Good day, ladies and gentlemen, and welcome to the Q4 2017 PerkinElmer Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now like to turn the call over to Tommy Thomas, Vice President of Investor Relations. Sir, you may begin.

Thank you, Chelsea. Good afternoon and welcome to the PerkinElmer fourth quarter and full year 2017 earnings conference call. With me in 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 this call is being webcast live and will be archived on our website until February 8, 2018. 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 view 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 now 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 PerkinElmer had a very strong finish to 2017, delivering significant revenue growth and beating both the top and bottom line of our previous guidance. Our revenue for the quarter were the $642 million representing reported growth of 13% and organic growth excluding the impact of EUROIMMUN of 6%, which was well balanced across both our diagnostics and discovering analytical solutions for DAS business. On the bottom line, our adjusted earnings per share was $0.97, however on a diluted share basis, which is a more appropriate comparison. Our adjusted EPS was $0.96 representing growth of 16% compared to the fourth quarter of 2016. The EUROIMMUN acquisition, which we completed on December 19 contributed $13 million or approximately 2% to our fourth quarter revenue. However the operating income generated by EUROIMMUN during this tough period was offset by an increase in incentive compensation related to the closing of the transaction. This increased compensation charge negatively impacted our adjusted operating margins by about 60 basis points, rezoning in a modest fourth quarter increase and our adjusted operating margins to 21.4%. Excluding this charge operating margins would have expanded by about 70 basis points. Looking at our full year financial performance, we grew reported revenue by 7% and organic revenue by 4%. Adjusted earnings per share increased by 12% to $2.90 and our adjusted operating margins expanded by 30 basis points to 18.9%. Reflecting on last year, I am very pleased not only with our financial performance, but also our success in expanding the scale and scope of the company further positioning us to accelerate long-term growth while making an even greater impact on global health. While Andy will discuss our fourth quarter financial results and 2018 guidance…

Thanks, Rob, and good afternoon, everyone. Consistent with previous quarters, I’ll provide some additional color on our end markets, a financial summary of the fourth quarter 2017 results, as well as details around our guidance for the first quarter and full year of 2018. To start off, we were pleased with a strong finish to 2017, as adjusted revenues grew 13% to $642 million. Foreign exchange represented a tailwind of approximately 300 basis points, with acquisitions adding approximately 400 basis points resulting in organic growth of 6%, which excludes any impact of organic growth from the EUROIMMUN stub period. By business segment, Diagnostics represented approximately 30% of total revenues, with organic growth excluding EUROIMMUN of approximately 6% for the fourth quarter, driven by solid demand for our reproductive health and applied genomics offerings. Discovery and analytical solutions represented 70% of total sales and grew approximately 6.5% organically in the fourth quarter, highlighted by year of successful new product introductions and an improving macro environment. I’ll provide some additional color on both businesses in a moment. We experience healthy growth across all major geographies with low teen’s organic revenue growth in Europe, high single-digit organic revenue growth in Asia, and low single-digit organic revenue growth in the Americas. In the BRIC regions, we continue to experience strong and broad-based organic revenue growth driven by a solid recovery in Brazil and continued double-digit organic revenue growth in China. Looking at our operating results for the period, the fourth quarter was particularly complex given the impact of tax reform, the upcoming change in accounting for pension income as well as the consolidation of the EUROIMMUN financials some others. I’ll attempt to clarify the impact of these changes in my prepared remarks, but you have additional questions, Tom and I’ll be available after today…

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Dan Arias with Citigroup. Your line is open.

Hey guys thanks. Rob nice step up for DAS this quarter. How should we think about 2018 growth in that segment in the context just the 4Q number but also some of the organizational disruptions that seem like they’re behind you at this point. Do you feel like DAS can be above 4% this year, just given the upward trend and the state of the end markets?

Yes. We’re forecasting 4% is sort of mentioned previous year or Andy mentioned too. Is there a possibility we can do better than that? I think so. We’re seeing good trends in pharma as you pointed out. We continue to get good traction in our service business and food was very strong for us. So I think the key for fourth quarter and will be for 2018 the businesses that have been sort of our growth businesses that we focus on have continue to do well and are growing sort of high single low-double. The challenge in the first couple of quarters of the year was that the core – our core businesses were sort of flat low single-digit. What we saw in the fourth quarter was that the core businesses actually recovered in sort of mid single digits. If we continue to see that in the 2018 timeframe, I think DAS will do better than 4%.

Okay. And then maybe on EUROIMMUN what was the revenue growth there for the quarter? And then on the margin you guys have talked about the ability to get that business to the DX average. So I guess how long before you think that business starts to give some loft to the overall corporate margin. I mean, I guess what are the investment needs that you see at this point and then when should we look for a profitability there to start contributing? Thanks.

So EUROIMMUN continue to see strong growth in the fourth quarter – the entire year of 2017 and we sort of commented before. They continue to grow sort of at the high teen growth rate and it’s fairly broad based among the three businesses whether it’s autoimmune, allergy and infectious disease they all experience good growth. So we’re excited to see that. With regard to the operating margins of EUROIMMUN I think our approach right now is as we continue to see the volume ramp, we expect the margins to go up there. But for the immediate timeframe or at least for the short-term I think we’ll see that ramp maybe 100 basis points a year or something like that. So I don’t know that we’ve got huge expectations at least for the next couple of years to see significant ramping up of EUROIMMUN margins.

Thank you. And our next question comes from the line of Steve Beuchaw with Morgan Stanley. Your line is open.

Hi, thanks very much for taking the questions here. Rob, exiting the year you’re understandably really happy with some of the changes that you’ve made in terms of business divestitures and additions. I wonder if you’d give us an update for your thinking on any future changes to the business mix. At times it seems like we picked up a sense that you were looking to make further changes maybe not as big as imaging our EUROIMMUN. How is the beginner evolving?

Okay. First of all when we look at diagnostics the focus there has been sort of expanding our impact there. So I think I wouldn’t expect to see much on the divestiture side there on the diagnostic business, we just look to continue to sort of add our ability to impact by geographic region and the state. And I sort of alluded to that in my comment. I think in the DAS business again the majority of our focus is on how do we invest more in the growth areas. Because I think that’s really how ultimately we make that a better business. Having said that during the year could we see some product lines being shut I think we could but I wouldn’t say there are significant dollar amounts. But again I would say the majority of the focus on DAS is how do we make that business execute better. And then the second thing is focus on the areas where we have the most significant growth opportunities. But you should – you could see some, but I wouldn’t say it’s a significant number.

Okay. I appreciate it. And then just a couple of follow ups for clarification. One, Andy on gross margins any timing items in the COGS line in the quarter that we should think about that might have impacted the progression there. And then Rob on EUROIMMUN really strong year for EUROIMMUN in 2017 relative to the guidance for EUROIMMUN growth in 2018. I wonder if you could just give us a sense for what takes the growth from the 2017 rate to the 2018 rate. And then I’ll drop. Thanks so much.

I’ll answer that and Andy can handle the gross margin. I think – we think it’s prudent given the amount of potential disruption of a business that has been sort of privately run for over 30 years. And we’ve talked about before our goal is going to be to sort of do as little disruption is possible. We just think at this point as we sort of better understand the business that to take it down from call it 18% to something in the sort of 13% or 15% is prudent. Having said that I don’t know that there is anything either market or competitive wise that would suggest that we’re necessarily going to see a deceleration in growth but we just think for purposes of forecasting 2018 – we should lower the growth rate by a couple 100 basis points again just to be prudent.

And Steve to answer your question on gross margin there wasn’t really anything similar in the period. What we have seen throughout 2017 was a bit of a mix shift into services, which obviously have an impact on gross margins. And in the mix we saw a strong growth within DAS which has lower margins than diagnostics and that also contributed to the margin performance. Although, as I mentioned in our prepared remarks, we think that as we move into 2018 we should be able to expand those gross margins at least 150 basis points. So I think we feel like we’re very situating go into 2018.

Thank you. And our next question comes from the line of Tycho Peterson with JPMorgan. Your line is open.

Hey, thanks. I just wondering on the channel side if you can talk a little bit about the U.S. commercial side for EUROIMMUN where you are in that build out?

So we’ve been working with them we actually had a meeting earlier this week between the U.S. sales force and EUROIMMUN and PerkinElmer sales force. I think we’ve got a very good plan mapped out from the standpoint of educating both sales forces on each other’s products. I think we’ve got a good plan with regard to the specific customers that will target. We’ve actually got incentive plans in place for each company to sort of provide leads on for each other products and we start to put in the regulatory resources required to accelerate. Hopefully accelerate EUROIMMUN’s regulatory approvals of some of their products. So I think we’ve got a very good – hopefully accelerate the growth rate of EUROIMMUN in U.S. over the next couple of months or quarters.

And then I guess, if we think about the long-term guidance you gave back at the conference in January or updated to get diagnostics into the double digit territory are there kind of levers you can point too I mean obviously you are guiding to 9% here in the near-term so not that far off.

No. I think, if we get EUROIMMUN – when we talked about the previous discussion we’ve got that it’s sort of 13% to 15% this year if that continues to get in the high teens – as we start to get some of the traction with Vanadis, we get into 19% and 20%, we’ve seen initial good response on the genetic testing business. And of course, what we’re finding is increasing synergies between EUROIMMUN and tool as we look to penetrate some of the emerging areas. I mean there’s a number of levers that we feel like we should be able to get up into double digits from the diagnostic business.

Thank you. And our next question comes from the line of Patrick Donnelly with Goldman Sachs. Your line is open.

Hey thanks. I appreciate the color on Vanadis and launch timing there in 2Q. I’m just curious, I know you guys always can include a new product to bucket in terms of revenue for the year ahead. What kind of revenue expectations are baked into Vanadis specifically for 2018.

It’s fairly low, I would say because the timing of the tenders our expectations for Vanadis for 2018 at least in our plan is less than $10 million.

Okay. That’s helpful. And that on the genetic testing business, I know it’s early days there. But maybe just give us an update on expectations on revenue opportunity there and then also I know you talked about partnerships in newborn screening and rare disease testing how should we expect those restructure and news flow on that as well.

So I think in genetic testing, we’ll sort of see that ramp to probably – again $5 million to $10 million business in 2018. And then by 2020 we’ve been saying that we think we can get up to closer to $50 million business particularly as we start to branch that out globally. Up to this point it’s largely been a U.S. business but our intentions are to move this out into India and China and some other areas as well, so call it maybe $10 million next year but $50 million by 2020.

Thank you. And our next question comes from the line of Ross Muken with Evercore ISI. Your line is open.

Good afternoon guys and congrats.

Welcome back.

Thank you. Good to be talking to you guys. So maybe – could you talk China for a moment obviously an increasingly important part of your business? So help us understand how you’re thinking both on the industrial and environmental side sort of the cadence and the comps through next year, you could see it show strong double-digit growth there. And then as you’ve got now the better understands are in the diagnostic market sort of how well that kind of business correlates overall with the economy versus sort of just – the secular trend there in terms of some of the places where EUROIMMUN obviously has great strength.

So first of all China continue to be strong for us in the fourth quarter. I think it was sort of mid-teens, give or take. And I think as we think about going into 2018 right now, I would say we’re forecasting in sort of the high-single low-double digit again mainly context of being low prudent year particularly on the EUROIMMUN side. EUROIMMUN has continued to see very strong growth in China. I would say when you look at our businesses, the diagnostic business has also done well particularly in the newborn and prenatal side. The one area where we’ve seen a little bit of a challenge has been in some of the tenders, the local content is becoming increasingly more important, in fact there are some tenders on the newborn side where we haven’t been able to bid on. And so probably it’s been 18 months now. We’ve been sort of aggressively moving our manufacturing of some of our assays, some of our instruments into China on the diagnostic sides. And of course some of that requires regulatory approval, so I would say I continue to be fairly bullish on the diagnostic side within China, but we’ve got to be able to make sure that our businesses and this is mostly on the reproductive health side are able to meet the local content requirement. When I go to sort of non-diagnostic at the DAS side, I think we continue to be enthused with the opportunities there whether it’s the environmental, whether it’s the pharmaceutical side. And I think we’ve seen some recovery on the industrial market if you sort of alluded to. So I think – and I think some of the benefits we’re seeing is that we’re trying to increasingly make sure that our products are designed and manufactured for those markets specifically. So whether it’s the functionality or whether it’s the cost position and I think we’re seeing good traction there.

That’s helpful. Maybe Andy just two clarification, so one, on the diagnostic core growth for next year at 9%. I just want to understand the component of that coming from EUROIMMUN seems like I guess you’re counting the incremental core growth in that business in that calc. Just want to be sure of that. And then secondarily in terms of the Q1 seasonality it implies pretty good revenue sort of shift from what you would think the normal quarterly cadence is. So is it to assume that that sort of balance back to the fourth quarter or how exactly is that sort of seasonality I guess going to play out?

Yes. The anomaly – I’ll answer the second question first and then I’ll answer your first question second. The anomaly is really just the first quarter. So you’ll see, we’ve talked about the growth for the year and the first quarter as we said is seasonally low, Q2, Q3 and Q4 are fairly consistent with the fourth quarter being slightly higher than the second and third. So that’s the rate it’s been historically and that’s the way we’re planning to 2018. The split within the 9% is about 2.5 percentage points related to EUROIMMUN and in the core business is growing at about 6.5%.

Yes. Maybe said little differently the way to think the growth rate by quarter doesn’t necessarily very much. So our assumption is the 13% to 15% is fairly consistent through the four quarters. The difference is the absolute number historically is low in the first quarter.

Thank you. And our next question comes from the line of Steve Willoughby with Cleveland Research. Your line is open.

Hi, good evening. Thanks for taking my questions. I’ve a couple of them. One just on new products, Rob I think you said the new products contributed $56 – sorry, $66 million this year. I believe last quarter you said it was $56 million and finally about $10 million in revenue from new products are in the fourth quarter, just wondering if there’s anything to that. And then just Andy on the incentive comp charge that with headwind to your margins, since it was related to an acquisition why wasn’t that called out as a one-time item here.

So I’ll take the first one, so yes, $66 million is the total for the year and we were I think through the first three quarters you’re right, we’re sort of tracking to the low 50s. It just was a mix of revenue that we saw in the fourth quarter sort of less attributable to new products. And then I would say going into 2018, although you didn’t ask, we think $50 million is probably a good number as well. Now that would exclude EUROIMMUN. I would say at this point I don’t know that we’ve got good visibility in the split in the revenue growth between new products and sort of existing products, but we think we can do at least another $50 million next year as well.

And then as far as your question related to the compensation, we typically do not breakout compensation. This is a part of our longer-term compensation plan, what you can find in our proxy. So it’s something that’s been around and we felt like that it was really a part of the operating results and really didn’t need to be broken out in the box.

Okay, makes sense. Thanks

Thank you. And our next question comes from the line of Doug Schenkel with Cowen. Your line is open.

Good afternoon. My first question is on capital deployment, now that you’ve closed EUROIMMUN. Can you give us an update on your capital deployment plans I guess near-term and long-term, specifically I’m curious about your ability to go out there and do more M&A. I’m curious about how you are thinking about potentially changing your thoughts on share repurchases. And I’m also curious about whether you have the portfolio, you need to have in place as we sit here today to achieve high-single digit organic revenue growth in 2020 consistent with the recent comments you made Rob.

So I would say first of all, I don’t know that the strategy behind our capital deployment has changed, because of the EUROIMMUN acquisition. I think the preference would still be first acquisitions, bolt-on acquisitions in particular that sort of add capabilities either technological or others, then probably the second most area would be if share repurchased. And in probably third would be to continue to sort of reduce our debt to a level below let’s say two times EBITDA. If you look at the leverage we took on relative to the EUROIMMUN acquisition, we believe with the combination of the EBITDA growth and the cash we generate that we could delever relatively quickly. So the answer to your question relative to acquisitions we continue to have a fairly robust pipeline. We continue to sort of look at a lot of potential opportunity to buy things. I would say the only difference is probably in the short-term. I would say doing a large deal that I would say sort of north of $1 billion is unlikely, not impossible but unlikely. But I think we feel we can continue to do $100 million, $200 million, $300 million deals even the cash flow we generate. And like I said we believe we have the ability to delever relatively quickly. With regard to the second part of the question is to we have the portfolio currently to get the high-single digits for PerkinElmer. And I think so as we continue to migrate the portfolio organically and I think if you look at a couple years diagnostics will be a bigger component. I think the service component of DAS will be bigger. I think the food component of DAS will be bigger. And as I mentioned before maybe we will get out of a couple product line. But if we can add let’s say a $200 million of incremental profits in high growth areas, I think that would be helpful. But I don’t feel like we need to do a major transformational deal between now and 2020 to get the high-single digits. As we’ve spike that into past, we talk about 50% of our business has historically been growing close to 10%. So the idea is to continue invest in those areas make them bigger and we can get the high-single digit growth organically.

Okay. And one other thing I wanted to cover was just FX, foreign exchange, in the context of guidance. I guess, Andy, what rates are you using in your – what rates are you using for FX in your guidance calculations? And then more specifically, to EUROIMMUN, I believe EUROIMMUN has a pretty significant cost base in euros. How are you accounting for the weakening dollar in the context of guidance?

Where we – this has been our consistent long as I’ve been here, but we use the ending rate from the previous quarter. And so going into this year, we used $1.18 rate, which obviously, the euro has strengthened dramatically. We’ll obviously provide an update each quarter as we true that up. But we typically use that rate at the end of the previous quarter to establish our guidance for the next quarter.

Thank you. And our next question comes from the line of Jack Meehan with Barclays. Your line is open.

Hi, thanks, good afternoon. I was hoping you could provide a little – could you provide a little – greater granularity just on the performance within DAS? I caught low singles in industrial and a decline client academic, but how did OneSource and the other end markets do within there?

And is that with regard to Q4?

Correct, yes.

Yes, okay. So if you look at pharma and the biotech areas, that was sort of a low double, actually, for us. So it was a nice step up. We were very pleased to see that. Food was high single. Environmental was actually sort of low double digits as well. Industrial was up high single. And the only one we saw a little bit of decline on was academic and government, which again, isn’t a big business for us, was down low single digits.

Jack, on pharma and bio, the nice thing we saw here has typically been driven a lot by service. But we did see some pick up in product in the fourth quarter, which was encouraging.

Yes, it was more evenly balanced between product and service than historically we’ve seen.

Great. And maybe just on industrial itself, we continue to see really rosy macroeconomic picture. I’m curious what you’re seeing and what the outlook for 2018 is there, too. Thanks.

Yes. I would say, for us when we look at the fourth quarter on our industrial side, we saw pretty good growth in the Americas and Europe. APAC was a little challenged. But I think, to a large extent, that was a difficult comparison year-over-year. So I think we support the view that the industrial market continue to be constructive. And I think as we project it into 2018, that’s the view that we continue to believe is the appropriate one.

Thank you. And our next question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is open.

Hey, congratulations on the quarter.

Thanks, Paul.

Rob, could you frame up the size of China, specifically, percent of revenue? And then my read is that this is a pretty big platform. Do you think you can get half of your incremental growth out of that market as you kind of frame up your thoughts on the platform and the opportunities you have there?

So China, actually, with EUROIMMUN right now, will take us through to over $600 million in revenue for PerkinElmer. So against a 2018 forecast of $2.7 billion, it’s almost between 20% and 25% of our revenue. So it’s increasingly becoming a more important part of us. To some extent, as I sort of alluded to on the diagnostics discussion earlier, I mean, that was part of our strategy. When you look at 40% of the population between China and India and 10% of the diagnostics spending, we do think that’s an area where you’re going to see disproportionate spending, so we like that aspect of it. Clearly, when you look at environmental and food, even on the pharmaceutical side, I think those are other areas that have been identified as key areas of investment by the government. So we continue to feel very good. We continue to invest there, whether it’s in people, whether it’s in manufacturing capability, whether it’s increasing our R&D. But – so we continue to be fairly bullish on the Chinese area now. I sort of alluded to before that probably relative to the growth we’ve seen historically, that may come down a little bit. But I think to some extent, we’re just getting such a large business there that I think we’re planning in the low double-digit growth in China, but I think that’s the realistic and prudent approach.

And then lastly, Rob, on DAS, what do you want to do by 2020? Where do you want to go today on reagents and service in the future? What are your thoughts on – can you – will you do something to move the cyclicality down a bit in DAS?

Yes, absolutely. I mean, I think that’s an important part of the strategy in DAS is to continue to expand our consumable portion of the business, and then also continuing to use service that hopefully pull through more product. But the other aspect of service is continue to expand the types of services we provide. And then we also believe, when we get to maybe the 2020 time frame, again as our customers look to change the way they deploy technology that we make it into a situation where increasing more and more customers are looking to technology partners to provide measurements and outcomes as compared to product. And I think we’ll be in a very good position to do that. But the answer to your question is yes, absolutely. We want to try and improve the service software and consumable portion of the business that not only reduces or dampens down the cyclicality, as you point out, but also should translate into higher margins.

Thank you. And our next question comes from the line of Derik De Bruin with Bank of America. Your line is open.

Hi, good afternoon.

Good afternoon.

Good afternoon.

So two questions. One is a tax question. So you’ve had some pretty good benefit from the stock-based comp changes this year. I guess, could you talk about what was the fourth quarter benefit and sort of like the headwind that creates for 2018? I’m also just curious on your comments on your comments on tax reforming up. I thought you would’ve been flattish. It sounds like it’s going up a little bit. Could you sort of walk through the moving parts on that one? And then the follow-up’s going to be, could you talk about any real budget flush in the fourth quarter?

All right, I’ll start. We haven’t seen a real significant impact on our tax rate from the comp piece. As we went into the year and started looking in 2018, we went through and determined that, as I mentioned on my – in my prepared remarks, we think that the changes coming up next year will be a modest headwind, and the real impact to our tax rate from 2017 to 2018 will be the mix in domicile profits which is primarily due to EUROIMMUN. So we said 18.5%, and that’s really – what the majority of that is a slight headwind on the Tax Act and a bigger headwind on the domicile profits.

Derik, maybe to sort of help clarify that is we have call it 35%, 40% of our revenue in the U.S. We have less than 15% of our profit in the U.S.

Got it.

And part of that was purposeful, right. So if you go back and think about 35% tax rate in the U.S. was – has been sort of publicized quite often as one of the highest in the developed world is you purposefully want to put a lot of your expenses there. So we had, like I said, less than 15% of our income in the U.S., at least from a tax perspective. And so therefore, the rate-down from 35% to 21% did not have that significant of an impact. And then some of the other provisions that are in the tax law are sort of slightly offsetting the impact of the lower rate.

Okay, that’s really helpful. And budget flush?

I think when you look at pharma product, again, up high single digits. The sense was there probably was some. It’s hard for us to tell right now. I would tell you that while we saw strong bookings in the end of the fourth quarter they’ve continued to some extent in January. But it did appear at least when we look at the numbers that clearly we saw a ramp up in orders and sales in the December timeframe. So my sense is that there was some budget flush.

Thank you. And our next question comes from the line of Brandon Couillard with Jefferies. Your line is open.

Thanks. Good afternoon.

Good afternoon.

Just one cash flow question for you. In the fourth quarter were there any one-timers related to the EUROIMMUN closing that depressed operating cash flow in the fourth quarter? And then what do you penciling in for free cash flow conversion?

That’s true, we had about $10 million expenses related to the deal cost on the EUROIMMUN transaction, which hit – all hit in the fourth quarter that were accrued pay. In addition, as we go into – I’m sorry, one of the thing is we also have prepaid royalties that come up every so often and there was about $7 million prepaid royalty that we made in December as well, so both of those obviously had a dampening effect on the cash flow. As we go into 2018 we continue to – try to target one-time adjusted net income for our free cash flow target. If you look at 2017, we had a working capital use of about $20 million and we hope to see that as a source going into next year. So we feel like we have a real opportunity on receivables and inventory to drive that. And we’re still kind of calculating what we think the impact of cash flow is at EUROIMMUN. But we still are going to shoot for the between 95% and 100% of adjusted net income.

Very good. Thank you.

Thank you. And our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is open.

Great. Thanks. Good afternoon everybody.

Good afternoon.

A couple of questions. Rob, first off, can you just remind us of Vanadis menu. Will this cover anything beyond the three principal trisomies like microdeletions or anything like that?

So initially, we were going to come out particularly focused on, I would say, a limited menu from the standpoint of the trisomies and then the sex chromosomes. So 13, 18, 21 and X and Y. Now we do think down the road we might be able to sort of expand upon that, but initially, that’s the focus.

Okay, got it. And then just a follow-up to that, are there any big clinical studies that we should be watching for over the course of 2018? And then somewhat unrelated follow-up is just anything in China blood screening. We haven’t heard anything about that in a little while. Thanks.

So with regard to the studies that we want to be sort of focused on was there’s a couple that are ongoing right now that are generating clinical data, and we would hope to see something like that maybe in the second quarter. With regard to blood screening, I think as we mentioned before, we had strong placement of instrument in the sort of – or particularly in the first half of 2016 that was causing some difficult comps earlier in the year. We continue to see good growth from the reagent side of things. So it generates a fair amount of profitability, but you’ll don’t see the impact on the revenue until we sort of cycle through the instrument placements that occurred in 2017 – or in 2016. So I think as we go into 2018, we expect to see some better growth from the blood screening business.

Thank you. And our next question comes from the line of Dan Leonard with Deutsche Bank. Your line is open.

Thank you. So just trying to better understand the operating margin expansion of 70 to 90 bps in the forecast for 2018. How much of that would be core operating margin expansion versus the lift you’re going to get from the addition of EUROIMMUN as a higher-margin business?

Well, on an operating margin basis, EUROIMMUN is similar to PerkinElmer, maybe slightly higher. But the vast majority of the margin expansion is coming from core PerkinElmer.

And Andy, can you talk about how much of that margin expansion comes through mix within corporate PerkinElmer? Because you’re expecting diagnostics, like core, to grow a lot faster than DAS. So how much of that would be mix versus self-help and Lean and some of the other things you’re doing?

Yes, I think it’s probably half and half, Dan.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Catherine Schulte with Baird. Your line is open.

Hey, guys thanks for the questions. Now that we’re about a quarter away from the Vanadis launch, can you just give any updates on pricing? And then do you guys have any visibility into the timing of any upcoming tenders over the course of the year.

So with regard to pricing, we’ll probably come out with the pricing when we release the product commercially, so after CE mark. And with regard to tender, yes, we have a very good perspective on which tenders, which countries, when they come out, and we’re focused on a couple more significant tenders that start sort of early second half. But yes, we have some fairly specific targets in mind. And so hopefully, we get the CE mark out in the latter half of Q2 and to be able to place. I think the goal is probably eight to 10 instruments in the back half of the year. And we’ll start to generate some reagents, but as I sort of alluded to before, I think the significant growth will probably be in the earlier part of 2019.

Okay. Thank you. And then just for your EPS guidance, I know you gave EUROIMMUN impact, but can you just give us a bridge versus 2017? So what’s coming from the core business versus tax reform versus FX?

Well, tax reform is actually going to be a bit of a headwind for us. And as I mentioned, EUROIMMUN has a higher tax rate as well, so that’s a little bit of a headwind. We said the amount coming from EUROIMMUN is 28% to 30%. So core is really growing at about 11%, and then the addition of the EUROIMMUN acquisition makes up the rest.

Thank you. And our next question comes from the line of Tim Evans with Wells Fargo Securities. Your line is open.

Thanks. Would you be willing to tell us how big the entire service and software component of DAS was in dollar terms in 2017? And then about how fast that business grew?

So it’s about $700 million. It’s about 40% of our revenue. And the growth rate of that in total, I don’t know if we don’t necessarily cut it all together, but probably about – in the year or the quarter?

In the year, yes.

I would say, I don’t know the number at top of my head. Probably mid-single, probably that type of rage, maybe six, if I had to guess.

Good enough. Thank you.

Thank you. And I’m showing no further questions at this time. I would now like to turn the call back to Rob Friel for closing remarks.

So Chelsea thank you, and thank all of you for your questions and interest in PerkinElmer. Looking ahead, I continue to be energized by our employees and the many opportunities we see to continue to drive our mission of innovating for a healthier world. I have no doubt this year we will once again successfully deliver on our commitments to our customers and shareholders. We feel very good about our plans moving ahead and look forward to updating you on our progress next quarter. Thanks, again, and have a terrific evening.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.