Douglas Berthiaume – Chairman, President and CEO Gene Cassis – VP and CFO.

Brandon Couillard – Jefferies Doug Schenkel – Cowen Ross Muken – ISI Group Paul Knight – Janney Capital Markets Tycho Peterson – JPMorgan John Gruber – Macquarie Dan Leonard – Leerink Isaac Ro – Goldman Sachs Amanda Murphy – William Blair Tim Evans – Wells Fargo Jeff Elliott – Baird Bryan Brokmeier – Maxim Group Peter Lawson – Mizuho Securities Derik De Bruin – Bank of America.

Good morning. Welcome to Waters Corporation Second Quarter Financial Results Conference Call. All participants will be able to listen only until the question-and-answer session of the conference. This conference is being recorded. If anyone has any objections, please disconnect at this time. I would like to introduce your host for today’s call, Mr.

Douglas Berthiaume, Chairman, President, and Chief Executive Officer of Waters Corporation. Sir, you may begin..

Thank you. Well, good morning, and welcome to the Waters Corporation Second Quarter 2014 Financial Results Conference Call. With me on today’s call is Gene Cassis, the Waters’ Chief Financial Officer; Art Caputo, the President of the Waters Division; and John Lynch, the Vice President of Investor Relations.

As is our normal practice, I’ll start with an overview of the quarter’s business, and Gene will follow with details of our financial results and then update you with our outlook for the third quarter and for the full year. And before we get going, I’d like Gene to cover the cautionary language..

Thank you, Doug. During the course of this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future income statement results of the company, this time for quarter three and full year 2014.

We caution you that all such statements are only predictions and that actual events and results may differ materially.

For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, please see our 10-K annual report for fiscal year ended December 31, 2013, in Part 1 under the caption Risk Factors, and the cautionary language included in this morning’s press release and 8-K.

We further caution you that the company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results, except during our regularly scheduled quarterly earnings release conference calls and webcasts.

The next earnings release call and webcast is currently planned for October 2014. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly compatible GAAP measures is attached in the company’s earnings release issued this morning.

In our discussions of the results of operations, we may refer to pro forma results, which exclude the impact of items such as those outlined in our schedule entitled Quarterly Reconciliation of GAAP to Adjusted Non-GAAP Financials included in this morning’s press release.

Doug?.

Thank you, Gene. Well, our second quarter’s results were largely in line with our expectations. Improved demand from our global pharmaceutical customers and strong overall sales growth in the United States contributed nicely to our topline.

In comparison to the first quarter, higher sales volume, more favorable currency translation, and continued cost controls resulted in improved operational leverage and double-digit growth in our adjusted earnings per share. Looking at the second quarter, our constant currency sales were up 6% and our adjusted earnings per share grew at 13%.

For the Waters Division, organic sales growth was 6% and benefited from stronger shipment volume to pharmaceutical end markets. Budgetary delays that we had cited in our April call resulted in a shift of business into the second quarter, most significantly in the U.S.

Overall sales to our broadly defined pharmaceutical segment were up 8% in the quarter and up 5% through the first half of 2014. Global government and academic business declined moderately in the quarter with growth in the U.S. offset by continued weakness in China and a quarterly decline in Europe.

This European decline was primarily due to very strong growth in the prior year’s results. We anticipate government-funded instrument sales in the U.S. to continue to increase during the second half of this year and are also seeing signs that governmental spending in China is beginning to improve.

Our combined industrial chemical and chemical analysis businesses grew at a mid-single-digit rate in the quarter and benefited from a nice pickup in most developing markets. Geographically, we saw varying levels of strength across our key regions. Coming into the quarter, we were very focused on monitoring business conditions in China.

As you may recall, a drop in order volume had an adverse effect on our first quarter results, and that we had attributed this lower business flow to delays in placing orders at governmentally-funded institutions.

Through most of the second quarter, we continued to see a similar dynamic, and consequently finished the quarter with a double-digit decline in China’s sales.

However, during the closing weeks of the quarter, we began to see improving governmental orders, and by the close of the quarter and in contrast of the first quarter, we finished with a moderate increase in orders and a nice sequential pickup in orders in comparison to the first quarter results.

Needless to say, we are continuing to watch for signs of improving momentum in China, and at this time, we feel encouraged by the second quarter’s ordering trends that suggest a return to growth in orders and sales during the second half of 2014. Sales growth in the U.S. was encouraging in the second quarter.

For the Waters Division, sales were up 9% with particular strength in governmentally-funded accounts and with the solid performance in our pharmaceutical business. Elsewhere in the Americas, business trends were very positive and recovered nicely from a slow first-quarter start.

Waters Division constant currency sales in Japan moderately increased in the quarter and were up around 8% through the first half of 2014. In the quarter, meaningful improvements in pharmaceutical and industrial chemical accounts were tempered by declines in public sector spending.

Our business in Asia outside of China and Japan was robust in the second quarter. India, in particular, saw a healthy and long-awaited return to double-digit sales growth as generic drug firms resumed adding new instruments and replacing old ones.

In addition, the stability of the rupee and a general sense of optimism following the recent election cycle seemed to be contributing to more favorable business conditions. Our European Waters Division business at constant currency grew modestly in the second quarter.

Pharmaceutical sales were up mid-single digits, while our government and academic business declined in comparison to a double-digit increase in the 2013 quarter. Looking at our TA Instruments division, sales were up 9% in the quarter.

Within the quarter, we began to see sales from recently acquired businesses contributing to the division’s topline performance. In general, sales growth for TA was strongest in developed markets, including the U.S., Europe, and Japan.

Underlying demand for TA’s products and services appears to be strengthening as we move into the second half of 2014, and we are looking to achieve mid to high single-digit topline growth in the second half of the year. Now, I would like to turn to some product line dynamics that we saw in the quarter.

Our recurring revenues, the combination of service and chromatography consumables, grew 7% in the second quarter. Waters’ service business was generally strong across all major regions as the trend toward higher penetration for service maintenance contracts was apparent in the quarter’s results.

On the chemistry front, our new line of LC columns called CORTECS was recognized as a significant scientific achievement by R&D Magazine with the prestigious R&D 100 Award.

This new CORTECS packing product line is complementary to our broad line of UPLC chemistry offerings, and will further expand the application reach of UPLC technology, especially for UPLC MS applications. Waters Division instrument system sales grew at a mid-single-digit rate in the quarter. Demand improved most significantly in the U.S.

where our more advanced instrument systems benefited from higher funding for governmentally-supported labs and improved spending by pharmaceutical customers. Overall, sales for research-focused UPLC MS systems in the U.S. were up double digits.

Outside of the Americas, sales in Europe for research UPLC MS systems declined against the strong base in 2013. In Asia, shipment volumes declined as orders in China were booked too late in the quarter to complete shipments and recognize revenue.

Demand for our tandem quadrupole systems improved in the second quarter in comparison to our first quarter’s results. The improvements that we saw were most apparent in the U.S. with stronger pharmaceutical demand and an increase in clinical diagnostic business drove our growth.

At this year’s ASMS conference in June, Waters showcased a range of new systems offerings. Most significantly, we introduced two new Xevo benchtop mass spectrometers, the Xevo G2-XS QTof and the Xevo TQ-S micro. Each of these new offerings provides researchers with a differentiated level of performance and value in a compact benchtop design.

Initial customer feedback has been very positive, and we are anticipating meaningful shipment volumes of these new systems in the second half of 2014. Earlier in the year at the Pittsburgh conference, we introduced ionKey technology for our Xevo TQ-S tandem quadrupole system.

This advanced Ion Source couples the demonstrated advantages of our StepWave technology with an integrated tile-based ACQUITY column separation to deliver improved sensitivity for challenging applications. In the second quarter, adoption of this technology had a positive effect on our high performance Xevo TQ-S orders and sales.

Based on the demonstrated advantages of this new technology source, we announced at ASMS that ionKey will be available as an option for a wider range of our tandem quadrupole and top platforms. On a chromatography front, ACQUITY instrument system sales benefited from another strong quarter for our ACQUITY QDA mass detector.

The primary application area for this new detection technology continued to be in the area of small molecule drug research, and in the second quarter, we saw drug research customers purchase the QDA as a detection module for existing UPLC or HPLC systems as well as within new system orders.

The sales volume associated with the QDA through the first half of 2014 is consistent with an opportunity to generate meaningful and largely incremental sales from this new mass detector. Now, I would like to turn to our outlook for the second half of 2014.

Broadly speaking, we are anticipating sales growth in the third and fourth quarter of 2014 that will result in full-year constant currency mid-single-digit growth for the corporation.

For the Waters division, this growth anticipates pharmaceutical demand that is consistent with the first half’s results, continued growth in governmental and academic spending in the U.S., and a return to positive growth in our China business. The division’s recurring revenues are envisioned as continuing to grow at a solid mid-single-digit range.

If you look at TA instruments, we anticipate seeing more sales associated with the recently acquired product lines and a high-single-digit topline full-year growth rate.

On the M&A front and for the Waters division, we see opportunities to benefit our long-term initiatives in applications such as food safety testing, microbiology, and clinical diagnostics by licensing and acquiring innovative technologies.

In fact, later today we plan to issue a press release that will describe a technology investment that is directed towards future growth in these areas. For our TA division, we will likely continue a consistent and focused business acquisition plan.

However, given our primary focus on driving organic growth, we plan to continue to deploy the lion’s share of our strong cash generation on our share repurchase program. And finally on leadership transition front, we continue to progress in the search for my successor.

During the second quarter, we have continued to identify well qualified executives whose candidacies are now being further developed.

Though we are optimistic about completing a transition within the timeframe we have already discussed, our primary focus will be to ensure a smooth succession that will result in the retention of the core tenants of our focused and proven business strategy.

I will look forward to sharing with you more information on developments in this area in the upcoming quarters. In the meantime, we will direct our operational efforts towards building on the positive business momentum that drove our second quarter’s performance and leverage the advantages of our recent new product launches.

Now, I would like to turn to Gene for a review of our financials and an update on our outlook..

Thank you, Doug, and again good morning. In the second quarter, our sales came in at $482 million, an increase of 7% over last year with currency translation adding about 1 percentage point to sales. Our non-GAAP earnings per diluted share were up 13% to $1.22. On a GAAP basis, our earnings per share were $1.13 versus $1.03 last year.

A reconciliation of our GAAP to non-GAAP earnings is attached to our press release that was issued this morning. Looking at our growth geographically and before foreign currency effects, U.S. sales were up 11%, Europe was up 2%, Japan up 4%, and sales in Asia outside of Japan were also up 4%.

Strong sales growth in India helped offset a decline in China. Rest of world sales notably including Latin America were up 10%. On the products front, and again in constant currency and within the Waters division, instrument sales increased by 5% and our recurring revenues grew by 7%. In all, the Waters division sales were up 6%.

For our TA instruments division, constant currency sales including instruments and services increased by 9%. Now, I would like to comment on our second quarter’s non-GAAP financial performance versus the prior year. Gross margins came in at 58.1% versus 58.3% in the second quarter last year.

SG&A expenses were up about 3% before foreign currency effects, which added another 2 percentage points. R&D expenses increased 6% before foreign currency translation, and notably the British pound contributed to add another 3 points to the reported growth number.

On the tax front, our effective operating tax rate for the quarter came in at about a point lower than expected and at 14%. This favorability was primarily due to production mix dynamics. For the full year 2014, we now expect our operating tax rate to be between 14% and 15%.

In the quarter, net interest expense was at $6 million and share account came in at 85.2 million shares or approximately 1.4 million shares lower than in the second quarter last year, a net result of our share repurchase program.

Turning to the balance sheet, cash and short-term investments totaled $1.9 billion, and debt totaled $1.4 billion bringing us to a net cash position of $524 million. As for second quarter share repurchases, we bought 908,000 shares of our common stock for $93 million.

In May 2014, the Board of Directors authorized a new three-year share repurchase program for $750 million while extending the duration of a previously authorized program. So, in all, we have more than $900 million in authorized share repurchases remaining when both programs are considered.

We define free cash flow as cash from operations, less capital expenditures, plus non-cash benefits from stock-based compensation accounting, and excluding unusual non-recurring items. In the second quarter, free cash flow came in at $110 million after funding $17 million of capital.

Excluded from this amount was $5 million of investment associated with major facility expansion and a one-time $21 million pension contribution in Europe. Accounts receivable days outstanding stood at 78 days this quarter, up 2 days from the second quarter last year.

In the quarter, inventories increased by $6 million in comparison to the first quarter to accommodate new ASMS product launches. Now I will discuss our 2014 full-year outlook.

For the second half of 2014, we anticipate positive new product momentum, a continuation of growth in our pharmaceutical markets and in our recurring revenues, and we also anticipate a general improvement in our Chinese business. With these dynamics in play, we expect to finish the year with a mid-single-digit topline sales growth.

On the currency translation front and at current exchange rates, we are estimating that our full year – that for the full year, currency will be approximately neutral to sales growth.

Moving down the P&L, gross margins for the full year are expected to be between 58.5% and 59% as we anticipate stronger than previously envisioned headwinds from foreign currency. In particular, the British pound which has continued to strengthen year-to-date.

Operating expenses at constant currency are expected to be up moderately from 2013 levels and below our sales growth. Moving down to the operated – moving below the operating profit line, net interest expense is expected to be approximately $28 million, and we expect our full-year operating tax rate to be in the range of 14% to 15%.

Turning to share count, our full year average diluted share count is expected to be reduced to around 48.5 million shares outstanding as a result of our continued….

Not 48..

I’m sorry 84, I’m sorry, 84.5 million shares outstanding as a result of continued share repurchases. Thank you, Doug. Rolling all of this together, non-GAAP earnings per fully diluted share are expected to be in the range of $5.25 to $5.40.

As we think about our expectations for the third quarter of 2014, we anticipate organic sales growth to come in at or above mid-single-digit range. Currency translation at today’s rate would be about neutral to sales growth.

This level of sales growth is expected to result in operating leverage that is less than what we delivered in the second quarter. This is due to the timing of variable compensation expenses in the base year. For the third quarter, we anticipate non-GAAP earnings per fully diluted share to be within a range of $1.22 to $1.32. That’s it. Thank you.

Doug?.

Thank you, Gene. And operator, I think we can now open it up for Q&A..

Thank you. [Operator Instructions]. Our first question comes from Brandon Couillard with Jefferies..

Doug, could you elaborate on what you saw in terms of mass spec demand on a year-over-year basis and give us some more color both across technology verticals and end markets? One of your competitors had cited strength in the academic market, curious what you saw there?.

Sure. Overall, the underlying strength in our mass spec business was somewhat camouflaged by the lateness of the orders. So, overall we saw mid to high single-digit orders rate growth, but particularly in China, a lot of those orders came in late in the quarter and you didn’t see it reflected in revenue. So I think, we are seeing good decent demand.

ASMS came a little later this year than it normally does, so we did see some customers delaying decision-making, and some of that I think clearly slipped out of the second quarter, and we’ll see more momentum on those new introductions coming in the second half of the year.

Gene, do you want to talk about the academic dynamics or at least the --?.

Yes, it’s interesting that in the first half of last year, we had particularly strong academic uptick in our SYNAPT and QTof business in Europe, and of course that’s in the base this year. Now, we’re beginning to see sort of an echo effect in the U.S. as governmental spending in the U.S. is better funded this year.

So, I would say that, key leading dynamics are improved spending by governmental accounts for high-end mass spectrometry products in the U.S., and another thing that we’re seeing again in the U.S. is a nice uptick in both quadrupole and orthogonal time of flight in the pharmaceutical area.

So, I would say that as Doug mentioned, we ended up seeing some demand late in the quarter, particularly from China, that wasn’t reflected in sales but is in the order book, and we suffered from a little bit of a tough base of comparison in Europe just given the particular strength that we had during the first half of 2013..

And I would say Brandon, in terms of underlying symptoms, we’re seeing very strong interest particularly out of academic medical centers for very large programs that anticipate investments in mass spectrometry. I would say in terms of leading indicators, that’s a strong and early dynamic or symptom that we’ve seen recently, so that’s encouraging..

Thanks, that is helpful. And then one for Gene.

Could you quantify the impact of currency on the EPS line both in the second quarter and as well as what’s baked into your full-year guidance at this point? And then could you quantify the impact of M&A on the TA segment in 2Q on the revenue line?.

Yes, if I look at the first half of the – of this year, we probably had a total effect year-over-year of about $0.10 that we can attribute to currency, and most of that came in the first quarter because we had a more meaningful yen comparison in the first quarter. So we probably had about $0.01 headwind from currency in the second quarter.

Looking at the full year, you’re likely to see currency during the remaining -- during the remaining two quarters become a slight headwind, a few cents, fortunately largely offset from a more favorable tax rate this year. So, the negative effect of currency on our EPS is largely offset by the positive on the tax rate.

I think for the full year, if I take a look at the effect of M&A, you’re likely to see the major contribution from our TA instruments division.

You will recall they acquired four smaller companies last year, and we’re beginning to see the positive impact of those acquisitions in the second quarter, and my estimate is that we might benefit around 50 basis points this year on the topline, primarily from TA acquisitions..

And the second quarter impact was $2 million to $3 million..

It was a little bit higher. It was a little bit more than half of the TA growth in sales that we can attribute to these acquired companies, but again, if I look at the underlying order dynamics, it’s looking as if about half of the growth that we get from TA this year will be M&A or acquired businesses and the other half organic..

Brandon Couillard – Jefferies:.

Thank you. Next question is Doug Schenkel with Cowen and Company..

Good morning. So you indicated in your prepared remarks that part of the recovery in the second quarter was driven by recapturing of revenue not captured in Q1, and you seemed to point largely to U.S. pharma, and clearly while you indicated China got better in terms of orders, at the end of the quarter it didn't help you at the revenue line.

So it seems like when you are talking about the recapturing, you are talking about U.S. pharma, but when I go back to what you described during the quarter talking about the $20 million Q1 miss, about $15 million of that was attributed to China and $5 million was attributed to TA backlog.

And usually when I think of recapturing revenue, I think the incremental margin is going to be a lot better, so I'm just trying to figure out the disconnect here.

It does seem like there is a little bit of a disconnect in the explanation, and really importantly as I think about looking ahead, it is definitely great to hear that China is getting better, but it is hard for me to understand exactly what is going on with Waters in the bio-pharma end market.

Are things getting better or was there just a recapturing of revenue?.

Well, just to -- just to go back and look at the first quarter momentarily right in the $20 million miss, and we had described that as about half of that attributed to slower order growth in China.

We had about $5 million associated with the backlog build at TA and another $5 million that we attributed largely to just business shifting in pharma from the first quarter into the second quarter, so it was about a $5 million issue that we were talking about in terms of order slippage and sales slippage.

If I take a look at where we are through the first half of this year, the pharmaceutical -- global biopharmaceutical growth is up around 5%, so the strength that we saw in the second quarter of 8% growth in sales does contain some of that business that we might have -- you might think of as first-quarter business.

So, going forward, Doug, I would say that a way to think about it is that for the first half, we grew at a nice, mid-single-digit range. We think that that is a logical outlook for the second half of the year..

Okay that is helpful. And then, I guess just a couple cleanups. OpEx increased $10 million relative to Q1, we haven’t seen that since 2011. Most of this was at the SG&A line.

I understand some of this was at least FX year-over-year, but I wouldn’t think that would make a huge difference sequentially, so I guess I’m just trying to get a better handle on, are there particular areas where you guys are stepping up investment and is this catch up or is it opportunistic as you see some signs of promise in particular areas?.

Well, it had a few components to it Doug. When you look at the business sequentially, you have to realize that we do have married increases that kick in at the first of April. So, you have that and of course that’s in the base quarter last quarter.

And you’re right, there is a foreign currency impact that we have, particularly the pound and the euro, both of those hit us in the second quarter and contributed about 2 percentage points of growth on the SG&A line.

On top of that and you also have the effect of the acquired businesses at TA, it is not a big effect, but you do have more operating run rate expenses associated with those companies that we acquired last year..

And the revenue hasn’t really totally kicked in at this point..

Yes. So, those we think are the major components of the SG&A increase..

Okay. And very last one, I don’t think you gave a specific to one decimal point contribution from M&A and FX in the quarter.

Would you be willing to break those out?.

FX was 1 point, and M&A was less than 1 point, it was about three quarters of a point..

Yes, it was about 70 basis points from M&A in the quarter, but again it was – it’s kind of particular to the shipments that we made in the quarter. If I take a look at the underlying impact of the TA acquired businesses, you’re going to be closer to 50 basis points for the year..

Okay, thank you..

Thank you. Next question is Ross Muken with ISI Group..

Good morning guys. I want to dig in a little bit more again just on sort of China and the rest of Asia, and it seems like developing markets kind of getting better across the portfolio. Usually, that would sort of be feeding off at least as we think to Asia off of China.

I guess in terms of the weakness there, particularly on the government end, are we still seeing some of the delays just in terms of budget approvals on high end CapEx, you know say over $50,000 type items where it’s really the sign off process that is just taking time given some of the anti-corruption probe and sort of concerns? And secondarily, when you are seeing some of the order pickup or order improvement, you are feeling more comfortable, is some of that activity that should've happened in the first half that is now getting signed so there is a bit of a catchup or do you think just underlying improvement is kind of happening as just -- there are some releases but demand is also coming back?.

Well Ross, you asked a number of questions in there. First of all, the overall Asia business, ex-China, as a matter of fact, the overall developing world definitely saw an uptick in the quarter. Of particular note I would say is India where we’ve been struggling with the political dynamics, the strength of the rupee or the weakness I should.

We clearly saw a turn in India, and we’ve continued to see that as we go into the second half. So, I think the symptoms in India are very positive. In China, we think that we’ve seen a clear turnaround in the underlying dynamics of the orders in the revenue cycle.

It came in the latter part of the quarter and it particularly turned up in the last few weeks, and needless to say we’re continuing to monitor that, we monitor the China organization, look at the drop sheets. We think we have seen very clear symptoms that the overall tenor of that marketplace has improved.

Now, how much we recapture from what maybe could have been a run rate basis in the first half, right now we are not counting on a doubling up of what happens in China. We’re anticipating that this turn that we saw late in the quarter is going to continue to build some momentum as we go through the rest of the year.

We clearly see a number of signs that that’s likely to happen.

We think the issues that existed is related to a crackdown on corruption kind of was a general dynamic that affected a lot of business in China wasn’t necessarily focused on the lab and analytical marketplace, and to that extent, maybe we have seen it leave that area of the marketplace sooner than some others, but clearly we are more optimistic as we go into the second half..

And maybe taking off something Doug said earlier, I mean as we think about the margin line, I mean it seems like the last 12, 18 months have really been characterized a lot by sort of FX movements and sort of a drain, but we have been sort of hovering in this high 20’s area of margin now for a while.

I think you hit 29.5 on an annual basis back in ‘11 and that was kind of the peak.

I mean as you think about peak margins in this business or the multi-year opportunity and how that translates into kind of your multi-year view on earnings growth, I mean has anything else in the business changed around what you think this model can kind of deliver, and if we stripped out all the noise on FX the last several quarters, anything else of note that you would point out from an incremental perspective that in your mind has kind of changed?.

I think that during the time period you’re focusing on, Ross, I think one of the things to bear in mind is that the overall pharmaceutical growth was somewhat less than historical averages typically for Waters Corporation.

The pharmaceutical segment has grown at the same rate as the corporation as a whole, and over the past couple of years has been a little bit of a point off the line. We’re kind of encouraged with the trends that we see this year where pharmaceutical seems to be picking up.

There is a certain ebb and flow in the business dynamics for that market, and I think that an important component of getting the leverage that we need at the operating profit line is going to be a more sustainable growth trajectory for the pharmaceutical segment..

Got it. Thanks Gene..

Welcome..

Thank you. Next question is Paul Knight with Janney Capital Markets..

Hi Gene, you had mentioned that the European academic market was down in the second quarter.

What was the dynamic last year, a large order flow last year? What do you see in Europe creating that, I think you mentioned down here in 2Q?.

I think there was a convergence of positives last year in that the funding, the funding was there and we had a very exciting product in our SYNAPT G2. And so, we were encouraged that that combined to have a very positive effect for us in Europe last year. We’re beginning, as I mentioned before, to see a little bit of an echo of that in the U.S.

this year. We believe that the product story is just as compelling and with the funding being better we’re optimistic for the second half of this year..

And then in China, you had mentioned, you know the corruption issue has been a major deal consolidation of agencies.

You seem pretty confident about 2H, is it the orders or anything else you see in China?.

Well, you know, if you look at the business in China and think about the non-governmental businesses, the occidental companies that have footprint there as well as the more chemical and food safety business, those businesses have done well all along.

So, it’s been the governmentally-funded businesses in particularly around the greater Beijing area where we’ve seen most of the problem.

And late in the second quarter, we began to see some orders break through on that front, and I don’t think -- we’re not deep enough into this release process to be able to call a new trajectory on demand, but it’s certainly more encouraging that we began to see some of these bigger ticket items start to flow through into sales..

We’re also seeing Paul, our customers act a little bit more confident as we go into the second half. So, that’s another point on the line that encourages us..

And then lastly, the healthcare market here in U.S., is it pharmaceutical better or is it biotech better?.

Well, it’s -- you know, it’s more of the spec pharmaceutical, it’s more of bio. The particular strength that we had in higher-end mass spectrometry in the U.S. is more indicative of the -- more of the biotech business.

The large pharmaceutical firms that currently make up something in the range of around 10% of our sales had a rather lackluster year-over-year performance. So, it is more specialty pharmaceutical biotech and generics that are showing strength..

And clinical too continues to be a pretty robust area particularly in areas of drugs of abuse testing and areas like that..

Thank you..

Thank you. Next question is Tycho Peterson with JPMorgan..

Hey thanks.

Just to clarify on guidance, you know bringing down the high end of the range by $0.10, is that just simply a catch up from the first quarter miss? I mean, obviously the end markets are improving a bit, you’ve got a lower tax rate, and you have got the restructuring initiatives, are there other factors in there in the back half of the year or is this simply recalibrating from the first quarter?.

No, I think when we gave guidance on the first quarter, the high-end of the guidance, anticipated that the issue in China would be resolved, and although we’re encouraged with some of the late quarter trends that we saw, we still had a sales decline in China.

So as you begin to think about a recovery and as the year – what remains in the year gets shorter and shorter, I think it’s only wise to be a little bit more conservative.

The other thing is that we’re seeing a little bit more pressure on the currency front, and depending on how product mix materializes for the full year, that could have a little bit of a drag. So, we thought that, that this range that we have right now, maybe has a little bit of conservatism in it.

It doesn’t anticipate a full recovery in China, and it does anticipate that we could have a little bit of headwind on the currency front..

But if you look at the tone of your question Tycho, I do think you – we are more optimistic than pessimistic about these estimates, I would say..

I know you had a question on China before, but as we think about -- I mean the tone at ASMS on China was pretty negative, Gene, so can you maybe just talk about the sustainability of the momentum you’re seeing there?.

Yes. I think we really can’t talk about that until we have a little bit more clarity on that front, Tycho.

I mean we are encouraged that very late in the quarter, and you’re right, post-ASMS we began to see some of these orders break through, but again I think it makes sense to be cautiously optimistic that this is the beginning of more improved business conditions. Fortunately, we are seeing the nice uptick in India offset.

We saw it offset some of the China weakness in the second quarter, and frankly the business trajectory in India looks pretty strong, so there could be a little bit of an upside for us during the second half of the year..

So I think the other thing in China, just another piece of positive data is that we’re talking to a few of the large clinical research centers that we know are favored in terms of the funding initiatives in China. We feel very close to some large commitments from those [tenors] (ph).

The timing is a little bit unclear, but we weren’t looking at that as strongly a quarter ago versus today. So, you know, more than a few points on a line that point to positive activity in China..

Okay, and then lastly Gene, can you just comment on the $6 million in restructuring in one-timers, and how should we think about additional restructuring initiatives going forward?.

I don’t think you should think about additional restructuring. There is nothing in the second half of this year that I see..

Thank you..

It was a first quarter dynamic, yeah, welcome..

Thank you. Next question, Jon Groberg of Macquarie..

Thanks, good morning. Hey Doug, from the tone around the CEO search, it sounds like this may take a little bit longer than you initially anticipated. I think oftentimes we think these things are going to go quicker.

Can you maybe just give us a little bit more color around kind of what you are seeing there and maybe why you think it could take a little longer?.

I’m not sure. From my perspective, it’s going about as I expected Jon. The process just -- you’ve got Directors involved, it’s not a one man initiative. So, you know, you’ve got to go through the process of identifying all the players and vet them and then reference check them.

That is mainly the reason why I provided such a long window of transition, so I think we are right where I expected. We have had some good strong interviews with very viable candidates, but it is just the process grinds it down finer and finer, so I fully anticipate that within the window I’ve described, we will have a very good candidate.

We’re continuing to vet both internal and external candidates, but it’s going to still take some time. I think I wouldn’t want or lead you to believe that we’ll have an announcement anytime in the next few months..

Okay, that’s helpful. And then Doug, also if you look at your balance sheet, I mean your net cash continues to build again. I know that you noted you are going to make a technology acquisition. I guess the question is are you -- you mentioned you are still committed to the buyback, but obviously you have given your cash outside the U.S.

I mean it continues to build up.

So I guess, I'm just trying to think about is there any shift in terms of what you want to do with that cash, and is this technology acquisition large enough that is it dilutive, is it contemplated in your guidance? I'm just trying to understand, I guess, your, kind of, cash, if there is any shift there around your cash [view] (ph)?.

Frankly, Jon there is no shift around our view. We continue to believe that it’s unlikely that we will do anything in substantive terms that increases the risk quotient in our business. We continue to believe that long-term we’ve got excellent opportunities to continue to grow the business at an organic rate that’s in the high-single digits.

It’s going to continue to produce outstanding free cash flow, and certainly if there is anything near the current price of our stock, we think it’s a good deal. So, we’ll continue to focus on the buybacks. The technology deal that we’re going to talk about with the press release is fully anticipated in our forecast for earnings and sales.

It’s not going to impact our sales in the short-term, but it is a very highly anticipated technology transaction largely focused in the mass spec and long-term in the clinical arena. So, we continue to think long-term. We are not looking at acquiring businesses, cost reducing, and leveraging the short-term.

I think we’ll continue to do what we’ve done for years, and I think in the long run, you wake up, we’ll have fewer shares outstanding and we’ll be leveraging the bottom line in a way we have historically..

And a lot of your customers are looking at – on the pharma side are doing inversions to be able to have more access to their cash, it sounds like that’s not something you are contemplating?.

It’s highly unlikely, I would say. We certainly wouldn’t be interested in doing it from a tax rate perspective, obviously inversions give you some additional ability to use your cash outside the U.S., but I would say that’s an unlikely scenario for us..

Okay thanks..

Dan Leonard with Leerink..

Great, thank you. I could use some more color on how important the new mass spec launches are to your second-half outlook.

I think Doug, you mentioned meaningful shipments are anticipated, but is there any way you can further quantify?.

It’s interesting that the two benchtop instruments that we have I think fit into a sweet spot within the mass spectrometry market. They are directed nicely at regulated testing. Clearly, I think they will represent significant shipment volume. It is not likely that there will be heavy cannibalization of our high-end TQ-S system.

So, as we looked across our product line and thought about the sequence of introductions that we’ve had over the past few years, we clearly recognize that some of these value priced, value performance segment of the market probably required a new product introduction, and we feel confident that from initial customer reception of these devices that we’re going to be in a nice position there.

In addition, Doug had alluded to the ionKey technology as being an important innovation in mass spectrometry, and I think it’s the combination of ionKey technology and these new benchtop devices along with the TQ-S also makes a very interesting opportunity for us..

Got it, that’s helpful color. And for my follow-up Doug, could you elaborate on a comment you made in response to Brandon’s question earlier. You mentioned there are some very large programs that academic medical centers that anticipate mass spec investments.

Could you talk a bit more about that, what are the applications and what specifically is happening on the field?.

Yes, I would say without mentioning specific names, we are looking at more large research programs in the academic medical center area than we probably ever have, and I would say they are closer to fruition than many of these discussions typically are.

I would say they -- you’ve all been exposed to the dramatic increase in investment in genomics that’s going on.

I think you’re beginning to see a similar type of focus on phenomics or whether it’s down to proteomics or metabolomics of looking what’s going on in specific phenome centers that are taking on kind of comparable levels of anticipated investment.

Well, we have certainly done some of that with Imperial College in London and building on that relationship, we’re seeing a great deal of interest apparent in other centers around the globe, you know not limited to the United States. Limited -- also showing up in Asia and in – and interestingly in areas of the Middle East also.

So, I’m very encouraged by it -- this investment that we are going to announce this afternoon further complements our activity in that area, so we’re building a portfolio that I think is going to be pretty impressive to answer the needs in these emerging research areas..

Okay, thank you..

The next question is Isaac Ro with Goldman Sachs..

Thanks for taking the question. Just one on the guidance here. It does assume in your guidance I think for an acceleration in the organic growth rate in the second half as we just kind of look at the first half versus the full-year assumptions.

And the reason I'm asking the question is the comps that you have are considerably tougher in the fourth quarter versus third quarter on a year-over-year basis for organic growth.

So, I just want to get a sense of what kind of organic growth assumptions are contemplated in your third quarter guidance?.

Yes. Gene can flesh it out, but I think if you look at our all-in first half growth rate, we’re looking at roughly the same anticipated growth rate in the second half. We certainly had a very low growth rate in the first quarter, and that kicked up to high-single -- mid-single digits, I would say, in the second quarter.

We anticipate our growth rate to be higher in the third quarter than it will be in the fourth quarter largely for the dynamics you cited, Isaac, that the fourth quarter was a very strong quarter last year.

It’s not impossible to have another very strong quarter, but the reality is when you’ve got a tough compare, it’s probably wiser to anticipate leavening of that.

So, I don’t think the second half is anticipated in our guidance to be much different than what we have seen in the first half, and to be fair I mean, I would say we’re probably [err] (ph), the reality could be a little bit better than that.

I think right now we’re running a little bit stronger than that, but we’re careful given the fact that China doesn’t have that many points on the line, and it’s still an important part of our worldwide revenue..

Got it. And maybe just a follow-up, product specific question. Curious if you can comment on the market for medical cannabis testing.

That is an area where we’ve seen what looks to be pretty interesting uptick in demand for your products, so I would be curious what the contribution was either it’s whether this quarter or year-to-date, just the current impact and outlook for that business specifically?.

Yes. It is an area that we are optimistic about. We think that it’s reasonable to provide the products particularly to help in the overall characterization and quality control of that marketplace. Of course, it’s now limited to a small handful of geographies around the United States.

In the quarter, it wasn’t a material number, certainly not a point, much less than a point of revenue for us, but we think it has the opportunity to grow into an eight figured revenue number. This year, it could press that, so that means the second half would be stronger than the first half.

We certainly are responding to a level of requests, particularly in the extraction area of our business, where we have a pretty strong position with supercritical fluid.

So, I would say, I think the second half is going to be stronger than the first half, and I think it’s going to be a multi-year opportunity for us, but it will probably be a few quarters before we’ll talk about it being, you know a $4 million or $5 million business..

Got it. Okay, thank you so much..

The next question comes from the Amanda Murphy with William Blair..

Hi, good morning. Just a question on competition.

I’m curious what you’re seeing on (inaudible) sides of the business around competitive dynamics, particularly in China?.

I would say the competitive dynamics in China across the product lines haven’t changed very much.

We haven’t seen -- we’ve seen a few of our customers, our competitors show up in the news because of transgressions, but I can’t say that I’ve seen that have a dramatic effect on the competitive issues, so I’d say it is kind of no news both on the mass spec front and on the chromatography front in China.

It’s almost totally a customer dynamic that we are willing to talk about China. And the rest of world, I would say chromatography is a remarkably consistent competitive arena, don’t see too many ripples on that wave front. On the mass spec front, you see some ebbs and flows from quarter-to-quarter.

We probably ebbed a little in the early part of this year. We think we are beginning to flow more as ASMS comes behind us, and we see a number of these very large initiatives beginning to pay fruit, so that’s probably what I’m seeing on the competitive front..

And just on the columns, you’ve talked a little bit about attach rates in the past between HPLC and UPLC, are those still basically the same? And is there -- are you seeing any – especially on the UPLC side, just given that you have a higher attach rate, is there a potential for that to maybe change going forward?.

Well I think the biggest dynamic on that front, Amanda, in the long run, I could see the migration of UPLC into quality control methods, and that’s a multi-year process, because the usage of columns is so much higher when you’re running a regulated method like that. But we’re very excited about the trajectory for our new line of CORTECS columns.

It seems to have a significant performance advantage, and it complements the other column chemistries that we offer on the UPLC and HPLC front..

Got it.

And then just on the, I guess a product specific question as well on the QDA, I think you’ve talked about that being adding about a percent of growth, is that still what you’re looking for?.

Yes the – what we, the results that we have for the first half of the year are consistent with that vision..

Okay, thanks very much..

You’re welcome..

Our next question comes from Tim Evans with Wells Fargo..

Hi thanks. Gene, I’m a little confused on the comments about the contribution from your recent acquisitions, I think in response to Brandon’s question, you indicated that there was about $5 million of revenue there, and then later on you said it was more like 70 bps in the quarter.

$5 million looks to me like it would be over a point of growth in the quarter and assuming that you get more revenue in the back-half of the year from these acquisitions, which I think has been your forecast, you would be looking at more than a point of growth for the full year from these acquisitions.

And so, I’m just trying to understand what the right number is on that and how that relates to your mid-single-digit revenue growth guidance?.

Yes, Tim, I know that the number of $5 million was in an answer to a question and I know that 70 bps was an answer to a question. But I don’t think the two of them are together, because you’re right that’s inconsistent. And that the TA instruments business is roughly 12% of the corporation sales.

So understanding that we’re anticipating a mid-to-high single-digit growth rate for that division this year and on top of that understanding that we’re anticipating that half of it is organic and half of it is acquired business. I think you can do the numbers and certainly it doesn’t equate to a $5 million per quarter..

But simply put the acquisition revenue in the second quarter was something around $2 million, $2.5 million. So the effect of acquired revenue was less than a half, it is mostly half a point probably a little bit less. It’s now that that’s going to ramp up in the second half, we fully believe..

Okay, so when we think about your full year organic growth what should we be thinking about?.

Yes, mid-single-digit and assume about 50 basis points worth of contribution from M&A..

Okay, thank you..

Our next question comes from Jeff Elliott with Baird..

Good morning, thanks for the question.

First question is on Japan, little bit softer the second quarter, how should we think about growth in the second half?.

I think we should think about it as maybe a little bit less robust than what we delivered for the first half, through the first half the constant currency growth rate was about 8%, I would say in the second half we are encouraged by what we see as improved business dynamics in the four profit sectors of that market.

And understanding that in terms of government supported research we have a kind of the tough base of comparison given the performance that we had for that segment in the prior year. So, overall we’re probably expecting Japan to be maybe close to mid-single-digit, maybe a little bit less than mid-single-digit.

But certainly positive growth with the growth being driven from the industrial chemical and pharmaceutical segments of that market..

And Gene two quick modeling questions, first on Easter in the quarter did you see any impact there, particularly in the columns business? And then the pension contribution in the quarter, should that have an impact on the P&L going forward?.

I don’t think either of them are material..

Okay, thank you..

You’re welcome..

Our next question comes from Bryan Brokmeier with Maxim Group..

Hi, thanks for taking the question. Given the current shift from big pharma to smaller biotech and especially pharma that are currently driving growth within the U.S. biopharma market.

Have you made any changes to your sales force or how you think about the sales process?.

I wouldn’t say it’s been significant, the big pharma piece of our business has been under pressure for a number of years. So we have both in our product development and in our operating both in service and in sales have been, turning that organization to focus more and more on biological applications.

And so that’s been a kind of a natural dynamic that’s occurred in our business both in the United States and to some extent in Europe. So it hasn’t resulted in a huge twerking of the new organization just kind of, minor tweaks..

Okay.

And are you seeing any changes in demand yet due to M&A by pharma customers and particularly demand for instrument versus the demand for consumables?.

I wouldn’t say that we have seen of course in big pharma recently, you have seen more attempts at M&A rather than the too much actual M&A. certainly in the Pfizer-AstraZeneca deal would have changed that. I would say that nothing unusual, I would say it’s more business as usual in big pharma..

Okay, thanks a lot..

Our next question comes from Peter Lawson with Mizuho Securities..

Doug just come back to China, just the macro level.

Have you taken [shareholder] using share and what’s been happening to pricing in the last couple of years?.

Pricing has been largely stable I would say Peter. We haven’t seen any significant change in margins in China been remarkably consistent in comparable to our margins elsewhere in the world. Competitively, I think I touched on it in the previous question, and some of our competitors have run into minor or not so minor legal issues.

So that had to deal with some of those, we have of course not gone with, did not run into similar kinds of issues. But on balance I don’t think the competitive dynamics in the LC area have changed very much that we are all still there and it’s competitive.

I think some of our competitors tend to use price more aggressively, but we haven’t seen that affect our business to any great extent. The mass spec arena all the major players are there, I would say we more than hold our own and continue to believe that the dynamics that we see are customer related not competitor related..

Got it.

And the late booking of the Chinese order, that sounds like it’s just purely a late order as opposed to any kind of internal slip?.

I’m sorry I missed the first part of that..

You know talking about the….

Late booked order from China..

Wasn’t just one late booked order, it was – this whole process where I would say for the first part of the quarter in China we continued to the effects of the focus on corruption and the fear in the part of customers is that how the government was treating people.

So, everything that checked and double checked and the effect of that was to drag out the, process of doing a demonstration, getting the customer to do the paper work for an order and getting that order cleared.

We didn’t see that the customer was all of a sudden looking at four competitors, because they didn’t like our product that kind of thing was all is internal dynamic and that’s what we saw begin to loosen up as we worked our way through the quarter.

To be fair our organization anticipated, they are in the ground they are talking to customers, they are talking to the government officials, and they saw internally and forecast that the process would begin to loosen up and in fact it did and those orders begin to flow late in the quarter.

But, you have to get find the financing cleared, you have to get the products move from our manufacturing side on to China and that just happened too late in the quarter to facilitate those orders..

Got you.

And then the signs you talked about in Asia that was part of – that was a large part of that confidence coming back to those customers and just kind of break through in government orders was there anything else?.

I would say that dynamic in China was really the overall dynamic, we did have a significant. We do built throughout our business in the quarter, but that one in China was the one that was related to this whole process of government intervention..

But I’m just….

I think since we’re well over an hour here, I think we have time for one more question..

Our final question comes from Derik De Bruin with Bank of America..

Hi, good morning. Just one quick one, I just sort of want to clarify and just make sure I understand, and this is sort of related to what Isaac was asking about the comps in the back-half of the year about 10% organic revenue comp in Q4 and that include some contributions from the QDA launch already.

And so just if I’m sort of sifting through the commentary in the Q&A, is part of that is that your confidence since you’re getting and being able to beat that number or deliver on the organic revenue growth is that large multisystem orders is that what I saw here you’re hitting that or it is just sort of steady growth and improvement in the overall market in the year end? Basically, are you expecting some large multisystem orders in mass spec in Q4?.

Those, we may get some large orders Derik in the second half of the year. However, those are not baked into the expectations that are included in our guidance. I would say that, you’re absolutely correct that the, from a growth point of view it is a 10% growth quarter in debate.

But there is another way to look at the base year and understand that on a percentage base the fourth quarter last year represented about 30% of the annual sales.

In that regard it is not that atypical when you look at the natural quarterization of our business where typically the first quarter is 20% to 22%, the two middle quarters are around 25% and the fourth quarter is typically in the 28% to 30%.

So it is a little bit on the high side, but when you look at the quarter, when you look at the base of comparison using percent of business across the quarters, it doesn’t look quite as steep as it might when you just look at growth rates, which in terms have a dependants on what the 2012 year look like..

Great..

That’s largely because of that strong base that you will see as you derive with our anticipated growth rates, we’ve taken our anticipated growth rate in the fourth quarter down to the lower single-digit. So, we clearly expect the growth to be stronger in the third quarter tempered because, of the strong base in the fourth quarter.

And we think that’s very reasonable..

Great, okay that’s actually what I was heading for. Great, thanks a lot, I appreciate it..

Welcome..

Welcome..

Well, thank you all for sticking with us through this extended timeframe. And we look forward to reporting our results next quarter. Thank you..

Thank you..

That does conclude today’s conference. Thank you for participating. You may disconnect at this time..