Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 PerkinElmer Earnings Conference Call. My name is Sarah, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Tom Thomas, Vice President of Investor Relations. Please proceed, sir.

Thank you, Sarah. Good afternoon, and welcome to the PerkinElmer's Third Quarter 2014 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 November 13, 2014. 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 measure 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'll provide reconciliations promptly. I'm pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel. Rob?

Thanks, Tommy. Good afternoon, and thank you for joining us today. I'm pleased to report that we had a strong quarter. We grew organic revenue by 4%, expanded adjusted operating margins by 110 basis points, achieved good operating cash flow, increased adjusted earnings per share by 14% to $0.57, coming in at the high end of our guidance. As Andy will discuss the Q3 financial results in greater detail, I would like to mention a few highlights from the quarter and comment on trends currently impacting our end markets. In the quarter, we continue to grow market share and further strengthen our already solid positions in core areas of the business such as diagnostics and service. Our strategy to further increase our adjustable markets in these areas continues to be through geographic expansion and broadening our capabilities to meet growing demand. In diagnostics, we grew low double digits as we continue to benefit from improving birthrates and increasing purchasing power of the middle class outside the U.S., which is creating a nice tailwind for our newborn and prenatal screening and infectious disease testing solutions. During the third quarter, these 3 product lines actually generated more revenue outside the U.S. than within, whereas, several years ago, over 60% of the revenues were U.S.-centric. We expect this trend to continue as we have recently secured a number of new international customers and are driving expansion of our diagnostics business deeper into new markets. In our service business, which grew high single digits in the third quarter, we are experiencing strong growth as our customers continue to seek innovative partners like PerkinElmer to help improve productivity and outsource their lab services. Our OneSource solutions are playing a vital role in meeting this demand. Our recently announced acquisition of Ceiba Solutions will help expand…

Thanks, Rob, and good afternoon, everyone. As we've done in previous quarters, I'll provide some color on our end markets, a financial summary of our third quarter results. I'll provide some details about our fourth quarter guidance and we'll open up the call, as Rob mentioned, for questions. Reported adjusted and organic revenue each increased 4% for the third quarter of 2014. Adjusted revenue was $543 million as compared to $523 million in the third quarter of 2013. I want to note the foreign currency exchange rates had a negative impact of approximately $3 million versus our third quarter adjusted revenue guidance provided in late July. By segment, organic revenue in both our Human Health and Environmental Health businesses grew 4%. Looking at our geographic results. All the regions performed better on a sequential basis as organic revenue increased high single digits in Asia, mid-single-digits in the Americas and were up low single digits in Europe. Across China, organic revenue increased high single digits, driven by strong demand in our diagnostics business and renewed strength in our research business. While we believe that much of the government activity impacting our Environmental business over the last couple of quarters is winding down, funding continues to be delayed. Despite these challenges, as Rob mentioned, we continue to believe that our product portfolio is well positioned and we expect to see a high single to low double-digit organic revenue growth in China for the year. From an end-market perspective, our Human Health business represented approximately 56% of reported revenue in the quarter, with diagnostics representing 29% and research representing 27% of reported revenue. Organic revenue from our diagnostics business increased low double digits during the third quarter and, as Rob mentioned, strength in our newborn and prenatal screening and infectious disease testing solutions…

[Operator Instructions] And our first question comes from Doug Schenkel from Cowen and Company.

This is Chris Lin on for Doug today. So despite revenues coming in, I think, a bit lighter than expected, you still delivered a solid operating margin expansion on a year-over-year basis. As I look at your OpEx, you were able to control R&D and SG&A expenses quite well. And overall, OpEx declined year-over-year, even though the prior year quarter, you decreased operating spending as you went through your restructuring. My question is, can you talk about how many more levers are there left for you to pull on operating expense side given that you've had 2 impressive areas of operating expense control?

Sure. We have obviously done a lot over the last couple of years that is really driving that improvement. And I think as we look forward, we feel like -- we will continue to get the benefit of a smaller footprint, we'll continue to get the benefit of leveraging our facility, our back-office facility in Poland. And we also, on top of that, have other things we're looking at. We have mentioned before our supply chain opportunities in China are still ramping, and we feel like that's going to provide us with some upside over the next couple of years. In addition, we also have an issue around indirect spend. Our goal this year was to take $10 million of indirect spend costs out of the system. I think we're going to have equally, if not greater goals for next year, and so I think we can continue to see good leverage from that. I think I did mention on the R&D side, we are going to continue to build out the R&D facility. So some of that upside that we saw in the second, third quarter, will start to anticipate in the third quarter. But I think overall, we are much more efficient on the R&D front and we will continue to be very diligent on the G&A front.

Okay. And maybe just one more question. So I think at today's spot rates, it will appear FX represents about a 2% headwind. Revenue for --at '15 revenue, is that about right? And I think you guys have a decent and natural hedge in most geographies with few exceptions. Does the revenue headwind via FX trickle down to EPS at slightly above the net margin?

It is slightly higher flow-through, it is a slightly higher flow-through than we've seen in the past, primarily because most of the volatility has been with the euro where we do have a fairly significant cost base. So we are somewhat naturally hedged. I think if you look at the strengthening of dollars since -- if you look at the spot rate, the dollar strengthened about 6%, and a lot of that is in areas where we don't have a significant cost position such as Japan and some of the emerging economies. The flow-through on that top line headwind from FX is a little bit higher and that's why you're seeing the $0.03 on top of the $13 million of revenue headwind.

Sorry, I think -- can you just comment on what the FX headwinds for -- on 2015 will be at today's rates?

We will probably talk to you a little bit more about that when we talk about 2015 guidance, and things could change between now and then, so I'd probably defer that until that time.

Our next question comes from Paul Knight from Janney Montgomery.

Rob, can you talk about the service business a little? And specifically the question I have is, some of your competitors are focusing on services more of an offering, is it because you've taken share? What are the dynamics going on with some of your peers trying to be a little more focused? And are you worried about it, is my first question.

So first of all, I would say within our service business, as I mentioned, we continue to see good growth there. What we're focusing on is continuing to expand there, particularly in the emerging markets. What we saw in Q3 was strong growth, clearly across all the regions, but particularly strong in the Europe and emerging markets here. I think I mentioned high teens in the APAC area. So our approach is to continue to expand in the emerging markets. I would say with regard to why the competitors are focusing more on service, first of all, I think you guys talked to them about that. But I think what we're -- what we've always felt is the service engineer creates much more relevance with the customer. And as you become more relevant with the customer, hopefully that allows you to pull through additional products. From our perspective, what we're looking to do is to continue to build out our capabilities. And so the Ceiba Solutions acquisition which we've announced fairly recently is an example of where we're continuing to add, in that case, Lab IT. So hopefully differentiate our offering on the services side relative to just sort of repair and overhaul.

And you mentioned that China was, I think, showing better bookings. Could you talk about that you're not actually guiding the higher China growth though in Q4?

Yes, I think that's correct. I mean, as I think about China, what we've seen there is diagnostics continue to do very well, really sort of unimpacted by any of the, say, overall slowdown. We saw in the research market in Q3 that come back. And so we actually saw good growth in research. The area that sort of lagged a little bit, and I think we talked about this last quarter, is particularly around the food safety area, that continue to be down. We did see decent growth on environmental. And so given that, that has not snapped back, particularly in Q3, we're being somewhat hopefully conservative and cautious into Q4. But Andy did mention, we are seeing a little bit of improvement on the orders and the tenders. But again, this continual delay in sort of funding has sort of led us to be more conservative in Q4.

Our next question comes from Bill Quirk from Jefferies.

It's actually Dave Clair from Piper Jaffray. So I was hoping to get a little bit more color on the global academic markets. It sounds like those were a little weak this quarter. Can you give us some more info there?

Yes. I would say, for us, the academic markets will decline, let's say, low single digits. But what I would point out a couple of things there is, this is where our Radiochemical business is. And of course, that continues to be a drag on the academic markets. And the second thing I would point out, I think we've talked about this in prior quarters, in our in vivo imaging business, in the third quarter, some of the royalty revenue or licensing revenue that we had received historically sort of has come off. And so when you look at our low single-digit decline in the quarter, it was really driven by those 2 things. The radiochemical business and the reduction in our licensing revenue in the in vivo business.

Okay. And then I know you guys aren't giving 2015 guidance today. But how should we think about 2015 operating margin expansion?

Well, I think we have communicated fairly consistently, that we believe we can drive 60 to 80 basis points of margin expansion on mid-single-digit growth. And I think that calculus still holds. I think we're always looking for ways to accelerate that. In some cases, we may end up expanding margins faster. In some cases, we may spend it back, but I think, that's probably a pretty good proxy going forward.

Okay. And then just one last one for me. And it sounds like you're making some good headway on the China and AT [ph] opportunity? Can you just give us a little bit more color on the number of tenders that you're winning? And it sounds like actually testing might be starting out on a regular basis in some areas a little bit faster than expected.

Yes, I think we continue to feel good about the blood-screening market in China. We talked about the fact that we continue to do a nice job on winning tenders there. We're continuing to build out our production capacity in China. So I think we feel good about the opportunity that, that presents itself. And I think as I mentioned in the past, it's currently sort of single-digit millions for us from a revenue perspective, but we do -- we would expect, when you look out a couple of years, this is probably a $20-million or $30-million business for us in a couple of years.

Our next question comes from Ross Muken from ISI Group.

Maybe on the capital allocation side, obviously, you re-upped without the 8-million share buyback. Can you talk about how should we think about sort of pacing there and transpose that again sort of the more recent activity over the last few years which has been more tuck-in driven. You've obviously gone through a period here where you've probably been a little bit less active than maybe you wanted but valuations have also been up. And so help us put that puzzle kind of together.

And so I would say, Ross, first of all, I think our preference is to do the tuck-ins as they obviously make good strategic sense and have good financial returns associated with them. As you mentioned, that's been a little challenging in this environment. I will tell you, more recently, the pipeline looks -- I would say, we're more optimistic with our pipeline. And so I think that was one of the reasons why in Q3, we weren't as active in the share buyback as maybe we could have been. But at the same time, we want to have the flexibility so that if we're not successful with the tuck-ins, we want to be sort of aggressive on the share buyback area, so that was really the basis behind -- or the background behind asking the board to sort of not only re-up the historical 6 million shares but actually increase it to 8 million. With regard to how we would specifically pace that out, I think that's going to be largely dependent on what kind of success we have with the bolt-ons or the tuck-ins.

And I guess, as you look at your core debt [ph] activity in the last 6 to 12 months or year-to-date, and do you feel like you've wanted to be more active and you're -- you just seen assets trade away from you? And has that been more on the higher growth areas? I mean, maybe just give a little bit of color of what's transpired over the course of the year. Because it's been a fairly inactive year for you in general.

I would say probably the single biggest reason for our lack of doing some of the deals is probably valuation, you're saying -- and of course, that would be largely around the higher-growth assets. So when we look at some things that we felt were particularly attractive from a strategic perspective, we were just challenged by coming up with the valuation numbers. And so I think, one of the things -- hopefully, we'll continue to be as disciplined in the returns that we look at from an acquisition perspective. I think we sort of tried to point out in the past that while we will be opportunistic and we will look for bolt-ons, we don't feel like there's anything that really we sort of have to do. And so I think we can be a little bit disciplined. But at the same time, we recognize that, particular to assets that's got good growth prospects that in this environment, people are paying up for it and to be competitive, we'll have to be aggressive. And so we've got to make sure that, that asset fits well with us strategically, that we can try to put synergies and that sort of 1 plus 1 is greater than 2.

Our next question comes from Dan Leonard from Leerink.

So it looks like your gross margin's going to be down pretty sharply in the fourth quarter. How much of that is foreign currency versus other factors? And is there any -- are there any actions you can implement to help offset?

I think FX is clearly a piece of it. I would say, it's maybe not quite half. The rest of it is clearly ongoing mix with very strong service revenues, we think we'll continue into the fourth quarter, which is fairly consistent with kind of what we've seen historically. I think the one thing that could change that is the uptake in our new products. We are seeing very strong gross margins on the new products we've launched. So if we can see a pickup there, I think that will be a positive. And again, some of the things I talked about, for operating margin also affect gross margin, which is around our supply chain. I think going forward, we hope to start to see some pickup on procurement in Asia in the fourth quarter, but more so, in the second half, but we should see some benefit from that.

I think the other thing I would mention is -- and we've talked about this in the past, as we continue to grow in emerging markets, the dynamic there from a P&L perspective is it usually puts a little pressure on gross margins but it's accretive from an operating margin perspective because our operating expenses in that region of the world has the tendency to be lower. And so again, this growth in emerging markets is also putting pressure on -- as I said, it's accretive to operating margins but it does have the impact of being dilutive to our gross margins.

And I guess my follow-up. So I feel like your services business has been growing faster than the corporate average for years. But the negative impact on gross margin seems to have shown up more recently. Is that fair? And if it is, is there maybe -- to the extent that -- are people just needing more things repaired now than previously to the degree it's kind of an insurance business and folks are...

I would say, first of all, as you point out, the service business has been going well. And as we've talked about in the past, the service business is, in most part, accretive to our operating margins. So that's actually been one of the contributors when you look at the significant operating margin expansion that we've had over the last couple of years. Depending on the type of service that's done and whether it includes our spare parts or not will also get to the point of whether it's accretive or dilutive in the gross margin area.

Our next question comes from Isaac Ro from Goldman Sachs.

On Europe, I want to spend a minute on that region. Now I'm just curious how you're paced throughout the third quarter just given what we're seeing in the macro picture here and curious what is baked into your expectations for the fourth quarter this year?

Well, we actually saw Europe get a little bit better through the third quarter. But what we've built in is actually down a little bit in Europe relative to the growth we saw in the third quarter and that's fundamentally driven by comparisons or comps. If you look at our -- our fourth quarter in 2013, we had a very strong Europe and it was up high single digits. And so we're -- again, hopefully we're being conservative. But given the comp that we have in the fourth quarter, in our guidance, we're assuming Europe actually is down low single digits.

Got it. And then just on the newborn business, as we think about the overall trend globally on birth rates, at least in the U.S., it seems like things have gotten better throughout the year. And I'd be curious if you guys are expecting that to accelerate into the end of this year and into next year? Or if we're on a slow-but-steady kind of improvement?

No, I would say the U.S. birth rates for us, while they're increasing, they're not increasing -- they're not improving at an increasing rate. So U.S. birth rates, the ones that we track are probably at 1%, 1.5% increase year-over-year. The growth that we're really seeing in the newborn area is really outside the U S. And some of that is birth rates, but quite frankly, more of that is adoption. So I think Andy mentioned a little bit of this in his prepared remarks, but what we saw in the third quarter were significant wins in Thailand, Brazil. We've recently signed a big contract in Mexico. China grew over 20% in newborn. So newborn is really expanding outside the U.S. Some growth in Europe, but again, it's largely in the emerging markets.

Our next question comes from Miroslava Minkova from Stifel.

Let me just start with the new product. I'm curious -- if you could give us some color on how your new products are doing in the marketplace is particularly the AxION iQT. And you did mention in the script that you're comfortable with the $15 million to $20 million contribution. Did the new products help in the third quarter? And how -- where are you with the launches?

So as I mentioned, we feel very good about the progress and with the new products. What -- we think we're tracking well for the $15 million, $20 million, if you look at Q3, we think the benefit was probably in the high single millions, probably call it, $8 million to $9 million is what the benefit was in Q3, so again tracking well for the sort of high teens for the back half of the year. If you look across -- I think we feel good at the traction on all of them. The Phoenix, the EnSight, the Touch and the AxION iQT, I think that continues to see good feedback from customers. So I think we feel pretty good about that.

Okay, great. And a follow-up. I was wondering if I could get you to reflect a little bit on the overall growth trend in your business towards that mid-single-digit growth trajectory targeted organic growth rate? You came close to that this quarter, but you're still sort of at the low end of it. What will it take for you to get more consistency towards the 5%-ish kind of growth rate? Is it all about China?

Well, I think that was probably a little bit of an issue relative to our guidance. But I think, for us, let's say in sort of through the cycle is we've got to get some growth out of Europe. I mean, I think it's going to be difficult to get to sort of 5% or 6% growth if Europe continues to be flat or low single digits. So I would say that's the biggest contributor from a geographic perspective. I think from an end-market perspective, we are seeing nice growth in diagnostics. We're seeing decent growth in the Pharma area. Academic is still a little slow, and I think that's probably attributable to the government funding side. And then again, in some of the emerging markets, some of the areas of industrial and environmental, if we saw a pickup there, I think that'd helpful. So as I would think about getting the sort of mid-single-digits.

Our next question comes from Steve Tosha from Morgan Stanley.

I wonder, Rob, if I could ask you to reflect for another minute on the comment that you made about the strength in the U.S. You made a comment specifically indicating that the U.S. picked up through the quarter, exited a little stronger. And was that a comment more on the end markets? Or was that a comment on Perkin? Was there any contribution from new product flow embedded in that comment about the U.S.?

So the comment specifically was about PerkinElmer. So I was talking about our specific ordering pattern. We did see it increasing through the end of the quarter there, so we felt good about that. By the way, I do -- it does feel like the end markets seem to be improving as well. And if you look at some of the macro indicators, it does seem like the U.S. economy is sort of improving, maybe not as quickly as everybody would like. But our forecast for Q4 actually assumes the U.S. improves over Q3. And to some extent, going back to my prior comment where we're assuming Europe comes down a little bit, fundamentally because it had difficult comps. We're looking to sort of offset that or replace that with a little higher growth coming out of the U S.

Got it, really helpful. And then I wonder if you could think about the path forward in China for growth. We're all focused on the potential for these budgetary constraints to be resolved. But I wonder, if we're in a scenario where the budgetary constraints are resolved, how we should think about growth? You could argue that there's a potential for China to return to something akin to its prior growth profile, but then in the next few quarters, we'll have easy comps. So if you just do a really simple arithmetic, you might argue that it could be a strong double-digit growth driver. Should we take the view that maybe the growth recovers or maybe it's healthy growth on top of easy comps?

So I think when you look at our China business, you really got to break it into the 3 components. So first of all, our diagnostics business has consistently been growing, let's call it 20% maybe even a little better. I think for the foreseeable future, that continues. Because we're getting good penetration, as I mentioned before, on both the newborn and the prenatal. We're seeing infectious disease continue to grow nicely. Some of that's new products. And of course, we've got blood screening coming on we think more significantly in '15. If you look at research, we've started to see some good recovery there in Q3. We think that continues into Q4. So again I think that's going to be a more modest increase over the next couple of quarters and maybe will return to sort of double digit or midteen growth there. I think the area where your sort of comments are more germane is really around the environmental or more specifically for us, the food area where we have seen sort of declining revenue over the last couple of quarters as these tenders have sort of backed up. And there's a possibility it could snapback very quickly. My sense is when it does open up, it will sort of open up the funnel and it will be more measured. Now you will have easier comps in that area, but I don't think there's going to be a huge snapback in growth and you won't see it pop up in 1 or 2 quarters. I think that will be more measured over a longer period of time.

Next question comes from Dan Arias from Citigroup.

Rob, on blood screening in China, as we move towards 2015 here, how are you thinking about the pacing of revenues there as the mandate becomes effective? Do you see that being pretty metered? Or are you expecting a bolus, one way or another, as everyone sort of...

I think it's probably -- our sense is it's probably more in the back half as this thing sort of gets ramped up. I think as you know it's supposed to start 1/1, but we think there will be a probably a little bit of delay, and not all the provinces will probably start that the same time. So we think, by the time we get to Q3, we'll probably been where we probably need to be. So at least our -- as we're thinking about it now, that sort of paces out somewhat in the first and second quarter. But by the time we get to the back half, you probably got everybody sort of complying with the requirements.

Okay, that's great. And then if I could just go back to China once more. Last quarter, you kind of quantified the scope of the tender delays by saying that I think 35% of the Environmental Health business was affected by that dynamic. So I guess based on the way that you just talked about the different end markets, where would you sort of put that number at this point?

So I think that's probably still a pretty good number. I mean, if you look at the environmental business right now, again it's really focused for us in really the food area what we would call safety and security. And that's probably in the 35% to 40% of our business in China. That's when it's been slow. Actually, environmental grew fairly significantly in the quarter. And industrial sort of flattish. So I would say it's probably 35% to 40% of our Environmental business, which right now is about half of China, so just to give you a calibration there.

Next question comes from Jeff Elliott from Robert W. Baird.

My question for you, Andy, on the indirect spend side, you mentioned the savings there, $10 million you targeted this year. Can you talk about the areas you're targeting? And how much flexibility do you have to perhaps step that up next year?

Well, I think we have a lot of opportunities to step it up. I mean, I think really, what we were trying to get across this year is really exposing the entire workforce to the initiative. We've put tools in place. We have all kinds of opportunities that we're going after at a facility level. But I think if you look at our overall indirect spend, it's well north of $400 million. So if you just look at our percentage improvement year-over-year, it doesn't take much to get to $10-plus million. I think it's interesting as we end up rolling out initiatives across PerkinElmer, we tend to have a great uptake. And I think there's been a lot of work around this and I think as we start to put together our plans for next year, I think you'll see something, hopefully, well north of that $10 million target for next year.

Got it. And just to clarify, how much of that is volume dependent? Is that all independent of what the top line looks like next year?

Some of it does have a volume dependency. But I would say, a large slot of it is not volume dependent. And it depends on how you want to classify it, I mean, travel is a very significant expense, it's somewhat volume related but office supplies and so forth tends to be less so.

Next question comes from Tycho Peterson from JPMorgan.

I won't ask about China. On neonatal, I'm wondering if you can just talk on that. You talked about -- or actually prenatal, I'm sorry. Your 20 months into this Verinata collaboration. Maybe just talk about how that's trended relative to expectations. And then, are you getting any traction from the Good Start collaboration as well?

So I would say prenatal for us grew, I think, was sort of high single digits in the quarter. A lot of that was outside the U S. Let's say, as we've talked about in the past, specifically in the U.S. so the Verinata arrangement, it's really -- gets down to how quickly the cash payments sort of flow from the payers. We are, I would say, over the last 90 days, we have seen good progress there, so we're at a point now where I think the cash collections are getting much more, I would say, reasonable. I would say the other thing in the quarter, we reached agreement with Alumina on a couple of issues and we've now extended our contract for another 2 years. So we feel good about that. And I would say the third thing that I think helping us to some extent is, we've seen a lot historically some of the competitors in the space do some things with regard to guaranteeing minimum payments or out-of-pocket. And we're starting to see some of the payers sort of impose what I'll call a more level playing field there. And I think the combination of those things, I think, make us feel much better about the business as we go into '15.

Okay. And then going back to the question on M&A before, you don't have a lot of leverage. You're focused on tuck-ins. I guess, can you maybe just talk about the thought process for not looking at larger deals. I understand there's maybe some valuation disconnects out there, but it's still a very fragmented industry. And maybe talk about the maximum leverage you could consider taking on if larger deals did hit your radar screen.

I would just say, one of things that -- when you look at larger deals, our sense is it's much more disruptive to the enterprise. So whether you can manage that or not. But probably more importantly, when we look out there, we're not necessarily looking to build scale for scale's sake. What we're really looking is where are the opportunities for us to build significant relative market scale. And so we want to look for acquisitions that build in the spaces where we're strong, and it's just hard to find big targets that do that. And I think that's probably the bigger issue. It's just that there isn't something out there, at least from our perspective, that is attractive, that's large, that builds in our areas of strength. So take for example, newborn screening or imaging or any of the areas where we think we're differentiated and focused. And so I think that's fundamentally the challenge for us.

Okay. Then one last one, since you did mention imaging, any thoughts on the flat-panel market? It looks like CapEx budgets are freeing up a little bit in the U.S. Has that business picked up for you at all?

As Andy mentioned, we had a very strong Q3. We think we're going to do sort of probably mid single in Q4. We are seeing some push outs from a timing perspective, but I think as we've talked about historically, we think this is a business that probably grows mid- to high single digits. We've introduced some new products, most notably around the cassette, and we're also starting to get some FDA approval of our panels, which will open up adjacencies into the clinical market. So I think -- we still feel good about this business and like I said, can grow sort of high single digits.

Our next question comes from Brandon Couillard from Jefferies.

Rob, early in the script, you mentioned market share gains in the quarter. Could you elaborate on exactly which verticals you experience the most acutely?

Yes, I would say specifically in the diagnostics and service area where we're seeing double-digit growth rates there. Our view is we're able to go in and take some share. In some cases, it may be -- in case of service, it may be customers that are outsourcing internal or it may be the case of -- in our diagnostic business is where we're taking business away from local competitors. But clearly, at sort of double-digit growth rates, we feel like we're growing faster than the market.

And Andy, a 2-part question for you. You made some nice progress on the working capital front. Can you remind us if you've made any or planned any U.S. pension contributions this year? And then secondly, what type of free cash flow conversion ratio would you expect is achievable for 2015?

We -- I think, noted in the previous call, we did make a fairly significant pension contribution last year and we don't really have a need for a pension contribution in the U.S. planned over the next few years. So I don't foresee any cash outflow in that regard. I would say if you back out some of the restructuring activity as we go forward, and I think you will see that abate somewhat, I think there's no reason we shouldn't be at that 100-plus free cash net income conversion. We're about 92% year-to-date. And that's certainly our goal. That will certainly be our target as we go into 2015. I think some of the improvement -- there's still a lot more improvement left to be done on the working capital side. I don't see any reason why we shouldn't be reporting that 100-plus in the near future.

Next question comes from Derik De Bruin from Bank of America.

You'd never -- you didn't specifically say an organic revenue growth target for the year. I mean, it was 4% to 6%, you didn't really update that. Could -- I assume we're -- just sort of given some of the headwinds in China and Europe, we're probably for the full year, we're tracking closer to the 4% to 5% range rather than 5% to 6%.

Yes. I think that's a fair assumption.

Right. I mean, do you think it's still achievable? I mean, do you think the higher end could potentially happen if things go away? Or you just -- is that out of the question?

I'd hate to say it's out of the question, but we would need some fairly significant growth in the fourth quarter to be able to get to 6%.

Great. And I guess just sort of -- through doing the math here, it's like what -- do you have sort of impact on sort of relative to where your initial expectations were, sort of Europe and China, are in terms of where you thought you're going to be on an organic growth basis to where you ended up? Basically, are those weaker markets cutting you by 1 point, 1.5 points, just some color on where the impact is?

If we look at Q3, for example, I would say, America's at, call it, 4 mid-single-digits. That's about what we expected. If you look at Europe at sort of low single digits, that's about what we expected. If you look at APAC, which again was sort of high single digits, that's about what we expected, maybe 100 basis points short and it really gets down to China. And so I think as we mentioned, China came in at high single digits, which isn't a bad number. But we historically and actually expected, it could be sort of low double. So that was really when you sort of cut through from a expectation to actual, it really gets down to a little bit light in the APAC, and it was fundamentally China.

Okay. And you mentioned sort of the imaging royalties coming off. What -- does that create a significant headwind in 2015?

It creates a headwind, I don't know if it will be significant. But what I would say is, we've got a fairly extensive intellectual property portfolio. And while there were some coming off on the in vivo side, we continue to make good progress in some of the other areas. And so in any given quarter, we've got probably a couple million dollars of licensing revenue maybe positive or negative. So it's just sort of something that we deal with in any given quarter. But I would say the headwind in '15, I wouldn't call it a significant headwind.

And it's really more, Derik, in the first half because some of those patents fell off kind of midyear so we've seen some of the impact to that in the second half. So that V will really be a first-half V.

Our next question comes from Zarak Khurshid from Wedbush Securities.

Rob, so how should we be thinking about the growth in the prenatal serum screening NTD business?

I think that's a business that probably over time, it's flat and maybe down a little bit. It's not as much from a volume perspective, but it's continued pricing pressure. I would say, so -- and when you talk about NTD in the U.S., when you go outside of the U.S., for the kids, we continue to see strong growth there. But I would say the NTD business over time is sort of flat to down slightly.

Got it. And then how should we be thinking about NIPT potentially eating into that average risk market? And just generally, how big of a like kind of a long-term headwind is the NTD business long term? Can you give us a sense just of the size of the business?

I think eventually that probably occurs. I think we're still some time off that from NPT going to sort of average risk. But for us right now, the NTD business is, I want to say, it's $20 million or something, so not a huge part of our business but I'll give you that rough size.

Got it. And then last one. Just on -- while we're talking about the IP on the in vivo imaging side, how is the licensing revenue coming through on the caliber side of the business? I know they're pretty good at asserting that microfluidics IP.

Yes, I was sort of -- to some extent, what I was referencing before when I was talking at -- with the microfluidics, again, it's a little bit lumpy depending on any given quarter. But for example, this quarter, we did have some nice microfluidics licensing income come in that helped offset the in vivo runoff of the patent. So I think we continue to appropriately enforce our IP and consequently that periodically allows us to put some additional income in any given quarter.

Next question comes from Peter Lawson from Mizuho.

Just thinking about 2015. Which businesses excite you the most heading into '15? And which new products could be meaningful?

Peter, I would say, all of the businesses excite me going into '15. And I hope all my business leaders are listening to this. But seriously, look, I think we have nice growth prospects across the board. Clearly, the macro indicators would imply that the diagnostics business, I think, continues to do quite well. And probably the service businesses sort of spike those 2 out earlier. But look, our expectation is that all the businesses should be able to get the sort of mid-single-digit growth or better. With regard to the new products, I think, we continue to feel good about the products around the research area. We're making good progress there. The Alpha Phoenix has had very strong demand, as is some of the other products. And we continue to feel good about the AxION with regard to the applications in some of the end markets there. And I would say, clearly, while we've talked specifically about the products that we introduced in the back half of the year, our expectation as we get into '15, that we'll continue to roll out significant amount of new products. And that will continue to be a big contributor to our growth next year.

And just a quick question. Andy, I joined the call late. The EPS impact for 2015, what would that be on the bottom line?

We'll probably provide that when we give guidance for '15 because obviously it could likely change. We just mentioned it was $13 million and $0.03 in the fourth quarter.

And our next question comes from Bryan Brokmeier from Maxim Group.

There appear to be a few more locations on the map of your Elm air-monitoring system. Are you generating interest in that system? And how is -- I think the largest is probably in Massachusetts, in Boston. How is that pilot program going? And any other comments that you have based on the early adoption of it.

I would say we continue to get a lot of interest. We were at analytical over at Shanghai a couple of weeks ago and got some good interest there. And we're seeing good interest not only from the municipalities but also industrial companies as well. So we've got a couple of pilots here. We'll probably be taken off in the latter part of the year or early '15. And so we continue to be sort of excited about it. Again, what we tried to explain to people is we don't think there's any revenue in '14 but as we get into '15 here, it could be incremental to our growth.

There are no further questions in queue. So I'll turn the call back over to Rob Friel for closing remarks.

First of all, thank you, all, for your questions. And I hope you got a sense that we feel great about our performance in the third quarter and year-to-date. And we believe we're in a great position to achieve a solid finish to the year as well as continued long-term success. Thank you for your continued interest in PerkinElmer, and have a great evening.

Ladies and gentlemen, that concludes today's conference. You can disconnect, and have a great day.