Good day, ladies and gentlemen, and welcome to the PerkinElmer First Quarter 2017 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 is being recorded.

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

Thank you, Belinda. Good afternoon and welcome to the PerkinElmer first quarter 2017 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 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 being archived on our website until May 18, 2017.

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 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'm 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 on PerkinElmer's strong start to the year in which we delivered a solid financial performance and made good progress on accelerating our long-term profitable growth.

Through the first three months of this year, I'm encouraged by the progress we're making to further differentiate our capabilities by introducing innovative new products while also improving how we provide a better and more complete customer experience. Andy will cover our financial performance in detail.

But at a high level, we exceeded our revenue and profitability expectations as organic revenue grew by 4% during the first quarter and adjusted earnings per share increased 10% to $0.55.

As you recall, at the end of the third quarter of last year, we announced the realignment of the company into our two business segments of Diagnostics and Discovery & Analytical Solutions or DAS. The intention was to better position PerkinElmer to more effectively serve and innovate for our customers.

Now, six months into the reorganization, we are pleased with the number of improvements we've made from a leadership, process and capability standpoint. R&D teams are coming together to drive more targeted and collaborative innovation.

And the new united, unified front-end sales and service teams are actively selling complete solutions across the portfolio to holistically meet customer needs, an important differentiator for PerkinElmer.

Specifically in the Diagnostics business, we're working to increase our leadership positions in the key growth areas of reproductive health, infectious disease and oncology. During the first quarter, we launched two new products to facilitate targeted sequencing and detection of genetic variance to aid in oncology and genomics research.

In particular, using Amplicon Studio, we continue to release new sequencing panels for our customers on a catalog and customer basis – and custom basis. And our new NEXTflex control system helps detect contamination as well as human and sequencing process errors.

We also announced a relationship with 10x Genomics to combine our high throughput automation platform to create a compelling workflow for long-range structural cellular information. In the area of infectious disease testing, we closed our acquisition of Tulip Diagnostics in India at the start of the year and the integration is well underway.

Tulip brings a strong product portfolio, channel access and broad footprint that will help accelerate PerkinElmer's growth in this important market. In China, we continue to expand our infectious disease menu. And during the first quarter, we introduced a new assay for hepatitis B surface antigen and a PCR-based hepatitis C assay kit.

Within reproductive health, we expanded newborn screening programs in the first quarter particularly in emerging markets. In China, greater penetration of mass spec and the increasing adoption of our automated GSP screening solution is enabling an expansion of the menu of tests administered to newborns.

In India, where newborn screening occurs less than 5% of the time, we continue to make progress on expanding pilot programs. In addition, we are seeing strong interest from private sector commercial diagnostic labs in offering our screening technology, potentially accelerating our penetration of this significant opportunity.

Additionally, we continue to be excited about our Vanadis Smart NIPT technology currently in development. The program reached key milestones in the first quarter as we have now automated an assay that very accurately measures trisomy 13, 18 and 21.

We remain on track to introduce instrumentation to beta customers in the second half of this year with CE-IVD approval expected in the first half of 2018.

To reiterate, this new offering will allow maternal fetal health labs to use a high throughput approach with lower labor requirements, enabling millions of pregnant women access to affordable, non-invasive prenatal screening.

Another potential growth driver to our reproductive health business is a recent Phase I clinical trial conducted by Duke University evaluating the use of a baby's own cord blood stem cells to treat autism spectrum disorder.

We're proud that ViaCord, our cord blood and cord tissue preservation business, provided nearly one half of the banked cord blood units used by the families participating in this important study.

We're optimistic that the positive results of this trial will expand the potential uses of family cord banking by highlighting the opportunities for its use in regenerative medicine including autism.

In the DAS business, we are optimizing our commercial, operational and R&D capabilities to pivot the business to deliver higher growth and better weather varied economic conditions.

For this year, the key priorities are launching several exciting new products in our focus areas of growth and better leveraging our 1,700 service engineers and informatics capabilities to strengthen our position as a strategic partner for our customers. Regarding new products, during the first quarter, we introduced the NexION 2000 ICP-MS.

Capable of handling any sample matrix, the NexION 2000 can be configured to provide results for many critical applications including analysis of trace elements in environmental and food samples or testing for elemental contaminants in pharmaceutical products.

The NexION is also opening up new products such as fast, accurate nanoparticle characterization and even single-cell applications. The NexION 2000 allows scientists to study the cellular uptake of heteroatom-containing drugs, thereby better understanding their efficacy in vivo.

During the quarter, we also introduced the Vectra Polaris, part of our Phenoptics workflow solution for quantitative pathology. This new tissue imaging system enables researchers to gain a deeper level of understanding of potential cancer immunotherapies.

Also during the quarter, we continued to experience strong demand for several of our products introduced in the back half of last year including our new QSight triple quad mass spec as well as the Operetta CLS.

In addition to driving our organic growth rate, these four recently introduced products expand our addressable markets by several hundred million dollars in attractive growth areas.

Over the last several quarters we have been investing significant energy and resources in improving our processes and capabilities regarding new product development and commercialization.

Our progress over the last two quarters is encouraging and we remain confident in our goal of adding $50 million of incremental revenue this year from new product introductions.

Our DAS service business, which is now unified under the OneSource brand, is approaching $600 million in annual revenue and has built a strong market position in managing the laboratory assets of our customers, particularly in the form of biotech space.

More recently, we have been using this extensive presence in the labs to better understand the workflow of our customers and look for what we refer to as asset adjacencies.

By changing the dialogue to broader workflows as compared to only instruments, we changed the discussion from one about asset optimization and cost to one about business outcomes and improved results.

Consequently, conversations with customers become more strategic, which both expands the market potential and the opportunity to provide more value-added services. From an organic perspective, we see significant opportunity to increase growth through focused innovation and by enhancing the customer experience.

Looking at our end markets, conditions are playing out fairly consistent with what we expected when we prepared our plan for this year. We continue to see strength in all four of our key focus areas comprised of reproductive health, emerging market diagnostics, food and biopharma services.

In the first quarter, these areas grew high single digits for us and now represent just under half of our total revenues, up from roughly 40% two years ago. Our core businesses serving the industrial, drug discovery and environmental markets comprise the remainder of revenues in the quarter and saw flat but stabilizing demand.

In addition to organic growth expansion, we are also pursuing several opportunities to better focus our portfolio through selective divestitures as well as acquisitions in our targeted areas of growth. Earlier this week, we closed the sale of our Medical Imaging business, resulting in proceeds of roughly $270 million.

Consistent with our statements made in the beginning of the year, our intention is to deploy this capital to expand our capabilities through acquisitions or to buy back shares. Once we have deployed the capital, we will provide specific details on the use of the funds.

So to summarize our first quarter, I would say we delivered a solid financial performance exceeding our commitments on the top and bottom line. We made good progress on new products and organizational alignment to growth priorities. Market conditions have been consistent with our planning assumptions with a little less foreign exchange headwind.

And we're excited about having a robust pipeline of potential acquisition opportunities. I feel we're in excellent shape and are quite confident we will make real progress this year increasing our long-term growth trajectory. I would now like to turn the call over to Andy to discuss our quarterly financial results in more detail.

Andy?.

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

It was a solid start to the year as reported revenues from continuing operations were $514 million, resulting in organic revenue growth of just over 4%. FX negatively impacted revenue growth by approximately 1%. And the net impact of acquisitions and divestitures in the quarter was approximately 50 basis points.

New product introductions within our Discovery & Analytical Solutions business coupled with solid execution helped to drive the revenue beat in the quarter. As Rob mentioned, we are reiterating our expectation for approximately $50 million in incremental revenues from new products for this year.

Adjusted earnings per share from continuing operations for the first quarter grew 10% to $0.55 from $0.50 in the comparable period a year ago, a result of higher revenues partially offset by incremental R&D spend in the quarter.

Looking at our business segments and served end markets, Diagnostics organic revenues grew 8% organically in the first quarter with healthy demand in reproductive health, infectious disease and oncology.

DAS grew 2% organically with environmental up high single digits, food and pharma biotech up mid single digits, industrial was flat but improving sequentially and academic and government declined low single digits.

As we exit the first quarter, we think most of our end markets, as Rob mentioned, are playing out as expected with the academic end market continuing to underperform.

Looking at our geographic results for the first quarter, we experienced high teens organic revenue growth in Asia, low single-digit organic revenue growth in Europe and low single-digit declines in the Americas. In the BRIC regions, organic revenue growth was broad-based with an overall increase of more than 20%.

As to our operating results, first quarter adjusted operating margins from continuing operations of 16.3% came in as expected as we increased R&D spending in the quarter by 50 basis points due to accelerated investments in both Diagnostics and DAS, while adjusted SG&A improved by 100 basis points driven by the success of ongoing indirect spend initiatives.

Adjusted gross margins were down versus the prior year due in part to the impact of acquisitions and divestitures consummated in 2016, which represented a 40 basis point headwind as well as a mix shift in the laboratory services.

The headwinds related to the aforementioned acquisitions and divestitures are not expected to continue as they anniversary early in the second quarter.

By segment, adjusted operating margins for DAS were 14.1%, down 100 basis points from the prior year due primarily to incremental investments shifted into the first quarter as well as a very difficult prior year comparison.

Adjusted operating margins in our Diagnostics business improved 160 basis points over the same period last year, the result of strong revenue growth and a positive mix of reagents.

For the full year, we believe DAS operating margins will expand 80 to 100 basis points with Diagnostics operating margins expanding more modestly due to investments slated for the balance of the year. Netting it all out, we remain on track to deliver on our full year gross and operating margin expansion commitments.

Looking further into our reporting segments for the first quarter; Diagnostics, which represents approximately 30% of total revenue, had strong results as compared to the same period a year ago.

Growth was driven by continued strength within our core reproductive health franchise which grew high single digits organically led by double-digit newborn screening growth. We continue to experience strong revenue growth outside of the U.S. And we believe that the opportunity to further penetrate emerging markets remains promising.

Growth in our infectious disease product offering experienced high single-digit organic revenue growth driven by SYM-BIO and our Chinese clinical lab, which has been operational for a little over a year. Finally, our oncology offering, focused predominantly on NGS workflow, saw mid single-digit revenue growth driven by demand in Europe and Asia.

Switching to our Discovery & Analytical Solutions business, our improved performance was driven by solid execution on our go-to-market applications focused strategy as well as early traction from our new product introductions.

In terms of drivers behind our growth by end market, growth was driven in part by our new ICP-MS offering targeting environmental applications; while pharma biotech strength was driven by another very strong performance from OneSource, which was up mid-teens in the quarter.

We remain pleased with the success of the OneSource team and believe that our differentiated service offerings continue to provide unique insights for pharma and biotech customers around the world. Food revenues grew organically mid single digits in the quarter in spite of a very difficult comparison in the prior year.

Organic strength was driven by double-digit growth in Perten. And their results strengthen our belief that nascent secular trends for grain moisture and protein analysis continue to improve. Industrial revenues were flat with modest order improvement, while academic and government results remained soft.

Overall, we feel good about our revenue performance in the first quarter and remain hopeful that recent industrial trends and this week's announcement to fund the NIH will help improve organic revenue growth in the second half of 2017.

In terms of operating margin expansion, as I mentioned, we are confident in our ability to deliver 70 to 90 basis points for the year as lean initiatives continue to ramp and we continue to benefit from low-cost sourcing actions. First quarter net interest and other expense was approximately $11.6 million.

And our adjusted tax rate was approximately 17.5% essentially in line with our guidance of 18%. Turning to the balance sheet. We finished the quarter with approximately $1.1 billion of debt and nearly $290 million of cash. We exited the quarter with a net debt to adjusted EBITDA ratio of approximately 1.7 times. Turning to cash flow.

We had a good start to the year with operating cash flow from continuing operations of $41 million as compared to $26 million in the first quarter of 2016.

This performance was due in part to successful working capital initiatives focused on receivables and inventory which contributed to an improvement of 2 and 14 days respectively versus the first quarter of last year.

As we look ahead to the balance of 2017 and beyond, we believe that we can continue to more efficiently manage our working capital needs through the expanded use of lean tools.

Looking to the balance of 2017, we believe we are well-positioned to deliver a solid financial performance and see a path to improving organic growth driven by new product introductions and more favorable year-over-year comparisons.

As a result of more favorable foreign exchange headwinds and better revenue growth in Q1, we are raising our reported revenue guidance for the full year 2017 to be in the range of $2.2 billion to $2.22 billion.

This continues to represent organic revenue growth of 4%, which now includes $25 million to $30 million in foreign exchange headwinds and approximately $30 million of revenue from Tulip, our recently acquired Indian diagnostics company.

In addition, we are raising our guidance for the full year adjusted earnings per share from continuing operations to reflect our Q1 results and updated foreign exchange impact from our previous range of $2.75 to $2.85 to a new range of $2.80 to $2.90, which does not incorporate any impact from future capital deployment.

For the second quarter of 2017, we're forecasting reported revenues to be in the range of $550 million to $555 million, which represents organic revenue growth of approximately 3% to 4% with FX representing a headwind of approximately 2%, which is offset by the impact of our recent acquisitions.

As a reminder, Diagnostics in the Asia Pacific region have very difficult Q2 2016 comparisons. We remain cautious but optimistic that the industrial and academic end markets within DAS will pick up in the second half of 2017.

In our second quarter guidance, we're assuming $12.5 million of net interest and other expense and a weighted average share count of approximately 110 million shares. As a result, we expect second quarter 2017 adjusted earnings per share to be in the range of $0.66 to $0.68. This concludes my prepared remarks.

Belinda, at this time we would like to open up the call to questions..

Certainly. We ask that you please limit yourself to one question and one follow-up. And our first question comes from the line of Tycho Peterson from JPMorgan. Your line is now open..

Hey, guys. This is Steve Reiman on for Tycho. Thanks for taking my question. I guess just first off, so it sounds like you expect DAS organic revenue to improve in the back half of the year.

Can you talk about how much of that is dependent on improving end market growth versus new product flow?.

I think we are not considering any huge step up in end markets, although we were encouraged by the improvement that we saw through the first quarter in industrial end markets. I would say really the majority of that growth is coming from new product introductions. We launched several in the first quarter. There's a number in the second quarter as well.

Those will continue to ramp in the year. And we also have an easier comparison in the second half as well, which will obviously be beneficial for the organic revenue growth..

Got it. And then you mentioned that growth in the BRICS was broad-based. So does that imply you're seeing some improving conditions in Brazil and Russia? And could that potentially be a source of upside this year? Thanks..

We are. Obviously, last year, both economically and due to the issues with the Zika virus, we did see a significant headwind. Obviously, we have a much lower bar, but we did see growth in the first quarter. And we are expecting growth through the balance of this year, although off of, again, a more modest base..

Thank you. And our next question comes from the line of Dan Arias from Citigroup. Your line is now open..

Good afternoon, guys. Thanks.

Rob, I'm not sure if it's difficult to quantify, but any way you can kind of parse out how much of the better organic versus the guide was from better execution and the selling processes that you've mentioned versus end markets? It sounds like it was almost all the former but just want to make sure I'm seeing it right there..

Yes, I would say, going back to Andy's comments, we're not seeing a dramatic change in the end markets relative to what we thought sort of in the December-January timeframe. So I would say the improvement, it was largely on the DAS side. It really came from better execution particularly on the service side.

We saw very strong service growth in the first quarter. I think the products also benefited from the new products. But I think it was more execution than market..

Okay. And then maybe, Andy, if I just go back to what you said about the outlook. On the new product side with the ICP-MS platform, not to get too granular there with how you're thinking about the ramp and the contributions.

But I'm just kind of curious whether when you gave your outlook for new products, did it contemplate a product launch into some sluggish environmental industrial markets? Or were you kind of thinking implicitly there that there should be some pickup in demand by the end of the year? I know you're highlighting some of the research functions there.

But maybe on the industrial side, basically, is there a couple of billion of upside there?.

Yeah. I would say that as we were going into the year and we were looking at what we felt we could get from the launch of the new ICP-MS, we were assuming a bit more sluggish industrial market. So I think if we continue to see improvements in industrial, I think we'll see a bit of a pickup.

And it's harder to quantify them as they might be (25:01), but it certainly will be a net positive..

Thank you. And our next question comes from the line of Steve Beuchaw from Morgan Stanley. Your line is now open..

I'd like to jump off the comments around the efforts to restructure the commercial organization. It was an important point as you guys framed up the growth in the second half last year that we were going through a transition there.

Now that you've seen some of the benefits of those efforts, could you give us a sense just to layer on top of the commentary you've given us so far? What inning do you think that we're in, in terms of the benefit from those changes?.

I would say it's fairly early. As you pointed out, Steve, we're encouraged by the progress we saw in the first quarter. But it's still pretty early. We've got two fairly large organizations coming together. And we had to standardize some processes, even some compensation arrangements and obviously leadership.

But I would say the areas where I think we're really seeing some early wins is clearly in the service organization. I alluded to the fact that we saw nice growth there. We're seeing significant benefits from the global account program that we have.

So we've got some 12 or so global accounts that are now able to sell sort of all the products of PerkinElmer across the old historical environmental and life science business. So I would say some early wins, some early good indications. But it's fairly early days. I know you asked the question on the front end.

But also I would say the other area we're seeing is on the R&D. Clearly, by consolidating the R&D across the larger DAS organization, we're seeing some benefits there in the pace and commercialization of the new products..

I appreciate all the color there, Rob. I guess just to follow up on that.

Taking into consideration the comments on some of the encouraging signs in industrial, the traction and the momentum you have there on the commercial organization and the easy comps in the back half of the year; it's a little tricky to look at a model and say that the full year comes in around 4%.

The pattern seems to be shaping up a little bit better than that. Are there any items you might flag for us that should keep us conservative when the trend looks to be a little bit stronger than that 4%? Thanks a bunch..

I would say, no, I don't know that there's any strong indicators that would suggest that we're concerned other than it's early. I think Andy pointed out that in Q2 we are bumping up against both difficult comps in Asia and APAC as well as Diagnostics. So obviously, that's something that concerns us a little bit in Q2.

So I think that the 3% to 4% guidance is prudent. But I think if we continue to see the markets that we've seen through four months and we continue to make the good traction in the new products, I would expect there'd be an opportunity to maybe do better than the 4%..

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

Thank you. Maybe can you just give us a little bit of color on some of the pharma end markets and sort of what you saw there and maybe cut it by customer type and geography in case you saw anything that was sort of notable? It seems like Asia and China in particular on the pharma side has been a pretty big strength across most of the quarters..

Yeah, so we saw pretty good strength in pharma for us. It was sort of mid single. And, of course, when you look at the split of our businesses, we've got a little bit of a headwind with the radioactive. So if you're sort of excluding that out, we were probably in sort of the high single digits.

When you look across the sort of geographies, clearly it was APAC that was the significant driver to that. We saw very strong growth in APAC driven largely by China. But we continued to grow both in the Americas and in Europe, but something more in the low single digits.

So we're getting much more Asia-driven, much more sort of imaging, our imaging products, our reagent products are really the driver. And, of course, the services I alluded to were the big drivers of our pharma strength. But pretty strong and pretty broad-based..

And maybe just on the M&A front, you have a lot of capacity here. Obviously, you said that if you can't do anything, you'll do repo. But you did tuck in Tulip. There's a pretty active market we've seen just in general.

How would you kind of characterize the pipeline? What are the types of assets or the spectrum of stuff you're sort of thinking about more from a high level perspective would be sort of helpful?.

Yeah. So as I mentioned, we've got a pretty good pipeline. And we feel fairly confident we'll get some stuff done here in the latter part of 2017. The focus areas are the ones we've identified. So it's going to be diagnostics. It's going to be food. It's going to be pharma services.

It's going to be those critical areas where we see both a combination of our core capabilities with strong differentiation as well as the overarching growth prospects of those businesses and markets. So those would be the area of focus.

Historically, we've had a tendency to do smaller bolt-on deals and probably those are the majority of the ones that are in the pipeline. As I've said on a number of occasions, I'd like to expand that. And as much work goes into a $50 million deal as it does to do a $200 million deal. So if we could do something a little larger, that'd be great.

So it's in that sort of range from a revenue perspective, right, things that are probably in the tens of millions to maybe a couple that are actually larger than that..

Thank you. And our next question comes from the line of Isaac Ro from Goldman Sachs. Your line is now open..

Hey. Good afternoon, guys. Thank you. Question -.

Good afternoon..

Hi, guys. Just question for you on China newborn. You mentioned in your early prepared comments that penetration of the mass spec option had really picked up. Just curious if you can give us a ballpark in terms of where you are in driving that market, kind of upsell. And if I recall, the economics here are significantly better.

So I'm just interested in where that can go over the next, let's say, 24 months..

Yeah. So I would say right now if you look at China newborn, we think there's about 90% penetration of screening. But as we've talked about it in the past, generally depending on the part of the country, it's in the two to four disorders. We've seen a fairly good ramp up of mass spec. We think that's probably more in the 20% to 25% penetration now.

And, of course, the benefit of mass spec, you get an additional sort of 15 to 20 tests that you can do with the same sample. So that's where we think the penetration is. On birth rates, it's been sort of low single digits as I think we've talked about in the beginning of the year. We knew we'd come off a very strong 2016.

So when Andy talks about the strong growth in newborn, it's really coming from menu expansion and to a large extent it's the expansion of mass spec penetration. And then I also alluded to the fact that we're seeing good uptake of the GSP which is the automated platform. So penetration now at 90%.

Birth rates are sort of moderating in the low single digits. It's really coming from menu expansion..

Got it. And then just a follow-up on capital deployment. You guys have obviously been very proactive in reshaping the portfolio with the Medical Imaging divestiture. And at the same time, you've been pretty disciplined about acquisitions just given how expensive assets are.

So if you had to probability weight the likelihood that something maybe bigger than Tulip, something more significant on the earning side comes through in the next, let's say, 6 to 12 months; is that decent possibility, low possibility? Just kind of curious -.

Yeah. It's tough to put probabilities on these, right? Because there's a lot of things that can sort of cause problems. But I think we feel pretty good about the probability of getting something done here in the next three to six months..

Thank you. And our next question comes from the line of Doug Schenkel from Cowen & Co. Your line is now open..

All right. Good afternoon, guys, and thank you for taking my questions..

Good afternoon..

I think I only have two or three quick ones. The first one on – another follow-up on newborn screening. You mentioned the opportunity in your prepared remarks to expand newborn screening in other emerging markets beyond China.

How would you describe the stage of your commercial and broader infrastructure to fully go after that opportunity? The second question is on the academic, government end market. I think you indicated that there was some softness in the quarter.

Would you be willing to provide a little more detail on which geographies were weaker than expected? And my last question is just in the context of guidance. My impression was, coming into the year, that you've acknowledged you're somewhat dependent on the industrial end market improving to get to your guidance.

You sounded pretty positive on how industrial was trending during the quarter. But it sounds like maybe you're a little less dependent on industrial improving to actually get to your goals for the year. Is that the right way to think about things? I will stop there and get back in the queue. Thank you..

Okay, great. So as far as commercialization in newborn, I think we're in a very good position here. We've been operating internationally in newborn for a long period of time. We distribute or sell our products in 93 countries. And so when we look at the opportunities, I would say right now in the short term, we talked about India.

I think that will be – it's a significant opportunity, but it'll probably ramp over a number of years. The other ones that we're in fairly active discussions with is Indonesia and Vietnam. And then I think when you get sort of to the 2018 timeframe, we actually think there are some interesting opportunities in Russia.

And I think in all of those, I don't think the barrier is going to be our commercial capabilities. So I think as we look at the runway for newborn screening in emerging markets, we feel good about our ability to sort of support that from an infrastructure standpoint.

Having said that, I don't want to sort of ignore the developed markets because I think there are some nice opportunities there as well. We think probably as we get toward the end of this year, early 2018; we'll come out with an LSD assay panel and eventually get that CE-IVD as well.

So I think when you look across newborn screening, there's a nice path over the foreseeable future to sort of continue to grow that in the sort of high single digits. The second question was around the academic market, I believe, and what we've seen from a geographic perspective. And we saw actually strength in Europe. The U.S.

was down sort of mid to high single digits. And actually, APAC was down a little bit. So that was the geographic split of our academic business. Again, it was largely in Europe. I think there was some episodic sales there that probably drove that to some extent. And maybe Andy wants to comment on some of the specifics..

Sure. Well, I was just going to talk about the industrial piece because you had indicated that it was a part of our guidance. We going into the year did not expect significant improvement. And I think we're encouraged up to this point given the flat performance in the first quarter. It looks like the order trends are supporting that.

And I think the new products that we're going to launch in DAS are going to also be helpful. So I think maybe at this stage, we're a bit more confident in the industrial piece of our guidance. But we remain cautious because it's still fairly early in the year..

Yeah. And I think what you may be recalling is when we talked about 2017, I think that we were concerned about – because industrial has been challenging for us particularly in the back half of the year.

But we didn't want it to get any worse, right? So I think if we saw continued deterioration in industrial, that would have been challenging for us, we believe, to continue to get our organic growth rate up to 4%. But to Andy's point, I think we're encouraged by what we see at least through the first quarter of this year..

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

Great. Thank you and good afternoon. A couple of questions. First is, I guess, going back to India and the potential there for newborn screening. Is there any way – and I realize that we've got slightly different call points in different organizations.

But to what extent can you guys leverage Tulip and their relationships to try to accelerate your penetration there?.

I think we can. When we announced the acquisition of Tulip, we talked about the fact that while we're excited about the product suite and the current channel that they have, we do think there's an opportunity to leverage Tulip because some of their products, they're actually going into the hospital labs. And so we think there's an opportunity there.

The other thing that I alluded to was we're seeing actually some demand coming from the private labs to do newborn screening. So we do think there's an opportunity to sort of leverage that a little bit more. And actually, they are calling on some of the pharma customers as well.

And so we think there's a potential to leverage it actually on the DAS side..

Interesting. And then secondly just on the restructuring. You had mentioned that you're continuing to look at some selected divestitures.

In baseball parlance, Rob, can you give us a sense as to what inning we're in here in the overall strategic realignment?.

I would say probably – it's still fairly early from the standpoint of significant divestitures. And I think what we (39:30) said for 2017, I do not anticipate seeing anything of the size of Medical Imaging. I think what we're looking at right now is sort of maybe some relatively small product lines.

So I think to see more significant divestitures would require us to be more successful on the acquisition side..

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

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

How are you doing?.

Good..

Good.

How are you?.

Good. Maybe if you could just talk a little bit about your oncology segment and the NGS workflow. Illumina announced that they were getting out of that segment. So maybe just opportunities to capture market and just your positioning within that market..

So as we've talked about it in the past, our really strategy around here is sort of encircle the box, if you will, or encircle the sequencer. And we think we've built a nice capability in and around sort of sample preparation, automation, library preparation and those types of steps that are required.

And in particular with the addition of Bioo Scientific, I think it brought us some really strong capabilities there.

So I think that what we're really trying to focus now is to take those capabilities that we have and target those after very specific applications and looking to extend our workflow capabilities so that we can, basically from sample to sequencer, have a very efficient workflow.

And so potentially there's an opportunity with Illumina sort of realigning their priorities to continue to take share there..

Got it. And then maybe just more holistically on the Diagnostics segment. That business is running at around a 30% operating margin.

Can you maybe just talk about the maturity of that portfolio and how you guys think about maintaining a really high margin as opposed to investing in some of these newer products and categories that are a focus for you guys? Thanks. Have a good one..

I think it's a constant balance between making sure that we are investing at the appropriate level but then also driving the growth and the efficiencies in our operating processes to make sure that we're continuing to get better. I think one of the benefits of the Diagnostics business is it has a very high percentage of reagents.

So some 90%-plus of the revenue now is coming from reagents. So you get significant incremental flow-through when you grow.

So as long as we can continue to grow at high single digits and get good flow-through from the profitability, I think it still allows us to do a fair amount of investing into R&D or building our capabilities from a distribution perspective..

Yeah. I don't see Diagnostics anywhere near operating margin maturity. And as Rob mentioned, I think there's fairly significant incrementals on the higher volume. We are cognizant of the fact that we got to continue to invest.

And that's why in my prepared remarks we talked about operating margins growing at a slightly lower pace than DAS because of those investments. But I think we think long term, there's still operating margin expansion opportunities in that segment..

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

Hi, thanks. Good afternoon..

Good afternoon -.

Rob, I was wondering could you provide some additional color on trends in the U.S.

market? And then what you're seeing here in terms of birth rate?.

So when you say U.S.

market, are you talking about sort of globally all our products or just specific to newborn?.

Both. I think you mentioned in the prepared remarks a low single-digit decline in the Americas.

Is that right?.

Yes, that's right..

And then within that is – so maybe just U.S. in aggregate and then birth rate specifically..

Yeah. So if you look at birth rates, our data would suggest that birth rates in the U.S. are up about 1.5% when you look at first quarter of 2016 versus first quarter of 2017. So a slight increase in birth rates. If you looked at our newborn or reproductive health business, it was down slightly year-over-year.

I think the biggest driver of that was a very difficult comp. There was very strong growth in the first quarter of 2016. So we still think if you look at the full year, we'll grow in the U.S. probably mid to high single digits..

Great. And then I was just wondering if you could give us an update in terms of blood screening and where you thought we were in terms of the penetration within China and the growth for that business too. Thanks..

So we saw very strong growth in that business in 2016, if you recall, as we placed the instruments out into the various testing labs. Our expectation is for 2017, that's going to moderate as it goes against some very difficult comps. So what we're seeing in Haoyuan or the blood screening business in China is lower growth.

And actually, for first quarter, it was actually down a little bit, but higher margins. Because what we're selling now is basically reagents. And so I would say at this point, you're not going to see the significant instrument placements that we saw in 2015-2016.

And you'll see a more normalized growth, which we still think could be significant as the Chinese ramp up more blood screening. But we are, for 2017, psyching up against very strong growth as we're placing those instruments out into the lab. Having said that, our Diagnostics business grew north of 20% in China..

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

Hi. Good afternoon..

Good afternoon..

So a couple of questions. So first off, you mentioned something about the Vanadis assay. Could you give us some thoughts on how you're thinking about pricing that assay? The first question..

Well, you know what, we haven't, Derik, gone into the pricing yet. I think we're going to wait until we get closer to launching it into the marketplace. So we're not really discussing pricing right now.

I think one of the things that we've talked about though is the goal is to try and be competitive both from a workflow perspective and a price with biochemical screening..

Yeah, fair enough. Remind me what the margins are in the OneSource business..

Well, OneSource now we are sort of rebranding as our entire service business now. So when we talk about OneSource – I talked about it in my remarks – it's $600 million large service business. So our service margins are a little bit higher than the corporate average..

Got it, okay. That's what I thought.

Forgive me if I missed it, but did you say anything about what you were thinking about your 3% to 4% organic revenue growth guides, what's – if that's embedded for the segment organic revenue growth? What's your embedded expectation again?.

Yeah. I don't know that Andy talked to it, but I think you're going to see closer rates between DAS and Diagnostics. And one of the reasons is so they will be closer alike than – for example, this quarter was sort of 8% and 2%.

And the reason for that is, I think, that Diagnostics grew, Andy, what, 12% last year or something?.

Yeah..

So they've got a tough comp in Q2. So I think you'll see very similar growth rate is at least what we're forecasting between DX and DAS in Q2..

Thank you. And our next question comes from the line of Catherine Schulte from Robert & Baird (sic) [Robert W. Baird]. Your line is now open..

Hi, you guys. This is actually Emily on for Catherine. Just want to touch on first – so after divesting Medical Imaging, can you break out your new exposure by end market by pharma, academic, diagnostics, industrial, applied? I know previously you had said a decent amount of your academics exposure was in Medical Imaging.

So just trying to true-up what the new model looks like..

Yeah. And I'll start and then Andy can just – so think of diagnostics and pharma biotech as sort of equal at around 30%. Then you've got sort of academic and government at sort of 10% and industrial on that range as well. Maybe the way to think about it is industrial, academic, food and environmental safety are all roughly around 10%.

Makes it pretty easy..

Okay, perfect. Yeah, it does.

And then I don't really recall if you said this earlier on your call, but could you walk us through what's embedded in your guidance assumptions for growth rates by end market for the year?.

For the year, for 2017?.

Yes..

Hold on a second. So I think we're looking at pharma and biotech sort of mid single. We have academic and industrial sort of flattish. Environmental similarly sort of mid single and then food high single. So that would make up the sort of DAS split. And then within Diagnostics, I think we talked about it. I think it was 7% for the year..

Thank you. And our next question comes from the line of Bryan Brokmeier from Cantor Fitzgerald. Your line is now open..

Hi. Good morning or good afternoon. In your prepared remarks you talked about the automated GSP adoption in China as enabling the menu expansion.

Where are you today for the number of tests on average that are being tested in China? And how does that vary across sort of the larger hospitals or the coastal cities versus other parts of the country?.

So I had mentioned a little bit before that 90% penetration in China right now. Think of that as about 70% of those are screening for two to four disorders and about 20% to 25% is doing the mass spec and the GSP, either/or. And that's going to take you up closer to like low 20s.

So we've got about a fifth of the babies being screened in the sort of low 20s and the remainder in low single digits. And the split is largely going to be sort of east coast-west coast. So largely on the east coast is where you're going to see the higher screening.

And as you got out more into the western part of China, you're going to see the lower number of tests..

Okay. And could you update us on where you are in India? I think previously you'd indicated that you had one or two regions that had adopted and a bunch of other that were in pilot programs..

Yeah. So India is still relatively slow ramp-up. I would say less than 5% of newborns are being screened in India. And I would say the uptake is – as far as sort of official programs, it's still at the sort of two to three stage. There's a number of ones that are in pilot programs.

But a lot of these pilots, rather than being done statewide, have a tendency to be in institutions. So they may be in universities; they may be in medical institutions, et cetera. So a lot of the pilots, we'll just have to see how they ramp up.

But as I think we've said on a number of occasions, while India is a significant opportunity with 27 million births; I think it's going to be a fairly slow ramp..

Thank you. And I'm showing no further questions at this time. I would like to turn the call back over to Rob Friel, Chairman and Chief Executive Officer, for closing remarks..

Great. Well, first of all, thank you for your questions. And as I said before, I think we're off to a solid start to the year and encouraged by the progress we are making to drive innovation while achieving profitable growth and advancing our mission. So we appreciate your interest in PerkinElmer and wish you a great evening..

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