Good day, ladies and gentlemen, and welcome to the Q4 2014 PerkinElmer Earnings Conference Call. My name is Joyce, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Tommy Thomas, Vice President of Investor Relations. Please proceed.

Thank you, Joyce. Good afternoon, and welcome to the PerkinElmer Fourth 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 the earnings press release, you may get one from the Investors section of our website at www.perkinelmer.com. Please note that this call is being webcast live and will be archived on our website until February 12, 2015. 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 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 that 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 the call that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly. I am now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel. Rob?

Thanks, Tommy. Good afternoon, and thank you for joining us today. I'm pleased to report that we delivered very good performance in the fourth quarter, capping off a successful year in which we've made significant progress against our strategic priorities and delivered strong financial results. Over the past year, we've expanded our organizational capabilities, introduced new innovative solutions for our customers, focused our investments in the most attractive end markets and exceeded our financial forecast despite challenging macroeconomic conditions. Turning to our financial performance in the fourth quarter. We experienced a general strengthening of the business, as we saw good growth throughout all products and geographies, with organic revenue growing 5%. We expanded adjusted operating margins by 200 basis points to 21.5%, delivered strong operating cash flow of $97 million and increased adjusted earnings per share by 15% to $0.85, coming in at $0.06 above the high end of our guidance. To mention a few commercial highlights from the fourth quarter, in the diagnostics markets, we were proud to receive market authorization from both the FDA and Health Canada to offer the first commercially available newborn screening test for SCID in the U.S. and Canada. Testing for SCID, which is an inherited metabolic disease that impacts an estimated 1 in 58,000 newborns each year, represents yet another important milestone as we expand our newborn screening menu. Moreover, as we aggressively spur our footprint to meet demand for prenatal, neonatal and infectious disease screening, we announced the opening of PerkinElmer's state-of-the-art clinical testing lab in Suzhou, China. This new facility will offer a complete solution for hospitals and patients and supports the country's investments toward detection and prevention of birth defects and infectious disease. Also during the fourth quarter, we made significant traction against our strategy to further penetrate the multibillion-dollar…

Thanks, Rob, and good afternoon, everyone. As I've done in previous quarters, I'll provide some additional color on our end markets, financial summary of our fourth quarter results, and I'll provide some details around our first quarter and full year 2015 guidance. And then we'll, as usual, open up the call for questions. I'd like to start by saying we had a very strong finish to the year. Organic revenue growth in the quarter was 5%, with recent acquisitions adding approximately 1%. This was offset by unfavorable foreign exchange, which represented a headwind of approximately 3%. Reported and adjusted revenues each increased 3% in the fourth quarter. Adjusted revenues were $609 million in the fourth quarter as compared to $593 million in the same period a year ago. Since we last provided adjusted revenue guidance back in October, foreign currency has negatively impacted our results by an additional $7 million. Fourth quarter adjusted earnings per share grew 15% to $0.85, with full year adjusted earnings per share growing 18% to $2.47. Our quarterly results were $0.06 above the high end of our guidance range, the result of both volume leverage and strong incremental margins driven by favorable geographic and product mix, as well as a modest impact from Perten. I'd like to note that approximately $5 million of revenues recognized in the fourth quarter related to sales that had originally been forecasted for the first quarter of 2015, but were shipped prior to year end at the request of our customers. Looking at our geographic results. We experienced broad-based growth across all major geographies and end markets, with improved results in academic markets and stronger analytical instrument demand in China. Our fourth quarter organic revenue increased high-single digits in the Americas, mid-single digits in Europe and Asia, with China also…

[Operator Instructions] The first question comes from the line of Doug Schenkel of Cowen and Company.

So my first question is, yes, this is clearly a nice end to a year marked by some quarter-to-quarter volatility. One way you've managed operational spend in the context of this volatility was cutting R&D expense. And to be fair, a lot of this was expected given the Hopkinton consolidation. But you did come in, I think, a little bit lower than many of us expected. So with this in mind, can you talk about what's baked into 2015 guidance specifically for new product contributions to revenue growth? And will you likely increase R&D spend a little bit looking ahead, given you are seemingly expecting a little bit of a pick-up in sales growth over the next few quarters?

Yes, so first of all, our plan is to ramp up R&D. And I would say when you look at 2014, as you pointed out, part of that was a purposeful slowdown in spending. But probably the bigger impact was our ability to hire the engineers or find the engineers that we were looking for. And so as we talked about, I think, in the beginning of '14, we had a significant ramp-up of employment planned in Hopkinton and, quite frankly, it's taken us longer to find the qualified people to sort of fill those slots. So hopefully, we'll continue to succeed in that area. See the other area that we've been focused on ramping up is informatics software engineers, and again they are -- have been somewhat troublesome to find. And we've seen some good progress here probably in the last 30 to 60 days. So I think it's fair to expect an increase in R&D spending in 2015, and we'll continue to layer that in. Your other question was with regard to new product revenue. Clearly, we would expect an annualization of the revenue we saw in the second half. So I would say we're probably looking for something in the $30 million to $35 million of benefit from new products for the entire 2015.

Okay. And I guess a question on M&A. I mean, even subsequent to the completion of Perten, you guys have a pretty clean balance sheet. The rating on the company is higher now. So I was wondering if you wouldn't mind refreshing your financial criteria including ROIC hurdles, accretion requirements, maybe areas of prioritization and size limitations. And building off of this, would you describe the competitive environment in M&A? It does seem like leverage ratio limits have come down a bit for PE, which would seemingly be good for you. But beyond that, how would you describe the competitive environment for adding assets?

So first of all, from our perspective, I think we feel pretty good about the capability we have to continue to do acquisitions and potentially buy back shares as well. So I think our slight preference is to do bolt-on acquisitions that add big capability both from a technology and an organizational capability. To the extent we can't find appropriate assets or the valuations are challenging, we would buy back stock. When we think about, over the next couple of years, we feel like we've probably got $1 billion of capability between the cash flow we -- the free cash flow we generate and the capacity we have on the balance sheet. We would be comfortable probably at 2.5x EBITDA, maybe stretching a little bit above that. But I think when you look at the combination, that's probably $1 billion of capability. With regard to the competitive environment, as I sort of alluded to before, I would say valuations are -- continue to be high. Makes sense relative to the cost of capital. So my sense is, increasingly, to make good assets work, you've got to have good synergies, and it's got to make sense relative -- either from a technology or from a market -- accessing customers. So we still see pretty good assets out there and we've got a pretty full pipeline. One of the things we did do in 2014 is we significantly ramped up our internal capabilities around business development. And so consequently, I think we've seen -- we've built a nice pipeline and we continue to feel optimistic about our ability to continue to bring in some great assets over the next couple of quarters.

Okay, that's helpful. And if I could sneak one more in for Andy and I'll get back in the queue. Andy, you've mentioned about $5 million in revenue that was pulled forward into the quarter. Would you be willing to just provide a little more color on how broad this was? Things like was it one customer? Was it a bunch of customers? And was it in 1 specific end market versus another?

Sure. It was really within 2 businesses. It was with our diagnostics business and with our informatics business. Both of those being high-margin businesses. But it was less than 10 customers, but it was split probably pretty evenly among the 2 businesses.

The next question comes from the line of Ross Muken of Evercore Partners.

So maybe I've missed it. I think on environmental, I was trying to get some of the extra color on how growth looked between environmental and industrial. Can you give us a flavor for how those 2 pieces trended sort of on a core basis? And then was there any notable change geographically? And it seemed like your commentary as a whole, as you look forward, was more conservative because of PMI, but it looked like the business actually had some pretty good results in maybe some of the cyclically oriented areas. So I'm just trying to figure out...

Yes so first of all, on a geographic basis in the environmental, we saw pretty good growth across all the geographies. So whether it was Europe, Asia or Americas, it was all around mid-single digits. Actually maybe Europe was a little bit higher. But within those 3 geographies, the growth of environmental was between 5% and 7%, so it was pretty broad-based. However, when you look at the segments, industrial was lower than the sort of core environmental and food. So if you look at industrial was sort of low-single digits, whereas sort of environmental food and water was sort of again closer to the mid to high. So there was bifurcation from an end-market perspective. But geographically, it was fairly broad-based. And again, just even within China, we saw some nice recovery and within environmental. Greater China grew high-single digits.

And maybe just on the margin cadence, obviously, the currency environment has been tricky this year and obviously had a bit of weight in your earnings. So as you think about various levers, I mean, obviously Doug touched upon the balance sheet. You've got plenty of capacity there. But as we think about -- you obviously just are coming off a year where you had pretty spectacular expansion, that would seem like some of the heavy lifting is already sort of underway. How much wiggle room do you have if we see either FX or something macro-oriented happen to kind of flex that line to make sure you can kind of manage within the earnings range?

Yes, I still think we see a number of opportunities to improve the efficiency of the operations. And we've talked in the past about the fact that we've done a lot around our factory consolidation. But purposely, while we were doing that, we were not as focused on switching our supply base out, for example, because we didn't want to be both moving the factory and moving the supply base. We think there's opportunity to continue to get better leverage there. We've talked about -- I know Andy's been talking about the big initiative around indirect spend. We continue to get good traction there. And doing some things on how we go to market, whether it's more effectively utilizing the web or some of our back-office capabilities. So we continue to see a number of opportunities to drive efficiencies and improve margins outright. But quite frankly, I think now that we're at the level, call it 18%, we do want to shift our focus a little bit more to growth. And so going back to sort of Doug's original question, I'm hopeful that we will be able to take up our spend around innovation. And we talked about opening up the China lab. There's another -- a number of great opportunities we see to take advantage of what we think are some terrific market positions that we have.

The next question comes from the line of Tycho Peterson, JPMorgan.

I just want to actually follow-up on the M&A discussion. Can you give us a sense of how you're prioritizing different areas? Obviously, the 2 recent acquisitions, Perten Instruments and Ceiba, speak to some of the industrial or applied markets. Can you maybe just talk a little bit about software versus other areas that you might prioritize from an M&A perspective?

Well, I'd start off by saying, I mean, I think the great thing about PerkinElmer right now is if you look at research, if you look at diagnostics, if you look at environmental, all those I think are attractive end markets. So we've got potential targets in all of those. From a prioritization standpoint though, we would probably put diagnostics probably a little bit higher. We just -- and I think we like the macro trends there, particularly in the areas we operate in. When you think about what's potentially -- the rising middle class, particularly in the emerging markets, and the continued pressure that's going to put on access to health care and aspects of newborn and infectious disease. So I would say that has a little bit of a maybe higher priority for us. We like the environmental area especially -- particularly food. And even within the research area, there's some areas that -- from a technology perspective. The great thing about informatics and why we also have been focused on informatics is we believe they leverage across all 3 markets. So again, we're looking for targets in all of those areas. But like I said, probably diagnostics in certain aspects within environmental probably have a little higher priority for us.

And you talked in our conference about trying to kind of monetize synergies between Environmental and Human Health. Can you just talk to what specifically that entails? Is that investments around software or -- just talk to what that means from your perspective.

Yes, I think some of it is in software. But it's broader areas. There's areas like certain technologies. I think I mentioned the -- specifically, optics. So if you look at whether it's diagnostics, research or environmental, we do a number of things that require -- obviously when you're into detection and imaging, optics is a big component of that. If you look at algorithms, right, again because it's -- when you're taking readings off of instruments and converting that into data and information, there's algorithms. There's service benefits across the portfolio. So I think there's a number of technologies that leverage across. Obviously, there's software that leverages across and then things like brand and financial capability and sort of organizations. So we like being about Human and Environmental Health. It gives us access to customers and information that we can leverage across the businesses.

And just lastly on China, you talked about things getting better on the analytical instruments side. Can you just quantify what your expectations are in '15, and your confidence in kind of the stabilization and recovery there?

Yes, so if you look at China for us in 2014, it was in the high-single digits, because I think I talked about before, there was fairly big disparity between Human Health and Environmental Health. I would say for 2015, we would say similar top line growth for the company. So again, sort of high-single digit growth. Our expectation though is it would be sort of closer linkage between Environmental and Human Health. So similar growth to what we saw in 2014 but hopefully a little closer linkage between Human and Environmental Health.

The next question comes from the line of Paul Knight with Janney Capital Markets.

This is actually Bryan Kipp on behalf of Paul. I just want to dig in a little bit more on the environmental and industrial side. Did you see any budget flush in that in context to the strength you saw there? I know with the FX volatility and just year-end strength there, it just seems a little surprising. I know you also said there were strong bookings at the end of 3Q. So did most of those convert? And did account for, I guess...

We don't believe that a significant contributor was budget flush, quite frankly. I mean if you look at within the specific growth of 7%, again, we saw higher growth on the service side. So service was stronger than the product. The product was still growing nicely, but we saw it higher on the service part. But we don't believe so [ph]. And again, as I sort of alluded to before, it was pretty broad-based across the geographies. I mean, I think some of that is attributable to better execution, quite frankly, within the businesses and maybe some improved market conditions, particularly in China.

Okay. And is there any color on how it's paced so far this quarter? I guess, bookings I mean, for -- end of 4Q, early 1Q?

Our view right now is market conditions for the early part of '15 has been very similar to what we saw in the fourth quarter.

All right. Last one quick for me. Last quarter, last call, you said $400 million in indirect spend that you've kind of highlighted and potentially pull out a little bit of leverage here and there. I think you said you'd like to pull out $10 million there. Are you seeing additional opportunities that you could pull from on that indirect spend that could support '15 and above and beyond where you were prior?

We absolutely do. It's about $420 million in total. And we've put a lot of effort around the tools and the education across the organization. In fact, we hired a dedicated procurement person dealing strictly with indirect spend. So our hope internally is to derive an even higher savings off of that total. And I think we may decide to spin some of that back or flow it through but I think that gives us a little bit of hedge on further currency deterioration. So I -- we feel very good about that particular initiative at this point.

Will you give harder numbers down the road?

I think as we progress through the year, we'll provide some additional color on how we're doing.

Question comes from the line of Bill Quirk of Piper Jaffray.

This is actually Alex Nowak filling in for Bill. Can you describe the progress you're making in China with the increasing the newborn screening menu? I know you previously mentioned moving from 2 to 4 tests. I guess based on my question is how far along are you in this adoption going to 4 tests? And should we expect this to go to 5 or 6 tests in the future?

First of all, we saw a very nice growth in China in newborn in the fourth quarter and, in fact, for the entire year. But I would describe the growth in China as more testing more children than expanding the menu. And I think right now, at least with our discussions with the government officials there, I think there's a higher priority around getting all the children screened at least the 2 to 4 before you'll see a big push on expanding. Some of that may happen in parallel. But if you look at our growth in 2014, it was probably more screening more children than it is absolute menu expansion. As we get into '15 and '16, I think then you'll hopefully see some more menu expansion where, as we mentioned, we go to 4 or 5, getting maybe even some mass spec screening. But clearly, what we saw in '14 was less menu expansion and more -- screening more children.

Okay, excellent. And then staying on China real quick. How is the NAQ [ph] conversion going for blood screening? Is it basically a national rollout at this point? Or is it still province-by-province?

It's still province-by-province and it's starting to roll out but as, I think, we suggested earlier, it's sort of slower ramp than anticipated. So I think we talked a lot about probably seeing the uptick more in the back half of '15 as compared to early '15.

The next question comes from the line of Steve Willoughby with Cleveland Research.

Actually, I have one on 4Q and then one on 2015. First on 4Q, the $5 million of additional revenue, is there any way to quantify what that translated into earnings for the quarter? Then I'm also curious just with the margins here in the fourth quarter, both gross and operating margins were better than I was looking for. So I was wondering what drove the -- I mean, when I look at it, 12% quarter-over-quarter increase in revenue, but only a 3% quarter-over-quarter increase in SG&A. So maybe I don't know if they're related at all or not. And then I'll follow up with my question 2015.

Well, as far as the overall EPS impact of the $5 million, it's probably a couple pennies.

And I mean, it speaks a little bit to the leverage we get on volume growth. I mean, one of the things that you look at -- as PerkinElmer starts to do $600 million of revenue or north of that, we can produce a lot of incremental profitability. So in the quarter, we're 21.5% operating margin. Then it speaks to the leverage we get, particularly off of SG&A, but also some of the other fixed costs. So I mean, obviously that's going back to my prior comments around trying to get the growth cranked up. I mean, if we could get to the point where we're generating revenue significantly above the breakeven, we start to see very high flow-through of the profitability because clearly the SG&A and a lot of our costs do not scale with the revenue.

Okay. And then just on 2015. I may be off on this but I believe in 2015, you're going to have 53 selling weeks versus 52 in past years. And so I'm just wondering, I guess, a couple of things. One, if that's correct. Two, if you could quantify the impact from that. And then three, what quarter those extra days will hit in 2015?

So first of all, that is correct, every 6 or 7 years, we have an extra week. That's to some extent why you saw, in 2014, we closed on the 28th and not the 31st. So this year, we'll have an extra week. I believe, Andy, it's in the third quarter?

Yes.

And I think we factored that into our guidance. We don't think it's going to be a significant impact on the top line because, fundamentally, what you're doing is you're picking up a couple of days at the end of '14 and a couple of days at the early part of '16. So that the week we get is really the 29th, 30th and 31st of December in '14, and the 1st, 2nd, 3rd and 4th of January. Our sense is maybe that's $15 million to $20 million of revenue. And some associated profit flows through from that. So -- and again, we sort of factored that in the 3% to 5% growth guidance.

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

You talked a couple of times about achieving, for all intents and purposes, your 18% operating margin target in 2014. Previously, you had offered another target of greater than 20% in 2017. Is that still the plan or are you stepping back from that plan?

I would say it's our goal. I think what makes that more challenging is where the dollar is right now. So -- and particularly if it's going to continue to strengthen. So while we still have the goal out there internally and we're trying to get to 20% by 2017, I think of the euro at $1.12, and like I said, and if it continues to sort of march towards parity, I think 20% operating margins, I don't think they become impossible but it gets a lot more challenging.

But Dan, I think the activities that we had laid out and have in place through '17 will continue, and I think we'll continue to make good progress on that. We can't control FX, but I think you'll continue to see us expand margins. And if FX does head the other way, it does make it a little bit easier.

Okay. And then my follow-up question on Human Health. I'm trying to reconcile some of the positive new product commentary in that category with a result that was a little bit lower than we were looking for, it had a low single-digit number. So what were the offsets and what assumptions do we need to make to assume that, that segment accelerates to a mid-single digit growth range after a couple of years of low-single digit?

So if we're talking specifically about Human Health, the offset was medical imaging, as we mentioned, was sort of down mid-single digits. So that's why you're seeing Human Health pulled down a little bit from sort of the 5 to 6 it's been historically down to 3. If you're talking more specifically around research and what needs to happen there, I think a couple of things is as we continue to get new products out in those areas that we're focused like microfluidics and imaging, and -- what will move is radiochemicals becomes a smaller percentage of the whole. So obviously, we've -- that's a drag. But I think the other thing is we've talked about informatics, which is in the research area, had a very strong 2013. In the back half of 2014, it wasn't as strong because of difficult comps but also because we're investing a lot in a new offering around the cloud. And so we're optimistic that for '15, you'll see informatics return to sort of a high-single, low-digit -- double-digit growth. So it's a combination of getting new products out. Second thing is getting informatics growing again at sort of a double-digit rate and sort of averaging radiochemicals down to a smaller percentage of the business.

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

I just wanted to start off with the margins. I think in the beginning, you or Andy talked about the long-term goals that you set, you hit 18%. And obviously, it's been a pretty successful run here. And as we look to the long term from here forward, I was wondering if you could talk a little bit about where you think margins can go and realize you probably wouldn't want to give specific guidance, but just trying to get a sense of what you think the opportunities are and how much you have to work with?

Well, going back to the comment earlier, we had set a goal of 20% by the end of '17, and we felt fairly confident we could get there based on both the success that we've had previously and the opportunities we see going forward. But as I mentioned before, that's still a goal of ours. It's just a little bit more difficult given the headwinds associated with foreign exchange. So we haven't come out with a new goal relative to 20% because we're waiting to see whether the strength of the dollar is a short term, long term and where it goes. But I would say for now, the 20% is the goal that we've got out there.

And I think as I said before, I think our plans have not changed. The only thing that's really changed is FX. And if you look at reinvestment, we're actually covering probably 8% to 10% increases in R&D for this year, for 2015. So I think all the dynamics and the framework will continue to be executed against. And again, it's really going to depend on where the FX rate's at over the next 3 or 4 years.

But as a general rule, the idea of 75 basis points a year, plus maybe some benefit from acquisitions or capital deployment, et cetera, I think still holds.

Got it. That's very helpful. It all makes sense. Second one was on newborn screening. I was curious just the underlying growth trend that you saw domestically versus a broad, how did that do? I'm assuming that U.S. improved a little bit sequentially but wondering if that in fact was the case. And then as you look at 2015, are you assuming that continues to trend better?

Yes. So your assumption is correct. U.S. improved incrementally, as did the outside the U.S. So we saw growth across both. As you could imagine, in the U.S., it was sort of more menu expansion, whereas outside, it was more -- we continue to get good penetration. I think the other opportunity as we look out, as you probably saw, we just got FDA approval for our SCID assay. And we're very excited about that, and we've actually started some pilot programs actually outside the U.S. So for example, France is doing a pilot program. So we think there is continued opportunity, even within the developed world, to expand the menu. So we continue to be quite bullish on the newborn screening growth prospects.

If I could just sneak one in real quickly. Do you think the U.S. volume environment for newborn could tick up this year as well, just putting aside the nice menu additions as well?

Our statistics, as I think Andy mentioned, would indicate the birthrates are up about 2% on a trailing 12 months. So obviously, that helps from a volume perspective.

The next question comes from the line of Miroslava Minkova of Stifel.

Let me just start with a question on the revenue and earnings cadence in '15. Just looking at your first quarter outlook here, and it seems to suggest a somewhat slower start. I know there was the $5 million that got pushed forward into fourth quarter. But there have been some comments from your competitors as well that budgets stand to be spent a little bit later in the year, perhaps more recently. How do you think about sort of the revenue and the earnings build as you go through the year?

Yes, we talked earlier. We do feel like there's going to be a bit more of a shift to the latter half for both the top and bottom line from a cadence perspective. I think in the first quarter, in particular, we do have what I described as the $5 million in the fourth quarter. But in addition, we have some investments that we're making, which is also impacting our earnings per share around the China lab and around some investments in informatics. So I think we're going to see some essentially flat margins in the first quarter. But I think that's because of investments and the impact of FX. I think for the full year, I think we still see revenue improving more in the second than the first half. And we think operating margins are going to be, after FX, in kind of that 30 to 50 basis point range.

I would say the other thing -- and I mentioned in fact that we are expecting to introduce some new products at PITTCON, which is the analytical instruments show in early March. And so we're looking to get some nice tailwinds from that, particularly in the back half of the year. And so that's also skewing some of the growth and profitability in the back half.

Okay, great. And perhaps if I could go back to the Human Health business, and the medical imaging in particular. Do you expect this to rebound in 2015? And why was the margin so strong on the Human Health side?

So first of all, the answer is yes. We do expect medical imaging to be sort of mid-single digits in 2015. I think, Andy, in his prepared remarks, mentioned a little bit of some customer ordering patterns that created some difficulty, particularly in Q4. I think the answer to your question about why the margins were sort of high is, first of all, we had some favorable mix during the fourth quarter, as I sort of alluded to. Newborn screening was very strong, and that's probably one of our highest profitable business. I think the other thing, going to the overall point that I made before, is when volume increases, we create a lot of profitability on an incremental basis. And so that's particularly true in Human Health, where you've got high reagent flow, which, of course, has very high gross margins associated with it.

The next question comes from the line of Derik De Bruin, Bank of America Merrill Lynch.

It's Rafael in for Derik. I just wanted to go back to the margins for 2015. Can you just actually provide what the margins would look like on a constant currency basis? What the margin expansion would be at the gross and operating margin level?

Probably closer to around 30 basis points at the gross margin level and probably 50 to 70 at the operating line.

Okay, helpful. And just wanted to go back on the -- to the research markets. Can you remind us again what the -- where we are now in terms of what radiochemicals represents as a percentage of total sales? And how in vivo imaging, how that business is trending?

So the radio chemical business for us, it's -- I call it $90 million of revenue, just to give you a sense of the size of that business. The in vivo imaging business, I would say for the fourth quarter was slow relative -- and I think, to a large extent, that was associated by -- as I mentioned before some of the austerity we're seeing around academic spending. We do believe or we expect in 2015, we'll see that business be up again in the sort of mid- to high-single digits.

Okay. And just one last one on OneSource. Can you just speak to the competitive landscape here in terms of lead generation and also just the pricing dynamics that you're seeing in the space?

Yes, I mean, I think the multi-vendor service area has been one that's been fairly competitive for a period of time, right? There's a number of strong competitors out there. I think we've got a little bit of a first-mover advantage. And the other thing I think that helps us is that our informatics capabilities, which we've been leveraging, the Ceiba acquisition was -- helped bolster that as well. So I think the combination of being incumbents in a lot of areas, having the strong software capability and being quite successful at it continues to us take our fair share, but it is a very competitive environment.

The next question comes from the line of Bryan Brokmeier, Maxim Group.

First question on M&A. You said that you like M&A opportunities in diagnostics. Obviously, you're strong in newborn and prenatal screening and strong growing in infectious disease. Would you step outside of those core competencies or are those the areas where we should expect you to be the most focused on in potential M&A opportunities?

My sense is that you expect us to be most focused on, I mean, maybe potential adjacencies for those areas, but unlikely that you're going to see us make a significant move outside. Clearly, an area of molecular diagnostics might be one, where you think about the opportunity to take that into the -- our current markets that we serve. But a few things that we're going to look for are stuff that are adjacent to what we do, that we can -- are consistent with the channels that we have or the technologies we can deploy into our existing customer base.

And then do you know what the screening rate in China is up to today? And I've seen an estimate for Chinese births to decline as much as 30% in 2015. Even with further expansion of screening, can that business still grow in 2015 with such a severe birthrate headwind?

Yes, so the current screening in China is in the 65% to 70% range. I think what you're referring to is 2015 is the Year of the Goat. And so apparently, Chinese do not want to have children in the Year of the Goat because there's negative implications to that. And we've actually seen some of that impact in our prenatal business because that's a very good precursor to newborn rates. 30% sounds like a pretty high number to me. And of course, what's offsetting that to some extent is the release -- or the loosening of the one-child policy. And so the answer to your question is we do believe we can continue to grow the newborn business in 2015 despite it being the Year of the Goat.

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

This is Ellie Popova filling in for Jeff. Can you walk us through some of the main components of your revenue growth assumptions? I know you already mentioned new product, but are you able to share your expectations around volume and pricing? And particularly pricing in light of some of the large FX moves we've seen.

I would say generally speaking, pricing for us has not had a material impact one way or another if you look historically, and consequently we haven't factored into it having a large impact in 2015. I think if you look at all of last year, pricing was in sort of 50-basis-point help. So I would say for 2015, our assumptions are that similar level, maybe 50 basis points of increase in price. So that the majority of the volume is going to -- majority of the growth is going to come from volume. To give you a sense by business, I think it's fairly well distributed. I think as we think about '15 right now, it's probably Environmental and Human Health, similar growth trajectories, I would say, in the 3% to 5% range. When you look within Human Health, diagnostics will probably be a little at the higher end. So maybe that's in the sort of 7% range. And clearly, research will be sort of at the lower end of that, maybe in the 3% range.

Next question comes from the line of Brandon Couillard with Jefferies.

Andy, just on -- in terms of the outlook for next year, could you give us some metrics around what you're looking for in terms of operating cash flow and CapEx? And how you're thinking about the free cash flow conversion that's likely for the year?

Yes. Sure. I think we'll be in the mid- to high-90s on free cash flow conversion. I think our operating cash flow should be around $315 million to $325 million, so we'll have a 3 handle for the first time on our operating cash flows. I think free cash flow, yes, it will probably be high 200s to $285 million to close to $300 million, in that range. I think we're going to see some continued improvement on the working capital side. We've made some investments, utilizing our SAP system on the collection side. We think we can get some working capital taken out with that. And we also have some efforts around inventory. So we feel pretty good about the working capital piece, and I think with the additional income we'll see our way to getting to those numbers.

And just on the research business in the fourth quarter, could you give us a feel for the geographic performance? Or if there was any -- I suppose it's mostly pharma, but any customer-based color to share on the fourth quarter?

I would say if you look at the pharma sort of academics split, pharma was sort of mid-single digits, academic was sort of low single. I alluded to the fact that the imaging business, the in vivo imaging was impacted by the funding environment. And of course, when I talk about research here, I'm not including the OneSource, which was -- had a very strong fourth quarter. I think what drove pharma to some extent was the new products, particularly around the Opera Phenix and the MOD [ph]. We came out with a new product called the EnSight, which combines both detection capability and imaging. Geographically, I'd say the strongest region was Europe. Europe was up mid-single digits. It was nice recovery there so we were pleased with the performance there. Americas was up low-single digits and APAC was actually down a little bit, even though China grew. China grew mid- to high-single digits. It was really some difficult comps we had outside of China that put pressure on that region. But again, it was low single in the Americas, mid-single-digit growth in Europe and APAC was down just slightly.

The next question comes from the line of Reggie Miller with CitiBank.

Most have been answered so far but I guess kind of thinking big picture, Rob. You mentioned that you're playing a leadership position in more or less 75% of the businesses that you operate in today. How often, I guess, do you look at the other 25% and say, hey, maybe kind of evaluate those and potentially, I guess, see if they are subscale or maybe look into divesting them?

I mean, we're looking at our businesses all the time. And at least on an annual basis, we're sitting down with the Board of Directors and going through a fairly thorough strategic review of the portfolio and the businesses. And so one of the questions we continue to ask ourselves are, are we the most appropriate owner of the franchise of the business? So it's something we go through, like I said, a fair amount of detail on at least an annual basis, but it's something we're always challenging ourselves and questioning the businesses and making sure that we can continue to create value owning those businesses.

The next question comes from the line of Eric Criscuolo with Mizuho.

Just filling in for Peter tonight. I guess if you could maybe talk about -- or talk a little more about the Perten acquisition and the kind of growth rates it had when you acquired it and where you think it could go under your leadership and maybe the margin profile as well?

So as I sort of mentioned in my prepared remarks, we're very excited about the Perten Instruments acquisition. We think it brings us some terrific capabilities in and around, broadly defined, food but more specifically, in grain and feed. And we think the combination of their technical capabilities, their product portfolio and maybe, most importantly, their access and customer reputation, combined with some of the things that we have the capability to do, will allow us to accelerate the growth in and around that business. So -- and early indications are -- continue to be reinforce what we saw when we did the diligence. With regard to specific numbers, they are growing around 7%, 8%, which we would expect to continue and maybe even improve a little bit. And it was a business that had 20% operating margin. So profitable business, good growth, great reputation in the marketplace, and we look to leverage that and continue to expand in, obviously, the important area of food safety.

I guess Andy on the FX issue, is there anything that you can do, I guess, to maybe be a little more proactive in taking that hit a little or making the hit a little less as far as shipping costs or anything like that? Or is it something that you basically just have to kind of weather through for a little while?

I think for the majority of the FX impact, we have to weather through it. I think what we're trying to do is accelerate some of the actions around -- some of the cost initiatives around direct spend and so forth to try to pull as much of that in as we can to try to somewhat offset it. But it's a fairly significant number, as we've communicated. And we're not going to hedge the P&L. It's a lot of risk and you're wrong more than half the time. So I think we'll just try to power through it. It's -- unfortunately, there's not any magic dust to help us here.

At this time, there are no further questions in queue. I would now like to turn the call back over to Mr. Rob Friel.

Great. Well, first of all, thank you for your questions. And so in closing, I'd like to reiterate that I feel very good about our progress last year, and I remain excited about building upon our accomplishments to take advantage of the significant opportunities ahead to both create value for our shareholders and make a positive impact on Human and Environmental Health around the world. Thank you for joining us for the call and have a great evening.

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