Good day, ladies and gentlemen and welcome to the PerkinElmer First Quarter 2019 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 follow at that time. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Bryan Kipp, Vice President of Investor Relations. Sir, you may begin.

Thank you, Joel. Good afternoon, and welcome to PerkinElmer's first quarter 2019 earnings conference call. With me on the call are; Rob Friel, Chairman and Chief Executive Officer; Prahlad Singh, President and Chief Operating Officer; 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 9. 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 statement -- 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 also be referring to certain non-GAAP financial measures. A reconciliation of 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 Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Thanks, Bryan, and good afternoon, everyone. I'm pleased to report PerkinElmer had a very good start 2019 delivering a strong performance in the first quarter. Revenue for the first quarter was $649 million, representing organic growth of 5%. Adjusted earnings per share was $0.69, representing growth of 10% over Q1 last year and $0.03 better than our guidance. EPS feat was attributable to slightly higher organic revenue growth in the quarter and better operating margin expansion, as adjusted operating margins increased 130 basis points in the quarter. In addition, we continue to execute on plans to invest in high-growth areas, shift the organization to a more unified structure and further improve operating margins. From an end-market perspective, the first quarter played out similar to our expectations, except that we were able to ship about half of the revenue we thought we would miss as a result of the U.S. government shutdown.

Thanks, Rob. As I mentioned during last year's - our last quarter's earnings call we are rallying around an end-market approach to create the most advanced solutions for our customers in the key markets we serve. This approach will enable us to drive leadership across our priority end markets whether through the differentiated solutions, we are creating to meet customer needs or strategic partnerships and acquisitions that will deliver incremental value to our customers, while focused on solving the next big thing in science and health care. In that regard, I've had the opportunity of spending a great amount of time, this past quarter meeting with customers, employees and shareholders across all of PerkinElmer and it has further reinforced the need and opportunity for us to move forward on this strategy.

Thanks Prahlad, and good evening everyone. I want to start with the financial highlights for the first quarter of 2019. Next, I'll provide some additional color on our served end markets and detail on other financial metrics. I'll finish by providing a brief update on how we are thinking about the rest of 2019. Turning to the first quarter results. We continue to be pleased with the strength in our business as organic revenue grew approximately 5%. Reported revenue in the first quarter of $649 million, included a 4% foreign exchange headwind and net acquisition had a negligible impact. As discussed in our previous guidance for the quarter, the temporary U.S. government shutdown created a delay in the approval process for an export-controlled product, which led to a 1% headwind in the quarter. Both segments and geographies grew in line with our initial assumptions heading into the year. Diagnostics representing 40% of total sales grew 9% organically, driven by broad based growth across our reproductive health, applied genomics and immunodiagnostics business lines.

Thank you. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question comes from Steve Willoughby with Cleveland Research. Your line is now open.

Hi. Good evening. A question for you, just on guidance first, Jamey. You beat here by $0.03 in the first quarter. This acquisition you're saying is $0.02 accretive. It looks like your interest expense for the year might be coming down a few million as well. What is the offset then that you're only raising your full year guidance by $0.02? And then I have one follow-up.

Sure. Thanks for the question Steve. So, yes, the $0.03 beat in the first quarter, we think a couple of pennies will come back in the second quarter, that's due to the extra organic revenue growth for the export-controlled products as well as a little bit of margin expansion with a little bit of timing. The offset to the extra penny is a little bit -- actually a little bit extra interest expense in the year, because our pre-cash flow performance in the first quarter was a little less than expected. So I think you might be referring to total -- that the number that I quoted was total interest expense and other and that was $60 million as our guidance for the year.

Okay, great. And then, I was just wondering if someone could comment and provide a little bit more color, just on how the Vanadis rollout is going? How discussions as it relates to reimbursement is going? How people are seeing throughput, et cetera? And maybe an update on when we will see some clinical publications on that.

Yes. Steve, this is Prahlad. So the Vanadis installations are going per plan that we have shared earlier. We've had 13 installations by the end of Q1. I personally have visited the first seven customers over the last month and the feedback has been very positive. And generally customers continue to remain excited. We have a pretty strong pipeline. So that's from an installation and a current status perspective. We have submitted publication. So hopefully it's going through the peer review process and that provides data around all the CE-IVD, the clinical arm the CE Mark that was submitted. In the U.S. we've -- as you know we've got the women and infants -- the value study that's ongoing. We've just very initially begun discussions and started exploring as to what our strategies should be around payers. So it's still in its early stages in regards to reimbursement.

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

Great, thanks guys. Rob, maybe one for you, just on China, we've seen some mixed data points there. You had one peer who saw a decline called out a few specific areas of weakness, another peer put up a really strong quarter sounded bullish across the board. And then on the more macro side, we saw some core industrial companies report even today kind of blaming the macro in China and saw a big slowdown there. I know you guys had high single kind of removing onetime stuff. So, can you just provide your perspective on that market help us think about the state of the market there during the quarter and then also just to go forward?

Yeah. So, for us, it was a good quarter in China. I would say the majority of our end markets continue to see good growth. So, if you look particularly in the diagnostic side, EUROIMMUN did well. Our immunodiagnostic business continues to do pretty well. And so I would say, on the diagnostic side we saw a good strength. On the Pharma aside we continue to see good strength. But I would say to the extent, that was somewhat offset by weakness more on the applied markets. And we think some of them are maybe timing related. But as you said, when you exclude the sort of onetime impact of the export-controlled product, we were sort of high-single digits. So we feel pretty good about the China momentum going into the second quarter.

Okay. And then maybe just on DAS, calling for pretty healthy uptick to mid-single digits in 2Q, facing a significantly more difficult comp. I know you touched on a bit. But can you just talk through the moving pieces there how much visibility you have? And what drives that business really higher on kind of a two-year stack number?

So, first of all, we did see strong growth or continued strong growth in the Pharma biotech which is sort of high-single digits for us in the first quarter. We think that continues. Some of that was offset from some academic markets that were quite frankly timing related. There were a number of items there, that sort of caused that to be actually negative in the quarter, we don't think that's a market phenomenon. We think that's unique to a couple of things we had. So, if academic goes back to sort of positive, we think that will drive life sciences to sort of mid- to high-single digits. And then as I mentioned before, there was some things in the implied markets outside the U.S. that I think -- when we look at the bookings we're fairly confident that we'll return that business to sort of mid-single digits despite the difficult comp with last year.

Yeah. That’s very helpful. Thanks.

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

Hey. Good afternoon. This is Chris on for Doug today. Thanks for taking my question. So, just based on your Q2 core revenue guidance, it looks like, the core revenue growth for the year is back-end loaded. By our math you're essentially guiding to 6.5% to 7% core growth in the second half relative to a 5% growth in the first half. So with that in mind, can you just walk us through the key drivers behind the 150 basis points to 200 basis points of revenue growth deceleration in the second half?

So why don't I take the revenue and then maybe Jamey can talk a little bit about the margin. But, I think actually going into the year we talked about the fact that the back end will be a little better from both a revenue perspective as well as a margin perspective. And a lot of that is because a lot of the growth accelerators that Prahlad mentioned, so whether it's our genetic testing business, whether it's Vanadis, whether it's some of the MPIs that are coming out later in the year will ramp up the revenue growth. And that also impacts our margins to some extent. But I'll let Jamey speak to the margins then.

Yeah. That's what I was going to say. So, 130 basis points of margin expansion in the first quarter, the first half of the year Chris is probably 46% to 47% of our revenue. And so we get a lot more volume leverage in the second half of the year. So if we're in the 120 range already in the first half, we feel very confident in the 120 to 150 for the total year. Thank you.

Okay. And then for my follow-up question, could you just provide a bit more on Europe performance, specifically why end markets were soft there. And do you expect that to remain here for the balance of the year? And maybe just more broadly, are there any major changes to your end market or geographic growth assumptions for the year?

Yeah. I would say the pressure we saw in Europe was largely in the applied markets and also academic. And that really put some pressure on our DAS growth rates. The majority of our Diagnostics business continued to do well in Europe. And so for Europe overall we were just slightly negative. And then your question whether we do think that's going to come back somewhat in the remainder of the year, I think we talked in the beginning of the year of targeting Europe at sort of low single-digits. And we still think that's the appropriate number for Europe.

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

Thanks and good afternoon.

Good afternoon, Brandon.

On the Cisbio deal, could you help us kind of understand what the growth profile of that asset is? And any opportunities you might see to accelerate growth or profitability under the Perkin umbrella?

Yeah. So I would say we're quite excited about this acquisition because we think it's extremely complementary to what we do on drug Discovery. And so I mentioned a little bit in my prepared remarks, but we think with Cisbio combined with our strength in some of the areas particularly around luminescence. And so we do a lot of work around luminescence. They have a very strong fluorescent portfolio of assays. Of course then when you combine that with our automation and detection, we can now go with a fully automated workflow whether it's reagents plates, automation detection information. So all the drug discoveries and I had alluded to before, we're the only company now that can provide all three assay tests for on a homogeneous. So, whether you want to look at luminescence, whether you want to look at fluorescence, or whether you want to look at radiometric. So we think by combining our efforts with Cisbio's capabilities, we can accelerate the growth. And historically they've grown fairly well. So we think this business with PerkinElmer definitely gets into the high-single digits maybe even a little bit better than that. The other aspect I alluded to is I think you know well, we have a very strong imaging portfolio whether it's high content or whether it's in vivo. But generally up to this point we've been principally around in instruments and software and no other firms so sell the cellular imaging reagents that go with our imaging instruments. While with Cisbio's technology and capabilities, we'll be able to expand in the cellular imaging reagents and consumables. And so, therefore, we'll be able to go to our customers with a package with the instruments software and the assays. And I think that further drives incremental growth between the two companies.

Thanks. And just a quick follow-up for Jamey. Could you help us with the impact of currency on the gross and operating margin lines? And any impact on EPS in the quarter?

Yeah. Gross operating margin, foreign exchange was probably about 20 basis points. And on an operating margin it was about 30 basis points with regards to foreign exchange.

Okay. Thank you.

Thank you. And our next question comes from Paul Knight with Janney. Your line is now open.

Paul, we can't hear you.

Hey, can you hear me now, Rob?

Yes, Paul. How are you?

Congratulations on your new IR person.

I understand, he was trying to rob.

Anyway. Hey, Rob can you talk about China. I mean you were one of the early innovators there with SYM-BIO. Is that -- can you also talk about your M&A pipelines specifically in that market? And my next question would be your U.S. penetration now in Diagnostics with your broader product line? Thanks.

Yes. So why don't I take the China discussion I'll pass it over to Prahlad on the U.S. and I assume you're talking mostly with EUROIMMUN on the U.S. penetration? But as you pointed out, we were fairly early in the China market. SYM-BIO brought us some terrific distribution capabilities and then we've added with high wound blood screening in a number of other areas. So -- and of course EUROIMMUN brings a very strong capability in China. So I think first of all looking at the diagnostic side, we feel very good about our capabilities. We continue to look for opportunities from an inorganic perspective to add to that and we invest a lot of time and effort in that regard. And I guess I would say stay tuned on that one. Where we've been a little bit more active recently is on the DAS side. And as you saw over the last sort of year or two, we've been adding some assets on the analytical instruments side. We're looking very active in the applied markets like for areas like food and other areas that are higher growth areas and I'd say very active there and hopefully we'll have something to talk about maybe later this year. Let me turn it over to Prahlad maybe he can talk a little bit about the EUROIMMUN penetration in the U.S.

Yeah. Thanks, Rob. And Paul I think EUROIMMUN continues to do well in the U.S. As I mentioned they got two approvals on celiac markers this quarter. They continued to grow well, they had a major lab victory, which will not only give them instrument penetration but also continued asset penetration over the years. They grew low double digits in the first quarter and we see very good traction for the rest of the year.

Thanks very much.

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

Hi, thanks. This is Dan on for Bill. First on Tulip, it sounds like growth was strong in the quarter. I think you said double digits. Could you just provide an update there? And then any insight on new offerings as well? Thanks.

Yeah. Tulip, again as you said it continues to do well, they had double-digit growth and their pipeline is growing both not just in India, but we are also looking at how do we take the product portfolio out into some of the other emerging markets. So great traction there they had a very good 2018 and a very good start to the year.

Okay, great. Thanks. And then I'm a millennial. So stereotypically, I'd ask about cannabis. Do you guys have any update on what kind of market opportunity you're seeing there?

Yes. So you know we talked in the beginning of the year of the opportunity to probably double that business in 2019. And just a reminder, we did about $10 million last year. So we're -- got to go about $20 million and I would say we saw strong growth in the first quarter and we think we're on -- well on track to at least do $20 million in 2019.

Awesome. Thanks.

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

Hey. Thank you. This is actually Mitch Petersen on for Jack this afternoon. So pretty good growth out of OneSource in the quarter I was just hoping you could unpack that for us a little bit. I know you're expecting to lap some enterprise wins there. And then, as we think about the balance of the year, do you think the high single-digit growth rate from 1Q 2019 is sustainable for the remainder of 2019? Thanks.

Hey, Mitch it's Jamey. Thanks for the question. So yes. I mean, OneSource is going as planned. So we still feel confident in the high single-digits for the year. As we mentioned before, we're looking at some tenders that we think could land in the second half maybe late maybe have an impact to that, but still feel good about it and I think no change in the overall guidance.

Great. That's helpful. And then maybe just to confirm, it sounds like you pulled in half of what you expected from the U.S. government shutdown. Do you expect to recoup the other half of that in the second quarter?

Yes. That's right. It's a -- we got about half in the first quarter. So going back to Steve's point and some of the questions around DAS mid single-digits in the second quarter we get -- that we expect some of that -- the second portion of that to come in the second quarter, which also helps give confidence to mid single-digits for DAS in the second quarter.

Got it. Thanks a lot.

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

Hey, guys. This is Luke on for Ross today. Just real quick a couple of housekeeping ones. Did you break out the -- by your expectations for guidance by segment? I think I missed that one.

Expectations for Q2? Or for the year?

Yes. For 2Q.

No. No. We didn't give the expectations for 2Q. But I think generally speaking probably high single-digits for Diagnostics mid single-digits for DAS is the way to think about 2Q.

Okay. That's great. And I guess on the just sticking with the Diagnostics growth and how strong it's been over the last couple of quarters, how much of that is due to strong market conditions and just high-growth markets speaking of immunodiagnostics et cetera? And how much of that is really your expanding portfolio and kind of everything starting to come together for you guys?

I think it's a combination of both. If you look at it from the reproductive health perspective, I think despite strained growth rates we have expanded the business and that's happening because we are adding new test menus with lysosomal disorders and NeoBase two approvals that have come through. And similarly, on the applied genomics side and EUROIMMUN, we see good traction for those product portfolio in emerging markets. So I think it's a combination of both.

Okay. That's helpful. Thank you.

Thank you. And our next question comes from Derik De Bruin with Merrill Lynch. Your line is now open.

This is Savi on for Derik today. Thank you for the questions. So first question is for the applied market. So I know -- I appreciate the color provided so far, but then some of your competitors caught out some choppiness in the food market, particularly in China. Just wondering if you've seen any of that? If so, when can we expect that to go away? Thanks.

Yes. I would say we probably saw some of that in China. But quite frankly, one of dynamics that are going on in the China market right now as you probably heard from our competitors as well is there is some shifting in testing going from government labs to more private-based labs. And a lot of these private-based labs do more than food. So they will test for environmental and they'll test for food and they may do other types of things. So quite frankly for our first quarter in particular, there may be noise in sort of was it environmental lab or was it a food lab. And so we're still trying to get better color behind that. But clearly, we've seen a little bit of a reduction in food testing as the shift has occurred from public labs to private labs. But we do think it's somewhat temporary and as we think about food for 2019, we expect it will continue to do strong growth in China.

Okay, that's very helpful. Just a follow-up. I apologize if I missed it earlier. Just wanted to get more color on the pacing for the rest of the year. So, anything that we should think about for the rest of the quarters regarding organic growth and margin trends throughout the year just given the more difficult comps? Thank you.

No, I mean as we think about the first quarter, it came in pretty much as we expected. And so we'd say that we think the year is going to play out pretty much as we expected which will be a little stronger growth in the back half. We talked a little bit about that earlier. So, we think our back half organic growth is probably in the 6.5%, 7% range. And then as we think about operating margin expansion, we also think that's a little heavier in the back half. So, if you think about maybe 100 basis points or so in the first half and then stronger growth in the back half so that we average that 120 to 150 for the year. Again that's very consistent with what we talked about in January.

Great. Thanks.

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

Thanks. This is Tim on for Dan. Would you be able to get a little more granular about your applied growth? I know it's low single-digits in the quarter but could you maybe give us a breakout of the industrial versus environmental versus food?

So, industrial and environmental, we really don't sort of breakdown. And again part of that is it's becoming increasingly more difficult with our customer base is it really definitively defined what's being done on from an environmental testing perspective on what's been testing for other things. So, we've sort of put those together. But if you look at industrial and food we think that was sort of low to mid-single-digits. And as I mentioned before food was down largely outside the U.S. U.S. is very strong sort of mid-teens. And if you look at it from a geographic perspective applied was sort of mid-singles in Americas up sort of low to mid-single depending on how you consider the government control the product and Europe was down a little bit. So, low single-digits.

Okay, great. And could you talk a little bit about Cisbio just in terms of your overall M&A strategy going forward? Do you see other deals of this size kind of in the pipeline? Was this a particularly competitive deal? Is this an area where you think you might continue to focus? Just give us a little bit more color there.

So, I would say generally our M&A strategy is sort of consistent with the overall company strategy which is we're trying to drive from an end market perspective into the more attractive end market for us which we think are life sciences food and diagnostics. So, those are areas that we think are very attractive because of the growth profile and also because we think we have some differentiated capabilities in those markets. We're also looking to continue to expand our capabilities globally. So, we've over the last couple of years been focused largely on emerging market growth. And then I would say the third aspect of it is we want to continue to drive our growth into areas that facilitate a workflow. So, obviously, we sell instruments we want to continue to build out our reagent assay and consumable as well as our informatics. So, that's the fundamental larger strategy that we're focusing on. Cisbio hit most, if not all those, obviously, provide a very strong capability in assays increased our exposure to the pharma and biotech market. And while they weren't significant in emerging markets, we think their capability combined with our distribution capability will be able to expand emerging market presence in the drug discovery space.

Thank you.

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

Hey thanks. Rob I guess on EUROIMMUN. I know you said double-digit growth. Can you just talk to how that compares to the full year guidance of 13% to 15%? And can you just maybe unpack China, Germany with the moderation versus U.S. and other emerging markets?

Yes. So, EUROIMMUN pretty much came on track is what we expected. So, I would say EUROIMMUN when I think about the first quarter revenue was pretty much on. And we sort of mention this a little bit in the prepared remarks. We were pleasantly surprise on the operating margin side. They had a nice pickup in operating margin. Some of that is probably timing, because they sold a little less instruments in the quarter - no, sold a little bit more. But we think a lot of it is just better cost focus and cost management. And so we're excited about that, because we think that is one of the big levers to margin expansion as we started thinking about 2019, 2020 and 2021. So I think that's good. With regard to China and Germany, you're talking specifically for EUROIMMUN or for PerkinElmer?

EUROIMMUN.

Okay. So EUROIMMUN had another strong quarter in China, and it was up sort of mid-teens something like that. Maybe even a little bit better than that. I don't know Germany offhand. I can tell you sort of Europe was sort of mid-single.

Okay. And then, on Vanadis, just curious about utilization at some of your early customers? And as we think about how many biochemicals within the labs have enough volume to achieve the €100 cost per test? Can you maybe just talk to how you plan to penetrate some of the lower volume labs?

Yeah. Tycho, this is Prahlad. So the labs that we are focusing on right now, and obviously labs that have larger than, let's say, on average 5,000 tests, and that's where we are seeing a lot of interest coming in from. I think in some of the places or some of the countries where you would have lower volumes. We would probably look at either centralizing it to one lab there that could attract. And there are also facilities where we have our own labs. So that's in Kuala Lumpur or India or in the U.S. where we would look at putting Vanadis.

Okay.

Tycho, just to clarify quickly it was high-single-digit EUROIMMUN in Europe.

Okay. And then, just last one. It came out in the K. I think you guys had about a point benefit 1.3% organic growth from the ASC 606 switch last year. So as we think about that and the context of the underlying organic growth. Are you still comfortable with kind of the high-single-digit targets, that you put out there and the path to get there?

Yeah. We are, Tycho. And just to maybe explain that change last year. I mean the new revenue guidance enabled us to do some things operationally and commercially that we chose to do that was -- we are able to recognize revenue under 606 and we wouldn't have been able to under 605. But had 606 not coming around we still would have -- we just wouldn't have made those changes, and still had relatively the same amount of revenue growth year-over-year.

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

Hey, guys. This is Mike Sarcone on for Dan Leonard. Just a few questions on EUROIMMUN. You had mentioned you're targeting 50% market share in the U.S. by the end of the year. Can you just tell us where you're starting from in terms of market share heading into 2019, and then maybe your confidence level around getting to 50%?

I think just to give you a sense, I think on -- and this is again just to be specific around the autoimmune screening business. We would say that we are somewhere around 30%. And with some of the new forays that we have made in the lab, we think that by the end of the year we'll get to about 50% autoimmune screening.

Got it. And one more on EUROIMMUN. I think on the last conference call you said, you had in the U.S. about 50 tests approved. Where do you stand today?

Yeah. I think we are slightly over 60 now.

Okay. Thank you.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Robert Friel for any closing remarks.

Well, great. Well, first of all thank you for your questions and your interest in PerkinElmer. So we think we're off to a great start this year to continue to drive our mission and continue to create value for our customers, shareholders, and employees. I look forward to updating you on our progress in the coming quarters. Thanks again for joining the call, and I hope everyone has a great evening.

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