Good day, ladies and gentlemen, and welcome to your Quarter One 2016 PerkinElmer Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. As a reminder, this conference may be recorded.

I would now like to introduce your host for today's conference, Tommy Thomas, Vice President of Investor Relations. Sir, you may begin..

Thank you, Esther. Good afternoon and welcome to the PerkinElmer first quarter 2016 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 the copy of our 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 May 19, 2016.

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 in any of today's forward-looking statements as representing our views as of any other date after today. During this call, we will be referring to certain non-GAAP financial measures.

A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is also 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'm now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Rob?.

Solid financial performance, particularly in the areas of margin expansion; good progress on focusing our investments in the most attractive growth areas; the advancement of implementing a multifaceted approach to improve operational effectiveness; and lastly, the return of 50% of our forecasted free cash flow this year to our shareholders.

As we move ahead, our strong first quarter momentum reinforces our confidence in the growth investments we are making, our ability to meet our financial targets and our success in serving our customers around the globe. I'd now like to turn the call over to Andy..

Thanks, Rob, and good afternoon, everyone. Consistent with previous quarters, I'll provide some additional color on our end markets, a financial summary of our first quarter results, as well as details around our second quarter and full-year outlook.

Starting with the first quarter, we were very pleased with our strong start to the year, as solid execution on a number of key initiatives afforded us the opportunity to make a meaningful investment across a number of new growth opportunities, and still deliver solid financial results.

For the first quarter, adjusted revenues were $539 million, representing organic growth of approximately 4%, while FX negatively impacted revenue growth by approximately 2% or $10 million. Adjusted earnings per share was $0.56, up 12% from the comparable period a year ago, and $0.06 per share above the midpoint of our guidance range.

The strong operational performance contributed approximately $0.05 per share of the beat and was primarily the result of volume, favorable mix and price as well as the incremental impact from our Lean and productivity initiatives.

Non-operating items contributed approximately $0.01 per share versus our guidance and were comprised of a lower share count and favorable FX, each of which contributed approximately a penny, but were partially offset by approximately a penny resulting from a slightly higher tax rate in the quarter.

I'll go into a bit more detail on several of these items later in my prepared remarks. As Rob mentioned earlier, the trends we saw through the latter part of 2015 largely continued through the first quarter of 2016.

Looking at our end markets, we continued to see healthy demand from pharma and biotech, stable academic and government spending, as well as strong demand for food and environmental applications. Our product mix was also balanced with consumables, reagents and instruments all growing mid-single digits organically.

Looking at our geographic results for the first quarter, our overall performance was balanced as we experienced high single digit organic revenue growth in Asia, mid-single digit growth in Europe and low single digit growth in the Americas.

In the BRIC economies, first quarter organic revenues increased high single digits compared to the same period a year ago, driven by strong China results, more than offsetting continued weak demand in Brazil and Russia. Overall, our emerging market demand has remained resilient.

We are pleased with our solid results in China, as organic revenues grew double digits in the quarter with broad-based strength from both our Human and Environmental Health segments.

Our Haoyuan blood screening business had another strong quarter of tender wins, while Haoyuan instrument placements completed in the second half of 2015 are now beginning to drive reagent demand.

On the Environmental side, strength in food and environmental testing solutions were the key contributors of Environmental Health's solid performance in China.

As to our operating results for the quarter, adjusted gross margins were 48%, up 30 basis points, driven primarily by the success of higher margin new products, successful pricing and Lean initiatives and volume leverage. We continue to be encouraged by the traction we are seeing from our Lean activities.

Adjusted SG&A was 25.1%, down 80 basis points over the same period a year ago, driven by productivity actions and the ongoing success of our indirect spend initiatives.

As we guided for the full year 2016, our first quarter reported research and development spending was higher by approximately $2 million as compared to 2015, driven by core investments in our four strategic initiatives, along with R&D funding supporting Vanadis, as we announced last quarter, Overall, we were very pleased with our operational performance and execution in the first quarter of 2016, as we expanded adjusted operating margins by approximately 100 basis points on top of our incremental R&D investments.

Looking below the operating line, first quarter net interest and other expense was $11 million and our first quarter adjusted tax rate was 21.5%. The higher tax rate was a result of the geographic distribution of profits and had a negative impact on adjusted earnings per share of about $0.01 in the quarter.

We still expect our full year tax rate to normalize over the balance of the year to approximately 19.5%.

Consistent with our comments in February, we completed the buyback of 3.2 million shares of the company's stock for a total consideration of $148 million during the quarter, leaving 2.7 million shares remaining for repurchase under our current board authorization.

The timing of the acquisition of these shares was modestly accelerated and will have a positive impact of approximately $0.01 per share for the year.

Turning to the balance sheet, we finished the quarter with approximately $1.1 billion of debt and nearly $210 million of cash, and we exited the quarter with a net debt to adjusted EBITDA ratio of two times.

Operating cash flow for the quarter was $32 million as compared to $38 million in the same period last year, due primarily to the timing of payroll and benefit expenses, as well as higher working capital requirements supporting future new product introductions.

For the year, we remain confident in our ability to deliver our adjusted free cash flow commitment of $300 million. Turning to our segment results for the first quarter, Environmental Health organic revenue grew approximately 5%, with Human Health increasing 3% as compared to the same period a year ago.

From an end market perspective, our Human Health business represented approximately 62% of adjusted revenue for the first quarter of 2016, with Diagnostics representing approximately 29% of adjusted revenue, and Life Sciences Solutions representing approximately 33% of adjusted revenue.

First quarter organic revenue growth from our Diagnostics business was driven by healthy mid-single digit growth from our core diagnostic franchises, partially offset by a mid-single digit decline in medical imaging.

We continue, however, to see increasing demand for a number of new CMOS applications as the team continues to successfully diversify the medical imaging portfolio. Organic revenue in our Life Sciences Solutions business grew low single digits in the quarter, while core research grew mid-single digits.

Pharma and biotech continue to be the key contributors, both growing high single digits. Growth was broad-based globally with continued strengths from our OneSource service franchise. We continue to experience solid demand for core products with particular strength in reagents, which grew at a double digit rate in the quarter.

We've also been very pleased with the demand for our new product introductions including our high content screening platform. Moving to our Environmental Health business, which represents approximately 38% of adjusted revenue, we are pleased to report that revenues grew 5% organically for the first quarter of 2016.

Our results benefited from the timing of strong demand in our Food and Environmental Testing Solutions; however, we expect this growth rate to moderate somewhat in the second quarter.

We continue to be delighted with the performance of Perten and the positive customer feedback we've received on their new in-line testing solution for moisture measurement.

As Rob mentioned, we expanded our food analysis franchise through the recent acquisition of Delta Instruments, a provider of analytical equipment and solutions for the dairy market.

Looking at segment margins, Environmental Health margins expanded 470 basis points, as strong mix, prior year restructuring actions and solid operational execution were key contributors to this performance in the quarter.

Human Health margins were 21.2%, a decline of 80 basis points, largely due to planned growth investments and mix, partially offset by the positive impact of pricing initiatives impacted at the end of last year.

Looking ahead to the second quarter of 2016, we believe we are well positioned to deliver another solid financial performance with continued stability in a majority of our end markets.

For the second quarter of 2016, we are forecasting reported revenues to be in the range of $570 million to $575 million, which represents organic revenue growth of roughly 4%. Second quarter 2016 adjusted earnings per share is expected to be approximately $0.65 to $0.66.

For the full year, we now believe our organic revenue growth will be approximately 4% or $2.32 billion.

Looking at margins for the year, we now expect gross margins to expand approximately 70 to 80 basis points and operating margins to expand 60 to 80 basis points, with R&D continuing to represent a year-over-year headwind of approximately 40 basis points.

Regarding our adjusted earnings per share outlook, we are increasing the midpoint of our full year adjusted earnings per share guidance range by $0.10. The $0.10 increase is comprised of our first quarter outperformance of $0.06 per share coupled with an estimated $0.04 per share from a more favorable foreign exchange.

As in prior quarters, the methodology for calculating the impact of foreign exchange movements on our operating results is based on an average of FX rates over the last month of the quarter, and we will continue to be transparent as to the impact of foreign exchange on our operating results as we move through the year.

And finally, the impact from the acceleration of our share repurchase in the first quarter is expected to essentially offset the dilution from the sale of the NTD lab services business, which was a little over a penny.

As a result of these factors, we are increasing our full year earnings per share guidance from the range of $2.65 to $2.75 to a new range of $2.75 to $2.85 with the midpoint of $2.80. As always, when assessing our adjusted EPS guidance range, you should focus on the midpoint as the most likely view of how we see our results playing out.

This concludes my prepared remarks. Operator, at this time, we would like to open up the call to questions..

Thank you. Our first question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is now open..

Hey guys. This is actually Bill March on for Paul.

How are you guys doing?.

Good.

How are you?.

I'm doing well. Thank you.

First question, maybe if you could in terms of capital deployment, with the acceleration of the share buybacks in the quarter, maybe a little bit insight or color around what you see for the rest of the year?.

So, I would say, as I mentioned in the prepared remarks, our view is, we would hopefully be able to get something done from the standpoint of a bolt-on acquisition. I mentioned the fact we feel good about our pipeline of opportunities. And so, that's our first preference.

But clearly, if we are unable to get that done let's say over the next nine to 12 months, then I think we'd probably look to continue to buy back shares..

Got it.

And then maybe just in terms of China, I know heading into the year, you were seeing, say maybe as going from double digits to high single digits growth, maybe an update on that outlook and how both sides of the portfolio are tracking?.

Yeah. So, I would say, we continued to see very strong growth in China. China for us, in the first quarter was up sort of mid-teens, and it was very broad based. So, both on the Environmental side as well as the Human Health side, we saw a double-digit growth in the quarter.

And even within if you looked in Human Health, it was broad-based between sort of diagnostics and research. So, we continue, I think, to enjoy the advantage of being in some very attractive markets from the standpoint of the funding of the Chinese government, and again, I think this was reinforced with their recent five-year plan..

Got it. Thanks. Have a good night..

Thanks..

Our next question comes from the line of Steve Willoughby with Cleveland Research. Your line is now open..

Hi, good evening, guys. Thanks for taking my question. First, just on free cash flow, it was down a little bit year-over-year. Just was wondering, are you still expecting roughly $300 million of free cash flow for this year? And then, I have a follow up..

Yeah, sure. I – well, let me tell you a little bit about free cash flow. I mean, first off, the primary driver of the difference year-over-year was the timing of our payroll. That'll normalize in the second quarter. We did have some additional working capital; as you guys remember, we had a very strong fourth quarter.

There was a little bit of build of working capital; some of that was in support of new products that are going to be coming out in the second half. But as I said in my prepared remarks, we are still committed to a free cash flow of $300 million, which is essentially one times our adjusted net income.

And one thing I'd like to add just as a clarification. When I was doing my prepared remarks, I was handed a note. I said our full year revenue – we were going to be $3.23 million – that should be $2.32 billion; just wanted to make that clear..

Okay. Thanks so much. And then, just following up on a comment from Rob. Rob, you made a comment about the potential to expand revenue growth beyond mid-single digits. I was just wondering if you could provide a bit more color there because that would obviously imply a step-up from what the company has done historically..

Yeah.

And I think just goes back to conversation maybe we started a couple of quarters ago, where we said strategically what we want to do is disproportionally invest in those – and I think we've identified four key areas – where we see both more significant opportunities to grow the topline and the profitability of the company, and where we think we have a very strong shares and core capabilities.

Just to give you an example, if you look at about 75% of our revenue in the quarter, it would've grown high single digits; and largely in the areas that we've sort of identified as those higher growth areas. So, we've got a situation, where is, we're going to continue to invest in those and hope those – to make those a bigger portion of the company.

And then obviously over time, we think the overall growth – organic growth – could hopefully average up to a higher number. Now, this won't happen in the next quarter or two, but we think, as you look at it in a couple years, our goal here is to get from mid-single digits to maybe high single digits..

Our next question comes from the line of Isaac Ro with Goldman Sachs. Your line is now open..

Thanks. It's actually Joel in for Isaac.

Could you guys provide any update on the timeline of the commercial rollout of your NIPT initiative? And then any comment on whether the divestiture to Eurofins played into the strategy in anyway?.

So I would say, in reference to the Vanadis, it's still very early days. We've owned the company now for probably four months. And what I would say is first of all, we're very pleased with the individuals and the team. We're on track relative to our milestones given that it's only been fairly early.

And I would say, the one area where I think we continue to be very pleased with, we saw some good synergies both on the imaging side with our imaging people out of Hamburg as well as in the chemagen sample prep.

So we think – we were pleased that over the last couple of months – we were able to confirm what we thought were significant opportunities to get some synergies from our capabilities as well as theirs.

So, I would say, still early days and this is probably something that will not be a significant revenue until late 2017 or early 2018, but indications on track. I would say, with regard to the NTD divestiture, that was really, I would say, somewhat different.

And I think what to a large extent drove that was sort of a strategic decision that as we continue to look at services with, I'll call it regulated services within U.S. or U.S. testing labs, it just didn't seem like a strategic opportunity for us for a number of reasons. One is, fairly significant regulatory and compliance infrastructure required.

So, we had a lab that was sort of less than $20 million in revenue and was requiring a fair amount of infrastructure on a regulatory and compliance cost. By selling NTD, it effectively eliminates all our exposure to either federal or private payer reimbursement, and so that was a big consideration.

The other thing was, as we thought about our customers would be better served by a company with a broader capability and, quite frankly, a stronger commitment to the U.S. services market. And then finally, I think.

And maybe this is somewhat related to the Vanadis development is, as we ultimately develop new products and new capabilities in that marketplace, we want to be able to offer that to more channel partners. And so, I think it was a combination of all those that led us to conclude that it makes sense to sell the NTD lab services..

And then, maybe turning to food safety, how are you guys thinking about the underlying market growth rate there? And then, just given your investments and the commentary on the tuck-in pipeline, what type of margin should we be expecting from these bolt-ons, and then maybe from this business longer-term?.

So, I would say we feel very good about the opportunities in both the food safety and the food quality analysis area. And as we've sort of talked about in the past, Perten has been sort of growing sort of high single digits. And we actually saw a little stronger growth than that this quarter, so we continue to be very bullish on the food area.

And we are excited about the Delta tuck-in. While it wasn't a large acquisition, it did bring us some good capability around flow cytometry, and it actually is used for looking for bacterial infection in milk. And when you think about the connection with Perten, they both have sort of common customers as well as a very common business model.

So we think the margins in those businesses can be sort of high teens, low-20%s..

Our next question comes from the line of Matthew Mishan with KeyBanc. Your line is now open..

Hey, good afternoon, and thank you for taking my questions..

Sure..

Hey, I think, you called out two different growth rates in LSS – one for LSS as a whole and then, the other one for core research – and I just like – I was thinking, what's the difference?.

Within LSS as a whole, we have core research and informatics and service. And so, the core research grew at a mid-single digit rate; when you combine the three pieces, it grew at a low single digit rate. Informatics had a very difficult comparison in the first quarter and that's really what drove the difference between mid and low single digit..

Okay, great. That's helpful. And as you talk about potentially simplifying the business and focusing on four key areas, I know previously you've talked about radio chemicals being a flat to down business.

What's the size of that now and has that continued to decline or has it stabilized?.

So, it continues to decline a little bit sort of low single digits. I would describe that as a business that declines from a volume perspective and we continually try and get price, so we offset some of the volume decline with price. But it's a business that probably declines low to mid-single digits on a sort of an annual basis.

And right now, it's $80 million to $85 million in revenue..

Our next question comes from the line of Derik de Bruin of Bank of America. Your line is now open..

Hi. Good afternoon..

Good afternoon..

Hi, Derik..

So, good margin expansion, good progress there. I'm just curious, as you start thinking about – on the out years – and I'm making the assumption that the economic malaise and the slower growth environment won't last forever. So, you did 4% organic revenue growth, 12% EPS growth this quarter.

What's the model to sort of think about going forward on this? So if we get back to 5% to 6% organic revenue growth, what does that sort of contribute to on the EPS growth and EBIT margin growth, when we look out?.

I think what we've said longer term is sort of mid-single on the topline and probably mid-teens on the bottom..

Is that – was that inclusive of the share buybacks?.

Yeah. Well, it probably is not inclusive of capital deployment, whether that's share buyback or acquisitions. I would say that's the fundamental sort of operating rhythm of the business. So, if we can grow the topline, call it 5%, we think we can probably get mid-teens on the bottom line.

And then, capital deployment would be additional, whether that's bolt-on acquisitions or share buybacks..

Great. And then just sort of one follow-up from a bigger picture's perspective, I know, obviously the new China five-year plan is focused on a number of areas, like environmental and food where you are.

There's also clear evidence of the Chinese want to build out their Life Sciences businesses and they're trying to do some acquisitions in some certain areas and this is – I'm just wondering – are you seeing any sort of threat from internal development in China, technologies being acquired, things being copied.

I mean, how do you sort of – what do you sort of think is the outlook for that considering that – I'm not going to say that some of the instruments in that market are not high-tech, but I don't know if you need the latest cutting edge instruments for some of those areas.

Just your thoughts on the Chinese competition question?.

Yeah. So, I would say, if it's specifically around the research market, I would say we don't see a lot of copied, because quite frankly – ours, I think, I would put in the high-tech category, right? I mean, when we think about our research products, it's cellular imaging, it's high content imaging, it's fairly sophisticated technology.

So, we do not – or we haven't up to this point run up against local competition..

Our next question comes from the line of Jack Meehan with Barclays. Your line is now open..

Hi. Thanks. Good afternoon. Rob, I just want to start and – you guys put up a nice first quarter – the tone at the beginning, a little bit more muted.

At this point of year, is this just caution around everything we see in the press or is there anything else that you're keeping an eye on specifically?.

Well, I would say, if you're talking about caution maybe from a topline perspective, I think a lot of it is, again, if you just look at some of the macro factors out there, there's a lot to be concerned about from the standpoint of PMI, whether you look at the global number or whether you look at the U.S. numbers, it's a little bit.

But we've – I think global PMI was the second weakest reading during the last 40 months, down to like 50.1. Production growth slipped to a 16-month low in the European Union. So, I mean, there's a lot of economic numbers out there that gives you a little bit of concern.

Contrast that with, I mean, we feel good about our business and we continue to like the areas we operate in. But I just think when you look at some of the economic indicators out there, there's – it's prudent to be a little bit cautious..

Yeah, that's fair. And then, just one more on what you're seeing in terms of the underlying birth rates maybe in different geographies. Have you seen China start to show some improvement? And then, everybody's favorite topic, Zika, whether you've seen that in any particular markets as well? Thanks..

I would say in the case of China, our people there are suggesting that probably something in high single, low double digit is what we would expect from a birth rate. In the U.S., we're seeing something in the sort of 1% to 2%. And I would say, clearly in Brazil, we've seen a dramatic drop in the birth rate there.

Now, it's not a huge business for us, but we're seeing probably a 30%, 40% drop in birth rates in Brazil. And now offsetting that to some extent, I mentioned the fact that we are selling some of our research products into that analysis, but clearly that's impacting us in Brazil more specifically and a little bit in the South America area..

Our next question comes from the line of Mira Minkova with Stifel. Your line is now open..

Yeah. Good afternoon, guys. Thank you for taking my question. Let me go back for a moment to the very strong Environmental business performance in the quarter. It was pretty impressive, particularly that early in the year. Can you maybe give us a little bit of more context behind of – besides food testing.

What did so well in the quarter, how sustainable is it and in the context of your cautions commentary in industrial markets last quarter, how did industrial do? And I do have a follow-up..

So, I would say, there was – I would say sort of three drivers to the Environmental strength. One was food; the other was sort of Environmental generally, so more in the sort of air and water area was also a good grower. And then I would sort of spike out China specifically; I talked about the fact that China was double digit growth for us.

So, those are the sort of three big drivers. If you look at industrial specifically, it was down low single digits, and I would say the driver to that was, one, very difficult comparison, so it was up high single digits in Q1 of 2015.

And then the other area was we saw a little bit of weakness in what we would call sort of material characterization, which is largely in areas like polymers, maybe a little bit in sort of paints and chemicals. And I would spike that out from the sort of product perspective.

Whether it's sustainable or not, I would say we are not forecasting that type of growth to continue in the year. I mean, I would say that we think Environmental sort of moderates probably more to a lower single digit growth, as we look at in the sort of second, third and fourth quarters..

Okay. Thank you.

And on the gross margin, to what extent was the improvement driven by your Lean initiatives or the Lean program, and when might we see a bigger impact from Lean?.

I think you're going to see that impact from Lean grow as the year progresses. We've said most of our gross margin impact is really going to occur in the second half of the year as these initiatives are rolled out. I think the Lean initiatives probably were about a third of the improvement in the first quarter.

I think we did have some pricing initiatives within our Human Health business that contributed another piece and then the incremental volume was probably the third piece.

I think you're going to start to see the Lean initiatives and the productivity initiatives being implemented, within operations, start to accelerate in the second, third and fourth quarters. And as we said, we think our gross margin expansion for the year will be somewhere in the 70 to 80 basis point range.

So, being 30 in the first quarter, you can see, it's a fairly rapid acceleration through the year..

Our next question comes from the line of Dan Arias with Citibank. Your line is now open..

Hi, guys. This is actually Brian (40:05) on behalf of Dan. Just jumping a little bit further into EH, I thought it was interesting how strongly the op margin was in the quarter. Correct me if I'm wrong, I think it might be the strongest in at least over five years.

So, I just kind of want to see how that run rate goes or should pace going forward, especially in light of the weak China renminbi, et cetera, and if you can give any color around, if that had a drag on EH performance?.

Yeah. So, I would say, again, going back to some of the comments we've made previously, where we said we wanted to be very focused in investing in where we saw the greatest growth opportunities.

At the same time, we wanted to make sure that we were getting our cost structure appropriate for what potentially could be a slower growth in some of the other areas. So, you may recall that in the back half of 2015, we took some restructuring actions in the Environmental Health area.

And so, I think they've got a cost structure now that hopefully will allow us that margin performance that you saw in the first quarter should be sustainable through 2016 and going forward..

Was there any net dilution from the renminbi there that dragged down results given the highest revenue...?.

No, not material..

Not material..

Okay.

And then lastly from me on the services side, is there any large contracts that are coming up this year and can you give us any color across the board on retention rate or at least how retention...?.

I would say in any given year, there are some large contracts that come up – would rather not get into those specifics – but I would say these are generally three year contracts, so in any 12 months period, you're going to get some big ones. Our retention rate generally is very high. I would – so call it north of 85%..

Our next question comes from the line of Ross Muken with Evercore. Your line is now open..

Good afternoon guys. So, I just wanted to clarify..

Good afternoon, Ross..

On the paddles business, can you just kind of provide us with sort of your thoughts on the pacing for the remainder of the year? And obviously, there's been some mix challenges in that business, how you're sort of thinking about the medium-term growth outlook for that sub-segment even though it's small?.

I think as – I think we alluded to it a little bit – it continues to have a little bit of a headwind. It was down low single digits in the quarter. I think that's probably going to be the case in Q2 again, maybe even a little bit more than that, maybe high single digits. I think as we get to the back half of the year maybe that improves a little bit.

But I think our belief right now is for 2016 that's probably flat to down low single digits. And it's just facing some very challenging short-term market headwinds, but at the same time it's got a great team and they continue to execute well.

So, the profitability, even given the headwinds from the topline, they continue to sort of operate it – operating margins above the corporate average.

And the challenging thing, you know Ross, that this is the one business where we're component supplier, and obviously, selling into the large hospital CapEx market, it just – unfortunately a little more volatile than the overall portfolio – but bottom line, it's a good business..

Fair.

And then Andy, I don't know if I missed it, what's your view on cash conversion for the year?.

We – we're still committed to our delivering one times adjusted net income, which is essentially $300 million. And I had talked earlier about that we had a very strong finish to the year, which did impact us a bit in the first quarter. Most of it is timing, and we've already seen some of that reverse.

We had some higher inventory builds for supporting some new products; we think that'll flow through. So, at this point, there's no reason to think we shouldn't be able to hit that one times adjusted net income or $300 million..

Awesome. Thanks..

Our next question comes from the line of Doug Schenkel with Cowen & Company. Your line is now open..

Hi. Good afternoon..

Good afternoon..

Last quarter, you positioned 2016 as an investment year. You did that coming off a quarter where you came up a bit light of your expectations. You set revenue guidance at a pretty low level for the year. Three months later, there's a bit more operating leverage in the quarter than expected and you're bumping growth guidance.

So, while R&D investment did grow, I think, it was about 5% in the quarter, I am wondering if you held back on investment in the quarter at least early on, given the uncertainty and concern that you acknowledged back in the Q4 call in February? And now as we look ahead, given that you grew better than expected in the quarter and you guided up expectations, should we expect investment to ramp from here and maybe even more so if you see more upside? I guess I'm just trying to figure out if we're getting ahead of ourselves given that while you did beat Q1 expectations, organic growth was still only 3.5%, 4% against a favorable comp, which I know you want to do better.

And while bumped-up guidance is definitely a step in the right direction, it's still only for 4% growth.

So, I am just – I guess wondering – whether you feel comfortable at this point ramping up investment pursuant to objectives?.

So, there's a lot of questions wrapped into that comment. So, first of all, we didn't hold back any R&D. I mean, to some extent, we knew it was going to be ramp up in – during the year anyway because you're sort of hiring the people and sort of spending the money.

But, what I would tell you is, while it looks like our R&D went up roughly $2 million in the quarter, actually it went up $4 million in Human Health and it was down a little bit in Environmental. So, we've been ramping up fairly significantly.

I would say the difference between three months ago and now is not necessarily the fact that we slowed down R&D – and I think Andy alluded to this to some extent – it's actually we're seeing the benefits of our productivity and Lean initiatives sooner than we thought. And I would say that's the fundamental reason why we beat in the first quarter.

And that's why we felt comfortable taking the entire beat in the first quarter and flowing it through. But to your point, with regard to will we continue to invest? That's the plan and we continue to expect that in 2016, R&D will be 40 basis points higher as a percentage of revenue than it was in 2015..

Okay. Rob, that's super helpful.

And if you actually track ahead of plan again at the topline over the next couple of quarters, should we think that you're more likely to reinvest that, given some of the things you're excited about in terms of growth drivers for the out years? Or should we expect kind of a normal balance of reinvestment as well as letting it flow through?.

I think there'd be probably a normal balance. I mean, there are obviously – there are some things that we'd like to do – but one of the things I think I mentioned in the beginning of the year was, we purposely wanted to take our R&D up because we saw some terrific opportunities to invest it in. So, where we saw the opportunities, we're funding them..

Our next question comes from the line of Jon Groberg with UBS. Your line is now open..

Hi. This is actually Harris on behalf of Jon, appreciate the question. Kind of a follow-up to your comments earlier on NTD.

As you continue to refocus the portfolio, can you walk us through maybe more broadly, everything in that, which product lines make sense for PerkinElmer versus divesting and how far along would you say you are in that process?.

Well, I don't know that I want to get into specific businesses, we're either going to keep or sell on the call, quite frankly. But I would say, we have discussions continually with the board regarding whether we're the right owner of the assets. And I would say, right now as we sort look across the portfolio, we think we're right owner.

However, if a better owner is willing to pay us a strategic premium to be the better owner, we're willing to look at those types of things. But I think I sort of articulated why we thought NTD made sense to sell, but as of right now, all the businesses we have we think make sense in the portfolio..

Great. Thank you..

Our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open..

Hey. Thanks. A couple on the international front, I want to start with Japan. Your commentary there seems a little more cautious and maybe some of the peers that are kind of guiding for status quo to maybe a slight improvement.

So, wondering kind of what's behind that? And then in Europe, we had another negative data point from one of the smaller cap tools companies tonight on equipment in Europe.

Just wondering what the risks are to that business? And then lastly in China, I didn't hear you quantify what you thought the government tenders on that could do this year, but if you can give any color around that, that would be helpful..

Okay, let me go through. So in Japan, I mean, we were down sort of low-mid single digits in Japan; that's better than what we saw in 2015, but we're still concerned. I think what we've said in the past is, at least in the latter half of the year, we get easier comps. So, I think our view for Japan right now is sort of flat, maybe down a little bit.

For us, we're seeing pretty good strength in Environmental, but continued headwinds in Human Health. And a lot it is because we think the academic funding is still not flowing. So, we will continue to be cautious on Japan. But like I said, I think it probably gets better in the second half of the year.

Your question on China with regard to the blood screening, I think as Andy talked about, we had a very strong quarter there. And I would say when we think about 2016 versus 2015, we think that business at least doubles.

And I think we've said in the past, that we think over the next couple of years, it's a $50 million business; we think we're well on track to achieve that. So, again, we feel very good about that business. We feel very good about the traction that business is getting and we feel very good about the percentage of tenders we're winning.

Your other question I think was around Europe and was it specifically on product, tell me again, Tycho..

Yeah.

It was just more on equipment in Europe, I mean, we have two negative data points from tools companies that have missed on system sales in Europe, so I'm just wondering what – if there's any risk to kind of your outlook there?.

Europe for us was sort of mid-single digits and it was fairly even balanced between Human and Environmental Health. I think probably service grew a little faster than products, but I mean, nothing more than just sort of the overall macro concern that we I sort of highlighted before.

If you look at some of the data coming out on the sort of production growth in the PMI, it makes you a little cautious. But I think we still feel like Europe's stabilized and should grow in the sort of low to mid-single digits..

Okay. Thank you..

Our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is now open..

Great. Thanks. Good afternoon. I guess first question, you mentioned the birth rates are down historically in Brazil 30% to 40% as a result of Zika. Obviously, it's an unknown here in the U.S.

in terms of how this could expand, but there is some data out to suggest that you could be looking at multiple mosquito species as vectors and so, how are you guys thinking about that as it relates to the potential impact on overall screening in the prenatal space? Thanks..

Yeah. I would say we're not really factoring that in in any sort of forecast. I mentioned that I think in the U.S., it was up 1% to 2%, and I think that's what we've assumed in our forecast. We'll see. If that starts to have a more dramatic impact and we see birth rates decline a little bit, we'll sort of adjust accordingly.

But I would say right now, that's not our assumption..

Okay. Got it. And then, thanks for the color on the blood screening – Tycho's question.

Do we have a target for when this should be fully penetrated within the China blood collection...?.

I don't know that it'll ever be fully penetrated because I think it will continue to grow. But I would say probably 2017 is the – is where – you'll probably see sort of a slowdown in instrument placements. But you'll still continue to see sort of reagent growth there, we believe..

Our next question comes from the line of Jeff Elliott with Robert W. Baird. Your line is now open..

Yeah. Thank you. Andy, just a question on the pricing environment. I think you said, strong pricing in Human Health, but I guess, could you give an update more color there and how about pricing in the Environmental side? Thanks..

Yeah. I would say, we typically across PerkinElmer, get pricing specifically around reagents and consumables and some pricing around service. Instruments have been a little bit more of a struggle.

On the Human Health side, we implemented some new pricing programs and some discounting programs within our sales organization late in the fourth quarter last year, and we've rolled those out across geographies and we're starting to see the traction, first in the U.S., and we think we'll start to see traction in Europe and Asia to follow.

But that's really where it's been focused. I think we'll probably take some of those learnings and port those over to Environmental Health as well. So hopefully, we can see some upside there.

But I'd say, right now, in the consumables and reagents, we do get price typically, and then, of recent which I spiked out, we got some product price on the Human Health side..

Yeah. I would say, I think we were a little bit pleasantly surprised by some of the price that was sticking. And we think to some extent, hopefully that speaks to the differentiation nature of some of the new products we are rolling out.

So, I think a lot of times when you look at your ability get price, I think that hopefully reinforces the competitive nature of the product. And so, we saw it on a research side; later this year, we're looking to come out with some new products on the Environmental side and hopefully use that as a way to get some price.

But I would say on the Environmental side, the price continues to be a little challenging until we get some more of the new products out into the marketplace..

Got it.

And then, can you break out how much you got from new products in the quarter, how much revenue?.

It was about – what we would calculate is about $18 million..

Okay. Great. Thank you..

Okay..

Our next question comes from the line of Bryan Brokmeier with Cantor Fitzgerald. Your line is now open..

Hi. Good afternoon.

Could you provide some color on your microfluidics business, particularly around, if you're seeing a disproportionate penetration of bench-top sequencers versus some of the higher throughput NGS systems? And in what types of labs are you seeing the most interest?.

So the microfluidics business did quite well in the quarter. I think it was up high single digits. I would say it was fairly broad-based. So I think we saw that growth across. I mean, I don't know that I can give you specifics into what types of labs that went into, but I would say we continue to see good growth in the microfluidics.

And clearly, the NGS labs is a targeted area for us, but I couldn't give you the split..

Okay. And you seem to have – I think a lot of your businesses had pretty solid growth.

I don't know if you really talked a lot about where you're the most surprised, either positively or negatively? Could you get into that?.

Well, I mean on the topline side, we really didn't beat by that much, so I wouldn't say there was a lot of surprises. We spiked that a little bit on food, so food was probably a little bit better than we thought. And also I would say China probably came in a little stronger than we thought.

But relative to the topline, we were maybe a little bit better, but not significantly.

I think the real surprise this quarter that we talked about was really on the margin side and I think that really relates to the fact that we're starting to see the flow-through of some of the actions that we put in place, latter part of 2015, a little sooner than we thought..

Our next question comes from the line of Dan Leonard with Leerink. Your line is now open..

Thank you. Rob or Andy, I was hoping you could give us an update on how to size your newborn screening exposure around the globe.

So how much of your business is exposed to Brazil versus North America versus elsewhere in your newborn screening?.

Brazil newborn for us is in the – it's less than $20 million..

Okay.

And Rob, can you talk about where ViaCell fits into the business now? I believe part of the rationale back when you acquired that company, was that there were some synergies between ViaCell and in NTD in terms of call point?.

Yeah, I would say, first of all, ViaCell in some instances, a stem cell transplant is a cure for some of the things that we uncover in our newborn screenings. So, I think there is a good tie there, and I think first of all, it ties well into our mission from the standpoint of Human and Environmental Health, so I would say that.

And I would say cord blood is an area that I think for 2016, we believe there may be some opportunities here that – to see some nice growth. We've been participating in some studies and we could see some positive movement here in cord blood, I think, in the foreseeable future..

At this time, I'm showing no further questions. I would like to turn the call back over to Rob Friel, for closing remarks..

Great. Well, first of all, thank you for all your questions. So, let me just summarize and say we feel great about our progress year-to-date and look forward to continuing to strengthen and expand the PerkinElmer brand across markets and among our customers.

And our hope is that in the future we'll continue to make an even greater impact around the globe. Thank you for your continued interest in PerkinElmer and have a great evening..

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