such a short time.

I look forward to updating you as the strategy continues to unfold.

And with that, I'll turn the call over to David to provide a more detailed overview of our results and our guidance for 2012.

David?

Thanks, Ronnie.

Good afternoon, everyone.

In my remarks today, I will provide an overview of our results for the second quarter and a more detailed commentary around our expectations for the third quarter and full year.

For the first half of the year, we delivered revenue and earnings growth that was in line with our expectations.

Our second quarter revenues grew 1% to $950 million, slightly ahead of our guidance of flat revenue growth year-over-year.

Non-GAAP earnings per share were $0.96, an increase of 8% over prior year, and included a $0.02 impact from lower foreign exchange rates compared to rates at the end of March.

Free cash flow for the quarter totaled $232 million.

Before I move into a more detailed review of the quarter, I would like to remind everyone of the headwinds impacting our results this year.

While we've been talking about these items for sometime, I thought it would be useful to size the specific impact they had in the second quarter.

As Greg mentioned, they include $30 million in lower SOLiD instrument sales and a decline of about $8 million in our qPCR royalty revenues.

If we exclude the impact of these two items, our revenue growth was 5%.

As you recall, we also talked about lower stimulus revenues in the United States, which we have estimated to be about $10 million per quarter.

Excluding the stimulus impact would add another 1% to our growth.

Now, let me turn to the detailed results for the quarter.

For our geographic regions, revenue excluding currency was as follows; the Americas declined 2%, Europe grew 1%, Asia-Pacific grew 17%, and Japan declined 6%.

The decline in SOLiD sales affected all regions, while the qPCR royalty decline is booked only in the Americas.

If we back out the impact from SOLiD and the qPCR royalty decline, growth is in line with our expectations and is more representative of the performance of our underlying business.

With these adjustments, the Americas grew 2%, Europe grew 4%, Asia-Pacific grew 19%, and Japan grew 2%.

As Greg had mentioned, we are seeing a slower pace of growth in Europe, primarily Western Europe.

But in the second quarter, we experienced good growth in Russia, as well as in countries in Southern Europe, primarily due to the timing of some larger deals.

Taking a closer look at our business groups for results for the quarter, excluding currency, Research Consumables revenue increased 1% to $403 million over the same period last year.

We continue to see growth in our cell culture products, bench top instruments, and selected molecular biology consumables product lines.

Revenue for Genetic Analysis decreased 6% to $353 million for the second quarter compared to prior year.

The decline was primarily due to the expected headwind from SOLiD and the qPCR royalties, offset by the growth of Ion Torrent.

Genetic Analysis growth excluding the SOLiD and qPCR royalty revenue headwinds would have been 5%.

Applied Sciences revenue increased 15% to $194 million for the second quarter compared to prior year.

The increase was driven primarily by BioProduction and Forensics and resulted from strong demand and the timing of orders.

Gross margin increased 120 basis points to 65.4% compared to prior year, driven by lower SOLiD instrument sales, a positive benefit from the roll off of our 2011 currency hedges, partially offset by the decline in qPCR royalties.

On a sequential basis, gross margin decreased by approximately 120 basis points.

We expected some decline as a result of increase sales of Ion Torrent, but we also had higher sales of BioProduction, which carry a lower margin than the corporate average.

And the overall drop in exchange rates also contributed to the decline.

As expected, operating expenses of $350 million were higher on a year-over-year basis, principally due to our annual merit increase that took effect in April, and our continued investments in Greater China and Ion Torrent.

On a sequential basis, operating expenses were up as expected, primarily due to the annual merit increase.

Our operating profit totaled $271 million, an increase of 3% over prior year.

Second quarter operating margin was 28.6%, representing an increase of 80 basis points.

The increase over the prior year was a result of better gross margins, partially offset by higher operating expenses.

In terms of other income line items, we had $500,000 of interest income, a loss of $2.6 million from foreign exchange and other items, and interest expense of $29 million.

Our tax rate for the quarter was 27.6%, slightly better than our expectations.

Compared to the same quarter of last year, the rate was lower due to increased domestic manufacturing incentives and greater foreign tax credits on repatriated earnings.

Our diluted share count for the quarter was 181.3 million, a decrease of 3.5 million over the prior year as we continue to repurchase shares.

Moving on to the balance sheet and the cash flow statements, our ending cash and short-term investments were $303 million.

This compares to last quarter's balance of $264 million.

Cash from operating activities was $256 million.

Capital expenditures were $24 million, and free cash flow was $232 million.

Return on invested capital was 9% for the quarter, which is basically in line with our cost of capital.

Given the greater currency headwinds and the lower top line growth expectations, we do not anticipate reaching our 10% target by the end of 2012.

However, we remain committed to this goal and we are working to achieve it as quickly as possible.

Our ending debt as of June 30 was approximately $2.4 billion.

This balance is made up of our senior notes of $2.3 billion, plus some short-term debt.

Now, let me take a moment and talk about our outlook for the remainder of 2012 and provide guidance for the third quarter.

We expect our full-year organic revenue growth to be at the low end of the 2% to 4% range, which we had originally guided to, primarily due to slower growth in Europe.

We are maintaining the bottom end of our non-GAAP EPS guidance, but lowering the top end by $0.05, and are now expecting our non-GAAP EPS to be in the range of $3.90 to $4.00.

We estimate that incremental currency headwinds since our full-year guidance in February are likely to lower EPS by a net $0.03 for the full year.

Our recent medical science acquisitions will be $0.02 dilutive, and the lower organic revenue outlook will also impact EPS.

We intend to offset a portion of these factors through a reduction in discretionary spending.

We're also anticipating reduced shares outstanding resulting from our share repurchases and expect to benefit from a slightly lower tax rate.

For the full year, we are expecting our share count to be in range of 180 million to 182 million, and our tax rate to be at 27.5%, assuming extension of the R&D tax credit in Q4.

We are now expecting our operating margin expansion to be in the range of 25 to 50 basis points compared with our previous expectations for an expansion of 50 to 100 basis points, primarily driven by product mix, including a higher portion of BioProduction and Ion instrument sales, weakened foreign exchange rates, and a slightly lower revenue outlook.

Moving on to currency, recall that our original 2012 guidance for currency was at December month end rates, which net of the hedge roll-off benefit was a headwind of $26 million to revenue and a benefit of $0.02 to EPS.

At June month end rates, currency net of the hedge roll-off has a negative $41 million impact on revenue and a negative impact to our EPS of $0.01 for the full year, resulting in a net headwind of $0.03 for the full year.

When we look at the second half of the year, based on June month end rates, we are now expecting a year-on-year EPS headwind from currency only of $0.18 for the second half of 2012, which is $0.06 worse than the impact we guided to using December month end rates.

Now, let me provide some color for the second half of the year.

We expect the fourth quarter to have higher revenue and earnings than our third quarter, as we experience a normal ramp due to customer buying patterns, increased sales of our Ion Torrent platform, and shift a large Applied Sciences deal that we had originally planned to close in Q3 to Q4.

In addition, as you may remember, we also had a large Forensics sale in Russia in Q3 of last year, which we're not expecting to repeat this year.

For the third quarter, we expect revenue, including currency at June month end rates to be in the range of $900 million to $910 million.

Gross margins are expected to be down year-over-year, largely due to a decline in foreign exchange rates, increased sales of Ion Torrent, and the previously discussed decline in qPCR royalty revenues.

Our operating expenses are expected to be flat year-over-year, as the impact of the merit increase is offset by a reduction in discretionary spending.

We expect operating expenses to be down sequentially, as we prioritize spending while continuing to invest in strategic areas.

Because of these dynamics and with currency at June month end rates, we're expecting Q3 EPS to be in a range of $0.87 to $0.90.

And with that, I'll hand the call back over to Carol.

Thank you, David.

We'll now turn the call open to Q&A.

And I would just like to remind everyone again, if possible, if you could limit yourself to one question and possibly one follow-up since we have multiple analysts to get through.

Ben, if you could open it up, please?

(Operator Instructions) And our first question comes from the line of Jon Groberg from Macquarie Capital.

Your line is open, please go ahead.

Great, thanks a million, and, Ronnie, welcome to the call.

So, Greg, if I could just start off the bigger question, you've shown in this quarter again just how stable, kind of steady the business is and you generated over $200 million in free cash, and so one of the big areas that investors have been focused on is on the, kind of returning cash to shareholders and you have this commitment in the presentation to return 50% of free cash to shareholders.

I know you've talked in the past about potentially doing a dividend versus a buyback.

Can you maybe just talk about kind of how the Board came to the decision of doing the buyback and the timing you expect to execute against that buyback?

Certainly.

So the first part of the question, the Board deliberated on what was the best way to deploy capital back to shareholders at this point, and as you can see, decided on a fairly large share buyback.

It in their mind is not an either/or in terms of a buyback or a dividend.

In fact, I think once the tax policy is more clear, that the Board will deliberate again if it should augment its deployment of cash to shareholders with the dividend as well.

So that remains an option.

It's just not an option until we're further understanding what the tax policies will be on its treatment.

In terms of the timing, what we're willing to say at this point is that we're going to start buying our shares back here immediately in the second half of the year, and I think as you've seen us do in the first half, we're going to be fairly aggressive about it, given the, we think, fairly depressed price of the shares today.

So that's our plan.

Okay, great.

Then if I could just follow up, you obviously made some good comments there, some updates on Proton.

Can you maybe just talk a little bit about the order book, you gave some numbers, maybe just kind of give us an update of your overall view of how Proton is tracking, how the order book is tracking relative to your expectations, and just kind of your general update on that relative to kind of what you're thinking about internally?

Thanks.

Yes, so I'll answer the little bit and then also turn it over to Mark.

But as we said in the script, we have over 100 orders of Proton already and we'll begin shipping those in September.

Like we had with the PGM, when it gets launched, there will be a fast iteration process with those clients to make it just that much more of a compelling instrument, and we see a similar ramp of the capability of that technology of Proton, just like we saw with PGM.

So we're very enthusiastic and very bullish.

I would say what's really attracting the interest of clients, and we're just at the very beginning of it, is here you have an instrument that essentially spans the whole range of possibility.

It can be the instrument for the high throughput genomics center, as New York Genome Center is looking at, or it can also scale down, as the case is.

And it's all done for a very economical price.

So we think it's an absolute game-changer instrument and I think that's why customers, sight unseen essentially, are beginning to buy it and soon they will see it.

So, Mark, any other comments?

I would just add, Jon, I think the customers see the vision of where semiconductor technology has gone.

If you just take one aspect like read-length that we demonstrated on the PGM, and going from 100 read to now shipping 200 read.

This quarter, we're shipping 300 base pair read and in Q4 we're launching a 400 base pair.

They just see the scalability very quickly of this technology and that's what customers are really buying into here.

Great.

Thanks a million.

Thank you.

Thank you.

Our next question comes from the line of Amit Bhalla from Citi.

Your line is open.

Please go ahead.

Thanks, good afternoon, everybody.

I wanted to just start with the third quarter guidance, especially the top line.

Can you just walk us through the moving parts for the third quarter versus the fourth?

The third quarter comes in a little bit lighter than we expecting on the top line.

So can you just walk us through the issues in the third quarter and how they tie to the guidance?

Let me start with that one, and I wouldn't say there are issues in the third quarter.

The third quarter basically reflects, if you look back historically, has been one of our lighter quarters.

Academic and universities are off and purchasing tends to be lighter.

We then see a ramp-up in the fourth quarter and we expect that that will be the case here.

Second is Ion Torrent, as Greg said, we're launching it in September, so we will get some sales in the third quarter, in the final month.

But it will be running full speed for the fourth quarter.

Those are the primary drivers.

In addition, as I mentioned in my script, we've got a couple of larger deals in the Applied Sciences, which we're expecting in the last half of the year.

We thought one of them would happen in the third quarter and now looks like that's more likely to happen in the fourth.

Could still happen in the third, but we think it's going to be in the fourth.

And so just to be conservative, we've assumed it will be at the end of the year.

Those are the three primary drivers.

Okay, and can you just quantify the size of that large deal?

And my follow-up relates to the industrial and applied end markets.

Several companies have talked about slowdowns kind of late in the quarter.

Can you give us your perspective with, with some discussion on the geographic mix of the industrial and applied end markets.

Thanks.

We -- I'll take the latter part.

Just in terms of -- when you say industrial, I presume you mean pharmaceutical, is that what your question is?

No, not exactly.

More of the applied end markets.

You're talking about food, environmental.

That's what I'm talking about more.

For us, the food testing business, the animal herd testing business, our Forensics business, BioProduction continue to be extremely robust.

So we haven't seen that.

And then you asked a question about the size of the deal.

We expect it to be in the $5 million to $10 million range.

Okay.

Thanks a lot.

Thank you.

Our next question comes from the line of Tycho Peterson from JPMorgan.

Your line is open.

Please go ahead.

Hey, good afternoon.

Thanks for taking the question.

Just wondering on the expense side of things, you talked about being a little bit more prudent in this environment.

We've seen some of your peers maybe move toward more cost containment and cost cutting actions.

Can you talk a little bit about how we can think about leverage on the expense side?

In particular, I'm wondering on R&D, as you're moving more into diagnostics and layering on additional content, can we expect to see some R&D leverage either in the back half of this year or at some point in 2013?

Tycho, maybe just to clarify, when you say R&D leverage, what is that lingo for?

Just trying to bring down your overall R&D spend.

I guess the question is, as you move more into diagnostics, do you have to spend a lot more to validate the additional tests you're bringing on, or is there an opportunity, more broadly speaking, to control your R&D burn a little bit more in light of the current environment?

Well, I would answer the question more broadly.

We don't necessarily focus in our cost controls on any one particular line item.

By virtue of our outcomes over the last few years, you can see how we've really driven margins higher by focusing in on everything.

And so as we look to the second half and beyond, if we face into further headwinds, we have a number of different projects teed up, different ideas teed up, where we can, we think, control our expenses.

Not necessarily in the R&D line alone, but across really the spend that we have in the Company.

Yes, and just to piggy back on that, I think you've seen that our R&D came down as a percentage of sales from 10%-plus over the last couple of years to closer to 9% we're targeting this year.

And if we need to, we'll take a look at, as Greg said, all aspects of our spending and make sure that we preserve profitability.

If I could just add, too, as you think about, Tycho, as you think about medical sciences and how we build out our program, traditionally, at least in my past, we have used what I would call sponsored R&D agreements with pharmaceutical companies and other biotech partners so that they actually would pay us to do a lot of the research and platform development work for them.

So I expect that we can be extremely prudent users of R&D dollars to get the maximum benefit for us in terms of validation of these targeted assays that we're working on.

Okay, and then just to be clear on the guidance for the back half of the year, obviously, you're bringing it down in terms of the incremental cost on Europe.

And the three things we should think about are Proton, the Applied Science deal, and then you commented on the year end budget slush.

I just want to dial in on that specifically in light of sequestration, are you still envisioning that we get a big budget flush in the academic side in the fourth quarter?

No, I was less commenting on a big budget flush and more on, that our third quarter tends to be a lower quarter in terms of sales.

You didn't see so much of that last year because we happened to have a big Forensics deal in Russia in the third quarter of last year, which was $9 million.

But normally we have a dip down from Q2 to Q3 and then back up in Q4.

So we're not expecting a big flush in Q4.

Okay.

So it's really Proton and the Applied Science deal that gives you confidence that there's an acceleration in organic growth in the back half of the year, even with the revised expectations?

Correct.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Derik De Bruin from Bank of America.

Your line is open.

Please go ahead.

Hi, good afternoon.

Hi, Derik.

Hi.

So if you look at the Research Consumables business, basically for the last 10, for the last eight quarters or so -- not eight quarters, but last six quarters or so, it's been covering kind of the 1% range like there.

What do you think it's going to take to re-accelerate that back?

Is that purely in volume in terms of people at the bench doing experiments?

What kind of re-accelerates back to sort of what you saw in 2010 where it was hovering more in the 5% range?

Well, Derik, I think our strategy is that it would be a combination of factors.

One would, obviously, be exogenous to us, which would be more money coming into research spend.

I think that's possible because we're at pretty low historical levels, but that's not what we're counting on.

The way we believe we'll get faster growth is through market share.

While other companies are perhaps less committed into that space, we're more committed, and I think we have a number of different initiatives underway to hopefully grow our share of the labs.

When we've looked at not only our share, but our share in various niches, if you will, of research, there's still a lot of market share to be grown by us relative to others, and that's really our primary focus.

So in order to capture that incremental share, how much more SG&A muscle do you need to be putting behind that?

Historically, if we go back and we look at the 2006 timeframe and kind of how you have jiggered the sales force and did some changes, things like that, in terms of getting the right products, like that, is it more of getting them to sell more, or is it putting more feet on the street to try and help drive that?

How do you capture more share in that area?

Well, we're not going to lay out the play book here on a public call, but I think you've made the presumption that we don't make, which is that it's going to require substantially different vector in terms of the SG&A spend.

In fact, as we look at what's happening more and more is going to the Web to the eBusiness channels and that's a very low cost way for us to participate.

So that's an example of where the economics of the business are changing in a favorable way, and in a favorable way to consolidate our research tools like us.

So that's one of the strategies, obviously, that is being employed.

There are many others, but, again, when we look at what it takes to grow share, and also live to the commitment of expanding our operating margins, we think they are both very doable.

Great.

I'll get back in the queue.

Thanks.

Thank you.

Our next question comes from the line of Dan Leonard from Leerink Swann.

Your line is open.

Please go ahead.

Thank you.

On the Proton shipments in Q3, are there any revenue recognition dynamics we should be aware of?

Would you expect any meaningful lag between shipment and revenue recognition on those instruments?

We don't expect any issues at this point.

We had no problems with the introduction of the PGM.

We just recently introduced the QuantStudio.

We've got a big technical service group that is poised and ready to help us install the current sizable backlog that we have.

Okay.

Thank you.

And then my follow-up on guidance, David, for the third quarter, can you give us what your organic revenue growth assumption is in guidance, given the fluctuations in currency?

It's a little challenging to tease out.

And then also on share count, it seems as if you were aggressive on the buyback program, you could get the share count well below 180 million for the year.

Let me just -- so let me take -- the first question, let me just pull out some backup and I can give you that.

Your second part of the question was on the share count?

Yes, if you were aggressive with the $750 million in share repurchase authorization, at least the math I'm doing gets me below 180 million and I'm wondering if I'm missing something?

No, I think it all depends on how much you assume we purchase in the second half of the year, what you think the price is going to be, how many option exercises there are, et cetera.

So our best guess at this point is the range is 180 million to 182 million, and if anything significantly changes, we'll provide an update.

We'll certainly provide an update at the end of Q3.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Doug Schenkel from Cowen and Company.

Your line is open.

Please go ahead.

Hi, everyone.

Thanks for taking the questions.

In investor meetings over the course of the second quarter, you were pretty positive about your outlook.

I just want to try to get at kind of how the cadence of the quarter played out, and specifically, did things just at the end of the quarter maybe not come together in the way that you expected, and accordingly, did that change your view in a way that, maybe at the beginning of June, you would have said, you hadn't expected?

So, Doug, I think that what we saw at the end of the quarter, as I said that we think we said in the script, is that we saw some slight weakening in Research Consumables.

On the instrument side, we have, a significant amount of our instruments are sold late in the quarter.

So I think as we were going through the quarter, we saw pretty stable conditions and we saw a slight slowdown at the very end of the quarter, the final two weeks.

We didn't see any big drop off.

And when I say a slowdown, it was a slowdown in Europe.

There's no cliff that we're looking at here.

We don't anticipate any substantial change in the second half of the year, but we're just trying to be prudent and conservative in adjusting our outlook on the basis of that.

Okay, and maybe building off of that, clearly, a few moving parts in guidance, and without having precise FX and M&A assumptions by quarter, it's tough to get exactly at what you guys are looking for organically in Q3 and Q4.

But I guess one thing I came up with suggests that you're guiding Q3 organic to something like 0% to 1%, and if that is the case, to get to full year guidance, I think that means organic growth needs to accelerate to something like 4% in the fourth quarter.

Does this sound like it's in the right neighborhood?

And if so, given that I believe Q4 is actually your toughest quarterly comp of the year, is that all predicated on what you talked about in terms of that Applied Sciences order and I guess Proton's strength?

Yes, those numbers that you've got in terms of the organic growth are in the ball park.

And, yes, that's the primary driver of the growth rate in the fourth quarter.

It's the continued growth in PGM, a ramp-up at Proton, and Applied Sciences orders.

Okay, and I guess just one last one, you called out the headwinds associated with royalties in SOLiD.

I believe one positive offset to those in the quarter was that you actually had a favorable comparison in China, or I guess I should say Greater China, where, I believe, you came up something like $20 million short of expectations in Q2 2010.

Should investors also be adjusting the trend for that positive comparison in assessing the quality of this quarter and the run rate, and, I guess, specific to Greater China, how should investors think about the outlook from here, given what was actually a favorable comp in the quarter?

Yes, you're absolutely right.

In Q2 of last year was the time that we announced that we were moving to a new distribution strategy in China, that we were consolidating our distributors and going direct and Greg mentioned the purchase of one of our largest distributors in this quarter is evidence of that.

It's working extremely well.

Our growth rates in Greater China now are back in to the high teens and 20s.

And so that was -- of the things that happened to us in the second quarter, that was the one item that you could say is a one-time occurrence.

And I believe the impact on the growth rate was somewhere about 1% to 2%.

And so if you wanted, you could take all of the adjustments that we would have in terms of our headwinds in the second quarter of this year, with the growth rate of 6% and take off 1% to 2% to get a look at what the underlying growth rate is.

Okay.

That's all very helpful.

Thank you.

Yes.

Thank you.

Our next question comes from the line of David Ferreiro from Oppenheimer.

Your line is open.

Please go ahead.

Sure.

Thank you for the question.

My question is on PCR market dynamics.

I was wondering if you guys could talk about the defensibility of your franchise and how market share has held through the interest of other competitors over the past few years?

Then finally, what impact discounting from your competition has had on the business in that timeframe?

Thanks.

Yes, David.

It's Mark.

I'll focus mainly on qPCR.

We also, of course, have a very competitive PCR market and we've learned how to compete in that market when patents went off nearly 10 years ago now.

There's a similar situation in qPCR.

We've had a very competitive instrument market for a long period of time and continue to compete in that.

We have the same really in the follow-through reagents.

There's always been a competitive after market.

There's groups that have made Oligos and compete in the assays.

Really where our differentiation is, one, we offer choice in points for our customers across that range, whether it be [lower in] instruments all the way [new entities] QuantStudio for different experiments.

We do the same in reagents, so we have choice points of chemistries across TaqMan (inaudible), allow different price points and formats for customers to do that which allows us to compete.

And then finally, we have a very strong support infrastructure for those customers doing those experiments.

For the assays, we built out a very strong franchise around all the available gene expression, micro RNA snips, and that allows customers to basically go onto our website and order those as pre-designed assays.

When a lot of our customers come to do those experiments, they have a lot of variables in it, so they want to go to a trusted source, and that's really a lot that's defensible and it's a very sticky business in that nature.

I would also like to add that more of our placements, the ratio of cells really play in the diagnostic space.

Once a lab brings up a qPCR product, it is managing patients with that product, very difficult to change out that system or that reagent system due to the trending of patients, et cetera.

So we do have a number of instruments, as we said, over 7,500 placements in the clinical space, and so along with the other things that Mark said, that is a really strong opportunity for us to maintain our current share and maybe even grow it as we go forward.

Thanks a lot, guys.

Thank you.

Our next question comes from the line of Daniel Brennan from Morgan Stanley.

Your line is open.

Please go ahead.

Hi.

Thanks for taking the question.

First off, just on the European weakness that you saw in the quarter, could you provide some detail regarding specifically, like what parts of the business customers saw the weakness in Europe and now what your guidance reflects for these businesses in the back half of the year?

Let me start and Mark, Greg, Ronnie can jump in.

In terms of the weakness that we saw in Europe, again, it's primarily in Western Europe.

It was surprisingly strong in southern parts of Europe, largely due to some large orders that we had.

The weakness was primarily in Research Consumables, and it was concentrated in the research market, some of which was in some of our larger pharma accounts, and some in academic institutions.

Again, in terms of what we're looking at going forward is not any substantial change in our outlook for Europe.

It's just the range that we gave for organic growth in Europe was low-single-digits and what we're looking at now is probably closer to 1%, 1.5%.

So within that range, just at the lower end.

Great.

Thanks.

And then in terms of maybe discretionary spending cuts, which you mention are helping to cushion, or protect some of the earnings in the back half of the year, could you just quantify to what extent the spending reductions are occurring there, aiding earnings in the back half of the year and any detail you can provide about the additional flexibility you might have if things, if the environment continues to stay depressed?

Yes, we really haven't quantified those at this point in time.

We're still working through the plans.

We've got a level of different plans that start with things that are fairly easy to do.

So it's just monitoring travel and entertainment more closely, outside services, those types of things, to some of the more fundamental things that we talked about earlier on in response to a question in the call, is some more fundamental organizational changes, some changes in the prioritization of our R&D programs, et cetera.

And so what we're trying to do here is in an uncertain situation like this, is remain flexible.

We're committed to preserving profitability and hitting the guidance that we've provided, and while at the same time, trying to invest as much as we can in the future growth of the business.

And we'll adjust the actions that we take in the second half of the year as it unfolds.

Great.

Thank you very much.

Thank you.

Our next question comes from the line of Michael Cherny from ISI.

Your line is open.

Please go ahead.

Hi.

It's Ross.

So I guess in thinking about the sort of diagnostics strategy, in terms of magnitude and sort of how you would like to see this develop in the business and how you're thinking about it in the context of your sort of ROIC goals, we've seen a lot of companies move into this space.

It's not necessarily been additive from a return perspective, although it's aided growth.

How have you sort of looked at the sort of puts and takes on that in the short-term relative to some of the other targets you've laid out?

Ross, this is Greg.

I think actually the path we're pursuing so far is a nice balance between being able to continue to drive ROIC higher and not putting a lot of capital deployed at risk.

And so you're seeing these, I think, tuck-in acquisitions.

They are very modestly dilutive so far, not that they all will be.

And at the margin they cause a little bit of pressure to ROIC.

But in the main, over the course of the year, we're still able to drive ROIC higher each and every year.

So I actually think in speaking with our shareholders, this is the most prudent and effective way to build a franchise without having to risk a lot of capital.

Ronnie?

And, Ross, if I could add, if you look at diagnostics in general, you might make the conclusion that you know what, the returns aren't necessarily that accretive to the overall business.

But I think when you look at molecular diagnostics as an entity within diagnostics, the companies that have really done well there have seen significant return on sales.

I know in my Roche Molecular years, we were well in the mid-30s in return on sales, so I think you can see that if we go at this in a very responsible way, target it at very high value diagnostic plays, which is how we're approaching it, that we can bring significant impact.

The gross margins in this space, as we move to kits, can significantly, be significantly higher than you might see traditionally in the more competitive Life Science world at times.

But also, keep in mind I think one of the things I've enjoyed in my 30 years in the diagnostics space is that the ups and downs of the markets come and go and the challenges of the macro environment come and go.

But people still get sick, people still get tested, and those tests still get reimbursed, even in tough economic environments.

And so I actually think it's a great place for the Company to be looking at, and as Greg said, we're trying to do it very responsibly.

And let me let you know we definitely have, I believe, are starting to accumulate a solid team that's been there and done it, so we will be able to, in a very appropriate way, bring some value to the Company, I hope, in a very short period of time.

I wanted to talk a bit about the share repurchase.

So it seems like you would like to act aggressively on this.

If you look at sort of the stock over the last, I don't know, five, six years, it's been in this sort of $40, $45 level I think back since '07.

You've had sort of six straight quarters of low-single-digit organic growth.

And I guess,as you're thinking and you're facing, to your point, Greg, the sequester, I appreciate the shift from a sentiment perspective on capital deployment to be more shareholder-friendly return capital.

I guess, again, to the original question, I forgot who asked it on the call, how are you thinking of this and the timing of sort of the aggressiveness of returning capital via share repurchase or via the dividend, given the uncertainty to some degree in the environment as a whole and relative to kind of the returns your stock has had now over a prolonged period of time?

Well, Ross, let me just make sure that the listeners to our conversation have the, the different facts, which is our share price was as high as $57 fairly recently.

So I think it hasn't been hovering here for that, that long.

And like all companies facing the world economy today, it's a difficult thing to navigate.

We're navigating it, we think, with three vectors.

One is that we want to be able to deploy capital back to shareholders in a very, I think, effective way.

The second, we're extremely bullish in Ion Torrent and the opening up of a big new horizon for us, both in the research and the clinical diagnostics side, and we're literally just starting that.

And then the last to Derik De Bruin's earlier question, we're going to be an ever-fiercer as a competitor in the research tools market.

We're not going away.

We're going to get bigger.

And we're managing those three things, I think, pretty effectively, given all the pressures that any Company like ours is facing today.

So those are the three things we're doing.

Thanks, guys.

Thank you.

Our next question is from the line of Peter Lawson from Mizuho Securities.

Your line is open.

Please go ahead.

A question for Greg, possibly Mark.

Do you see in the genomics market increasingly biased towards [examic] sequencing versus whole genomes, and do you think you're better positioned for that trend?

That's a great question.

What we've been saying for some time is that whole genome sequencing is important, but it's really more of a pure research type thing.

What you're seeing in the clinic, and we have designed our instruments with a total bullseye on this, is panels, and to some extent exomes.

And both the PGM for panels and the Proton for exomes moves at the speed of healthcare.

It does these things in two hours, not 30 hours that a researcher can wait for, and that's why we think we're on the right side of history, if you will, coming out with this technology of Ion Torrent.

Then what's in the works on the bio-informatics side?

It still remains a huge stumbling block?

I think it remains a huge stumbling block if you're trying to analyze an entire human genome.

That is a monstrosity of an IT challenge.

If you are trying to analyze a gene panel, that's a more manageable IT task, and I think that's where the analysts have to get to the next level of specificity.

So on that point, we think we have a very compelling software suite that goes with Ion Torrent on the panel side and soon-to-be exome side.

These are more manageable data sets and we've got an extremely large team just focused entirely on that.

If you throw on top of that, the Navigenics portal that we have and the ability to use curated data sets that already exist in the medical community, we're able to take the ion information, put it with phenotypic information and really represent from a bio-informatic perspective potential outcomes that are relevant to decision-making.

So, again, you're right on.

I think the bio-informatics challenge in the genomics role is great and can't be underestimated, but I think we're on top of it and have a nice portfolio of solutions for that.

And then just finally for Ronnie, if you look two years out, how many tests do you think you'll have approved and how many will be lab-developed tests?

Let me say this.

You know, the lab, as I said in my prepared remarks, the lab is sort of a means to an end.

And our end is to use the CLIA lab as a development engine to develop content for pharmaceutical companies, but also to take proprietary content that today has been developed by academic researchers that's ready for market and really bring it through our lab and then take it into the clinical realm.

Clearly, using it to be a trial site for us to prepare for regulatory processes, et cetera.

We are looking at the key areas I mentioned, but clearly, oncology is a rich area for content right now.

I think you'll see us very active in partnership, where we can be and potential licensing, and also we want to leave the door open for potential tuck-in acquisitions as well going forward, all around key content.

But one thing you can note, is there will be very high value content, there will be content that will be applicable to one of our platforms and can allow us to put it into kits and globalize it very rapidly, because the ability to CE-mark a kit once we brought it through our system, through our CLIA lab, is really, is really rapid and we can begin to move on the global install base probably more rapidly than we could if we were looking at the US opportunity alone.

So one of the beautiful things about life and one of the things that's really impressed me since I've been here five months now is we are a global Company and I'm encouraging the diagnostics team that we're building to think globally first, because the opportunities for us in this world of molecular diagnostics clearly are great ex-US, or as great ex-US as they are in the United States.

So you'll see a lot of the content that we move to be focused on rest-of-world capabilities and needs.

Great.

Thanks so much.

Thank you.

Our next question comes from the line of Isaac Ro from Goldman Sachs.

Your line is open.

Please go ahead.

Hey, guys.

Thanks for taking the question.

First one would be for Ronnie, just trying to maybe put some framework around how we should put the build-out of your diagnostic strategy and is there a timeframe where you guys might want to talk more about your long-term revenue goals there, and sort of what other pieces you need to add to the puzzle to have that business in a place where you're happy?

Sure, Isaac.

We've spent the first 100 days putting the strategy together, really pressure testing the market opportunities, taking into account the stewardship that we want to apply to capital deployment.

And all those things kind of culminated in the strategy that we're now executing around the Navigenics asset, which is really for the position portal, as well as to get me a CLIA lab that we can develop in.

And then, obviously, the Pinpoint genomics test, which gives us a game-changing and life saving lung cancer panel that can be immediately transferred to kits for rest-of-world use.

So those are sort of the first two moves, but I think as we think about the strategy, there's obviously more to come, and at some point in the near future, I think we will be prepared to maybe put out more prognostic in terms of revenue and placements data.

But to date, still early, and a lot of the negotiations that are ongoing with some of the key partnerships are still in the early phases and we wouldn't want, we wouldn't want to adulterate those conversations by being too verbose at this time.

So if you'll just give me another 30 to 60 days, we should be in a position as we get to the end of the next quarter to be a little clearer on how it's going to look in 2013.

But one thing you can note, and Greg and team here, when I came, they challenged me to think of this as a start-up venture and to make sure that we thought about this in terms of not burning cash, but figuring out ways for the business to create revenue for itself to deploy back into the business to grow in that method.

And candidly, the team I've put together, we've done that numerous times in our career and that's what we're focused on.

I think you can see this as a great opportunity to really tackle some huge opportunities.

Next-gen sequencing is going to be an amazing tool for the industry.

Ion Torrent is clearly the absolute best platform in my opinion, as a diagnostician, to democratize this information.

But we've got to get that information as part of standard of care, and that takes a while to bring these next-gen sequences in, synthesize them with large mathematical engines, and then begin to apply those in the clinic, at what I call the [double-doc] level first, which is the PhD-MD and then moving it down into the communities.

And our business really explodes globally when we conquer that 300- to 400-bed hospital environment and are able to deliver game-changing information there.

And we really feel like we're a Company that's well positioned to do that.

So those are the kind of things, as I hint towards what strategy's going to look like, you'll see as we begin to announce and really talk more about it in the coming months.

Great.

If I could just ask a follow-up for Dave or Greg on the guidance, third quarter, if we just sort of take what you guys are looking for in third quarter revenue and then the implied sequential acceleration in revenue, it's probably a little bit bigger than what you saw last year on an absolute dollar basis.

So could you maybe help us frame how much of that sequential uptick will come from the Proton ramp versus just sort of the underlying business?

That would be very helpful.

Thank you.

Well, we haven't broken that out specifically and we would rather not talk about the specific sales that we've got targeted for PGM and Proton.

But you can assume that we're not expecting any significant acceleration in the base business.

So the rest of it comes from the two things that we've commented on.

We expect some pickup in Applied Sciences, so we've got a deal there that we said was $5 million to $10 million.

There's another deal that we've got in there, roughly about that size in fourth quarter, and then the rest of it comes from Ion Torrent.

Okay, fair enough.

Thanks so much.

And, Ben, I think we have just one more question.

Thank you.

Our final question comes from the line of Jon Wood from Jefferies.

Your line is open.

Please go ahead.

Thank you.

Can you hear me?

Yes.

Hi, Jon.

Hey.

So, David, a lot of talk about the Applied Sciences order shift in the back half, but I guess I'm not really clear about why that business had such a monster quarter this quarter, in the second quarter.

So was there any one-time items that were benefiting that business in the second quarter of '12?

Yes, and -- yes, and really, the big drivers of that business are BioProduction and Forensics, both of which we've talked about in the past, tend to be lumpy businesses.

Over any longer period of time, they are going to grow in the high-single-digits, low-teens, but in any one quarter, you can get a big order.

BioProduction, which I mentioned a number of times in my prepared remarks, had an unexpectedly big quarter for us.

Demand, as I think a number of other people in the space have commented on, has been very strong, continued strong in BioProduction, and we happened to get some big orders, as well.

Okay, good color.

My last one is any short-term metrics you can offer on these two small acquisitions you gave in terms of revenue or invested capital would be great.

I would appreciate it if you don't want to go into that, but in terms of back half revenue contribution and deal size, would love any color you have there.

Yes, both of them, in terms of revenue in the second half of the year are very small, basically insignificant in the scheme of things.

Yes, we had a little ramping.

Ron?

Yes, we've got these tests now.

They just launched.

The Pinpoint assay paper was just published in January.

We've got, obviously, a lot of market interest, but we have to go out and develop that market and, clearly, that's what we're going to be doing in the second half of this year.

So the real revenue opportunity for us in any one of these scenarios where there's a proprietary test that's new to the market like that, the revenue ramp usually lags the actual market launch by six to eight months.

I think you can expect that here.

We'll be launching, as I said, in the fall timeframe, late fall.

So as you see that come out of the soft launch, you can then suspect somewhere between six and nine months before we'll see the revenue ramp for that.

So it certainly won't impact second half, as David said.

All right.

Great color.

Thank you.

All right, Ben.

I think that will be the end of the call.

Thank you very much, everyone, for joining us.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program and you may all disconnect.

Have a great rest of the evening.