PerkinElmer Inc

LSE:0KHE

Earnings Call Transcript 2019-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the PerkinElmer First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Bryan Kipp, Vice President of Investor Relations. Sir, you may begin.

[Bryan Kipp, executive]

Thank you, Jewel. Good afternoon and welcome to PerkinElmer's First Quarter 2019 Earnings Conference Call. With me on the call are Rob Friel, Chairman and Chief Executive Officer; Prahlad Singh, President and Chief Operating Officer; Jamey 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 Investors section of our website at www.perkinelmer.com. Please note this call is being webcast live and will be archived on our website until May 9.

Before we begin, we need to remind everyone of the safe harbor statements that we have outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our statement -- even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any other date after today.

During this call, we will also be referring to certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly.

I am now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

[Robert Friel, executive]

Thanks, Brian, and good afternoon, everyone. I'm pleased to report PerkinElmer had a very good start to 2019, delivering a strong performance in the first quarter.

Revenue for the first quarter was $649 million, representing organic growth of 5%. Adjusted earnings per share was $0.69, representing growth of 10% over Q1 last year and $0.03 better than our guidance. EPS feat was attributable to slightly higher organic revenue growth in the quarter and better operating margin expansion as adjusted operating margins increased 130 basis points in the quarter. In addition, we continue to execute on plans to invest in high-growth areas, shift the organization to a more unified structure and further improve operating margins.

From an end-market perspective, the first quarter played out similar to our expectations, except that we were able to ship about half of the revenue we thought we would miss as a result of the U.S. government shutdown.

Looking at our growth by market. Americas was strong, up high single digits, led by Diagnostics, pharma and food. Asia was solid, up mid-single digits, with strength in Diagnostics and pharma. Europe was down modestly due to softness in industrial, environmental and food end markets. Looking ahead, we continue to expect improved growth momentum in APAC, solid growth trends in the Americas, and modest growth in the low single-digits in Europe.

While Jamey will discuss our end markets in more detail, the macro drivers to our growth remains largely unchanged. In Diagnostics, the prevalence of infectious and autoimmune diseases continue to grow, particularly in emerging markets. Increasing demand for earlier diagnosis and the rising adoption of new technologies also is fueling growth across all 3 of our segments of reproductive health, immunodiagnostics and genomics.

In life sciences, we continue to see robust demand in both product sales and services within the pharma and biotech markets as our customers continue to increase investments in tools and technologies to improve their research lab productivity.

Within food analysis, market growth continues to be driven by the rising outbreaks of foodborne illnesses, advances in technology for food safety testing and globalization of the food supply. Lastly, our environmental and applied markets generally track macroeconomic conditions, and as such are experiencing stronger growth in the Americas with softness in Europe and Asia. Influenced by these market trends, we continue to shape our portfolio actions and investment priorities to expand in the key growth areas I outlined in January.

During the first quarter, these areas experienced strong growth as we continue to execute on our plans to invest and build-out these differentiated capabilities. I've asked Prahlad to briefly update you on our activities regarding these key growth initiatives as well as how we are better aligning our organization to optimize these opportunities and better serve our customers.

In addition to these organically funded initiatives, we continue to deploy capital to complement these growth areas with companies that add technology and leadership positions in synergistic market applications. A great example of this is our announcement today of our purchase of Cisbio Bioassays. Cisbio is based in France and produces kits and reagents for life science and diagnostic markets. Last year, we generated just over $50 million in revenue with margins north of 25%. We're excited -- we're very excited to welcome Cisbio team to PerkinElmer and believe it provides us a number of strategic opportunity.

In the area of drug discovery, we will now have the broadest capabilities with regard to homogeneous detection technologies, helping scientists accelerate workflows and more efficiently stream potential drug candidates.

Cisbio also enables our expansion into cellular imaging reagents to complement our strong positions in high content and in vivo imaging markets. In addition, approximately 25% of the revenue is focused on in vitro diagnostics, which is very complementary with EUROIMMUN. And finally, they bring strong technical capabilities and intellectual property in molecular and cellular biology and assay development. Once integrated, our combined resources should result in accelerated growth and innovation in our reagent portfolio for the life sciences and drug discovery markets. Jamey will discuss the financial aspects of the deal later in the call.

As I mentioned earlier, another key focus area for us this year is expanding our operating margins, and I was particularly pleased with our performance in the first quarter. The majority of this progress was attributable to 3 areas that we have targeted this year. The first is EUROIMMUN, where a more favorable product mix and improved cost management added roughly 60 basis points to margin.

The second is improved factory productivity, which drove about 50 basis points of margin expansion, with the remaining factor was continued success in leveraging operating expenses by maintaining our SG&A expenses flat, while revenue grew 5% organically. The progress we made this quarter reinforces our confidence in the full year plan to increase operating margins 120 to 150 basis points.

So to summarize the start of the year, we delivered strong financial performance, continued to make good progress of those areas that accelerate our growth, completed the Cisbio acquisition, which adds terrific capabilities and is attractive financially, and we experienced good traction on our initiatives to significantly expand our operating margins.

Now I'd like to turn the call over to Prahlad to give you some more color on our growth initiatives.

[Prahlad Singh, executive]

Thanks, Rob. As I mentioned during last year's -- or last quarter's earnings call, we are running an end-market approach to create the most advanced solutions for our customers in the key markets we serve. This approach will enable us to drive leadership across our priority end markets, whether through the differentiated solutions we are creating to meet customer needs, or strategic partnerships and acquisitions that will deliver incremental value to our customers, while focused on solving the next big thing in science and health care.

In that regard, I've had the opportunity of spending a great amount of time this past quarter meeting with customers, employees and shareholders across all of PerkinElmer, and it has further reinforced the need and opportunity for us to move forward on this strategy. Rob mentioned our key growth accelerators and I would like to give you a sense of the progress we are making in a few of these areas, which we believe will fuel long-term top line growth by expanding profitability.

We continue to execute against our previously stated key priorities of providing an exceptional customer experience, being recognized as an innovation leader and making people and culture a competitive advantage. To accelerate our efforts, we are focused internally on reshaping the organization to leverage our capabilities across PerkinElmer.

We recently announced a combined R&D organization that brings together our technical capabilities across businesses and geographies and aligns our 2 R&D groups from Diagnostics and Discovery & Analytical Solutions under one team. Further, as we continue to see capabilities and applications that our customers demand converge across our end markets, we are revamping our go-to-market approach to maximize the benefit from the intersections of our technologies and expertise across end markets. This will be a seamless transition that positions us to immediately create even more relevancy and opportunities with customers around the globe.

From an operations standpoint, we have launched several initiatives that will improve the customer experience from quickening auto fulfillment, to optimizing the supply chain. Importantly, we are fully capitalizing on the trend towards digitalization and will be implementing our company-wide digital transformation strategy aimed at recrafting our digital architecture, assets and capabilities to better benefit our customers and organization.

Similarly, in immunodiagnostics, we continue to leverage the capabilities of EUROIMMUN and PerkinElmer to launch innovative products and penetrate new markets for allergy, autoimmune and infectious disease testing. We received FDA clearance for 2 celiac markers to complete EUROIMMUN's offerings in the U.S. and help expand our test menu within existing lab accounts. We continue to expand our autoimmune screening footprint with some key wins and expect that by early Q3, we will boost EUROIMMUN's market share in the U.S. market to 50%. The market for autoimmunity screen testing is anticipated to increase as more patients gain access to testing.

Building upon our leadership in the burgeoning area of genomics. In collaboration with Helix and Genome Medical, we launched GenePrism: Actionable Insights. This is a genetic test that will return results for 59 genes, which the American College of Medical Genetics and Genomics have associated with potentially life-threatening, but actionable health conditions. PerkinElmer is the only truly global genomics lab covering all aspects of genomics, biochemical, cytogenetics and molecular testing with options from prenatal -- or Vanadis and NIPT test, to postnatal with whole genome sequencing.

We are also uniquely able to conduct testing for both sick and healthy populations. For healthy individuals, GenePrism offers elective genomic sequencing of actionable genes. This test is not a direct-to-consumer test, but rather physician-driven, which includes pre- and post-test genetic counseling. PerkinElmer genomics will provide data analysis, interpretation, clinical reports, to individuals who purchased the product.

Within reproductive health, our Vanadis NIPT system continues on track and we are ramping up our global service and support teams. The funnel is strong and is improving with each quarter.

We also continue to expand our newborn screening business around the world, the latest milestone being in Singapore. By the end of this year, all newborn babies in Singapore will be screened for treatable genetic disorders with PerkinElmer solutions.

Lastly, I would like to provide some updates on our focus on the food and cannabis end markets. We were recently awarded "Emerald Test" badges for our proficiency in cannabis testing. As state and federal regulations in this space evolve, "Emerald Test" results provide a benchmark for laboratories in the cannabis industry to ensure safe, high-quality products. Our analytical instruments such as the QSight series and testing methods were proven to meet the highest standards in accurately detecting pesticides, heavy metals, residues, solvents and terpenes in cannabis as well as determining product potency.

By qualifying as a vendor and not just a testing lab, PerkinElmer is even better positioned above the competition to demonstrate that our technology, application knowledge and SOPs are the best choice for customers.

I look forward to sharing ongoing progress with you during the year, and will now hand the call over to Jamey.

[James Mock, executive]

Thanks, Prahlad, and good evening, everyone. I want to start with the financial highlights for the first quarter of 2019. Next, I'll provide some additional color on our served end markets and detail on other financial metrics. I'll finish by providing a brief update on how we are thinking about the rest of 2019.

Turning to the first quarter results. We continue to be pleased with the strength in our business as organic revenue grew approximately 5%. Reported revenue in the first quarter of $649 million included a 4% foreign exchange headwind and net acquisition had a negligible impact. As discussed in our previous guidance for the quarter, the temporary U.S. government shutdown created a delay in the approval process for an export-controlled product, which led to a 1% headwind in the quarter. Both segments and geographies grew in line with our initial assumptions heading into the year.

Diagnostics, representing 40% of total sales, grew 9% organically driven by broad based growth across our reproductive health, applied genomics and immunodiagnostics business lines. Discovery & Analytical Solutions, representing 60% of total sales, grew 2% organically, highlighted by strength in pharma biotech end market. I will provide some additional color on both businesses in a moment.

As expected, organic revenue growth was mixed on a geographic basis. High single-digit organic revenue growth in the Americas and mid-single-digit organic revenue growth in APAC was modestly offset by a low single-digit organic revenue decline in Europe. Excluding the impact from the lost revenue due to the U.S. government shutdown, both APAC and China were up high-single digits.

We are encouraged by our operational performance in the first quarter. Adjusted gross margins were up 120 basis points to 49.8%. Adjusted operating margins expanded 130 basis points in the first quarter to 16.2%, driven by strong productivity in our Diagnostics business and good operating expense leverage.

As Rob mentioned, adjusted earnings per share of $0.69 was an increase of 10% versus the first quarter of 2018 and was $0.03 better than our guidance in January. The beat was comprised of $0.01 from greater organic revenue growth and $0.02 from more favorable incremental margins.

Looking further into the key drivers within our segments for the first quarter of 2019, let's start with our Diagnostics business.

As mentioned in my earlier remarks, organic revenue grew 9%, driven by broad-based momentum across our portfolio. Reproductive health grew high-single digits organically, driven by our genomics testing business. We remain on track to double revenue in our genomics testing business year-over-year in 2019.

Immunodiagnostics grew low double digits organically, led by double-digit organic growth in EUROIMMUN and Tulip. As Prahlad mentioned, we're encouraged by our progress in the U.S. and excited about our future MPIs over the next couple of years.

Applied genomics products grew high-single digit as customers increasingly rely on our automated sample to answer portfolio.

Finally, we are encouraged by the initial feedback from our Vanadis early adopters and remain on track to have 30 total installations by the end of the year.

Turning to Discovery & Analytical Solutions. The first quarter was impacted by several unique timing items. However, we feel confident the business will grow mid-single digits in 2019. We experienced high single-digit organic revenue growth in pharma biotech, demand for our leading Discovery product portfolio remained robust, led by our high-content screening and in vivo imaging solutions. This marks our fourth consecutive quarter of double-digit organic revenue growth in our imaging and detection product lines. We are optimistic that Cisbio, which I will talk about in a few minutes, will help further our leading Discovery portfolio -- further improve our leading Discovery portfolio.

Additionally, we experienced high single-digit organic revenue growth in our OneSource business and flat organic revenue growth in our informatics business off a difficult first quarter 2018 comparison.

The 2 end markets impacted most by timing were applied and academic and government. Applied markets, which grew low single-digits, would have been mid-single digits, excluding the impact from the U.S. government shutdown. Academic and government, which had a double-digit decline off a small revenue base, would have been flat excluding the U.S. government shutdown and service timing delays.

Looking at below-the-line items, adjusted net interest and other expense for the first quarter was approximately $14 million, and our adjusted tax rate was approximately 16% driven by discrete items.

Turning to the balance sheet. We finished the quarter with approximately $1.9 billion of debt and $134 million of cash. We exited the quarter with a net debt-to-adjusted-EBITDA ratio of approximately 2.8x.

Free cash flow in the quarter was negative $25 million, and adjusted free cash flow in the quarter was negative $7 million. The difference between the reported and adjusted number is due to cash payments associated with the Tulip and Vanadis acquisitions.

Working capital uses increased mostly due to seasonal inventory builds. We have ongoing actions to execute our full year cash flow plan and we continue to forecast adjusted free cash flow conversion of 95% in 2019.

As Rob mentioned, we are excited about our acquisition of Cisbio. The net purchase price of approximately $215 million. We expected double-digit return on invested capital by Year 4. Cisbio had about $51 million of revenue in 2018. For the remainder of 2019, we expect Cisbio to contribute $35 million in revenue and approximately $0.02 of adjusted earnings per share to PerkinElmer.

Given our strong first quarter results, and the addition of Cisbio, we are raising our revenue and adjusted earnings outlook for 2019. We expect revenue for the year to be approximately $2.93 billion, including $42 million from foreign exchange headwinds, $35 million of contributions from Cisbio, and 6% organic revenue growth.

For the full year, we expect EPS -- adjusted EPS of $4.02 to $4.07, driven primarily by the addition of Cisbio. Implicit in this guidance is adjusted operating margin expansion of 120 to 150 basis points, $50 million of interest and other expense, and a tax rate of 16%. We expect our share count to be slightly under 112 million shares.

For the second quarter of 2019, we are forecasting reported revenue of $730 million, representing 5% to 6% organic revenue growth, including a foreign exchange headwind of approximately $18 million versus the comparable prior period, and $8 million from Cisbio. In terms of adjusted earnings per share guidance, we are forecasting $1.

This concludes my prepared remarks. Operator, at this time, we would like to open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from Steve Willoughby with Cleveland Research.

[Steve Willoughby, analyst]

A question for you just on guidance first, Jamey. You beat here by $0.03 in the first quarter. This acquisition you're saying is $0.02 accretive. It looks like your interest expense might -- for the year, might be coming down a few million as well. What is the offset then that you're only raising your full year guidance by $0.02? And then, I have one follow-up.

[James Mock, executive]

Sure. Thanks for the question, Steve. So yes, the $0.03 beat in the first quarter, we think a couple of pennies will come back in the second quarter, that's due to the extra organic revenue growth for the export of controlled products as well as a little bit of margin expansion with a little bit of timing. The offset to the extra penny is a little bit -- actually a little bit extra interest expense in the year because our free cash flow performance in the first quarter was a little less than expected. So I think you might be referring to total -- that the number that I quoted was total interest expense and other, and that was $60 million is our guidance for the year.

[Steve Willoughby, analyst]

Okay. Great. And then, I was just wondering if someone could comment and provide a little bit more color just on how the Vanadis rollout is going? How discussions as it relates to reimbursement is going? How people are seeing throughput, et cetera? And maybe an update on when we will see some clinical publications on that.

[Prahlad Singh, executive]

Yes. Steve, this is Prahlad. So the Vanadis installations are going per planned that we have shared earlier. We've had 13 installations by the end of Q1. I personally have visited the first 7 customers over last month, and the feedback has been very positive. And generally, customers continue to remain excited. We have a pretty strong pipeline. So that's from an installation and a current status perspective. We have submitted publication. So hopefully, it's going through the peer review process, and that provides data around all the CE IVD, the clinical arm, the CE Mark that was submitted. In the U.S., we've -- as you know, we've got the women and infants -- the value study, that's ongoing. We've just, very initially, begun discussions and started exploring as to what our strategies should be around payers. So it's still in its early stages, in regards to reimbursement.

[Operator]

And our next question comes from Patrick Donnelly with Goldman Sachs.

[Patrick Donnelly, analyst]

Rob, maybe one for you, just on China. We've seen some mixed data points there. You had one peer who saw a decline, called out a few specific areas of weakness, another peer put up a really strong quarter, sounded bullish across the board. And then, on the more macro side, we saw some core industrial companies report even today kind of blaming the macro in China and saw a big slowdown there. I know you guys had high single, kind of removing onetime stuff. So can you just provide your perspective on that market, help us think about the state of the market there during the quarter, and then also just to go forward?

[Robert Friel, executive]

Yes. So for us, it was a good quarter in China. I would say the majority of our end markets continue to see good growth. So if you look particularly in the diagnostic side, EUROIMMUN did well. Our immunodiagnostic business continues to do pretty well. And so I would say, on the diagnostic side, we saw a good strength. On the pharma side, we continue to see good strength. But I would say, to the extent that was somewhat offset by weakness more on the applied markets. We think some of them are maybe timing related. But as you said, when you exclude the sort of onetime impact of the export-controlled product, we were sort of high-single digits. So we feel pretty good about the China momentum going into the second quarter.

[Patrick Donnelly, analyst]

Okay. And then, maybe just on DAS, calling for pretty healthy uptick to mid-single digits in 2Q, facing a significantly more difficult comp. I know you touched on a bit, but can you just talk through the moving pieces there, how much visibility you have? And what drives that business really higher on kind of a 2-year stack number?

[Robert Friel, executive]

So first of all, we did see strong growth or continued strong growth in the pharma biotech, which is sort of high-single digits for us in the first quarter. We think that continues. Some of that was offset from some academic markets that were, quite frankly, timing related. There was a number of items there that sort of caused that to be, actually, negative in the quarter, we don't think that's a market phenomena, we think that's unique to a couple of things we had. So if academic goes back to sort of positive, we think that will drive life sciences to sort of mid- to high-single digits. And then, as I mentioned before, there was some things in the implied markets outside the U.S. that I think -- when we look at the bookings, we're fairly confident that we'll return that business to sort of mid-single digits despite the difficult comp with last year.

[Operator]

And our next question comes from Doug Schenkel with Cowen.

[Chris Lin, analyst]

This is Chris on for Doug today. So just based on your Q2 core revenue guidance, it looks like the core revenue growth for the year is back-end loaded. By our math, you're essentially guiding to 6.5% to 7% core growth in the second half relative to a 5% growth rate in the first half. So with that in mind, can you just walk us through the key drivers behind the 150 to 200 basis points of revenue growth deceleration in the second half?

[Robert Friel, executive]

So why don't I take the revenue and then maybe Jamey can talk a little bit about the margin? But I think actually, going into the year, we talked about the fact that the back end will be a little better from both a revenue perspective as well as a margin perspective. And a lot of that is because a lot of the growth accelerators that Prahlad mentioned, so whether it's our genetic testing business, whether it's Vanadis, whether it's some of the MPIs that are coming out later in the year will ramp up the revenue growth, and that also impacts our margins to some extent, but I'll let Jamey speak to the margins, then.

[James Mock, executive]

Yes. That's what I was going to say. So 130 basis points of margin expansion in the first quarter, the first half of the year, Chris, is probably 46% to 47% of our revenue. And so we get a lot more volume leverage in the second half of the year. So if we're in the 120 range already in the first half, we feel very confident in the 120 to 150 for the total year.

[Chris Lin, analyst]

Okay. And then, for my follow-up question. Could you just provide a bit more on Europe performance, specifically why end markets was soft there, do you expect that to remain here for the balance of the year? And maybe just more broadly, are there any major changes to your end market or geographic growth assumptions for the year?

[Robert Friel, executive]

Yes. I would say the pressure we saw in Europe was largely in the applied markets and also academic, and that really put some pressure on our DAS growth rates. The majority of our Diagnostics business continued to do well in Europe. And so for Europe overall, we were just slightly negative.

And your question whether we do think that's going to come back somewhat in the remainder of the year, I think we talked in the beginning of the year of targeting Europe at sort of low single-digits, and we still think that's the appropriate number for Europe.

[Operator]

And our next question comes from Brandon Couillard with Jefferies.

[S. Brandon Couillard, analyst]

On the Cisbio deal, could you help us kind of understand what the growth profile of that asset is? And any opportunities you might see to accelerate growth or profitability under the Perkin umbrella?

[Robert Friel, executive]

Yes. So I would say, we're quite excited about this acquisition because we think it's extremely complementary to what we do on drug Discovery. And so I mentioned a little bit in my prepared remarks, but we think with Cisbio, combined with our strength in some of the areas, particularly around sort of luminescence. So we do a lot of work around luminescence. They have a very strong fluorescent portfolio of assays. Of course, then, when you combine that with our automation and detection, we can now go with a fully-automated workflow, Whether it's reagents, plates, automation, detection, information. So all the drug discoveries and I had sort of alluded to before, we're the only company now that can provide all 3 assay tests for on a homogeneous.

So whether you want to look at luminescence, whether you want to look at fluorescence or whether you want to look at radiometric. So we think, by combining our efforts with Cisbio's capabilities, we can accelerate the growth. And historically, they've grown fairly well. So we think this business with PerkinElmer definitely gets into the high-single digits maybe even a little bit better than that.

The other aspect I alluded to is, I think you know well, we have a very strong imaging portfolio, whether it's high content or whether it's in vivo. But generally, up to this point, we've been principally around, in instruments and software, and no other firms sell the cellular imaging reagents that go with our imaging instruments. While with Cisbio's technology and capabilities, we'll be able to expand in the cellular imaging reagents and consumables. And so therefore, we'll be able to go to our customers with a package, with the instruments, software and the assays. And I think that further sort of drives incremental growth between the 2 companies.

[S. Brandon Couillard, analyst]

And a quick follow-up for Jamey. Could you help us with the impact of currency on the gross and operating margin lines? And any impact on EPS in the quarter?

[James Mock, executive]

Yes. Gross operating margin foreign exchange was probably about 20 basis points. And on an operating margin, it was about 30 basis points, with regards to foreign exchange.

[Operator]

And our next question comes from Paul Knight with Janney.

[Paul Knight, analyst]

Congratulations on your new IR person. Rob, could you talk about China. I mean, you were one of the early innovators there with SYM-BIO. Is that -- can you also talk about your M&A pipelines specifically in that market? And my next question would be your U.S. penetration now in Diagnostics with your broader product line?

[Robert Friel, executive]

Yes. So why don't I take the China discussion, I'll pass it over to Prahlad on the U.S. and I assume you're talking mostly with EUROIMMUN on the U.S. penetration? But as you pointed out, we were fairly early in the China market. SYM-BIO brought us some terrific distribution capabilities, and then we've added with [indiscernible] blood screening and a number of other areas. So -- and of course, EUROIMMUN brings a very strong capability in China. So I think, first of all, looking at the diagnostic side, we feel very good about our capabilities. We continue to look for opportunities from an inorganic perspective to add to that, and we invest a lot of time and effort in that regard. And I guess, I would say stay tuned on that one.

Where we've been a little bit more active recently is on the DAS side. And as you saw over the last sort of year or 2, we've been adding some assets on the analytical instruments side. We're looking very active in the applied markets, like for areas like food and other areas that are higher growth areas and I'd say very active there, and hopefully, we'll have something to talk about maybe later this year.

Let me turn it over to Prahlad, maybe he can talk a little bit about the EUROIMMUN penetration in the U.S.

[Prahlad Singh, executive]

Yes. Thanks, Rob. And Paul, I think EUROIMMUN continues to do well in the U.S. As I mentioned, they got 2 approvals on celiac markers this quarter. They continued to grow well, they had a major lab victory. This will not only give them instrument penetration but also continued asset penetration over the years. They grew low double digits in the first quarter, and we see very good traction for the rest of the year.

[Operator]

And our next question comes from Bill Quirk with Piper Jaffray.

[Daniel Macek-Alwell, analyst]

This is Dan on for Bill. First, on Tulip, it sounds like growth was strong in the quarter. I think you said double digits. Could you just provide an update there? And then, any insight on new offerings as well?

[Prahlad Singh, executive]

Yes. Tulip. Again, as you said, it continues to do well, they had double-digit growth and their pipeline is growing both not just in India, but we are also looking at how do we take the product portfolio out into some of the other emerging markets. So great traction there, they had a very good 2018 and a very good start to the year.

[Daniel Macek-Alwell, analyst]

Okay. Great. And then, I'm a millennial. So stereotypically, I have to ask about cannabis. Do you guys have any update on what kind of market opportunity you're seeing there?

[Robert Friel, executive]

Yes. So you know we talked in the beginning of the year of the opportunity to probably double that business in 2019. And just a reminder, we did about $10 million last year. So we're -- got to go about $20 million, and I would say, we saw strong growth in the first quarter, and we think we're on -- well on track to at least do $20 million in 2019.

[Operator]

And our next question comes from Jack Meehan with Barclays.

[Mitchell Petersen, analyst]

This is actually Mitch Petersen on for Jack this afternoon. So pretty good growth out of OneSource in the quarter, I was just hoping you could unpack that for us a little bit. I know you're expecting to lap some enterprise wins there. And then as we think about the balance of the year, do you think the single-digit growth rate from 1Q '19 is sustainable for the remainder of 2019?

[James Mock, executive]

Mitch, it's Jamey. Thanks for the question. So yes. I mean, OneSource is going as planned. So we still feel confident in the high-single digits for the year. As we mentioned before, we're looking at some tenders that we think could land in the second half, maybe late, maybe have an impact to that, but still feel good about it and I think no change in the overall guidance.

[Mitchell Petersen, analyst]

Great. That's helpful. And then, maybe just to confirm, it sounds like you pulled in half of what you expected from the U.S. government shutdown. Do you expect to recoup the other half of that in the second quarter?

[James Mock, executive]

Yes. That's right. It's a -- we got about half in the first quarter. So going back to Steve's point and some of the questions around DAS, mid-single digits in the second quarter we get -- that we expect some of that -- the second portion of that to come in the second quarter, which also helps give confidence to mid-single digits for DAS in the second quarter.

[Operator]

And our next question comes from Ross Muken with Evercore.

[Luke Sergott, analyst]

This is Luke on for Ross today. Just real quick, a couple of housekeeping ones. Did you break out the -- by your expectations for guidance by segment? I think I missed that one.

[Robert Friel, executive]

Expectations for Q2? Or for the year?

[Luke Sergott, analyst]

Yes. For 2Q.

[James Mock, executive]

No. No. We didn't give the expectations for 2Q. But I think, generally speaking, probably high-single digits for Diagnostics, mid-single digits for DAS is the way to think about 2Q.

[Luke Sergott, analyst]

Okay. That's great. And I guess, on the, just sticking with the Diagnostics growth and how strong it's been over the last couple of quarters, how much of that is due to strong market conditions and just high-growth markets speaking of immunodiagnostics, et cetera? And how much of that is really your expanding portfolio and kind of everything starting to come together for you guys?

[Prahlad Singh, executive]

I think it's a combination of both. If you look at it from the reproductive health perspective, I think, despite strained growth rates, we have expanded the business and that's happening because we are adding new test menus with lysosomal disorders and NeoBase 2 approvals that have come through. And similarly on the applied genomics side and EUROIMMUN, we see good traction for those product portfolio in emerging markets. I think it's a combination of both.

[Operator]

And our next question comes from Derik De Bruin with Merrill Lynch.

[Unknown Analyst]

This is [ Savi Ma ] on for Derik today. So first question is for the applied market. So I know -- I appreciate the color provided so far, but then some of your competitors called out some choppiness in the food market, particularly in China. Just wondering if you've seen any of that? If so, when can we expect that to go away?

[Robert Friel, executive]

Yes. I would say we probably saw some of that in China. But quite frankly, one of dynamics that are going on in the China market right now as you probably heard from our competitors as well, is there is some shifting in testing going from government labs to more private-based labs. And a lot of these private-based labs do more than food. So they will test for environmental, and they'll test for food, and they may do other types of things. So quite frankly, for our first quarter in particular, there may be noise in sort of was it environmental lab or was it a food lab. And so we're still trying to get better color behind that. But clearly, we've seen a little bit of a reduction in food testing as the shift has occurred from public labs to private labs. But we do think it's somewhat temporary. And as we think about food for 2019, we expect it will continue to do strong growth in China.

[Unknown Analyst]

Okay. That's very helpful. Just a follow-up. I apologize if I missed it earlier. Just wanted to get more color on the pacing for the rest of the year. So anything that we should think about for the rest of the quarters regarding organic growth and margin trends throughout the year, just given the more difficult comps?

[Robert Friel, executive]

No. I mean, as we think about the first quarter, it came in pretty much as we expected. And so we'd say that we think the year is going to play out pretty much as we expected, which will be a little stronger growth in the back half. We talked a little bit about that earlier. So we think our back half organic growth is probably in the 6.5%, 7% range. And then as we think about operating margin expansion, we also think that's a little heavier in the back half. So if you think about maybe 100 basis points or so in the first half, and then stronger growth in the back half so that we average that 120 to 150 for the year. Again, that's very consistent with what we talked about in January.

[Operator]

And our next question comes from Dan Brennan with UBS.

[Unknown Analyst]

This is [ Tim ] on for Dan. Would you be able to get a little more granular about your applied growth? I know it's low single-digits in the quarter, but could you maybe give us a breakout of the industrial, versus environmental, versus food?

[Robert Friel, executive]

So industrial and environmental, we really don't sort of breakdown. And again, part of that is it's becoming increasingly more difficult with our customer base, is it really definitively defined what's being done on from an environmental testing perspective on what's been testing for other things. So we've sort of put those together. But if you look at industrial and food, we think that was sort of low to mid-single digits. And as I mentioned before, food was down largely outside the U.S., U.S. is very strong, sort of mid-teens. And if you look at it from a geographic perspective, applied was sort of mid-singles in Americas, up sort of low to mid-single depending on how you consider the government control the product and Europe was down a little bit. So low single-digits.

[Unknown Analyst]

Okay. Great. And could you talk a little bit about Cisbio, just in terms of your overall M&A strategy going forward? Do you see other deals of this size kind of in the pipeline? Was this a particularly competitive deal? Is this an area where you think you might continue to focus? Just give us a little bit more color there.

[Robert Friel, executive]

So I would say, generally, our M&A strategy is sort of consistent with the overall company strategy, which is we're trying to drive from an end market perspective into the more attractive end market for us, which we think are life sciences, food and diagnostics. So those are areas that we think are very attractive because of the growth profile and also because we think we have some differentiated capabilities in those markets. We're also looking to continue to expand our capabilities globally. So we've, over the last couple of years, been focused largely on emerging market growth.

And then I would say the third aspect of it is we want to continue to drive our growth into areas that facilitate a workflow. So obviously, we sell instruments, we want to continue to build out our reagent assay and consumable as well as our informatics. So that's the fundamental larger strategy that we're focusing on. Cisbio hit most if not all those, obviously provide a very strong capability in assays, increased our exposure to the pharma and biotech market. And while they weren't significant in emerging markets, we think their capability, combined with our distribution capability, will be able to expand emerging market presence in the drug discovery space.

[Operator]

And our next question comes from Tycho Peterson with JPMorgan.

[Tycho Peterson, analyst]

Rob, I guess, on EUROIMMUN. I know you said double-digit growth. Can you just talk to how that compares to the full year guidance of 13% to 15%? And can you just maybe unpack China, Germany with the moderation versus U.S. and other emerging markets?

[Robert Friel, executive]

Yes. So EUROIMMUN pretty much came on track is what we expected. So I would say EUROIMMUN, when I think about the first quarter, revenue was pretty much on. And we sort of mention this a little bit in the prepared remarks, we were pleasantly surprised on the operating margin side. They had a nice pickup in operating margin. Some of that is probably timing because they sold a little less instruments in the quarter -- no, sold a little bit more. But we think a lot of it is just better cost focus and cost management. And so we're excited about that because we think that is one of the big levers to margin expansion as we started thinking about '19, '20 and '21. So I think that's good. With regard to China and Germany, you're talking specifically for EUROIMMUN or for PerkinElmer?

[Tycho Peterson, analyst]

EUROIMMUN.

[Robert Friel, executive]

Okay. So EUROIMMUN had another strong quarter in China, and it was up sort of mid-teens, something like that. Maybe even a little bit better than that. I don't know Germany offhand, I can tell you sort of Europe was sort of mid-single.

[Tycho Peterson, analyst]

Okay. And then, on Vanadis, just curious about utilization at some of your early customers? And as we think about how many biochemicals within the labs have enough volume to achieve the EUR 100 cost per test? Can you maybe just talk to how you plan to penetrate some of the lower volume labs?

[Prahlad Singh, executive]

Yes. Tycho, this is Prahlad. So the labs that we are focusing on right now, and obviously labs that have larger than, let's say, on average 5,000 tests, and that's where we are seeing a lot of interest coming in from. I think in some of the places or some of the countries where you would have lower volumes, we would probably look at either centralizing it to one lab there that could attract other also facilities where we have our own labs. So that's in Kuala Lumpur, or India, or in the U.S. where we would look at putting Vanadis.

[James Mock, executive]

Tycho, just to clarify quickly, it was high-single-digit EUROIMMUN in Europe.

[Tycho Peterson, analyst]

Okay. And then, just last one. It came out in the K. I think you guys had about 1 point benefit, 1%, 1.3% organic growth from the ASC 606 switch last year. So as we think about that and the context of the underlying organic growth, are you still comfortable with kind of the high single-digit targets that you put out there and the path to get there?

[James Mock, executive]

Yes. We are, Tycho. And just to, maybe, explain that change last year. I mean, the new revenue guidance enabled us to do some things operationally and commercially that we chose to do that was -- we are able to recognize revenue under 606, and we wouldn't have been able to under 605. But had 606 not coming around, we still would have -- we just wouldn't have made those changes, and still had, relatively, the same amount of revenue growth year-over-year.

[Operator]

And our next question comes from Dan Leonard with Deutsche Bank.

[Michael Sarcone, analyst]

This is Mike Sarcone on for Dan Leonard. Just a few questions on EUROIMMUN. You had mentioned you're targeting 50% market share in the U.S. by the end of the year. Can you just tell us where you're starting from, in terms of market share, heading into 2019? And then, maybe your confidence level around getting to 50%?

[Prahlad Singh, executive]

I think, just to give you a sense, I think on -- and this is, again, just to be specific around the autoimmune screening business, we would say that we are somewhere around 30%. And with some of the new forays that we have made in the lab, we think that by the end of the year, we'll get to about 50% autoimmune screening.

[Michael Sarcone, analyst]

Got it. And one more on EUROIMMUN. I think, on the last conference call you said you had, in the U.S., about 50 tests approved. Where do you stand today?

[Prahlad Singh, executive]

Yes. I think we are slightly over 60 now.

[Operator]

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Robert Friel for any closing remarks.

[Robert Friel, executive]

Well, great. Well, first of all, thank you for your questions and your interest in PerkinElmer. So we think we're off to a great start this year to continue to drive our mission and continue to create value for our customers, shareholders and employees.

I look forward to updating you on our progress in the coming quarters. Thanks, again, for joining the call, and I hope everyone has a great evening.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.