Good day and thank you for standing by. And welcome to the Q1 2021 PerkinElmer earnings conference call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. . I will now like to hand the conference over to your speaker today, Bryan Kipp, Vice President of Investor Relations. Please go ahead.

Thank you operator. Good afternoon and welcome to the PerkinElmer first quarter 2021 earnings conference call. With me on the call today are Prahlad Singh, President and Chief Executive Officer and Jamey Mock, 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 May 18, 2021. 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. Statements or comments made on this call may be forward-looking statements, which may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors, which are disclosed in detail in our SEC filings. Any forward-looking statements made today represent our views as only 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 other 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 President and Chief Executive Officer of PerkinElmer, Prahlad Singh. Prahlad?

Thank you Bryan and good afternoon everyone. I would like to begin by welcoming Steve Willoughby as our new Vice President of Investor Relations. We are excited to have him join the team. He brings a wealth of industrial knowledge, deep research and analyst experience. And as many of you know, Steve's industry surveys always seem to have a real-time finger on the pulse of market trends. We are looking forward to his insights and expertise as we continue to grow and transform PerkinElmer into a veteran class life sciences and diagnostics organization.

Thanks a lot and good evening everyone. To start, I echo Prahlad in welcoming Steve Willoughby as our new Vice President of Investor Relations. Steve has been a terrific research analyst over the past decade-plus. But more importantly, he is a great person and I thoroughly enjoyed getting to know him over the last two years. I have no doubt that he will be an invaluable addition to the PerkinElmer family. Before turning to the financial results, I want to remind everyone that our first quarter earnings call presentation has been posted on the Investors section of our website under Financial Information. I will begin my prepared remarks by highlighting the first quarter. Then I will provide some additional color on our served end markets and financial metrics. And I will end with our second quarter and updated full year 2021 guidance. At a high-level, the team executed extremely well during the first quarter. As Prahlad mentioned, we are seeing signs of normalization in our core markets. Non-COVID product's core growth exceeded reported revenue growth for the second quarter in a row and service level activity continued to improve on a sequential basis. And as we look ahead, we are even more confident that we will be a faster growing company in a post-COVID world. During the first quarter, adjusted revenue grew 101% compared to last year to $1.3 billion and included a 3% foreign exchange and a 5% acquisition tailwind. Organic revenue grew 92%, two percentage points better than what we previously communicated. Overall, COVID related products and services contributed $550 million in the quarter, propelled primarily by our PCR tests and RNA extraction solutions, as well as our turnkey Lab-In-A-Lab testing solutions in the state of California and the United Kingdom. In total, excluding the impact of our…

. Our first question comes from Dan Leonard from Wells Fargo. Your line is now open.

Thank you. So looking at the Q1 outperformance, are you able to assess how much is in elevated or greater elevated level of demand, the durable versus maybe pent-up demand?

I think, you know, Dan, we are seeing strong comeback from all the markets and across the board. I don't think it's as much pent-up demand as the markets just coming back and it's coming back strong. And we have seen this across all regions. So I wouldn't categorize this as pent-up demand.

Okay. Thank you. And my follow up, Prahlad, as COVID testing demand starts to fade, does that impact your M&A funnel at all? Are prices of any interesting assets getting more reasonable? Thank you.

I would say that again, Dan, just to remind, right, if you look back at our track record, most of the deals that we have done have been opportunities where we spent a lot of time. They tend to be more strategic and more partnerships resulting into acquisitions. So we are not clearly in the auction space. So it hasn't impacted that much either on the upside. But I think, I would say generically, if you look at it, the market is still ready hot and companies still that have a COVID tailwind are demanding a premium.

Thank you. And our next question comes from Vijay Kumar from Evercore. Your line is now open.

Hi guys. Thanks for taking my question. And congrats on a good print here. Jamey or Prahlad, maybe on the guidance here. You guys did 10% of the base off of a minus 3% comp. I guess the back half implied is about high singles, right, to get to your annual of 11%. Now that we have to Q1 out of the way, 2Q of high teens,. I think implied back half is high singles. One, is my math correct? And if it is correct, then I think your back half comps are pretty easy, down with singles, so was there any timing element from first half to second half? Or is this perhaps some conservatism baked into second half?

Yes. Thanks Vijay. So your math is correct, to answer your first question. And it is assuming high single digits in the second half. I don't think there's anything to read into here. As Prahlad mentioned and I mentioned in my prepared remarks that orders are strong, they continue to be strong. The high single digits versus a little bit of an easier comparison in the second half, not much to read into there. It's just a little further out. So we are probably a little bit more conservative in the second half. But overall, still feel very confident in the 11%-plus here.

Got it. That's helpful. Prahlad, one for you, on the COVID testing side. There has been a lot of nervousness around how the environment around testing could change quite rapidly. Maybe talk about the visibility that you have in the 2Q code assumption? And does your annual guide bake in any upside from antigen revenues or perhaps any OUS tenders, if you will?

So Vijay, thank you for the question. one, none of the antigen upside has been baked into our revenue. We feel really good about our COVID numbers. And as Jamey has pointed out earlier, our basis is based on the fact that we have a number of EUAs asymptomatic pooling was the one that I talked about in the script. And as opportunities open up around schools and testing with pooling, that is an avenue that's there. The pigeon testing is an avenue that's open there. So actually from where we sit today, we feel really good about the number. And that's why we have stood by it.

Fantastic. Thanks guys.

Yes. Thanks Vijay.

And thank you. And our next question comes from Doug Schenkel from Cowen. Your line is now open.

Hi. This is Chris, on for Doug today. Thanks for taking my questions. Jamey, sorry to belabor the point, but I think the Q2 organic revenue growth guidance implies a two year stacked growth rate of 2% which has turned a bit slower than what you just delivered in Q1. Now I would imagine underlying demand is improving Q2. So could you just comment on this dynamic?

No. I think that's there. Hi Chris. How are you doing? I think as we just come into the quarter here, like I said, I think we feel confident in the high teens guide here. It is a little lower on a stack comparison. Again, nothing to read into that. I would say that we are confident in the guidance we are giving and continue to see a good outlook here.

Okay. Great. And then for my follow up question, again, for you, Jamey. Could you just unpack the free cash flow performance a bit more? The free cash flow conversion rate was very strong. I am curious how much of that was due to maybe one-time dynamics versus benefits you are getting from just all the work you put in improving free cash flow? Thanks.

Yes. I think it's probably both, Chris. As you mentioned, we have been, really over the last two or three years, put a lot of incentives, a lot of processes into place to fundamentally change our free cash flow. That said, the first quarter is normally one of the weakest. So there's a lot going on in this particular quarter. I would say, we have had a lot of prior year accruals in this quarter. But the benefit that we are getting is, you can see in the receivables line,, we got about $170 million free cash flow benefit there, even when sales were, from a sequential standpoint, relatively flat. So we did collect on a lot of the past dues that were in the fourth quarter and our DSO has improved substantially. But in terms of going forward, I mean we remain very confident in the processes we put in place and the fact that will be above 85% moving forward, perhaps this year is going to be a little bit better. But there's a little bit from a couple of customers that we collected on. But overall, I think we have got fundamental improvements in place here.

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

Hi Thanks guys. Thanks for taking the question. This is Mike, on for Derek. A quick question for you, Prahlad. You mentioned India in your prepared remarks. And obviously, tragic situation that's going on there in recent weeks and months. But I was wondering if you can go into a little bit more detail on that? You obviously have a relatively large exposure there because of EUROIMMUN and Tulip and just the legacy business. Are you seeing anything in terms of the impact on operations? Are you seeing, is it backing into your outlook for the rest of the year? just sort of what's the latest on that?

Yes. I can say that it's factored into the outlook for the second quarter. We don't know how the situation and hopefully it improves in the second half, Michael. And I think you know, so far given that most of what we do is in the arena of infectious diseases and COVID and all of that. So we haven't seen much impact because healthcare has been exempted from the lockdown. So it doesn't impacted so far.

Yes. The only other thing, Mike, I mean in terms of exposure, in total India is a little bit more than $100 million. So it's not a substantial exposure for any particular quarter. EUROIMMUN, you mentioned does not really sell a lot in India. Tulip does obviously. But it's not an enormous exposure here.

Okay. That's helpful. And then as far as the updated COVID outlook for the year, you know you touched on the California and the U. K. labs obviously and sort of the various components of the mix there. I am just curious, as we go through the rest of the year, how should we think about that flowing though margins because obviously if the mix shifts as some of the COVID contributions ramp down, that's going to impact margins for the second half of the year. I guess the follow-up on that is, as we look into 2022, if you could give any sort of early insight into the margins and the model and how we should be thinking about it?

Yes. I mean, obviously as COVID ramps down, it will impact our margins, our margin profile here in the second half of the year. We have always been transparent about that and we remain steadfastly committed to the 23%-plus that we laid out in 2023. So I think the best way to look at it is, if you look at the end of this year, go back to a more normal comparison, looks to be a little bit of COVID in there. There's going to be some amount of durable revenue here. But go back to the fourth quarter of 2019 and add some growth rate to that from a profit perspective and we will steadily march towards 23%-plus and we have got all the productivity programs in place to do it.

Great. Thanks. I will get back into queue.

And thank you. And our next question comes from Tycho Peterson from JPMorgan. Your line is now open.

Hi. Thanks. I want to touch additional one, DAS. Academic, down low single digits. That is in a little bit of a contrast to what we heard about from some of your peers that have talked about end markets being at or above pre-pandemic level. So can you maybe just talk a little bit on why you are seeing more pressure on the academic side? And then similarly on pharma. I know you talked about that being up high single digit excluding the extra week impact. That is also kind of lagging the numbers of peers up double digit on pharma. So could you touch on those dynamics?

Yes. I mean, I don't think there's much to read into in academic government. As you know, Tycho, our exposure to it is small. So whether it's customer classification or what have you, I am not sure we have it perfectly classified between pharma biotech and academic government. So overall, I would say life science has performed better than what we expected. So if you factor in the extra week, I mention that discovery was up low double digits, informatics was up high single digits. The extra week really affected our enterprise business. So we were quite pleased with the performance and we are pretty bullish on the outlook in life sciences here.

Okay. And then on the COVID dynamic, can you just clarify what is actually in the updated guidance for the U. K. and CA labs? And then just to be clear, not including any upside from the asymptomatic test, that is right?

So U. K. and California labs was your first part of the question?

Yes.

Yes. So U.K. is now it's just the Wales lab. IT5 is still in there. That has been extended through first quarter 2022. It's a nominal impact per quarter. So we have got that in there. California, we have got obviously extending or going all the way through October. And we are probably taking down the run rate on that a little bit starting in the third quarter. But in general, we still have a fair amount of revenue related to the COVID labs. Overall, though, Tycho, in general, we raised COVID guided by $50 million which was the beat that we had in the first quarter.

And to the second part of your question, there is no asymptomatic pooling that we have assumed are in the guidance.

Okay. And one last one before I hop off. The 30% growth in food, I guess tough comps. Can you maybe just touch on that? What's driving it?

Yes. I mentioned, food safety has been strong, particularly in Meizheng, Tycho. So I think there's three factors in play over there. One is, we are seeing a lot of uptick in downstream or retail from large multinationals over there that are operating in China. The second is there some regulations around antibiotics residue and pesticide residue that we have won some tenders on. And the third is, the business is starting to export outside of China. So in general, Meizheng, I think it was up 70% is what I said in the prepared remarks and that continues to lead the way in food safety.

Okay. Thank you.

Thank you. And our next question comes from Matt Sykes from Goldman Sachs. Your line is now open.

Thanks for the question guys. My first question is just a little more general. Just as you mention your three assets you are scaling up generate about 25% growth. And I am just wondering, given the free cash flow you are generating, your balance where it is, is scaling up additional assets over the course of the year a limiting factor for you guys as you guys think about capital deployment? Or are you able to divide and conquer and staff up to, you are comfortable you can take on more?

So Matt, good question. The intent from us is that it is not a limiting factor, right. We have capital ready to deploy and we continue to actively look for opportunities. But more importantly what we have done and as I mentioned both at the earlier conference in January and subsequently, we have established what we are calling the integration transformation office and put a very good function in place that has allowed for seamless integration of the acquisitions that we have brought in and we hope to bring in, in the rest of the year. So I think you will continue to see us be active in the M&A space.

Great. And just my follow-up, just on going back to DAS. You mentioned in the presentation that you had strong backlog in all three of the end markets. Could you provide any additional color in the end market, particularly strong backlog or any particular product lines where you guys see a strong backlog developing?

I am not sure I would point to anything, Matt. I think all three end markets looks strong, both from the instruments and consumables perspective. I am not sure anyone of them uptick more significantly than the other.

I think we have seen across the board they are very strong.

Right.

Great. Thanks very much guys.

Yes.

Thank you. And our next question comes from Josh Waldman from Cleveland research. Your line is now open.

Hi guys. Thanks for taking my question. I guess going back to a question Tyco and Dan asked. I wonder if you could provide more context on what all within the non-COVID business was performing better than expected to start the year? I guess, am I right that the majority of the guidance raise in the non-COVID business was attributed to the first quarter beat?

No. I think the second part, I mean in general raising overall 11% from the prior guide of 5% to 7% has all quarters kind of rising tides here. So not just the first quarter beat. The first quarter we guided low single digits, came in at 10%. So that obviously contributes to some of it but not all of it. So we are anticipating improved performance 2Q through 4Q. In terms of the end markets, I mean like Prahlad mentioned, it is across the board. There is not an end market that didn't perform better than our expectations. So maybe I will just give a little bit more color on that. When we originally guided, we thought DAS was going to be flattish to nominal growth. And we thought DX would kind of be in the mid single digits which kind of got us to our low singles. On DAS hitting 6% versus flattish, life sciences, as I mentioned just to Tycho's question, was significantly better than we kind of anticipated there. And both food, but particularly food safety, which I talked about as well as applied MPIs, our Triple Quad, has done extremely well. Our new IR has done extremely well. So all of this contributed to the beat in DAS. If you move to diagnostics, I would say largely immunodiagnostics and applied genomics drove the beat here. So I mentioned in the prepared remarks that EUROIMMUN did great, particularly in China. So I would say, in China, we are now above 2019 levels. Tulip did extremely well in the quarter as well. Applied genomics continued, I would say, the brand increase with JANUS, as attributed to COVID has now started to filter off into non-COVID revenue as well. And then reproductive health was still a little bit better, largely in genomics testing, I would say. So again across all end markets, we saw significant improvement versus our original expectation and it should last throughout the year.

Okay. And then can you provide an update on the cannabis business? I think that was, I think you said near zero in 2020. Does that bounce back to 2019 levels? Or does it remain well below that?

Yes. So there's no revenue in the first quarter, Josh. But I would say that the commercial activity, we are cautiously optimistic that it is upticking again. So we have been involved in more discussions, more potential orders here. So hopefully starting in 2Q or certainly by the second half of the year, we will land some of the orders and revenue. But in the first quarter, it was nothing and then right now it's immaterial in our overall guidance.

Got it. Thanks guys. Congrats Steve.

Thank you.

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

Hi guys. This is Tom, on for Catherine. Congrats on a strong print. I am wondering if you could just get into your makeshift COVID testing by geography? Just any geographic trends to call out, particularly in Europe, given some country specific COVID pressures?

Yes. Hi Tom. In general, I would say, if you remember from last year, Europe and Americas led the way. APAC was relatively nominal in terms of overall COVID and that continues to be true. I would say, the falloff in the U. K. moving forward versus the fourth quarter and the first quarter would obviously have an impact on EMEA and the increase in the California labs. So therefore, if you kind of move forward here, those would be the two large ships. If you look at it a recurring revenue basis outside of the two significant labs, I don't think there's any large shift. I think, in general, all of our customers are downticking a little bit but continue to place a pretty consistent level of orders with us. But overall that shift has left U.K. and more California will impact the overall geographic revenue related to COVID.

Got it. And then just a follow-up on China. I think you said over 50% in the quarter. I think that last year 1Q down somewhere in the ballpark of 30%. So just wanted to get a sense as to how you are thinking about the recovery in China? Any trends to call out? And thoughts for the remainder of the year?

Yes. I think as Jamey pointed out, China's come back stronger and we expect it to be strong throughout the year. Specifically just to point out, EUROIMMUN in China, where if your call, for autoimmune and allergy, it was depressed last year. That has come back strong. Applied genomics too is there. And on the DAS side, life sciences across the board, we have seen very good utilization and tailwind and we expect it to get going for the year.

Great. Thanks guys.

Thank you. And our next question comes from Daniel Brennan from UBS. Your line is now open.

Great. Thanks for taking the questions. Maybe the first one on COVID. Just obviously, there's tremendous amount of uncertainty on how this will ultimately play out this year and next. But is there any sense to how we think about the durability of your business as the pandemic slows? I apologize if this was raised earlier in the call? But I am just trying to get a sense of beyond 2021, what kind of lasting benefit you think PerkinElmer will play within COVID testing? And then I have a follow up.

We have talked about durability of COVID going forward, just based on the installed base of what we had placed around chemagic and JANUS last year. And we continue to see that trend in the first quarter. It hasn't slowed down. So we expect that to continue to further strengthen the assumptions that we have around COVID durability. Around the assumption for COVID for the year, we have got a very good line of sight for the second quarter and we have been pretty prudent in our planning for the rest of the year. So we feel very good about the number and that's why the raise that you have seen. Plus we have, as Jamey, talked about earlier, we have upside opportunities whether it's from asymptomatic, from serology, from antigen testing. That continues to bolster our assumption and forecasted around COVID.

Got it. And then maybe just within diagnostics, obviously very strong, ex-COVID as well. Just could you speak to the overall environment just more broadly? How much that's related to Perkin-specific initiatives and kind of success. And how much is the overall environment improving as a back up in diagnostics? Thank you.

Yes. I think it's a much broader question, right. The markets are opening up. And if you look at reproductive health, markets opened up, testing is going to start again. Applied genomics continues to be strong in and around infectious diseases. And you see that autoimmune and allergies have come back in a very strong manner. So across the board, again, whether it's applied genomics, reproductive, applied genomics and immunodiagnostics, we have seen good strength. Reproductive health, I would say, is slower coming back because of the pressure that it's seeing from birth rates. But it has started showing signs. Anything else?

The only thing I would add is, largely China has been much stronger than we thought would come back here, Dan.

Great. Jamey, thank you.

Thank you. And we have a follow up question from Patrick Donnelly from Citi.

Hi guys. Thanks for taking the question. You talk about a little better visibility into revenue and cost synergies with Oxford. Can you just expand that bit? I just want to understand, obviously you talked about acquisition together growing 25%. But can you just talk about the driver specific to Oxford and the performance here?

In fact, the number one thing is, it's obviously a strong rebound from what he had seen in 2020 and we expect the testing levels to continue to exceed than 2019. They have seen double digit growth in Q1. The T-cell piece that the team has launched there, that is seeing good traction, early on around vaccination deployment to measure immunity. And in the automation is opening up some doors with early wins. So those are the three factors I would point out in terms of seeing good traction for Oxford. And the deal integration is going very well. The teams have jived very well. There are lots of doors that they are opening for each other in regions around the world.

Okay. Got you. And then maybe just on the end markets side. The industrial, I think you talked the high single, environmental, low double. Can you just talk about the drivers there and the sustainability as we go forward? It certainly seems, Jamey, I know you talked about how broad-based the strength was and you feel like every end market was better than you expected. But maybe just kind of zone in on those two and your thoughts on the go forward?

Yes. So Patrick, on the industrial side, I will start there. I mean a lot of this was due to the bounce back in China. It's a lot stronger than we anticipated. I would say, if you look across the sub segments of industrial, semiconductor across the globe continues to be the strongest. I would say, Americas is decent from a decent growth rate perspective. EMEA had a little bit of a difficult comp. The first quarter of 2020 has been strong. But I mean, the outlook in general should steady uptick but China really bounce back more than anybody else. I would say, in environmental, we see it largely an APAC and EMEA. China, again for APAC. But EMEA has continued to be extremely robust. And Americas still nominally positive here.

That's helpful. Thanks Jamey.

Thank you. And I am showing no further questions. I would now like to turn the call back over to Prahlad Singh for closing remarks.

Thank you Justin and thank you all for your questions. While 2021 has already been a unique year in and of itself, I am confident we have the right team and the right strategy to embrace the future and all of its possibilities. Thank you for your interest in PerkinElmer and have a good evening.

This concludes today's conference call. Thank you for participating and you may now disconnect.