Q4 2020 Agilent Technologies Inc Earnings Call
[music].
Good afternoon, and welcome to the excellent technologies fourth quarter conference call. All lines have been placed on mute to prevent any background.
After the speakers remarks, there will be a question answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Paul.
Thank you and now I'd like to introduce you to the host for today's call Encore.
John can be wrong, Vice president of Investor Relations.
Sir Please go ahead.
Thank you and welcome everyone to add Dillon fourth quarter and full year conference call for fiscal year Twentytwenty.
With me, Mike Mcmillan, Agilent, President and CEO, and Bob Mike behind Agilent, Senior Vice President and CFO.
Joining into Q any after Bob's comments, we'll be Jacob Tyson President of Agilent life Science and applied markets Group, Sam Raha President of didn't diagnostics and genomics group and Patrick Mcdonald.
They don't off Agilent Crosslab group.
This presentation is being webcast live.
The news release Investor presentation, and information to supplement today's discussion along with a recording of this webcast are made available on our website at the Investor Dot Agilent Dot com.
Today's comments by Mike and Bob will 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 are year over year and references to revenue growth on a core basis.
Core 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 Twentytwenty.
We will also make forward looking statements about the financial performance of the company.
These statements are subject to risks and uncertainties and are only valid as of today.
The company assumes no obligation to update them. Please.
Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.
Also as announced we will hold our virtual Investor day in a few weeks on December nine.
The event will include presentations from our CEO CFO and the three group President followed by acuity.
We look forward to having you join us on December 9th.
And now I would like to turn the Paul over to Mike.
Thanks, operator, and thanks, everyone for joining us on our call today.
Today, I want to get straight to our quarterly results because they tell very compelling story together.
The agile team delivered a very strong close to 2020.
We posted revenues of $1.48 billion during the quarter.
Revenues are up 8% on a reported basis and up 6% core.
Operating margins are healthy 24.9%.
EPS of 98 cents is up 10% year over year.
These numbers tell the story of a strong resilient company does bill for continued growth.
Our better than expected results are due to the strength of our core business.
Along with signs of recovery in our end markets.
Geographically, China continues to lead the way with double digit growth.
From an end market view.
Both our pharmaceutical and food businesses grew double digits.
In addition, our chemical and energy business grew after two quarters of declines exceeding our expectations.
We also saw a rebound in U.S sales during the quarter.
Overall Koh bid 19, Tailwinds contributed just over two points of core growth.
Achieving these results in the face of a global pandemic is attributed to our team and accounts, we built over the last five years.
I couldn't be more pleased with the way the agile team has performed over the last quarter and throughout 2020.
They have again proved their ability to work together and step up to meet any challenge that comes our way.
During the quarter all three of our business groups grew high single digits on a reported basis.
Our life Sciences by markets group generated $671 million in revenue.
Bait percent on a reported basis and up 4% core.
Now lets say Gee growth is broad base so.
The cell analysis, so analysis of mass spec businesses, both grew at double digit rates.
In terms of end markets chemical and energy returned to growth.
Uhhuh grew double digits and pharma high single digits.
LSW AG remains extremely well positioned and is outperforming the market.
The ads across our group came in revenues at $518 million.
This is up a reported 9% and up 7% core.
Growth is also broad based across end markets and geographies.
Our focus on on demand service is paying off as activities on our customer labs continues to increase.
The Fiji team continues to build on its already deep connections with our customers.
Helping them operate through the pandemic and continue to drive improved efficiencies and lab operations.
For the diagnostic genomics group revenues were $294 million up 9% reported and up 7% core.
Growth was broad based with NFC oligo manufacturing revenues up roughly 40%.
The genomics and pathology business businesses continue improve during the quarter.
Im also very proud of our NFC team for successfully ramping production at our new Frederic slight this year.
We have built a very strong position in this attractive market with excellent long term prospects for higher growth less.
Let's now shift gears and look at our full year fiscal 2020 results.
Despite the disruption uncertainty in economic turmoil dealing with a global pandemic the agile team delivered solid results.
We generated 5.34 billion in revenue up 3% on a reported basis and up nearly 1% core.
The put this in perspective, it's helpful to recall the progression of our growth.
In Q1, we delivered 2% core growth as you saw the first impact of COVID-19, and our business in China.
Both Q2, and Q3 declined low single digits as a pandemic spread across the globe and governments into due to broad shutdowns.
With 6% core growth, 8% reported in Q4, we're seeing business and economies start to recover.
As a result, we are clearly exiting 2020 with solid momentum.
Our recurring types of businesses represented by HKG proved resilient.
Growing low to mid single digits for the year.
In a very tough capex market, our LSW Agee instrument business declined only 2% for the year.
And return to growth in the final quarter.
China led the way for our recovery wood accelerating growth as the year progressed.
In our end markets pharma remain the most resilient.
And food markets recovered most quickly.
Full year earnings per share grew 5% during fiscal 2020 to $3.28.
The full year operating margin of 23.5% is up 20 basis points over fiscal 2019.
As we head into 2021, we do so with tremendous advantage.
Our diverse industry, leading product portfolio has never been stronger.
Our building and buying growth strategy with a focus on high growth markets continues to deliver.
Our ability to respond quickly to rapidly changing conditions is also serving us well.
The way our sales and service teams have been able to quickly pivot to meet customer requirements through.
During the pandemic has been nothing short of remarkable.
Last year at this time I use this call to remind you of the agile shareholder value creation model.
Our approach is focused on delivering above market growth.
While expanding operating margins.
Along with a balanced deployment of capital.
We prioritize deployment of our capital both internally and externally on additional growth.
A few proof points on our growth or in a capital deployment strategy a year ago. We spoke about recently closing a biotech acquisition and the promise of growth that biotech represented today biotech that though longer promise, but a driver of growth in total the cell analysis business generated more than $300 million.
Revenue for us during the year with.
With double digit growth in Q4.
And continued strong growth prospects.
Similar to last year I was talking about ramping up our new Fedex site facility, a $185 million capital investment.
In addition to successfully ramping fredrik as we plan, we did silicon expanding book of business.
We also recently announced an additional $150 million investment to add a future manufacturing capacity.
We are aggressively adding capacity to capture future growth opportunities in this high growth market.
Even in the face of pandemic, we stayed true to our build and buy strategy.
We have clearly seen the advantages of our approach.
Confident our strategy will continue to produce strong results for us.
The strength of our team and resilience of our business model has served us well and as you can see for the numbers our growth strategy is producing outstanding results for our customers employees and shareholders.
While uncertainties remain as began fiscal 2021 or.
Our operating from a position of strength.
Because of this we're cautiously optimistic about the future.
We have built.
And we'll sustain our track record of delivery results and working as a one ashland team almost half of our customers and shareholders.
As I noted earlier I couldn't be more pleased with the results of the advent team delivered in the fourth quarter and throughout the year.
Thank you we'll be on the call today, and we look forward to your questions I'd.
I will now hand, the call off to Bob Bob Europe.
Thanks, Mike and good afternoon, everyone and.
In my remarks today, I will provide some additional revenue detail and take you through the fourth quarter income statement and some other key financial metrics.
I'll, then finish up with our outlook for 2021, and the first quarter unless otherwise noted my remarks will focus on non-GAAP results.
We are very pleased with our fourth quarter results as we saw strong growth exceeding our expectations.
Especially considering the ongoing challenges associated with Cobot Knight team.
For the quarter revenue was $1.48 billion.
Reflecting core revenue growth of 5.6%.
Reported growth was stronger at 8.5%.
Currency contributed 1.7%, while M&A added 1.2 points of growth.
From an end market perspective pharma, our largest market showed strength across all regions and delivered 12% growth in the quarter.
Both small and large molecule businesses grew with large molecule posting strong double digit growth.
We continue to invest and build capabilities in faster growth bio pharma markets and offer leading solutions across both small and large molecule applications.
The food market also experienced double digit growth during the quarter posting a 16% increase in revenue.
While our growth in food business was broad based China led the way.
And as Mike noted earlier, our chemical and energy market exceeded our expectations growing 3% after two quarters of double digit declines.
While one quarter does not a trend make we are certainly pleased with this result.
And the growth came primarily from the chemical and materials segment.
Diagnostics and clinical revenue grew 1% during Q4 led by recovery in the us in Europe.
We continue to see recovery in non COVID-19 testing as expected.
Although the levels are still slightly below pre coated levels.
Academia and government was flat to last year, continuing the steady improvement in this market.
And revenue in the environmental and forensics market declined mid single digits against a strong comparison from last year.
On a geographic basis, all regions returned to growth China.
China continues to lead our results with broad based growth across most end markets.
For the quarter, China finished with 13% growth and ended the full year up 7%.
Just a great result from our team in China.
The Americas delivered a strong performance during the quarter growing 5% with results driven by large pharma food and chemical and energy.
And in Europe, we grew 2% as we saw lag lab aptiv activity improves sequentially Ben.
Benefiting from our on demand service business and hcg.
As well as from a rebound and pathology and genomics as elective procedures and screening started to resume.
However, while improving capex demand still lags, our service and consumables business.
Now turning to the rest of the PL.
Fourth quarter gross margin was 55%.
This was down 150 basis points year over year, primarily by a shift in revenue mix and an unfavorable impact of FX on margin.
In terms of operating margin our fourth quarter margin was 24.9%. This is down 20 basis points from Q4 of last year.
As we made some incremental growth focused investments in marketing and R&D, which we expect to benefit us in the coming year.
The quarter also capped off a full year operating margin of 23.5% an increase of 20 basis points over fiscal 2019.
Now wrapping up the income statement, our non-GAAP EPS for the quarter came in at 98 cents up 10% versus last year.
Our full year earnings per share of $3.28 increased 5%.
In addition, our operating cash flow continues to be strong.
In Q4, we had operating cash flow of $377 million up more than $60 million over last year.
And in Q4, we continued our balanced capital approach repurchasing 2.48 million shares for $250 million.
For the year, we repurchased just over 5.2 million shares for $469 million and ended the fiscal year on a strong financial position with $1.4 billion in cash and just under $2.4 billion in debt.
All in all a very good end to the year.
Now, let's move onto our outlook for the 2021 fiscal year.
We and our customers have been dealing with COVID-19 for nearly a full year and are seeing our end markets recover.
Visibility into the business cadence is improving and as a result, we are initiating guidance for 2021.
There is still a greater than usual level of uncertainty in the marketplace across most regions and.
And so while we're providing guidance we're doing so with a wider range than we have provided historically.
It is with this perspective that we're taking a positive but prudent view of Q1 and the coming year.
For the full year, we're expecting revenue to range between 5.6, and $5.7 billion, representing reported growth of 5% to 7% in core growth of 4% to 6%.
This range takes into account the steady macro environment, we're seeing.
It does not in contact contemplate any business disruptions caused by extended shutdowns like we saw in the first half of this year.
In addition, we're expecting all three of our businesses to grow led by dengue.
We expect DDG to grow high single digits with the continued contribution of any Steve ramp and the recovery in cancer diagnostics we.
We believe ESG will return to its historical high single digit growth, while Ellis AG is expected to grow low to mid single digits.
We expect operating margin expansion of 50 to 70 basis points for the year as we absorb the build out costs of the second line in our Frederick Colorado and SD site.
And in helping you build out your models, we're planning for a tax rate of 14.75%, which is based on current tax policies and $309 million of fully diluted shares outstanding.
And this includes only anti dilutive share buybacks.
All this translates to a fiscal year 2021, non-GAAP earnings per share expected to be between $3.57 and $3.67 per share, resulting in double digit growth at the midpoint.
Finally, we expect operating cash flow of approximately $1 billion to $1.05 billion and an increase in capital expenditures to $200 million driven by R&D SD expansion.
We have also announced raising our dividend by 8% continuing an important streak of dividend increases providing another source of value to our shareholders.
Now, let's finish with our first quarter guidance, but before we get into the specific some additional context.
Many places around the world to currency currently seeing renewed spikes and COVID-19 that could cause some additional economic uncertainty.
And while we are extremely pleased with the momentum we have built during Q4, we are taking a prudent approach to our outlook for Q1 because of the current situation with the pandemic.
For Q1 were expecting revenue to range from $1.42 billion to $1.43 billion, representing reported growth of 4.5% to 5.5% in core growth of 3.5% to 4.5%.
And first quarter 2021, non-GAAP earnings are expected to be in the range of 85 to 80 688 cents per share.
Before opening the call for questions I want to conclude by echoing Mikes comments about the amazing Mark the Ashland team performed during fiscal 2020.
To be where we are now after knowing where we stood in March is truly remarkable.
Add to this the strong momentum we saw in Q4 I truly believe we are well positioned to accelerate our growth in fiscal 2021.
With that Ankur back to you for Q1 day.
Thanks, Bob David Let me provide the instructions for queuing up.
Certainly as a reminder to ask a question will need to press star one on your telephone to withdraw your question, Chris the founders Ashton. Please stand by while we compile acumen roster.
Your first question comes from the line of became Kumar with Evercore ISI Your line.
Hey, guys conventional footprint share.
A couple of questions from me Mike.
Mike maybe on on our first on that the guidance part here.
I guess.
The Q1 guidance of four and a half to five and a half core.
Does it have does that assume any any koh tailwinds because I guess you look at Q4 and six.
6% core.
Any reason why the caution.
Slowdown sequentially.
Yes, let me start with Bob So again, thanks for the earlier comments BJ, so how to characterize our Q1 guide is positive but.
The reason were prudent approach and that we got a lot of confidence in that terms of reinstating the guidance.
And we had very good momentum in Q4, and we look at the backlog, we feel very confident about reinstating guidance, but you know the buyers are still out there and we still think there is still a higher level and uncertainty of the call for a prudent approach to hence a positive but prudent approach if that turns out better we'd be we'd love to be in a position.
Moving on to raise our outlook for the year, but we thought were the first to guide for the year, including Q1, and we should take a positive prudent approach the notice recognizing that the buyers are still out there about what have you done anything to that yeah. VJ I think a couple of things even of the thing that I would say is we didn't end the year with emptying the tank out time and feel really good about that but that being said.
Ed.
We do have some business that is.
Somewhat susceptible to some of these areas and so we probably have greater visibility or variability and in some of our diagnostics businesses and so with that as Mike said, we're taking kind of a prudent approach there and the other area is we want to see more than just one quarter in the chemical and energy business I think thats one of the areas, where I think we think we're biased to the upside in the way.
We're kind of thinking about the business, but it certainly with a recovery we do expect some coated tailwinds to your point, it's probably on the order of roughly about one and a half to two points kind of consistent with what we've seen in the last day.
The last several quarters, so thats kind of how we're thinking about it.
That's helpful, Bob and let Mike one in a bigger picture question, Steve I think I should mention in ASP was up 40% in the quarter.
Did that business EXL rate in SD and I'm curious on the longer term opportunity here when you think about mark.
Hi.
And can this be a Kansas ended being a half a billion dollar product for ash and as we look at that.
For five year sales I'm curious on your thoughts and Bob I think you mentioned the 50 to 70 basis points of margin expansion inclusive of investments in Frederick facility. What do you think was the impact was.
Of.
Those investments on the margins or or I guess, what im asking us what sort of margin expansion has been without those investments. Thank you.
Hey, Bob Thanks for the question the VJ, how I'd take the first part and you can take the second part so.
That's not out of the realm of reason your first question in terms of the longer term.
Potential total revenue for Ashland.
We kind of put a teaser out there earlier about our December analyst and Investor Day. So, we'll we'll talk about a bit more about the about any as Steve when we meet but.
As you know we are really pleased with as we've talked about the past in terms of getting to that exit rate of over $200 million business.
And while our capacity at some of the physical capacity is built we're now to finish of the first year of operation. So we're we just like we did with our.
Motorcycles continue to find.
Ways to drive more productivity and efficiency out of that asset.
And.
We just announced another expansion of another production line within that existing facility. So.
I hope what you are hearing is a very bullish tone both in terms of the market growth, but also our ability to to get our even our even our more of our unfair share. If you will to capture share in a growing market. Yes, DJ This Bob just to build on that what Mike talked about the beauty of that business is to continue to accelerate throughout the year and that 40% that roughly 40% growth.
In Q4 was the highest that was all year and we that team has done just a fantastic job of of scaling that business and we are not John and as Mike said, we're making incremental investments.
In building out that capacity, which will.
Continue to make throughout the course of next year that that is probably about a 20 basis point headwind next year and in the.
In the operating margin just.
Rough rough numbers, there VJ, but.
Extremely pleased with the.
The work that that team has been able to do and continuing to drive that growth and so we feel very good about that business.
Thank you guys.
Youre welcome.
Your next question comes from the line of single.
Moving lines open.
Hi, Bob.
Mike Thanks for taking the question so.
Hi, Bob actually.
And one other question on guidance and this is probably a favorite topic to renew the Chinese lunar new year. So yes.
[laughter].
That's a year again isn't it.
That time of the year so.
This time obviously.
You. Obviously you are seeing how the troops are actually on the ground to how things are there and.
I would suspect it would be a lesser impact of this year lesser travel, but correct me if I'm wrong on that and then lead to that I mean, the guidance that again appears conservative.
Is there anything that we ought to keep in mind for a market that is growing double digit for you already and is a sizable portion of your revenue.
So just walk us through are you thinking about the lunar new year impact here.
Yeah, that's great.
Great question Puneet as you as you accurately state our expectation as the impacts are going to be much less this year than it was last year for all the things that you just talked about less traveled timing of when it is and and so forth relative to the Q Q1 end and what we're seeing is actually.
You know very strong continued recovery and performance in our China business and I would say that there is Q1 is no different and so the story. There is certainly remains intact and I would expect it to be.
Very strong performance in Q1.
I think what we're trying to do is.
There is nothing in particular, but I think we're just probably taking a little more pro.
Prudent approach in Europe, and as we're seeing some of the shutdowns, particularly in some of these areas and I.
I think as we look at where are the things that could potentially be.
Upsides and downsides I think that continued recovery in chemical and energy across the across the business also.
Continued performance and Americas, we're expecting kind of an average budget.
Budget flush so to speak that's another question that probably if people are thinking about by both for the end of the year.
In both of those things.
Could be better than than than expected yes.
If I could just jump in and that this to amplify the point Puneet that Bob made we're very very happy with our China business and we exited the year with momentum and Thats carrying forward into 2021.
We are positioning ourselves with a wait and see moment on CND and.
And that could be a source of upside for the year and layers as early we're fully prepared to to impact that in a revised outlook and I would just use the word may be prudent to it as a way to describe because the additive Bob Evans user describe our guide.
Okay. That's another that's very helpful. Thanks.
And if I could get a sense on the.
The cell analysis business that business continues to be really strong for you biotech SCS the horse to other products in that product line, just wanting to get a sense of.
What are some of the key drivers there is it largely the cell and gene therapy with solar product drug product market is there.
You know.
Something in the academic and that is driving a unit driving that growth or especially in China would.
I would appreciate that and helping frame what what's exactly happening then the opportunity there longer term.
They are putting thanks for the question and then as I mentioned in my call script, we're really pleased with the.
How we've been able to integrate the biotech team make them part of the as a family and then how that collected has led to have on us to have a very healthy selling analysts believe just north of $300 million growing growing nicely for us and I.
I know that Jacob.
I would love to have an option to talk little more about the about the cell analysis there to Jacob at your thoughts on the specific questions Anthony afford.
Hi, Paul Let me just echo that I think of aircraft of what that team has been doing over the past year and and the growth exit them solve momentum multiple dimensions here first of all we have we have seeing fall fulfill all of the testing that a lot of Paul or biotech portfolio has been using for that for the life out there. Thanks.
But we also see generally speaking imaging being very in a very relevant in India in the academic markets, but also in the biopharma market and the portfolio with.
With the flow cytometry is also seeing quite a lot of interest. So it's really broad across both academic and biopharma and coli related that we see interest like some analysis was where every day, we felt that Peter yes ago that this was an area that would be continued to exceed our growth, particularly at that point about immuno oncology.
But clearly that is moved to ensure we have brought on a stand alone we sit and right now our cobot, but generally speaking I think this will be as focused from many of your comp. So very pleased and we continue to expect to.
Good growth in that business.
Yes, Hey, Puneet, just one thing because you mentioned, China and we see really China is a huge opportunity for us going forward. The real growth has been primarily in the us in Europe, I mean, it's growing in China as well, but it's off a very small base rooms. So when we think about the opportunities going forward leveraging the the large infrastructure that.
Agilent has.
It is really a big opportunity for us for many many years to come in the cell analysis space.
Great. Okay. Thank you.
Your next question comes from the line of Michael Peterson with JP Morgan Your line is open.
Hey, good afternoon, Mike I'm wondering can you talk a little more on the on the Biopharma strength, 12% on a 7% comp obviously phenomenal I know you said, 2% coming to ask Steve you just talked about no cell analysis can you maybe just talk more broadly on the strength in Biopharma and was any of this a catch up from slower spending in the first half the year and how do you think about the sustainability.
Matt I know you mentioned you are thinking about an average budget flush, but can you just talk in the broader strength in biopharma.
Yes, sure happy to do so tyco and without giving away too many that tibbets and I want to talk about more we're in more depth in a few weeks. There was no catch up here. This is this is part of this continued strength in the Biopharma area. It's been an area of focus and will go into some more detail.
With with you in a few weeks, but it's been an area of focus in terms of increased investments.
Relative to our Biopharma tools, both the instrumentation, along with the chemistry platform real work will focus their console value chain, but we're getting nice growth as mentioned earlier any SD.
But that's the story is much bigger bigger thats being honest with you and then obviously, we're picking up some growth here in the cell analysis I think it's been it's really a multifaceted strategy thats really really.
Driving this growth we think is sustainable we think a double digit outlook on the biopharma portion of that business is is quite quite quite reasonable. We're really excited as an investment priority for us and tyco, maybe if I can add to Mike's point in terms of because it's it's not only the platforms in the portfolio that we have on the instrument patients, which we have been made.
Some heavy investments in it but it's also been the informatics and the software piece, which has allowed us to be able to kind of plug into the labs. The analytical labs and then you bring in the AG services portfolio to help them manage the labs.
And particularly with things everything Thats going on right now the last thing what day, what is their scientists to be managing the instrumentation. They want them to be doing a science and so we we think we've got a very compelling SaaS software and tools offering and I think it's showing up in the marketplace across multiple technology platforms really.
Great and then Mike can you use the phrase that wait and see Mike foresee any couple of minutes ago, and it was going to see that back to growth can you. Maybe just talk about some of the data points, you're watching in your customer base and how you're thinking about the recovery curve there.
Yes, thanks for Tyco, so that my comments come back from my first year as CEO when I tried to call. The turn of the see any business and eventually a term I think I was off by several quarters. So I learned my lesson so to speak so as Bob mentioned.
One quarter trend does not make but we're very encouraged by that because it's the first time, we've we've seen some growth after those two double digit declines earlier this year and we look at a couple of things on Tyco one is just the.
Chris the PMI style and the the positive moves in the Pmires are indicative of.
Improved end market strength, particularly in CD.
We also look at the.
What we estimate to be the age of the installed base because a lot of a lot of aged equipment out there and thats been probably at a very high high levels and then we looked at the deal flow.
So.
So that kind of all those factors the macro outlook from from PMI is we'll be notably in the current environment for customers in terms of there.
The age of their installed base and then also what we're seeing in our in our funnels.
And as you know agile and has a real strength in this market. So I think.
We will benefit from.
Returned here, Tim to growth and again.
We weren't ready yet to put it in the numbers for Q1 and the full year.
But we're hopeful that that trend will continue for some indications that it could but let's let's give another quarter or so.
Okay, and then lastly, probably drop off on one quick one on China and I'm wondering as accounts companies Mettler talked about pent up demand kind of suggested that what they saw may not be sustainable have you seen anything in your order book that would suggest none of what you're not in the chat and Alan not NVNO Tiger really appreciate you asking that question does not at all I mean this has been a a continue instead.
The flow of business.
We think the end markets are really strong here we.
We see a lot of strength in China government funding to make sure. They stimulate the economy and then we talked earlier about this overall their investments in improving the quality of life you noticed the strong strong growth in the food market continued strength in pharma. So know that we see in this but I think we really look closely at the pacing and so nothing unusual.
Michael I think.
We have been extraordinarily pleased with the way our China businesses performed throughout the course of this year and when you think about kind of our our cadence through Q1, two three and four we've seen accelerated growth. So we saw our lowest growth in the first quarter, where we saw the impact of COVID-19, but then what weve seen is the improvements as opposed to this real.
Huge increase and then kind of a drop off so we're we're not expecting any drop off and we havent seen that in our order book or any of the conversations that we've had with our customers that there were sort of a.
Material catch.
Okay. Thank you.
Hi, welcome Tiago.
Next question comes from the line of Brandon Paul Jefferies loans.
Hi, Thanks, good afternoon.
And.
Mike on a couple of questions on LSW AG sure Im curious if you could speak to the order book in the fourth quarter and condition of the he may have built some backlog there.
And curious.
Sure Steve to you speak to perhaps some margin compression in the fourth quarter, whether that was mostly mix or if you could open today to dynamics there.
Happy to do so Brandon so one of the reasons why we were able to reinstate guidance. This year was what we saw in the LSW Agee Order book and as you know we started two years ago talking about specifics around orders, but I think in today's cost really prudent does that give you a sense of why Bob and I have this confidence around the outlook. So.
We didnt gas as we ran across the finish line for 2020 order book with strong analysts AG and continued in as continued into the early barely a few weeks of this year. So again.
All the other caveats aside.
The improved and recognize recognition of the of the buyers we feel pretty good about our ability to reinstate guideline because as we mentioned earlier.
Real estate guys as mentioned earlier LPG was when we were hit the most.
Earlier in the year and I think we're feeling pretty good about that and but as I recall.
Most of the gross margin is really just a mix relative the various instrument platforms, yes, thats right I mean, I think Brendan to read what Mike is saying I mean, we feel very good orders exceeded revenue.
And exceeded our expectations and so.
It was a bit of a mix shift.
That is impacting that Dan.
And but we would expect that to kind of normalize out throughout the course of next year and.
And so feel very good about kind of where that business is.
Going into 2021 and.
Ben This one additional thought here, which is we've seen a real changes in the pricing environment. So.
Thats why we can say.
Pretty common system that happened in the mix of products this quarter.
Super and one more for Bob you mentioned currency was a drag on margins in the fourth quarter could you quantify that.
The magnitude of the operating line and then what you've penciled in for impact.
The impact of FX, two and operating margins in 21 be helpful.
Yes. It was roughly about 40 ish 40 fiveish on on the Cogs line and some of that was offset through through the bottom line.
And for next year.
Less less impact much less impactful than that.
Probably less than about 10 points 10 basis points.
Sure. Thanks.
You're welcome.
Your next question comes from the line of Dan Leonard with Wells Fargo lines.
Thank you so to start off on the guidance a question for probably you Bob you just touched on this in pieces, but can you give us that at a high level, what your key assumptions our work.
By region and by end market.
Yes, so so bye.
At the highest level, we are expecting steady improvement throughout the course of the year.
From the standpoint of.
The economic perspective, if I think about it from a geography first China is going to lead the way with.
High single digit growth continuing.
Continuing the momentum that we've seen we ended this year fight 20 about 7% were expecting that or better into next year and then what you would see as a recovery in it.
In the Americas getting back to kind of mid to high single digits.
And then followed by Europe, Europe, which would be kind of the low to mid single digit. So thats kind of on an end market perspective, how we would think about it it's predicated on.
That continued recovery in that we would as I mentioned before not have any extended period to shut down that would disrupt business I think the good thing is what we're seeing not only ourselves, but our customers are being able to.
Operate in a different environment than they had the first time. These were shut down so we're not expecting any material impact there and.
From an end market perspective, the strength is really going to be continued strength that we've seen in the last last several years really driven behind our pharma business, which is probably high single digits.
With with Biopharma as one of the earlier questions came out probably growing double digits going forward.
And then.
Food, we'll probably expect maybe a little tempering.
Great to have 16% every quarter, but we're not ready to put that into our plan, but I would expect continued recovery there probably in the mid single digits.
And also recovering our diagnostics and clinical business, particularly in that same kind of mid single digits and probably ramping throughout the course of the year probably more muted.
John.
The academia and government, probably flattish to low and as we talked about before chemical and energy flattish, but thats really one where.
We're hoping that we're we're.
Bias and there's more upside than downside here, but certainly given the momentum, but one quarter is too early to put a forecast on air and so were assuming roughly flat and then probably a recovery in the environmental and forensic market low single digits.
Okay. Thanks, Thanks for that overview and then my follow up you touched on there being a wider range of outcomes and 21, the typical and in mentioned it the bottom end doesn't capture any any threats around reestablishment of lockdowns or whatnot you feel the high end of guidance really captures all the.
The benefits from easy comparisons any potential upside there might be or how how is your frame.
What you're capturing the high end there.
Yes, I would say its continued momentum, but I think that there, there's probably more upsides and downsides in the way that we're trying to capture capture that certainly exiting at a 6% growth rate. There are you know.
Where probably the biggest areas are around chemical and energy any the pace of recovery in academia and government.
And.
If those continue I would say, let me put it this way if if chemical and energy continued.
At 3% and growing well.
It will be that number yes, absolutely.
Thank you.
Thanks, Dan.
Next question comes from the line of Douglas Ghost town lines.
Hey, good afternoon, guys that have dinner day Doug.
Maybe I have a few clean up guidance questions, but before I get to that one I just wanted to talk about.
Your performance specific to your mass spec product line.
You talked about another quarter of double digit growth I'm, just wondering if you'd be willing to unpack that a bit more and just talk about what's driving this.
And specifically is China, and more specifically, China food, a major driver I guess I'm just trying to get at.
Which segments of the portfolio or specific end markets or geographies that really stand out within a pretty robust an impressive growth rate there.
Hey, Doug really appreciate the opportunity to have Jacob comment more deeply on that but as you know I highlighted that in my script, we will able to call out that double digit growth. We're extremely proud of that and Jacob I think you've got some additional insight that you could share with Doug.
Yes, great question and I'm, certainly proud of what Tim has been doing over the past year. Because this is not at all yet.
Water quality.
Next year, but we do have gone quite an overhaul masback portfolio, the particularly the CMS.
CMS portfolio over the last few years, both on the high end to Triple Quad could also say recall and you have seen we have really been focused on robust reliable and were seeing applications and this is really about the customers looking for right. Now. So you can really see that the investments we have done really nice.
With with our customer base and it's right now I would say in most geographies and and most end markets, but if you look into this biopharma and China is definitely Nick.
A part of this historic pattern and the RMS and.
Although the managed through it is that we pivoted very quickly to renew all day custom engagement during the beginning of this year and when the customer has to shut down the latter I agree with that Paul we did supporting Bendeka that tough times and you can see that pay dividends today that they also continue on with the partnership with accidents I actually believe that we are quite good momentum here with.
William Allstate business Tim.
All right how does that yes, thats hurt us. Thank you for that and then maybe just a few.
Two.
Guidance questions.
So this will be kind of a speed round that away.
Because you have got some questions about this already but on China do you expect double digit growth in fiscal 21.
On gross margin you talked about some of the headwinds you saw in Q4, becoming less pronounced moving forward. So do you expect gross margin overall pick it back up to the 56 plus level and then on COVID-19, I think you talked about just over two points of covert tailwinds in the quarter.
Im just wondering if looking for either fiscal Q1 or for the full year. If you could see a scenario where this would accelerate over time.
If surajit volumes began to inflect in a positive way and same thing on the antibody business put those in combination drive more.
More of a tailwind moving forward, so China gross margin and COVID-19.
Yes, so China high single digits, maybe low double digits.
Hi.
Based on the range that we gave you.
In terms of.
Coated.
What I would say is.
We are expecting less.
Less incremental the growth, but certainly the things that you talked about are baked into our guidance, so more more serology or or.
Antigen based testing or even vaccine.
Driven.
Volume is.
He is not fully baked into the numbers that we are it's just too early to tell but those are certainly be things that are potential upsides and then the last one I know, which was your second question around gross margin I would expect it.
Stabilize I would and.
Not see this the same level of decline Knight, what I would say is you will have some mix shift right because our ESG business, which has lower gross margin.
Then the instrument business, but much higher operating margin helps us with that so you do see a dampening effect on the gross margin side, but you will more than make up for it on the operating margin side.
And Bob.
Bob will sorry, Doug specifically COVID-19, we'll hit a little bit more of that when we have our analyst day, but we are.
Our plan to launch in early 2021, our astrology test and you know there are some things that we're working on that are baked into the into the guy that we'll see how that may play out.
Okay Thats great. Thank you guys for all the time and happy Thanksgiving everybody same.
And thank you.
Your next question comes from the line of Derik de Bruin with Bank of America loans.
Hey, good afternoon.
Hi, there.
So I'm going to.
Due to similar to Doug I've got a couple of focus questions I got one guidance cleanup. So I guess, specifically, Bob you mentioned, some software pushes and year Daniel.
And your business between the pharma business can you be a little bit more specific on that I mean is open lab, taking share against empower you will need to be replaced in power and some of the accounts. There I'm just sort of curious on what the dynamics are in the Cts market.
Yeah, what I would say Doug Alright. She is me Derik is that we feel very good about our competitive positioning with open the lab and the rest of our products.
Okay.
With that I guess.
Yes.
Yep and by the way I'm better looking than Doug.
The.
John.
On on the core genomics business I mean, we don't really have talked about that I mean, you talk about the any as Steve and some of the other things there, but whats going on your core genomics business.
You know you've got Sureselect I mean, you've had some pressures in some of that end market there what's that underlying business growing.
Yes, great question, because we didnt, we didnt highlight that but actually when you look at sequential performance that was one of the things that was very very positive in the end the DDG business. It recovered very nicely into into Q4, and maybe I'll, let Sam talk about some of the some of the details there.
Yes sure Thanks, Bob.
As you said we.
As we went into the heavy part of the pandemic. If you will late Q2 early Q3.
Some of the genomics business also serves.
Our clinical diagnostic customers be it for sure selecting the backfilling some of the leading cancer diagnostic Ngs based test as well as other inherited diseases. So we definitely saw the effect of that but coming into Q4, weve seen a steady stream of increase there.
And we all.
Let us see the positive effect in parts of our portfolio that are related to Q Pcr DS our instruments be it.
Andy at our consumables that are used and also we have the leading.
Genomics QC portfolio as as Youre, probably aware of and we see a number of those products, including.
Our fragment analyzer be used increasingly for picking.
Picking up conventional or.
Sorry wood the pickup of conventional clinical testing, but also be used for example for some of the Mrone vaccines that are in development. So all in all the trend is it looking encouraging for our core genomics business.
Great and.
And then just one housekeeping question the for 21, the other income expense line, how should we think about that for 21.
Let me handle that are you on Tim.
Yes, yes, it will be slightly better than where it is this year.
Okay. Thank you.
Next question comes from the line of Jack Dan.
On page one Paul.
Hello, Jack Thanks, Hey, good afternoon.
Let me go back to Biopharma, Mike I was curious if.
If youre seeing any change in terms of customer spending patterns at all because it's kind of a 19, there's just been such a focus on bioprocessing. This port vaccines and therapeutics, what's that doing in small molecule. If you can call out any trends.
You know Jack Great Great question, so to our delight.
Really hasn't seen that cause any kind of material.
Not a shift I mean, we're seeing in fact, I think Bob how in his script, where we saw strength across small molecule and bio large molecule now the small mark is not growing as fast as Lars molecule. It was growing the dominant Steve I know, yes, Jack to give you some some numbers I mean for.
For Q4 small molecule grew high single digits and for the year grew low single digits. So.
Despite.
All the all the hoopla small molecules not dead Tim.
Great and maybe just to build on that so the high teens growth in China could you just parse out for us how did food do versus how did.
Maybe generics do in terms of some of the consolidation Mark.
As Bob as I recall and I'll buy target on this one I think it was broad based across all end markets. Everything was was was in that double digit range in fourq anything you'd add to that.
No I think you said it well, Mike I think across both sides of the business both the Chemistries and serves us very strong demand.
In all markets and we see certainly a strong demand for our inflation for mineralization and startup services. So I am really strong across the board in China.
Great. Thank you guys Mike.
Yes.
Next question comes from the line of Patrick Downlink setting new line.
Hey, guys. Thanks for taking the question.
Maybe better follow up on the Mike just on the chemical and energy side and it certainly sounds like Thats. The biggest area of upside maybe bigger variable for next year sounds like chemicals and material things are improving can you give a bit more detail around the customer tone, there and then energy the bigger variable. The 21, maybe talk through kind of the scenario analysis as you guys think.
Got it.
Certainly seems like there is upside, but maybe just kind of what parts of the business you feel like are the biggest variable there.
Yes, I think that where I just first wanted to kind of this always helpful minor, but kind of our mix. So the 70, 30, 70, 70, 30, and chemicals and materials and 30% energy.
I actually the upsides on the on the chemicals in material.
We.
Energy lags and we aren't really seeing a lot of indications of why that would that would that would pick up but remember some of the chemical companies are actually providing products and such into end markets that support COVID-19.
They are feeling.
What drives this marketplace you asking are we talking about PMI as a result, the p.
Hi, it's really related to the view of global growth and I think that customer base is feeling more confident about where the where the economy is going and things as you know this bullish really really slowed down earlier. This year. This for a must kind of purchases, but I think the I think it's the prove a view of the overall economics.
Outlook for the chemical materials I, plus the fact that they have some.
Kind of.
Tilted 19, Tailwinds and helping out I wouldn't say that's the entire story as the element of it I think I think the biggest part here is just the fact that theres.
Much more common in the customer base about the the growth environment from an economic standpoint anything you'd add to that I think you are right.
Okay. That's very helpful. And then just on the capital deployment side, you guys always take the balance approach and I'm sure we'll hear more about it a couple of weeks, but how are things trending in the pipeline on the M&A side your cash flow has actually been pretty strong.
Active should we expect you guys to be on that front any changes and thoughts around the size of deals we want to pursue and any metrics you can throw out there would be helpful. Thanks.
No no we continue to be very interested in deploying cash.
Capital for growth standpoint, along all the dimensions, we talked about earlier.
We said that you know.
The biotech size deal, which we are really quite happy with that it was never the largest day. We've done to date now that doesn't mean that would be the largest deal we would do.
He said.
I think multiples not magnitude of Delta.
And although we didnt close any any any.
Any deals this year I think that really is.
Tied into some of the COVID-19 challenges.
Doing due diligence and working with potential targets, but.
We still see this as a key part of our of our whole decline, our build and buy growth strategy and think that M&A can be a nice add or two to our core core core growth businesses. So.
You guessed right, we'll talk more about it in a few weeks but.
That we still have aspirations in this space, but really sticking to the model the framework that we've been using before which is M&A.
M&A in Mark is at a higher growth in the rest of the company that align strategically with us where we can where they can benefit by our scale and are accretive to the PNM yes.
Yes, I would say Patrick just to build on what Mike was saying I mean, we feel very good about the the acquisitions that we made the two last the one the last two which was biotech genocea, we're probably the fastest growing parts of our business. If you take out and ask Steve and so I think it validates the space that we're looking at and what else here.
These and the need to change.
[music].
Our our M&A framework.
Okay. Thanks, guys.
Your final question comes from the line of Steve Bone from Wolfe Research. Your line is open.
Hi, Thanks for sneaking me in here I'll, just ask one maybe I guess, it's a two parter.
One part for Mike one part for Bob and let me give you an easy one.
I think you're going to like that you're going to like it okay.
Okay, Mike last call you raised this concept to call that a flight to quality.
Talked about how the team with the execution has been able to to drive share gain I Wonder if you could talk about whether you think that is the.
Pennebaker pandemic subsided in some ways and larger opening up again, if you think that that dynamic has become any more or less acute and if you think it's it's sticky I want to go ahead and ask the second part of my I guess I'll call. It covert discovery question for Bob.
Bob like a lot of Cfos, you've had a chance to see how much you can say within operating expenses as we're all working remotely and being more digital have you thought about putting any numbers around how much of the savings that you've discovered here could end up being permanent thanks, so much everybody.
Sure, Yes, thanks, Steve So in regards to the first one.
We probably talked about the flight of flight to quality when when when money is tight but.
But we also I think tied to.
The stability and how we protect our field team and our ability to.
Support our customers do independent makes I think those two things are going to carry us forward. So we think that the stickiness will remain there.
And.
I don't think that the quality will will fall fall out of fashion and I think as you continue to grow your position in the installed base of this gives you an upper hand in terms of the next buy when they get around to make in the next capital purchasing decision.
Yes, I would agree with that Mike and I think that that I.
I think two things one is we were there when their customers needed us to most and our team, particularly in the field, helping support critical critical operations and so forth.
And that flight to quality on the instrumentation side only pays dividends going forward. So I think there is no.
There there will be no fall off there.
True event on the on the cost side, we're still working through some of those things.
A big thing probably the biggest variable here and that Scott.
A couple of different tentacles to it would be around travel and.
I think we had talked about before at one point in time were spending roughly $10 million a month and travel and that that is down I would say substantially and our goal is that that will be back to $10 million a month and so.
That doesn't say that we are going to necessarily drop at all to the bottom line, but reinvest in some areas that will drive growth going forward, but certainly those and then there will be more efficient ways of doing things like marketing outreach to our customers and eve.
Even even operating one of the things is we still operated and launch new products. Despite not having been in the in the labs for the most part for nine months out of the year and so our teams are finding innovative ways to continue to actually move things around without having to spend incremental dollars. So more to come on that we think some of these are going to stick data, particularly.
As it relates to your digital engagement with customers.
Because there is a huge eleanor being responsive and.
We think the digital cable is a big part of that story and yes has been accelerated by Kobe, but we don't think theres any any going back either.
Got it. Thank you for all the color Guy you are quite welcome.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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