Revvity, Inc. (RVTY) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the PerkinElmer First Quarter 2012 Earnings Conference Call. My name is Maria and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dave Francisco, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, and welcome to the PerkinElmer First Quarter 2012 Earnings Conference Call. With me on the call are Robert Friel, Chairman and Chief Executive Officer; and Andy Wilson, Senior Vice President and Chief Financial Officer. If you have not received your copy of our earnings press release, you may get one from the Investors section of our website at perkinelmer.com or from our toll-free investor hotline at (877) PKI-NYSE. Please note, this call is being webcast live and will be archived in our website until May 10, 2012. Before we begin, we need to remind everyone of the Safe Harbor Statement that we've outlined in our earnings press release, issued earlier this afternoon and also those in our SEC filings. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation to the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent we use non-GAAP financial measures during this call, but are not reconciled to GAAP in that attachment, we will provide reconciliations promptly. I'm now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Thanks, Dave. Good afternoon and thank you, for joining us today. I'm pleased to report that we had another very good quarter in which we delivered strong financial results while making excellent progress against our 2012 strategic priorities. During the first quarter, we grew adjusted revenue 16% year-over-year, delivering better than expected growth despite very difficult comps from the first quarter of last year, particularly in Environmental Health, which grew 17% organically in the first quarter of 2011. In the first quarter of this year, Human Health increased adjusted revenue by 27% due to the addition of Caliper and solid organic growth from Diagnostics and Medical Imaging. Environmental Health grew by 6%, reflecting notable contributions from our inorganic analysis offerings plus strong end market drivers, such as water and chemical analysis. Organically, our revenue grew 6%, with Human Health up 9% and Environmental Health up 3%. Our continued focus on improving our operational efficiencies and expanding our operating margins enabled us to exceed our plans for earnings per share in the quarter and deliver adjusted EPS growth of 23%. Across our end markets, there are 2 fundamental themes that are changing the behavior and needs of our customers. These themes uniquely position PerkinElmer to play a significant role in improving world health. First, there is an increasing interconnectivity between human and environmental health resulting in the convergence of our 3 core end markets, Diagnostics, Environmental and Life Sciences. As the developed world faces increasing health care costs, we can leverage our complementary capabilities in these markets for better outcomes and reduce cost. We have the capabilities to aid in both understanding genetic predisposition to disease, as well as helping people avoid potential environmental triggers to disease. Additionally, we can aid in identifying diseases, they're always possible, and help discover more effective targeted therapies. The second overarching theme is that, as the developing world continues to grow rapidly, it is demanding greater access to health care. While many of these developing countries today are focused on necessities such as access to clean air and water and safe food, the rising middle class is demanding improved living standards. This will cause many countries to require advanced medical capabilities, such as early disease screening or diagnostic tests. Today, there is a great need to serve these customers across the increasing level of the requirements and spanning virtually every region of the globe. PerkinElmer's extensive global channel and footprint enables us to address these needs head-on. We have a unique ability to tailor our technologies for the developed world and then bridge them into the emerging markets. While we're well-positioned to leverage these 2 macro themes to improve global health, we cannot stand still. Critical to our success is our ability to apply our knowledge and expertise to develop cutting-edge innovations that solve customer needs. In that regard, during the quarter, we introduced several innovative new products targeting our core end markets. These included, the HER2Sense preclinical imaging agent which supports breast cancer discovery research. The Panthera-Puncher for the handling of neonatal blood spots. An Ensemble for Biology, a suite of informatics applications intended to serve as an integrated biology workflow for use in research and development, as well as in quality assurance and control. Additionally, I'm pleased with how well our recent acquisitions performed in the quarter. Our teams are making excellent progress in driving smooth integrations, including not only streamlining processes and creating greater efficiencies, but equally as important, bringing forward the best of both cultures and combining them together as one entity. And particularly, the former Caliper Life Science business performed very well, as revenue growth accelerated from the strong performance in 2011. The Life Sciences and Technology team has done a fantastic job across all aspects of the integration, including global training of the sales force, accelerating customer connectivity and assessing opportunities to maximize the combined global footprint, which should only increase efficiencies but facilitate innovation, which, of course, was a cornerstone of Caliper's culture. In addition, despite difficult comparisons, we continue to see excellent traction with our OneSource Laboratory Services offerings, especially as customers in emerging territories look to drive improved workflow in asset management in their laboratories. In summary, I'm very pleased with our strong start to the year and feel the organization is executing well against our priorities. Looking ahead, we maintain our cautious outlook on the macroeconomic environment. As such, we continue to forecast the similar demand profile to what we experienced in the first quarter, but with lower expectations for Europe. Accordingly, we expect full year revenue growth consistent with what we communicated at the beginning of the year or in the range of 10% to 12%, representing organic revenue growth in the mid-single digit range. Regarding adjusted earnings per share, given the performance in the first quarter, we are raising the bottom and top end of our forecast range from $1.98 to $2.04 to $2 to $2.05. I'd now like to turn the call over to Andy.

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, I'll provide some additional color on our end markets and our first quarter results, and following the prepared remarks, we'll open it up for question. We are pleased with our strong start to 2012 delivering another solid quarter of growth in revenue and adjusted earnings per share. Revenue for the first quarter increased by 14% and organic revenue increased by 6% as compared to the same period last year. Adjusted revenue for the quarter increased by 16% as compared to the first quarter of 2011. By segment, organic revenue increased by 9% and 3% in our Human Health and Environmental Health segments respectively. By geography, organic revenue in the Americas grew low-single digits. Europe was up mid-single digits and Asia grew low-double digits. We were particularly pleased with our performance in Europe given the economic uncertainty in that region. Additionally, we experienced continued strong demand from emerging territories, with organic revenue growth in the BRIC countries up over 20%. Looking at organic revenue by product category. Recurring revenue, which includes reagents, consumables and service, grew mid-single digits in the quarter while instrument and components grew at a high-single-digit rate despite cycling up against mid-teens growth in the first quarter of 2011. The stronger-than-expected growth in instruments and components was partially due to favorable shipment timing in the period. From an end market perspective, PerkinElmer's Human Health segment represented approximately 50% of total revenue in the quarter where we served 2 end markets. Diagnostics, which represented 27% of total revenue and Research, which represented 23% of total revenue Organic revenue from our Diagnostics business increased to a low-double-digit rate in the first quarter, with notable contributions for both our Screening and Medical Imaging businesses. In our Screening business, we experienced solid demand across all major segments of the portfolio. This business continues to benefit from the stabilization of U.S. birthrate estimated to be flat year-over-year in the quarter, as well as expansion of our prenatal, newborn and infectious disease screening solutions in key regions outside the US. Our Medical Imaging business also experienced broad-based growth across all the key technologies and applications in the period. Traditional medical diagnostic imaging offerings generated strong with additional contribution from our CMOS imaging technology, particularly related to mammography and surgical applications. Furthermore, our therapeutic and nonmedical applications also contributed to the strong performance in the period. Organic revenue in our Life Sciences and Technology business grew mid-single digit in the first quarter. As a reminder, LST is comprised of our research and Caliper Life Science businesses. As Rob mentioned, within LST we saw robust demand for our In Vivo Imaging systems, including the legacy FMT imaging and fluorescent agent offerings, as well as the recently launched Caliper Spectrum CT imaging system with advanced optical features enabling highly efficient, multimodal invivo imaging. PerkinElmer now provides the most complete solution for non-invasive animal imaging, providing researchers the ability to understand biology in the physiological context. Additionally, we experienced strong growth on our front-end high throughput sample preparation systems, supporting enhanced workflow for next-generation sequencing analysis with our complete, highly flexible solutions to run multiple chemistries to support all sequencing instruments. Furthermore, we experienced continued demand for our suite of radiometric detection equipment that has been primarily utilized for assisting the continued efforts in Japan, identifying and remediating nuclear contamination resulting from last year's earthquake and tsunami. Turning to Environmental Health, which also represented 50% of our total revenue in the first quarter, we served 3 end markets. Laboratory services, which represented 23% of total revenue; environmental and safety, which represented 18% of total revenue; and industrial, which represented 9% of total revenue. During the quarter, we experienced low-single digit organic revenue growth across all 3 market segments as each cycled up against double-digit organic revenue growth comparables from the prior year. As Rob discussed, within Environmental Health, we saw strong demand for our full suite of inorganic analysis solutions, particularly for the analysis of trace metal content and contaminants for environmental applications in water and soil. Additionally, continue to drive further penetration of our OneSource Multi-Vendor Service into emerging markets with some key early-stage wins in Brazil and China, as these high-growth regions recognized the extensive benefits of our unique offering. Now looking at our margin performance in the period. Adjusted gross margin expanded approximately 230 basis points, driven by volume leverage, favorable mix, robust productivity gains and the favorable impact of our businesses acquired in 2011. Adjusted operating margins expanded approximately 160 basis points in the first quarter to 15.3%. We were particularly pleased with our performance in the period, as we were able to absorb higher acquisition-related operating expenses and expand operating margins despite an approximately 160 basis points margin expansion performance achieved in the first quarter of 2011. As stated previously, we are planning additional productivity investments for the balance of 2012 and we believe we'll further solidify our ability to achieve our stated objective of high-teens operating margins by 2014. By segment, adjusted operating margins in our Human Health business for the quarter were 20.4%, representing an increase of approximately 200 basis points as compared to the first quarter of 2011. Our Environmental Health segment delivered adjusted operating margins of 14.4%, representing an increase of approximately 30 basis points. The combination of volume leverage, favorable mix and productivity gains across the company contributed to the strong performance delivered by both segments. GAAP operating income from continuing operations was $22.1 million in the first quarter of 2012 versus $27.2 million in the first quarter of 2011. For the first quarter, our GAAP tax rate was approximately 6.3%, and on a non-GAAP basis our adjusted tax rate was 25%, which is slightly higher than the guidance communicated in February. However, we expect the full year to be approximately 24%. GAAP earnings per share from continuing operations in the first quarter of 2012 was $0.19 compared to GAAP earnings per share of $0.24 in the first quarter of 2011, primarily due to higher intangible amortization and purchase accounting adjustments related to acquisitions completed throughout 2011. Our adjusted EPS was $0.43 in the first quarter of 2012, up 23% from the prior year and exceeding our guidance for the quarter of $0.39 to $0.41. Our weighted average diluted share count for the quarter, first quarter of 2011, was approximately 114.1 million shares and our ending share count was approximately 113.4 million shares. Turning to balance sheet. We finished the first quarter with approximately $934 million of debt and approximately $145 million of cash. Looking at our cash flow performance for the quarter. Operating cash flow from continuing operations was $15.3 million as compared to $47.3 million in the first quarter of 2011, due primarily to a $17 million contribution to our U.S. defined benefit pension plan and the timing of approximately $13 million of tax items in both the current and prior year periods. While we did see an increase in receivables, we believe this was primarily related to our strong finish to the quarter. We still expect to deliver greater than 100% of free cash flow to net income for the year and believe our 2012 first half will be in line with our historical cash flow performance. In summary, we are pleased with our financial performance for the first quarter. 14% reported revenue growth, 6% organic revenue growth, approximately 160 basis points of adjusted operating margin expansion, leading to 23% growth in adjusted earnings per share. And now I'd like to discuss our second quarter and full year 2012 guidance in a bit more detail. As Rob mentioned, consistent with our views from early in the year, we remain cautious regarding macroeconomic conditions. As such, we are forecasting a similar demand profile to what we experienced in the first quarter of 2012, but with somewhat lower expectations for Europe. We continued to expect full year 2012 reported growth of 10% to 12% and organic revenue growth to be mid-single digits or in the range of 4% to 6%. For the second quarter, we expect adjusted revenues to be in the range of $530 million to $540 million, with organic revenue to be mid-single digits. Regarding adjusted operating margins, we expect to continue to expand margins in the range of 75 to 100 basis points for the year. As previously mentioned, we are deploying investments throughout the balance of the year in support of our multi-year productivity initiatives that will be absorbed within our full year target for adjusted operating margin expansion. Bringing all these factors together, we are raising our full year adjusted earnings per share for 2012 from our previously announced range of $1.98 to $2.04, to a new range of $2 to $2.05, representing growth of 9% to 12% over the prior year. Additionally, taking into consideration the items just discussed, we expect adjusted earnings per share for the second quarter to be in the range of $0.47 to $0.49, representing growth of 9% to 14% as compared to the second quarter of 2011. That concludes my prepared remarks. I'll turn the call back over to Dave.

Thanks, Andy. Operator, at this time, we'd like to open the call to questions, please.

[Operator Instructions]. Your first question comes from the line of Dan Brendan with Morgan Stanley.

There's been some conflicting commentary thus far in the earnings season from some of your instrument peers regarding pharma spending on instruments in the first quarter. Just wondering if you could maybe start off discussing what type of spending you saw from large pharma customers this quarter on instrumentation. Whether there was any evidence of kind of different pacing throughout the quarter?

I would say when you look at Pharma and it's difficult to characterize all the companies as sort of one entity, but I think what we see is, against the backdrop of further consolidation, outsourcing and, I would say, modest R&D spending is probably 3 or 4 trends that impact our business. The first trend and one that's probably been going on for some time is this move from a small molecule to large molecule. And so what we see is that benefits us in the area of microfluidics in a lot of for imaging products, probably puts a little pressure on the high throughput screening readers. I think on balance, it probably provides us a bit of a benefit, but I think that's a trend. Again, if you look at overall, probably a slight benefit to us but affects different product lines. There's clearly a focus on more companion diagnostics in epigenetics. I think that's another area where it sort of helps us in the microfluids in our tissue imaging and some of our reagents. And then, of course, the continued drive to outsource and drive productivity in your labs helps us in the areas of services, in informatics and in developing countries. So I think when you look at the trends that are occurring within pharma, some good and some bad, but overall, fairly positive for us with our portfolio, with the exception of, of course, we've got the RAD reagents that continue to get some drag as people move away from that.

And then maybe just one follow-up. In terms of your U.S. economic customers, like when you’re thinking about kind of a spending level from them, as we get to the second half of the year, are you building any conservatism into your own internal budgeting, thinking may be there might be some slowdown in spending from the researchers as they kind of look ahead to '13 or have yet to see kind of what you're seeing from those customer base?

So again, similar to pharma, I think when we look at the academic spending, you've got to too look at sort of where they are spending it. In our assumptions, probably for the back half, is overall spending is probably flat to may be down a little bit. But more importantly, it's in the areas that we provide products for them. So particularly, we're seeing a lot of interest in some of our higher end imaging like the IVIS imaging as they're doing large molecule distribution studies. And so there's areas within academic, even though the spending is slowing down, that they're still spending in. The key is, obviously, NGS is another one where they -- looks like they're continuing to spend. And so I think the key for us is just making sure that we're in the right places.

Your next question comes from the line of Jon Groberg with Macquarie.

Rob, maybe just on your comments around Europe, you mentioned as well that there was favorable timing in your shipments. So are you seeing anything specific right now that gives you that caution or are you just given all the macro and headlines that you read out of Europe, you're being cautious? Are you seeing things kind of slow right now?

No, I think it's more of the latter. I think it's just -- we continue to obviously read the headlines and view the concerns, whether it's around the capital markets or just the overall funding levels of the government. We do expect that at some point that's going to impact demand in Europe. We didn't see it in the first quarter, as you know, we didn't see it in the fourth quarter. And I would say, to a large extent, the timing of shipments that Andy talked about was not necessarily specific to Europe. I would say that was more of a global phenomenon. But Europe again did pretty well for us, but we do think, at some point, we'll see a slow down there.

When were the timing of shipments? I mean just because you highlighted it -- there must have been -- was that in a particular business or what was that?

We had a very strong month 3, Jon. And it was really, I've mentioned it more in conjunction with the receivable bill that we saw in the quarter. So I think we feel good about our ability to collect that in the second quarter, but there was a bit of an increase in the receivable balance in the first quarter. I think the linearity in the second quarter is probably going to be a little more spread evenly but we did see a very strong March.

Okay. And if I could just one more. You heard kind of conflicting things around emerging markets as well. I think you said your BRIC countries had 20% growth. Can you maybe just talk about which businesses were driving the growth and what you saw there?

I would say we saw a pretty broad base. Our view is China was up 20% again, another strong quarter from there. So we're not seeing the contraction in the emerging markets. Brazil and South America were strong for us as well. I would say we saw a little bit of a slowdown in Eastern Europe but I think that was a comp issue as compared to economic phenomena. So our growth in emerging markets continues to be pretty much across the board.

Your next question comes from the line of Peter Lawson with Mizuho Securities USA.

Rob, just with the guidance to maintain full year top line guidance, you mentioned Europe being weak. What's the offset from Europe? And then based on kind of the lower Q2 guidance and revenues, what's makes up the delta in the second half?

First of all, let me just sort of clarify, with regard to the second quarter, we're still talking about mid-single digit growth, so we're not really talking about changing that. And again, relative to the full year, we're still at a mid-single digits. So we're basically holding the guidance. I think the only thing we're saying is whilst 6% was a little better than we thought in the first quarter, we do think that Europe will slow down here a little bit. So I think that's fundamentally what we're saying is, we're not saying let's take the 6% in the first quarter and assume that continues through the whole year.

Got you. And then the fact that Europe's slow for the rest of the year, what's the offset, is that coming from Asia?

Well, we are just saying that in our assumptions, we are assuming that Europe slows down a little bit relative to the first quarter.

We are assuming, Peter, that our second, third and fourth quarter European performance is in line with our expectations but not at the level we saw in the first quarter. So overall, our full year guidance, that's why it hadn't changed dramatically. And by the way, we haven't given second quarter guidance until today. So there is a -- that's new news for today.

And then the higher OpEx from particularly R&D, is that coming from the Caliper? Or is there something else in there?

Yes, Caliper spent a higher percentage of revenue on R&D than PerkinElmer and we're maintaining that high level of R&D.

Your next question comes from the line of Quintin Lai with Robert W. Baird.

With respect to OneSource, you talked about even moving out to the emerging markets. Rob, as you do so, how are the margins for the services business in those areas compared to the western markets? And do you need to have a build out, more technicians? How does that, how do you scale?

Yes, I think that's a fair assumption. As we go into new markets, we need to build, in most cases, we're building the capacity ahead of the revenue. And so, I think, that's an investment we're making, we recognize we need to be where our customers are and sort of alluded to before, we continue to see the pharmaceutical and biotech companies move into those areas with their R&D spending. So I think initially, there will be a lower margin in those areas as we build out the capabilities. But those things can scale relatively quickly.

And with respect to free cash flow, Andy, could you kind of go over it again because the impacts in Q1 and then how you expect that to -- the full year to be again?

Sure. Within the first quarter, we had 2 significant items that impacted the year-over-year comparisons. One was, we made a contribution to our defined benefit plan of $17 million. We also had some tax items that impacted the quarter by about $13 million. So that's really the difference between 2011, 2012. There was a little bit of a receivable build, days for both receivables and inventory were pretty consistent year-over-year. But given the shipment linearity, we did see a bit of a build in receivables more so than we wanted. We think the first half will be in line with past years and we still believe we'll generate more than 100% of free cash to net income for all of 2012.

Your next question comes from the line up Zarak Khurshid.

Yes. Zarak Khurshid of Wedbush Securities. First, I guess on Caliper, can you break out the contribution there? I think you mentioned that it accelerated. What's driving that? How fast did it grow and can you speak to kind of the relative strength of IVIS versus microfluidics and some of the drivers of the acceleration?

So with regard to the contribution, I'll with that and Kevin's actually here, so I'll ask him to drill in to some of the performance from so a product line perspective. I think, as I mentioned in my prepared remarks, if you look at Caliper in 2011, they grew and I think it was sort of mid-teens. Actually, for the first quarter, they did a little bit better than that. And the operating margins, we had stated that through the year, there was a plan that they would get to the PerkinElmer average by the end of the year, and I would say, based on the first quarter, we're actually tracking ahead of that plan but with regard to the specifics, I'll ask Kevin to comment on that.

Zarak, we actually have 3 different applications areas that have been very hot. One is NextGen Sequencing, the second is biotherapeutics and vaccines and the third is imaging. And the imaging is primarily the IVIS imagers and that grew double-digit, I'd say low double-digit. And we acquired that business unit about 5 years ago, 6 years ago. And it's really been performing at that mid-teen growth level ever since we acquired it. So it's been a really good ramp and it's been very consistent even though a lot of that is going to academia, a lot of grant writing and then there's like I think 2,400 peer-reviewed science journal articles now further support that build out. The NextGen Sequencing and the biotherapeutics were primarily microfluidics and there, we actually saw even a faster growth. We saw more like a 20% to 25% growth and primarily, we're doing sample prep in the NextGen sequencing area and we continue to build out nice quality control platforms there and we're agnostic with all the big NextGen sequencers, alumina, Life, primarily being most of the market right now. And then in biotherapeutics, we are seeing growth in academia and pharma and interestingly, it's primarily microfluidics but we also have large molecule biodistribution studies now occurring with their IVIS imagers. So those are the primary growth areas, but interestingly, you might be surprised to hear their automation also did extremely well in the first quarter from Caliper and it's primarily the linkage up with NextGen Sequencing with our microfluidics. So we sell these platforms of a combination of microfluidics and automation. So automation actually grew the fastest of all 3 segments in the first quarter. Again, very strong build out occurring in hospitals, particularly, children's hospitals for NextGen sequencing.

What did Caliper do for the first quarter? Can you break it out, was it $40 million?

It's approximately $40 million, right.

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

Andy, is there any way to quantify or normalize what the impact of the timing benefit was in the quarter, on the total revenue growth rate?

It was probably less than 1% but it was not immaterial, so I would say, 1% or less.

Okay. And given that one of your partners/competitors received CE marking for a newborn screening product today, could you remind us what the barriers look like in that market and your competitive positioning vis-a-vis new entrants?

First of all, the Luminax assays do not really talk about improved performance, it's really just about a workflow. And what they got CE marked in Europe, as my understanding was 4 assays. I believe what they're doing in the U.S. is actually cut it down to 3 now. And so really the workflow benefit to actually do that is fairly minimal because they're still going to need one of our instruments to do IRT. So we don't really see a real challenge for that in the U.S. and just as a data point, one of the states that ran their sort of instruments has just re-upped for us for another 3 years. So we don't see a significant challenge as a result of the recent announcement.

Okay. And my final question, where do you stand? I appreciate that integration process to Caliper has gone well, so far, but where do you stand in terms of what inning are you in, in the heavy lifting pieces of that process whether they've customer facing functions or ordering activity interface, things like that?

I would say, probably in the sixth or seventh inning, I think we've made terrific progress there. We mentioned in the last call we sort of jumped at this early November and so we had a good almost 6 months now at this. So I think we're pretty late innings. Maybe -- Kevin, you want to comment on that a little bit?

I think you're right on, Rob. I think the only thing that will be pretty exciting is we got these user group coming – user group meetings coming up, Dan. You remember those, and this year is going to be really credible, the first one is going to be in June. We're expecting over 600 customers from around the world, mainly PhD's and MDs. And we've got over 60 speakers, customer speakers over 2-day track and then we're going straight from there to the U.K. and there we're expecting over 40 speakers from our customers. And then from there to China. I think that's going to be one of the last major integration points because the customer base here is going to be coming from both sides of PerkinElmer and Caliper, and it's got an incredible linkage that we have built with informatics and we even had a lot of newborn dimensions to this. So it's going to be a real showcase of what PerkinElmer has got to bring to the market.

Your next question comes from the line of Jon Wood with Jefferies.

So Rob, hopefully, you'll let Kevin answer this. What was Caliper's OP in the first quarter?

Yes, I don't know if I want to get into this because as you can imagine as we integrate these together, that's a little harder to trace,. I mean we can trace the revenue pretty well, but I think, as we start to benefit from some of these synergies, all I would say is that we are ahead of the plan to reach PerkinElmer's margins by the end of the year.

If I could just make one comment. You may recall there are contribution margins in the Caliper product line are very strong and the global footprint of PerkinElmer is really bringing in a big advantage to this overall revenue acceleration that you're seeing.

Just looking at the Human Health margins. I mean, Europe, up 200 basis points year-over-year and, I would imagine Caliper is still dilutive, given that they're coming off a very low base. So you comment maybe on screening and imaging businesses, I mean how did the absorption look in kind of the core?

Yes. So I would say you're right under the assumption that while we're seeing good progress in Caliper, they're still dilutive to the Human Health margins but we are seeing very good incremental flow through in the revenue growth. We are seeing it in the diagnostics side both on the screening because they have a tendency to be very heavily-related towards reagents. And also, in our Medical Imaging business, as Andy talked about had a very good quarter with strong growth. They also are putting a very strong incremental margins as well. So I mean I think one of the aspects of the Human Health business is and, of course, Caliper now, complements that very nicely, is those businesses have a tendency to have nice gross margins and very strong flow through on the incremental revenue.

Got it. And are you willing to, Andy, quantify or kind of parse out imaging versus screening. I think you've mentioned all of Diagnostics was low-double digits, can you just give us a little bit more color?

We haven't historically done that.

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

First question was on the newborn screening business. I was wondering if we could maybe parse out U.S. versus x U.S. growth in the business this quarter.

So U.S. was positive because like we're starting to see some recovery there in births, so we think we've now, hopefully, stabilized and actually sort of February and March timeframe, we actually detect some positive growth there from births. So we actually saw probably something in the mid-single digits in the U.S. And outside the U.S., it was probably more in the high single-digit to low double.

And then on the medical imaging business new flow of order rates from medical imaging from the big companies has been generally positive but also can you help us understand sort of nontraditional applications for that technology, what you're seeing from an order perspective and how you expect that to play out for the rest of the year?

Well, sort of Andy talked about had a very good quarter and it was fairly broad base so, not only on the medical diagnostic sides, which again the larger players like GE but also in the nonmedical applications and, of course, we are also seeing strong growth from the recent acquisition that put us into the CMOS technology. So I think almost across every aspects of that business, we saw a good growth in the quarter.

They were up almost every aspect double-digit in the first quarter.

Last one for me is just on the margins. Obviously a pretty solid operating margin versus at least my numbers. And then if we look back sequentially to the last, to fourth quarter last year, you also had a really solid number. So if we look at sort of how you're guiding this year with 100 basis, up to 100 basis points of operating margin improvement, how should we think about kind of the pacing of that improvement especially given the fourth quarter comp you have on margins?

I think we feel like that the 75 to 100 is a prudent way to go out now. I think we had a very good performance in the first quarter. We did see some licensing revenue that probably helped us 30 or so basis points in the first quarter. I would say that we think it's going to be fairly ratably grown over the second, third quarters maybe a little bit less in the fourth. But keep in mind that we are investing in some of the longer-term productivity initiatives so there will be a little bit of a back-and-forth here. But I would say, at the end of the year, we feel pretty good about hitting that 75 to 100, and probably closer to the higher end of that range.

Your next question comes from the line of Bryan Brokmeier with Group.

Kevin, you talked a little bit about the growth of microfluidics and the sample prep for NGS, is that largely been in the higher end sequencers, how's your penetration of desktop sequencers' sample preps compared to that larger higher-end platforms?

Interestingly, it's still primarily on the higher end because what you have there's a lot of folk in these core labs would buy the sequencer and then as they started to get sample flows coming in, that would then start to bottleneck to your sequencer and that's where they would move in with the automation in the microfluidics. But I should point out that the same bottleneck is going to occur with the tabletops and microfluidics really play to the hand of the smaller sample size, as well as the speed that's going to be needed for these tabletops. So I think we are well-positioned with microfluidics. In fact, I think microfluidics was overkill for many of the large sequencers. We're really well-positioned as the tabletops starts to command sample flow. And I think that's the real question now, how much sample flows going to come in and when. But we are starting to see that he's going to command and when. But we're starting to see that movement already, so we feel good for the future.

Okay. And then, secondly, you guys talked about a strong finish to the year. How much of the revenue was back-end loaded and was that really just sort of some onetime revenue boost at the end? Or should that sort of fall through at the beginning of second quarter?

No, you're talking about the strong finish to the quarter?

Right.

No, that was really across the board, we just saw an acceleration through the month of March. We see it every once in a while. Some of our customers actually asked for us to ship early in March just based on their buying needs. So I would probably look as we go out, it will be more normalized and the linearity will be more similar to prior years.

Your next question comes from the line of Dan Arias with UBS.

Rob or Kevin, I guess on Caliper, I understand the comments you just made about the numbers getting a little blurry as you integrate the business, but if I could, I know at one point the outlook for margin expansion over the next few years was sort of just under 2/3 OpEx improvement and then 1/3 gross margin improvement or so. Is that still how you’re looking at that improvement opportunity there?

Are you talking about Caliper specifically or PerkinElmer?

I am.

Caliper, specifically.

Yes, you know what? I think that the interesting part now when you merge it's as if -- I think the OpEx opportunities start to do get blurred. But the footprint of the revenue acceleration that occurs with the globalness of PerkinElmer's footprint, commercial footprint, is really going to allow us to get there sooner. So you might actually start to see this OpEx move faster. But I think, with that said, we continue to launch a lot of new innovation and that's really where we got our gross margin expansion was primarily through new innovation and when we bring that out, like you heard Rob mention earlier, the new Spectrum CT, these products command a much higher gross margin because they're bringing a lot more to the table. So I do think we're going to continue to keep pace with gross margin but I think it will be outpaced, 2/3, 1/3 by the OpEx because of the leverage that we're getting in the synergies of the merger.

Okay. And then, I guess, you guys have been somewhat active on the legal side of things lately, at least as it relates to mass spec, just in terms of some the brands for IP, should we be thinking about modeling a bit more in litigation costs just given that you have got multiple suits ongoing here?

No, I mean, I don't think -- we're not expecting that to be a material cost. I mean, you mentioned we've got some interesting IP in a number of areas and we just think it's appropriate that we sort of defend that. But I don't think there's going to be material litigation costs.

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

Andy, could you were going a little fast when you were talking about the tax rate, could you just go over that, the tax rate in the quarter?

The tax rate for 25% in the quarter, adjusted tax rate. And for the year, it's 24%. So if you're modeling out, I would use 24% for the next 3 quarters.

Okay. And it was a little high in Q1 because of what?

It was basically just distribution of profits. It will fluctuate a little bit just because...

And so -- Kevin, since I got you there, I just wanted to ask a question, also to the whole team there. Kevin, I caught the tail end of your talk at AGBT and you were talking about integrating some of the GeneSifter technologies and Geospiza technologies, and the automation platform, the sequencing platforms and some of the service and stuff that kind of look at light penetrating into the clinic with this. I guess, can you kind of give us some -- kind of go back and kind of address that? And basically kind of outline how you see this going in and, I guess, you guys, how are you going -- what are you doing for like a go-to-market in terms of the clinical approach? And how are you approaching the -- how you're approaching the, obviously, the clinical sequencing market. That's kind of a broad question but I was intrigued by your talk.

Yes. Absolutely, Derik. I think one of the key points here is just, in general, how fast will Next Gen Sequencing penetrate the clinical market? And I think, certainly, the Roche Alumina situation is, in my mind, potentially a telling sign around the belief systems around NGS. We see it very much right now being utilized in children's hospitals and some cancer hospitals. And they typically will have a cap or plio-type approach and they will be looking at Sanger sequencing to correlate in a kind of a parallel lab approach. The economics and the time of answer, as well as the answers you can get by multiplexing, are very compelling for NGS. We see that as being game-changing compelling. But the real challenge I think is converting these research reports that you're getting today into medical reports. And that is an adoption challenge that you saw with Sanger sequencing, it took really quite a few number of years. What we are encouraged by, we have collaborators. We have a couple of tracks on this and investors will be invited to attend the user group meetings. But what we were encouraged by is that many of the folks that ran these Sanger labs, that were able to get medical reports and get adoption from the clinicians, are now being moved into these NGS labs, and they're actually starting with the medical report, working backward into the workflows. Now where we participate is in the sample prep, and we actually believe that the sample prep is worth so much of the variability is coming from relative to NGS. Primarily because you got the GC bias in many different issues that you have with the samples being taken from the human and getting in them into the right kind of library to go into NGS and that's where we're trying to play. And so GSPs for us was a real nice opportunity to bring informatics into the sample prep. It's both a lens system, as well as it can be an analysis system. And so now, what we're challenging our GSP's think tank with was helping us evolve this into medical reports. And we're very encouraged by -- Rob and the team have acquired 3 or 4 different informatics platforms. They have a phenomenal leader in that informatics business and we're seeing the opportunity to leverage across the informatics infrastructure to try to be the company to help migrate into more of a medical report. So we think it's got real potential starting out in these children hospitals, then we think evolving into cancer where it's more complicated. It's not medallion-type diseases, when you start dealing with cancer and I think that's where -- right now, there's more pushback from the clinicians and the pathologists.

Your next question comes from line of Paul Knight with CLSA. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division In the Asian markets, I know there has been a lot of excitement in your groups about the 90 to 100 sales people that can leverage the Caliper product, Kevin. Is that traction occurring now in the sales effort?

Yes, you know Paul, it's interesting. We had one of the -- a lot of this is a cultural thing, right? And I got to say we had an AIPAC meeting back about a month, a month and a half ago. And I got to tell you, I've never seen a team come together so excitingly. The folks from the PerkinElmer side were being given some amazingly disruptive products to sell. And the folks from the Caliper side were just blown away by the competency of that Asia team and so, I think, there have been some challenges in certain pockets of that Asia operation, historically, which have been filled almost like -- hand in glove with the mergers. I actually think that we had strong Q1 and I believe that the ability for us to continue moving products throughout Asia is probably one of the best parts of this merger. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division And then, Rob, you had mentioned earlier on the call on analytical instruments, I think, inorganics or that must be your microscopy businesses, is that the driver? And is Asia driving that on the environmental side? What's happening in that big analytical piece right now?

Yes. I would say, probably over the last 18 to 24 months, we basically almost have a whole new product line from the inorganic perspective with a number of new products that we've come out with. That, combined with the number of new products we've come out in the molecular spectroscopy area, I think, is really allowing us to do very well in areas like water, food, environmental and chemical analysis. I would say the growth right now is probably disproportionately higher in the Pac Rim and the emerging markets. But, quite frankly, I think, we're seeing good growth across the globe fundamentally driven by these new products that have come out fairly recently. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division And lastly, Rob, you were conservative about Europe on your last call, and then you said that Eastern Europe was strong particularly. Are you just continuing that tone or do you see any change in orders in other parts of Europe?

Well, I would say, the one difference in the first quarter versus the first quarter in 2011 was we saw actually strength in Western Europe in the first quarter. And so again we continue to be surprised to the upside by the resiliency of the European demand, at least particularly with our product set.

You have a follow-up from the line of Dan Brennan with Morgan Stanley.

Just one quick one. I think on your last call, you discussed the U.S. birth rate that was still flat-to-down versus the improved outlook now. So I'm just wondering, can you discuss what type of birth rate you're seeing today and help us think about the leverage for Perkins organic growth from an improving U.S. birth rate?

Well, I would say, I would describe it as it's stabilized. And I just mentioned the fact, in the latter part of the quarter, we saw some small uptick. I think it's probably a little early to call the turn here. But I would say, we think it's and our assumption through the year is it's going to be flattish for 2012. If we see a little bit better that, if we see some growth in the back half of the year, I think, that will provide us some upside. But we're assuming sort of flat birth in the U.S.

At this time, there are no further questions. I'll turn the call back over to Rob Friel for closing remarks.

So first, well, thank you for your questions and continued interest in PerkinElmer. As some of you know, last week marked the 75th anniversary of PerkinElmer. As we commemorate this important milestone, we are proud of the recognition and the tremendous contributions from our employees, our rich histories of scientific innovation and our commitment to serving our customers, which have shaped our culture over 7 decades. On behalf of our 7,000 employees, I'm excited about continuing to significantly improve human environmental health around the world and help make life better for years to come. With that, I want to thank you and have a great day.

Ladies and gentlemen, that concludes today's presentation. All parties may now disconnect. Good day.