Millipore Corp. Q4 2009 Earnings Call Transcript

123jump.com Staff
07 Feb, 2010
New York City

Revenues grew 7% to $426 million and net income rose 41% to $43.9 million or 78 cets a share. gross profit margin increased 250 basis points on a year-over-year basis to 54.3% from 51.8% in Q4 2008. GAAP operating margin increased 360 basis points to 15.3% from 11.7% in Q4 2008.

Millipore Corporation ((MIL))
Q4 2009 Earnings Call Transcript
February 2, 2010, 4:45 p.m. ET

Executives

Joshua Young –Director, Investor Relations
Martin D. Madaus – Chairman, President and Chief Executive Officer
Charles F. Wagner Jr. – Chief Financial Officer

Analysts

Jon Wood – Jefferies & Company
Isaac Ro – Leerink Swann & Company
Ross Muken – Deutsche Bank
Daniel Leonard – First Analysis
Derik DeBruin – UBS
Tycho Peterson – J.P. Morgan
Marshall Urist – Morgan Stanley
Eric Criscuolo – Thomas Weisel Partners
Jon Groberg – Macquarie Capital

Operator

Good afternoon. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Millipore''s Fourth Quarter and Full Year 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After speakers'' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. I would now like to turn the conference over to Joshua Young. Please go ahead, sir.

Joshua Young

Thank you very much, Stephanie and good evening. I would like to welcome everyone to Millipore''s fourth quarter and full-year 2009 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. This presentation can be viewed by clicking on the webcast to the link on the millipore.com home page or by accessing Millipore''s investor relations website. A PDF copy of the slides will be posted to our website after the call. 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 would 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, February 2, 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 first quarter 2010 financial results. Now I would like to turn the call over to Martin Madaus.

Martin Madaus

Thanks, Joshua. Good evening, everyone and thank you for joining us today on the call. I am very pleased with the outstanding financial results, Millipore generated in 2008 and 2009. Our fourth quarter performance was indicative of many of the same trends we have experienced throughout the year. So I would say the key takeaways for 2009 are the following.

First, we generated excellent financial performance in the midst of one of the worst global worst over recessions we have seen in the last 50 years. We have met or exceeded our guidance for revenue growth, earnings and cash flow. It is a testament to the resiliency and the strength of our business model.

The high percentage of revenues we derive from consumable products and the attractiveness of our core markets makes our business less susceptible to economic downturns. Millipore is one of the most attractive franchises in the life science tools market and our excellent execution in a very challenging market enabled us to report strong performance in 2009.

Second, our Bioprocess Division had a great year and rebounded and as we had predicted in our earnings call one year ago, the significant amount of exposure that we have to the biotech industry benefited us as these customers increased their levels of production for monoclonal antibodies and also vaccines.

Third, our Bioscience Division out performed most of its peers during 2009, despite weak demand from large pharmaceutical customers and a challenging environment for laboratory instrumentation sales. For the past few years, we have expanded our exposure to academic customers and life science consumable products and this really helped us to be less affected by lower levels of capital spending.

Fourth, 2009 was a year in which we significantly advanced our innovation strategy. We increased our R&D spending by 12%, completed four acquisitions and signed 11 technology agreements. The strength of our business provide us flexibility to invest during the downturn, which will benefit our future growth. We began our journey to transform our R&D capabilities when I joined Millipore five years ago and I am more bullish today than I have ever been about the potential impact of the new products we are bringing to the market.

Finally, our cash flow performance in 2009 was exceptional. We generated nearly $300 million of free cash flow. Important driver to this performance was the substantial increase of our working capital efficiency. This improvement was the result of initiatives we have launched over the past 18 months. I am extremely pleased with our excellent cash flow performance.

So these are the key takeaways. Let me move now into a bit more detail about the results of the fourth quarter and the full year 2009.

Fourth quarter revenues increased 7% to $426 million, excluding a 5% favorable effect from changes in foreign currency exchange rates. Organic revenue growth in the quarter was 2%. From a divisional perspective, if you exclude the effects of changes in foreign exchange rates and acquisitions, not in the base period, the Bioprocess Division grew 8% organically, while our Bioscience Division generate 2% organic revenue growth generated $4 and non-GAAP earnings per share resulting in unchanged from the previous year.

Our fourth quarter revenue growth was adversely affected by six fewer days in the quarter compared to the fourth quarter of 2008. Charlie will talk more about the effect of fewer days had on the quarter.

On the bottom line, we reported $1 in non-GAAP earnings per share, which were $0.05 higher than last year and our free cash flow grew nearly $8 million year-over-year to $65 million in the fourth quarter. In 2009, we reported revenues of $1.65 billion, which represented 3% growth over 2008, excluding a 3% unfavorable effect from changes in foreign currency exchange rates, we generate 6% revenue growth for the full year. That includes a 1% impact from acquisitions.

From a divisional perspective, if you exclude the effects of changes in foreign exchange rates and acquisitions, not in the base period, the Bioprocess Division grew 8% organically, while the Bioscience Division generated 2% organic revenue growth. We generated $4 in non-GAAP earnings per share resulting in 11% growth for the year.

I will point out that this earnings per share growth is impressive when you factor in our higher levels of R&D spending and a much higher tax rate. Finally, our free cash flow grew 54% over 2008, totaling $298 million.

So, let me now focus on commentary in each division and I will focus the discussion, the key drivers for the full year of 2009 performance and I start with the Bioprocess Division.

The Bioprocess Division generated growth in all geographies and showed strength during each quarter of 2009. Our large biotechnology customers drove most of the growth. These customers rebounded off a lower level of spending from last year. Our bioprocess division generated more than $450 million in revenue from the biotech industry during 2009. This portion of our business is growing in double-digits.

We are seeing now more investment going into the biotech industry than ever before, particularly as large pharma customers move a higher portion of their new product pipeline into biotech derived therapeutics.

So our leadership position in the biotechnology industry, particularly with large customer, clearly benefited us in 2009. Many biotech drugs generated healthy growth and were relatively unaffected by the weak economy. The level of manufacturing activities associated with monoclonal antibodies has been very strong. It''s driving higher demand for our products. Additionally, we saw a positive impact from customers that are ramping up manufacturing for new products, which are expected to be approved by the FDA this year.

Although I would say the environment for new drug approval is not back where it used to be a few years ago, it is clearly improving.

Now that driver for our bioprocess performance in 2009 was the higher level of production related to H1N1 flu vaccine. Most of the med relating to H1N1 vaccine production came in the second half of the year, particular in Europe. It is unlikely that the high demand created for H1N1 production will repeat again this year. But, the vaccines as a category will continue to be important growth driver for Millipore in 2010 and beyond.

We expect that production for the regular flu vaccine will continue to be solid. We also benefit as more subculture base vaccines make their way to the market over the next years. These type of vaccines require more purification technologies, than many of the egg based vaccines that are in the market today and that is good for our business.

Now let''s talk about geographies. From a geographic perspective, the division grew double-digits in the Americas and Asia, while generating single-digit levels of growth in Europe. Historically, Millipore''s business in Asia has been primarily driven by our Bioscience Division. But what we are now seeing is that the bioprocess business is catching up fast in the region as new biopharmaceutical production capacity comes online. We had a record year in China and in Singapore and we continue to see investments into the Asian biotech industry by multinational companies, by governments and also by contract manufacturing organizations.

During the last year, we opened up a new applications training and scale up facility in Singapore and we have plans to open a similar factory in Shanghai later this year. Now, the services that we provide at these facilities give us a competitive edge because they are delivered by Millipore employees who are world class experts in their fields. We provide our customers in the region with the same level of support that they receive in Europe and North America and this helps us to win business. So I expect that the bioprocess momentum we are seeing in Asian countries will continue throughout 2010.

I''m also very pleased that many of the non-biotech segments of the bioprocess division also generated strong performance in 2009. The primary reason for this strength has been the double-digit growth of our core purification products sold into the plasma market. We made a decision to focus more of our resources on the plasma market during 2008 and the result of this initiative has been very strong. This program has helped us to gain market share in areas such as tangential flow filtration, where we have a great product.

We are also seeing the overall market demand for plasma products increase as drug companies recognize the important role there in the immunoglobulins play in diseases such as Alzheimer''s.

From a product perspective, our downstream processing business unit generated double-digit organic growth. We had an exceptional year for our disposable manufacturing products and clearly, we were rewarded for our focus on expanding sales, manufacturing and R&D capabilities in that market segment. And this has made our Mobius disposal manufacturing family of products the fastest growing product line at Millipore in 2009.

Many of the disposable capsules in our integrated Mobius disposable assemblies were used in the manufacturing of the H1N1 vaccine, particularly for final fill and finish operations. So we have a really attractive value proposition with these customers, as we can significantly reduce customers'' process preparation and set up times by as much as 25% and at the same time, reducing the risk of contamination.

Other key drivers for downstream revenue growth were also sales of our new products, including the Pod clarification products, our Pellicon 3 tangential flow products and our Viresolve Pro virus purification products.

Moving on to process monitoring, our process monitoring tools products also generated strong growth during the year, led by our disposable sampling product, NovaSeptum. NovaSeptum lowers product loss for the customer, eliminating the risk of contamination during the sampling process.

There has been a significant focus on manufacturing plant contamination in the past few months. So products that help customers avoid contamination such as NovaSeptum are seeing strong demand in the market. Our core subculture testing products also generated good growth, especially considering that a significant portion of that business is related to food and beverage industry, which is usually more affected by economic downturns.

The upstream bioprocessing business unit, which represents 5% of the overall revenues, saw growth in the insulin products, offset by a decline in the sales of our subculture supplement product EX-CYTE. One of the 2009 highlights for this business was the launch of the new cell-ready disposable bioreactor. The product provides process development scientists, so it''s for the lab, it provides them with a single use bench top bioreactor that eliminates the time spent cleaning, sterilizing and assembling blast bioreactors. Accelerating expense, our disposable footprint into this untapped market and we are very excited about this potential, the potential of this product for the future.

So to sum it up, we had a great year in bioprocess, we generated 8% organic revenue growth, we grew faster than the market in important areas such as global manufacturing, also in Asia and we expect the same positive trends that drove our business 2009 to continue in 2010.

Now let''s turn to our Bioscience Division. The division delivered a number of accomplishments in 2009 that are indicative of the transformation we achieved the past few years.

First, with 2% organic revenue growth in 2009, bioscience grew faster than expected, due primarily to the strength of consumables sales to our academic customers. From a geographic standpoint, we generated year-over-year organic growth in all geographies during 2009 and the growth was fairly balanced between North America, Europe and Asia.

We also continued to make substantial investments to support future growth. We increased R&D spending in the division by 17%. We also launched a number of important products that will immediately benefit the division''s performance. Our commitment to R&D underscores the confidence we have in the future of the bioscience business.

From a product perspective, our life science business unit generated the highest level of growth for bioscience. As you know, we have successfully expanded our life science portfolio with a series of acquisitions through partnerships and internal investments. And this strategy clearly paid off this year and now our life science consumables sales are less susceptible to any swing to demand, so these products are really driven by the underlying research activity.

I would say there are two main reasons, why the life science business units performed well in 2009.

First, we have spent a considerable amount of effort developing for launching new products in this portion of our business and these products selling well as they penetrate the market.

Second, we have strength in our execution capabilities. We can now target attractive market segments, particularly those market segments that see increased spending from universities. So, we are much better executing in sales and marketing.

Spending from our academic customers held up well throughout the year and we expect this trend to continue in 2010.

The highly advertised U.S. stimulus package had little or no impact on our 2009 performance but we are now seeing funds slowly start to trickle to our researchers, which should be very good for 2010.

Millipore''s multiplex immunoassays kits continue to put up strong performance quarter-after-quarter. We have built a very good leadership position in this market by continuing delivering a stream of new and innovative products. So for example, we recently launched, expanded our offering into cell signaling by launching 40 new kits. That was possible because we made a small technology acquisition for technology called EpiTag early in the year.

I should also highlight here Guava flow cytometry instrumentation and reagent continue to drive attractive growth due to strong up tick of these products in the academic accounts and we were on time and successful with the launch of the new two laser, 6 color Guava instrument that we launched in the middle of next year and the customer response for this launch is very strong and resulted in a healthy order growth in the very solid sales pipeline. This should be good and a positive driver for this year.

Finally, we continue to build on our franchise in cell biology and generate good results for subculture products, many of them are used for stem cell research and other hot air research.

The portions of our bioscience business that were weaker in 2009 came really as a result of cost reductions and research functions at large pharmaceutical customers. Throughout 2009, these customers rationalized their drug pipelines, reassessed their research priorities and focused on integrating acquisitions.

The actions had a significant impact on our small molecule drug discovery service business as pharma companies had delayed or cancelled their service contracts. The good news is now, demand from pharma customers appears to have stabilized as we are entering 2010.

So for example, our lead optimization services which are primarily focused on small molecule drivers generated better performance at the end of the year and we saw also higher number of customer proposals from pharma customers looking to outsource research.

The strength in this portion of the business, with our biopharmaceutical services businesses, which benefits from a higher focus on biotechnology and we expect this business to remain strong in 2010 and we will also benefit from the BioAnaLab acquisition we completed in Q3.

We will talk next about lab instrumentation. Given that the end markets for lab instrumentation were depressed in 2009, our lab order business held up fairly well, eking out modest growth. This performance was clearly down from what the business had delivered historically, but still a solid growth result in the middle of a tough year as very few instrumentation business generated growth in 2009.

There''s still some uncertainty about the recovery of the laboratory instrument markets, but we are seeing clearly a recent improvement in our sales pipeline for lab order instruments but helped really to drive lab order performance in 2009, were the sales of our services and consumables.

And other part that grew well in 2009 was the products that are sold into the clinical diagnostic laboratories. And these products will continue to become very important growth part of the lab order franchise. Lab order will benefit as we see a recovery in capital spending and an improved environment for selling laboratory instrumentation. And the good news is that we believe that the environment is improving and the business will generate better results in 2010.

So, I would sum up the 2009 bioscience performance as follows. The division generated respectable results during a challenging period. Some of the end markets that were weak in the first of the year showed improvement in second half of 2009 and we had a very strong year of new product introductions. We signed 11 technology agreements we completed for our position and we increased R&D spending in the division by 17%. We have doubled down our investment in many attractive markets at that time, when many other companies were cutting back their spending. We will benefit from these investments, particularly as the end markets will recover. So I am excited about the future of our bioscience business, the potential impact of these initiatives will have in the future.

As I mentioned before, Millipore is very committed to driving growth renovation. We spend a lot of time and resources to advance our innovation products and it''s starting to pay off in the market.

Now, I will just spend a moment on giving you more detail and how these innovative products will drive value for our customers. On this slide, I show a picture of one of the recent products we have launched in bioscience which builds on the strong franchise we have established in cell biology. It is a product called Scepter. Scepter is the world''s first automated cell counter that fits into the palm of your hand.

Now, Scepter transforms a very mundane task that almost every cell biologist whereby needs to complete everyday, counting cells. Each year researchers spent millions of hours counting cells to investigate diseases. Scepter not only counts but dynamically analyzes cells in 90% less time, eliminates the errors made by research doing these counts manually. This is a great example of how we are improving work flows that researchers need to do everyday.

Scepter solves a common pain point for research and that''s at the heart of what bioscience really does, the heart of our strategy, fundamentally improving the customer work flow by combining our products and application expertise. Scepter is an instrument and disposable business and the disposable microfluidics tip is proprietary to Millipore.

The next example I want to share with you is the new MilliPROBE Detection System for Mycoplasma which was recently launched by the Bioprocess Division.

This system is the first solution of its kind for the early detection of Mycoplasma contamination in the highly regulated biopharmaceutical manufacturing industry. It cuts the time to detect contamination from 28 days to four hours. It is the result of several years of collaborative work with our partner, Roka Bioscience, formerly part of Gen-Probe.

Faster and more robust detection enables biopharmaceutical manufacturers to test more frequently and then take corrective action earlier in the production process and that reduces financial risks and optimizes product mix.

We think this product has tremendous value for our customers and targets a very large potential market. So these examples should give you a greater level of confidence about Millipore''s capabilities to innovate, Scepter and MilliPROBE are only two of many, many new products that we are excited about and we have truly invigorated our R&D effort over the past few years at Millipore.

I will close by saying that 2009 was a year of terrific financial performance for Millipore. We delivered attractive revenue earnings and cash flow growth by making investments for the future, advancing our leadership position in life science market by continuing to launch new and innovative product and making acquisitions.

I am confident that our momentum will continue into 2010 and we will deliver another strong year of revenue growth, margin expansion and strong cash flow. Now I will turn the call over to Charlie.

Charles F. Wagner Jr.

Thanks, Martin. Let me provide some additional details on the fourth quarter and the full year results before providing our outlook for 2010.

I will begin with a discussion of our GAAP operating results in the fourth quarter.

Total revenues increased 7% from last year''s fourth quarter totaling $426 million. Excluding a 5% favorable impact from changes in foreign exchange rates, organic revenue growth was 2% in the fourth quarter.

Martin mentioned earlier that our fourth quarter revenue growth was adversely affected by six fewer days in quarter compared to the fourth quarter of 2008. As a reminder, we had five extra days in Q1 2009. And while the difference in days was inconsequential to our full year performance, it did affect the comparability of our first and fourth quarters. This slide illustrates the impact on our Q1 and Q4 quarterly growth rates.

As you can see, our revenue growth in Q1 and in Q4 was roughly 3 to 4 percentage points above and below the average growth we reported for the year. While we can''t precisely quantify the impact of the days, we know that much of the difference in quarterly growth rates was due to the difference in days.

Our gross profit margin in the fourth quarter increased 250 basis points on a year-over-year basis to 54.3% from 51.8% in Q4 2008. Our SG&A costs increased 2% on a year-over-year basis, due primarily to higher currency translation and incentive compensation on the quarter, while our R&D spending was up 19%.

Our GAAP operating margin increased 360 basis points to 15.3% from 11.7% in Q4 2008 and earnings per share increased 39% to $0.78 from $0.56 in Q4 2008. Our fourth quarter GAAP profitability benefited from roughly $13 million lower of one-time costs compared to the fourth quarter of 2008.

From a geographic perspective and excluding the effects of foreign currency translation, our revenues grew 7% in Asia, grew 1% in the Americas and declined 1% in Europe. Our Bioprocess Division experienced growth across all geographies with double-digit growth in Asia, while our bioscience generated revenue growth in Asia and in the Americas, which was only partially offset by declines in Europe.

On the next slide, we show our Q4 2009 non-GAAP operating results and please review the non-GAAP reconciliation table in the press release for a detail of all our adjustments. Our Q4 2009 non-GAAP gross margin of 55% increased 100 basis points on a year-over-year basis due to a positive impact from changes in foreign currency and favorable pricing. Non-GAAP SG&A expenses represented 28.7% of sales, up from 28.5% in Q4 2008, with increases in currency translation and incentive compensation accounting for most of the increase.

R&D spending was up approximately $5 million, or 19% and represented 7.3% of sales, an 80 basis point increase from last year''s fourth quarter. As a reminder, we mentioned earlier in year that we''d increase our R&D spending by $8 million to $10 million in the second half of 2009 compared to the second half of 2008.

With a $9 million increase in the second half of 2009, we delivered on our plan to accelerate our investment in a number of important R&D projects. The increase reflects higher head count, incentive compensation, project related spending and payments to third party technology partners.

Non-GAAP operating margin in Q4 of 2009 was 19%, which was roughly flat with Q4 2008. Our non-GAAP tax rate in Q4 was 19.6%, up from the 14.9% we recorded in Q4 of 2008.

Net interest expense was $11 million, approximately $2 million lower than last year due to our much lower debt balances. And finally, we reported $1 in non-GAAP EPS, which was $0.05 higher than in Q4 2008.

Moving now onto the GAAP results for the full year, total revenues increased 3% compared to 2008. Excluding a 3% unfavorable impact from changes in foreign currency rates and a 1% contribution from acquisitions, revenues grew 5% organically in 2009. Our GAAP operating margin increased to 16.2%, from 14.6% and our earnings per share in 2009 were $3.15 compared to $2.47 in 2008, representing 28% growth.

Our GAAP pretax income in 2009 benefited from a $9 million gain on our acquisition of Guava Technologies and a $12 million year-over-year decrease in net interest expense due to lower debt balances.

On the next slide, I will show our performance by geography for the full year. Excluding changes in foreign exchange rates, we have grown revenues in the Americas by 8%, due primarily to the strong performance of our bioprocess division. In Europe, we have grown the business 4% and that is well balanced between the two divisions. And finally, we have grown our business in Asia by 6%, including strong growth in our bioprocess division for the past three quarters. Keep in mind also that our growth in Asia was affected by weak performance in Japan throughout the year.

During the fourth quarter, we announced that we had acquired the remaining 60% of our joint venture in India. This is an important transaction as we now have complete control over our operations in the attractive Indian life science market.

India has a thriving pharma and biotech industry and has become a significant center for research activity. The country is also an important part of our strategy in the bricks countries, which now total more than $140 million in revenues and have generated a compound growth rate of 27% over the last three years.

The transaction will not affect Millipore''s reported revenues and operating costs since the joint venture has been consolidated in our financial statements since 2006. You will, however, see the elimination of the below the line charge from minority interest beginning in Q1 2010. Continuing to strengthen our position in Asia will be a key priority for Millipore in 2010.

On the next slide, we show our full year non-GAAP operating results and again, I encourage you to review the non-GAAP reconciliation table in the press release for the detail of our adjustments.

Our non-GAAP gross margin in 2009 of 56.1% was an increase of 130 basis points due to positive foreign currency impact, favorable pricing and operational improvements. These positive impacts were offset by product mix, higher incentive compensation costs and lower manufacturing volumes and inventory write offs that were partially the result of our working capital initiative.

SG&A expenses represented 28.5% of sales, a decrease of 20 basis points compared to 2008. The effect of higher incentive compensation expenses was partially offset by the favorable effects of foreign currency translation. R&D spending increased $12 million or 12% in 2009. This represented an increase of 50 basis points over 2008 and represented 6.9% of sales.

Our non-GAAP operating margin of 20.6% for 2009 was an 80 basis point improvement from the previous year. And on this slide, I show the increase of our non-GAAP operating margins over the past five years. Since 2005, we have increased our non-GAAP operating margin by close to 400 basis points and well over 500 basis points when you exclude the effects of stock-based compensation expense, which was not in the base period.

We have shown that as a management team, we are committed to delivering consistent operating leverage in the business and we are confident in our ability to continue delivering year-over-year improvements in our operating margins.

Our non-GAAP tax rate for 2009 was approximately 24%, an increase over last year''s rate of approximately 22%. And for 2009, we reported $4 in non-GAAP EPS an increase of 11% over 2008. Changes in foreign exchange rates increased our earnings per share by about $0.12 during 2009.

Now, let me turn to balance sheet, where we reduced net working capital by approximately 23 million in 2009 and improved the key drivers of each of our cash -- each piece of the cash conversion cycle. Compared with last year, we achieved a seven day improvement in day sales outstanding to 59 days and an 11 day improvement in inventory days to 118 days.

Our improvement in DSO was a result of process improvements in customer collections and better enforcement of customer payment terms. For example, we implemented Oracle''s advanced collection system. This has allowed us to improve the efficiency of our collections process. This simple change had the effect of substantially increasing the average dollar value of collections per week.

Turning to inventory, we improved the way we manage our inventory by executing programs that is have reduced our lead and cycle times and have shrunk our manufacturing lot sizes and safety stock levels. Importantly, we have achieved these reductions while improving our on-time customer shipment rate.

Overall, the net result of these improvements is that we have improved our cash conversion cycle by 17 days compared to the fourth quarter of 2008 and by 12 days compared to the third quarter of 2009.

Continuing down the cash flow statement, cash from operations during Q4 was 83 million. Factoring in capital spending of 19 million, we generated 65 million in free cash flow in the quarter. For the full year, cash flow from operations totaled 370 million. We incurred 72 million in CapEx, resulting in a record 298 million of free cash flow for 2009.

On this slide, I show our free cash flow performance over the past three years, we have generated an impressive 57% compound growth rate during this period due to higher levels of profitability, lower capital spending and consistent improvements in our working capital efficiency.

We are very pleased with our cash flow performance as the initiatives we put in place are driving tremendous value in results for the company. We have used a significant portion of our cash flow in 2009 to pay down 173 million of debt, leaving us with no debt remaining on our primary revolving credit facility.

Now, let me turn to guidance for 2010. As we enter the year, we are confident in our ability to continue to deliver very solid financial performance. We expect our bioprocess business will continue to benefit from healthy biotech customers and new drugs and vaccines that will enter the market. We expect that our bioscience business will recover as some of its markets stabilize and return to growth.

Most importantly, we believe that 2010 is a year in which we will see a significant contribution from new products in both of our divisions. We believe that products like Scepter and some of our new disposable manufacturing offerings will have a positive impact on our business as early as the first quarter.

We expect that we will report full year 2010 revenue growth of approximately 7%, which includes a 2% favorable impact from changes in foreign currency based on today''s rates. Excluding changes in foreign currency, we would expect to generate 5% organic revenue growth in 2010.

We expect to generate non-GAAP earnings per share of approximately $4.35 to $4.45 per share and this EPS estimate is based on a projected non-GAAP tax rate for the full year of approximately 25%. Our guidance also assumes that earnings growth will ramp throughout the year with our highest level of earnings growth coming in Q4.

Now, let me turn to the cash flow guidance. We believe that we will generate 310 million of free cash flow in 2010. And as a reminder, we define free cash flow as cash flow from operations less capital expenditures. Our guidance for 2010 implies a modest recovery for some of our bioscience markets. If these markets return to historical growth rates or conversely, if they were to be weaker than expected, there could be upside or downside to the guidance we have given today.

So to summarize the key takeaways for our 2009 performance, we delivered outstanding financial results in a tough environment and outperformed many of our peers with 5% organic revenue growth, 80 basis points of non-GAAP operating margin expansion and 11% non-GAAP earnings growth.

Additionally, we increased our free cash flow by 54% to a record 298 million while paying down 173 million of debt during the year. Finally, we continue to lay the foundation for the future and our growth by completing four acquisitions, signing close to a dozen technology agreements and increasing our R&D investment by 12%.

With that, let me turn the call over to Joshua to begin the Q&A session. Stephany, if you could please assemble the Q&A roster.

Question-and-Answer Session

Operator

At this time, I would like to remind everyone always you ask a question please, press star then the number one on your telephone keypad. Your first question comes from the line of Jon Wood with Jefferies.

Jon Wood – Jefferies & Company

Hey, thanks a lot. Charlie, obviously the cash flow off the charts here in ''09. And it seems like you have built some additional working capital improvements into your 2010 outlook. DSOs are at an all time low, from my perspective. So where does the additional working capital efficiency come from?

Charles F. Wagner Jr.

Hey, Jon. We have built in some improvement. The DSO improvement, as you point out is very significant. So we are not looking for additional improvement there. We will be working to maintain the levels we have achieved. We do have additional room on inventory in our view and also in payables and some other smaller categories. But so we think we can continue to drive improvement there.

Jon Wood – Jefferies & Company

Okay. Great. And then it looks like you ended the year with under two times net leverage. I''m not even sure you can pay down any of the longer term bonds that are in your capital structure right now. So are you open to repurchases and/or cash dividends in the event you don''t spend the excess cash on acquisition opportunities?

Charles F. Wagner Jr.

Yeah, Jon. The -- obviously, we are in a very strong cash position right now. The number one use of free cash flow in 2010 will be to fund attractive acquisitions. Clearly, that''s something that we are looking for right now. In the event those don''t materialize we are trying to maintain some financial flexibility. We have got some refinancing of the revolver and the converts to do in 2011. So we are keeping some flexibility there. But as our refinancing plans take shape throughout the year, we would consider alternative uses for the cash flow in the event that the M&A doesn''t materialize.

Jon Wood – Jefferies & Company

Okay. One more. The Indian JV buyout, it looks like it is about $0.04 or so accretive to EPS. Is that math right?

Charles F. Wagner Jr.

Actually Jon, we are going to have a fair amount of costs associated with that as well. So it will be slightly accretive but some of that, earnings will be offset by costs related to the integration.

Jon Wood – Jefferies & Company

Okay. Thanks a lot.

Operator

Your next question comes from the line of Isaac Ro with Leerink Swann.

Charles F. Wagner Jr.

Hello?

Isaac Ro – Leerink Swann & Company

Hi there. Sorry about that. Thanks for taking the question.

Charles F. Wagner Jr.

Okay. Sure.

Isaac Ro – Leerink Swann & Company

Good morning -- good afternoon. On the bioprocess business, wanted to just talk briefly on two items. One would be the sense to what you think Mobius and your product development on that side of the franchise is helping you to gain market share in vaccine productions. Do you see some of that going on?

Martin D. Madaus

Well, yeah. Remember, we came as a second or third entry into disposable manufacturing market. Through the acquisition we made in 2006, we established a first step in and since then we have increased our product offering and then we came out with the FlexReady product line, complete assemblies that really no competitor has in the market. So we''re clearly making -- it''s clearly growing the market by a huge margin particularly in 2009. And we continue to see that because now we have built a lead in disposable manufacturing and taking disposable technology, combining it with our state of the art filtration offering is a very good combination. So we re clearly gaining market share here.

Isaac Ro – Leerink Swann & Company

Great. And then maybe secondarily to that, do you see a change out there in the biotech industry as it relates to how drug company build and maintain their inventory? Considering some of the issues other major drug companies have had with inventory management, wondering how you think that might improve your opportunities to grow the business with the disposables and the flexibility of those afford.

Martin D. Madaus

I think inventory management has become more of a focus. So it''s becoming, I think more predictable and we are working with more companies to closely align their demand planning with our production planning. So it doesn''t create these ups and downs and that has been an improvement last year. I don''t think there''s a particular impact using disposables here on the inventory planning question. But all companies, I think they''re making more of an effort to be predictable customers.

Isaac Ro – Leerink Swann & Company

And then just very lastly, if I could ask on bioscience, you obviously have some opportunities in India through the acquisition of the JV and wondering if you see other opportunities, as Charlie mentioned, through acquisitions to maybe acquire a channel in the emerging markets? Or perhaps do you prefer to grow through organic build outs?

Martin D. Madaus

No. We do clearly both and we have made small acquisitions last year. And I would not exclude a regional player to become part of our acquisition target list. There are some companies there -- our first priority is however, on companies with innovative technologies and products that is we can sell globally.

Isaac Ro – Leerink Swann & Company

Thank you very much.

Martin D. Madaus

You''re welcome.

Operator

Your next question comes from the line of Ross Muken with Deutsche Bank.

Ross Muken – Deutsche Bank

Good afternoon. So obviously, a lot of the activity on the new product front and we have seen the increased R&D. Have you guys, I guess what kind of statistics or sort of qualitative commentary can you provide in terms -- percent of sales coming from products introduced in the last 12 months or anything that could help us think about with some of these really innovative solutions. What it is doing to the top line versus what we have seen historically from the company?

Martin D. Madaus

Yeah. I know there''s demand for those kind of metrics. I am reluctant to share because the comparability between companies is not there. Everyone defines a new product differently. We will make an effort during this year to break this out in more detail. But I can tell you that internally, we are tracking a number of things. One is percent of sales of new products, which has increased dramatically, particularly in bioscience. We also track the value of our development pipeline and discounted cash flow model and we track another four or five other R&D metrics.

And the majority of these metrics are pointing upwards, that means in the right direction. And when we make R&D investment decisions, we are now in a position to really make trade offs between different types of projects. And we have shifted some of our R&D money now into higher value more breakthrough projects over the year. Few years ago, we were not able to do it and now we can. So there''s a much higher level of R&D management sophistication going on now. But as I said, I know there''s demand for this information and we will come out during the course of this year with a meaningful metric you can track.

Ross Muken – Deutsche Bank

And Martin, you provided a lot of good commentary on some of the struggling end-markets for the year. Maybe -- you talked a little bit about Japan. I know that''s an important market for you, particularly on the bioscience side. What are we seeing there? And then in small cap biotech land, we have seen funding improve, any signs of life in that sort of customer segment?

Martin D. Madaus

Yeah. Japan has been hit hardest by the recession and you can see it. Plus for us, Japan has a high percentage of non-biotech business. And but also the research funds weren''t released as quickly as we hoped. Now, it has stabilized a bit, so it should definitely be better this year. But those were the main drivers there. The small biotech market has recovered. It''s too early to say for us whether there is some true demand coming back. We have kind of landed in the middle here. We saw far more spending and also small research biotech spending down last year, which was really unusual for that market, the first time ever.

And so we think this will recover somewhat, which includes small biotech. But we are not seeing for this year a full recovery to like historic levels. Now, that could change because you are right, the funding environment has improved quite a bit. So that could change and if the markets -- the research markets recover for pharma and biotech that would definitely be an upside, but it''s too early to call.

Ross Muken – Deutsche Bank

I appreciate it. Thank you.

Operator

Again, in order to ask a question please, press star then the number one on your telephone keypad. Your next question comes from the line of Dan Leonard with First Analysis.

Daniel Leonard – First Analysis

A bit of a similar question. Martin, your qualitative commentary in your prepared remarks on revenue growth prospects was very bullish in both segments, yet the guidance assumes organic revenue growth remains constant with 2009 levels. So what are some of the offsets to the positive signs you are seeing in both businesses?

Martin D. Madaus

Well, first of all we grew 8% last year in bioprocess. So the comparisons will be a little bit more difficult there. We do see good trends, they do have to materialize. And just like last year, we started out the year factoring in some of the risks. These risks are not materializing particularly on the bioscience side. There should certainly be upside. So we kind of guided in the middle of the different outcomes.

Daniel Leonard – First Analysis

Okay. Thank you. And then a question for Charlie. Charlie, why would the tax rate increase in 2010?

Charles F. Wagner Jr.

Dan, it''s really primarily driven by geographic mix of profits. We are generating more and more profits in the United States and that''s driving the tax rate up slightly. We have relative to the outlook we would have probably given last year, we had expected the tax rate to be increasing actually at an even greater rate. We were able to put some tax planning strategies into effect at the very tail end of 2009 that benefit us into 2010 and beyond. So there -- though there is an increase year-over-year, it''s not what we would have expected a year ago.

Daniel Leonard – First Analysis

Okay. Thank you.

Operator

Your next question comes from the line of Derik DeBruin with UBS.

Derik DeBruin – UBS

Hi, good afternoon.

Charles F. Wagner Jr.

Good afternoon.

Derik DeBruin - UBS

Hey, you''re guiding to improvement in margins, you mentioned margin expansion in your prepared remarks in 2010. Given that you are still investing in R&D probably north of 7% of sales, I guess where are the gains going to come from? Could you talk a little bit more about how you see the SG&A and the gross margins progressing throughout the year?

Martin D. Madaus

Yeah. There is certainly in two areas where we see continued opportunity for leverage. One is the gross margin area and gross margin is a combination of product mix. If you introduce more innovative, more state of the art products, you do have a favorable product mix effect. There''s some pricing involved as well and some manufacturing efficiencies that we''ll continue to drive. And we try to be a bit more efficient every year in SG&A and get more sales productivity out of our organization and those two factors contribute to it. Charlie, do you want to explain?

Charles F. Wagner Jr.

Hey, Derik, one other thing. Yeah, this year we pushed the working capital initiative pretty hard. That decreased volumes in some of our plans and also led to some inventory write-offs as we lowered the water level and inventory throughout the year. Though we continue to driver inventory levels down next year, the volume and write-off impact is not as significant.

Derik DeBruin – UBS

Okay. And I guess, I jumped on the call midway I guess. Could you talk a little bit about the interest expense outlook? I know you paid down your revolver, where do you see that number coming in for 2010?

Charles F. Wagner Jr.

Hey, Derik. We didn''t guide to that. It doesn''t change too much. The outstanding debt is all fixed at this point and we are obviously not earning very much on our cash balances. So if you look at kind of where we exited the year, that should be a good indication of the run rate for the year, but we can take a look at it off line.

Derik DeBruin – UBS

Yeah. That''s fine. That''s kind of what I had assumed. Okay. Great. I will get back in the queue. Thank you.

Charles F. Wagner Jr.

Okay.

Operator

Your next question comes from line of Tycho Peterson with J.P. Morgan.

Tycho Peterson – J.P. Morgan

Hey, good afternoon.

Martin D. Madaus

Good afternoon.

Tycho Peterson – J.P. Morgan

Maybe just starting off with a question on R&D, if you could talk a little bit, I mean you had telegraphed the increase in the back half of 2009 and as we think about kind of the level for 2010. Can you talk a little bit maybe about how you are prioritizing between the two divisions and whether this is kind of -- the bar has been bumped up for a run rate going forward here, a little bit?

Martin D. Madaus

We are close to 7%. So we''re in the range of over 7%, a little bit over 7% is probably a good run rate assumption for this year. In terms of prioritization between the two divisions, it''s really driven by a competition of the best proposals. It really to me doesn''t matter where. We have certain plans for each division, each business unit has their plans for innovation. And as we look at ideas, we look at it a cross the board now and we fund the most promising ideas. We do separate out between what we call breakthrough innovation and sustaining innovation.

And that''s an expression of balancing the risk a little bit here between really risky projects and more safe bets. So we want to do both. But it''s really about the market opportunity for bioscience is larger for Millipore, just because the market is about a $30 billion market and we have a good business, but there is much more to go. But there are also good opportunities in bioprocess to innovate. I mean this is by far, very far it''s the most attractive business today and we''ll continue to invest into it.

Tycho Peterson – J.P. Morgan

In your comments you mentioned clinical diagnostics in the context of the lab water business. Can you talk a little bit about how you view that opportunity overall? Is there more cross selling that you could bring into that market? And then -- other emerging opportunities either applied markets or other areas that are getting more interesting?

Martin D. Madaus

We sell into the future diagnostic market-to-date and people so we see a lot of that business, we sell (inaudible) it''s a good market. We haven''t decided yet to move into that market, but as you can imagine we see the markets, we see the end-markets, we have asset capability but we don''t have a compelling platform or sales force today. So there would be a major force for us, but today, what we have I wouldn''t include it, I wouldn''t exclude it.

Tycho Peterson – J.P. Morgan

Okay. And then one last one on lab water. Can you talk a little bit about how you think about instruments going forward? You have talked about the replacement cycle I think being pushed out in the past. Do you have visibility on where that market kind of starts to see some inflection and is that closely tied to new lab space being built out or how do you look at that?

Martin D. Madaus

Yeah. It is, Ty. So that''s why lab water instruments were tough last year, because many of these pharma changes meant -- expense labs did not happen really. We did benefit from expansions in Asia and very soon some of these countries, particularly China will be the largest market for lab water. That is good. So we are expanding there and we are expanding also with products. I would say that trends are -- I would see cautiously optimistic and coming into Q1 2010. There''s definitely improvement in the sales pipeline in lab water. That''s why I think it''s going to be a much better year this year for lab water. And then in development, we have actually a number of projects that are very substantial improvements over what we have today. Maybe in some cases they could be game changing in how lab water is done today. That''s in development today.

Tycho Peterson – J.P. Morgan

Okay. Thank you very much.

Operator

Your next question comes from the line of Marshall Urist with Morgan Stanley.

Marshall Urist – Morgan Stanley

Yeah. Hey guys, good afternoon. So I wanted to just get a little bit more detail on how you are thinking about bioprocess for 2010, particularly, I understand comps are more difficult. But could you give us just a little bit more color on how you''re thinking about or what is sort of baked in for new approvals in 2010 and as well as some of the other the applied markets and the small molecule pharma business.

Martin D. Madaus

Yeah. The -- we never bake in approvals that aren''t improved. So we basically say if there''s a new approval coming in, great. And I know there are a number of new products that have a high chance to be approved. And in fact it could turn out that 2010 is a great year for new product approvals. When you look at -- we''ve seen from Amgen and HCS, Pfizer certainly got approval, maybe AstraZeneca.

But it''s not wide for us to bake these in because we have seen these being delayed. When they come in and get approved there''s upside certainly. But it is never good to count on it. Just like with a virus epidemic, we don''t count on that. It''s an upside and at the same time, you also have sometimes downsides, so drugs are not performing as planned. But it could be strong year for biotech, I mean it looks like it right now.

Marshall Urist – Morgan Stanley

Okay. Great. Thanks. And then just one last. I know you mentioned that SG&A could be a source of leverage this year. I guess you could -- it would be helpful for you to just explain to us kind of what are the areas that you''re planning on investing in this year relative to 2009?

Martin D. Madaus

In SG&A?

Marshall Urist – Morgan Stanley

Yeah.

Martin D. Madaus

Okay. Yeah. Continued expansion of our e-commerce channel, that will continue our fastest growing channel and that''s more of a capability play, continued expansion in certain Asian markets. We have people in China, Singapore, India and in the -- I would say more established market is driving up productivity improvements, which we always do. So sales per person trend upwards, that''s kind of the profile.

Charles F. Wagner Jr.

Yeah. We have recently launched a couple of initiatives taking some of the learning''s and techniques from our success in the manufacturing environment with lean six sigma, excuse me, applying those to G&A functions and looking to more systematically drive. We have been able to drive productivity improvements through careful management. We are now looking to drive those productivity improvements more systematically through programs and perhaps we''ll update on that later in the year.

Marshall Urist – Morgan Stanley

Okay. Awesome. Thanks, guys.

Operator

Your next question comes from the line of Eric Criscuolo with Thomas Weisel Partners.

Eric Criscuolo – Thomas Weisel Partners

Hi, good afternoon. Just filling in for Peter tonight.

Martin D. Madaus

Afternoon.

Eric Criscuolo – Thomas Weisel Partners

So first question, on the -- since a lot of the large biopharma mergers like Pfizer Wyeth have been largely consolidated. Have you one -- have you seen specific changes from those accounts, being that they''ve done their restructuring and they have done all of their cost cutting? Have those accounts changed in any way in either three, six months? Looking back and looking forward?

Martin D. Madaus

Yeah. They have changed in a way and we saw that change in 2009, they''re basically put a lot of projects on hold. Not really cancellations or you had changes in people you talk to for a sales organization, a key account group. And then recently, we saw more activity in the form of RFP. So for certain activity, that were on hold for things they would like us to consider for outsourcing. And that''s where we see a bit of a change now in these large accounts. It varies a little bit by account. So in some of these mergers, we haven''t seen much of a change. But others have been, I would say more aggressive on cost reduction and there you saw obviously bigger changes.

Eric Criscuolo – Thomas Weisel Partners

And on the flu business, we''ve seen stories of governments like the U.K. are trying to come back and cancel orders they have made around the H1N1 virus and I guess stockpiling issues there and less demand. Has that affected you in any meaningful way?

Martin D. Madaus

No. It hasn''t, not at all. We are counting on waive of H1N1 production, but as I said, there will be the resumption of regular flu will be good and then some other vaccines coming in. So it is not going to be a huge headwind for us at all.

Eric Criscuolo – Thomas Weisel Partners

Great. Thanks a lot.

Operator

Again if you would like to ask a question please, press star then the number one on your telephone keypad. Your next question comes from the line Jon Groberg with Macquarie Capital.

Jon Groberg – Macquarie Capital

Great. Hey, congratulations on the -- particularly on the cash flow of the specific emphasis for you this year. So congratulations.

Charles F. Wagner Jr.

Thanks, Jon.

Jon Groberg - Macquarie Capital

Just -- I guess a lot of questions have been asked, just a couple maybe data points I might be able to get. Initially in terms of pricing or you, on the net basis, you realized for both divisions in 2009 and if you have any expectations in 2010?

Martin D. Madaus

I didn''t quite understand your pricing.

Charles F. Wagner Jr.

Pricing.

Martin D. Madaus

Pricing, okay. It wasn''t clear. Okay, the pricing is for us, hasn''t changed in the last year and as always a slight positive variance about 1%, maybe a little more per year net-net for both divisions. That''s what you should factor in.

Jon Groberg – Macquarie Capital

Okay. And then, you mentioned e-commerce. Willing to give any metrics in terms of on the bioscience side, what percent of your sales are coming from your e-commerce channel at this point?

Martin D. Madaus

I think that''s growing channels.

Charles F. Wagner Jr.

Yeah. It is our fastest growing channel, Jon. We haven''t publicized that. Overall for the company, e-business revenues are north of $250 million. But we haven''t broken it out specifically for the division. We may look at doing that over the course of this year.

Martin D. Madaus

Yeah. Okay. That''s helpful we should probably do it. It''s a major channel now and what is particularly encouraging is we can connect so we are a bigger player in particularly in research. We can connect with large systems now directly, which is very good. So having a strong B to B connection, plus the web store is very good to have transactions directly with our customers.

Jon Groberg – Macquarie Capital

Sorry, Charlie, did you give a number for the overall total business that you said that you were doing, through that channel?

Charles F. Wagner Jr.

Yes. About $250 million.

Jon Groberg – Macquarie Capital

Okay. And I am just getting -- does the bioprocess, do those customer, do they buy through the internet as well? I would think that maybe they would do a little bit less of it.

Martin D. Madaus

Yes. But not the majority is bioscience, but some bioprocess as well.

Charles F. Wagner Jr.

Yeah.

Jon Groberg – Macquarie Capital

Okay. And then just last question, as we think about the year and I guess I might have written something down wrong. But I thought you had -- we were going to have five few days in the fourth quarter, but I think you said you had six few days. It could have just my mistake. But in 2010, are there any day''s issues in terms of the quarters that we are looking at as you go throughout the year?

Charles F. Wagner Jr.

No. I am very happy to report that in 2010, it will be no issues. I think Q1 will be a day shorter and Q4 will be a day longer, both of which are completely immaterial differences.

Jon Groberg – Macquarie Capital

Okay. Great. Thanks a lot.

Operator

Your next question comes from the line of Derik DeBruin with UBS.

Derik DeBruin – UBS

Actually, I was going to ask the day''s question. So I will get back, thanks.

Charles F. Wagner Jr.

Okay.

Operator

At this time, there are no further questions in queue.

Charles F. Wagner Jr.

Okay.

Operator

If you would like to ask a question please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Joshua Young

Okay. Operator, we are ready for closing remarks. Okay.

Operator

Thank you. We have reached the allotted time for questions. I would now like to turn the call over to Martin Madaus for closing remarks.

Martin D. Madaus

So thank you for joining us this evening 2009 was a successful year and we enter 2010 with a great momentum and confidence. We hope to see many of you at the Barclays Investors conference in March. And we invite you to visit us here at our offices in Billerica, Massachusetts. Thank you for your attention this evening and good night.

Operator

Thank you. This concludes today''s conference call. You may now disconnect.