Q4 2019 Earnings Call
Good afternoon, and welcome to the Agilent technologies fourth quarter earnings Conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, or what your question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question press the pound.
Thank you and now I'd like to introduce you to the host for todays Conference, Oxford Ingram, Vice President of Investor Relations. Sir. Please go ahead.
Thank you, Mike and welcome everyone to didn't fourth quarter and full year conference call, but for fiscal year 2019.
Me, Mike Mcmillan.
Evans, President and CEO and Bob Mcmahon.
Lynn Senior Vice President and CFO .
Joining in the queue. Many after Bob's comments will be Jacob Tyson.
I didn't have a difference lifesize and applied markets group, Sam <unk>, President of Dylan's diagnostics, and genomics group and Mark Doke President off the Agilent Crosslab group.
You can find the press release Investor presentation, and information to supplement today's discussion on our website at Investor Dot agile in Dot com.
Today's comments by Mike and Bob when you refer to non-GAAP financial measures you will find the most directly comparable GAAP financial metrics and reconciliations on our website.
Unless otherwise noted all references to increases or decreases in financial metrics our year over year.
What happens to revenue growth [laughter] out on a core basis.
Revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.
Guidance is based on exchange rates as of October 31st.
We will also make forward looking statements about the financial performance up the company.
These statements are subject to risks and uncertainties and not only valid as of today.
The company assumes no obligation to update them.
We look at the company's recent SEC filings for a more complete picture off our risks and other factors.
No I would like to turn the call over to Mike.
Thanks Soccer and thanks, everyone for joining us on our call today.
When I became CEO I knew we had the opting to become a growth company.
Do this by investing in fast growing markets with a building and buying approach.
We also set out to create a more resilient company business model capable of delivering strong earnings in a variety of market conditions.
To accomplish this we develop their broader base of growth and a more flexible and efficient cost structure.
As you know transfer many decades old comedy, it's not easy path.
In the strength and determination of the Iceland team.
Fourth quarter and full year results I will share today are testament to the commitment to the I don't team and their ability to step up to make this challenge.
Police drone leased we strongly close our fiscal 2019 with fourth quarter results exceeding our expectations.
Outlets Q4 revenue of 1.37 billion is up 4% on a core basis against a 9% compare.
And we have momentum going into 2020 as orders outpace revenue.
As of 89 cents is up 10% for the quarter.
Both our top line revenue and heap, yes, or above the high end about fourth quarter guidance.
Operating margin of 25.1% is up 50 basis points over last year.
Q4 marks the 19th consecutive quarter.
Adjusted operating margin expansion delivered by the Iceland team.
Higher than expected topline is led by 10% core growth.
Excellent Crosslab group.
Business is also strong for our diagnostic genomics group delivering 7% core growth.
Our life Sciences applied markets revenues are inline with expectations down 2% against a 9% growth compare.
The pharma.
Diagnostics and clinical and environment forensic markets continue to lead our growth.
High single digit U.S. growth is stronger than forecasted, but the other regions coming in as expected.
Growth in China declined low single digits as expected.
I suppose gross times, you're building a buying in fast growing markets is on full display in Q4.
During the quarter, we closed the acquisition of biotech.
This is our largest acquisition since launch of the new agile in 2015.
Biotech brings a superb team in an excellent high growth highly probable business to ASLAN.
The acquisition a biotech complements our earlier acquisition this year I was seal bio sciences.
Both acquisitions are part of our growing so now let's build this Serbian bio pharma and academic research customers.
I'll, let someone else Bill. This is now generates more than 250 million in annual revenue.
5% a company revenues and is growing at a double digit rate.
We're also getting the best internally to drive new organic growth in Q4, we recognize the first revenue from a new oligo Apiay manufacturing site in Frederick Colorado.
Hi quality GMP, great Alagoas produce this site are key to new class of drugs being developed by a biopharma customers.
In fact this facility is part of our overall strategy to bring a larger biopharma business.
We are expecting continued strong growth it's business as we ramp volume throughout the coming year.
Finally in October I travel to the UK to over the new state of the aren't facility at the Hormel Science innovation campus.
It will be a major R&D help or later spectroscopy and will also incorporate ashland's Raman spectroscopy business.
Our recent acquisitions and these capital investments in Colorado, and the UK are very busy examples where I continued and relentless focus on investing for growth.
Hey, let's now shift gears look at our full year fiscal 2019 results.
I had a very solid year generating 5.2 billion revenue, representing 5% core growth.
Strengthen the pharma.
Clinical diagnostics and the environment forensic market led the way.
Regionally the U.S. set the pace growing in the high single digits.
The U.S. was followed by mid single digit growth in Asia outside of China, Europe , and China grew at low single digits for the year.
Full year earnings per share grew 11% to $3.11.
The result is another year of double digit earnings per share growth.
The full year operating margin of 23.3% is up 80 basis points over 2018, despite a a full year of tear affiliated duties.
Our investments hcg continue to yield dividends.
Hcg grew a stellar 10% for the year.
We are helping comes with transform the analytical lab or operations by anticipating and meeting their evolving needs.
DDG is also delivering very strong results with 9% core growth for the year.
We're capturing market share in our pathology business expanded our presence in next Gen sequencing and further building our oligo Apiay business.
During the year DGD crossed a billion dollar revenue threshold and now represents approximately 20% of ashland's business.
Now, let's say GE revenues declined 1% on a core basis as we face some market headwinds.
We remain committed to investing for future LS AG growth in market share gains.
Our new product development pipeline remains full.
During the year when it is a number of innovative new products, including the launch of a new family of groundbreaking gas chromatographs and molecular spectroscopy instruments.
At this year's SMS conference, we into several new differentiated L.C.M.S. offerings, including 60, 546, L.C. acute though.
60, 495, C.L.C. Triple Quad systems.
As we head into 2020, our LNG Gi product portfolio and go to consummate field team have never been stronger.
As it continues to operate from a position of strength, we're well positioned to capture market share.
Before I turn the call over to Bob I want to remind you of the ashland's shareholder value creation model.
Deliver above market growth, while expanding operating margins along with a balanced deployment of capital with a priority investing for growth the result.
Livery of superior earnings per share growth.
In driving value creation, we built a broader base a growth in a more resilient business model.
You know we were tested to this year with economic and political uncertainties.
Leading to subdued demand for new instrument purchases, yet we delivered 5% core gross operating margin improved 80 basis points and deliver another year of double digit EPS growth.
We deploy more than 1.5 billion in M&A and growth focus capital investments.
On the M&A front, we're very pleased the forms a date, a biotech and seal bio science.
We remain on the hunt for similar types of growth opportunities.
I'm increasingly common in the Ashland team's ability to pursue larger scale acquisitions and deliver on value creation synergies.
We continue to view potential acquisitions as part of a building and buying growth strategy.
Now more than ever I'm convinced when an exceptionally strong position for the future.
This is particularly relevant as you move into 2020 I milestone for us at Ashland as we celebrate 20 years as independent company.
Well uncertainties persist and some in markets that we started fiscal year 2020, we're operating from position of strength, we have built and will sustain our track record of delivering results.
Working as one aslett on behalf of our customers and shareholders.
I'm very proud to dissolve Seattle team delivered in the fourth quarter and throughout the year.
I know you've heard me say this before.
I truly believe the best is yet to come for Ashland, our customers in our investors.
Thank you would be on the call today and I look forward to your questions I'll now hand, the call it off the Bill I mean.
That was a 40 slip [laughter] I hand, the call after Bob [laughter], we don't have reduced the CFO [laughter], Bob you want to take it from here.
Thanks, Mike and good afternoon, everyone in my remarks today I'll provide some additional revenue detail and take you through the fourth quarter income statement and some other key financial metrics.
Then finish up with our guidance for 2020 in the first quarter.
Unless otherwise noted my remarks will focus on non-GAAP results.
As Mike indicated our fourth quarter results were very good with strong execution throughout the piano.
For the quarter revenue was $1.37 billion, reflecting core revenue growth of 4%.
Reported growth with stronger at 6%.
Currency negatively impacted revenue by roughly two points, while acquisitions added 4.2 overall revenue, reflecting the impact of a partial quarter revenue from the biotech acquisition. In addition to earlier acquisitions.
I'm in end market perspective, pharma, our largest market had 7% core growth in the quarter, especially impressive off a tough 14% comparison from last year.
Our large molecule biopharma business and the Crosslab strength continued to drive strong results geographically all regions grew with the strongest growth in Americas in China.
Speaking of China.
Despite the debate regarding the pharma market and the four plus seven program, our pharma business in China double digits for the year.
Continuing revenue in the environmental and forensics market grew 9% in the quarter.
This is against a very tough compare of 17% growth last year.
Was balanced between let's say Gee and DCG and continues to be driven by evolving regulations, especially concerning opioids.
Diagnostics and clinical revenue grew 7% during Q4 led by strength in our pathology and companion diagnostics businesses.
Within pathology continued expansion of our PDL one business was a key highlights.
Revenue from the chemical and energy end market came in as expected with 1% growth.
Decline in instruments were offset by strength in the cross labs business.
Academia and government declined 4% against the tough compare of 10% growth last year.
We still see the funding environments in academia and government remaining stable though.
And finally, consistent with expectations food revenue declined about 5% due to the China food market.
Despite the year over year declines we were encouraged that for the third quarter in a row the run rate in China continues to be stable.
On a geographic basis, the Americas came in stronger than expected with 9% growth during the quarter led by strong results in the pharma diagnostics and environmental markets.
Modestly exceeded our expectations delivering a 4% growth rate with the balance strength across most markets and groups.
China came in as expected declining in the low single digits against a very strong compare of 16% growth last year.
Excluding food China was up slightly.
And wrapping up Asia.
Next China declined low single digits.
Now turning to the rest of the piano fourth quarter gross margin was 56.5%.
This was down 120 basis points year over year, primarily driven by product mix and LSG the startup costs at our Frederic Colorado site.
And a higher revenue mix from hcg.
It's important to remember that while he CGS gross margin is lower than the company average due the services component. The hcg business has done a fantastic job of driving strong operating margin leverage.
In fact, Asias operating margin led the company for the quarter and the year.
The waste GE is not only helping drive our recurring revenues, it's doing so at a very accretive pace.
In terms of operating margin, our fourth quarter margin was 25.1% up 50 basis points, driven by operating expense leverage and strong expense management.
The quarter also capped off full year operating margin of 23.3% an increase of 80 basis point over the prior year.
So wrapping up the income statement, our non-GAAP EPS for the quarter came in at 89 cents up 10% versus last year and three cents higher than the top end of our guidance.
And as Mike mentioned, our full year earnings per share of $3, an 11 cents increased 11% versus last year.
Now turning to some other financial metrics for the quarter, we generated $314 million and operating cash flow.
Acquired biotech for 1.165 billion.
And returned $100 million to shareholders via dividends and share repurchases.
Lastly in the quarter, we took advantage of market conditions, and refinance $500 million senior notes early reducing our future interest costs.
All in all very active quarter.
Now before moving into next year's guidance I want to recap, how we have deployed capital this year.
As we mentioned at the beginning of the year, we plan to focus our capital deployment towards growth oriented assets and driving returns to our shareholders to that end we've deployed over $2.3 billion. This year 1.4 billion in M&A for biotech in acea and more than $900 million and share repurchases in dividends.
And we ended the year with a very healthy balance sheet, allowing plenty of capacity for capital deployment.
Now, let's turn to our non-GAAP financial guidance for the 2020 fiscal year, beginning with the full year guidance.
For the full year, we're expecting revenue to range from 5.50 to 5.55 billion, representing core growth of 4% to 5% and reported growth of 6.5% to 7.5%.
Currency is estimated to negatively impact growth by 0.3 percentage points with M&A contributing roughly 2.7 to 2.9 percentage points of growth for the full year.
From a group perspective, we expect hcg to sustain the momentum and deliver high single digit growth driven by broad based strength.
The DG business is expected to grow at a high single digit to low double digit rate with our any Steve Burdick facility ramping throughout the year.
And we anticipate a modest recovery for let's say Gee roughly flat on a core basis.
Now moving down the piano, we expect modest operating leverage.
And also embedded in our forecast as we expect the other income and expense line to be roughly $40 million to $45 million and net expense with year over year change driven largely by the interest expense as we entered the year in the net debt position.
We expect our tax rate to improved by 50 basis points to slightly above 16%.
And our full year diluted shares outstanding to be approximately 312 million essentially flat to Q4, this year and reflecting only anti dilutive share repurchases throughout the year.
All this translates to non-GAAP EPS expected to be between $3.38 and $3.43 per share, resulting in 9% to 10% growth.
Growth on a reported basis.
Finally, we expect operating cash flow of approximately $775 million to $800 million.
This includes a onetime tax outflow of roughly $230 million in the first quarter to transfer certain intangibles related to prior acquisitions.
This tax will reduce our U.S. transition tax dollar for dollar.
I will provide us with operational and tax benefits in the future.
We've also announced raising our dividend by 10% continuing streak of double digit increases and providing another source of value to our shareholders.
Now turning to Q1 guidance.
For Q1, we're expecting revenue to range from 1.34 to 1.355 billion.
Representing reported growth of 4.3% to 5.5% in core growth of 2.5% to 3.5%.
The lower organic growth in Q1 reflects the impact of the timing of the lunar new year, which this year falls into our fiscal first quarter.
We anticipate this adversely affecting the growth rate in the first quarter by roughly one point.
In addition, the growth rate takes into account the Frederic site ramp that will occur over the year.
First quarter 2020, non-GAAP earnings are expected to be in a range of 80 to 81 cents per share representing reported growth of 5% to 7%.
EPS growth in Q1 is lower than the full year based on the revenue growth.
The Frederic startup costs and certain to share based compensation costs that are expensed first quarter.
Now before opening the call for questions. Let me conclude by saying, we're very pleased with the results are agile team was able to achieve this past year, while continuing to take focused on taking full advantage of the opportunities in front of us.
We are positioning our business towards stronger secular growth markets and driving higher recurring revenue streams.
We clearly saw the results of this in 2019, and we enter 2020 with a strong portfolio and with moment.
With that on occurred back to you for the QNX.
Thank you Bob Mike If you can please provide instructions for the Q any.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby will be compiled acuity roster.
Your first question comes from the line of Doug Schenkel from Cowen.
Hey, good afternoon guys.
Thanks for taking my question.
So so maybe first lets just a.
Clean up question did fiscal 2019 at ASCII revenue come in around 100 million dollar as expected and can you give us more detail on what you're assuming for an assay revenue in 2020 I know you said you expect to ramp over the course of the year, but.
If you if you actually given number I might've missed that.
So I'll pass that to Bob.
Yes, Bob Yes, Thanks, Doug Yeah. It it came in generally on line, a little better than that and we are expecting very significant growth.
And that's why 20.
Okay.
So recognizing that we don't have a specific number but just talking about a qualitatively and maybe taking everything up a level you set the the low end of 2020 core revenue growth guidance.
4% and this would be that I think the lowest core growth rate since at least 2011.
And whatever that tailwind is from any SD. It it makes setting guidance at those levels even more notable.
Based on what you guys just did in the quarter and the way you sound that it seems like you really just setting the bar at a level that.
That's a pretty conservative assumptions on the low end. So I guess, specifically would you guys be willing to talk about what what conditions would need to exist for the scenario to become reality things like <unk>.
4%.
What are you assuming for China food what are you assuming for four plus seven in terms of that the downside risk there and.
Is there something you're factoring in that would suggest there's a scenario where things actually get worse in terms of overall global capital equipment demand.
Yes, Thanks, Doug.
We started to then Bob will jump in on this I think we we don't over thank this one. So is this are our initial guide guide for the year and you're right. It would represent if in fact I was an actual growth number our loss growth rate in a number of years, but does this initial guide as.
As you heard earlier.
You heard a lot of words as expected with upside so.
We're going to position our initial guide with with the room for for upside on the on the plan for the year and yes, I would say Doug to to build on what Mike The saying I think we are taking I kind of a prudent approach to guidance. Obviously, if we were at that level, we'd be disappointed in something would happen in the macro economic environment that we're not expecting we're not seeing anything.
Thing right now that would suggest that the market conditions are getting any worse.
That would suggest that market conditions.
I would get worse and.
Let's say Gee would not come back and it would continue to decline, but where again where.
Where at the beginning of the year there.
Our.
I think we're prudent here, but we'd like to believe that there's.
A lot of opportunities for growth going forward.
Okay. That's super helpful. Thanks for taking my questions.
Thanks, Doug.
Your next question comes from the line of Tyco Peterson from JP Morgan.
Hey, Thanks question on the feedback on fuel business Im a gap and wondering if you could talk on small molecule performance in the quarter I know earlier in the year, you talked out about a slowing global pharma.
Business, just curious how you're thinking about the replacement cycle, along with any of the instrument slowdown on the pharma side.
No in fact Tiger I think you're.
Happy to jump in on this one and feel free.
Jacobs your comments as well, but in Q2, we called out what seemed to be a slowing.
Replacement cycle replacement level in the generic side or small molecule side of the pharma segment.
We really haven't seen any any any evidence that in third and fourth quarter and as Bob mentioned in his script, we had double digit growth in pharma four plus seven initiative, which is heavily focused on small molecule is not impacting our business. We put a really solid numbers and I think we're seeing.
The growth in small molecule fairly healthy along with the.
Higher levels in the Biopharma side, the appeal of the pressure on the instrument side really on a growth rate perspective is really come.
In the food segment, primarily in China, as well as the global chemical and energy market and.
Just want to see everything else you like that there Mike I think you covered a lot of it the only thing trapped areas said, we as you mentioned, but that we do see the growth into Q, a QC environment, maybe less in the discovery from small molecules.
But we continue to expect that volume will be there and continue to increase into in the small molecules going forward also.
Okay, and then Mike for your commentary on see any for instruments are you assuming any recovery next year.
Some inside noted this basically flat constant basically flat conditions. So.
And back to the question Doug.
You asked earlier.
See some improvement in the Kevin anything that would really represent upside to our initial guide. So we're assuming kind of continued conditions. They have been challenges. This year. So we're assuming they continue into 520% no no change there, but it would change the positive that would be upside to our CCAR plan.
And I think the resilience of our model really showed in this this past quarter in full year, which is well come it's going this is down in the instrument side, we actually had some modest growth there when with the with the aftermarket side of our business.
Okay and on one quick one for Bob just to close on the M&A comments can you just remind us. The framework are you still assuming a billion dollars ish type deal would be the ceiling. We're obviously going into question a lot better.
No no let me, let me take that when if it wasn't clear in the scrip I actually explicitly said that we.
I can't comment on our ability to take on larger scale acquisitions.
And deliver on value creations initiatives I would not put a.
Feeling like that on our appetite for deals.
Are you able to talk about ceiling on leverage or where you would go.
Yes, yes, yes, yes, we are still committed to being investment grade, obviously being ending the year at roughly a little less than one time net debt levered that gives us a lot of opportunity.
To to it so if the right deal were there to kind of lever up with a commitment to kind of paying back down now again, we're going to be remain financially disciplined and focused on returns but.
We do have a.
Fair amount of room there.
Okay. Thank you.
You're welcome.
Our next question comes from the line of free and clear from Jefferies.
Hi, Thanks afternoon.
Ben Mike, Mike or Bob could you give some color in terms of what you penciled in for China for fiscal 20, and sort of speak to your level of visibility in the food business and perhaps some early traction that you might be getting with some of those.
Private labs.
Yeah, Yeah, I'll I'll start and then.
Mike or.
Perhaps Jake if you wanted to add anything we are expecting a modest recovery in China next year.
We ended this year at roughly 1% a large part of that being the headwinds that we're seeing and food.
Where we're expecting that.
China to become kind of low single digits mid mid high or mid mid single digits, depending on kind of that food recovery.
We have some.
The good news is over the last three quarters, we've been roughly averaging this $40 million per quarter that we've talked about so we're on this trajectory of.
China being $160 million kind of run rate and our expectation is that we'll continue to we're not going to spect growth there, but be at that level next year, which will help.
The rest of the business grows we will because won't have that had I think it's really important that we define what doing them by recovery, which mainly mean continue at the flat level. It's been running for the last three quarters about 40 million a quarter and this to put a number on this I believe Bob about four points of our growth in China. This year was impacted by.
The food market Thats correct. So you fast forward.
Could do the math and said okay. It would just stays flat with what we've seen for the last three quarters.
You'd expect that we will grow above will be grown this year in China and then two to your question about the contract testing side, Jake I think it's high single digit growth. There. So you actually have doing quite well there yeah. We I was actually recently to here in China and and committed the the private lapse are doing quite well, we see strong growth now from a different base and beyond.
A government maps, but even with the government nest and certain types are das sudden some investments going in but not to the level that weve seen before so thats why you know, we we don't see a lot of movements I'm right now.
Well.
Thanks, a follow up for Bob could you just elaborate a little more color on the tax hit the onetime tax it on the cash flow line you expect in the first quarter and kind of the mechanics of whatever relates to in terms of the intangibles reclassification and any implications it might have for the tax rate beyond next year. Thanks, Yeah.
So it is a a a onetime opportunity that we have have afforded ourselves we're moving some intangible property out of.
One of our acquisitions into our tax model, it's going to require us to pay.
The $230 million upfront in taxes, but that's going to be creditable two are already existing liability for our U.S. transition tax and so it's effectively a one for one kind of credit there. So it's not an incremental cost to us overtime and what it allows us to do by putting.
It's related to the Daqo acquisition.
It allows us to streamline our operational activities as well as overtime generate some tax benefits that will likely happen.
You know.
In a 2021 and beyond so it's part of our kind of multiyear tax planning initiatives that we've been talking about.
Okay. Thank you.
Your next question comes from the line of Vijay Kumar from Evercore ISI.
Hey, guys. Thanks for taking my question.
Mike maybe big picture question not I just.
Fight think about four P.M. ice are I think mice are bottoming out.
But from your commentary I guess, what you're saying as.
You're still expecting whatever trends, we saw from 19 as a base case, you're assuming those trends continue to next year.
Im just curious if gear mice are bottoming out of what why is that reasonable assumption.
Going forward.
I want to see the orders first so.
And that getting back to the other question about Guy. That's why we went into level. We did which was you know if you go back and look at Agence overall result for 2019, there really were quite strong, but the growth came from different parts. The businesses I mean, I expected and.
We are sitting in Q2 Q1 last year PM eyes started dropping seats, so level of conservatism in our and our customer buying behavior. So we said okay.
There's reason to believe to your point that it could actually a bit be a different environment in 2020, let's not guide assuming that.
Lets us, let's let's see it happened and then we'll we'll take up the guide appropriately and take the orders a business. Yeah. I think VJ that this is Bob just to add onto what Mike, saying I mean.
What we're trying to do like everyone else is kind of read the tea leaves in our best view is that.
Until we start seeing something different that it's going to remain the same as it is today.
And if it does rebound.
That that would be good we would like that.
That's helpful guys and then Bob one quick question on non operating leverage it looks like the guide is contemplating.
Modest stuff operating leverage maybe 30 35 basis points for next year.
I'm just I'm in the Q4 performance. This is really impressive which you guys did on the Opex side.
Any thoughts and why maybe at leverage for next year Rob.
Moderates, a little but is that maybe a little bit more spend too on the growth initiatives you guys have.
Yes, some of it is that and we have a full year of the Frederic costs that are going to be built into the into the.
Into the results in 2020 that we Didnt have we really just had that in Q4, and obviously Q4 as one of our strongest years of our strongest quarter. So we get a lot of leverage there.
But we feel pretty good about that.
I think we've demonstrated this year and ability to manage our our operating expenses to continue to drive double digit growth on the earnings side and continue to drive operating margin leverage. So I think you should feel confident that we'll continue to do that going forward.
Thanks, guys.
You're welcome. Your next question comes from the line of Steve photograph from Wolfe Research.
Hi, good afternoon, and thanks time here.
Thanks for a for the time here again, just a few things I'd like to tie up I'm, Mike I Wonder if first you might elaborate a little bit on a point that you made your prepared remarks. When you said that orders in the quarter actually grew I believe faster than revenue I Wonder if you could talk about where you are seeing acceleration and to what extent if any.
The particular region, maybe Japan was was the driver there knowing that there was some tax incentives in Japan.
No. Thanks, Thanks for doing that we thought it was really important to give the audience a view of the order activity in the quarter typically don't like to plan, we don't comment on that but given the Q1 guidance some of the nuances around lunar new year in such when one of the Lynch, let the audience know that we ended the year in a strong.
Backlog position with orders really exceeding the amount of revenue for the quarter and I'd say the quarter in orders was very similar to the quarter in terms of the revenues that you saw which was strengthened strength in the Americas.
Strength in pharma phone from an end market very strong results in hcg DDG cell analysis. So and then the environmental side continues to put up really great numbers off of double digit compare so I think the Q4 order book was very similar in terms of pattern in areas of strength.
We saw on the revenue side that comedy my script, yet and thing I mean, I'm going to say I would just going to be or the bill, yes, [laughter], Steve to more specifically to your question on Japan, We did not see any.
One time build there that was at the ended the fiscal year, our our fiscal quarter actually.
Was across that that timeframe. So we saw normal growth in Japan, which which actually speaks to kind of the broad based strength that.
That Mike was just talking about.
Okay, Great very helpful and then just.
Let's see two very quick.
That's the type of model because one on an A.D. I know you don't want to give a specific number as it relates to what the contribution on the revenues might be for fiscal 20, but could you spend a minute just on how close you are to getting capacity there booked up.
And when you think whether its 21 or 22, we might see the Frederic location running closer to that incremental capacity and then actually all tied up right. There. Thanks again for all help Bob I think I think you've been drilling in the same questions with Sam So yeah yeah.
Both want to do a new data.
I don't know I started santo jump in.
The from the question earlier in the in the queue and Hey, we felt very good about kind of where we ended up the year. We had very strong growth and we ended up as I mentioned slightly above the $100 million and as we've talked about before there was $100 million with capacity that would be ramping up over the over the course of the year.
You know many folks have have model kind of a 50 million dollar number.
And that's in the ballpark and.
And the ramp is really dependent upon.
You know how the clinical trials go and so forth and so maybe I'll I'll turn it over to.
Sam to talk about kind of some of the dynamics, but obviously.
Some very positive things are happening in the market just recently.
Yes, Bob I.
I think you've already laid the groundwork Steve how are you.
We we continue to be excited about the any as Steve business and.
Boulder, just to remind you as an ongoing important part of our and he is the capacity capability, there and you know.
There's been some announcements recently you might have seen that they just really reaffirm what's in our planned the ability to grow and support the growing demand in the market.
For our customers so.
Bob where they can have a lot to add to it you already said, we expect by the time, we exit the year at that are running things a fair today, you know, we're not running and challenges to fill up to the site. That's right I mean, just leave it that yeah.
Your next question comes from the line of Dan Brennan from you've yes.
Hey, Dan Hey, Dan.
So Mike maybe just on.
Try and if you don't mind.
Chase It pharma grew double digits in the quarter in China, but can you just spike out the generic issue there and kind of how did generic specifically due in the quarter, maybe you kind of what's assumed in 2020 versus what you've achieved 19 with generics.
You Havent, if I use the word for plus seven in that segment excuse me at whole segment of small molecule I think it was up double digit for us.
Yes, I mean as as Mike mentioned, you know we after the first for iPhone seven round, the and the Windows were announced we certainly also see we are a mock if you don't have space and that's why we have access to many of those customers out there. So we have costing demand from from those customers also that would be more thoughtful saving them.
Oh activities in that space, but generally speaking we feel like we have a quite good predictability in that market again, Dan I think that actually played out the way we had thought during the year you know.
Once once a once the.
The initial announcements were done and tendering process started you know the whole market pause for for US released a good quarter.
And then as we had thought would happen is the.
Once the winners were announced in and we were actually over index and those accounts. So we had already pre existing strong relationship with those customers than we would see this returned to growth. We saw it in Q3 and we sold in Q4, and we think the that momentum is with US as we move into 2020, Yes, I think Dan This is Bob just to build.
On what Mike and Jake we're saying I think what we've seen is kind of the the notion of the higher quality higher volumes and our our ability to provide not only instrumentation, but the the consumables and the software associated with that to keep uptime in the lab is really resonating with our customers and so I think.
The combination of both the Ellis AG business in the Hcg business is a true what we would think as a competitive differentiator across across this and this is a proof point for us.
Great. Thank you for that and then maybe back on CNN I think to take US question, Mike Excuse me I think you discuss instruments, maybe flat is the way to think about the outlook from here conservatively can you just maybe speak to kind of what the interest level is like from the Intuvo and then the two larger instrument platforms today and kind of what are the guide post towards when maybe we could see that in.
I mean demand pickup because I assume the has to be some good latent demand for the new instruments.
Yes in fact.
We're already seeing that so it's actually when you dig into the details on the order book in the revenue results. In fact, we just had a review.
Last week with us Jackup on on this ramp to volume and he knew the new 88, 1988 60 Gcs are actually it's on a dashboard shows green bean head of our internal ramp to volume forecast. So we think that this it's already happening and then.
Other other parts of the.
Sure and portfolios on the chemical LNG aren't seeing the same type of demand, but the shows you when you come out with a a new set of offerings to marketplace. It had a clear value proposition to customers that drives productivity, even in a market environment, where capital is a little bit tighter you can get get the order and Jacob I know you've been.
Some customers recently, but I feel good thing else you'd like to you absolutely Glenn the 80 eights, who is really resonate with the customer base and even though it is a muted environment. We do see a that days interest and we do see us we say that we havent really strong ramp to volume bought the customer really like about it is said we continue with the highest quality in the hype.
Moments in the market with now also with it off what we called Smart performance in instruments a.
A lot of intelligence so it instrument actually knows what it's doing anything can put predictive maintenance in fact, we put out something thats called smart about snow that customers to really excited about that they can get an overview overlaps and get access to what's actually happening instruments. So they can be predictive in data into expectations and that also creates an ongoing revenue stream breast.
Absolutely.
Great excellent thanks, a lot and congrats.
Your next question comes from Derik de Bruin from Bank of America.
Hi, good afternoon.
Everyone Derek.
Hey, so actually wanted to follow up with that question.
Yes, thinking about the GC cycle and the upgrade how much you keep my estimate about how much of your installed base was was was upgraded over the last few years.
You've got a very big UGC platform installed globally, just curious in terms of where we are cycles. Once we went to picks up again.
Yes, I think at Jacobs raised his hand, he loved to answer this question. So.
Yes, we have generally speaking when we look into our refresh cycle, we do see that than in the market. This is looking at approximately 10% per year off of refresh.
So that also means that our instruments is out there for quite a long time, we are actively looking into that we we do see we actually believed that we are in the middle of a refresh cycle. It has been challenged with the overall market condition. So we do believe actually when the when the market is coming back to bend, the PMI starting to to turn that debt.
I would see an acceleration in that the refresh side I think it's fair to say two Jackup fleet I know Theres always if you will replace than going on.
How much has actually been replaced and.
I think we can continue to see fairly high levels of aging in the installed base, which would point to perhaps somewhat of an acceleration of the replacement rate assuming.
The market environment would improve yes, yes, hey, Derek one other thing that I think is probably be pertinent here, it's still early days, but if you recall.
Launches both at the high end in a mid range and what we were really excited about was the potentially I have a really compelling offering at the mid range, where we had not as much penetration as we did at the high end and.
Well, Mike was talking about our ramp to volume, Mike and Jake we're talking about a ramp to volume being green for the business. If you kind of parse them out.
I would say the mid priced or the mid value ranges dark green.
This is a good thing I think which is up in thing.
Okay, and so once you sign of food business start since snap back will come to pick up again, I guess, you know Kevin how should we think about that business we need.
Yes, if they're going to be at sea shaped curve engines rebounded latent demand there or is going to be that mark can be a little bit less than it had grown passes given some of these organizations in that market.
I think we won't see the type of double digit declines we saw this year.
As is.
Take a mentioned on the the actual volume side, the number samples being run its up double digit you know the money has been down sharply at the.
At the central government level, we don't expect that's.
Going to be the long term situation so.
Right now for 2010 again, we're just saying it's going be flat with the level of seemed the last three quarters that being said our internal view is that this is kind of a mid single digit kind of grower.
It's kind of in the China market itself is going to be no leased 6% to 8% growth rate. This is probably about where this this business could be it won't be at the toward.
Double digit growth to the scene for the past decade that being said you won't see these double digit declines at the.
Experienced in 2019, that's why when we talk about.
A modest recovery in China, you know really is we're just talking about lapping the compare on the food and the food business.
One final question I mean, you.
On a lot of acquisitions in the cell biology space recently.
And then we have a molecular biologist by train on cell biologist so.
Help me understand what you're offering thats not a hole in terms of how you put all these pieces together and just sort of what what are you bringing to market to customers.
That hasn't been brought their before I'm, just trying to get a better understanding this relates the opportunity here and along those lines like do you need a broader molecular biology portfolio to continue to drive into that market. Thank you.
Yeah happy to do that Derek someone to make some initial comments and you know the.
Jacobs knee deep into this business and he can share with you some of the things that really differentiate ourselves here. So.
I think we first got started down this journey with the acquisition of Seahorse Bio science, we really felt that was really good first point with a differentiated offering with.
Novel unique technology that nobody had.
He also felt that we needed to have some more scale to be.
You much more formal into space.
After after the the recent acquisition was fueled by our science and the.
The acquisition of biotech at 250 million plus we think you've got the scale and we're also very selective in terms of other types of of companies. We look at the teams the profile of the portfolio. So I think we've got something really especially in this differentiated and Jake I wanted to talk about where we're doing relative workflows with some other things you absolutely. So so I am.
Certainly excited about their opportunity in the seven out of the space and.
And we want to thank you said two dynamics going on first of all with the with the recent price of immuno oncology first so play out and fast business now into cell analysis also and then of course stealing speaking you money oddity that base had a lot up interest in that space right now and it really require technologies that allow for for life cell analysis, both from an.
Imaging perspective, but also measuring the activities in the into lifestyles and those are the technologies that we are providing between the biotech to see hall ciaccia and Loxo technologies, So where we will differentiate is first of all to see all Sem and Seo technologies are very differentiated on the standing on their own white biotech have a very broad.
Portfolio, including some very excited imaging technologies, but we have not bring them together in workflows settings, where you can use and basically the moutse techniques to look at to sell for many many different angles and provide much steeper inside based on one informatics platform that nobody else can do into markets. So that I think that's really where we differentiate versus competition and neither one of things.
Derek we looked at was we had already been working for example between the biotech team in the Crs team actually had been working together prior to the acquisition and we had proof points based on incremental business, we had which was customers really didn't want to have independent instrumentation and data systems that really havent integrated software integrating these workflows.
It really was really had a differentiating value to customers and they solve it that was very important to them and they were willing to give us the business as a result.
Okay.
Your next question comes from Bill Quirk from Piper Jaffray.
Great. Thanks, good afternoon everybody.
Hey, Bill if up.
First question is Mike and Bobby guess touched on China, several times already but maybe we can talk a little bit about assumptions concerning other geographies in 2020 at any different than than what you're currently seeing in terms of both current business as well to order book. Thanks.
Well take that yeah, yeah, no. That's great question Bill. So let me kind of walk you through kind of how we're thinking about the various the various markets. So we would expect to that the Americas, we continue to lead the pace with.
And it kind of high single digit.
Growth.
Europe , probably low single digit growth going forward pretty consistent with kind of how we've seen this year kind of play out.
And the rest of Asia, excluding China, being and kind of that low low to mid single digit growth.
And so thats kind of how we're thinking about China.
In China, China would be low to mid okay.
Got it and then Mike elaborate on an earlier comment that you made about tighter capital you just talk about how broadly you're seeing that.
Oh, I think that that comment was related really to the conditions. We saw in 2019 that in my comment really was even when there is tighter capital, which is what we saw with lower pmires throughout this year customers are still willing to invest when you have a solution into helps them with their bottom line. Their productivity is wells that are there scientific.
Results, so what I'm, saying is there's a path forward to getting more business, even when even when capital is tight.
Okay, So you're not you're not suggesting obviously then that there's some sort of lack of availability. It really has to do with no. If you have right product you can find it.
Yes, correct absolutely.
Okay got it thank you.
Your next question comes from the line of Paul Knight from Janney Montgomery.
Hey, Mike.
Could you talk about all the your position in a bio pharma specifically a large molecule is what port portion do you think of the business today, and where would you like that to be I guess would be a good color. Thank you.
You have to do so call and you know as.
Bob mentioned, we've been having we had strong farmer results again. This quarter. This has been kind of consistent story for ads for last several years during that period of time, we've been consistently growing our biopharma portion or large molecule portion of that business double digit I think the couple of years ago is probably maybe about 15% of our our pharma.
Business now, it's up to probably north of 20% and we think that rate will continue is not because the other side has been shrinking its because we think we've been obviously investing very heavily either through and in some new instrument platforms on Mark's done some acquisitions in this area. So while we don't have a specific percentage in mine I don't expect every time I start.
Talking you through the coming years, you'll see a higher part of the of the of our business in Biopharma in fact that when we come out too.
At the of the comment I mean, this year, we'll probably talk more specifics about the entirety of our Biopharma business dropped a lot of comments today about you know any SD and some cell analysis. So a lot of several ultimately comes in into lot of us into the biopharm end market.
When thinking about Biopharma business is being associated with the L. CNL CMS, but there's a lot more to the story.
Okay and on the academic side. It was soft worked what was it specifically we did you see going on in the U.S. market in the quarter.
You know it's that we dug into this honestly is we're probably for the cone and best we can see really business about the strength of is we had last year I think it was about to over 10% growth last year. So nothing really is really changing environment to continue to see very solid stable funding environment sometime.
Of the seasonality a bit with that business, but I think thats really all but could we really saw them. That's right I mean that businesses one of our smaller businesses and that it can be kind of lumpy and so forth and had a very strong.
Q4.
Okay. Thank you.
Your next question comes from the line of Preneed sort of from ESB Leerink.
Hi, Mike Thanks for question so.
Appears to be another quarter of growth and Crosslab. So I'm wondering what continues to be the strength there what's your confidence there longer term and.
It's consistently about 8% growth for the now I mean, no last three years and so should we expect.
Similar expectation here, you know going forward into and despite the L. fag instruments being flat for the year as you as you pointed out in your and your remarks.
Should we expect cross labs longer term to continue to do well knowing that some of the instrumentation is being flat and and the consumables and service contracts will continue to grow.
Kevin and happy to comment on this this is a real success trying to think of for the new accidently architectures to strategy a couple of years ago, and and we I can recall get his question. The Doe almost every year when we had an eight eight or 9% print headwinds going and and we would say is not going and we think that what's going on here is.
Really you have.
Changing customer needs and you need to anticipate what's going to happen and brought a new set of services and capabilities really help them with the economics on the lab as in addition to the.
The the scientific result, so.
Today I think this this than I would hope it came through in the call script, which was we said we really have demonstrated this new business, while this year, where we can have.
We can have strong growth in hcg.
Irrespective of whether or not the the businesses in our new instruments side is strong as we'd like it to be so.
As Bob said of the guide for next year, we're we're quite confident our ability to continue in this high single digit kind of kind of growth.
You know the services proposition.
We have and what we offer is really what weve resonating with customers you heard jackup comedy and little bit in some of the work that goes on between marks team and Jacobs team developed new capabilities around her instrument platforms, which leads into set of new.
Revenue streams on our services side and then on the consumer side has been both a story of organic growth, but also continuing to add more to put portfolio through acquisitions.
So I think we're really quite confident about our ability to continue this high single digit growth rate really tied in also to how are unable to visit additional differently on a digital perspective, So hope it's coming through that we're highly confident about our what we build and where this business going to go in the future.
Yes, I think Puneet, Hey, Bob just one other thing is we're talking about this.
If you looked at just the attach rates, we've got a number of programs that are.
Driving increased attach rates, we have we think we have a lot of room to continue to grow there and I think the one thing that we've seen this year is actually as mark in team of it offered more services and more solutions, we're actually seeing.
For the instruments that we are placing actually higher value.
Side to tied to the service offerings, So we're actually being able to create more value.
On a per box basis.
Given the the portfolio that we've been able to derive so.
There's a lot of opportunity there.
Jason talked about some of the smart alerts and so forth, but we're building this intelligence in but in addition, we're actually creating more more value when the when an instrument is sold and actually increasing the service component.
Okay, Thanks, and if I could check on.
Daqo could you elaborate the contribution there on the when the quarter I don't know if you provided that and what's your expectation that you're breaking therefore for 2020.
Yeah, I think we didnt.
Provide a specific number funny, but if you saw my comments, we talked about and gaining gaining market share in pathology.
And you know you've got a high single digit growing.
Business in DDG, and though a lot of today's calls and focused on the growth rate from any SD.
Pathology is the largest business in that group and it's doing doing well.
Okay, and if I could squeeze one last.
Question on Mike when we look at last couple of years I'm.
Pulling back a little bit higher level.
In terms of instrument launch as you head into Altavault 8800 series, a number of launches and this would be about the time, we would be seeing benefit from those.
So is the message here that those instrument continue do gained strong traction in the market and it's just the end markets that are sort of challenging you and the government dynamics in China.
Or is there any anything more to.
That we should be looking into in terms of the instrumentation and and just give us a if you could take a moment and give us sort of a view into the new instrument.
A sort of outlook longer term and how should we think about agile lending that framework. Thank you.
Thanks for that I couldn't have set a better myself, which is you know our product portfolio has never been stronger.
We have had a continued cadence of products, whether it be nickel photography gas chromatography LCM SG CMS molecular spectroscopy, you know the story just continues so if theres been any softness relative to expectations in Ellis AG results. It's all been some of the market environment conditions that you've described and then the fact that we.
Been able to continue to invest we have invested in our field team as well as I know some of my competitors are pulling back the rains a bit.
We think we're capturing share we think we're well positioned for when some of these Denmark start to turn to back to back to growth. We've seen some of these cycles before in the past. So I think the and then I made a comment in my script about the the product pipeline being full which is what that was an indication of it we have other projects. So.
We're not going to introduce a bunch of instruments and then disappear for half a decade, you're going have continued cadence of products new products upgrades. So we feel like our our MPCI processes really.
Really really home and right now.
Or last question comes from the line of check me from Barclays.
Thank you good afternoon.
Okay.
Hey, so.
Can't we've got this far in the call, but I wanted to ask how is the early integration to the biotech acquisition going and maybe can you also elaborate on the pacing of the revenue contribution when I look at the fourth quarter. The acquired growth was about a point better than I was looking for in terms the incremental growth in the first quarters about a point shy of what I was looking for.
Was there any movement there.
So I'll take the I'll take that last one and then I'll turn it over time.
The Jacobs for the for the integration piece, so yes, we.
In simple terms, we have talked about $20 million to $25 million worth of revenue. It was slightly better eating it was better than that in the quarter going into Q1.
The CEO biased sciences acquisition moves into core so thats why it.
No.
Looks a little lower.
It shows up as part of our core growth.
In Q4, both the Sia and biotech we're in the M&A number.
And I mentioned in my script, we're very pleased with how the we are on on the early days in biotech in shake up maybe it's one that a few comments. We just said we've kind of big meeting with the field team few weeks ago. So yes, exactly I think the the integration couldn't have been better. So far I think we are really spending time on learning of costs a biotech on their spring time doing.
US both from Matt what processes for using but also from a cultural perspective, we continue to be very excited about that seemed to be getting on bought and how they fit well with the arts and culture. So I'm very excited obviously over the next year, we're going to integrate them, but and end, but I'm continue to see a lot of momentum in the combined to some analysis business.
Our expectation is that business is going to grow double digits.
Okay. Thank you and then.
Hoping just to wrap up get a mark.
One moment please.
Jack Man airline is often.
Okay. Thank you.
Talking about myself for a second.
Just a follow up I was hoping if you could give us a mark to market on.
Laser Jen I think you're expecting first placements in the second half of this year at the last analyst day, just how does the progress going there.
Yes so.
Technically.
Sam I think we really quite quite pleased with the progress and we're not ready to call in show date for the are you are you owe unit yet.
Thats right, Mike, we're making good technical progress in term.
Specifications that are.
Sensing technology and.
We we are executing on our development roadmap in.
We're not we're not ready to share.
Specifics on on a launch date just yet.
I would say.
Jack This is Bob our guidance doesn't comprehend any any revenue there and even back in the the original guidance. There was no material revenue in 2020.
Okay Jack.
Okay.
Mike.
Thank you guys.
And that with her last question at this time I will turn the call back over to the presenters.
Alright, thank everyone bid that we would wrap today's call. Thanks Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Hold on team.
Mark you got.
Yes.
Oh.
No.