Life Technologies Earnings Call Nuggets: Capital Allocation Priorities and Manufacturing Move to Singapore
Life Technologies Corp (NASDAQ:LIFE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Capital Allocation Priorities
Jonathan Groberg – Macquarie Capital: So my questions will just assume that this is a go it alone. So my first question is you mentioned some comments around looking at adjacent markets but also particularly in molecular diagnostics focusing on internal funding. So can you maybe just talk about what your capital allocation priorities would be in 2013 given your comments about 2012? Then just as a quick follow-up about the year as well, can you may be just talk about you had some really good growth in China and you had pretty good growth in Applied Sciences, I think you said one deal fell through into 2013. But can you maybe just talk about some of the markets that have been growing pretty quickly kind of confident you are that those will sustain themselves in ’13?
Gregory T. Lucier – Chairman and CEO: Let me start with the capital deployment question and then how it relates to acquisitions. So just to reiterate we are committed to the 50-50 balanced capital deployment strategy and so if you were to forecast our free cash flow this year of let’s just round the number to $700 million, half of that will go into buybacks, half of that will go back into funding growth. In the area of funding growth with respect to things beyond capital expenditures, which as you know is a very reasonable stable amount of money for a Company like ours. We would target areas that we think will give us faster growth. Our acquisition of that ligand company that goes into our bioprocess business is a great example of the perfect acquisition for us. It’s reasonable in size, it’s a tuck-in acquisition and it allows us to be exposed to other elements of what is a nicely growing business of BioProduction. Ronnie Andrews and his leadership of Medical Sciences continues to scout for other technologies, other pieces of real estate that we need to be the vendor of choice in these more complex diseases like cancer. Although I would just say that we’ve clearly made a decision that given how we see the future of diagnostics which is different than what people would normally think about diagnostics as practiced in the past, there’s not a lot of available real estate out there right now that interests us. Therefore, we grow organically, we invest organically. So that’s our thoughts on capital deployment. In terms of the market, we are really pleased with the bodybuilding we did in China over the last 18 months. We took some flak about 18 months ago for going direct. It hurt us in the quarter, but since then we’ve been on a tear as we have hired hundreds of people in direct sales force. We’ve acquired dealers and we think we now have one of the largest commercial footprints in that very important economy and our results show it now that it’s paying off in terms of having that more subjective broad-based scientific conversation with customers across many, many different cities and territories in China. Lastly, I’d just say is that this idea of globalization is critical for us. We realized that no matter what happens in the United States, it will probably be a slower growing market for the years to come, and therefore you’re seeing us expand our direct presence as I said not only in China, but the Middle East, Russia, Africa. We see ourselves in ever more countries having ever more scientists than any other company in this space and we think that’s going to allow us to have faster growth that can be had in this marketplace.
Manufacturing Move to Singapore
Tycho Peterson – JPMorgan Securities, Inc.: One of the things you comment is on the plans to get Ion Torrent’s profitability embedded in your 31% operating margin targets that you laid out. Can you just talk to may be some of the steps you’re taking there including the manufacturing move to Singapore?
Gregory T. Lucier – Chairman and CEO: You bet. So there is a few points we would make here. One, is simply that there is a fair amount of fixed cost of R&D investment, personnel investment in that business, and that as the revenue scales this year we reached the released altitude and get to the point of profitability, that’s probably the most important driver. The second one is that we ironically have sold many more instruments than we had in our original deal model when we brought Ion Torrent into the family, and that’s good because it’s building the install base, and now what we’ll follow is more consumable sales, so we’re really confident that that’s going to add to the margins for 2013. Then last is what you say in terms of where we’re locating manufacturing and how we’re doing manufacturing engineering, not only on the instruments, but on the reagents where we’re bringing some in-house into Ambion and some of our enterprises like that that allows to have a higher gross margin in our manufacturing. So those three elements combine us to give real confidence that Ion Torrent is going to be a nice contributor to the bottom-line compared to 2012.
Tycho Peterson – JPMorgan Securities, Inc.: Then just a follow-on to your comment on capital deployment earlier. With Boston Children’s you have put some of your own money to work here and kind of funding a new business venture. How often are you looking at doing initiatives like that versus straight up R&D collaborations versus building it internally?
Gregory T. Lucier – Chairman and CEO: The Claritas Genomics opportunity for us was unique. Boston Children’s arguably is the finest pediatrics hospital in the world. They have very distinct ideas and world class personnel of how to make genomic analysis into pediatric care mainstream. So we wanted to partner with them to not only have them fill their aspirations but also help us refine our systems, our workflows, our procedures that we could then take that technology in many other places. What was unique about that opportunity was the business structure as I referenced in my comments is flexible and we actually see others becoming part owners of Claritas Genomics or partners with Claritas Genomics at various pediatric centers around the world. Ronnie Andrews has other business ideas that don’t involve us investing, that involve us just partnering with regional healthcare systems and we will deploy that as well in 2013.