Life Technologies (LIFE) Q2 2012 Earnings Call July 31, 2012 4:30 pm ET Executives Carol A. Cox - Vice President of Investor Relations Gregory T. Lucier - Chairman and Chief Executive Officer Ronnie Andrews David F. Hoffmeister - Chief Financial Officer and Senior Vice President Mark P. Stevenson - President and Chief Operating Officer Analysts Jonathan P. Groberg - Macquarie Research Amit Bhalla - Citigroup Inc, Research Division Tycho W. Peterson - JP Morgan Chase & Co, Research Division Derik De Bruin - BofA Merrill Lynch, Research Division Daniel L. Leonard - Leerink Swann LLC, Research Division Doug Schenkel - Cowen and Company, LLC, Research Division David Ferreiro - Oppenheimer & Co. Inc., Research Division Daniel Brennan - Morgan Stanley, Research Division Ross Muken - ISI Group Inc., Research Division Peter Lawson - Mizuho Securities USA Inc., Research Division Isaac Ro - Goldman Sachs Group Inc., Research Division Jon Davis Wood - Jefferies & Company, Inc., Research Division Presentation Operator
Joining me on today's call are Greg Lucier, our Chairman and CEO; Ronnie Andrews, President of our Medical Sciences Division; and David Hoffmeister, our Chief Financial Officer. Mark Stevenson, our Chief Operating Officer, will also be available during the Q&A portion of today's call.If you've not received a copy of today's press release, you may obtain one from our website at lifetechnologies.com. I'd also like to remind everyone listening today that our discussions will include forward-looking statements, including, but not limited to, statements about future expectations, plans, prospects for the company. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ materially from those in the forward-looking statements are detailed in the filings made by Life Technologies with the SEC. It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of the non-GAAP measures to GAAP may be found in today's press release or on our website. I will now hand the call over to Greg. Gregory T. Lucier Thanks, Carol, and thank you to everyone joining us today as we provide an overview of our second quarter results and expectations for the second half of the year. As Carol mentioned, Ronnie Andrews will be on the call today to provide an update on our diagnostic strategy and details around our 2 recent tuck-in acquisitions in this very exciting area. We finished the first half of 2012 in line with our expectations as continued strength across several of our businesses contributed to results. Revenue for the quarter came in slightly higher than expected at $950 million, as increased sales in our BioProduction and Ion Torrent businesses drove results and enabled us to grow revenue by 1%, as reported in the second quarter, and a total of 5% if you exclude the nearly $40 million in headwinds from expected declines in the sales of our SOLiD 5500 product and qPCR royalties.
We were able to expand our gross margin year-over-year to 65.4% and our operating margin by 80 basis points to 28.6%, which helped drive an 8% increase in non-GAAP earnings per share. Our EPS came in at $0.96.Overall, our end markets largely remained in line with our expectations. We saw strength in our emerging markets and in Asia Pacific, where we continue to expand our operations. In the U.S., we continued to see a cautious but stable environment. At the end of the second quarter, we did start to see a weakening in our Western European operations as customers became more cautious with their spending in the research market. Our 2012 growth expectations for the European region, which includes all of the Europe and emerging markets in Russia, the Middle East and South Africa, have been in the low single digits. For the first half of 2012, we recorded growth in this range, driven by strength in our BioProduction and Forensics businesses, which was partially offset by slower growth in our Research Consumables business. As we look to the second half of the year, we are still calling for growth, but take a more conservative outlook and now expect overall growth in the Europe at the low end of our range, closer to 1%. Our emerging markets continue to perform extremely well. A year ago, we saw a temporary slowdown in Greater China as we moved to enhance our dealer model and supplement it with our own sales force. Through our efforts over the last 12 months, we have normalized operations in Greater China and are seeing consistent growth in the high teens on a percentage basis. During the second quarter, we completed the acquisition of Beijing Maojian United Star Technology Company, a Life distributor covering mainly the Invitrogen brand reagent portfolio in Beijing and the rest of North China. This acquisition now creates one of the largest direct selling forces in the life sciences reagents market in China and further optimizes our channel in the region.
In addition to finding ways to expand our market opportunities, we are also finding better ways to improve our customer experience, increase our productivity and lower our costs. Asia Pacific is one of our fastest-growing geographies, and with this growth, our volume of items shipped per day in the region has increased fourfold over the last 2 years. To address this increasing demand, we are further expanding our distribution centers in both Singapore and China. We are also expanding our manufacturing center of excellence in Singapore to provide our global customers innovative technologies more efficiently while helping them advance their research even faster. The center will design and manufacture Life products, including Ion next-generation sequencing and molecular diagnostic instruments for thousands of customers within the region and outside Asia Pacific. The facility expansion is taking this total square footage up from 75,000 to 133,000 square feet. We're already beginning to see the benefit of producing products internally with higher margins and faster turnaround for our customers. It also has added the benefit of providing further tax efficiencies.During the quarter, we continued to deliver on our innovation pipeline, launching new Ion AmpliSeq clinical research products for cancer and inherited disease and expanding our capabilities to commercialize novel stem cell technologies. Read the rest of this transcript for free on seekingalpha.com