Good day, ladies and gentlemen, welcome to the Q4 2018 PerkinElmer Earnings Conference Call. At this time, all participants are in listen only mode. Later, we'll conduct a questions and answer session, instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. I will now turn the conference over to your host, Mr. Tommy Thomas, Vice President of Investor Relations. Sir, you may begin.
Thank you, Valerie. Good afternoon, welcome to the PerkinElmer fourth quarter and full year 2018 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 that this call is being webcast live and will be archived on our website until February 14th, 2019. 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, also those in the 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 estimates change. 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 financial measures during this call that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly. I'm now pleased to introduce the Chairman and Chief Executive Officer of PerkinElmer, Rob Friel. Rob?
Thanks, Tommy, good afternoon, everyone. I'm pleased to report that PerkinElmer had a strong finish to 2018, with reported revenue in the fourth quarter increasing 18% over Q4 2017, adjusted earnings per share growing 22%, beating both the top and bottom line of our previous guidance. Our revenue in the fourth quarter was $757 million, representing core organic growth of 7%, excluding the impact from EUROIMMUN, our adjusted earnings per share was $1.18.
These excellent fourth-quarter results concluded a year in which we grew revenue and earnings over 20% relative to 2017, with reported revenue up 23% to $2.78 billion adjusted earnings per share increasing 24% to $3.61. In addition, core organic growth for the full year was 7%, 8% when considering the impact of EUROIMMUN, resulting in significantly better 2018 financial results than our original guidance in January of last year.
We are obviously very pleased with this performance and believe 2018 will mark an inflection point in our revenue growth, profitability, and just as importantly, our ability to make an increasingly positive impact on the quality of life across the globe. Reflecting on last year, we increased our operational execution across the company as the Discovery and Analytical Solutions organization has now matured its processes, leadership, and organizational structure, and Diagnostics is becoming better integrated across the multiple acquisitions completed over the last few years. In addition, both businesses are experiencing excellent traction on their respective initiatives to accelerate growth beyond current levels. Clearly, the portfolio and organizational changes we have made over the last few years have dramatically changed the revenue distribution of our end markets we serve, as well as our capabilities, geographic reach, and product mix.
We enter 2019 with a much-improved portfolio of businesses and a stronger organization that can better serve our customers, innovate breakthrough solutions, and infuse more simplicity into how we operate. Within Diagnostics, we have evolved from a business centered around the mother and child to a broader specialty diagnostics provider due to our acquisitions of Tulip, Bioo Scientific, RHS, and EUROIMMUN, as well as breakthrough innovations now driving organic growth. As a result, we now have leading positions in reproductive health, emerging infectious diseases, autoimmune diseases, and applied genomics, and have gained new technological skill sets across immuno and clinical chemistry, detection and automation, PCR, mass spec, NGS workflow, and single-cell genomics. Last year, we received CE-IVD marking for our Amethyst product, which we believe will dramatically increase the accessibility to non-invasive prenatal screening for many more women.
The performance of EUROIMMUN continues to be strong as the business achieved mid-teens organic growth in 2018 and exceeded our plan for operating income. We continue to recognize greater opportunities to benefit from and leverage the capabilities of EUROIMMUN and PerkinElmer, as well as identifying additional synergistic opportunities in reagents, instruments, and new markets. Our product and services business targeted on genomics continues to expand capabilities and is experiencing strong market traction. With regards to innovation and new products, last year, we generated over $67 million of incremental revenue from new product introductions, exceeding our target of $50 million and driving our vitality index from 28% to 32%. During last year, we increased our R&D spending by $47 million to 9.4% as a percentage of product revenue, up 20 basis points versus 2017.
This increased spending not only resulted in incremental revenue but also enabled us to strengthen our scientific and technical capabilities in the key areas of genomics, infectious disease, and digital, with most of our new R&D hires in these disciplines. During 2018, we continued to access disruptive technologies, executing seven key collaborations in equity investments, further accelerating innovation and access in some of our key growth areas, including reproductive health, applied genomics, digital, and pharmaceutical. In life sciences, we focused our new product introductions in the areas of imaging, reagents, and software, and entered 2019 with a much more contemporary lineup of products that serve our pharmaceutical, biotech, and academic customers. We continue to expand our value-added services and IT offerings across OneSource, bringing new tools, solutions, and capabilities to our growing base of customers.
Within food analysis, we have extended our capabilities within food safety, research, and quality to address the rapidly growing demand for safe, healthy food, and credible science-backed cannabis-based products. Our broad portfolio allows us to serve as a complete food, cannabis, and hemp science partner with full lab solutions, including our QSight technology. We now have over $200 million in revenue in the food segment with cross PKI offerings, dedicated R&D resources, and focused market specialists. Through the acquisitions of DANI Analitica and China-based Spectrum Instruments, we rapidly expanded our footprint and technical capabilities in the core market of gas chromatography. Dani adds critical software and essential technologies to revitalize our GC portfolio and gain share across several key market segments, including ag bio, environmental, and pharma quality.
The Spectrum acquisition provides a highly complementary atomic absorption product portfolio that filled a gap in the inorganic business for the high-growth China region, while also providing products directly into the local environmental, food, and industrial markets in China. Finally, we completed the divestiture of a Quantitative Pathology Solutions business line to further streamline and focus our portfolio.
Over the last three years, we executed against a well-defined strategy to shift our portfolio across markets, customers, and products. As a result of these changes, we enter 2019 with over 80% of our revenue in the diagnostics, food, and life sciences end markets, up from 50% four years ago, with the environmental and industrial end markets now represent less than 20% of our revenue versus 45% in 2014. From a geographic reach perspective, emerging markets now account for 40% of our revenue, up from 28% four years ago.
Our product mix also has shifted significantly. In 2014, consumables, services, and software accounted for 55% of our revenue. Today, those products account for nearly 70%. For 2019, we will continue this overarching strategy to leverage our global capabilities in detection, imaging, assays, and software to deliver differentiated solutions in priority end markets.
We are already driving several opportunities to do this in specific end markets that we believe will deliver above-market growth rates. However, based on both our internal work as well as work with external resources, we believe one of our greatest opportunities lies within the value that can be derived directly from intersections of our technologies and talent across end markets. We are clearly seeing the capabilities and applications that our customers are demanding are increasingly converging. For example, advanced pathogen detection capabilities used today in diagnostics are readily applicable to the food safety market.
The same is true in other areas such as genomics, informatics, and mass spec, whether based on shared technology platforms, the use of analytics, the need for service, digital solutions, or the call for integrated seamless customer experiences. Adding to this dynamic is the emerging role of artificial intelligence and machine learning for multiple uses in the life sciences, pharma, food, and environmental testing, from detecting ingredient levels in crops to perfecting high-content screening. In recognition of these opportunities, we announced last month the appointment of Prahlad as President and Chief Operating Officer to help accelerate and advance our capabilities from diagnostics and DAS to better design, sell, and service solutions in the context of our end markets.
The new structure we've begun to put in place will result in a more nimble, focused, and effective organization. We believe it poses a significant and unique advantage for PerkinElmer. With that perspective, I've asked Prahlad to discuss how he is approaching the opportunities made possible by the convergence occurring across our end markets. We see this as a powerful growth accelerator and differentiator for the company. I'm pleased to have him lead that charge in his new expanded role. Prahlad?
Thanks, Rob. PerkinElmer has made tremendous progress over the past several years by expanding in key markets and geographies, driving innovation, and improving how we serve our customers. As Rob mentioned, we now see a unique opportunity to increase our impact and the rate of our growth by more seamlessly pulling from the full suite of capabilities available across our organization to serve each customer we have, regardless of their end market.
Over the next few minutes, I would like to describe how we think about this opportunity and how we will implement it while continuing to drive our other key strategic priorities this year. Increasingly, solutions to critical problems within science and healthcare are converging. Our goal is to take full advantage of all of PerkinElmer's capabilities, instruments, consumables, software, and services, to create the most advanced solutions for our customers in the end markets we serve.
To cite just a handful of instances of these market synergies, within food quality and safety, the shift among scientists and researchers to focus on molecular and genomics calls for capabilities that PerkinElmer has developed within both our diagnostics and DAS businesses. We are therefore no longer viewing food as an analytical business, but rather as a broader market with multiple opportunities for our technological capabilities. If we look at our rare disease-focused organizations, they are turning to genomic sequencing and analysis to accelerate research and to guide drug development. In addition, precision medicine initiators are employing informatics capabilities to harness big data and glean new insights for the development of life-saving treatments.
We are currently focused on reshaping our organization internally to leverage our capabilities across PerkinElmer so that we are better equipped to serve our customers and support our objectives to grow, innovate, and simplify how we do business. This will require us to align our R&D and product management teams in a way that fully utilizes and integrates our capabilities across businesses and geographies, driving collaboration and accelerating our pace of innovation. We will also ensure that our go-to-market strategy continues to provide a seamless value-add customer experience. Critical to our success will be our ability to effect these changes while ensuring we continue to focus on three key priorities. Number one, providing an exceptional customer experience. Number two, being recognized as a leader in innovation. Number three, making people and culture a competitive advantage.
Digitalization is a rapidly emerging macro trend that is a critical piece of our strategic priority around providing an exceptional customer experience. It will force us to evolve how we serve and interact with our customers. In 2019, we will continue to improve our digital capabilities across the company while also reducing complexities so that we make it easier to do business with PerkinElmer.
In simplifying how we rally together to serve our customers, we will naturally be better able to meet their needs and adapt to their changing demands and new technologies. Talking about innovation, when we think about the increasingly complex and critical challenges that our customers are facing, it calls for thinking and innovating differently. The first step is to increase our agility and speed to market for introducing new products. This requires both cross-company innovation and generating novel ideas that integrate our core capabilities.
With Vanadis, and more recently with cannabis testing, our efforts to fully integrate total customer solutions in-house are paying dividends. We will drive more of these kind of breakthrough innovations by leveraging multiple internal capabilities for new markets. This will ensure that customers are turning to PerkinElmer first as a trusted and innovative partner. Our third strategic priority is around our people and culture. Building upon our progress from last year, we continue to create an environment that enables our employees to work at their best. First, adopting more entrepreneurial behavior and challenging the status quo.
Second, sharing knowledge and insights through collaboration and teamwork. Third, seeking opportunities to develop skills and capabilities, as well as cross-business and cross-functional career movements. As more parts of the company work closer together, identifying and making these opportunities possible should become easier. I'm excited about the opportunities in front of us and look forward to sharing the progress we make with you during the year. Thank you, and I'll now hand it over to Jamey to discuss our Q4 and 2018 financial results in more detail, as well as our 2019 guidance. Jamey?
Thanks, Prahlad, and good evening, everyone. I want to start with the financial highlights for the fourth quarter of 2018. Next, I'll provide some additional color on our served end markets and detail on other financial metrics. I'll finish with a financial summary of our full year results and provide assumptions for our 2019 guidance. Turning to the fourth quarter results, we continue to be pleased with the strength in our business as core organic revenue, excluding EUROIMMUN , grew approximately 7% off our toughest comparison in 2017. Adjusted revenue in the fourth quarter grew 18% to $757 million, beating our revenue guidance of $745 million, driven by 2% higher organic growth. Net acquisitions grew approximately 13%, and foreign exchange negatively impacted revenues by 2%. By business segment, diagnostics, representing approximately 40% of total core sales, grew 13% organically, driven by our reproductive health and immunodiagnostics business lines.
Incorporating EUROIMMUN , diagnostics would've grown 14% organically. Discovery and analytical solutions, representing approximately 60% of total sales, grew 5% organically in the fourth quarter off its most difficult comparison in 2017, highlighted by well-balanced strength in both life sciences and applied end markets. I will provide some additional color on both businesses in a moment.
Core revenues saw growth in all major geographies, with double-digit organic revenue growth in the Americas, high single-digit organic revenue growth in Asia, and low single-digit organic revenue growth in Europe. This represents six consecutive quarters of organic revenue growth in all major geographies. The emerging market regions now represent approximately 40% of total sales, and we continue to see double-digit organic revenue growth there, driven by broad-based strength. Moving to the details of our operational performance in the fourth quarter, adjusted gross margins were up 190 basis points to 51.4%.
Operating margins expanded 60 basis points in the fourth quarter to 21.7%, driven by improved adjusted gross margins, which helped offset increased investments in research and development. Additionally, foreign exchange had a 20 basis point negative impact. Excluding the impact of these additional investments and foreign exchange, our operating margins would've expanded 120 basis points.
As Rob mentioned, adjusted earnings per share of $1.18 was an increase of 22% versus the fourth quarter of 2017 and was $0.02 better than our guidance in October. The beat was comprised of $0.03 from favorable incremental margins on higher organic revenue growth and $0.02 from a lower tax rate, partially offset by $0.03 from extra growth in investments in R&D. Looking further into the key drivers within our segments for the fourth quarter of 2018, let's start with our discovery and analytical solutions business.
Our results were driven by balanced mid-single-digit organic revenue growth in both life sciences and applied market verticals. Life sciences was driven by continued strength in our imaging and detection product lines and informatics. We also saw high single-digit growth in the academic end market, benefiting from a favorable prior period comparison. We experienced solid growth in the quarter from applied markets, driven by high single-digit growth in environmental, mid-single-digit growth in food, and low single-digit growth in industrial. Switching to diagnostics, as mentioned in my earlier remarks, core organic revenue grew 13%, driven by our reproductive health business and immunodiagnostics. Within reproductive health, the core business grew high single digits, and our genomics testing business grew by 50%.
The portion of genomics testing related to our sequencing business finished its first year with revenues of approximately $10 million, and we continue to see a solid pipeline of opportunities heading into 2019. We are pleased to have received CE mark for Vanadis and placed nine systems at key customer sites in 2018. Core immunodiagnostics was led by strong performance at Tulip and in our China business. EUROIMMUN had a strong close to the year, with 16% organic revenue growth.
Geographically, high incidence rates helped China and Germany experience mid-teens plus organic revenue growth. Looking at below the line items, adjusted net interest and other expense for the fourth quarter was approximately $14 million, and our adjusted tax rate was approximately 12%, driven by discrete items. Turning to the balance sheet, we finished the quarter with approximately $1.9 billion of debt and $163 million of cash.
We exited the quarter with a net debt to adjusted EBITDA ratio of approximately 2.9 x, and we feel like we have the capacity to look at sizable deals again in 2019. From a capital allocation standpoint, we completed the acquisition of DANI Analitica in Italy for $52 million, and we repurchased approximately 650,000 shares of stock in the fourth quarter at an average per share purchase price of $80. Adjusted free cash flow of $132 million in the quarter saw strong sequential and year-over-year improvement, representing 100% of cash net income. Turning to the full year results, we are very enthused by our performance, the shape of the portfolio transformation, and our organic growth potential, which resulted in 7% organic revenue growth and 24% adjusted earnings per share growth.
As we reflect on our initial 2018 guidance of 45% organic growth and $3.50 adjusted earnings per share, we are extremely pleased by the execution of our team throughout the year. Greater organic growth of 2%-3% and an improved tax rate drove an additional $0.35, which was partially offset by $0.24 from foreign exchange headwinds, extra interest expense, mild share dilution, and increased strategic investments. Looking ahead to 2019, we continue to believe that we are well-positioned to drive solid organic revenue growth and provide strong financial results for our stakeholders. For the full year 2019, we forecast organic revenue to grow 6%. We expect reported revenue for the year to be approximately $2.89 billion, including $52 million from foreign exchange headwinds and no impact from mergers and acquisitions.
We are forecasting $4-$4.05 in adjusted earnings per share for 2019, up 11%-12% versus 2018, with foreign exchange impacting the year by a negative $0.04 predominantly in the first half. Implicit in this guidance is adjusted operating margin expansion of 120-150 basis points, $53 million in interest and other expenses, and a tax rate of 16%. We expect our share count to be approximately 112 million. We forecast adjusted free cash flow conversion to be greater than 95%. For the first quarter of 2019, we are forecasting reported revenues of $643 million, representing 4% organic revenue growth, including a foreign exchange headwind of approximately $27 million versus the comparable prior period. In terms of adjusted earnings per share guidance, we are forecasting $0.66.
Due to the impact of the U.S. government shutdown on the approval processes for an export-controlled product, we are forecasting a transient headwind of 2% organic revenue growth and $0.03 of adjusted earnings per share in this guidance. Excluding this impact and a $0.02 foreign exchange headwind, adjusted earnings per share would be up approximately 13%, and our organic growth rate would have been up 6%. Before I open the call to questions, I want to introduce Bryan Kipp as our next Vice President of Investor Relations effective tomorrow.
Bryan has spent a lot of time in the life sciences space, and we are excited to have him on the team. His background in equity research and as an investor brings a unique perspective, which will serve all of our stakeholders well. Thanks again to Tommy for his great six years and pulling double duty for the last three months. This concludes my prepared remarks. Operator, at this time, we would like to open the call to questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone telephone. Again, if you'd like to ask a question, please press star then one. We do ask that you please limit your questions to one question and one follow-up. Again, to ask a question, please press star then one. One moment. Our first question comes from Dan Horejsi, Citigroup. Your line is open.
Afternoon, guys. Thanks. Congratulations on the strategic IR hire that you made there. Rob, on Vanadis, can you just talk a little bit about the early days of the commercial launch and then what your revenue assumption is for the outlook? Maybe just with respect to additional data and publications, are those something that we should look for this year? I think the Rhode Island study finishes somewhere around mid-year. Do you think you'd see something like that coming out in 2019?
Let me start, maybe Prahlad can jump in as well. I would say early starts of Vanadis continues to go very well. I would say for 2019, our outlook is really to get 30 installations in with the customers. We're being a little bit less specific on the revenue. Dan, I think we've talked about this in the past. We're going to see how the ramp occurs. There's a couple of variables we're still trying to figure out.
How many of the customers are going to do reagent rental versus capital purchases, what the ramp will be, I would say we're focused right now on getting installations. I would say right now, I think there's 10. We're in the process, I think, of putting 11 and 12 in, so we feel pretty good about that. The publications we expect probably mid-year. I would say there continues to be very high interest level in it. I don't know, anything you want to add to that, Prahlad?
Yeah. The only thing I would add, Rob, is that, Dan, the publication from the CE mark data, that should be out by the middle of the year. We're in the process of submitting it. The Rhode Island study that you referred to, you'll probably see abstracts and presentations of that in the second half of the year rather than an actual peer-reviewed publication.
Okay. Maybe on the DAS side, it looks like you're pushing higher there than you have been in the past as well. Can you just talk about maybe the confidence that you have for some of the new products and the things that are helping you there being the ones that make a 5%+ organic growth level something that has a multi-year runway if that is in fact the way that you're looking at it?
Yeah. We thought that, Dan. I think a lot of that is just the business is executing much better. We've done a fair amount of training with the sales force, and I think it's just the maturing of the processes. The other benefit we see is we have come up with a fair amount of new products more recently. If you remember, Dan, back in 2017, we came out really more on the analytical side with the inorganic portfolio. In 2018, we came out with a number of products in the life sciences, particularly in the imaging area. One maybe I'd highlight in particular is our Illumina
Both X5 and S5 is enabling high throughput in vivo imaging. It's high throughput, it's multimodality, it's a complete solution. In the imaging area in particular, we're seeing very good traction there, and we feel good about that. I would say the last thing I'd maybe mention is, we've also, over the last probably 12-18 months, introduced a lot of reagents, and I'll say non-RAD reagents, and that's also driving a fair amount of growth. I think we feel good about the long-term prospects for DAS, and like you said, I think 5% seems like a sustainable level for us.
Okay, thanks very much.
Thank you. Our next question comes from Tycho Peterson of JP Morgan. Your line is open.
Hey, thanks. I want to start with maybe EUROIMMUN in the quarter. I think you guys had guided to $102 million, which would have implied about 53% contribution to DX, but it looks like it came in a bit lower, around $85 million. Can you just confirm that? Any update there on driving synergies with DAS, I think in terms of cross-selling and automation and some of these things you're talking about?
Yeah. I'd say, first of all, EUROIMMUN, we think, had a very good quarter. I think Jamey mentioned it was like 16% or something like that. We're looking for a little higher revenue, that was something I think we mentioned back before. There's been one order that really is a minister of health at a country. I think as we talked about before, initially they wanted that over time. Then there was some discussions about bundling that in a particular quarter. We thought that was going to be in the fourth quarter. It looks like that order now is going back to sort of over a period of time. We haven't lost that order. It's just a question of it sort of, as you can imagine, there's been a fair amount of volatility in that situation there.
It looks like now it's going to be spread out over a number of quarters rather than sort of a lump sum. That's really what happened in the quarter and why rather than 102, it came in, I think, closer to 97 or something like that. Continues to do well. They're seeing good traction across all their end markets. On the synergy side, Tycho, I think we continue to see increasing opportunities, whether it's on the detection and imaging side, whether it's on the assay side.
I would just give you one maybe data point. For Vanadis, we use, I think it's 10 enzymes. We asked the EUROIMMUN people to take a look at it. Looks like they can produce nine out of 10 internal to EUROIMMUN, and obviously in addition to being a supplier within PerkinElmer, it looks like it can dramatically reduce our cost and improve the performance. It's just another instance of where the more we learn and work with EUROIMMUN, we see greater opportunity across PerkinElmer to benefit both on our existing products as well as potentially new products and new market applications.
All right, a follow-up on Vanadis, two quick parts. First, what does it take, in your view, to kind of penetrate non-Perkin customers in Europe? Obviously, there's an upsell to your existing customer base, but to kind of move beyond that. Can you talk about what you need to do? In the U.S., if we do get the expansion of guidelines for NGS into average risk, do you think that presents a potential headwind, I guess?
I think the big thing we've got to do right now, Tycho, is really get the publications out. I think it's really getting people to understand the sensitivity of it and the performance of the products. I think if we can get that, I think given the ease of use, given the cost, I think we'll be able to penetrate non-PerkinElmer biochemical customers.
Just to add to that, Rob, especially in the U.S., Tycho, the question that you ask, I think, if and when it does go to average risk, we actually see Vanadis as a potential advantage because the focus there is going to continue to be on 13, 18, 21, and cost. I think those are specific advantages that the Vanadis technology brings to the plate.
Thank you.
Thank you. Our next question comes from Ross Muken of Evercore ISI. Your line is open.
Hey, guys. This is Luke on for Ross today. Wanted to dig in a little bit more on some of these new product opportunities into 2019, what you guys are baking into guidance. Particularly like the QSight for cannabis. You gave a little bit of color on the Vanadis, as you continue to roll out those products, how do you expect those to contribute to growth next year or this year, what's your expectations on the margin as those roll out?
I would say on QSight and cannabis specifically, we think food for us is probably high single digits in 2019 as we sort of built into the forecast. I would say the QSight as well as other product opportunities within, whether it's Perkin or Delta , et cetera, sort of contribute to that high single digit. If I carve out individual products, I would say, the cannabis opportunity as well as some other opportunities we see globally gives us the confidence to say food probably grows high single digits for us. On the margin side, you want just specifically about that product or just generally margins?
No, just generally on the margins as the new products kind of roll through, you kind of get the uplift as you were talking about the consumables being a large launch last year.
Yeah. Clearly, the new products in 2018 are built into the 120, 150 basis points of 2019 growth. I would say that probably next big margin opportunity for us from a new product perspective, it probably doesn't kick in till late 2019 or early 2020, I would say that's from Vanadis, as Vanadis scales. That goes from a product that was negative in 2018, probably will continue to be a drag in 2019, becomes a positive contributor in 2020. Similar on the genetic testing business. As that ramps up that volumes, that probably gets positive in 2019, becomes an accretive margin contributor in 2020. I'd probably spike out those two as the biggest contributors. I don't know, Jamey, anything you'd add there?
No.
Yeah.
Okay, great. Thanks. I guess you were talking about your preference. You guys are able to do something larger strategically on that M&A front. How do you bake in the opportunities out there given all of the volatility in the public markets and what you guys are seeing?
I would say, first of all, with regard to the M&A activity, two things. I think Jamey mentioned the fact that because of our capability, we'll probably be doing a little bit more. Obviously, 2018, I think we deployed maybe $100 million or so, as we wanted to pay down the debt from EUROIMMUN. I think hopefully we'll be a little bit more aggressive from a size perspective.
I would say the other thing is we'd like to do more in DAS. If you look at a number of the transactions that we did over the last two or maybe even three years, was mostly on the diagnostic side. Some of that was because we were putting DAS together and as I mentioned, trying to get the maturity of the processes, the leadership, and the organization. Hopefully, as we move into 2019, we'll see a little bit more from an M&A perspective, and it'll be more balanced between both DAS and diagnostics.
Okay, great. Thanks.
Thank you. Our next question comes from Steve Willoughby Jr. of Cleveland Research. Your line is open.
Hi, good evening. Thanks for taking my question. Actually I have two. First, I was wondering if you could just provide a little bit more color on the transient impact comment you made regarding the government shutdown. Secondly, you guys did about 7% organic growth here, in 2018, and you're guiding to 6%, I believe you said. I'm just trying to figure out what slows, given whatever revenue Vanadis does generate, it's going to be all incremental. EUROIMMUN will be in the comp now, which should add about 100 basis points. Your genomic services business should continue to grow and add to organic growth. What gets you to go from 7% this year down to 6% in 2019? Thank you.
All right. Let me start on the transient. We actually have a product that I would say because of its sensitivity and versatility, and I would say unique product features, requires a license because what I'll define as national security considerations. I'd prefer not to go into a lot more than that other than, again, just sort of talk about the fact that this is a product that has the ability to look at atomic mass units, individual atomic mass units. Consequently, it requires a U.S. government export license, and because of the shutdown for whatever, 35 days, we're concerned that things will be a little backed up there. We think some of the revenue for that product pushes out from Q1 to Q2. We'll see. Obviously, we've been open for about a week.
We'll see how quickly we get those applications through the government. We just thought it was prudent to call that out and sort of adjust our Q1 guidance accordingly. Let me be clear, though. This is not revenue that will be lost. This is revenue that will just move potentially from Q1 to Q2. If in fact we do not get the 2% revenue growth because of this product, it'll just move into Q2.
Okay. Thank you.
Okay. The second question you ask is the sort of guide for 6%. I would say, you could probably put it into three categories. I would put it in the classification as we're trying to be prudent here relative to what we see, as we think about 2019. First of all, we had very good growth in the pharma life sciences area in 2018. We think potentially that moderates, particularly as you get into the back half of 2019. One of the reasons for that is we've seen in 2018, we had a very nice ramp-up in OneSource. There are some opportunities in OneSource for 2019. They have a tendency to be in the latter part of this year. We don't know that they'll have a material impact on 2019. I'd say that's one area.
We have sort of dialed back a little bit on the industrial side, the industrial and environmental side. That grew mid-single digits for us last year. We're assuming that's probably a little lighter in 2019. The third area is China for us, again grew double digits. If you recall, in 2018, in the beginning of 2018, we were concerned that that would moderate to high single digits. It actually did not. That was one of the upsides we saw in 2018. As we sit here in 2019, we think it's prudent to plan China at high single digits. Again, we'll see what happens. That's fundamentally what's driving the 6% versus the 7% in 2018.
Okay, thank you.
Thank you. Our next question comes from Steve Beuchaw of Morgan Stanley. Your line is open.
Thanks for the time here.
Sure.
First, I'd love to get your recap, if you will, of what you're hearing from your customers who have adopted the Vanadis system. I guess number one is, what do you think is a reasonable expectation, fully deployed, for the number of samples that could go through one of these samples or one of these installs? The second part of the Vanadis question is, how do you imagine that these labs, which are presumably broader reproductive health labs, take on the system, integrate it into the workflow, and then deploy it into the catchment of people whom they serve?
Steve, I'm going to ask Prahlad to speak to that on the Vanadis.
Steve, the initial feedback from our customers has been very positive. In fact, the first two units, which we had put in as RUO units or research use units, those customers have taken on and converted into CE-IVD units and have transitioned it on to a routine clinical use. The part of feedback that we are getting from our customers is not just the ease of use, but also the way that they are used to sharing the data and the results with their constituents are easy because it's the same life cycle software that we were using for our biochemical screens on maternal and fetal health.
The end result is that the customers are seeing the same report out as they would for the biochemical. Overall, the feedback has been very good. The clinical data and the response that they are seeing is equal to, if not in some cases better than what they see for the NGS customers.
I want to press on that a little bit. I'm sure that these customers are in areas where they're probably using more expensive technologies to try to get to similar results. Do you get the sense that they want to convert, or is this all incremental?
In fact, these customers they were using biochemical screening, and these are the two customers who have switched from biochemical to Vanadis technologies. As you know, in Europe, each country has its own reimbursement policies, and in these two countries, one is on a public side and one is on a private side. They have switched from biochemical to Vanadis.
Okay. To tie up here, just sticking with the theme of new products and new initiatives, I wonder if you could give us a view on what your assumption is for EUROIMMUN growth for 2019, and any color on what the backlog looks like for the sequencing, the genetics lab would be great. Thanks a much.
I would say for 2019, we're assuming EUROIMMUN is very similar to what we assumed going into 2018, which again is consistent with what we did in the acquisition model. Again, if you recall, Steve, this was a business that sort of grew in the high teens. We said for purposes of the modeling for assumptions, we were assuming something in the sort of 13%-14% range. That'll be consistent. The backlog for the testing lab, I don't know, Prahlad.
Actually the backlog for the testing lab is very healthy. Earlier we've shared that the lab, the information systems, the internal software that we were using for LIMS, we've completed the beta testing and that will be fully operational into the lab at the end of the first quarter, early second quarter. That will sort of allow us to scale it at a much higher level than it is. The backlog is very healthy.
Okay. Thanks a bunch. Have a great night, guys.
Thanks, Steve.
Thank you. Our next question comes from Daniel Brennan of UBS. Your line is open.
Great. Thanks for taking the questions. I guess first question is just, I was hoping you could just break down what's implied for growth in 2019 as we think about DAS and diagnostics. Within DAS, can you give us a little color? I know you've already talked about maybe pharma and industrial moderating a bit, can you give us some color on the different customer groups and how you expect them to fare?
I would say for 2019, we're assuming DAS does mid-single, so-called five-ish, and we're thinking diagnostic does high single and call that eight-ish. Those are the numbers that we're assuming in the 6%. With regard to the various groups, as I mentioned before, we think pharma moderates a little bit. If you look at 2018, we did 8% in pharma, and we think that comes down a little bit, maybe 100 basis points or something like that. As I mentioned, food we think continues to do high single digits, driven to some extent by cannabis.
As I mentioned before, I think our assumption is that industrial and to some extent environmental sort of moderates a little bit, where that goes from mid-single digits to low single digits. That's the composition of DAS. Diagnostics, I already mentioned what EUROIMMUN does. I think we're saying reproductive health in high single digits, mid-single digits, probably in the 7% range, something like that, and applied genomics probably mid-single digits. The immunodiagnostics for PerkinElmer as compared to EUROIMMUN is probably high single digits.
Great. Maybe can you just on EUROIMMUN, Rob, so you're guiding for the same growth, I guess that you started it in the M&A model, but can you just give us an update on the U.S. and kind of where you are with Menu, and I know at the time of the deal, it sounds like over a period of time, that could become a very large market. I'm just wondering, how is that going so far and what are you incorporating for 2019 for U.S. and the various regions, within your EUROIMMUN growth? Thanks.
Yeah. First of all, I would say the U.S. is performing well. It had very strong growth in 2018, again, off a relatively low base. I would say our marketing efforts and the FDA approval process continues to go well. I think at last check, we have about 50 assays that are now approved in the U.S. I don't know, there's another 12 or 13 in the pipeline or something like that. We continue to be very bullish on the U.S. side. Like I said, I think the integration is going well. We've trained the respective sales forces. We've moved over the service engineers, so now we're providing all service on EUROIMMUN products. I would say, yeah, we feel very good about the opportunities in the U.S.
Thanks.
Thank you. Again, ladies and gentlemen, if you could please limit your questions to one question and one follow-up. Our next question comes from Doug Schenkel. Doug Schenkel of Cowen, your line is open.
Hey, good afternoon. I want to dig in on margins a little bit more. First, starting on the performance of the quarter, DAS operating margin went from 20.8%-20.2% year-over-year. Diagnostics went from 30.4%-28.9% year-over-year. Segment margins moved down in a period of robust revenue growth, yet overall margin increased year-over-year, albeit not to guidance levels. I was just hoping you could unpack that a little bit, talk about what happened with segment margins, what were the non-segment adjustments, and did you pull some investment forward into the quarter?
That's the first thing, just recapping the quarter. Second, as we turn to next year, 120-150 basis points of margin improvement's a pretty big pickup relative to what we've seen from you recently. Could you just walk us through the components of how you get there? Longer term, this is the third part, earlier this month, you reiterated guidance for 22% operating margin in 2020. Again, we're building off of 19% in 2018. What type of growth do you need to generate this year and next to get to that level of margin improvement? Thank you.
All right. Let me start, then I'll turn it over to Jamey to get maybe a little bit more into the specifics. Let me address, I would say this would apply to sort of Q4 as well as 2018. When I think about margins, let me do it relative to our plan and our guidance for 2018. If you recall back in beginning of 2018, we said 4%-5% organic growth, 70/90 of operating margin, and $3.50 of EPS. As we got into the year, three things I would say we saw. One is revenue was coming in better. Our tax rate, we realized was going to come down a couple hundred basis points. I would say we continued to see fairly significant opportunities to invest for growth.
We made a fairly conscious decision to take that upside, both on the revenue and the tax, and invest some of that in growth, and we'll say higher R&D. R&D was up, particularly in the latter half of the year, and in selling and marketing. Return some of that in the form of higher EPS. To just give you a rough estimate, our investments in selling and marketing and R&D relative to the beginning of the year is up about $15 million. We beat EPS by $0.11, which is about $15 million. If you look at the tax savings and if you look at the revenue, now there's some foreign exchange noise in there as well, but basically we took half of it and put it in growth and put half of it in higher EPS growth.
We ended the year beating EPS by $0.11 and accelerating our top-line growth by 250 basis points. We feel very good about that. The issue is that the geography on the P&L doesn't match up because the investments that go into operating expenses offset the incremental revenue and impact operating margin, but the flow-through on the tax obviously is below the operating margin line.
The way we thought about 2018 was to take the growth and the tax, invest it back, accelerate the organic growth rate. Like I said, the net result of that was a very strong EPS growth, beating by $0.11, and we believe accelerating the opportunities on the organic growth. You're seeing that in 2019, and you'll continue to see that in 2020. Again, to answer your questions, how do we get to 120-150 basis points? Jamey can sort of take you through the specifics of that, we do not anticipate doing that again in 2019 unless possibly we see another opportunity because our revenue is cranking up and we're going to be significant below the tax rate.
Maybe, Doug, just to talk to the segments. If you look at DAS in the fourth quarter, as you mentioned, down 60 basis points on the op margin line, 40 basis points on the gross margin line. As we outlined at the end of the third quarter with the sale of multispectral imaging, that had a 25-basis-point drag to gross margins in the fourth quarter for us. We've started to really ramp some of our production in China, that has a little bit of margin pressure as we ramp up there, which is what we experienced on the gross margin line. Rob spoke to some of the investments we made. If you look at OpEx, as we invest, we invested in sales force, in food, cannabis, and informatics, I think we're starting to see nice growth in those areas.
That kind of speaks to DAS. If you look at DX and the way they drop, that's really a function of EUROIMMUN mix year-over-year. As you mix in EUROIMMUN at a lower margin rate, that's why you see a drop year-over-year. EUROIMMUN did grow in the year nicely, actually, it beat the deal model by $0.06 or $0.07 actually on our year. If you look at the investments we're making in DX, we're investing largely in APAC. APAC sales, Tulip sales force, I think we've seen very nice growth in both those areas as well. I'll just kind of reiterate a little bit of what Rob said in terms of 2018 versus 2019. 2018, a simple way I think about it is 40 basis points.
If we look at what we normally say is we'd like to invest, sales and marketing, kind of half the rate of revenue. We want R&D to keep up with revenue. We made a lot of sales investing, sales and marketing investments in particular, even upticked R&D a little bit, as Rob mentioned at the beginning of the call here. That was about 50 basis points of a drag. Foreign exchange was a 50 basis point drag this year, I know the markets were kind of volatile. If you exclude the investment in sales and marketing and R&D and foreign exchange, we think operating margins would have been up 140 basis points this year. That's 2018.
To put that into context for 2019, Rob already mentioned whether, if the gross margin line holds up or anything is upside, we'll continue to invest more than we normally do, number one. Number two is foreign exchange is going to flip for us. What is a 50 basis point drag this year is more like, at least at year-end planning rates, a 20 basis point tailwind heading into 2019. We feel pretty confident in being able to do 120 to 150, and we'll kind of meter these investments as they come up and the opportunities as they arise. If we see other areas that we're excelling in, like revenue or tax, as Rob mentioned, then we'll continue to invest. Otherwise, we feel pretty confident in the kind of margin.
Thank you. Our next question comes from Derik de Bruin of Bank of America. Your line is open.
Hi. Thanks. Doug just took my margin question, now I got to get creative. Can you talk a little bit more about the 13% core growth guide in the diagnostics business this quarter, and just sort of what was driving that a little bit more detail? It was a much bigger step up than I would have thought. Is it pull forward? Is it budget flush? One-timers? Can you just give a little bit more on depth on that?
Yeah. It's a little higher than we anticipated in the core. We already talked about EUROIMMUN coming in at $97 million versus $102 million, and we talked about that. In the core, it was a little higher, and I'd say it came in two areas. One is reproductive health. We mentioned low double-digit growth, but breaking that down further, reproductive health is made up of the genomics testing business, which we continue to grow and expect to grow at very high rates. That grew at 50%. Even the core business, so kind of neonatal, prenatal, et cetera, grew high single digits. Throughout the year, we had seen mid-single digits, and that's what we were kind of planning on.
We don't know of any flush or pull-in or whatnot, but it's a relatively small business, it's about a $100 million business, so 2%-3% is $2 million-$3 million. Could that have happened? Maybe, but not sure. The other area that kind of was strong for us was Tulip. As I mentioned, we've been investing in additional feet on the ground there and marketing efforts, Tulip grew, I think, over 20% in the fourth quarter. Those two areas grew the core for us. The last thing is the genomics testing business is doing extremely well. I mentioned, I think, in my prepared remarks that we were almost $10 million, we were $5 million through the first three quarters. That obviously had a nice uptick for us here in the quarter.
Can I unpack that one a little bit and just can you talk about a little bit the demand that you're seeing and sort of like what the project backlog is and just I'm just sort of curious about the sort of projects you're doing. Since I don't know if you're bidding on or you're winning contracts for whole human genome, but I'm just sort of curious about how you're competing in that market, given there are a lot of larger players out there. Just a little bit more color on that, I think, would be useful.
Yeah. This is Prahlad. I think the two aspects to the growth in the genomics testing business we are seeing, one is around our partnership with the pharma businesses that are focused on rare diseases, that's where primarily we have a couple of large contracts that we are actualizing and moving forward. The second piece is more around the two aspects to it. One is around the confirmatory testing around newborn screening. More and more of these states, as we gain traction with them, that helps, on the neuromuscular disorder relationships that we have built. Those are the three aspects that have added to it.
Derik, I'd say one other thing, I get constantly corrected by the person who runs this business. We have a tendency to describe this business as DNA testing. In fact, we do some DNA testing, but what we also do is we do protein, we do biochemical, we do a lot of other things. When you ask how do we compete with the larger labs? My understanding is we are unique in the ability to offer that complete solution. A lot of instances, the reason why we win is because we're not just looking at DNA. We can look at enzymes. We can look at a lot of other areas, that's differentiated in the marketplace.
Great. Thank you.
Thank you. Our next question comes from Dan Leonard of Deutsche Bank. Your line is open.
Thank you. A bit of a follow-up to Doug's question. Fourth quarter gross margins came in a little lighter than we were expecting, despite the higher volume growth. Jamey, I think you touched on maybe a couple of the drivers, but could you maybe bridge for me what the gross margin plan was in Q4, what the variance was, and maybe offer color on gross margin expectations for 2019? Thank you.
Sure, yeah. Hey, Dan. I would say there were probably two key things, one we knew about and one that changed. I mentioned the multispectral imaging sale and how that impacted gross margins in the quarter by 25 basis points. That's basically, we're producing that product for the buyer, but we get a very thin margin on that, so our revenue has stepped down quite a bit, and that's about a 25- basis point headwind. The other thing that I would say changed in the quarter on us is we sold a little less reagents in EUROIMMUN and had a little bit more instruments. We guided $102 million for EUROIMMUN. It came in at $97 million. $5 million and a 30%-40% margin delta on that had an impact on our gross margin line.
Otherwise, we think it was pretty much in line with what we were anticipating. For 2019, we believe that those should be a large portion of this 120-150 basis points OM expansion should come through the gross margin line, probably north of 100 basis points. Part of that is what Rob has continued to outline, and we've all continued to outline. Little bit of product mix. Incrementals look better. I think we said at JP Morgan, our incrementals this year were at 26%, and if we go up to 28%, that should help us. A little bit of operating leverage on the OM line should get us the whole way there for the 120-150 basis points.
Okay. Thank you.
Thank you. Our next question comes from Patrick Donnelly of Goldman Sachs. Your line is open.
Great. Thanks. Appreciate the color on the EUROIMMUN growth side. Can you also just talk through the cost and margin side? I know the margins were significantly below diagnostics average, I think around 20%. What are your expectations for 2019, and what are the biggest levers there? Is there anything outside of just pure volume leverage to do?
In terms of 2018, EUROIMMUN outperformed what we were thinking from a margin rate standpoint. We went into the year thinking something like 19%-20%, and it's north of that at this point. Let's call it 21%. It's done nice. It's definitely a lot driven by volume. If we look at the future here and what we can do, I think we've been still pretty light touched from an integration and synergy perspective, so there should be a long way to go here in terms of margin expansion.
If you compare that to the core business being at more like a 30% OM or high 20s OM, there's obviously a lot of room here. Baked into the guidance next year is something a little bit north of the 120 to 150. We'll continue to get some additional leverage from EUROIMMUN, but it looks good, and it outperformed this year.
I would say right now in our model, and I think I talked about in this past, for the first couple of years, we just assumed their margin expansion would be volume driven, so obviously, as they get leverage off of their fixed cost. I think now, owning it now close to 15 months or something like that, I think we continue to see significant opportunity to go in and maybe drive some synergies on the cost side and not disrupt the revenue growth.
I think as we get into 2019, we'll see opportunities to leverage what they're doing on the R&D side. I mentioned the fact that the enzymes for Vanadis, there's a number of antigens they could make for PerkinElmer, and I think just on the material productivity and even on the commercial side, I think as we get into 2019, we'll be able to drive some margin expansion beyond just leverage.
That's helpful. Jamey, just a quick one on capital deployment. I know you mentioned you're thinking you can do bigger M&A this year, just below 3 x on leverage. Where should we think that you guys max out on the leverage ratio there?
We appreciate our investment grade rating. We've been willing to take it up to a little over 3.5x . Absent acquisition, we think we can get down to a net debt EBITDA a little over 2 x, and EBITDA should be north closer to $700 million here. We probably have $700 million - $1 billion of firepower for next year.
Okay. Appreciate it.
Thank you. Our next question comes from Jack Meehan of Barclays. Your line is open.
Thanks for squeezing me in. I wanted to ask about geographically, the Americas putting up double-digit growth seems pretty strong. Is that just a factor of where some of the new products and services are rolling out, or can you talk about what you are seeing here in the U.S.?
Yeah, I think the U.S. has been driven largely by, DAS has been strong, DX is also strong. I'd say pharma biotech in the U.S., detection and imaging and enterprise was very strong for us this year. I think Rob mentioned that some of our enterprise wins have been more in the U.S. and have had a nice revenue growth for us in 2018. That probably drove a little bit more of the uptick versus the rest of the regions.
Yes, as Jamey alluded to, it's pretty broad-based. I think some of that is the new products, but I would say if you look across a number of the end markets, we're seeing good growth. The other one, not a big driver too, obviously, cannabis is fundamentally all North America, and so that's a driver as well.
Great. One just cleanup on the capital deployment. Assuming your guidance doesn't build in any share repurchase with the 112 million share count, so you're just assuming that cash generation generates interest? How does that build into the guide?
Thanks, Jack. It's a good question. We right now do not assume share repurchase. We've assumed pay-down of our debt and guided to this kind of EPS range. Any acquisition or share repurchase would have to be accretive to us, is our kind of thinking here. We've kind of modeled, like I said, nearly $112 million. We ended this year at $111.3. Obviously, it'll dilute up a little bit next year in our guidance, but obviously that'll change throughout the year as we see acquisition targets and look at potentially buying back shares.
Sounds good. Thank you.
Thank you. Our next question comes from Bill Quirk of Piper Jaffray. Your line is open.
Great, thanks. Good afternoon, everybody. Couple of quick ones here. Jamey, just a quick clean up. In terms of your comments, there's no M&A contribution in 2019 in terms of meaning that the overall guidance should be, revenue should be consistent organic versus FX neutral and such. Should we assume then that the impact of the Spectrum deal essentially offsets the Quantitative Pathology divestiture?
Yeah, including the Dani deal. We did a handful of small acquisitions this past year, and the multispectral imaging, taking out that revenue and offsetting it with some of the other acquisitions is neutral to the year. That's the way to think about it.
Okay. Got it. Perfect. Jamey or Rob, just thinking about the first quarter 2019 guidance, a little lower than the street was expecting. Certainly, appreciate that there's a number of moving parts in terms of FX as well as the government shutdown. Any other quarters or movements that we should be thinking about here throughout the year in 2019?
Yeah, maybe I'll start in, Rob. In terms of earnings, aside from this first government shutdown issue, our profile of earnings is not a lot different than what you'll see on a percentage basis that we did in 2018. I'll start there. In terms of the organic growth rate, 4%, like I said, it would be 6%, which is right in line with our guidance for the year. We feel pretty good about that.
Thank you.
Thank you. Our next question comes from Brandon Couillard of Jefferies. Your line is open.
Two housekeeping items for Jamey. First, could you speak to the spike in account receivables in the fourth quarter? Is that just seasonality? Can you help us with the CapEx number for 2019?
Sure. Hey, Brandon. Yeah, cash is a little light here at the end of the year, all attributed to working capital. Inventory was kind of where we were starting to plan it to. Had a little bit of uptick throughout the year, but that should normalize next year. Receivables, it just was a function of most of our sales in terms and shipments happened in the month of December.
An $80 million uptick was solely attributed to the fact that we shipped a lot in December, and it should be collected mostly in the first quarter of next year. We do anticipate that coming back next year. That first, and then CapEx, I think you asked about. CapEx, we're still planning on something like $80 million for next year. This year we were up to something like $90 million, but next year, I think, we believe we can start taking down EUROIMMUN. We've also invested in a lot of the plant transitions already, some of those should come down. I'd pencil that in, Brandon.
Very good. Thanks.
Thank you. Our next question comes from Catherine Schulte from Baird. Your line is open.
Hey, guys. Thanks for the questions. Just first, you've talked about getting to 7%-9% top-line growth in 2020. You've guided 2019 at 6%. Are you still confident in that high single-digit outlook, and what gets you those extra two points or so of growth in 2020?
Yes, I would say we continue to be confident in the high single-digit growth by 2020. I think what gets us there is a number of, well, I guess what we're referring to is growth accelerators. As we get into 2020, we expect Vanadis to start to step up nicely. The genetic testing business I think will continue to do well. I think in the food area broadly, and then maybe even specific on the cannabis side, I think that provides a fair, nice upside for us. I would say the last thing maybe I'll mention is we've got a number of new products, particularly on the DAS side, that probably comes out the latter part of this year and early into 2020. We think that can generate some additional demand as well.
Going back to new products, recognize you don't want to give specific numbers for Vanadis or individual products, what's your target for total new product contribution in 2019 versus the $50 million goal you had?
I would say we're maintaining that number for 2019 as well. Like I said, we've got a number of new products that are sort of coming out later in the second half of 2019, we're maintaining the $50 million. I would say as we get into 2020, I think that number will sort of step up pretty nicely.
Very helpful. Thank you.
Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Rob Friel for any closing remarks.
All right. Well, thank you, Valerie, and thank you all for your questions and interest in PerkinElmer. I look forward to updating you on the progress we're making as we take advantage of the numerous opportunities we see this year to both drive long-term growth, improve our profitability, and increase the impact we're having on global health. Thanks, everyone, and have a great evening.
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.