Revvity, Inc. (RVTY) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 PerkinElmer Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Tommy Thomas, Vice President of Investor Relations. And you have the floor, sir.

Thanks, Jeff. Good afternoon, and welcome to PerkinElmer's Fourth Quarter 2012 Earnings Conference Call. With me on the call are Rob Friel, Chairman and Chief Executive Officer; and Andy Wilson, Senior Vice President and Chief Financial Officer. If you have not received a copy of our earnings press release, you may get one from the Investors section of our website at www.perkinelmer.com. Please note that this call is being webcast live and will be archived on our website until February 14, 2013. Before we begin, we need to remind everyone of the Safe Harbor statements that we have 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 of 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, that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly. I am now pleased to introduce the Chairman and Chief Executive of PerkinElmer, Rob Friel. Rob?

Thanks, Tommy. Good afternoon, and thank you for joining us today. We're pleased to report another great quarter for PerkinElmer, rounding out an excellent year for the company, in which we delivered strong financial performance while continuing to invest in improving our growth and profitability profile. Turning first to the financial results in the fourth quarter. Reported revenue grew 6% and organic revenue grew 3% in the period. Adjusted operating margins and EPS were roughly in line with our forecast at 18.3% and $0.65, respectively. We were very pleased to deliver such solid performance in the quarter, particularly given the tough comparisons versus the extremely strong fourth quarter we had in 2011. Also during the fourth quarter, we made excellent progress on our productivity programs to rationalize our production footprint, shift production to lower-cost regions and better leverage our G&A expenses. In addition, we continued to make strides in expanding our capabilities into targeted high-growth markets. For example, we completed the acquisition of Haoyuan Biotech, which is based in Shanghai and is a supplier of molecular infectious disease screening technologies. In addition, Haoyuan holds only 1 of 5 government approved licensing, allowing it to leverage its NAT technology in blood screening centers throughout China. The combination of PerkinElmer's distribution channel and capability and Haoyuan's leading automation assay technology and manufacturing expertise creates a formidable competitor in the large and growing Chinese blood screening and diagnostic markets. Also in the quarter, we announced our entry into the noninvasive prenatal testing market through a collaboration with Verinata Health. We believe that incorporating Verinata's verified test into PerkinElmer's extensive distribution channel will further extend our leadership position within maternal fetal health and help to accelerate the broader adoption of noninvasive prenatal testing. Now looking back at the full year 2012. Reported revenue grew 10%. Organic revenue grew 5% and we expanded adjusted operating margins by 100 basis points. This improved profitability translated into adjusted earnings per share growth for 2012 of 13%, resulting in adjusted EPS growth of over 100% over the last 5 years. We achieved this strong performance by continuing to strengthen our organization and technical capabilities, and focusing on serving customers in attractive high-growth end markets. Through targeted investments such as our new Shanghai headquarters and application centers and our new customer relationship center in Krakow, Poland, in addition to increasing the number of emerging market-based employees from 1,500 to 2,000, we expanded our emerging market presence, which now accounts for nearly 30% of total revenue. On the innovation front, bolstered by a $30 million -- $38 million increase in R&D spending over the last 2 years, we have delivered breakthrough solutions across our detection, imaging and informatics capabilities. A few highlights include the introduction of our direct sample analysis for mass spectrometry that utilizes a disruptive approach to sample preparation, producing results in only seconds, allowing advanced chemical analysis of many sorts of samples. The vector imager, which allows pathologists to examine several biomarkers simultaneously on a single sample, slide sample, has seen terrific adoption. Skin testing was introduced this year as a novel lab and lab offering in California and Florida, expanding the spectrum of available molecular assays for newborn and childhood screening. And finally our informatics team is incorporating the power of spot fire visualization software with our various Cornerstone offerings to the pharmaceutical, chemical and other industries for better management of the complex laboratory R&D efforts. Informatics and software continue to be a major effort of R&D at PerkinElmer, as we bring useful knowledge to our customers' fingertips, through the marriage of innovative sample preparation, advanced instrumental analysis and leading information technology. We also took strides last year to improve our operating efficiencies and align closer to our global customer base. These moves included repositioning certain manufacturing and R&D assets, as well as organizational changes to allow a more market focused approach with our customers. One of these changes, which is effective in the first quarter of 2013, is to better align our informatics and certain portions of our service business to the end markets they serve, which should provide greater synergies and focus to both our customers and PerkinElmer. This change will result in a shift of about 7% of our adjusted revenue from Environment Health to Human Health for 2013. And our website will provide a reconciliation of these changes. As we move into 2013, our approach will be similar to last year, and we'll focus on driving profitable growth and returns to shareholders by strengthening our organizational and technical capabilities, gaining continued traction on our productivity improvements and targeting attractive high-growth markets. Turning now to 2013 guidance. We are currently assuming the organic growth rates in our end markets this year will be similar to what we experienced in 2012, with the exception of Medical Imaging, which due to the strong demand experienced last year, will face a significant headwind in 2013. However, we expect the investments we made in the latter part of 2012 to offset the lower growth for Medical Imaging. And accordingly, we are forecasting full year organic growth to grow in the mid-single digit range of 4% to 6%, with a view more towards the lower end in the first half and towards the upper end in the back half. Similarly, our operating margin expansion will be skewed to the second half of the year through the continued investment required in 2 of our productivity programs, which are scheduled to be completed midyear. In addition, we are planning to increase our investments to support several of our recent growth initiatives, including building out Haoyuan's molecular assay menu, expanding Spotfire's capabilities in life science research and investing in our prenatal channel in our collaboration with Verinata. We are comfortable increasing our investments in both growth and significant productivity programs due to the savings we are already seeing -- starting to see, from our prior programs, as well as our confidence that our growth investments will pay dividends as early as 2014. Consequently, despite these investments pressuring margins in the first half of the year, we believe we can expand adjusted operating margins in the 50 to 75 basis points in 2013, achieve adjusted operating margins of 18% or better in 2014, and provide a stronger foundation to expand growth and profitability beyond 2014. Given the forecast of organic revenue growth and adjusted margin expansion, we estimate adjusted earnings per share for 2013 in the range of $2.24 to $2.32, representing an increase of 9% to 13% over the prior year. However, and more importantly, executing on our 2013 operating plan will allow us to enter 2014 much better positioned to accelerate both top and bottom line growth over the next several years. I would now like to turn the call over to Andy.

Thanks, Rob, and good afternoon, everyone. Consistent with prior quarters, I'll provide some additional color on our end markets, a financial summary of our fourth quarter results and details around our 2013 first quarter and full year guidance, and then we'll open it up for questions. As Rob mentioned earlier, we were pleased with our performance in the fourth quarter, delivering another solid quarter of organic revenue growth, despite a very difficult comparison to the fourth quarter of 2011. Reported revenue for the fourth quarter increased 6%, while adjusted revenue increased by 4% to $577 million, as compared to the fourth quarter of 2011. Organic revenue for the quarter increased 3%, as compared to the same period 1 year ago. Adjusted earnings per share for the fourth quarter was $0.65, driven by in-line organic revenue growth. Adjusted operating margins also came in as expected, with the impact of a higher stock price and a long-term compensation expense offset by a slightly lower tax rate. Organic revenue increased 3% in both our Human Health and Environmental Health segments versus the same period last year. By geography, organic revenue in both the Americas and Asia grew at a high single digit rate, while Europe declined at a high single-digit rate. We continue to experience strong demand in China, with organic revenue growth in excess of 20%, with some moderation in the rest of the BRIC countries, which faced their toughest comparisons of the year. As a reminder, we will continue to cycle up against difficult emerging market comparisons in the first quarter of 2013. Looking at organic revenue by product category. Recurring revenue, which includes reagents, consumables, and service, grew high single digits in the quarter, primarily the result of continuing demand in our Human Health segment and strength in our 1 source and informatics offerings. Instruments and components declined at a low single-digit rate, cycling up against low double-digit growth comparisons from the fourth quarter of 2011. From an end market perspective, PerkinElmer's Human Health segment represented approximately 48% of reported revenue in the quarter. We served 2 end markets in Human Health diagnostics, which represented 26% of reported revenue and research, which represented 22% of reported revenue. Organic revenue from our Diagnostics business increased mid-single digits during the quarter, with continued contributions from both Screening and Medical Imaging. Our Screening business continues to benefit from the stabilization of U.S. birth rates and the expansion of our prenatal newborn and infectious disease screening solutions in key regions outside the U.S. We were encouraged with our sales uptake in China, delivering organic growth above 20% in the fourth quarter of 2012. Our Medical Imaging business continued to see broad-based organic growth across all key technologies and applications in the period, with particular strength in our traditional medical diagnostic imaging offerings. We remain pleased with the growing acceptance of our CMOS imaging technology, which has benefited from numerous design wins in new high-growth verticals, such as breast mammography and nondestructive testing for industrial applications. For the full year 2012, Medical Imaging delivered a very strong double-digit organic growth performance. Our research business was flat organically in the fourth quarter versus the comparable period in 2011, as fiscal cliff and sequestration uncertainties in the U.S., as well as weak European research markets contributed to softer demand early in the quarter. We are, however, encouraged by the research business's strong finish to the year. Moving to Environmental Health, which represented 52% of reported revenue in the fourth quarter, we served 3 end markets: Laboratory Services, which represented 26% of reported revenue; Environmental and Safety, which represented 19% of reported revenue; and Industrial, which represented 7% of reported revenue. During the quarter, we experienced low double-digit organic growth in the Laboratory Services segment. Within the Environmental and Safety segment, we saw flat organic growth, while our industrial segment experienced a low double-digit organic revenue decline, as both of these latter segments cycled up against double-digit organic growth comparisons from the fourth quarter last year. We continued to see strong acceptance of our laboratory service and informatics offerings, as we help our lab customers better manage their critical laboratory assets and related data needs. Our OneSource offering continues to be a key differentiator for us, as evidenced by our ability to expand our presence with key pharmaceutical customers throughout 2012. Turning to our margin performance in the period. Adjusted operating margins in the fourth quarter were 18.3%, as compared to 18.5% in the comparable period a year ago. This performance was in line with our expectations given the growth and productivity investments made in the quarter, as well as a very difficult year-over-year comparison, which was further exacerbated by the timing of the Caliper acquisition in the prior year. Adjusted operating income increased 3% in the quarter to $105.6 million. By segment, adjusted operating margins in our Human Health business for the quarter were 22%, representing a decline of approximately 100 basis points, as compared to the fourth quarter of 2011. This decline was primarily the result of the impact from the Caliper stub period in 2011 and previously announced growth in productivity investments deployed in the full fourth quarter of 2012. Our Environmental Health segment delivered operating margins of 19%, representing a decrease of approximately 30 basis points. This decline was within our expectations and was primarily due to the growth and productivity investments previously mentioned. GAAP operating loss from continuing operations was $30.8 million in the fourth quarter of 2012, versus a loss of $25.9 million in the same period a year ago, due to charges related to trademark rationalizations, as well as the year-end mark-to-market pension plan adjustments. On a non-GAAP basis, our adjusted tax rate was approximately 20.5%, and we expect our adjusted tax rate for 2013 to be approximately 23%. GAAP loss per share from continuing operations in the fourth quarter of 2012 was $0.14, compared to a loss of $0.74 in the fourth quarter of last year. Adjusted earnings per share was $0.65 in the fourth quarter 2012 and at the midpoint of our guidance range. Turning to the balance sheet. We finished the fourth quarter with approximately $940 million of debt and approximately $171 million of cash. We continue to make progress on our delevering efforts, as we exited the quarter with a debt to adjusted EBITDA ratio of 2.3x and a net debt to adjusted EBITDA ratio of 1.9x. Looking at our cash flow performance. Full year operating cash flow from continuing operations was $154 million, as compared $234 million in 2011. Incremental cash tax payments, prepaid royalties, higher receivables due to the timing of revenues in the fourth quarter and restructuring charges related to our productivity initiatives, negatively impacted our performance in both the quarter and the year. Overall, we are pleased with our performance in 2012, and feel we are on track to deliver on our longer-term organic growth and adjusted margin expansion targets. Looking back at our performance for the year, our reported revenues increased 10%, with organic revenue growth of 5%. Adjusted operating margins expanded by approximately 100 basis points to 16.5% despite significant selling and productivity investments, and adjusted earnings per share grew to $2.06, a 13% improvement over the comparable period last year. Now I'd like to discuss our 2013 guidance in a bit more detail. We expect adjusted revenue for the full year to grow mid single digits, with the second half of the year expected to be slightly higher than the first half. Regarding adjusted operating margins, we expect expansion of 50 to 75 basis points, with margin expansion to be more back half weighted due to our continued growth in productivities investments slated for the first half of 2013. Interest expense is expected to be similar to 2012. Our adjusted tax rate, as I previously noted, is expected to be 23% for the year. And our weighted average diluted share count is assumed to be flat or approximately 115.7 million shares. Based upon these assumptions, we expect adjusted earnings per share for 2013 to be in the range of $2.24 to $2.32. For the quarter, first quarter of 2013, we expect adjusted revenues to be in the range of $525 million to $535 million, with foreign-currency headwinds of approximately 1% based on current exchange rates and organic revenue of 3% to 4%. Based upon these assumptions, we expect adjusted earnings per share to be in the range of $0.46 to $0.48, which assumes the inclusion of the 2013 R&D tax credit, which represents less than $0.01. This concludes my prepared remarks, Jeff. I guess, at this time, we would like to open it up for questions.

[Operator Instructions] Our first question comes from the line of Paul Knight with CLSA. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division Was the acquisition total in the cash flow statement related to the Chinese transaction?

Yes. Yes, it was. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division And then the follow-up would be on the geographical growth that was a high single-digit decline in both Europe and U.S., and what was behind it? Pharma?

No, I would say in Europe, it was high single -- in the U.S., actually, it was up, mid- to high-single. And then, of course, the Asia portion was also up high-single. And I would say, the European decline was not restricted to Pharma. We also saw it on the industrial side as well.

Our next question comes from the line of Ross Muken with ISI Group.

This is Vijay, in for Ross. So my first question was -- actually, I wanted to dig a little bit on the subsegments. I mean, if you look at lab services, you did comment OneSource has been -- seen tremendous uptick from bio pharma. I mean, we've seen strong growth in that subsegment. What's sort of the outlook -- as you look forward, sort of -- how long can we expect, I guess, this strong performance?

I think we can continue to see good growth in OneSource because what we've been trying to do particularly over the last, probably 6 or 9 months, is to look to expand that beyond Pharma. So I think we see some opportunities, particularly as we combine it with our informatics offerings to go into chemical industries and maybe some of the food and beverage opportunities. So I think we're continuing to believe that we can see mid-single growth, maybe even a little bit better than that in the OneSource area.

Great. And my second question was on the guidance. So, what's baked in the guidance in terms of assumptions around sequestration? And do you have anything baked in from the Verinata marketing agreement?

So with regard to sequestration, as you probably know, that's not a -- the NIH funding is not a significant exposure for us. We think it's probably in the mid-single digit range from a perspective of revenue exposure. And for purposes over our '13 assumptions, market assumptions, we're assuming that it will look very similar to what we saw in 2012. And the way I would describe it is, sequestration clearly had an impact on slowing some of the grants and funding down, but probably not as strong a decline as you would expect under a, call it, a full sequestration. So, I mean, I guess to sort of give you some kind of sense of impact, with about 5% of our revenue exposed. If there was a 10% decline, it would be about a 50 basis point headwind on our organic growth. We're probably assuming something like half of that, which is probably what we saw in 2012. Just to give you some kind of calibration. With regard to the Verinata arrangement, and again, as I mentioned before, one we're quite excited about from a long-term implication. However, with regard to 2013, we have a de minimis impact on both the top and bottom line.

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

I just want to touch on innovation for this year. You guys have developed a lot of new businesses and acquired other assets. Anything in particular regarding informatics that we might be able to expect from you this year, it's a little on the quiet side there since you made a bunch of acquisitions in 2011. So just wondering what's going on in informatics. And then also, on Kevin's side, with Caliper, what can we expect from this franchise this year?

So I would say with regard to the informatics, we're quite excited about this collaboration we announced, and it started in the fourth quarter with Spotfire. So we're investing in and around that to expand out the capabilities in the life sciences area, and we're continuing to build out sort of additional generations of current software releases. So I think you'll continue to see a big investment in and around the informatics area. With regard to the LST area, maybe I'll just have Kevin talk to that specifically, with regard to the innovation.

Yes, Isaac, I think the key thing that we were very excited about is the Vectra tissue imaging, which we had very strong growth really in the second half of 2012 and that's -- our ability there is to multiplex numerous biomarkers simultaneously and companies like Genoptix and Novartis and others have now adopted it for LBT and are able to do some pretty important tests like the four score on breast cancer. And so we think that this technology is not only going to get continued adoption in 2013 for tissue, but we also are now moving it into circulating tumor cells and feel that this whole area is going to continue to broaden out and looking at multiple markers simultaneously as a way to eliminate and reduce false positives and negatives, so we're pretty excited about those advances. I'd say that's the primary area for 2013.

Great. And I think I'll just ask a follow-up on margins. How much -- as you look at your guidance this year, how much of the margin upside versus your sort of base case scenario, would you say is dependent on top line leverage versus, maybe, other operational improvement that you're sort of working on in the background.

I think it's about 50-50. I think in the past, we said, we needed mid-single digit growth to drive 75 to 100 basis points, and I think where we are situated now about 1/2 -- if we hit the volume now, about 1/2 of that flow-through will be related to the volume.

Our next question comes line of Dan Brennan with Morgan Stanley.

Can you just help think about for '13, in terms of segment dynamics and what type of growth was implied in your mid-single growth across environmental and human health, and any notable tough comps we should be aware of, as you see it?

Yes. So I would say, if you went through the sort of 3 key areas, they all were forecasting, we'll probably be in the mid-single range. I think when you think about Diagnostics, probably, the Screening business, we think will probably be a little better in '13. Andy alluded a little bit to the fact that we're seeing -- we are seeing some positive trends on birth rates in the U.S. We believe in the fourth quarter that we actually went to positive birth rates, probably about 1.5% up on a trailing 12 months. So we're expecting a little bit better growth on the Screening side. But to your point of tough comps, the Medical Imaging business saw a very strong double-digit growth in 2012. Some of that was timing oriented relative to customer ordering patterns, and that is going to be a headwind, we don't expect them to -- obviously, to be able to repeat that. And so we'll probably experience Medical Imaging, probably in the low-single digits in 2013. So when you put that together with a little bit stronger Screening growth, we'll probably be looking at mid-single digits. Again, on the Environmental side, when you look at both the service and the product side, we think that will be mid single-digits. And now particularly with the Informatics business being combined with the historic LST business, we think that's probably going to be mid-single as well.

Okay, great. And then maybe just on the -- a little bit more color on the pacing of the investments that you've been making, are making that are going to lead to this increasing leverage in 2014. Can you help, maybe, just put a little more details behind some of these investments and kind of how they translate into margins?

Yes. So we've been really talking about probably 3 major programs, 2 of them probably dealt more on the cost of sales side with regard to production. One was actually reducing our footprint, and the other was shifting production in the lower-cost areas. Those -- our anticipation is, will be completed probably at the end of the second quarter and so you'll see some benefit in the third and fourth quarter of 2013, and then, a full year of benefit in '14. And then the other one we've been talking about is leveraging our general and administrative costs is mostly our back-office and we're moving that in the sort of low-cost regions. That's a project that will start to skip some benefits in '13, but we'll continue to sort of drive some additional changes probably throughout the year. And you probably won't see the full impact of that in 2014. But I think when we've talked about the potential opportunity here, it's -- in those 3 programs alone, we're probably in the 50 to 100 basis point margin improvement.

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

Rob or Andy, is there any way you can give us a sense for how much exposure you have to the environmental issues in China, in terms of supplying product into that geography?

Yes. So you know, we've talked about China being about 10% of our revenue. And I would say, the portion of our revenue that is at what I would call sort of the broader environmental, where you include water and soil and air and food, it's probably -- I don't know, 30% to 40% of our revenue in that area. So it's probably in the $60 million plus.

Okay, that's helpful. And then my follow-up, how are you thinking about things like share repurchases in 2013? It looks like that's not in your guidance, but I wanted to at least take your temperature on that?

Well, when I gave -- this is Andy, by the way, Dan. When I gave the assumptions for guidance, I essentially said flat share count. So we obviously have some option creep during the year. So our assumption would be, we would certainly take that out. We obviously have been looking and continue to look at share repurchases. And we do that vis-à-vis with our capital review, and we are also looking at bolt-ons and tuck-ins. So I think we will keep share count flat, I think in a minimum, and we'll look at other opportunities as they come up.

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

The first question is really just a follow-up to Dan's question. Could you share anything in terms of how you're thinking about M&A criteria from here? You got the debt to adjusted EBITDA down to 2.3x. It doesn't sound like you're going to move forward with a more significant buyback. It's been a little while since you've been through a period where you've been a bit more acquisitive, is this a year where we should expect more, or are you thinking more disciplines, tuck-in type deals?

I think it's more the latter. I think as we've talked about in the past, if you go back to the '08 timeframe, we did feel there were some significant gaps in our portfolio that we needed to fill. As I sort of look at the portfolio today, I feel much better about it. So I don't see any pressing need to go out and do any large deals for that matter. And so I think what you should expect from us is probably more bolt-ons. Now relative to 2012, where we did very little, I would expect that the pace of small bolt-ons to probably increase in '13. But again, I would -- be unlikely for us to do a large sized deal in this environment.

Okay. And just going back to your prepared remarks and some of the details that you provided on the different performance across subsegments. I think you guys indicated that research revenue was about flat organically, and I think you attributed this in part to concerns around sequestration and some of the concerns about austerity in Europe. I believe economic government accounts for under 1/3 of the subsegments sales, and you talked about how small your NIH exposure is across the business in response to an earlier question. So I was hoping that you could just talk about really growth in the research subsegment outside of academic government. Was growth materially more robust? And if not, is there anything else going on there in terms of price or competitive dynamics?

I would say the first thing is whenever you think about our Research business, you need to keep in mind that $100 million or so of our business is in radiometric detection and radio chemicals. And that was down sort of high single, low double in the quarter. And so -- and part of that is, it is cycling up against some difficult comps relative to on the detection side with the tsunami in Japan during 2011, we were selling a lot of instruments into that segment. So when you pull that out, the segment actually grew pretty well in the pharmaceutical side, call it, mid single digits. But of course, it gets pulled down by what's going on in the rad area.

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

Andy, can you give us some parameters around cash flow for 2013?

Sure. I mean, we obviously are going to get the benefit of some of the AR buildup we saw in the fourth quarter, so that will help us a little bit. I think -- always going in, our goal is to deliver free cash flow equal to net income. I think it will be slightly below that in 2013. And that's because of finishing out these 3 projects that will require some restructuring that will impact cash flow. But I think beyond that, everything else should be kind of in line with what you would expect from improvement and working capital terms and kind of a 1x net income.

Understood. Can you -- are you willing to quantify -- I know you had restructuring charges in '12 related to at least 2 of those major programs. Can you qualify that? Is that spillover basically into '13 -- in the first half of '13?

A lot of the restructuring, especially in some of the latter phases of the manufacturing side, as well as some of the back-office consolidation really occur in '13. So it's the incremental piece that's going to impact us and that -- we have not quantified a dollar amount. There's a lot of things going on that we prefer not to. But clearly, as we wrap up these projects, there's going to be some incremental restructuring as we close some of these facilities.

But year-over-year, that number is lower, so there's less restructuring charges in '13?

No, there will be more restructuring charges in '13. There will. Because some of the areas that we're starting to finish up, some of the restructuring charges that began in '12 will bleed over into '13, and we also have some new restructuring charges related to some of these that will commence in the second and third quarter.

Okay, understood. Just to be clear, we're talking about cash flow, right? I'd also love if you could quantify the P&L impact. I think you gave, it was 80 basis points last quarter. What did that do in the P&L in the quarter, and should we expect that same magnitude in the first half of '13?

Are you talking about the impact from these charges related to these programs that we're talking about?

Yes. You called out -- I think in the third quarter, you called out 80 basis points of OP margin impact...

I think it was about 90 basis points in the fourth quarter. And I think we will see that continuing on into the first and second quarter. It will taper off a little bit in the third quarter as the manufacturing programs are completed. We'll still see the back-office consolidation spend continue really through the middle part of the fourth quarter.

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

Andy, I was just wondering if you could give an outlook for gross margins for 2013? And what was pressuring margins in the quarter? Was it mix shift or assay?

It was primarily mix and some of the productivity investments we talked about. I think if you look at 2013, we don't normally give gross margin forecasts, but I think we'll see some improvement in gross margins, as these programs that we talked about are completed. And we'll see the benefit of those and then we won't see the spend associated with it as well. So we should see, maybe a little bit of pressure on the margin, gross margins in the first half and some benefit in the second half and overall, I think it will be a net benefit.

What was the impact of mix on the gross margin? Any way of quantifying that?

I don't have it cut that finely, but it was a large piece of the 110 basis points.

And was there any pricing issues?

Not that I'm aware of. I think pricing, for us, was fairly steady.

Our next question comes from the line of Zarak Khurshid with Wedbush Securities.

So with respect to Verinata, can you just describe how that agreement came to be? And you mentioned some investments there, what exactly do those entail?

So we had been in discussions with Verinata for some period of time because being a strong player in prenatal, particularly on the biochemical screening and with the signatures arrays, and we've talked about this in the past where we also are doing some things internally around some R&D projects in noninvasive prenatal, but we're also talking to some of the outsider providers as well. And in looking at, at least our assessment of the technology was out there, we thought Verinata had the best technology and the best tests. So like I said, we've been in discussions with them for some time and consummated that with the announcement a couple of weeks ago. And the questions with regard to the investments, it's largely around just continuing to build out our channel in prenatal. I would say build out the channel and train our sales force. And so we're making some investments with regard to that in the first half here.

Great. And just as a quick follow-up, could you just elaborate a little bit on the Haoyuan molecular expansion plans for this year?

Sure. So what Haoyuan has is -- think of that as DNA assays around infectious disease. And it's very complementary to what we do today with SYM-BIO. SYM-BIO has immunoassays, whereas Haoyuan provides the molecular test. And today, most of Haoyuan testing is done in blood banks and so our plan is to take those assays, combine them with what we do in SYM-BIO and actually go into the hospital. And what that will allow us to do is to tell the subtype with regard to the infectious disease. And so it's very complementary from a testing perspective and we think it will be very complementary to our channel access within China. Again, leveraging our SYM-BIO capabilities.

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

So just, actually, I just sort of wanted to keep on going with some of the questions that were just asked. Could you just talk a little bit more about what will be your sales channel for sort of the newborn screening market and prenatal screening markets? I just -- could you touch -- can you just elaborate a little bit on how you've -- what customers you're serving? How you're touching them? Basically, how you intend to go to market with this new offering?

Is this with prenatal, specifically?

Prenatal, I'm just -- in general discussion of your assets there, specifically, how you're going to take this new prenatal, noninvasive test to customers.

Right. So I think you know, Derik, we call on the doctors today, the MFM's today, because we do biochemical screening with NTD. And in many instances, in our discussions with doctors, particularly where there's a high risk expecting mother, they've been asking us about NIPT. So I think this is going to be a relatively easy sale for our sales force to basically say, and to the extent that, they want to do a biochemical screen, they go to NTD. To the extent that they want to do an IPT, we give them the verifi test. And to the extent they want to do a chromosomal analysis, we -- I get them in touch with Signature Genomics. So again, it gives us this terrific complementary offering where depending on what the doctor -- depending on the test that the doctor wants to use, we can offer, again, whether it's NTD or the verifi test and they'll get all the same billing from PerkinElmer.

Okay. And how many people do have out there? How many salespeople do you have doing this?

So on the prenatal side, we've got about 50.

Okay. And that hits all the U.S. geographies and all the major area territories?

Yes, I would say all the major areas.

Okay, that's very helpful. And I guess -- I know there's agreements for the U.S. only, but -- so can you discuss then -- do you intend to expand it into more international markets? And then, once again, similarly, what's your channels and sort of like international markets look like?

Yes, and I would say the other thing before with the U.S. another important point to make is, in addition to the customer contacts in the channel, I think maybe even more importantly, is we have the contracts with the healthcare providers. And so I think we mentioned in the press release that we have close to 100,000 -- 170,000 covered lives under contract. And so I think that's the other significant opportunity, or as I think we can accelerate the coverage of NIPT because of the relationships and the contracts we have with the providers. So when you go outside the U.S., so outside the U.S. on a prenatal side, we have very extensive capabilities. We're probably the largest prenatal provider in China from the standpoint of a distribution perspective, and very strong capability in Europe as well. And so the plan ultimately is to potentially extend some of the things we're doing in the U.S. into the global arena.

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

Maybe -- just one on the service business. Can you just talk to the o-U.S. service priorities and opportunities, and in general, for the service business. Can you talk about margins, how do you see the margin improvement potential there?

So, I think, outside the U.S., we continue to see good growth there. Generally, what happens is we sort of start working with some pharmaceutical companies, it's generally in the U.S. and then it gets extended into other sites that they have, in Europe and in Asia, et cetera. Also, at the same time, we've been building out our capabilities, particularly in the Pac Rim, and so we're continuing to see good growth there. So I expect that to continue. The margin on service, if we're talking about sort of traditional service, the margins there continue to be very strong. I would say above the corporate average. I would say, for the multi-vendor business, that's probably a little bit under the corporate average, particularly when we first enter into a contract. But when you look at service together, again, above the corporate average with regard to operating margins.

And then on the emerging markets, for the Infectious Disease, blood testing business, are there catalyst or milestones we should be thinking about? Obviously, it's a large market opportunity. You highlighted you're one of several vendors there. How should we think about milestones to track that business?

Well, the way to think about it, first of all, is the Chinese government has mandated by 2015 that all blood screening be net tested. And so what is occurring between now and then is various tenders that are going on. And so as we think about -- so the milestones between now and 2015, virtually all of the blood screening labs in China will have to adopt one of the 5 providers. And so I guess that's way to think about it as these -- some are obviously larger than others. But it's really thinking about how the tenders -- how we do in the tenders as we lead up to 2015.

Last one, just -- can you comment on the mid-tech tax, how you're thinking about that, that impacting numbers and if you need to [indiscernible]...

For us, it's a relatively small impact. I think with regard to the products that, that is imposed upon, it's mostly the newborn screening in the U.S. And so first, it's going to be less than $2 million for the year.

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

Maybe just a quick one on the Signature Genomics business. Can you just update us there on a revenue run rate? And maybe the growth that you're seeing there? It seems like there's some favorable technology trends working for you. So it would just be great to try and gauge that.

I would say signature, on the postnatal side, it continues to see some decent growth. I think the issue with Signature has been historically and I think we've talked about this, is we've come out with a new chip in the oncology area and just getting reimbursement from the providers has taken much longer than we had anticipated. So I would say that on the Signature side, well, I wouldn't get into the specific details from a revenue growth and a revenue size because it will just sort of try to get down -- try not to get into the sort of subsegments of all the businesses. But I would say, in some areas, we're pleased with the growth, in some of the areas, we're a little disappointed, like I said, because of the uptake in the reimbursement.

Okay. But the constitutional side of things, you would say, is probably more favorable than not?

Yes. I would say the non-oncology side is probably doing better than the oncology side, that's how I will probably describe it.

And then you made an interesting comment earlier this month when you talked about the opportunity that you see in newborn screening in rest of the world areas, if things improve and will move beyond the single test. So I guess my question is, do you see momentum for that happening in a way that you think that test numbers could begin to increase? I guess how realizable is that bigger rest of world opportunity...

Yes. So I would say, we, in fact, have been seeing that. I mean I think if you look over the last couple of years, we've gone from probably screening in 70 or so countries, and now we're doing in the low 90s. So we continue to see the adoption both in countries and even within those countries where they might do 1 or 2 sort of expanding into more tests. I mean, that's clearly the case in China. So I think the numbers you're referring to is if you look at the 130 million births across the globe generally, 122 million of those are outside U.S. and Europe. And so that's really -- we see as a significant opportunity for us. And just to sort of calibrate things, if the rest of the world adopts screening at the level of 1/3 of what the U.S. does, it becomes a $1 billion opportunity.

Okay. So you do think though that -- I mean if you just sort of moderate the expectations a little bit, you think that, that number could start creeping up closer to 50 from 45 or so in the nearer term?

Yes, you mean as far -- yes, I think that's correct.

Our next question comes from the line of Jonathan Groberg with Macquarie.

So Rob, you talked on that growth and productivity investments this year, you talked a little bit on the productivity side and what you expect. But what about on the growth? Like, where do you expect the biggest impact in 2014 and what kind of impact could that be on the growth rate?

So if you look at some of the areas that I identified as investments in '13, it was really around emerging markets, particularly in the diagnostic areas. So I think we would continue to see significant growth there. It was in the informatics area where I think we're still very bullish about that and we feel good about that. And then it was also in the prenatal channel. And I think by 2014, that could be a significant number for us. So rather than getting specific guidance for 2014, I think you could see an acceleration of our organic growth of beyond sort of traditional mid-single digits.

Okay. And then just on that prenatal channel, I know there are some questions, but just kind of conceptually, why did you partner for this test rather than just acquire someone or offer your own? It seems like the economics would probably be better to just offer your own test, no?

I think as we looked at the landscape, obviously, there are still some technology risk with regard to IP. And I think by entering into a collaboration with Verinata, while we're -- as I mentioned before, we think it's the best technology and we think they've got a terrific test, it does lead us -- give us the opportunity to pursue other technologies down the road. If either something comes out and has a better technology, or again, depending on what happens from an IP perspective. So I think it's maintain the flexibility from a test offering perspective, but while in the short term here, getting our customers probably the best product that's on the market.

And what kind of economics do you get when you sell the test? And what kind of add use for that?

Well -- we're not going into the specifics of the agreement, basically, they're confidential.

Okay. But nothing precludes you from -- if you wanted to offer your own test, from doing that. Is there some timeframe that you can't do that? Or you're webbed to this test for a certain period of time? Or there's nothing to preclude you from -- if you wanted to offer a test?

I think the way to think about it is in the short term, I don't see us coming up with a competing test.

Okay. fair enough. And then just -- sorry, 2 quick ones on Human Health. One, I think you had about 1 month of Caliper, right? And I think your revenues were up about $15 million sequentially. So what was the impact from Caliper and -- I'm sorry, what was the impact from Caliper? And then also, what was the asset impairment in Human Health? It seems like that was a fairly decent sized number.

Caliper was about $10 million in the quarter, for this year. So it's a little less than $15 million. It had no impact at all on our organic growth.

And the impairment, the way to think about that is we've had, as you know, a number of acquisitions over the last couple of years. And for a long period of time, we are sort of maintaining the brands and the trademarks for that period of time, so Packard and Enian [ph] et cetera. We made a decision at the end of the year to sort of clean that up. And so that required a -- or resulted in an impairment charge with regard to some of the trademarks that were on the buckets, a non-cash charge. And basically, going forward, we're going to move toward the PerkinElmer brand.

Our next question comes from the line of Jeff Elliott with Robert W. Baird.

In your prepared remarks, you mentioned seeing some BRIC moderation, I'm curious what's driving that and when do you think we can see that turn around?

I mean, I think the biggest part of that is very difficult comparisons. I think for the most part, we didn't see anything structural or otherwise. I think we're going to see the same thing again in the first quarter. Just to give you some perspective, we were up north of 30% in the fourth quarter last year. So just -- it's really just more comparison related.

Ladies and gentlemen, that concludes the time we have for questions. I'd now like to turn the call over to Mr. Friel for concluding remarks.

Great. So first of all, thank you for your questions and your continued interest in PerkinElmer. In closing, as we enter 2013, I'm confident that PerkinElmer is well positioned for another year, during which we will continue to deliver strong shareholder returns and accelerate our growth through our focused approach on building our innovative capabilities in targeting high-growth markets. Again, thank you for your interest in PerkinElmer, and have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.