PKI
#It's really more of a timing headwind.
It's really not ---+ as far as our ability to capture those tenders, it's really a neutral.
But just as far as how quickly those tenders are issued and approved, it does get slowed by this change.
It's in our guidance, but it was basically continued hiring.
We have a number of positions, both on the commercial side and the R&D side we are continuing to ramp.
And we had forecasted that those would ramp a little bit quicker than they did.
We still expect to fill those as we move, and we have been filling some of those thus far in the second quarter.
So I think that will normalize for the year.
And that additional cost is in our guidance.
We had contemplated a portion of the pension.
We're still looking at $300 million for the year, and we still feel confident in our ability to generate that type of cash flow.
So I think that the overall metric hasn't changed.
As I mentioned earlier, we have some work to do around inventory.
I think that's going to be helpful.
I think we've got plans and leadership in place to do that.
So I think nothing has really changed overall.
And the pension funding itself, we really like to stay around 18% ---+ 80% on a funding basis.
And that just gets us back to that comfort zone on funding.
We don't have any more mandatory payments until late 2017, early 2018, but we're just trying to make sure we are conservative in our estimates around pension costs.
Okay.
Let me try and hit a couple of those.
So it was contemplated in the original guidance.
This is something we had been in discussions with, with Waters, and hopeful that we could get it concluded before Pittcon, which we were.
With regard to margins, we think this is going to be probably neutral maybe a little helpful to margins.
And I think the reason for that is that, as I mentioned in the prepared comments, is from a gross margin perspective, it's maybe neutral or a little lower.
But of course, we can eliminate a fair amount of operating expenses associated with that.
So I talked about R&D that we spend today, also software engineers that we have that are associated with ---+ we have our own chromatography software.
So we think from an operating margin perspective, it could be neutral to accretive to us, largely because of the operating expenses that we can reduce as a result of not having the support both the software and the production in R&D of the product.
With regard to how much incremental revenue is to us versus Waters, it's really difficult for me to comment on Waters, so I will leave the help to them.
And I don't know if it's $20 million for 2015 or $20 million annualized, but again, that's I will leave that to them.
I think when we look at the opportunity in 2015, and again I emphasize I think we are excited about the opportunity, we just ---+ I guess we're being somewhat cautious and trying to build on a lot of revenue upside.
Now as we get into 2016, I think we are quite excited about the opportunity from the standpoint as you point, we can go upstream a little bit particularly with the UPLC, and selling more of our GC that will be tied to Empower.
But I think for 2015, right now, we don't see this as a huge incremental.
Well, specifically on licenses, actually that was a headwind for us in the quarter.
So, as I mentioned before, certainly around gross, around mix and the other items I think were the primary drivers.
And actually one other item I didn't mention was OneSource.
There was a fairly significant improvement in OneSource gross margins from the first quarter last year to first quarter this year.
If you look at or listen to an earlier question around have we done anything.
We really try to accelerate some of the initiatives around supply chain on the gross margin side and around the indirect spend so that we can reinvest back in R&D and selling.
So I think we were particularly successful in the first quarter.
Hopefully that will continue through the next three quarters, but those were the key drivers.
I think we feel good from a global geography.
If you look at the distribution of our business, clearly we've got strength in US and Europe and China.
So I think this is going to be hopefully helpful business across the globe.
So I don't think I would spike out any particular region or geographic area where I think this is going to be helpful.
I think <UNK> alluded to a couple things.
I think we've accelerated some of our actions around trying to get after indirect costs and supply chain.
But I would say generally speaking, our approach has been let's continue to stay on plan relative to our investments, particularly in the areas of growth.
I think as we've talked about research in the past, I think the thing to recognize is we've got a big radiochemical business that creates a fair amount of drag.
As we get into the back half of the year, we did have a nice introduction of Opera Phenix in the back half, we're going to cycle up against that now.
Hopefully we will continue to grow that.
And then I would say the third area I would speak on when you're talking about research is Japan.
We didn't talk a lot about Japan, but clearly when I think about the first quarter, the area that was ---+ although we were in our guidance range, it was at the bottom end of the guidance range.
I would probably attribute that to a weaker Japan than we had expected.
We would have forecasted Japan flattish for the first half, and it was down high single digits.
And so we are a little cautious about how quickly that returns.
I know the budget was recently approved here in April, but again, based on what we are seeing.
Also, when we sell into Japan, that's probably one of the areas where the currency change is impacting us strategically.
I'd say if I was going to spike out one area where the strength of the dollar has been somewhat challenging from a strategic or competitive perspective, I would say Japan.
I think we can.
One of the things we will be able to ---+ hopefully if we do that, it will be because we will get the traction on the OneSource informatics and pull through of the products.
I think that will be clear.
And then we continue to see good traction on the new products.
So our goal is to get that up to single digits, mid-single digits.
But I think for purposes of guidance, we continue to forecast it in the low single digits.
We did not have any extra days in the quarter.
I think we communicated on our January call that we would have extra days in the third quarter this year.
But, from a pricing perspective, we continue to be able to get pricing specifically on the reagent consumables side.
It becomes a little tougher on the instruments side.
But I think overall, it was fairly modest in the first quarter, but we continue to try to get it wherever we can.
OneSource was strong in the quarter.
One of the things that clearly with the restatement of this answer is you get pretty good transparency into what OneSource was doing.
But I think what you would see is that OneSource on a currency-neutral basis grew mid-teens.
And so, clearly, we think we are continuing to do well there.
We did have a couple wins from the standpoint of Gilead and Behringer.
And so I think the competition continues to be tough and challenging.
But I think we continue to do well.
Well that is actually the natural next step, and we've created a team that actually start to generate some efforts around the direct side, which we do think that there is opportunity.
And I think on the indirect side, we looked for a $10 million-plus savings year over year.
I think we are well on track for that, hopefully we can exceed that.
But we've got dedicated resources, dedicated purchasing people, and I think we've got an organization that's really rallied around this because it really does allow us to reinvest back.
So I would say I feel as good if not better than I did going into the year on the indirect spend side.
And I think the additional opportunity, as you mentioned, is the direct side, so hopefully we will have more to talk about that in the next couple of quarters.
As I mentioned in my prepared remarks, we were very pleased with Perten.
We think the acquisition is going well.
Perten actually grew low double digits in the first quarter.
So we think they're well on track to probably exceed the model we set out there.
And I think <UNK> mentioned the fact that we expect to probably do a little bit better than the $0.04 accretion that we talked about.
So I think things are going well with Perten, and I think we continue to see more opportunities with the synergies between what Perten does and what PerkinElmer does.
So historically, they've been a significant player within the grain area we see rolling out in the things like edible oil and a number of other areas where the combined competencies of the two companies can be quite powerful in the marketplace.
I think most of it, <UNK>, was more of a comp issue.
I think, obviously it's a fairly choppy market, and I think second half they are seeing some headwinds.
But overall, if you look broadly at the market, it's under some pressure, but I still think we feel like we can have positive growth for the year in that business.
And I think the first quarter last year, <UNK>, they were flat to down slightly.
Okay.
I didn't hear what you said on the third one.
With regard to the informatics strategy, I agree with you.
We've talked about the fact that we've got to get a cloud product with regard to our electronic notebook, and quite frankly, most of what we do.
We have a product right now out with the academic customers.
We're working on one that was called in process with regard to pharma, so we continue to make progress on there.
And to <UNK>'s point earlier, we continue to look to hire software engineers to accelerate.
That's an area where I think we clearly want to accelerate our spending from an R&D and engineering standpoint because we continue to see significant opportunities within the informatics business.
I would say both to drive more of historical PerkinElmer products, but also to build out and continue to expand the core informatics capabilities and business.
So we will continue to invest on that.
And last question was on the tomo product.
I think that's a relatively small product for us, and we really haven't been pushing that, to tell you the truth.
I would say the heavy lifting we did in 2013 and part of 2014 were probably the high watermarks.
But I would say we're probably at ---+ if you want to do a relative, we're probably 70% of those types of levels.
It's just a different area that we're focused on, whereas in 2013 and 2014, we're really looking at strengthening the footprint and rightsizing the organization.
This is really looking at spend, and given we have the flexibility now to look at it on a corporate-wide basis, we see a lot of opportunities there.
I think it's opportunity that we will see over the next certainly couple or three years as we start to move, as I mentioned earlier, into the direct side as well.
I think we were always challenging ourselves from the standpoint of the portfolio and whether the rightful owner of assets.
My preference would be is I'd like to buy before we sell.
So if we can be successful with some sizable acquisitions, I think we might look at a couple product line prunings.
But quite frankly, when we look across the portfolio, we think most of the things fit pretty well.
But like I said, I don't know that I want to get smaller before I get bigger.
So I think on the infectious disease side or the newborn ---+ infectious disease.
Right.
I would say that can be a significant business for us.
Depending on the timeframe, clearly north of $100 million.
I think what we've got for the remainder of the year is flat, and we may be even be actually a little negative in the second quarter quite frankly.
So I would say low single and then flattish in the back half.
I want to correct.
I don't know that we said it was slowing.
We might have said it was low single, but I think for at least the data we look at says that the US birthrate is stable, but it's the 1% to 2% range.
I don't know that we're seeing anything significantly slowing.
If we are talking specifically in the US, I think the opportunity to grow there is to expand the menu, and we've talked about skids in the past.
We continue to see that being adopted by states.
I think if you look out a year or two probably the next series of tests are probably around LSD.
But I would say for the next couple quarters, I think the majority of the growth in newborn is going to come probably outside the US and probably specifically within newborn.
One of the areas we are actually quite excited about, as I mentioned, the fact that we got the China FDA approval of our GSP, which is our automated analyzer.
And I think what that does is two things for us.
One is it, first of all, allows us to take the number of tests today that are done manually and put them on automated platform.
And as we continue to get approval of the assays, I think it will accelerate the ramp of the menu.
Second, it starts to really differentiate us from the competition.
So I think we've talked about in the past that we have 70% market share in China, and in most cases what we are competing against is local homebrews or others that are doing manual.
We don't think ---+ clearly there's nobody else who has a regulated or approved automated analyzer.
And again, as more and more of China moves to an automated, which we think they will in order to get higher throughput, it provides us a huge differentiated advantage and allows us to ramp screening much quicker.
I think it was $29 million.
But ---+ $35 million.
<UNK>, I'm not aware of any significant contracts that are coming up in 2015.
So in any given year, we've probably got some that ---+ I think as you know, most of these are on a three-year cycle.
So there may be some small ones, but I don't think there's anything significant.
I think it's $50 million or so.
No.
Not that I'm aware of.
They will gradually go through to Q2 in the balance of the year.
It's really around hiring.
At any point in time we're constantly hiring, but I guess it will be a slow ramp as we continue to bring the informatics and the R&D resources on board.
<UNK>, let me correct.
The $50 million I gave you was the human health.
For PerkinElmer it's $80 million for Japan.
Sorry about that.
Yes.
Sure.
I think on the operating margin front, we felt all along that we should have a two handle in front of our operating margin.
I think we had set a goal of getting to 20% plus in 2017.
I think with the volatility of currency, it makes it a bit tougher.
It's still our goal, but I would say in that timeframe or maybe just slightly longer, we still see our way to doing that.
And I think we have plans in place, FX aside, that will help continue to improve our margins.
So I don't think there's anything structural that would keep us from hitting those types of goals.
Okay.
Let me take the first one, then I'll give the second one to <UNK>.
So clearly there is seasonality in Perten.
To your point, when we look historically the first quarter is light.
Second quarter starts to pick up a little bit, but their real strong quarter is the third quarter, and it ties to the harvest season.
So clearly there is some cyclicality.
And that's both on the revenue side and clearly on the profitability side as well.
The only difference I think on the reconciliation, and I will double check for you, <UNK>, but there's some purchase accounting adjustments in the numbers as well as the revenues that roll out to that 3%.
There could be some rounding in there, but I will double check that and get back to you.
I think on the product basis, that did well this quarter, and our expectations are for it to continue to do well, as you mentioned.
There will be ---+ there was some patents or some royalties that rolled off in the first quarter.
There will continue to be some that will create a headwind in the second quarter, and then by the third-quarter, they're gone effectively.
Right.
Because we anniversary the patent for expiring in the middle of last year.
So if you look at just the product, I think it continues to do well, high single digits.
Great.
First of all, thanks for all your questions.
And in closing, let me just reiterate that we feel very good about the accomplishments in the first quarter and believe we're well positioned to deliver another strong year for PerkinElmer.
So thanks for joining us for the call, and have a great evening.
