Q1 2022 PerkinElmer Inc Earnings Call
These forward looking statements in the future even if our estimates change. So you should not rely on any of today's forward looking statements as representing our views as of any date after today.
During this call we will be referring to certain non-GAAP financial measures a reconciliation of the non-GAAP financial measures. We plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release.
To the extent, we use non-GAAP measures. During this call that are not reconciled to GAAP, we will provide reconciliations promptly.
I will now turn it over to our President and Chief Executive Officer collapsing per lot.
Thank you, Steve and good afternoon, everyone.
The first quarter of 2022 continued to both challenge and inspire us as we faced veiling dynamics across the globe.
I want to start my remarks today by taking a moment to once again acknowledge all of the employees in Poland.
Open their hearts and even their homes to support Ukrainian refugees.
It's been uplifting to see the different ways our teams around the world have been helping during this extremely difficult situation and we hope for peace to come soon.
I also want to highlight.
My colleagues in China, who have gone to great lengths to continue to deliver for our customers. During these extraordinary times.
Finally, as I reflect on all the events that have shaped this past quarter I want to also express my gratitude to the team behind the Covid testing lab in Valencia, California Rich.
Rich as we announced a month ago will be closing later in May as a result of declining COVID-19 cases, and the subsequent need for testing.
The team stood up the Valencia lab during the height of the pandemic in a matter of 60 days and ultimately dozens of underserved communities obtain widely COVID-19 testing.
<unk> over 9 million samples from this lab.
I also appreciate the efforts of our colleagues in the UK, who are a part of our Covid testing lab in Vegas, which was closed at the end of March.
While we are thankful that the pandemic is now more under control and parts of the world. It does not seem to be fully going away as shown by the recent rise in cases and parts of Asia and some parts of Europe as the new Omnicom Submediant takes hold.
In the midst of upon response to the pandemic <unk> has also been going through amendments transformation.
As we have entered the new year into what appears to be an evolving and somewhat turbulent operating environment.
Our teams are continuing to perform at a high level.
From the successful integration of our recent portfolio additions.
Our focus on commercial excellence.
Two our achievements with new product innovation.
All the while against the backdrop of a very dynamic macro environment.
I think our ability to execute so well under these conditions.
<unk> to run the company has become.
Today more than 80% of our revenue comes from life Science and diagnostics upfront due towards just five years ago.
With more than 75% of our revenue now being recurring in nature compared to only 60% five years ago.
And today more than one third of our non Covid revenue is derived from pharma and biotech customers a figure we expect to continue to grow in the future.
This shift to less cyclical faster growing markets is a proof point of the changes that have already taken place.
With the transformation of our portfolio has undergone over the last 24 months.
Integration and ultimate synergy of these new businesses is paramount.
Let me provide you a few examples of how our recent additions are already collaborating with each other and within the product company overall.
Our commercial teams are now partnering with each other across our buyer legend, Balkan Elmer and horizon product portfolios.
Including unique opportunities at key pharma incubators in North America.
Within our lab services organization, we are introducing a new service offering focused on flow cytometry.
In our diagnostics segment over the past few months, our Oxford immuno Tech business began selling bulk enrollment janus liquid handling instruments, along with cell counting instruments from an exelon.
As part of its new optimized and automated workflow that is now becoming available to customers.
Finally, our Oxford business is collaborating with euro immune by starting to offer <unk> TB test kits in regions, where Europe has strong existing customer relationships.
While our portfolio transformation has been significant we continued to build on our momentum and earlier this year, we welcome <unk> to the <unk> family.
Although a small overall business today.
Already integrated sooner awards Vega technology into our in vivo imaging portfolio to offer our customers a first of its kind ultrasound platform.
The vector system and enable us to meet growing demand for noninvasive imaging technologies.
For use in preclinical research and drug development studies of cancer liver and kidney disease.
Allergy and more.
So no large unique ultrasound offering continues to increase the breadth and differentiation of our in vivo imaging offerings and helps ensure we maintain our leading position in this key market.
From a commercial excellence perspective.
<unk> began to show some signs of normalizing during the quarter as we were excited to return in person to this year's <unk> conference in Boston.
With several of our newly acquired companies go exhibiting and meeting with customers.
Together, we showcased how our end to end life Sciences solutions and automated workflows can accelerate scientists RMB productivity soccer.
So customers can get the right therapeutic candidates to market faster.
Another example is our power up 2022 battery summit, we held last month in Bohlen with.
With key customers and contributors in this fast evolving market.
This two day summit was in advance of our upcoming battery centre of excellence opening in Germany.
Located in the heart of its electric vehicle manufacturing area outside of Frankfurt.
From an innovation perspective, we remain very active as all aspects of improving human health didn't start with coverage.
Especially efforts to get smarter about how we approach research and diagnostics.
For instance, just in the past quarter.
You don't use a test to confirm previous dengue infection has been included in the Cdc's recently released three vaccination screening algorithm.
The dengue vaccine vaccine.
According to the CDC about 400 million people infected dengue viruses each year.
Transmitted primarily through the bites of infected mosquitoes.
While there is no specific treatment for dengue in some cases it can be prevented in children and adolescents with dengue vaccine.
Because eligibility for the vaccine requires proof of prior dengue infection and.
An assay that can measure of wireless specific antibodies for dengue.
Like <unk> <unk>.
If needed.
During the quarter. We were also proud to have book and animal genomics join other leading genomics companies in Nevada. Please <unk>.
To establish the cardio genomic testing alliance.
The group is aimed at raising awareness and utilization of genomic testing in cardiology.
Which can be a powerful tool to identify those at risk for specific cardiac conditions.
From a geographic perspective, we continue to actively collaborate with governments around the world to provide critical solutions to advance their healthcare agendas.
I was honored to meet with the Minister of Health and prevention of the United Arab Emirates in March to discuss the future of Buck in the region.
During my trip, we inaugurated bucket on its first office in Dubai, which has been evolving into an R&D hub for the middle East and a growing market for diagnostics.
With our new site <unk> will be able to better serve our customers with an in country for country approach.
Additionally, when I was at the Dubai Airport I had a chance to view, our GT explorer workstation, which will be used to screen arriving passengers for coverage.
As we look to the second quarter the entire organization remains motivated to keep up the momentum from the first few months of the year.
Despite ongoing global unrest.
Higher inflation.
And then evolving supply chain.
We continue to have both significant incoming demand from customers and resulting backlogs.
We are executing upon as quickly as possible.
Overall I remain quite optimistic.
As spoken number has proven we can navigate through pandemics cyclical headwinds and now world crises.
While continued to execute on our plans.
Delivering for our customers.
And the emerging as a stronger company.
Our performance during the first quarter was a testament to this.
As we grew our non covered revenues organically by 11% year over year and.
And generated $2 41, and adjusted EPS.
Both of which are solidly ahead of our expectations.
As Jamie will touch on in more detail.
Due to the strong performance here in Q1.
Our continued optimism over the remainder of the year, despite some incremental challenges.
And the net impact on our reported results from our cobot contract in California coming to an end.
We are now projecting a 2020 to adjusted EPS.
To be in the range of $7 15 to $7 45.
I will now turn the call over to Jamie to walk through our financial performance in more detail.
Provide specifics as it relates to our outlook and updated guidance.
Jamie.
Thanks for that and good evening, everyone as Todd mentioned the business maneuvered various obstacles well during the first two months of 2022, which is a continuation of our solid execution over the last two years during this pandemic.
Our internal and external transformation remains on track and I am pleased to see both our COVID-19 and non Covid performance again exceeded our expectations. This past quarter. This resilient performance is a testament to the progress we've made and the exceptional efforts and sacrifices of our employees.
During the first quarter adjusted revenue declined 4% compared to last year to 1.2 dollars 6 billion, which included a 2% headwind from foreign exchange and a 10% contribution from recent acquisitions.
Organic revenue declined 11% year over year, driven by a drop in total COVID-19 revenues.
On a non COVID-19 basis, our revenue increased 11% organically, which was above the 79% growth we were looking for coming into the quarter.
Our total Covid revenues came in at $310 million, which was above our $240 million.
Guidance.
As the Omicron Spike in January and February approved larger than we had anticipated.
The revenue upside in the quarter, along with solid adjusted operating margins of 32, 5% helped drive our adjusted earnings per share to $2 41.
Which was also ahead of our expectations.
Driven by the strong top and bottom line performance, we again saw a good free cash flow generation totaling $254 million in the quarter.
As we've previously discussed our capital deployment. This year is focused on deleveraging, which we executed on in the quarter and expect to continue to do so over the remainder of the year.
We ended the quarter with a leverage ratio of two three times net debt to EBITDA, which is up slightly from the two two times it stood at year end.
I would now like to provide some additional color on the performance of the business during the quarter.
Before wrapping up with some updated thoughts on the environment. We are currently operating in and our outlook for the remainder of the year.
Starting with our discovery and analytical solutions segment, which generated $602 million of revenue in the quarter.
This was up 33% year over year and represented 48% of our total revenue.
Organically the segment grew 12% with sales to pharma biotech customers, leading the way and growing in the upper teens organically.
The strong growth we saw in pharma was driven by continued robust demand in our preclinical discovery business and strengthen our informatics franchise.
Its unique SaaS based signals research suite is a market, leading scientific data management and workflow platform used by tens of thousands of users worldwide.
Sales to applied market customers grew in the low double digits organically, while revenue declined in the high single digits organically to academic and government customers, who represent approximately 5% of our total revenue.
Turning to diagnostics the segment generated $657 million of revenue in the quarter, which was down 23% year over year and represented 52% of our total revenue.
Organically the segment declined 24%, while on a non COVID-19 basis, our diagnostics business grew 10% organically.
As previously mentioned Covid related revenues totaled $310 million down slightly from Q4 levels and down from $550 million a year ago.
Our applied genomics business, which consists of various instruments kits and other consumables for NGL sample prep continues to post excellent performance growing more than 20% organically year over year on a non COVID-19 basis in the quarter.
While we are very pleased with the continued strong performance, we still expect its growth rate to moderate over the remainder of the year.
And our immuno diagnostics franchise, we did see some incremental headwinds from lockdowns in various regions throughout the quarter, which became more pronounced in China as the quarter progressed how.
However, despite these headwinds the segment was still able to post mid single digit non COVID-19 organic growth in the quarter with Euro mean growing in the high single digits ex Covid.
Our reproductive health franchise grew in the high single digits on a non COVID-19 basis in the quarter as the positive inflection in birth rate trends, we saw in the U S and parts of Europe in the fourth quarter appear to have continued so far this year for.
For example, we believe births in the U S were up in the 4% range year over year in the first quarter.
The business also continues to benefit from continued geographic and menu expansions the contribution from new product introductions, and a relatively small but growing contribution from our vantages and IPG offering.
From a geographic perspective, our 11% non profit growth in the quarter was led by the Americas, which grew in the upper teens, while Europe was up in the high single digits.
Asia Pacific and China were both up high single digits. Despite lockdown related pressure on our diagnostics franchise due to the strong growth from pharma and biotech customers.
Now moving on to the current view of the world and its impact for the remainder of the year.
As you saw with the 11% non COVID-19 organic growth we posted here in <unk>. The demand environment continues to look very healthy while supply chain and lockdown pressures persist.
As a result, our overall backlog entering <unk> increased slightly as compared to where it started at the beginning of the year.
So for the full year, we are reiterating our full year non COVID-19 organic growth outlook of 6% to 8% even with the number of various uncertainties that exist in the world today.
As you saw in an 8-K, we filed in April the state of California provided us notice at the end of March that has decided to end our Covid lab testing contract within the 45 days stipulated by the terms of our agreement.
Consequently as of the middle of this month, the lab will be closed and the contract will be over.
Because of the accounting treatment related to the upfront milestone payments, we received when opening the lab all of the roughly $100 million of deferred revenue we have related to this contract will be recognized in <unk>.
Along with the associated cost of closing the lab and a 1% higher effective tax rate for the year as a result of greater Covid revenue and income we.
We estimate the net impact to contribute approximately 35 cents of earnings per share in the second quarter.
Which will be included in our updated revenue and earnings guidance I will share with you shortly.
For your modeling purposes are much smaller COVID-19 lab in the U K was also closed at the end of March.
So as we look ahead, while Covid cases have increased in some markets recently, such as China testing has dropped significantly over the past few months in most other areas.
After generating $310 million of Covid revenue and <unk>. We are now looking for $570 million of total Covid revenue. This year, which includes the noncash deferred revenue related to the California contract being fully recognized.
With an expected 7% contribution from M&A and a 2% headwind from foreign exchange. We are now forecasting our total reported revenue this year to be in the range of 456 to $4 63 billion.
In terms of adjusted earnings per share. This year, we are increasing our guidance to a new range of $7 15 to $7 45.
Which includes the favorable impact from the California related deferred revenue being fully recognized as well as our Q1 outperformance.
And for the second quarter, we are projecting total revenue to be in the range of $1, two zero to $1 billion to $2 billion, which.
Just a non COVID-19 organic growth of 4% to 6% and M&A contribution of 10% or 3% headwind from foreign exchange and approximately $210 million of total COVID-19 revenues inclusive of the deferred revenue being fully recognized.
In terms of adjusted earnings per share guidance for the quarter, we are forecasting to be in a range of $2 to $2 <unk>.
All of this guidance as detailed on the second to last page of today's presentation that is on our investor website.
In closing I am proud to see how our team is responding and continuing to deliver on the very strong demand we are experiencing from our customers.
I know I've made the comment before but it is really amazing to see the rapid transformation that has occurred at the company over the last two to three years, both internally and externally, which I feel has positioned us extremely well going forward.
With that operator at this time, we'd like to open up the call to questions.
Alright, thank you.
Thank you I would like to ask a question. Please press star followed by one really quickly.
Is there any reason you would like to remove a question. Please press star followed by team again to ask a question Thats Star one.
As a reminder, if you are using a speakerphone. Please remember if you pick up your handset before asking your question.
A little pause here briefly ask questions registered.
Our first question comes from <unk>.
Jay Kumar with Evercore Vijay.
Vijay Your line is now open.
Hey, guys. Congrats in Q1, and thanks for taking my question.
Jamie over a prolonged maybe.
One on the guidance here a lot of inbounds here on.
The debate guidance that changed I guess the question I'm getting at.
You guys did 11% on base.
And the annual at six to eight weeks on <unk> right. So I.
I guess, the implied <unk> organic because perhaps coming in a little bit lower versus prior guidance.
So the question is was there any pull forward of revenues in Q1 in the base of 11%.
Does the guidance yet.
China Lockdown impacts and continue.
I'm, assuming given it's diagnostics.
And lost revenue, so maybe talk about the base business and what it can do.
Perhaps.
Some impact from China.
Yeah. Thanks, Vijay so we.
We are not changing our overall non COVID-19 core organic growth guidance of 6% to 8%.
Yes, we beat the first quarter as the team is executing extremely well I think I mentioned in my prepared remarks that the demand looks great. Our backlog continues to rise. So I think it's basically just a little conservatism that first quarter is always the lightest from a revenue perspective, but the outlook looks strong and I think we are poised to at least deliver the 6% to 8%.
But I thought it was a little too soon this early in the year to raise the overall organic growth guidance.
As you know Theres, a lot of geopolitical and macroeconomic pressures out there you mentioned, China as an example, so I don't think we will lose the testing not a lot of this was due to reproductive health Vijay I think most of it's due to euro immune and the.
Autoimmune testing, which it just gets pushed out a little bit it might be.
Pushed out of the year, but not necessarily pushed out because some data we're looking at testing.
So what we've baked into our guidance for the second quarter is that the operating environment that we saw at the end of the first quarter from mostly the month of March continues through mostly may and returns to normal at the start of June .
So overall, we still feel very confident that 6% to 8% is probably a little conservatism, but it's still early in the year and things are operating well the team is doing a great job.
Just to add to that also just keep in mind that despite all the lockdowns are facility in Shanghai or zero is not fully closed you've been working with the authorities to continue to manufacture and ship product out of there.
So as Jamie mentioned in her impact has not been on reproductive health that has obviously been on diagnostics.
That will come back.
I think more importantly, let's keep in mind that for us the company's portfolio is very different today again going back to as I said in my remarks, 80% of this life science and diagnostics and life Sciences. There continues to do well, which is not to touch the best revenue.
So overall I think.
China will come back assuming our assumption is that at the end of May the Lockdowns will open up and I think we should be okay, but it's just being prudent and this is no different than what we have done in the previous quarters.
That's helpful perspective.
And Jay maybe one for you back.
Back it down.
JP.
Thank you point, the fiscal <unk> earnings being north of $7.
Look at the annual guidance around your current guidance of 745 at the high end.
And a backup.
The Q1 and Q2 EPS guide I think the back half. Thank you.
Got it.
Which annualized to above $6 range.
Maybe can you just talk about fiscal 'twenty, two with confidence in them.
Earnings from definitely that you laid out earlier in the year.
Sure.
Yes, I think the very general answer is that our our our confidence in what we've done and the hard work that the plan that we've put in over the past several quarters and the transformation of the portfolio has not changed at all.
So.
Obviously, the market environment, this changing but here's what I would say it could not be more bullish on the company's outlook a ton of work has gone into transforming our portfolio. I mean, just look at what we've done with life Sciences.
We will have a 700 billion plus of just reagent business, which will be glow growing in the mid low to mid teens.
So the way I would answer the question is that I think we are very well positioned to deal with whatever market conditions are thrown RV and have shown our ability to execute over the past couple of years and nothing changes from that perspective.
Sorry.
No change from the prior.
The $7 plus earnings outlook for fiscal 'twenty correct.
As I said, given the market conditions VR.
<unk> absolutely as of this point no change in waterpark processes towards that number.
Okay. Thanks, guys.
Thank you.
Yeah.
Thank you P J.
Our next question comes from Derik de Bruin with.
Bank of America.
Darren.
Okay.
Great. Thanks. This is Mike list can also Derrick.
I want to start on the M&A contribution I appreciate the color in the beginning of the prepared remarks brought on.
Some of the centers and from the benefit Youre seeing from bringing these businesses together.
But you didn't necessarily point to I think 11% M&A.
In the quarter and it looks like Youre going up over to provide with that can you sort of break down some of the various points. There I know there's a lot of deals that are still.
In the quarter. So could you talk specifically held by legend bid.
Versus some of the other.
Some of the other pieces, whether it was Oxford or.
Or some of the other acquisitions.
Sure Mike, Let me start by saying that overall for 2022, our forecast for our M&A does not change and then.
In fact, we would reiterate that yes as you pointed out <unk> did come a tad below our expectation.
It was primarily because of the lockdown impact at <unk>.
Omicron hit in January so there are two things one the academy customers that shut down for some time and there was some closures also from employee disruption in January at <unk>, but that was in January and Thats gone and there was some I guess impact also at Oxford, Oxford University.
So overall I think for the year. It Hasnt changed it frankly has just pushed out from Q1 to Q2 and beyond.
Okay. Thanks.
And on the on the number you printed and das.
Really strong number despite the comps could you talk us through what Youre seeing there, what's really driving that strength and what are your expectations for the rest of the year.
If youre going to pick up your das.
Assumption a little bit.
Sure I think the.
To start let's start from life Sciences, I think the innovation that we have put in place there is really leading to strong growth and the share gains that we are.
If you just take a few examples right one is our informatics business, leading visa to SaaS based Florida portfolio on the preclinical side with the products that we have launched and on the reagent side now, bringing in biology, and becoming more of a source for us of antibodies.
Adjusted <unk> in our traditional reagents business.
So from a market perspective pharma overall continues to do very well for us and our backlog continues to grow there. So I think in <unk>, particularly that's the life Sciences has been the main growth driver and even within applied <unk> had several new product introductions that has been a continuing trend as we have for the investor.
Organically in our applied portfolio and the results of that have started to show.
The solid cash program for example in China.
That's going to that's demonstrating good traction we talked about the battery summit that we had I think in the outskirts of Berlin.
That that kind of started to show some impact for us.
In food, especially on the safety side. This continues to be strong demand in China. So I would say that we're off the end markets that we talked about food applied and life Sciences all of them continue to do well in an appliance specifically around the semiconductor side and battery that market is doing well.
Okay. Thank you.
Yes.
Thank you Derek.
Our next question comes from.
Dan.
Thanks, Tom.
Dan Your line is now open.
Hey, guys. This is Dan on for Dan Thanks for the questions.
So just starting with neuro immune.
The non COVID-19 portion of the business, you're expecting to get back to.
Double digit growth this year I think it was high single digits.
In the quarter, so I just wanted to clarify.
China was probably the main issue there and then so what's baked into guidance is that assuming the lockdowns ease up at the end of May beginning of June .
Yes, great question Danielle.
Yes, if you look at Europe . They continue to do extremely well so China did impact their business. It's a relatively large proportion of their revenue outside of China and grew in the high teens.
The rest of the geographies.
And so China was probably flat to down low single I think or maybe down 5%.
And as we look forward into the second quarter here. We continue to believe that will happen. So I think by the third quarter I would expect your immune overall to get back into the normal high teens, but the performance of the business outside of China is terrific and I think when China opens up again, it will snap back as well like we saw in the <unk>.
Yes.
Okay, that's very helpful. Thanks.
And then what's the latest on Vantiv.
<unk> you mentioned, a small contribution in the quarter. So just first how is utilization within.
<unk> base, how is adoption and then just what's expected for the year in terms of placements and utilization and revenue contribution. Thanks.
Sure.
Let me start by just picking it up and talk about the whole reproductive health segment as we've done in the past you know clearly.
Clearly our new products are seeing strong uptake with skewed accelerating SMA preeclampsia.
I think thats shown in the numbers obviously.
One of the things that has also.
Improvement in the book trends, especially in the U S continues to gain traction we pointed that out in the fourth quarter and I think even in the first quarter infrastructure of about 4% propylene oxide.
And Brandon this is another contributing towards that growth, albeit small, but it continues to sequentially grow and we expect this growth to continue in the future quarters. We are seeing a lot of commercial traction we continue to refine the system and reagents and keep looking at adding one.
What are the features we need to do so overall.
Could not be more.
Happy over debate that NPI is progressing and that theres going as per our plan, if not better I would say.
Alright, thanks, guys.
Yes. Thank you.
Thank you Dan.
Our next question comes from.
Josh Paulson with Cleveland Research.
Josh Your line is now open.
Hey, Thanks for taking my questions one on margins and then one on recent acquisitions, Jamie Wonder if you could talk through how you think margins in the <unk> business performed versus maybe your internal expectations in the first quarter and maybe how youre thinking about.
Margins within that business for the full year any any change maybe versus the initial plan.
No no change versus initial plan I think we've always been metering our investments to the organic growth as well as the COVID-19 side of our business. So as Covid lines down we will have to wind down some of our increased investments, but that was always the plan. So I would say no change in our overall approach here.
Thank you.
I mentioned in the past Josh about it and to the earlier question around the $7, 26% operating profit by 2023.
I think right now as I've said for the most part there is a lot of.
The environment is evolving but are evolving and we still think that we will continue to do well. So we have a lot of productivity programs. We assume that the growth will still be there the mix of our business has changed I think it's something that is underappreciated is the $700 million life Sciences reagents business that we have that has been growing low teens and it comes at a very high profitability.
So we feel confident exiting the year to be Jays question earlier in terms of the margin rate and I think at the end of the year by the fourth quarter, we're probably going to be at the adjusted operating margin for next year now that comes on the highest core quarter, but overall I think it speaks to the fact that we can get there for next year.
Got it and then a follow up on acquisitions I appreciate the timeline you laid out.
But wondered if you could provide some.
Some context on how you expect the acquisitions from 2021 to contribute to be 6% to 8% organic here in 2022, and then maybe.
And kind of back to margins any context on what the margin profile of that revenue is look like kind of year to date.
Yeah. So for the overall year, Josh we were originally saying before acquisitions, we've been assigned to <unk> business and so that the acquisitions and the effect that they would have on 2022 would be an extra point, which is why we guided 6% to 8% over the.
The majority of that revenue or a big portion of that revenue comes in the fourth quarter when <unk> kicks in and the growth rate that they have so thats, where youll see the biggest contribution from an organic growth perspective. So I think in the first quarter, we have horizon for the whole year, Oxford start here in the second quarter and excellent starts in the third quarter and an idea.
Syria biologic starts in the fourth quarter. So it will be an increasing contributor through the year, but it's relatively small in the first and second quarter.
As of today's margins margins continue to look very good.
Say, maybe even better than we anticipated at the outset of the year.
<unk> remained strong.
Ryzen is doing a great job of Oxford is doing a great job. So things are going well in both the growth in the larger funds with all the acquisitions.
Alright, I appreciate all the detail.
Thank you Josh.
Our next question comes from.
Hi, Thanks.
And.
Catherine Your line is now.
Hey, guys. Thanks for the question maybe.
Maybe first for the China Lockdown I believe in the fourth quarter, you had quantified that at a point to a point and a half headwind. So what was that headwind in the first quarter and can you quantify what's baked into the second quarter in terms of that 46% non COVID-19 organic guide throughout lockdown headwind.
Sure. Thanks, Catherine Yes, I thinking the fourth quarter, we might have said it was two to 300 basis points at a company level.
So for China, specifically that translates to more like high single digits to a 10% impact on China.
So in the first quarter, we continued to experience. The same thing I mentioned neuro immune already so year on year and was down versus up 17% in China.
So thats one impact.
There was a lot of shipping issues at the end of the quarter as well as some of the delays in the logistics of our business. So to China, specifically, we were up high single digits and I think we had the same impact in the first quarter that we saw in the fourth quarter and I think we probably would have been up mid teens to high teens with that excluding those impacts specifically in <unk>.
China and are probably a couple of points to the overall organic growth of our company in the first quarter as we fast forward to the second quarter really we've taken in China down to mid single digits. So it's a little bit of a longer operating environment that we are assuming here. So we've China was really impacted primarily in March we're assuming that it'll be impacted in <unk>.
In may and so therefore, we've taken high single digit down to mid single digits on top of the fact that overall.
It's a tougher comp year over year from a China growth perspective, so hopefully that gives you a bit of color, but it's basically the same that we've been operating in for the last two quarters and it gets a little bit worse in the second quarter here.
The other thing I'd say just to.
When we initially guided the year, we obviously said high single digits and then six to eight for the overall year and we're still keeping the overall six to eight and specifically for the second quarter, we're really not changing our overall guidance. So again I just think it speaks to the portfolio and how we're able to weather the storm of certainty.
Issues across the globe.
Got it.
And then you had mentioned in your lab services organization, Youre, adding a new service offering.
Flow cytometry can you just talk a bit more about that offering and how it got attention went by allergan with doing.
Yes.
As it pertains to our enterprise <unk> business, Catherine and so the team has been working with <unk> and R&D.
Our enterprise business, obviously maintains assets assets, but it also does a lot of professional services. It does compliance services that does it services. So they worked with the <unk> team to be able to optimize testing in the lab as it pertains to flow cytometry and I don't know all the details behind it but.
When you combine the bio legend experts and phds with our enterprise team that.
Basically able to better operate a flow core cytometry lab.
Got it thank you.
Thank you.
Thank you Catherine.
Our next question comes from.
Jack Nihon with.
Thank you.
Jack Your line is now open.
Thank you and good afternoon.
Jamie I was wondering if you could give a breakdown of the $310 million of Covid sales in the quarter, how much came from the lab service operations and.
Just the $25 million per quarter in the back half of the year just walk us through again, what your framework is for kind of an endemic COVID-19 for Perkin Elmer.
Sure Hey, Jack Yes, so I would say.
Im rounding here, probably 175 million excluding lab, so our core COVID-19 revenue and maybe a $135 million of revenue, which.
Which is pretty much in line with our guidance on the lab side and really the upside is on the core product side, largely due to homework on and how significant January and February . So we saw a lot more throughput on the core side of the business. The lab side didn't really change very much.
As you get to the back half I mean, we've noticed a handful of things to make us even more confidence in kind of the $25 million per quarter or overall $100 million for the year I would say one.
Our extraction needs and use a curmudgeon has been terrific I think the yield on those is really well understood in the marketplace and people are ordering those for quite some time.
We've also seen people start to use the instruments and renew them for non coal.
Usage and so they are extended warranties and they buy two year warranty contracts on that which just tells us they're using <unk> and.
In addition to maybe some COVID-19 testing they are willing to pay for it for other.
Hi, chip testing as well so we feel very confident in terms of PCR testing that was never really in too much of the $25 million. So I think thats upside, but I think from an academic perspective, there will be some amount of PCR testing for quite some time, we just don't parse out how much is pcr versus extraction versus the instruments and the consumables.
But I would say that PCR was probably a small fraction of that $25 million.
So we ended up very much helpful. A lot more testing in the second half and I think we would share in that upside otherwise I think we would get.
Just the use of the antigen in our liquid handling systems.
That's helpful. And then just a clarification sorry, if I missed this on bio legend.
As the sales contribution in the quarter and just stopes.
Still feel good about the $308 million or target for the year.
Yes, we still feel good about the $380 million target for the year, Jack I think we want to start talking about the entire life Sciences reagents business, because I think it's underappreciated. It makes up almost 30% of the entire das business and in life Sciences in total makes up 66% of the entire debt business, which.
To the earlier question is why we're so bullish on the changed organic growth rate of our company.
So I will quote the life Sciences reagents business inclusive of <unk> grew in the low teens in the first quarter.
I think we're going to give out hey, here's exactly what biology as much science is finalized and our historical discovery I think we want people focused on the big picture that we now have a substantial life sciences reagents business that is growing low teens and it has a ton of innovation and opportunity when you combine alpha technology and everything.
File abroad, Hcl, RF technology, and everything that biology.
Biologists bought in addition to horizon discovery, So we're quite excited by it and it continues to perform well.
Thanks, Jamie.
Thanks Jack.
Thank you Jack.
Our next question comes from Greg.
<unk> <unk> with Jefferies.
Brandon Your line is now open.
Hey, Thanks, good afternoon.
Jamie just update on what are you thinking about free cash flow conversion for the year and I think there's $400 million left on the term loan and correct me if I'm wrong and you expect to pay that down ratably balance of the year.
Hey, Brandon, yes, so.
So, yes, maybe I'll start with the second part so we are actively and aggressively delevering. The term loan was $500 million at the outset of the year, we paid down $100 million in the first quarter.
We shouldn't be able to get that off the balance sheet by ended July August timeframe here, we certainly have the cash across the globe youre very familiar with their balance sheet. So you can see that we have a substantial amount of cash.
Making it dividend it back to the U S. In a tax efficient way is what we're focused on so it takes a little bit of time to repatriating it but just the general free cash flow that we're also kicking off we kicked off $250 million in the quarter. So therefore, we can use $100 million pay down the term loan. So anyways I think it'll be done relatively soon in terms of free cash flow you know this better than.
Most people, 83% free cash flow conversion in the first quarter is one of the best quarters, we've had in a long history.
So if you go back to the pre Covid days, we were sometimes in the negative range and so we focus a lot on free cash flow conversion. We've always said, we said we'd be above 85% or 85% to 90% in the past biologic only helps that.
I would say, there's nothing really to come off that the only thing that will impact free cash flow is this deferred revenue and the fact that it won't but it is mostly it's all noncash so instead of 85% to 90% I would think $80 to 85% for the year and we still feel very confident in achieving that.
Okay, and then any more color you can help us with as far as gross margins in the back half of the year once COVID-19 testing.
You bet.
And Dennis steady state.
Yes.
As Covid rolls off when we always knew this day was coming.
I would expect gross margins to settle in the mid <unk>, So call it 55% and as I mentioned in my prior.
Response, I think operating profit will be 20 to low 24 for the second half and we might even exited in the 25% to 26% range. So.
We're really going to be monitoring the investments is still that rolls off net but again, if COVID-19 is better than we anticipated we might choose to continue to invest but overall, we're still laser focused on the 26% for 2023.
Got it thank you.
Okay.
Thank you Brandon.
Our next question comes from.
Rachel Fox now.
J P Morgan.
Your line is now open.
Great. Thanks for taking my question. So can you just spend a minute talking about pricing and I know that you're turning PGM prices in the back half of last year in light of all the inflation that we've been seeing.
So can you walk us through how much pricing is expected to contribute this year and then be faced any push back from your customers on any of these price increases that offset fire.
Yes.
Thanks, Rachel so again in the past have historically, what we've said is seeing about 50 to 100 basis points in the year and we've said that we think that might be able to double.
As you May remember in the first quarter, we saw kind of the average rate maybe a little bit above that because we knew we were working off a substantial backlog from the fourth quarter as we look at the order book that will that transpired or was taken in the first quarter, which will start flowing through in the second quarter. There was a substantial amount.
Inefficient amount and more price in the second floor and we think that will continue to increase throughout the year. So it takes a little time to get through customers to understand and get it through the entire sales force.
But I think what might have been 50 to 75.
Increases probably 50 basis points every single quarter, so that by the end of the year, we might be in.
100 to 200 range of 150 to 200 range and feel very good about how the team is responding.
Great. Thanks, and then my last question is about the pipeline last quarter, you highlighted about three to 400 basis points headwinds between supply chain and lockdown pressures.
Typically how meaningful is that supply chain headwind in <unk>, and then what's baked into the guidance for supply chain and logistic constraints for the rest of the year.
Yes, I think it's Rachel similar to my response on China, It's just kind of a new norm it hasnt gotten better it hasn't gotten worse. So the three to 400 basis points to the fourth quarter, probably has a similar number that we experienced in the first quarter. So it didn't get any better than getting any worse as we head into the second quarter.
I don't think supply chain gets better or gets worse, we did take China down a little bit.
But overall I think we're kind of living in the new norm and I think the team is navigating it well and so therefore, it's not really worth calling out because it's kind of been there for at least two quarters now.
We believe we will continue to remain through the rest of the year.
Thank you Rachel.
Okay.
Sure.
Our next question comes from.
Paul Knight with Keybanc.
Paul Your line is now open.
Jamie I didn't quite catch the color on California that was $125 million or 100.
100.
To the second quarter.
Yes.
Maybe maybe try to clarify that because it was touched on a couple of numbers and Jack's question. There. So jackie that how much of it was the labs as it pertains to the first quarter. How much was the last portion into the 310 total labs, including the UK lab was about $135 million, which is not too far from our original guidance in the second quarter.
Order the extra differed revenue that we will be amortizing is $100 million above our previous guidance, So, California to the second quarter will be more like $150 million overall, which is $100 million more and thats purely a result of amortizing that deferred revenue, we already had $50 million.
And our guidance thereabouts.
Hopefully that tries to clarify essentially we're not coming off the original guidance. The original guidance was $1 10 for the second quarter, and we're just adding the extra $1 million of deferred revenue.
Got it okay.
That's how you get to that 35.
Contribution in Q2.
That's right there are other cost associated with it.
Decommissioning, the overall lab and taking out the.
The equipment and that kind of thing.
Including the extra Covid revenue that we have that increases our overall tax rate for the year. When you put that altogether that 35 to the second quarter and the overall year.
Alright, and then overall tax for the year.
'twenty one.
Yeah.
Okay platelets.
Okay.
Operator, maybe just one more question.
Of course.
Our next question comes from Patrick.
<unk> with Citi.
Patrick Your line is now open.
Hey, guys I appreciate you squeezing me in there.
Jamie This is maybe one on the EPS guide I was hoping for a bridge I mean, you guys. I think you raised by about 40.
Pete <unk> by 30, the California contracts another 35.
By my math <unk> guidance came down by 25% I'm sure part of that FX, but I was hoping just for a bridge if you add it in terms of the EPS guide from last quarter to this.
Yes, you're in the ballpark there Patrick So again, we believe the team did an outstanding job of executing in the first quarter and continues to execute well in a turbulent.
Turbulent environment to give you the bridge, yes, we beat the first quarter I will take the high end, we took the high end, we beat by <unk> 31, since you've got the extra 35 store, California, which I. Just described so we are basically not flowing through 'twenty.
Primarily three things for the most part is foreign exchange.
I think you've heard that with all of our peers as well and then the inflation and freight environment is a little bit tricky right. Now so we put in a little extra cost I think as I mentioned pricing is going well. The team continues to execute we're doing a lot to offset increased freight cost in terms of different routes different providers different packaging frankly.
Right now it's early there's a lot of macroeconomic uncertainty out there Patrick So we felt like we wanted to flow through <unk> on the high end.
Because we wanted to increase the guidance by something that we're very confident as always and at least meeting if not beating.
Okay.
Yes, that's helpful.
And then maybe you want to China, you, obviously talked a lot about it with <unk> and <unk>.
Can you just remind us first of all how much of the China revenues in the diagnostics World and then how do you think about the recovery a lot of the companies lot of your peers have said instruments will probably snapback fast consumables service, maybe that's a little more loss than recovered. How are you guys thinking about that and then again would love to just talk through your split there in China.
Yes, Jonathan talk non Covid Patrick coated.
Yes on a gross revenue.
A few months so so non COVID-19 I think that's what we're trying to portray is different I mean, if you go back two or three years ago, we used to say, China diagnostics was 60% of the business and Das was more like 40%, which was the inverse of the total makeup of the company.
If you fast forward to this past quarter the asset is now 55% overall.
Overall, China.
Diagnostics is 45%.
The science is about 30% of overall, China, and I think Thats, where all of these investments in terms of biologic next long horizon et cetera is really change the game for us in China. So even though life sciences has always grown very well. Therefore us this past quarter grew over 20%. It's now a much bigger piece of the pie, which I.
I think then changes the trajectory of the growth rate for us in China.
Apply and continue to do well in a tricky environment I mentioned, all the supply chain issues at the end of the quarter and everybody knows about the chip issues that all of us are experiencing they still grew mid single digits.
So dash is probably 50 50 life Sciences and applied markets and then the rest is diagnostics call it 45%.
Diagnostics is two thirds of that and it's mostly euro immune and I've already hit that but overall, China diagnostics at a company level of immuno diagnostics at a company level is less than 5% of the revenue of the company. So while it has been impacted overall it grew low single digits in the first quarter and I think we're weathering the storm pretty well in.
Quite excited about the future of China for us, particularly with the greater life Sciences business.
Even within diagnostics the applied genomics business continues to do very well there. So I think once the Lockdowns open now and then we get back to normal double digit growth that's on the upside.
Great. Thanks, John Operator, we will take.
Operator, we have a few extra minutes. If there are any other questions you have to take them.
Of course.
Our next question comes from.
Matt Sideslip.
Goldman Sachs.
Matt Your line is now open.
Thank you good afternoon, Jami Parag and Steve I. Appreciate you squeezing me in I just have one quick one.
Probably you talked a lot about life sciences, becoming such a large portion of that it's a great story and I'm. Just also looking at the growth rate you guys put up in your industrial environmental and food within that which is still strong and it seems to be some secular tailwind is driving some of that as you allocate internal resources.
Within the company and you think about das.
How are you thinking about sort of that life sciences split between.
The other divisions within das in terms of allocating capital and growth initiatives.
Yes, I think the way we.
We've talked about mapping out and especially as we look at our overall allocation both organically and Inorganically.
Over the past several quarters, we've continued to make organic investments disproportionately on the appliance side of the business and if you look at the inorganic trend over the last 18 months.
I would say a dominant if not a majority of our acquisitions has been on the life sciences side of the business.
But consequently, the opinion is also in this case for applied end markets, where we have a strong position, whether it's Mac, our inorganic and especially with semiconductors and batteries and other the ICP Ms portfolio or our portfolio. Those end markets are doing very well and we are seeing the benefits of that but.
I think again.
Back to Verizon and Jamie has been the same.
The Das business now is two thirds life Sciences.
For us what becomes important is what might be a $700 million business. This year and end up being an $800 million business life Sciences reagents business, that's growing in the low to mid teens and I think that is going to be the growth driver for not just Dallas, but for the company and I think that's what we feel very good and confident about that.
The assets that we've put in place for that.
Okay.
Great I appreciate you squeezing me in thank you.
Yes.
Thank you Matt there are no further questions. So I'll turn the conference back over to our management team for any closing remarks.
Thank you Amber and thank you everyone for your time and questions. This evening and we look forward to speaking with you all again next quarter have a good night.
That concludes today's.
Perkin Elmer first quarter 2022 earnings conference call.
For your participation you may now disconnect your line.