Good day and thank you for standing by. Welcome to the 2021 Second Quarter Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Now I would now like to turn the call over to our first participant for today Mr.

Steven Willoughby, Vice President of Investor Relations. Sir, please go ahead..

Thank you, Henry. Good morning everyone and welcome to the PerkinElmer second quarter 2021 earnings conference call. We are speaking to you this morning from San Diego and have quite a bit to get to given today's exciting announcement. In addition to the earlier than expected release of our second quarter results.

On the call with me today are; Prahlad Singh, our President and Chief Executive Officer; Jamey Mock, our Senior Vice President and Chief Financial Officer; and Gene Lay, Founder and Chief Executive Officer of BioLegend.

If you have not received a copy of our earnings press release, or slide presentation or BioLegend related slide presentation of press release you may find copies of them on the Investors section of our website at www.perkinelmer.com. Please note, this call is being webcast and will be archived on PerkinElmer’s website until August 09, 2021.

Before I begin, I would like to turn to Slide 2 and remind everyone of the Safe Harbor statements that we have outlined in our earnings press release issued earlier this morning and also those in our SEC filings.

Statements or comments made on this call will be forward-looking statements which may include, but not are necessarily limited to financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties.

The company’s actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today.

We disclaim any obligation to update these 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 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 do so promptly.

I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad..

Thank you, Steve. Building off our June 24 Analyst Day, today represents another milestone in the transformation of the new PerkinElmer.

The addition of BioLegend expands our presence in the attractive high growth antibody and cytokine market, enhances our content development capabilities across all PerkinElmer detection technologies and transforms our E-scale - our E commerce scale overnight. Personally, I couldn't be more thrilled to work with Gene and the team going forward.

And I'm excited to see the impact the combined company can have on scientific innovation..

Thank you, Prahlad. We are thrilled to join the PerkinElmer team to further carry out our company mission of enabling legendary discovery from research to cure.

Over the past 30 years, we have built BioLegend into a leading global innovator of reagents and consumables for the life sciences with several disruptive technology platforms, and a large diversified product portfolio, targeting a variety of categories, including cell analysis, proteogenomics, and other rapidly growing and attractive applications..

Thank you, Gene. I want to formally welcome you and your team to the PerkinElmer family. And as we've discussed over the last few months, as we've gotten to know each other. I'm so excited for what this means for both companies, and what the combined business is going to be able to do together in the years to come. I'm now on Slide 4.

Let me tell you some more about BioLegend. It's a world class organization, propelled by a strong team top to bottom.

The company has achieved leading market positions in a number of attractive high growth end markets, such as antibody development, flow cytometry reagents, proteogenomics, magnetic cell separation, recombinant proteins, cytokines and growth factors.

These represent a total addressable market of approximately $6 billion, with areas of expertise that span from upstream research and immunology, oncology, stem cell research, neuroscience and infectious disease to downstream bioprocessing. It's more than 700 employees across the US and Asia Pacific Europe serve over 10,000 customers in 130 countries.

The company also has a stellar track record of new product introduction launching over 1,000 NPIs annually in both new and existing markets. Moreover, all of its revenue is recurring in nature and its world class manufacturing and distribution capabilities translate to its very attractive incremental margin profile.

Finally, what you'll come to recognize is that both PerkinElmer and BioLegend share a fierce passion and commitment to focusing on the customer. BioLegend mission is helping scientists accelerate research and discovery by providing the highest quality products at an outstanding value, along with superior customer service and technical support.

But more succinctly said the BioLegend team is passionate about making a mark on the world and being legendary in their own right at pushing the boundaries of biological understanding..

Thanks a lot. I echo the same sentiments. It's been great to meet Gene and the team who are here with us today, and I'm equally excited about the impact we can have on improving outcomes for all stakeholders.

The addition of BioLegend further accelerates the transformation of the new PerkinElmer and it positions us to deliver even stronger financial performance, top to bottom, in the years ahead.

As we most recently told you at our investor day last month, we outline here again on Slide 7, we expect the existing PerkinElmer business to grow 5% to 7% organically per year, through 2023, and in the mid-single to high single digit range, longer term as we deliver on our strategic imperatives.

Given the size and expected growth of BioLegend, combined with the revenue synergies we expect to start contributing in year one, we see the combined company growing at least 100 basis points faster annually than our previous outlook in both the near and long term.

As you know, with an expected close by the end of this year, BioLegend won't start positively impacting our organic growth until 2023 when it's added to our base.

And since BioLegend’s revenue is entirely reagents and consumables, PerkinElmer will now have around 75% of its revenue by recurring in nature, up a few 100 basis points from pre-COVID levels.

Given BioLegend’s accretive margin profile, we now expect overall company operating margins to increase by approximately 300 basis points from current levels by 2023.

We expect our previously communicated goal of 50 to 75 basis points of annual operating margin expansion to continue, with improvements in the existing PKI business to largely come with the gross margin line from our operational excellence initiatives that we highlighted at our recent analysts meeting.

While we expect BioLegend’s rapid top line growth to provide some opportunities at the OpEx line, while continuing to reinvest heavily in R&D, as the company has throughout its history. Today, more than 50% of BioLegend’s business is through their e-commerce channels.

We plan to leverage this with our Horizon Ansys bio platforms to further scale this ecosystem, with approximately $700 million in annualized life science research revenues. We have the opportunity to rapidly scale our go to market synergies across the portfolio..

Thank you, Jamey. As you get to better know BioLegend and its entrepreneurial team, I think you will find that by joining with PerkinElmer, it is creating a true antibody and life science reagent powerhouse that will have the scale to be able to accelerate scientific advancement, and new product innovation across the company and around the world.

I believe this combination positions PerkinElmer as a best-in-class preclinical life sciences franchise, that is uniquely positioned to empower our external partners to deliver truly legendary discoveries over the coming years as the power of both companies' employees and assets come together under one roof.

I expect that this heightened pace of collaborative innovation combined with our broad commercial reach will lead to faster overall growth for PerkinElmer, while having an elevated margin profile with immediate significant EPS accretion.

Even more importantly, BioLegend's joining forces with PerkinElmer complements the value from the other life science businesses that have joined our company over the last few years, such as Cisbio, Horizon Discovery, and very recently, Nexcelom Bioscience, and SIRION Biotech. I couldn't be more excited for where I see us going in the future.

I'd now like to turn the call back over to Jamey to discuss our 2Q results and updated guidance for the remainder of the year - remainder of the year.

Jamey?.

Thanks Prahlad. The team performed extremely well during the second quarter with all businesses and end markets returning to growth versus 2019 levels.

Our non-quarter COVID order growth again exceeded our strong non-COVID revenue growth for the third quarter in a row, while our COVID revenue came in solidly above our previous expectation, despite declining sequentially as expected.

During the second quarter, adjusted revenue grew 51% compared to the last year to over $1.2 billion and included a 5% foreign exchange and a 6% acquisition tailwind.

Organic revenue grew 41%, 12 percentage points better than what we previously communicated as our non-COVID revenue grew 28% organically, well above the high teens rate we were expecting.

Our COVID-related products and services contributed $365 million in the quarter, solidly above our previous $325 million expectation as demand for our PCR tests and RNA extraction solutions did not fall off to the degree we previously expected, especially in the areas that have lower vaccination rates and increased presence of variants such as in parts of Europe and Southeast Asia.

Our turnkey Lab-In-A-Lab testing solutions in the State of California and the United Kingdom performed in line with expectations resulting in our core COVID products generating approximately $155 million in revenue in the quarter.

By business, Diagnostics representing 58% of total sales increased 59% organically, with 40% organic growth in non-COVID products. Strength in our Immunodiagnostics business lead the way, driven by COVID and non-COVID sales with EUROIMMUN's non-COVID business continuing to rebound strongly.

Our Reproductive Health business was able to offset continued birth rate pressures and post double-digit growth year-over-year and mid-single-digit growth on a two-year average basis. Our Applied Genomics business saw a strong rebound in non-COVID-related demand, which doubled versus last year, offsetting expected declines in COVID-related products.

Discovery and Analytical Solutions representing 42% of total sales increased 22% organically with broad-based growth across life sciences, food, and applied. From a geographic perspective, non-COVID organic growth was extremely well-balanced with all three regions growing similarly, while China also grew in the high 20% range.

Operationally, it was another strong quarter of leveraging the significant revenue growth, we experienced, as adjusted operating margins expanded 535 basis points to 33.5%, driven by volume leverage, business mix and productivity programs.

Adjusted earnings per share of $2.83 in the second quarter increased 81% relative to the second quarter of 2020 and was $0.48 above our guidance. Looking further into the key drivers within our segments, let's start with the Discovery & Analytical Solutions segment, which grew 22% organically versus the same period last year.

By end market, we experienced well balanced double-digit growth in each segment with life sciences being up nearly 20% against a flat comp in the second quarter of 2020. This was driven by strong growth in both pharma biotech and academic government end markets. Discovery grew more than 30%, while Analytical grew more than 20% year-over-year.

Late in the quarter, we also close on our acquisition of Nexcelom, and are excited to add their team and innovative cell counting technologies to our life sciences platform. Food posted strong growth in the second quarter, which was aided by fairly easy year ago comparisons.

Our Meizheng food safety business in China continue to rebound, growing 60% compared to the second quarter of last year. Cannabis activity began to return and contribute to growth, and we expect this level of impact to continue to improve over the remainder of the year.

Industrial and environmental safety grew in line with our overall DAS segment with balance performance from a geographic perspective with strengthen both spectroscopy and chromatography and notable demand from semiconductor customers.

Turning to Diagnostics, as I mentioned earlier, our organic growth increased 59% with double-digit growth in Europe and Asia, and triple-digit growth in the Americas, due to our larger lab services business here now compared to a year ago.

While COVID revenue was up year-over-year, our non-COVID diagnostic business still grew approximately 40%, compared to the second quarter of last year and posted double-digit growth on a two-year average basis.

Our immunodiagnostics franchise led the way, posting over 100% year-over-year growth for the quarter, as incremental COVID revenue was joined by nearly 50% growth in non-COVID revenue led by both EUROIMMUN and Tulip.

While RT-PCR COVID demand did slow as testing has come down, COVID serology demand continues to remain consistent for the last few quarters, though down significantly from a year ago period when the initial rush of demand made its way into the market.

Oxford Immunotec has also begun to see some nice COVID related demand outside of the United States first T-SPOT Discovery SARS-CoV kit, which measures T cell immune responses.

Finally, shortly after the quarter ended, we closed on our acquisition of Immunodiagnostic Systems, and we can't wait to see what the collaboration that we'll have with our strong EUROIMMUN franchise, and both the near term, but maybe even more importantly, the longer-term.

In our Applied Genomics business, organic revenue grew nearly 20% overall, despite COVID related demand dropping off meaningfully as non-COVID demand doubled compared to the year ago period.

The strong non-COVID growth in applied genomics was broad based, and included key contributions from newer external partnerships, and recent product introductions. We've also seen an uptick from non-COVID NGS customers who appear to be pivoting back to their former areas of focus at the pandemic moderates.

From a COVID perspective, we've seen some nice wins recently in Asia, including supporting COVID testing capacity for this year's Olympics in Japan. We've also seen an uptick in next generation sequencing demand related to COVID, as additional variants continue to emerge around the world.

Our reproductive health franchise grew high teens off a negative year ago comparison. While on a two-year average basis the business still grew in the mid-single digits. The growth was well balanced geographically in the quarter with all regions posting double digit growth versus the second quarter of last year.

While birth rates appear to remain under pressure globally, our neonatal and prenatal businesses still posted solid growth due to continued geographic and menu expansions while our lab businesses grew strongly in Asia several new product introduction introductions, such as the Superflex which is being used for preeclampsia screening is continuing to help offset birth rate related pressures.

Moving to below the line items, adjusted net interest and other expense for the second quarter was approximately $15 million, while our adjusted tax rate was 20%. Turning to the balance sheet. We finished the quarter with approximately $2.4 billion of debt and $600 million of cash.

Adjusted free cash flow was $267 million in the quarter, which equates to an adjusted free cash flow conversion rate of 84%, including a large payment that we received a few days after later than expected during the first week of the third quarter, our free cash flow conversion would have been, again, over 100% of adjusted net income.

Finally, we exited the quarter with a net debt to adjusted EBITDA ratio of approximately 0.9 times even with the first quarter of 2021. As it relates to guidance, we now anticipate full year 2021 adjusted revenue of $4.57 billion.

This guidance assumes COVID revenues of approximately $1.14 billion compared to our prior guidance of $1.10 billion and the $1.05 billion we did last year. This update accounts for the 2Q outperformance while leaving our second half COVID expectations unchanged.

We expect our non-COVID revenue to continue to remain strong over the remainder of the year that we will not be facing quite as easy year ago comparisons as we did this quarter. This translates into us now expecting non-COVID organic growth of 15% for the year, up from our 11% previous outlook.

These assumptions do not account for any incremental lockdowns and/or any COVID related disruptions. Additionally, we are anticipating as 6% benefit from acquisitions, now that both NexION and IDs have closed and a 3% benefit from foreign exchange for the full year.

We are not taking into account the Syrian acquisition, which is now expected to close at the end of August nor anything related to BioLegend.

On the bottom line, we are now expecting adjusted earnings per share of $9.88, which assumes approximately $58 million in adjusted interest and other expense, a tax rate of 21% and an average diluted share count in the range of 112 million to 113 million shares.

For the third quarter, we are forecasting adjusted revenue of approximately $1 billion, representing a minus 5% year over year decline and our total company organic growth due to the expected year over year declines in COVID revenue and a 7% and 2% contribution from acquisitions and foreign exchange respectively.

Embedded in this guidance is $165 million of COVID related revenue compared to $288 million a year ago and organic growth of 12% in our non-COVID product lines.

In terms of adjusted earnings per share for the third quarter we are forecasting $1.62 which assumes approximately $16 million of interest in other expenses, a 21% tax rate and a diluted share count of 112 million 113 million shares. All of this guidance is detailed in this second to last page of today's presentation.

In closing, the business continues to perform extremely well so far in 2021.

With the foundational pillars, we highlighted at our recent analyst day, and now the exciting addition of BioLegend, I feel we are extremely well-positioned for what lies ahead from a customer, and scientific innovation perspective, the opportunities this company has to offer its employees, and the strong financial profile we have for our shareholders.

This perspective is purely reflection of the tremendous efforts of my 14,000, soon to be more than 15,000 colleagues around the globe that have helped build a company into what it is today and have laid the foundation for more significant growth in the future. I'd like to now turn it back over to the operator to begin Q&A..

Your first question comes from the line of Catherine Schulte of Baird. Your line is now open..

Congrats on the quarter and the deal, and thanks for taking the questions.

I guess, first just on BioLegend, can you just highlight some of the areas of those revenue synergies, how much of this is increasing penetration in existing markets using your global footprint versus pushing its portfolio into new applications, like, diagnostics and food safety versus some of the other areas you highlighted like e-commerce?.

Yes. Thanks, Catherine. So right now I think the primary driver is to expand the global reach. So you saw on the pages that BioLegend is currently concentrated roughly 55% in the U.S., our life sciences reagents business is more like 40% to 45%. So I think we can expand globally with our more than 500 sales and service folks across the globe.

So that's the primary driver. And then we have many different opportunities with Cisbio, with NexION, with Horizon, with the diagnostic side. So we think that $100 million is very achievable, we discuss with the team over the last few days and months, I should say that we believe that it could be much more than that.

But I think right now the primary driver that we're banking on is geographic region..

And then maybe on your core performance, I think beat by about $16 million versus your second quarter guide, back half calls for about another $50 million upside versus the prior guidance in your core.

Can you just talk through some of the main drivers of that out performance in the non-COVID business versus your prior guide book in the second quarter, and then the delta versus what you're expecting in the back half?.

Yes, I mean, it's a good question, Catherine, it's actually very difficult to pinpoint because it is extremely broad based, I mentioned that every geography across the globe is up almost equivalently, every end market is up, it's almost difficult to find a spot that we are concerned about.

So, it's really - everything we have, I can't really highlight one for you, like science is a strong, applied is kicking back in, food is strong, reproductive health is doing extremely well, immunodiagnostics I mentioned EUROIMMUN being up strong double digits.

And everybody is above the 2019 levels and many of these markets are now on an average two-year stack comparison, at least mid-single digit, if not double digit growth comparing the 2019. So life science as an example is up 10% on average over the last few years..

Your next question comes from Doug Schenkel of Cowen. Your line is now open..

I'm going to start by building off of Catherine’s first question on synergies, but take a slightly different angle. It seems like there's a lot of synergies or at least some synergies to be had between BioLegend and some of the recently closed and pending acquisitions.

I'm just wondering, if I'm thinking about these, right, and if so, with a more well-rounded portfolio, how you're feeling about what you have now in this category to essentially compete on level footing with some of the incumbents and essentially how much that plays into your overall synergy targets or potential for upside?.

Its great question, Doug. As you pointed out, historically, while we've had a strong portfolio of M&R assays to support drug discovery for both small molecule and biological approaches.

Our recent acquisitions they were aimed to broaden our offering along the whole workflow from basic research and target identification, all the way to manufacturing and QC, with a special focus around growth areas such as cell and gene therapy that I've pointed out earlier. The combined position, positions as much better to deliver solutions.

For example, to offer engineered cell lines with matched downstream - or specific QC production cell lines. To give you a few examples, for example with Horizon, BioLegend could use the engineered cell lines for reagent validation.

And there are many tools that are complementary with BioLegend's content development efforts around antibodies, model systems et cetera. Similarly, on Cisbio, the HTRF and α ELISA assays. They are very synergistic and - we could go on down with Bioo Scientific, or Nexcelom.

The opportunities are there for each of these businesses and once we start connecting the dots, we are able to bring total solutions into the marketplace and that is why this is a really exciting opportunity for us..

That super helpful, Prahlad. Thank you for that. Jamie, any chance - well - let me frame it this way, you gave us a 2023 revenue target for BioLegend.

Any chance you would share any metrics that could help us get to how we should be thinking about 2021 and 2022? I know the deals not expected to close until the end of this year, and wouldn't be considered an organic next year. But it I think it'd be helpful for us frame investment kind of just layering it into our models.

Anything you can share there?.

Yes. So the number that was on the page Doug is a 2022 number that $380 million just to clarify that..

Okay. Sorry about that..

And the BioLegend has been around for 20 years. 20th - the 20th year I think will be next year. So, they've been growing consistently 20% plus over time, and I think that tries to help you kind of think about what they've been able to achieve historically.

And then we've put in at least mid-teens plus is what we said and that's before synergies back to Prahlad’s point there's, I talked about geographic reach, Prahlad talked about all the complimentary nature of all of our acquisitions.

I mean, the antibodies are used in everything we do all the life sciences, reagents everything and diagnostics, and our teams to the extent that we could, started to understand the technology that PerkinElmer has and BioLegend has that number from a synergy standpoint, it's more difficult to predict. The geographic reach is easier to quantify.

So I think there should be upside to this $100 million. But with the teams need to understand the products a little bit more. But the $380 million is 2022 and they've been historically growing 20% plus over the last five years even during COVID we grew, 4%, 5%..

And last one, recognizing, yes, this is an exciting and also the biggest deal Perkin’s ever done.

And then, separate from that, you've been quite busy on the strategic pursuits all year, should we be thinking that at this point M&A is going to be limited to maybe smaller tuck-ins, at least for the foreseeable future, keeping in mind, what you're doing with this deal and then just, thinking about operational readiness as well..

That's a fair point, Doug. I mean, I will say that today as we sit here in San Diego, our focus is on talking about the opportunities that the combined company brings to us.

But I think it's fair to say that, over the next several months, our focus will be on ensuring that this is a seamless combination and transformation of the company, as we focus on creating a $700 million life sciences reagent franchise..

Your next question comes from the line of Vijay Kumar of Evercore. Your line is now open..

Thanks for taking my question and congratulations on the transaction. Prahlad, maybe one for you.

What is - when you look at BioLegend, what is the key differentiation here? What gives you the confidence in this mid-teens revenue outlook? Does that mid-teens revenue outlook include the $100 million of revenue synergies?.

I think, I would put it in a succinct manner, Vijay, that once you focus on the science piece, it's the cost, it’s the quality and it's the service. Those are the three words that define BioLegend. And we've talked to customers throughout our due diligence process globally. And those three things are the shining light of the company.

And that is what really excited us to the opportunity and I think that is the growth trajectory that the combined company is going to focus on..

And, sorry, the mid-teens revenue CAGR, Prahlad, does that include the $100 million of revenue synergies?.

No, that is ex - the mid-teens plus excludes the synergies, Vijay..

That's extremely helpful. Jamey, one for you, I think the LRP update, margins going up from 22 to close to 26, it implies margins for this asset, BioLegend, somewhere close to a 50%. Does that math seem right here? And if that's right, then the $0.30 accretion and $0.50 in year two seems a tad low.

Maybe just talk about the assumptions behind this accretion in ROI numbers..

Yes, Vijay, that math is accurate, so they're in the - we're in the 50% kind of EBITDA range. So operating profit might be a touch lower than that, but from an EBITDA perspective, it's in the 50% range. And I think that math should hold when you look at $0.30 accretion in 2022. And then we said greater than $0.50 accretion in 2023.

So we'll see what kind of room for upside there is there, but that's what we're establishing right now as guidance..

Understood. And just, one last one, I think you mentioned NGS demand was high, given COVID surveillance, any way to quantify what the step up was? Thank you..

Well, I mean, in general, our applied genomics business was down from a COVID standpoint, because we put up so many instruments last year, and obviously NGS surveillance is meaningful, but relatively small compared to broad base PCR testing and extraction, so significant for the applied genomics business, but not overall meaningful to the entire COVID revenue perspective..

Your next question comes from Dan Leonard of Wells Fargo. Your line is now open..

Thank you. So my first question 4on BioLegend and maybe this is one for Gene, if he's still on but for Prahlad and Jamey, I'm sure you can speak to it too.

What do you think, I'm sure a number of companies were interested in BioLegend, when it was time for the company to sell, what do you think made PerkinElmer, a uniquely attractive place for Gene and his team to park the company?.

Hi, Dan. Thank you for the question. I believe that joining PerkinElmer family because of their infrastructure and instrumentation will be led - I’ll let you - very concurrent will be able to leverage this infrastructure and instrumentation for the further down to expand in price to different applications. That's my great view for the future..

Thanks, Gene. And then just a clean-up question here on bridging to the new guide.

I realize you didn't change your COVID expectation in the second half of the year from prior but I do think the back-to-school testing, when you had earlier was incremental since your last guide, so can you talk about, maybe it is that upside to the guide, is there any back-to-school testing for COVID in your - your new view?.

There's a nominal amount in our second half guide Dan, so that program is difficult to predict just how large it'll be, the team is doing a great job getting it set up and I think we received our first few samples, not from a back-to-school perspective but don't forget it also takes into account congregate settings as well.

So I think predicting the September through December and truly the contract goes through the end of November, how much back-to-school testing that will be is difficult, so we put in a nominal amount and I think it just continues to give us confidence in the second half COVID guide that if you look at the first half, we've continued to outperform and thought that it was prudent to just kind of keep that number right now..

Next question comes from Derik de Bruin from Bank of America. Your line is now open..

Derik, are you muted. Operator, why don’t we go to the next….

Sorry, mute - I am sorry, my mute button was on. Sorry about that. Hey, a couple of questions on the first one on the guide for - on the guide for the third quarter. Adjusted EPS of the $1.62, the Street was around $1.71 and that's sort of where we were at.

And the COVID number is actually a little bit higher in the third quarter in terms of regarding in terms of modeling. I'm just curious, are there any incremental expenses or cost communist, I'm just sort of curious about the margin outlook for the back half of the year..

Yes. So we continued to invest heavily in R&D, in particular. So we do anticipate that it continues to ramp here Derik, as well as, as you look at the second half. I think in total, I looked at the 3Q, 4Q splits, I think in total, they're pretty much accurate.

The only other thing that's coming down a little bit, we've got a little bit of extra growth, we've got a little bit of pressure on our COVID margins that we're assuming gears. And otherwise, I think we're pretty much in line with the second half..

Okay.

And on BioLegend, are you comfortable with the 2022 consensus members as we sort of think about accretion? And where we should go? I just - sort of looking at where our consensus expectations are right now?.

I appreciate the question Derik, but I don't think we're going to get into 2022 guidance at this point..

I got to try..

I know, it’s a good one..

Your next question comes from Matt Sykes of Goldman Sachs. Your line is now open..

Thanks for taking my question and congrats on the deal everybody.

I just wanted to get a little bit better idea on BioLegend, you had mentioned that the San Diego facility seems to be relatively new, but can just give an idea in terms of need for additional capacity investments in the future? It sounds like there likely won't be a need, but if you maybe layer in some of your existing manufacturing into that facility if that's even possible? Will it have to create additional investment or you feel like you're pretty well set up from a capacity standpoint with BioLegend what you're bringing on today?.

Yes, thanks for that. I'll start and then the teams here with me - so, feel free to chime in as well. But it's a beautiful facility. I think it's one year, two years old. So, - and it's got four significant buildings here, I'd say there's ample room for capacity growth for many years to come.

So, - right and I don't think there's a lot of investment required, so every year there might be a little bit of CapEx, but I don't think it's substantial in the grand scheme of the overall investment strategy for the company.

So, long story short, beautiful facility, tremendous distribution capabilities, tremendous technology capabilities, and a lot of room to expand even within the existing footprint..

Great. And just quickly on free cash flow, you mentioned that you're going to start to de-lever to get back to - to get - make sure that you're within investment-grade. But as the COVID revenue comes down, that cash flow goes away.

Do you think a large portion of free cash will be committed to de-levering? Are you still going to be somewhat opportunistic as we head into 2022?.

Yes, I think a large portion of the free cash flow is going to go to de-levering, for sure. So, I think we're in a great spot right now. I think we're still generating a significant amount of cash, over 100% of our net income. So, as we look at - as I mentioned in my prepared remarks, we think we can de-lever within 18 to 24 months.

I think any acquisitions would be very material in the grand scheme of things and will knock us off our de-levering path here..

Next question comes from Josh Waldman of Cleveland Research. Your line is now open..

Just one on China and then one on BioLegend.

I guess, first on China, I wondered if you could talk to how that region performed versus expectations in the quarter? And maybe provide a bit more color on kind of trends you're seeing there within kind of the non-COVID business? And then as you look forward to the second half, any change in your outlook there?.

Yes, China, as I mentioned my prepared remarks, grew in the high 20% range and probably a little bit better than our expectations. If you remember the sequencing of last year, Josh, the first quarter was the worst for China, second quarter got better, I think we reported at the time we were down mid-teens.

So, being up high 20s out of mid comp kind of gives you high single-digit average two-year stack growth here, and I think it's performing across the board. So life science is never really dipped down. Life sciences was strong, during all 2020 remain strong.

Food was a little bit more challenged, so food, it’s nice to see I mentioned in my prepared remarks Meizheng coming back quite nicely. The Analytical business is coming back. Reproductive health also, the utilization started to uptick last year, but we're coming off a little bit of an easier comp from a birth rate and testing perspective.

So, really all facets of the business are performing nicely. EUROIMMUN is doing extremely well. So I mentioned EUROIMMUN being up strong double-digits and much of that was led by China. So overall, probably a little bit better than we expected, and as you look to the second half, I don't think we see that slowing down at this point. .

Then on BioLegend, just wondering if you could provide more color on the revenue synergy opportunities you see.

I guess, are there examples where you see the combined organization expanding share at current key accounts? Or is it more of an expansion, I guess, either geographically or it's a new accounts story? And then also I believe the company was selling through many of the major channels, is there opportunity to pull some of that business direct?.

I think it's a combination of all three of what you mentioned Josh, obviously, there's a global reach and stronger exposure in an EU and APAC at the same time. They have a strong penetration in the academic marketplace, where we've been a little bit under index and that's where it could help us on one side.

And we can provide better cross-selling opportunities in pharma. So I think from a geographic perspective, there are opportunities on both sides and there are some markets where we could help both sides. And Jamey talked earlier on the channel piece and I talked about the technology piece, so I don't know if there's anything else. .

No. I think it’s fair. Yes..

Next question comes from Dan Arias of Stifel. Your line is now open..

This is Daniel Macek on for today. Thanks for taking the questions. So first, realize you probably don't want to get too far ahead of yourselves here, but I'm wondering if outlook or at least maybe the internal conversation for durable COVID revenues and out years has changed at all.

I know you said $100 million, obviously, what that would imply a steep drop in 2022, I would assume expectations are more gradual there, just thinking about in the context of, well, peers are bringing down COVID testing numbers, but layering in things like back-to-school testing emerging variants, and then obviously the potential for this thing to pick back up seasonally just wondering if you have any thoughts there?.

Yes. I’ll start by reiterating kind of what we said at Investor and Analyst Day, which is to say that the original $100 million that we put forward had nothing to do with actual testing, it had everything to do with the utilization of the strong installed base that we put out there.

So certainly, are we're becoming increasingly confident that there's going to be some amount of testing that's here for the foreseeable future. I think we're already starting to see that in the third quarter - early part of the third quarter.

I think some of our serology testing, PCR testings, antigen even is starting to go make a little bit of a inroads there, variant testing T cells.

So I’d say we're more confident leading into 2022 that they're $100 million of durable COVID revenue is safe, both from utilization standpoint, but then I think testing will remain around for a while here and should provide upside to that number..

All right. That's very helpful, thanks. And then just kind of pivoting here to Oxford.

I think that most of BioLegend stuff - got finished, so I just wanted to know how implementation has been there and what type of growth rate you're seeing and then expecting from that business?.

Should have been doing great, great collaboration and progress on all of the value drivers that we had. In terms of first half, strong organic growth obviously off of a fairly easy comparison, but you know in line are ahead of our deal model at this point.

If you look at the value drivers from an automation perspective there's been a lot of progress in liquid handling and cell isolation and maybe even looking at cell counting moving forward here, as well as utilization of some of our labs.

From a commercial perspective, I think we've helped each other win in certain markets, some of the emerging markets of Brazil, some parts of the Middle East and across the globe we've won some nice tenders, so exciting there and it's a phenomenal team, extremely well driven business.

I think they're excited about the synergy and the pace with PerkinElmer and even more confident in the potential ahead. .

Next question comes from Jack Meehan of Nephron. Your line is open..

I had a couple of follow ups on BioLegend’s.

First, can you give some color what's their geographic mix of revenues today? And then second for Jamey, can you help bridge us on the $0.30 of initial creation, just what's their margin profile look like today? I was getting over 50% and any thoughts on financing expense and any tax benefits you might get?.

Yes. So first, on the geographic split. I forget what page summarizes being covered, so it's a page 4 of the deck we sent out Jack, so you can see 55% North America, 25% European and Rest of the World and 20% Asia Pacific.

In terms of margins, I will repeat what I said to the prior question that, yes, on an EBITDA basis the overall margins are in the 50%-ish range, adjusted operating profit is probably close to that, you know, call it mid-40s. So I think overall that kind of bridges.

And then your question around financing and tax is that what you said Jack, yes can you just clarify?.

Yes..

So yes.

So from a financing perspective, you know, primarily we're super excited that the team was willing to take 40% equity, I think it shows their commitment to the company, their excitement for the company, their excitement for what the combined entity can do, so that's that takes care of 2.2 billion or roughly 40% of the overall consideration when you factor in their cash as well.

We have a bridge fully committed at this point. So, we're fine from a financing perspective, we don't anticipate using that, I think in advance that we will take out permanent debt. I think it'll be relatively low cost, at this point and we're pretty excited about that which provides a good amount of VPS accretion at this point.

And then from a tax rate perspective based in the State of California, so a little bit higher state tax, but overall, that's already embedded into everything that I've given to you.

the last thing I say is that, the rating agencies have, you know, we've reached them and they should be out today, but we fully expect to remain investment credit rating here at this point. .

And then when we get a little bit more color on DAS in the quarter. So that came in stronger than expected for us.

I was just curious, as you're looking at the third quarter in the back half of the year, how do you expect that to trend and relative to what you might have been thinking for 2Q, what areas showed the most upside?.

Yes. So, if you look at last year, first as the comparison, the second quarter was the easiest comparison and DAS got, I think it was down low single digits in the third and fourth quarter here, so from a comparables perspective that will naturally, but from a growth perspective I think it's continued to be extremely strong.

So life sciences now makes up over 60% of the DAS business. There is no reason to believe that DAS slows down, maybe from a comp perspective, it gets a little bit more difficult, but overall, I mentioned cannabis is starting to sell again so that's encouraging, the imaging business and food quality - food safety is growing nicely.

Our applied business, I think that's been a testimony to the MPIs, the organic investment we've made. So I mentioned the semiconductor business and our NexION 5000, which is extremely sensitive, is terrific for smaller wafers and fabs. Our new IR product is going well.

So I think if you remember and step back for the applied markets value creation story is much more of an organic investment belief. And we've been investing in R&D, we've been up ticking the R&D, and I think that cadence of new product introduction is encouraging and so we expect that to continue to perform well in the second half year..

Next question comes from Tycho Peterson of JPMorgan. Your line is now open..

Just a couple of cleanups on BioLegend, the C&E FDC risk here, vertical integration that you're developing your own antibodies, and then putting them in your own tests, actually the FDC has been scrutinizing a lot of health care deals lately?.

Tycho, we don't expect any issues on that front..

Okay.

And then was there any COVID bumps in their revenues over the past year, or if we think about next year that $380 million, how much of that might be tied to COVID?.

None..

None..

Okay.

And then, I know we've talked to them before, they talked about this partnership model it's not a typical past supply agreement they generally have with customers, can you maybe just talk about the economics of co-development that they generally have with customers, and anything in the pipeline that jumped out to you, I think they're developing an in-situ product that they apply to us in the past?.

Yes, we have Craig Monell here who's the Head of Product Strategy & Commercial Operations here, take over..

Yes, and thanks for the question. So with regard to our partnership model, we do sell a large fraction of our product directly, straight from our catalog. But we engage in a good amount of custom business as well.

So these are largely pharma, CRO’s and such who will approach us oftentimes after using something from our catalog and ask for tweaks, maybe a custom cocktail to do amino profiling together in a immunotherapeutic trial.

And so we'll go ahead and put those together and sell those, and these are products that will be available over, maybe a two year time period or whatever. So we continue to do that aggressively.

There is no reason to think that we would need to change any of that, I think if anything the combination with PerkinElmer allows us to maybe look at providing a greater form of solution across a lot of the installed instrument bases and even maybe some new ones that we can put together..

Okay.

And then on the pipeline?.

So on the pipeline, we have a very robust pipeline, we release over 1,000 products each year. Those are relevant both to the academic marketplace as well as our industrial partners. A lot of things related to new recombinant proteins, continued antibodies, floors, as well as assay kits.

These will synergize very greatly with some of the - some of the platforms both chemistry platforms like Cisbio, as well as all the instrument platforms..

Okay. And then maybe last one for Prahlad. I know, it sounds like M&A, maybe on pause here for a little bit after this deal. But can you talk to your ability on the integration side you've got a lot on your plate with Horizon, Oxford, SIRION, Cisbio, Nexcelom and now BioLegend.

Can you just maybe talk to your bandwidth and how you're thinking about integration here?.

Yes. Sure. Great question, Tycho, I mean as I've shared with you before what we've tried - we've done at the beginning of the year or early - on the latter part of last year. We have put together what we call as an integration transformation office.

And if you actually look through the flow of how the acquisitions have come in into PerkinElmer and the way we've sort of sequence them. They go into different business area, or different portfolios or different end markets. So we've had a very diligent and a deliberate sequence of the acquisitions.

And I think, you're right at the going - you're right in the fact that going forward you will probably hit the pause button for some time till we fully integrate this and have a seamless transition of all of these into the PerkinElmer family..

Thank you for participating in the question-and-answer session. Now I'm going to turn the call back to Mr. Prahlad Singh for some closing remarks. Sir, please go ahead..

Thank you all for joining us this morning. We are more excited about the future of PerkinElmer now than ever before. I also want to take the opportunity to welcome the BioLegend team to the PerkinElmer family. I look forward to speaking to all of you soon. Thank you very much..

This concludes today's conference call. Thank you all for joining. And you may now hang up..