Waters Corp (WAT) 2006 Q2 法說會逐字稿

Good morning. Welcome to the Waters Corporation second-quarter financial results conference call. (Operator Instructions). This conference is being recorded. If anyone has objections, please disconnect at this time. I would like to introduce your host for today's call, Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Thank you. Good morning and welcome to the Waters Corporation second-quarter financial results conference call. With me on today's call is John Ornell, the Company's Chief Financial Officer. As is our normal practice, I will provide an overview of the second-quarter results, and then John will take you through the financial details and lay out the third quarter and full year 2006 outlook. Finally, we will open it up for Q&A.

But before I begin, I would like John to cover the cautionary language. John?

During the course of this conference call, we may make various forward-looking statements regarding future events or future financial performance of the Company. In particular, we will provide guidance regarding possible future income statement results for the Company at this time, for Q3 and full year 2006.

We caution you that all such statements are only predictions and that actual events or results may differ materially. For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations -- be our 10-K/Annual Report for the fiscal year ended December 31, 2005 in Part 1 under the caption "Business Risk Factors."

We further caution you that the Company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results, except during our regularly-scheduled quarterly earnings release conference calls and webcasts. The next earnings release call and webcast is currently planned for October of 2006.

During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures, which are most directly comparable to GAAP measures, is attached to the Company's earnings release issued this morning. In our discussions of the results of operations, we may refer to pro forma results, which exclude the impact of restructuring or other onetime charges.

Thank you, John. Well our performance in the second quarter indicates a general continuation of the trends that drove our first quarter's growth. If you look at the most significant segments of our business, I'm pleased to tell you that we saw a nice sequential growth in comparison to the first quarter of '06. And at the halfway point in the year, our organic sales growth is approximately 9% in comparison to the first half of '05.

The most important trends that we've seen for the first half of '06 include a rapid expansion of our business in the developing world, especially China and India; a continuation of strong spending from industrial and food safety labs; and sustained strong uptake of ACQUITY UPLC across a wide array of applications to customer groups. These positive trends were somewhat offset by continued softness in North American spending by large pharmaceutical accounts.

When we last spoke in April and discussed our outlook for the second quarter, we did not have expectations for a significant recovery in large pharmaceutical account spending. As you may recall, our top 15 large pharmaceutical accounts represented about 15% of our sales last year and a similar proportion of our sales in the second quarter. In our view, the issues facing these companies were not likely to dissipate quickly. However, we felt that the lower spending levels we had experienced for the past few quarters had pretty much bottomed out and that sales to this customer set were likely to either stabilize or see a moderate recovery. Though our business to big pharma did sequentially grow from the first quarter of '06 to the second quarter, on a year-to-year basis, this segment was a depressant to our overall sales growth rate in the second quarter with a double-digit decline.

Feedback from researchers and lab managers in our large pharmaceutical accounts continues to suggest that spending will improve later this year. However, our recent history suggests that we should maintain a pretty conservative outlook. While supporting our larger user base, we will continue to pursue opportunities outside of these accounts. In fact, the more broadly-defined pharmaceutical market, including biotech, generic firms and CROs, performed quite well and enabled us to achieve positive sales growth for our overall pharmaceutical business in the quarter.

Second-quarter highlights also should include mention of important mass spectrometry product introductions for Waters. At the ASMS Conference in early June, we launched several new systems, including a high-performance tandem quadrupole instrument and a novel new mass spectrometry technology embodied in our new Synapt HDMS System, an instrument that may significantly expand the application reach for mass spectrometry, particularly in the life sciences. Our new Synapt HDMS System allows researchers to learn more about their samples, including details of molecular size and shape that were previously not discernible by mass spectrometry. We plan to begin shipping Synapt HDMS in the fourth quarter and the new tandem quadrupole mass detector in the third quarter.

Looking at our sales results by product line through the first six months of '06, our chromatography business grew at a double-digit base with our ACQUITY UPLC and chromatography column and services businesses all performing well. Our second-quarter chromatography sales growth rate cooled a bit from the 16% pace we saw in the first quarter due to a tougher base of comparison in the second quarter and the softness in pharmaceutical spending. However, ACQUITY UPLC momentum continues to grow, and our second-quarter sales volume grew very nicely and sequentially off a strong first-quarter 2006 base.

In the first half of '06, we began to see some competitive responses to our successful ACQUITY UPLC initiative. Some competitors have claimed comparable performance, while others suggest that their solution is well good enough. So we're carefully watching our competitors' actions. We remain confident in the performance advantages of our unique technology and in our customers' desire to achieve superior results that are only available through ACQUITY. At this point, we appear to be on track to roughly double our UPLC system revenue this year in comparison to a very strong 2005 full year result.

Our mass spectrometry shipments picked up in the second quarter, pushing our half-year growth rate into positive territory. The increase in the second quarter was primarily associated with strong tandem quadrupole shipments for industrial applications with overseas growth offsetting weaker performance in the US. As I mentioned earlier, we have recently launched several new mass spec instruments and we expect to benefit from shipment of these new products in the second half of this year.

Looking at our results geographically, our business operations in Asia had a very strong second quarter with India and China again leading the way. Pharmaceutical companies in India -- large and small -- continue to expand and update their labs, while the growth in China is more broad-based with a higher level of investment by government-funded labs there. Signifying the growing importance of our governmentally-supported business in China, we recently announced collaborative agreements with three Chinese governmental agencies, which are involved with food safety testing and environmental analysis. We feel that these types of agreements will help us maintain a leading position in the expanding Chinese market and enhance our overall strength in these application areas.

Our industrially-focused TA Instruments division benefited from strong growth in its Asian businesses, while seeing sales growth rates in the US and Europe moderate somewhat. TA plans some significant new product introductions in the second half of 2006, and we anticipate that demand for these new instruments will stimulate revenue growth in the US and in Europe. TA is on track for another year of solid and profitable performance.

Before turning the discussion over to John for the financial details, I want to tell you that I am encouraged by both our results so far this year and by our prospects for the second half of '06 and then into 2007. This year, we have introduced a series of important new products, especially in mass spectrometry. We feel that these new instruments, especially in combination with our leading ACQUITY UPLC will re-establish Waters as a technological leader in mass spectrometry and eventually drive our corporate sales growth rates to double-digit levels.

In emerging applications, like food testing and environmental analysis, ACQUITY UPLC MS appears to be setting new performance standards that may shape regulatory requirements for many years to come. Operationally, we are well-positioned to access important customer segments and we're confident the changes that we've already initiated in our manufacturing and distribution organizations will help us continue to deliver industry-leading profitability and cash flow. Now, I would like to turn it over to John for the financial review.

Thank you, Doug, and good morning. Our second-quarter results met our expectations with non-GAAP earnings per diluted share of $0.53 this quarter compared to $0.46 last year, an increase of 15%. On a GAAP basis, earnings this quarter included a restructuring charge of $2.5 million after tax and a FAS 123R stock option expense of 5.1 million after tax. Including these expenses, first-quarter 2006 EPS were $0.46 on a GAAP basis.

Sales grew 6% for the quarter versus last year, and currency was neutral to sales growth this quarter. Looking at sales growth by geography, our sales results were positively influenced by strong sales in Asia outside of Japan, where we saw a 36% growth in the quarter. Sales within Europe were up 2%, Japan was up 6% and sales in the US were down 2%. Sales to large pharmaceutical accounts remained weak, particularly in the US, while global sales to smaller pharma and industrial-based customers continued their positive momentum.

Looking at quarterly product line revenues, sales of LC products, led by the adoption of our ACQUITY UPLC technology, grew by 6% versus prior year and mass spectrometry product shipments were up 4%. The mass spec growth is encouraging, given that our newly-introduced products will not ship until the third quarter. Our thermal analysis business continued its positive performance with revenue growth of 7%.

Now, I would like to comment on non-GAAP margins and expenses, excluding FAS 123R and restructuring charges. Gross margins came in as expected and were down about 30 basis points from Q2 last year. This quarter's performance was affected by higher quantities of ACQUITY product sales and the ramp-up of Alliance production in Singapore.

SG&A expenses were up 2% this quarter compared to prior year. We continue to hold back on SG&A spending in the US and Europe, given the current low growth environment in these regions. Conversely, we continue to make investments in additional personnel in Asia in support of growing business opportunities, especially in India and China. We therefore expect to see modest SG&A growth in the upcoming quarters of 2006.

The increase in R&D spending reflects the costs of introducing multiple mass spec instruments this quarter. Expenses are expected to grow more slowly in future quarters as the majority of product spending for this year's new MS instruments is behind us.

Operating income for the quarter showed strong growth with operating margin over 24%, up 50 basis points from Q2 last year. Our effective tax rate dropped this quarter as a result of lower earnings in the US to a first-half rate of 17.6%. On a GAAP basis, our effective tax rate was 15.6% this quarter.

During the second quarter, we purchased 1.8 million shares of our common stock for $80 million against our authorized share repurchase program, leaving a remaining balance of 114 million to complete this program. Cash in short-term investments totaled 490 million, bringing us to a net debt position of about $373 million. With our strong balance sheet and liquidity, we believe we have adequate flexibility to fund our future needs. Cash flow was adversely impacted this quarter by a mid-year inventory build. Cash from operations after funding $14.7 million of capital spending this quarter was $51 million.

Accounts receivable day sales outstanding stood at 72 days this quarter, down 1 day versus Q2 last year. Inventory grew by $15 million this quarter as the result of a few factors -- $4 million associated with the ramp-up of production of our new MS products, $3 million of safety stock created for LC products in preparation for transfer to Singapore and Ireland, $2 million related to deferred instrument shipments late in the quarter, and $3 million of foreign currency translation impacts. We expect inventory to decline in the second half of this year.

Now, I would like to turn to our outlook for full year 2006. First, I will talk about the year without including FAS 123R expense. Then, I will layer on the anticipated FAS 123R impact. Overall business results for the second quarter came in pretty much as expected with slightly stronger growth in Asia and slightly weaker growth in the US and Europe. In considering an unusually large deferral of instrument shipments late in the quarter due to inversed shipping terms totaling $5 million. The underlying organic strength of the business is on plan. However, given a tight spending environment within large pharma accounts, we will take a conservative posture in setting guidance at this time and we expect sales to increase 8% this year with currency at today's levels being neutral to overall sales growth.

As we came into this year, our budget plans included a reexamination of our SG&A structure. This activity has resulted in a reorganization of our European operations and a modest reduction of resources in the US -- are resulting in restructuring charges in the first half of this year. There will likely be small, onetime costs associated with these actions in the second half as well of $1 million or less as the reorganization actions are completed. Without these onetime restructuring charges, SG&A is likely to grow around 4% to 5% in 2006. And for this year, R&D expenses are likely to grow comparable to sales.

At the operating margin line then, we expect to see an improvement of about 100 basis points for 2006 with operating margins approaching 26%. And we presently expect our effective tax rate to be between 17.5% and 18% for 2006 before FAS 123R effects. Interest expense is planned to be about $25 million this year, and the net impact of our share repurchase programs should reduce outstanding share count by about 10% versus last year. Rolling all of this together, we currently expect earnings to grow 18% in 2006 and come in at $2.36 per fully diluted share with the normal tolerance of $0.01 to $0.02 each quarter and before unusual charges and FAS 123R expense.

Now to layer on the impact of FAS 123R, we expect this expense to be about $0.21 per fully diluted share in 2006. And additionally, we expect about $0.06 of restructuring costs this year, resulting in GAAP earnings of $2.09 for 2006, again with the normal tolerance of $0.01 to $0.02 each quarter.

For Q3, we expect sales growth of 9% with currency supplying 1% of this growth. At this sales level, we expect earnings per fully diluted share of $0.51 with the normal tolerance of $0.01 to $0.02 for the quarter and before any unusual charges and before FAS 123R expenses. FAS 123R will reduce EPS by approximately $0.05. EPS on a GAAP basis, including FAS 123R costs and restructuring costs, are expected to be $0.46 with the normal tolerance of $0.01 to $0.02 for the quarter. Doug?

Thank you, John. Operator, I think we can now open it up for Q&A.

(Operator Instructions). [Andy Keller], Excalibur Research.

Congratulations on a solid quarter. You guys seem to always produce good results. A couple of questions -- regarding the selling process, how are you guys looking forward to streamlining the selling process to reduce some order inaccuracies to allow your customers to have a more efficient experience buying your products and configure your products more efficiently?

Well, you know I think if I understand the gist of your question, I think we have a pretty efficient process now. One of the things that we've done probably earlier than most is internally, we went to a significant SAP information system really beginning when we spun out of Milford. That served as an information backbone through which we build proprietary databases and outfit our marketing and sales people and have early on with CRM capability.

So our sales force has been able for a while now to tap into that, to provide quotes, to essentially an online, real-time basis provide quotes and book orders at a faster rate I think than most of our competitors in our industry. So, I feel pretty good. Now, we are forever adding capabilities to that. But I think that's all part and parcel about why our operating margins are north of 25% because of the efficiency in our SG&A organization.

That's what I've noticed in the marketplace. What challenges do you still see lie ahead with that type of situation that you have with your customers? What have your customers been telling you?

Well, I mean I think we all probably have a ways to go to give customers online, real-time access to our databases. I think you'll see more happen in that over time. But I think what really it means is for the most part, you will see that our infrastructure is capable of handling a lot more growth. So that as our business grows, we don't have to add SG&A spending at the rate of sales. That's kind of what we're seeing in the results this year.

What we continue to have to do however is recognize that I think long-term, our business is going to grow faster in Asia than it does in the more developed worlds of the US and Western Europe. So, we're going to continue to be challenged with having to balance the growth requirements in one area of the world with lower growth in another area. That's kind of what John was talking about in terms of as we came into this year, we had to tweak our organization a bit and make room. That's always a challenge, but I think you see it in the kind of things that we're doing this year.

Regarding DSOs, how do you plan to reduce them over the next year?

John, you want to -- and after this, I think we'll move on to another question and probably get back in the queue.

We are looking at DSO. DSO is really high for us as a result of the amount of business that we do in Europe. I mean you do business in Italy and other countries there that have very long terms. We do our best not to offer extended payment terms where we don't have to, and we do have a project underway to benchmark actually our DSO by region versus others in our industry. So it is something we look at. We will work to pull that down. But you have to recognize this is a significant amount of business that we do external to the US that makes that a bit difficult.

In general, we think DSO in the range that it's in is likely to be what our balance sheet is going to sustain over the longer-term. We wouldn't encourage people to think that our average DSO is going to go substantially lower than it is.

John Emerich, Iron Works Capital.

Just a couple of unrelated questions, I will ask them separately if I can. The -- you said cash flow from operations was 51 million, but then you threw out a CapEx number of 14.7 million. Was that 51 million of free cash flow after CapEx or before CapEx?

That was after CapEx.

After CapEx.

Yes.

Assuming you come in as you say plus or minus a couple pennies with your earnings guidance, what would that same number look like for the year?

We think that cash flow for the year is in the range of 265 to 275 before any unusual onetime charges.

And that would be after a CapEx number of approximately what?

Of approximately between $40 and $50 million.

Great. Then can you talk a little bit about the $5 million of kind of deferred sales in this quarter? What happened? What was unique about it? And I guess did it happen already in this quarter?

Yes, what was unique about it was generally when we come through the end of the year, we have a significant increase in that deferral in the fourth quarter. And then as we move through the first few quarters of the year, you generally don't see that reserve need building. In fact, it typically comes down a little bit as we go through the first few quarters. It didn't have a meaningful change in the first quarter but in the second quarter increased by $5 million, which is unusual. And we had a number of orders in China that had adverse terms, weren't able to get the product out the door into the customers' hands in time to recognize the revenue.

Likewise, in Europe, we had a couple million dollars of shipments that had adverse terms that came in too late in week 13 for us to get the product into the hands of the customer. So seeing that deferral increase by that amount in the second quarter is a little bit unusual.

But it was a deferral of days or weeks, not more than that?

Oh, yes. Absolutely.

Yes, it's these things -- a lot of these orders if we had shipped them three days earlier would have qualified for revenue recognition. You know we almost hate to talk about this because it's part of our job to do this better and it was a little serendipitous that in three areas around the world, these very good orders just have these somewhat complicated shipping terms that under the revenue recognition rules you kind of caught us a little bit by surprise. But I -- we look at these things every quarter of course as part of the revenue recognition process. This was just a little bit tilted in that direction this quarter.

Last question is just an update on what the share repurchase authorization remaining is.

114 million remains on that $500 million program.

Derik De Bruin, UBS.

Could you talk a little bit about I guess the pharma environment right now? The numbers have generally been pretty good for pharma. Could you just give us some feel for your confidence level in seeing spending increasing in the second half?

Sure. I confess that our thoughts that pharma had hit some bottoms before this, so I haven't been the best prognosticator. You are right. I think recently, you've seen certainly Merck and others report better-than-expected bottom-line results. So I think maybe some of the short-term earnings pressure might be a little bit relieved in some of those large pharma accounts.

But I think the long-term issues that they are dealing with show no sign of slackening. So I don't think a good quarter or two is necessarily an overpowering reason to celebrate. But putting that to one side for a minute, we keep getting feedback from the on-the-ground pharmaceutical researchers that they need product. They've been deferred. Their managements are asking them to delay, delay, delay. And we keep getting symptoms that that is getting better, that they anticipate that they are being told they will be able to spend. That combined with a general tendency for pharma to be more back-end loaded in their capital rather than front-end load give us some optimism that the second half is likely to be better than the first half.

But frankly, we are being somewhat more conservative in our financial expectations. But I would say that the data that we pick up from pharma industry -- from big pharma is that things should get better on that front in the second half.

I guess when you look at those accounts, how much of it do you think is -- because there are so many new products on the market and people are just taking a much longer time to evaluate before they buy -- once again, just address --

In terms of HPLC products?

Yes of HPLC and also mass spec. I mean there are a lot of new mass specs on the product market as well but mostly on the HPLC front.

I think most of the dynamic on the HPLC front is market-driven and not a valuation of competitive products. Yes, there's always some evaluation built into the equation. We know that there is some accounts that are still evaluating. But frankly, if your question really goes to ACQUITY versus competitive products, boy, we continue to see very little where accounts are coming back and say, we think the story as Waters tells it is wrong. Most of the feedback that we're getting from our accounts says that the UPLC story is powerful. The reason why purchases aren't being made is related to their internal capital requirements, not based on competitive slowdowns.

Just one final question -- so in the mass spec, you had some really nice product introductions at PITTCON and ASMS. I guess are you looking for -- are you still expecting a double-digit acceleration of the mass spec business in the second half of the year?

Yes, we are. I won't say that we are banking all of that into our financial forecast, but we think the second-half mass spec probably more weighted to the fourth quarter because you know these -- they still have to work their way through the manufacturing process, particularly with the Synapt product. But we are very enthusiastic about that new high-end system and think that the second half should show nice growth.

Tycho Peterson, JPMorgan.

This is actually [Sum Genam], Tycho's associate, calling on his behalf. I had a couple of questions. First of all, as you face increased competition for ACQUITY UPLC, are you experiencing any pricing pressure? For example, are you experiencing any pushback from your customers?

Pricing on ACQUITY has held up very nicely. We're seeing no overall average selling price deterioration.

As for the overall demand for ACQUITY, where is it in terms of the product cycle and when do you think it may slow down?

Well, it's very early in the product lifecycle. This is really only the second full year of ACQUITY. Just typically, lifecycles of new HPLC systems in the past have been pretty long lifecycles. So our Alliance product has been many, many years in the marketplace.

So our belief is that the UPLC and the ACQUITY in particular -- you'll see enhancements to it. It's not like the system that a customer is buying today will be the same one five years from today. But the basic platform we think has many, many years to go in it.

Vivek Khanna, Argus Partners.

I just had a quick question. Can you just give us the organic growth between the three segments? I missed it on the call.

Sure, John, do you want to repeat what you said?

Yes, the organic growth for HPLC was 6%. For mass spectrometry was 7%, thermal analysis -- I'm sorry, mass spectrometry was 4% and thermal analysis was 7% for a total of 6%.

John, final question on the percentage of sales ex Japan, you said it was up 30%. But what percentage of your sales is that?

That's to all of Asia. So that would be 10% to 15% of our sales.

John Sullivan, Leerink Swann.

Moving some Alliance production to Asia as you are, can you comment on where that build-out stands right now? Then secondly, regarding the same topic, it sounds like you are having good success with ACQUITY in these emerging economies. Does that call into question to any extent the strategy to move Alliance production to Asia?

Well, I will let John handle the first part and I will --

Yes, I think as it relates to the production plan, we are pretty close to -- about a 50-50 split at this stage, and we are ramping up as we speak. Everything is going smoothly on that front. We're very happy with the quality of the work that is done there. And we are currently on a path that would suggest that we will be 100% there within the fourth quarter.

It would be wrong to think that our Alliance product line isn't doing well; it is. But frankly what we're seeing is that more and more of our HPLC business is moving to Alliance base and fewer and fewer to modular-based systems I would say. So Alliance is holding up very well. It's holding up very well in Asia in particularly. So we're very comfortable with our manufacturing plants for Alliance in that area. It's going to service the entire worldwide Alliance base. But for the piece of being very close to a rapidly growing segment of our market, that still looks secure.

And we're very happy with our overall manufacturing strategy. Our manufacturing operations have been a key part of why we can maintain north of 25% operating margins and very good gross margins. We'll continue to drive productivity in that manufacturing base. A piece of that clearly is the Singapore manufacturing. A piece of it's in Ireland; there is a very good running plant. And our domestic operations are very well homed too, and we continue to put our new product drive through our domestic operations. As they mature, we will fuel our other operations. So I'd say that manufacturing strategy is playing out very, very well.

And then a related question -- John, as Singapore comes online, is there a marginal effect on the tax rate as more of these revenues move to Singapore? Did I hear you right, Doug, for 2007, will all worldwide Alliance demand be satisfied out of the Singapore facility?

Yes, the Singapore facility will supply worldwide demand for Alliance beginning in the fourth quarter and into the future, and there will be a benefit from production in Singapore. You will see that next year, you'll probably see a little bit of a reduction in the overall rate because of that. However, we have to keep in mind that the US is a pretty depressed market for us right now, which temporarily is bringing our rate down below 18%. So there's a lot of factors that go into calculating the tax rate. Certainly, the Singapore operation will be one that will have a downward pressure overall on the rate.

We don't think it would be terribly prudent to model a tax rate for us that gets asymptotically close to zero. So I think hanging in there in the 17%, 18% area is probably a -- we think it is sustainable over the next two or three years, but I wouldn't get too much more aggressive than that.

Jason Weiss, Robert W. Baird.

Actually, a lot of my questions have been answered, but I'm wondering if you could talk about the food quality and environmental markets. What you've been seeing and what you expect from those markets in the second half?

Sure. I think in general, those are two of the strongest markets worldwide. But there's no question that currently disproportionate strength in our Asia markets. Certainly, China is very aggressive in terms of looking at their export markets and looking at the testing to satisfy their export markets. The EU tends to be the strongest in terms of food quality requirements. And they set a lot of the standards for places like Thailand and Vietnam. And recently, Japan has been very active in their food testing, and they've always been pretty strong on the environmental side. We're also seeing, particularly in China, the environmental laboratories be very strong.

And all indications are that that's going to continue. We've recently -- the senior management has spent a fair amount of time in China looking at and meeting with government agencies as well as our industrial customers. And the long-term budgets for growth in that area are consistent with the kind of business that we're seeing now.

I'd say Asia is where most of that spending is taking place. It's important to understand I think in particular the EU regulations as they relate to that import market. But we're also seeing impact on that in Latin America too. I'd say the interesting part is that it's relatively weaker in the US. That's because the food safety regulations are not as strong in the US.

Just as a follow-up then, as far as the contribution to your overall growth first half versus second half, would you see it going up, staying about the same, coming down?

I'd say pretty consistent because it's quite strong right now. I wouldn't -- I don't think it's going to get dramatically stronger. But I don't see it --

Going backwards.

Likely weakening anytime soon.

Right, exactly.

Derik De Bruin, UBS.

A couple of follow-ups -- what was the share count in the quarter? Then following that, you've said your net debt situation is 373 million. You had previously indicated that you wanted to keep that under 500 million. So, I guess just tell us what you are thinking about looking for share buybacks and then going forward.

Well, within the quarter, we bought back roughly a couple million shares. You would have seen the benefit of about half of that or so in the quarter in that weighted average share count. And as it relates to the remainder of the buyback, it's likely that we'll pretty much finish that program over the next couple of quarters. We think that with the cash flow that we generate that we can do that without creating a ridiculous amount of debt. So it's likely that you will see that program complete between now and the end of the year.

I think in terms of what we are happy with is much related to where our stock is. At current levels, we would be -- we would not be shy about going above that $500 million level. Because we think our stock is a good investment. If it gets dramatically higher, we're probably going to reevaluate at what level of stock investment we should be at.

That's a good answer. I guess could you just talk about what VICAM contributed to the quarter and I guess -- we haven't heard an update on like the NuGenesis, eLab Notebook programs for a while. Could you just refresh our memories on those?

Sure. I will let John handle VICAM. The informatics business continues to be a challenge for us. You know the biggest problem with it continues to be the weakness in large pharma accounts, which were the number one customers for NuGenesis and the target for eLab Notebooks.

So, I would say we continue to work major opportunities in the informatics realm. We continue to believe that we are -- it's very synergistic with our position in ACQUITY and in HPLC. There's no question that we've booked some very large instrument orders because of our strong position with basically the NuGenesis-based SDMS product.

But I think it's also fair to say that the overall growth in that area has been disappointing to us. So it wasn't -- it's still mid single-digits growth, and we had anticipated it would be higher than that. I would say it's still -- we'll have a better test of it when we see some real strength in the large pharma segment of our market and that will tell us whether we are on track. We continue to get good reviews from the users, but I would say watch this space for further notice.

As it relates to VICAM, there's about $2 million of sales in the quarter associated with that business as well as about $2 million of expense all including purchase accounting. So it's neutral on the bottom line. And by the way, the informatics business is sized likewise this year to be neutral on the bottom line. So there's no contribution or deterioration of the P&L from that either.

John Sullivan, Leerink Swann.

Just a quick follow-up -- regarding the Singapore facility, can you comment on how much of the $40 to $50 million worth of CapEx expected for 2006 is comprised in the Singapore facility?

Almost none. Our Singapore strategy is through a partner. So one of the strong strategic advantages of it is that it doesn't require us to expand any capital money there.

I have no further questions at this time.

Well, great. I appreciate you all taking the time to be with us this morning, and we will look forward to talking to you again in October.

That concludes today's conference. You may disconnect at this time.