Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020, Perkin Elmer earnings Conference call.
At this time, all participants on the listen only mode.
After the speaker presentation, there will be a question and answer session.
The ask your question during discussions you would need to press star one on your telephone.
If you require any further assistance please press star zero.
I would now like to hand to conference over to your speaker today, and Mr. Bryan Kipp, Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thanks, operator.
Good afternoon, and welcome to the Perkinelmer first quarter 2020 earnings Conference call with me on the call or for a lot thing President and Chief Executive Officer in Jamie Mock Senior Vice President and Chief Financial Officer. If you have not received a copy of our earnings press release, you may get one from the Investor section of our web site at W.
W. W Dot Perkinelmer dotcom.
Please note this call is being webcast live and will be archived on our website until may 19th 2020.
Before we begin we need to remind everyone at the safe Harbor statement than we have outlined in our earnings press release issued earlier. This afternoon and also those interest he filings statements or comments made on this call maybe forward looking statements, which may include but are not necessarily limited to financial projections.
Or other statements of the company's plans objectives expectations or intentions.
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 interest see filings.
Any forward looking statements made today represent our views as of today, we disclaim any obligation to update forward looking statements in the future even if our estimates change. So you should not rely on any of todays 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 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.
Not attachment we will provide reconciliations promptly.
Now please introduce the president and Chief Executive Officer, Perkinelmer collapsing Gilad.
Thank you, Brian and good evening everyone.
Before I begin my prepared remarks, I want to extend my friend vicious everyone on the call.
The World has dramatically changed since our last earnings call.
Good thing every person country and company to the pest.
Hello.
Times of Great uncertainty can also bring greater clarity of purpose.
Our guiding principles have been full formed.
Forced to keep our employees and companies safe.
Second.
To utilize our expansive capabilities to join the fight against covert nine pm.
Card, so all our customers with excellence in a difficult environment.
And finally emerged from this crisis I see stronger company.
To start only in the quarter I'll focus as a leadership team and organization shifted to ensure the safety off our employees around the bill.
We recommended that our employees work from home in regions impacted by the wireless.
And we implemented hurt on safety protocols based on local and federal regulations and guidelines.
I thought personalities, where do you members continue to work tirelessly to so our customers.
Additionally, we expedited review all four crisis management under Dundon see plans. So all employees customers and partners can quickly respond to changes driving driven by be involving pandemic.
I'm humbled bar and proud off our entire organization.
Over the past few months.
But missed our 13000 employees go above and beyond to partner with colleagues customers governments and industry experts to do everything be good to make an impact and fulfill our mission and nobody thing for Codie Award.
Improving lives isn't buck in almost DNA.
It is want and fashions RPM and did almost to the challenge this quarter and developed over a dozen unique gets invoked no solutions.
Hi fight against Golden Monkey.
At the same time, the deemed really stepped up to deliver a very good quarter, despite extreme macroeconomic uncertainty.
The fourth quarter performance speaks to the diversity of our business.
From a portfolio on geographic standpoint.
It highlights the resiliency and strength of our company.
Jamie even speak a blend to our first quarter financial performance.
But overall.
We delivered solid topline results, especially when considering that our China business.
<unk> accounted for over 20% of the total company revenue and 29 pm.
Was down 30% year over year.
And when normalizing for the operating margin drag from the extra week.
Adjusted operating margins declined 25 basis points year over year, Despite a $47 billion topline shortfall relative to our initial guide.
From a free cash flow standpoint.
The team executed about.
Delivering our strongest first quarter performance since 27 Dean.
And I said is all that you were able to pay down debt during the first quarter for those strengthening our liquidity profile.
Again I'm inspired by both what we have been able to accomplish over the past several months and all that you wouldn't be walking towards in the months ahead.
Our people took a leadership role at the onset of this pandemic.
We have been harder work developing and deploying our solutions to help hospitals clinics universities governmental institutions and pharmaceutical companies that's difficult <unk> nine pm.
Scream for anti bodies research the virus and discover credit beeson vaccines.
Let me dig a few minutes to elaborate on this.
Then the Vitesse began spreading in China immediately mobilized on response.
You have been providing solutions to leading institutes and seven hospitals and centers for disease control in China.
You heard them conduct vitesse mechanism research and dark screening.
Looking at <unk> also donated a number three not instruments.
Look instruments and extraction reagent kits to Cbcs and hospitals.
Hi Tech regions in China, and coordinated with our distributors to form a try to do donation alliance.
It was our R&D beam and died Sean.
Look the development of working on most new go to Novartis RT PCR assays.
Received board CE, Mark for Vitesse testing and know what pretty one countries.
And if the emergency use authorization in the U.S.
The team worked extremely hard throughout the Chinese new year holiday to develop a highly accurate assay for the detection of Golden 19.
Our efforts quickly expanded across the globe as our operations teams anti Chung Dragoon, and Austin began ramping up capacity to manufacture RT Pcr tests.
As of today, you have the capacity to manufacture and distribute over 2 million of these highly accurate diagnostic tests by month.
Similarly, a few weeks after the news of the wider spread and move on.
Human boss Twyla, Germany began to develop and off the can magic wider DNA auto need 300, good H. 96.
Specialized why those good for automated obstruction undercut magic Threesixty instrument.
Our team for Saudi growing bottlenecks in the market and quickly scale production to address customers demand for extraction reagents.
The current production capacity for our new bleaker extraction gets exceeds 2 million pairs firmer.
Nearby in Lubeck, Germany.
The Union do spend to action as well.
Developing their own RT Pcr test.
So you don't realtime Sars goof too.
The last <unk> assays for the detection of AI Jie <unk>, our Gigi antibodies against Goldman 19.
Both the RT PCR test analyze a assays a CE mark.
And both have been submitted to the after year for you weigh approval.
We are firm believers that leading that science Vince.
You don't you took a deliberate approach with its serology test development.
Through your own research and collaboration but scientists and large you must be hospitals.
You know immune focused on developing antigens for the S. One domain office spiked protein.
Instead of the full Len nuclear capsid and one protein.
Because the S. One domain displays the lowest homology to the other members of the grown hours fun.
I was it as our cross the actions with others percolating grown our waters are virtually excluded.
To give you a glimpse of some of the data on the S. One domain said all the GRC.
Two weeks ago researchers at the University of Hamburg open door highlighted the high specificity off your immune like I said during a press conference.
The hospital screamed 1122 samples with the you know immune IBG Eliza.
Within the cohort off employees at the hospital specificity was at least 99.7%.
But your immune team has been walking nonstop the past few months.
The team has successfully scaled manufacturing off its RT PCR test and S. One protein <unk> assay.
Today, you know immune has the capacity to manufacture or what to win a half million Eliza tests per month.
And the team has plans to further scale production over the coming weeks to address growing customer demand.
And we are not stopping here.
In terms of diagnostics, our teams in China, and India are working together to develop adopted lot through flow test for cobalt 19 detection.
In India to look has received approval from local regulatory body to manufacture and sell it to the anti body I, Jim plus I, Gigi plus I G detection rapid test in humans set them plasma a whole blood.
The team in China is also looking to leverage the Superflux gummy luminescence platform for point of care Serology testing.
You're not discovery <unk> analytical solutions segment, yes, enabling several existing and new large pharma customers.
Studied the disease discover kind of fees and develop vaccines by providing our imaging detection solutions.
Yes, supporting clinical studies by helping qualify existing drugs as potential therapies to fight covert 19.
With a new signals medical review template.
We have all of 100 research and screaming be agents within our discovery portfolio that aid in deciding the virus infection lifecycle.
Through adoptive immunity.
Understanding the basis of vital pack for Genesis.
And I applied organization created a fast and reliable mccard using our spectrum to tee IR spectrophotometer.
To determine the ethanol and I superfood content of hand Sanitizers.
According to Whrrl and F D approved guidelines.
The first daughter came from Puerto Rico, then an alcohol distant already has limited, but I'm, saying upper hand sanitizer production lines.
These are just some of the numerous ways VR innovating and going above and beyond to combat this pandemic.
And I encourage you to go to have upside and social media Hondros for an even more complete picture of how poking otherwise healthy.
Our organization continues to work tirelessly to so our customers.
There's still plenty of business happening.
The environment is clearly more difficult.
What we're doing everything began to make it easier and get them the products and solutions they need.
Over the past three months.
We have learned a lot about ourselves.
Capabilities and our potential.
The improved cross segment and regional collaboration validates our efforts last year to streamline our organization and drive better collaboration both internally and with our customers and partners.
We are launching products at a more rapid speed.
We are learning to implement virtual walk styles and becoming more digital.
Yeah, empowering our lead us to lead.
Real time, yes, teen how we can truly support a better tomorrow.
Boat in a covered and non Cold war.
In closing on employees continue to Amaze me.
It is tanks to them that you're able to make a difference.
From personally delivering instruments to customers.
Training them.
And getting that testing labs up and running at all ours up the night.
Producing and shipping masks to fellow employees in the field.
<unk> own labs and manufacturing sites.
Finding new ways to collaborate and communicate virtually.
Oh booking around the clock to help keep our facilities.
Clean and safe as possible.
The passion dedication and deemed work happening across the globe is remarkable.
I hear news stories of these euros every day.
And that's why I will close my remarks by once again thinking all of our podium thousand employees.
The dot.
I'll now turn it over to Jamie.
Thanks, a lot and good evening, everyone I want to Echo provides well wishes to you and your families and I want to give additional airtime to our employees I'm extremely proud and humbled to be part of the Perkinelmer family.
Our colleagues around the world rallied together and worked tirelessly to develop solutions to help stuff the spread of this pandemic and get product out the door.
As Bill I've mentioned, we are improving and evolving as a company each day and I've no doubt that we will emerge from this crisis as a stronger company.
Before I begin I want to point everyone's attention to our first quarter earnings call presentation, which has been posted on the investor section of our website under financial information.
As always I plan to begin my prepared remarks by highlighting the first quarter, then I'll probably.
Some additional color on our served end markets and financial metrics.
Typically I in my prepared remarks with updated guidance commentary. However, due to the fact that we withdrew our annual guidance in the earnings press release issued earlier today and the ongoing forecasting challenges associated with the current unique environment I will not be providing updated full year guidance.
Instead, I will provide some context and additional details that will hopefully serve to assist you in your own modeling efforts and that visibility improves we hope to provide you with a more substantial update later in the year.
Jumping in we're pleased with our first quarter results the team executed well, even though market conditions began to deteriorate in China. Shortly after our fourth quarter call.
And these pressures cascaded across the globe as we progressed through the quarter.
Overall, we estimate that co bid was a net $46 million headwind on revenues at 19 million of Kobin related tailwinds in the quarter were offset by $65 million of cobot related pressure.
Meanwhile, the topline contribution from the extra week in the first quarter came in at the low end of our previously disseminated range.
However, our assumed extra week of operating expenses were also lower resulting in adjusted EPS results closer to the lower end of our prior guidance range.
Organic revenue decreased 1% year over year, a solid demand in multiple markets was more than offset by cobot related shut down impacts in China.
Adjusted reported revenue grew 1% to $653 million and included a 2% foreign exchange headwind and a 3% net acquisition tailwind.
By business diagnostics, representing 39% of total sales declined 1% organically as strengthen our applied genomics business was more than offset by modest declines in our immuno diagnostics and reproductive health franchises.
Discovery and analytical solutions, representing 61% of total sales also declined 1% organically as strength in life life Sciences was more than offset by softness in food and applied markets.
On a geographic basis Americas grew mid single digits Europe grew double digits in Asia Pacific declined double digits with the entire declined stemming from the impact of Cobot 19 in China, which was down over 30%.
Operationally, we are extremely pleased with our performance, especially given the lighter overall topline revenue.
Adjusted operating margins declined 100 basis points in the first quarter to 15.3% driven by an extra week of labor expenses offset by cost controls.
As for a lot of mentioned adjusted earnings per share of 67 cents declined 3% year over year.
And came in only three cents below our guidance, despite the $47 million topline shortfall.
Normalizing for the extra week impact we estimate adjusted EPS would have been up over 1% year over year.
Looking further into the key drivers within our segments, let's start with our diagnostics business.
As mentioned in my earlier remarks organic revenue declined 1% as robust growth in the Americas in Europe was offset by double digit decline in China.
Our applied genomics business led the way.
Hosting over 20 person organic growth on broad based momentum across all geographies and led by our liquid handling and nucleic acid extraction product line.
Demand for our automated nucleic acid isolation systems in Arnie purification kit nearly doubled year over year.
As these are vital upstream solutions in our cobot RT PCR detection workflow.
Meanwhile, Immunodiagnostic declined mid single digits organically with your own immune increasing mid single digits demand in China for Immunodiagnostic portfolio was anemic during the quarter at patients deferred autoimmune allergy and infectious disease testing.
Outside of China, Immunodiagnostics business performed well going over 30% in the Americas in Europe.
Reproductive health declined mid single digits organically, driven by lower newborn and prenatal testing in China.
Newborn testing in the Americas in Europe were both up high single digits, though both regions appear to have benefited modestly from some pre kovats shutdown stocking.
In terms of menu expansion two states recently began screening for spinal muscular atrophy, using our proprietary neo mdx solution.
While the revenues to date have been minimal we're excited about the long term potential of this offering.
Turning to discovery and analytical solutions organic revenue declined 1% in the quarter has strengthened Europe was more than offset by declines in Asia Pacific.
By end market, we experienced high single digit organic revenue growth in pharma biotech propelled by our enterprise discovery and informatics product lines.
Demand was robust across major geographic regions, despite China declining low single digits.
Our discovery screening and research reagents as well as our enterprise service business led the way growing double digits.
Meanwhile, the applied markets declined low double digits at high single digit declines in the Americas and over 20% declines in Asia Pacific more than offset low single digit growth in Europe.
Food declined mid teens, and industrial environmental safety declined low double digits.
Overall applied orders trends in January where solid up high single digits. However conditions steadily deteriorated as we progressed through the quarter March orders were down over 20% year over year.
While we continue to have a solid backlog and early signs point to order acceptance delays not cancellations. Our teams are pivotal to pivoting digitally to improve funnel velocity and lead generation.
So we are prime to benefit as our customers start to contemplate reopening plans in operations after cobot 19.
Shifting to below the line items net interest and other expense for the first quarter was approximately $10 million and our adjusted tax rate was 17%.
Turning to the balance sheet, we finished the quarter with approximately $2 billion, a debt and $195 million of cash.
Free cash flow and adjusted free cash flow for the quarter was $40 million.
We achieved an adjusted free cash flow conversion of 53%, which was the strongest first quarter performance since 2017.
Finally, we exited the quarter with a net debt to adjusted EBITDA ratio of approximately 2.7 times.
As mentioned earlier, we would you are a previously disseminated 2020 guidance in the earnings press release issued earlier today.
However, I want to provide updates on modeling items that are less dependent on cogan impact scenarios.
We now anticipate a 1% foreign exchange headwind for 2020.
For the below the line items, we anticipate $46 million to $49 million and adjusted interest and other expenses.
The tax rate in the range of 17% to 18% and our share count averaged 112 million for the year.
We are assuming a higher tax rate compared to our previous guidance as we now expect the greater mix of profits will come from areas with higher jurisdictional tax rates.
As we stress on our last earnings call. We remain steadfastly committed to returning our adjusted free cash flow conversion to 85% to 90% range over the next two to three years we.
We continue to execute on the road map laid out last year building processes to improve our conversion in a prudent manner, while balancing growth and profitability.
Progress team throughout 2019, and now into the first quarter 2020 gives us confidence that we are on the right track.
Turning to the second quarter 2020, we are forecasting reported revenue of $610 million to $720 million, representing a zero to negative 15% organic revenue growth.
Including a foreign exchange headwind of approximately 2% versus the comparable prior period.
Embedded in this guidance is approximately 8% to 15% of cobot 19 related revenue growth.
Partially offsetting inorganic demand drop of 15% to 23%.
In terms of adjusted earnings per share guidance for the quarter, we are forecasting a minimum of 65 cents per share.
All of this as noted in the second to last page of our first quarter earnings presentation.
In closing I want to end, where I started I couldn't be prouder of our Perkinelmer team.
Employees all over the world are joining hands to support the fight against Cobot 19.
We are on the frontline supporting our customers during extremely difficult operating environment at the same time, we are building collaborative proficiency and processes to emerge from this crisis as a stronger perkinelmer.
Operator at this time, we would like to open the call two questions.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Due to the essence of time, we ask that you. Please limit yourselves to one question and one follow up.
Please standby, while we compiled acuity roster.
I show our first question comes from Dan or we asked from Stifel. Please go ahead.
Good afternoon, guys. Thanks, a lot on the European assets can you just speak to the path for the test getting into the market in the whether you'd like it too.
I mean, the performance of the asked it looks pretty good, but obviously you're up against some big players with big distribution capabilities. So I guess, when we think about your comments on test differentiation.
Your own manufacturing levels, what are your expectations what are the lab staying on test choice and then to what extent are you constrained by the number of your immune instruments I might be in the market.
Yeah. Thanks, Dan I think you know are you pointed out some very good or things that I think it is good to elaborate on when we started developing viasat for Europe at Euro immune our focus was around picking something that we would expect through a you know have hired.
Hello specificity.
And we focused I mean do it to domains that one could go after right antibodies are produced against the and Mds proteins.
We focused on the S protein, which as you probably know and that there are two functional domains. The S. One MBS too.
The S. One has a much lower sequencing homology two other quarter noroviruses and that means that there is less risk of cross the activity than the and that's why we focused on that.
In terms of availability I think our capability as you saw we got the you weigh approval yesterday.
And.
In fact, we had this validated I'd be a F.D. is a center. So it has been validated by the FDA.
In terms of the installed base.
Oh, the largest antibodies study that's going on right now at Beaumont in the country is using not automated workstations.
And it can be used on all open ended weren't statements out workstations ended up thousands of them in the United States and across the globe.
So I think I hit on the three questions, but you had right.
You did I can I just asked maybe a follow up and they've got the the expectations for twoq or does that assume that you'll be supply constrained in any way and what is the.
The thought process around getting to the point in production, where maybe you are building inventory and it's not just about how many times you can get into the market. Thanks.
Yeah, Dan hates Jamie I'll talk about the second quarter guide, so I'm going to leave out das and some of the products there because the bulk of our revenue is going to be tied to diagnostic products and I'll talk to serology and then TCR.
So.
Talk a little bit around the current production capability of two and a half million test per month right. Now we forecast that that can be as much as 10 million per month by the end of this month.
So I think about half of our guidance should come from the Surajit Ah tests.
Revenue guidance that is.
PCR has been limited to date, we've had some restrictions that are now behind us and product is starting to flow, but we don't anticipate it will be as much as the strategy side.
And then on the are in a extraction, we've just put that into perspective weve. Our revenue in our volume has is up 20 X versus last year and that has been flowing well and we'll continue to flow. So we're at 3 million.
Extraction tests per month, and so the PCR and are in a portion should make up about 50% of the revenue as well.
Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question enough congrats on a footprint here as well if you can see ours.
I guess Sop, Jamie bought back on the Twoq guidance.
Organic up or down 15 to flattish Ah that's almost in line with though one of their upstairs thermo have the guide it too.
Maybe talk about golf you know what would cause you to come in flattish forces and what kind of scenario bakes in the minus 15 waiting even now when I look at the cold contribution here eight to 15.
What are you assuming for the low and high and for the contribution. Thank you.
Thanks for the kind words VJ so.
So we put a lot of thought into our guide and looked at it in many different ways and have continued to look at it throughout the month of April as well and looking at all the recent trends so maybe a little bit of elaborating on the 15% to 23% down so what's different so on the 15% down we are assuming a mild reopening in may.
Because in Europe, and the 23% down assumes no reopening. So you basically just have a little bit of recurring revenue that goes throughout the quarter.
The way you get to zero percent as you take the high end of our Kobin range. So obviously, the 15% there and you add it to the minus 15% on the rest of the book and that gets you to zero.
And then the down 15% is a the 23% down on the organic demand offset by maybe 8% on the cobot revenue.
So we had a lot of exchange that we looked at in China.
I would say for the most part that gave US a lot of good information on how the rest of the world were operate with too subtle differences. The first is in immuno diagnostics Immunodiagnostic makes up a large percentage and concentration in China. So, it's probably about 35% of China revenue.
In the rest of the world, that's less than 15% and that's important because we saw immunodiagnostic hit outside of obviously your immune serology test at Ur Cobot related the second big differences around reproductive health. So in China reproductive health was down 40 plus percent.
And that's because newborn screening was at 65% utilization versus the historical trends because people avoided going to hospitals.
And prenatal testing was at a 30% levels. So we don't anticipate that'll happen in the rest of the road it'll still be down some but we don't think the rest of the world will be as impacted as China was in the first quarter.
So again, we've been looking at many different things we looked at our China experience. We looked at the orders that were seeing through April we feel very confident in the guide.
And so you know X kobin, it's probably down 15% to 23% the big differences reopening in June or not and then the coven revenue I Kinda talk through on Dan's question in terms of serology versus PCR versus the Barnett.
Hey, this is helpful color just one maybe on the operational side and free cash flow side. It was that quite remarkable up on the margin.
Pete maybe can you walk us through on the cost controls or is this something that that you guys that cook incremental cost actions South Africa saw some of the China Clinton so.
You know how should we think about the margin trajectory here, that's what you're right. It maybe fix it versus that variable cost structure, if the business. Thank you.
Yes, so I mean, I think we have a highly variable cost base with numerous levers to pool and I'll talk about the first quarter in a second here, but just broadly there is three categories of costs. The biggest portion is labor and obviously, we want to protect our workforce. So theres other ways to control that cost one around hiring freezes.
You can have merit increase freezes.
You could actually have pay reductions in our reductions benefit reductions so, but that's one category a cost that we can control.
Second is mostly related to product and that is highly variable either have the product or you don't the only other part that I would put in there is maybe freight so we work with our customers to offset that.
In the third parties indirect so travel and entertainment third party services utilities supplies et cetera, and that is where we have clamped down significantly.
And every dollars precious right now and we've raised authority levels to really kind of control that spend but I'd say all three categories are highly variable so to your point on the first quarter, yes as soon as we saw China unfolding in February we started to an act.
Quite a few you know measures, which helped to obviously I would also say, there's probably a couple one timers in there that helped with our cost control, but certainly we enacted several measures we did not touch our workforce, but overall that should benefit us heading into the second quarter that we get a full benefit of those cost controls and others. If we want to look at.
Thank you Sir and our next question comes from Derik Debruin from Bank of America. Please go ahead.
Hi, good afternoon.
[laughter].
Hey, So I guess first question and pardon me forgive me if I missed this but your access to labs with the one source are you getting and I'm just sort of curious in terms of what you're seeing in terms of a number of lab shut down and I you know you're not a big academic and government player, but I'm just wondering what your thoughts are.
So my college and University in spending in that end market and and just sort of how you're thinking about your does mortgage opening up.
And Derek on the under under one source side right. I think you know what we are starting to see that some of the large pharma that's starting to engage and they have started sort of putting plans in place for us to get back and we've started seeing engagement. There you want to talk with the academia, Yeah. I mean, the only other thing I'd say on service first is.
I mean, the enterprise side I think it holding in better than just the core service. We do have some access throughout the Americas more so than Europe, but in general enterprise holds up little bit better.
In terms of academic.
Luckily, it's a small percentage of our revenue base.
But it is down and mostly close.
And I would anticipate that for the most barnes close throughout the entire second quarter guide here I mean, even even in China, even though some of the academia is coming back there's 10 sort of starting to enact safety measure as a new ways of working Derek.
So it hasn't really start to.
Great. So this may be an unfair question, but I'm going ask it anyway [laughter] apologies in advance.
But.
Everybody is benefiting there's a lot of testing going on and I think one of the biggest questions. We're getting from investors right. Now is what's the sustainability like if you sort of look good going exiting in Q4 going into 2021, what do you think or what are you planning for right now in terms of demand for molecular testing demand for Surajit test.
Staying.
I didn't the number one question getting is like is this something that is sustainable throughout the year from these companies that are benefiting is it doesn't fizzle out doesn't last until there's a vaccine I really appreciate so your thoughts on the sustainability of that because obviously the sustainability has a lot tied to do with like how markets return to normal.
Yeah, I mean are it's a varied.
Im not going to say, it's a fair or unfair question dairy, but it definitely pleased very interesting question that we broadened spend a lot of time thinking the one benefit that we have and you know is that we've got 13 sites across the globe.
And the things that we focus on right now our sustainability of supply chain second level. Its suppliers redundancy you know how do we ensured that if there is an infection are there particular side, but there is another site up and running and that's why you will see that we've got RT PCR coming in from different sites. There was an issue on the only.
Sure in undercutting shipment from China, which is now dissolved up but that's where our focus it really is on but how do we have is sustainable long term multi pronged approach for availability of products from different sites in different region and this is that our geographic footprint this coming to for you.
Can now and manufacture product on different sized that can be used regionally and I think that's the vivia thinking as we continue to significant event pop capability and availability of products over the next several months.
Thank you.
Our next question comes from Steve Willoughby from Cleveland Research. Please go ahead.
Good evening Hi, everyone.
Two things for you I guess first Jamie just so we're all in the same page the commentary provided as it relates to the second quarter and.
Yes of at least 65 cents.
Just to be clear.
A worst case scenario situation and organic revenue was down 15% you still feel comfortable with that 65 set number.
Yeah, that's right [laughter], Steve It ties yeah. The 65 cents is tied to the low end of our guide or the down 15% overall.
I think I quoted $610 million revenue and I'd encourage you to kind of look at a first quarter 2020 to second quarter 2020 comparison.
During the first quarter, we generated just about $650 million revenue. So were down 40 million on the revenue line, but there's a significant mix shift moving forward that we anticipate more kobin related revenue that can take gross margin uplift overall, so that helps overall offset the volume decline.
And then to the earlier question on cost, obviously, we get a full quarter of cost control versus the measures that we enacted in the first quarter. So overall were down 40 million on revenue and but only down two cents on NPS and it does tie to our low end.
Okay, and then secondly.
The Suralco GE test.
Coveted you're able to make two and a half million a month right now, but potentially could ramp that up to 10 million by the end at above the the the incremental cold winter related revenue.
You talked about of 8% to 15% tailwind is that assuming the two and half million a month run rate or does it also include ramp it up to 10 billion for the month the Jim.
No that includes some kind of ramp whether it gets to exactly 10 million or not.
It's kind of in the range here, but yes that assumes it certainly a ramp from the two and a half.
Okay. Thanks very much.
Yes.
Thank you.
Next question comes from Doug Schenkel from Cowen. Please go ahead.
Hey, good afternoon.
I'm going to build off of that last question and then I just want to come back to a couple quick guidance cleanup question. So.
Following up on on the the earlier questions on Rollups you testing, it's definitely looks like a very good asset and you should be commended on moving so quickly that said there there's now some very.
Hi, throughput high quality solutions available from major automated immuno assay platform companies.
Coincidentally, we just get a call. This afternoon with the CEO of one of these major companies and you confirmed pricing per test is well below $10 per test I think actually below $5 per test actually.
And he noted that they have an installed base on thousands of instruments that can do tens of thousands of tests per week with plans to produce nearly 100 million tests per month and that just wanted a big guys.
So with that in mind, what what's the sweet spot for the Euro immune test and how are you going to price relative to Roche Abbott and go back into the world.
Yeah, Hey, Doug This is per lot I think the baby our focus is on differentiation around the science.
Thats five invented the us one spiked protein and looking at I Gigi you know if it does proven that I did you does confirmed immunity. Our RG test will be more useful then I'll do it do we are trying antibody pests, you know, especially if you're comparing it to an early I GM response or in Nigeria.
I'm not sure it gives full value around immunity effort. This proven.
That's why the V., we look at that having an S. One spiked protein, which has developed around mammalian cell line gives a very high degree of specificity, which is what the same large labs and customers are looking for.
And that's why our focus has been hey, rather than have AARGM idea I Gigi on and capsid protein. We've got to focus on something that provides a high degree of specificity around disease immunity and that's bad we are going.
Yeah, I would just go back to be allowed so why do I mean it on there are thousands of systems that are open out there to use our product.
In addition to workstation the euro immune provides is a high throughput solution and many companies are picking it up along the way here Doug.
Yeah understood no. It again, it's a good asana can run on a lot of platforms. It's just and again I think theres probably enough demand for almost everything in the near term. It's just you look at companies like Roche and their test as Fiveg and they're talking about.
Cost of 100% specificity and they got out a lot out capacity and I think their pricing closer dock.
Zero, then $10 per share so.
That's kind of get rid of question. So so the other part of my question was your pricing assumption there.
Are you I. We've heard you guys are pricing closer to 20, I don't know if that's true but is there than expected changing pricing moving forward.
But I don't know what's your assumption that is not the assumption I'm not sure value that's very high.
So you got from Okay.
Okay. That's great and then just very quickly on on guidance.
It appears just given some quick math and I might be wrong, but appears you're assuming operating margin in the mid teens in the second quarter.
Is that right and then it's kind of the answer to how you get there just the answer to last question just think about where you did in Q1 and think about some rationalization and some improvement in mix and that's how you got there.
Got it.
That's right okay.
Okay, Alright, thanks, again really appreciate it.
Yeah.
Thank you.
Our next question comes from Steve Fish to from Wolfe Research. Please go ahead.
Hi, Thanks for taking the questions. Thanks for the time here. This afternoon I wanted to ask first more of a zoom out a strategic planning question, the operating environment that you're contemplating or for the next year or so it's going to be unique in that.
Some of your customers in the government and academic space are gonna have to make decisions about how they allocate funds.
Funds, how do you think about cross academic food environmental the big buyers of product that our government affiliated how they allocate funds how that might look.
Different relative to 2019 or recent history.
I think Steve the baby would look at the did this dependent on the on market segment that you're looking at side, but on food, let's just take that as an example, there are certain aspects of food testing and quality that will become more important than important as you look at food supply chain.
On the diagnostic site you might continue to see funding related to covert products at least over the time horizon Youre talking off on the life Sciences side that'd be a significant amount of funding moving into infectious diseases and that's how we up everything but then it's around our Oh informatics business or even as.
Companies ramp up vaccine production capabilities are one source comes into play there. So I think the diversity of our portfolio and our footprint allows us to pivot our offerings and also our competencies based on varied the market goes.
So yeah, I mean that doesn't mean that everything will have an opportunity that would be some product lines that food see some pressure on depending on where funding goes but I think our you know hopefully unfortunately for us we've got enough or enough finds in the far that we will be able to address our customers' needs based on the funding.
Okay. Much appreciate it and then one for Jamie I wanted to follow up on a topic that has come up in Q1 and it relates to the margin trajectory I think another way to look out of that might be helpful. A would be if you could compare and contrast, what the margin structure looks like and feel free to to pick whether its fixed costs variable cost or what.
Do you think is the right metric I think about what it looks like now versus your prior.
Cycles that were challenging whether it might have been though eight or nine cycle or some of the challenges that you know all of the space saw in China, maybe in a 13 to 15 range. You know how is the cost structure really different such that we should model it different thank you.
Yeah, I mean, I would break it down between the gross margin line and the Opex line I think the gross margin line, we have a very different portfolio, so less instruments to drop out than in the past and so and we probably have more recurring revenue that keeps our gross margin line higher during this time period.
That's kind of the gross margin line on the Opex line, Steve you know the way I think about it in a downturn is it's a choice.
I think most of this it when you're thinking about Incrementals, it's what do you need to invest to grow on the R&D line or in your Salesforce.
I think on the Opex line. It is more of a choice around what do you want to do with your Labor Force. What do you want to do with R&D. What do you want to do with your Indirects and like I said before I think we have a highly variable cost base that can flex pretty well in any environment.
Thank you.
Our next question comes from Tycho Peterson from JP Morgan. Please go ahead.
Thanks, a lot you commented on the throughout the export issue out of China earlier are you able to just comment on how much of the headwind that was and then you also mentioned a pre cobot stocking the diagnostic business can you quantify that.
Yes, Tyco the the issue around China earlier was not serology. It was related to RT PCR. So just wanted to clarify bad because all the serology comes out of flow back in Germany.
And even the RT PCR it's resolved both the you know.
What governments have worked very hard to make that and we are ready thankful to both the U.S. Some Chinese government to help facilitate this to happen. So that issue has been resolved and second question was I think it.
Okay, Great Cobot docking you called out pre Cobank stock in your prepared yeah, that's right yeah.
So as the rest of the world kind of saw what was happening in China, we saw a little bit of stocking both in our euro immune business, which is why your own Muni European revenues were up over 30%. We don't think that's a sustainable growth rate, we think it's more in the.
Kind of low double digits. So there was probably four or $5 million of stocking in euro immune and then in reproductive health both in Europe again I think.
Labs were trying to get ahead of the risk that if they were shut down they needed. Some amount of supplied so reproductive health had $2 million to $3 million de stocking in it as well.
That said there was a there was push outs as well so we when I talked about in my script in my prepared remarks, I said 46 million overall at a high level that is solely China. So the $46 million 47 million dollar headwind is literally just China, 20% of the business down over 30% versus up mid single.
Digits.
There were Kobin Tailwinds of 19 million I think I said, which was $11 million of actually kobin product plus the stocking that I just talked about but then there was $19 million a push outs as well India was probably the most dramatic so as the borders of India shutdown, we probably lost seven or $8 million of revenue at the ended the quarter that we couldn't ship in.
Then it also starting to hit Europe, and Latin America, as well as the Americas at the end of the quarter. So but most of that is noise. Both the cold. It had you know tailwinds from a revenue standpoint, as well as the stocking plus the push out that all nets out and really the big picture here is China was the difference so that was about a 7% organic swing for us and that's that's really the story.
Yeah.
Thank you I'm next question comes from Paul Knight from Janney. Please go ahead.
Good good evening.
Talking to the sensitivity of your.
Euros Euro immune Eliza test.
And obviously you had with specificity close to 100 as well I mean, how do you think that is comparing to what is out in the field. It seems.
It seems strong but love your color about that data read out on that high sensitivity and specificity.
It's a very good question for you first off you know Ben we look at the radius studies that have shown sensitivity you know.
Do you have seen sensitivity data, that's greater than 94% TV exposed onset, including 100% Tonight, you weigh approval data.
But I think the foreign clearly is what you're mentioning is when people talk about these metrics. The reality is that these should be ranges and not discrete.
For the group compared isn't going to seven factors that need to be consistent you know the assay is being compared our lighten our different some upto two antibody are and I know ours. For example is only IBG.
The number of tests performed on each one of them are not consistent they range from 10 samples tested 2000 plus sample.
So in the 10 sample study if you know one samples that represents 90%, but in a thousand samples study one sample represents 99.9%.
So this and also the studies outperform the different days post infection.
We would expect an antibody response to be much movidius only on and more robust three to four weeks out.
More importantly, most of these studies when not independently validated ours was validate that outside by by the FDA.
The same cohort of patients are also not huge soon any comparison you have to use the same cohort if one off the cohort of patients out on avenues delayed antibody response that completely changes these numbers.
So I guess, it's a long winded video of same Paul that it's difficult to make comparisons do you believe the best folks to make these comparisons will be independent bodies and the market itself as our customers are intimately aware off all these points in a dunham depends and frankly in a lot of cases, they have already spoken.
Both to us and outside in terms of their preference for a highly specific ITD based test.
Okay. Thank you that's a it just seems like well above typical redoubts, we've been seeing and then last so the last question would be.
When the analytical instruments part of the business.
Do you think that from sectors like energy are permanently impaired and.
You're having to rethink about what a growth rate isn't that particular fill those niche markets out there.
Yeah, Paul I'm, not I'm not sure I'd say I mean, I think certainly if you put in the Ian P. producers for oil and gas firms. That's obviously it you know troubled by low oil prices, but if you take chemicals and energy broadly so a lot of companies can actually benefit from a little oil price.
If you think about plastics or reusable bags in a in this environment nobody can use until you have to produce more.
So actually chemical and energy, which might make up about 40% to 50% of our industrial business actually hanging held in there pretty well in the first quarter.
I don't think I think it's it depends on the mix within chemicals and energy.
But obviously I think yeah, theres going to be some trouble with maybe some of the MP firms.
Thank you I sure. Our next question comes from Brandon Couillard from Jefferies. Please go ahead.
Hi, Thanks actually James you mentioned operating cash flows pretty good, especially for first quarter. The here can you speak to how you're managing working capital in this environment are you extended payment terms at all and have you revise street Capex plans for the year.
Hey, Ben Yeah. So yeah, we were quite encouraged by the first quarter progress here.
In all categories I think capex is relatively flat, but that's kind of was our operating assumption coming into the year and that's what you saw in the first quarter here.
In terms of inventory, we always have a first quarter build and the only thing there was a little bit accelerate or accentuated David should say this quarter, because we had about 40 or $50 million volume drop out of it. So we'll adjust our plans and recover there, but I think to your point. The biggest point is around receivables, where we've been putting in a lot of work, particularly on.
The process side in terms of invoicing accuracy, working with customers et cetera to the question as to whether we're seeing you know customers want to extend terms to answer is yes, and we're working with a handful of.
Our high quality customers, but I don't think it's a very long.
I don't think though last for a long time, you know we worked with a few in China, but overall past dues are in good shape here.
Thanks, Good clarification I believe you said your prepared remarks das orders in March were down 20% well, that's specifically for applied and I was just transceiver.
Yep Yep that was 20% down specific to applied markets.
Okay. You can't you can speak to das overall for either March or April France.
Yeah, I mean, I think in general if you think about this down 15% to 23%. There are three areas that I think all hanging on the better side and that'll be a life sciences reproductive health and applied genomics and I think three areas that will be on the tougher side, which is applied markets, which as I commented on it.
Food in the core Immunodiagnostics business, excluding obviously with your I mean does with serology.
I don't give exact ranges, but you can imagine life sciences, which makes makes up over 50% of the das business was better than down 20% in March.
Thank you Sir I last question comes from Katherine show from Baird. Please go ahead.
Hey, guys. Thanks for the questions and thanks for all you in your team are doing to help combat. This virus is first on Immunodiagnostics, He top down 30% in China and the first quarter what has to the recovery looks like in that business. So far and how long do you think it takes to return to growth there.
Thanks for your question cap and hope to doing well.
So yeah, Immunodiagnostics actually in China was over 40% down in the first quarter I'd say, it's backed it's not normal levels are immunodiagnostics business is growing mid teens in China. It is not back to those levels, but basically the way I'll answer that question is we're assuming flattish growth in the second quarter in China, and APAC and I think im.
Castex is kinda back to similar levels.
Okay, and then we'll talk about.
Yeah, you talked about developing a rapid lateral flow task in China, and India, and that's something you plan on bringing to the U.S. or you're up or is that more of that market marketplace.
Yeah. So we've got some this is a lot on the on the lateral flow, which we received approval for in India right now India is not to loving export off any or any covert related products out of the country. So that's going to be focused more from an emerging marketplace are the other work that we are all have ongoing.
<unk> dot anti Chung and in Beijing that probably upon development, we might bring to the markets outside of China.
Great. Thank you.
Yep.
Thank you.
This concludes our today's session at this time I like to turn the call back to Mr. prolonged think president and CEO for closing remarks. Please go ahead Sir.
Thank you operator.
Thank you on for your questions again, I'm proud of our entire organization and how everyone has rallied together over the past few months right.
We delivered very good first quarter results, despite the macro uncertainty and our improved liquidity profile should better positioned the company in the months ahead.
Why there's still a lot of unknowns the breadth of our capabilities puts us in the unique position to help combat this pandemic.
We are leading with signs and that is clearly resonating I have no doubt view emerged from this crisis and even stronger company.
Thank you for supporting Perkinelmer, and I look forward to providing further updates on our second quarter earnings call.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participated you may now disconnect.
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