Martin Madaus - Chairman of the Board, Chief Executive Officer and President Joshua Young - Director of Investor Relations Charles Wagner - Chief Financial Officer and Corporate Vice President

Good afternoon. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Millipore's First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Joshua Young. Please go ahead, sir.

Thank you very much, Tiffany. Good evening. I'd like to welcome everyone to Millipore's First Quarter 2010 Earnings Conference Call. My name is Joshua Young and I am the Director of Investor Relations for Millipore. And joining me on today's call are: Martin Madaus, Chairman, President and CEO; and Charlie Wagner, Chief Financial Officer. In addition to the earnings release we issued earlier today, we will also be referencing a slide presentation as part of today's call. The presentation can be viewed by clicking on the webcast link on the millipore.com homepage or by accessing Millipore's Investor Relations website. A PDF copy of the slides is posted to the website currently. We will also be highlighting non-GAAP financial information. A reconciliation of our GAAP financials to our non-GAAP financial measures is included in our earnings release and posted on our website. Before we begin, I'd like to make the usual Safe Harbor statement that during the course of this conference call, we will make forward-looking statements regarding future events for the financial performance of the company that involve risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K, as well as other subsequent SEC filings. Also note that the following information is related to current business conditions and our outlook as of today, May 6, 2010. Consistent with our prior practice, we do not intend to update our projections based on new information, future events or other reasons prior to the release of our second quarter 2010 financial results. On today's call, we will provide details of our current business performance and market trends. However, due to our pending transaction with Merck, we will not hold a formal Q&A session and will conclude the call at the end of our formal remarks. Now, I'd like to turn the call over to Martin Madaus.

Thanks, Joshua, and good evening, everyone. And thank you for joining us on the call today. Q1 was an outstanding quarter for Millipore. We started 2010 right where we left off in 2009, delivering exceptional financial performance, outperforming many of our peers who faced easier year-over-year comparisons. We posted record quality sales and non-GAAP earnings per share in Q1. While continuing to improve our balance sheet, we generate attractive cash flow. Our execution is strong as it has ever been and we're launching innovative products that are taking market share from competitors, from our billing capabilities that are strengthening organization. So we're on track for a great 2010. The key takeaways for Q1 are the following: Our growth is strong and well-balanced between both our Bioprocess, Bioscience divisions. Each division generated impressive double-digit growth in the Americas and Asia, and saw strong underlying demand among our core businesses. Second, we're seeing a significant contribution to our revenue growth from new products. So we have implemented a number of initiatives to accelerate our innovations and we have increased the number of innovative products that we launch in each year. So I'm really happy to report that these products are actually making an impact penetrating the market and driving higher growth. Third, our Bioscience division rebounded and generated impressive top line growth after a somewhat challenging year in 2009. The division reported strong laboratory instrumentation sales. And saw a sharp uptick in demand from a large North American pharmaceutical customer same time in the week last year. So I'm encouraged by the strong start and we expect the division to benefit at global economic conditions steadily improve. Fourth, our Bioprocess business picked up right where it left off last year. The division generated exceptional growth of demand. And the biotechnology industry continues to be very robust. This performance is impressive when you consider that Bioprocess faced a challenging year-over-year comparisons and has generated 13% organic revenue growth in the first quarter of 2009. Finally, we continue to generate attractive free cash flow as a result of improving the efficiency of working capital. We continue in making substantial improvements on working capital last year in this program, again, continue in 2010, and they show some great results. So those were the key takeaways. Let me now move into more detail about the results of the first quarter. Financials first. So first quarter as revenues increased 14% to $463 million, excluding a 5% favorable effect from changes in currency -- foreign currency exchange rates. Organic revenue growth on the quarter was 9%. From a divisional perspective, if you exclude the effects of changes in foreign currency exchange rates, both the Bioprocess and the Bioscience division also grew 9% organically. On the bottom line, we reported $1.21 in non-GAAP earnings per share which was a 14% improvement over last year. And our free cash flow grew 12% over last year, totaling $77 million in the first quarter. Now let's go down to each key driver in each division, starting with the Bioprocess division. Division reported its fifth straight quarter of strong performance and most of the growth continues to be driven by biotechnology customers in North America and also in Asia. These customers are accelerating their production of monoclonal antibodies due to the strong performance of marketed biologics and the need of these customers to build inventories for the new drugs that I expect to enter the market later this year. The division posted excellent, double-digit growth in North America and Asia. A portion of our business that is not related to biotechnology, we refer to it typically as the classic Pharma business, also performed well. Areas of this business that were affected negatively last year by the economic environment have stabilized and returned to historical profile. Within our three business units, our downstream Bioprocess product, our largest strategic business unit, generated the highest levels of growth in the quarter. Our disposable manufacturing products grew more than 50% as we're gaining share from competitors, and also benefiting here from a number of new product introductions. Our strategy in the disposable market is to leverage our product breadth to deliver fully validated disposable assemblies to our customers. Customer tography medium, disposable capsules and tangential flow filtration products, also performed very well in Q1. So to close, our Bioprocess division posted another great quarter financial performance in Q1. The division is on track to have a great year. New products such as Mobius, Plex-ready disposable solutions, they're all performing well in the market. Now let's turn to the Bioscience division. Bioscience division achieved an important milestone as it surpassed $200 million in quarterly revenues for the first time. This is substantial achievement for a business that have transformed itself from a Lab Water sample prep provider to a true global leader with capabilities and very attractive and dynamic market segments such as Multiplex immunoassays, CENP [ph] (10:36) such as Epigenetics and many other. The division's impressive growth in the quarter benefited from a rebound in spending from North American Pharmaceutical customers and also an improved environment for selling laboratory instrumentation. These were two areas that were weak last year and they're not benefiting from a rebounding economic environment, particularly in the U.S. We also saw a first positive impact from the stimulus spending in the United States, which positively impacted the sales of laboratory instrumentation. From a geographic standpoint, the Bioscience division generated year-over-year organic growth in all geographies during Q1, with double-digit growth in the Americas and Asia. China continued to lead much of our growth in Asia. In fact, we placed more molecule integral Lab Water product in China in Q1. And we placed in all of Europe during the same period of time. This is evidenced again that Millipore can execute on global growth opportunities as the right product for diverse markets. From a product perspective, our Life Science business unit generate the highest level of growth in Bioscience. And we generate our first sale for our handheld automated cell counter named, Scepter. This is one of -- these innovations, very innovative product that has a tremendous initial response from the market. We're generating impressive quarter growth and we expect this to be a very strong product for us in 2010. Our Lab Water business benefit from a recovery in capital spending in a more favorable environment for selling laboratory instrumentation. And this business generated mid-single digit organic growth after a relatively flat performance sales in 2009. And finally, our Drug Discovery Service business is improving as large pharmaceutical and biotechnology customers have mostly finished their integration efforts and have established on our clear research priorities. And that in turn provides a higher amount of outsourcing activity and we can benefit from that. So Bioscience off to a great start in 2010. We invested heavily in this division last year, where many companies were struggling. We believe that these investments combined with a healthier market will enable the division to generate attractive growth in the coming years. I know that many of you are focused on the status of our proposed transaction with Merck KGaA. And we continue to move along and remain on track and close the transaction during the second half of the year, this year. During the quarter we achieved important milestones relating to the transaction. First, the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act expired on April 19 without a second request for information and this technically means that we can proceed with our proposed actions in the U.S. Antitrust Law. Second, we filed our definitive proxy statement on April 30. And we set the date for a special meeting of shareholders on Thursday during the third at 10:00 a.m. Eastern Time. The proxy and a proxy ballots was sent to our shareholders last week. But we don't have a clear timeline on if and when we will actually receive the regulatory approval in Europe. We're focused on taking the necessary steps to move the transaction along. In the meantime, we remain focused on executing our business in delivering the same great performance that we just generated in Q1. I want to close by saying that I'm particularly gratified by the success from performance since our organization stayed focused in executing our business even in the midst of announcing our proposed transaction with Merck. It won't be very easy to become distracted or slowdown our organization initiatives. Instead, our employees remain focused on delivering results on a record quarter financial performance. So I'm proud of that execution and we're really on track to have a great year. I want to extend the personal thanks to all of you, all the 6,000 Millipore employees worldwide. I look forward to facilitating smooth transition of Millipore into Merck, starting a new chapter for the company. With that, I'll turn it over to Charlie.

Thanks, Martin. Now I'll provide some additional details on first quarter results beginning with a discussion of our GAAP operating results in the first quarter. Total revenues increased 14% from last year's first quarter, totaling $463 million, excluding a 5% favorable impact from changes in foreign exchange rates, organic revenue growth was 9% in the first quarter. Our gross profit margin in the first quarter increased 130 basis points on a year-over-year basis to 56% from 54.7% in Q1 2009, due in part to lower cost associated with our global supply chain initiative. Our higher gross margins helped to drive 150 basis points improvement in our operating margin. And our earnings per share increased 4% to $0.99 from $0.95 in Q1 2009. And remember, the Q1 2009 results included the effect of a $9 million gain related to our acquisition of Guava Technologies. In Q1 2010, earnings also were affected by a $2.1 million year-over-year increase in our fully diluted share count due in part to a higher Millipore stock price. This caused our convertible debt to become dilutive in the stock calculation, and a higher year-over-year share count lowered our Q1 EPS by about $0.03. From a geographic perspective and excluding the effects of foreign currency translation, our revenues grew an impressive 28% in Asia during Q1. This robust growth was driven primarily by China and Singapore. Additionally, our business in Japan rebounded nicely and generated 7% organic revenue growth in the quarter after struggling through most of 2009. In the Americas, we generated 14% organic revenue growth with both our divisions growing double digits in the region. The strength of the biotechnology industry and the strong performance of our Life Science business unit were the primary drivers of this growth. Our revenues declined 5% in Europe during Q1. This performance was the result of a weaker economy in Europe and the timing of orders with several large biotechnology customers in the region. On the next slide, we show our Q1 2010 non-GAAP operating results. Please review the non-GAAP reconciliation table in the press release for the detail of our adjustments. Our Q1 2010 non-GAAP gross margin of 56.6% increased 30 basis points on a year-over-year basis. The positive effects of changes in foreign currency and higher manufacturing volumes were partially offset by a negative product mix. Our SG&A costs increased 12% on a year-over-year basis. The increase was due to higher levels of sales and marketing promotions, currency translation and higher employee compensation costs. We also incurred $1.7 million of higher stock-based compensation cost compared to Q1 2009. As a percentage of revenue, our SG&A cost decreased 40 basis points from the previous year. Our R&D spending increased 19% in the quarter. We invested heavily in R&D last year. And we continue to fund our number of initiatives that will help us deliver growth in the future. Non-GAAP operating margin in Q1 2010 was 22.6%, which is an increase of 40 basis points over Q1 2009. Our non-GAAP tax rate in Q1 was 25½%, a 30 basis point increase from the 25.2% we recorded in Q1 2009, and the increase was due to a higher proportion of our pretax profit coming from the United States. Our non-GAAP net interest expense was $10 million, approximately $0.5 million lower than last year due to lower debt balances. Overall, we reported $1.21 in non-GAAP EPS, which was $0.15 higher than Q1 2009, representing 14% growth. Changes in foreign exchange rates increased earnings per share by about $0.07 in the quarter. Earnings growth in Q1 is particularly impressive given our substantial investment in R&D and the higher share count. Now turning to our balance sheet. Our networking capital increased at a rate considerably less than our overall sales growth. This is because we continue to improve all the key drivers of our cash conversion cycle. Compared with the first quarter last year, we achieved the four-day improvement in day sales outstanding to 63 days and a 20-day improvement in inventory days to 109 days. I am particularly proud of the improvement we've made in our inventory days. And just a few years ago, our days in inventory outstanding were nearly 150 days of supply. At 109 days as of the end of Q1, we've surpassed our long-term target in only 18 months of executing our working capital initiative. We hope to get below 120 days by the end of 2010 and we've already hit this target in Q1, and is a testament to just how successful this project has been. Overall, the net result of our DSO in inventory improvement is that we've improved our cash conversion cycle by 24 days compared to the first quarter of 2009. This is especially impressive given the dramatic improvement in working capital that we generated in 2009 as well. Continuing down the cash flow statement. Cash flow from operations during Q1 was $88 million, factoring in capital spending of $11 million. We generated $77 million of free cash flow in the quarter, representing 12% growth over Q1 2009. We used this cash flow to pay down an additional $32 million of debt, while increasing our cash balance by $54 million. We increased our cash balance in Q1 by the same amount that we increased cash in all of 2009. So to sum up our Q1 financial performance very simply, it was an outstanding quarter for Millipore. We posted 9% organic revenue growth and generated our highest level of quarterly revenues. We delivered an impressive 22.6% non-GAAP operating margin and we posted record breaking earnings. A quarter like this one is truly a pleasure to report.

Thank you, Charlie. It is quite possible that this will be Millipore's last earnings call as an independent market company. Looking back at the last five years of leading Millipore, one of the most interesting and stimulating responsibilities of my job as a CEO, has been the building of great relationships with many of you and open dialogue. I want to thank all of you who invested in Millipore over the years for your trust in me and the management team. And to thank the analysts for their insightful and diligent work. I'll do everything in my power to ensure a smooth transition to Merck in the coming months. What happens, I'll look forward to speaking with you again sometimes in the future. Thank you for joining us this evening. And good night.

And before we close the conference call, we just want to correct one mistake. We indicated that our proxy and proxy dialogue was sent last week. And we commenced the mailing and sent these proxies earlier this week. And so shareholders will be receiving these materials over the course of the next couple of weeks. With that, we will conclude tonight's call. And thank you for joining us.

Thank you for participating in today's Millipore's First Quarter 2010 Earnings Conference Call. This call will be available for replay beginning at 6:45 p.m. Eastern Time, today through 11:59 p.m. Eastern Time on Sunday, May 9, 2010. The conference ID number for the replay is 63837291. The number to dial for the replay is 1-800-642-1687 or 1-706-645-9291. This concludes today's conference call. You may now disconnect.