Q4 2020 IDEX Corp Earnings Call
Greetings and welcome to the IDEXX fourth quarter and full year 2020 financial highlights, but at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Reminder, this conference is being recorded it is now my pleasure to introduce your host Mike Yates, Vice President and Chief Accounting Officer for IDEXX Corporation. Thank you you may begin.
Thank you. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer Friday Corp. Let me start by saying Thank you for joining us for our discussion of the IDEXX fourth quarter and full year 2020 financial highlights.
Last night, we issued a press release outlining our company's financial and operating performance for the three months and the year ending December 31 2020 the per.
Press release, along with the presentation slides to be used during today's webcast can be accessed on our company's website at www Dot I D E ex the O R. P dot com.
Joining me today is Eric Ashman, our Chief Executive Officer, and Bill Grogan, our Chief Financial Officer.
The format for our call today is as follows we will begin with Eric providing an overview of the state of IDEXX as businesses, including a recap of our recent performance and how we are viewing 'twenty 'twenty. One Eric will then provide an update on a few initiatives that we believe are key to IDEXX is culture before moving into a review of our order perform.
And providing our 'twenty 'twenty one outlook for our end markets.
Bill will then discuss our fourth quarter and full year 2020 financial results and we'll conclude with an outlook for the first quarter and full year 'twenty 'twenty one for.
Following our prepared remarks, we will open the call for your questions.
If you should need to exit the call for any reason you may access a complete replay beginning approximately two hours. After the call concludes by dialing the toll free number 87766, 06853, and entering conference I D 13712 088.
Or you may simply log onto our company's homepage for the webcast replay.
Before we begin a brief reminder, this call may contain certain forward looking statements that are subject to the safe Harbor language in last Night's press release, and <unk> filings with the Securities and Exchange Commission with that I'll turn the call over to our CEO Eric.
Thank you, Mike I'd like to start by thanking our people all around the world who have risen for the occasion during such a challenging year.
It's been a year for the challenge and change with the numerous safety protocols and disruptions in the marketplace in that environment. Our people continued to shine so to all of the IDEXX team members listening in on this call. Thank you.
For the protocols, we have in place the disruptions in our operations have been limited the COVID-19 trends across Europe, North America, and India have been probably well we continue to follow those developments closely and remain steadfast in providing a safe place for our employees to work.
We continued to deliver solutions for our customers during a challenging year book.
Are you seeing on the critical innovation, we need to support our long term strategy as well as producing new products to help fight against the pandemic.
Bill will walk through the details shortly and customer focus strong execution and our ability to react quickly to unpredictable events helped us deliver relatively strong performance in 2020, a true Testament to our resiliency.
Liquidity was a primary focus from our management strategy as the pandemic hit and I'm happy to say that we were able to drive record free cash flow this year.
As we address the challenges in front of US, we see a path to bullishness for 'twenty and 'twenty one.
We've seen a steady recovery in our end markets, which we will detail in a few slides the diversity and quality of our businesses continues to serve us well ensuring that we can weather any storm and quickly capitalize when market conditions improve.
While the pandemic still presents many challenges to solve we're starting to see a focused handed back the core commercial endeavors, as we and our customers prepare for a world healed from the ravages of COVID-19, our businesses remain focused on operating safely and we are prepared to leverage our supply chain and react to increase day ma'am.
A year like 2020 truly test the culture of a company or you rooted in strong values that people really don't even believe if so youll be better prepared to survive and even thrive IDEXX is that kind of company and it served us well in a year none of us could have ever predicted I'm proud of the culture. We have built that either it is admired by many but we can strengthen it still.
Our culture and mission to bind together are uniquely decentralized and diverse company and our commitment to work even harder to support diversity equity and inclusion is tied directly to this important aspect of IDEXX differentiation.
Our resiliency agility and fundamental ability to execute a bite ex exceptionally well positioned to play offense as aggressively as we move forward.
Actively investing to support our best organic growth debt and we have ramped up our capital spending to support very exciting initiatives.
In a market share moving again, and we are expanding our capabilities to execute on strategic acquisitions in January we announced an agreement to acquire Abel pumps and expect that deal to close in the first quarter, we actively seek to deploy additional capital to acquire IDEXX like businesses as well as make some calculated debt to new technologies to bolster our growth but.
Pencil to further strengthen our portfolio and enhance our return to shareholders.
Moving to slide seven.
As I just mentioned the strength of IDEXX comes from the IDEXX difference a teachable methodology with great teams working together in a superior culture focus on the critical things that matter with a natural orientation towards the most importantly for their customers.
Our culture is a significant focus and one of my key leadership priorities.
To that end, we are making ongoing improvements based on feedback we received from our employees every day.
Last month, the IDEXX Foundation, which was created to positively impact the communities in which we live and work took a significant step forward as part of these efforts IDEXX committed $6 million to do spot.
Sponsored activities across the company.
Foundation formally added equity an opportunity is the last thing is fully funded part of its mission, creating opportunities for underserved disadvantaged people with color on our community.
This donation allows the foundation for more than double its annual giving an addition to initiative smoke.
We will continue the great work our people have been doing in our communities like building homes for the homeless renovating community centers and supporting schools and learning opportunities for young people.
This month, we will host more than a dozen facilitated employee focus groups around the world the.
The feedback from our employees will help shape, our path forward and diversity equity and inclusion developing a formal framework and goals for our day Eni programs is something we are all deployed at the senior leadership level, making it a top priority as part of that commitment and I intend to have a senior DNI leader in place reporting directly to me later this year.
We will continue to grow and advance our culture is a key element of differentiation you have my commitment on that.
Turning now to our commercial results on slide eight.
The broad rebound in order rates, we discussed in the third quarter continued as our fourth quarter organic orders were up 7% compared to the prior year.
We entered the quarter with optimism based on the strength of the third quarter improvement from that continued into the fourth quarter, excluding timing of large OEM blanket orders year over year, our monthly order rates improved throughout the quarter.
F N T organic orders for the fourth quarter were up 3% driven by project orders and our water businesses continued strength in agriculture and recovery in industrial day rate businesses.
S T organic orders were up 6% in the fourth quarter, driven by new product initiatives in life Sciences, and the recovery in auto and semi com continuing to boost our sealing solutions businesses.
Finally fire safety and diversified organic orders were up 15% in the quarter.
<unk> saw a significant improvement as retailers began to release pent up demand for equipment refreshes band. It after a strong bounce back in the third quarter continued to improve based on auto market strength and fire and safety saw growth in several product lines.
A year ago as we enter 2020, we talked about the general industrial slowdown that we were seeing and what a flat to down two to five per cent world looked like for IDEXX.
We have proactively taken strategic actions to address these factors. We then face the onset of the pandemic and we responded to it with purpose.
Closeout 2020, and look forward, we are optimistic that our units and markets are clearly on a path to pre COVID-19 levels.
The actions that we took in 2019 and 2020 has left us well positioned as we move into 'twenty and 'twenty one.
Turning to slide nine we provide our current outlet for primary end markets.
Our fluid <unk> metering technologies segment industrial day rates continue to tick up in the fourth quarter further solidifying the optimism that we discussed last quarter. We see this increase driven largely by opex needs of our customers.
Continue to see large capital projects remain on hold we anticipate the broader signs of economic stability and higher degrees.
Uncertainty on Covid recovery timing is required before capital projects begin to move again with the investment discussions are happening.
Water businesses continued to show resiliency and we are closely monitoring the total to 2020 will take on municipal budgets in 'twenty 'twenty, one and beyond.
Triton agriculture that we've called out for the previous two quarters has continued and we expect it to grow in 'twenty and 'twenty one.
Energy markets continue to remain challenged with markets still down compared to 2019 levels stable Asia stabilization of these businesses largely dependent on increases in fuel prices driving new capital investments in the oil and gas.
Turning to the health and Science technologies segment, as we discussed last quarter, we have identified opportunities and applications to help fight COVID-19 across each of our segments, but particularly in HST.
We were able to drive approximately $30 million of revenue in 2020 unexpected generate about the same amount from 2021 related to these initiatives.
While some of this revenue was onetime in nature, we believe the technologies and applications. We have developed here will generate recurring opportunity for 2022 and beyond so relative to our $25 million to $100 million of opportunities. We highlighted we will achieve about $60 million.
AI improved during the fourth quarter and looks to be on the rebound in 2021.
Life Sciences, we saw an offset by continued weakness in IBD bio lab capacity, it's still largely focused on Covid response, putting on hold other projects and initiatives.
Strength in semi content, we mentioned last quarter has continued in addition, our ceilings business has benefited from a rebound in automotive we see continued recovery in 2021 for the auto market, particularly driven by strength of European car sales in China and India.
Food and pharma has also remained a bright spot as our businesses continued to benefit from growth in MPT projects in Microfluidics.
Moving to the fire safety and diversified segment, we saw continued improvement in most of our markets.
Largest driver was the significant improvement in the dispensing market large retailers increased demand for equipment refreshes combined with order strength in the Asia dispensing market as.
As mentioned previously the pace of the auto recovery continues to exceed expectation spring on our band it business.
And rescue businesses continued to see strong order performance and we believe that we are seeing a recovery in the OEM business is driving through some other delays in backlog concerns we referenced last quarter.
As with all our municipal businesses, we continue to closely monitor the impact on budgets to see if there are any lagging effects from Covid response spending.
As I highlighted in my previous remarks, we are optimistic about the market recovery, we are seeing across most of our markets and we need to be prepared for potential interruptions, particularly in the first half of 'twenty 'twenty one.
Our teams have shown the ability to address these short term shocks proactively and the strategic strategic actions, we have taken across our businesses and is well positioned to be able to ride. The positive momentum we are seeing as we exit the issue of the pandemic.
I'll turn it over to bill to discuss our financial results for the quarter and full year.
Thanks, Eric I'll start with our consolidated financial results on Slide 11 Q.
Q4 orders of 679 million were up 10% overall and up 7% organically organic orders increased across each of our segments with drivers highlighted by Eric and his previous comments for the year orders were down 3% overall and down 4% organically with strong organic order recovery in the fourth quarter, partially offsetting the <unk>.
18% organic order decline, we saw in the second quarter at the height of the pandemic.
Fourth quarter sales of $615 million were up 2% overall, but down 1% organically, our industrial and energy markets led to decline, but did have positive organic growth and around 60% of our reporting units led by strong performance in our ceilings MPT and dispensing businesses full year sales of $2 4 billion were down.
6% overall and down 9% organically driven by the impact of Covid industrial market softness and challenges in oil and gas.
Q4, gross margins contracted 20 basis points to 43, 8% driven by a decline in volume and unfavorable sales mix, partially offset by price capture.
For the full year gross margins contracted 140 basis points, excluding the impact of the F. M. D inventory step up adjusted gross margins contracted 130 basis points to 43, 9% driven by volume declines in sales mix offset by our continued ability to capture price and drive operational productivity.
Fourth quarter operating margin was 22, 6% up 50 basis points compared to prior year.
Full year operating margin was 22, 1% down 110 basis points compared to the prior year.
Adjusted operating margin was $23 four per cent for the fourth quarter up 10 basis points compared to prior year and 22 eight per cent for the year down 140 basis points compared to 2019 I'll discuss the drivers of operating income on the following slides.
Our Q4 effective tax rate was 22, 2%, which was higher than the prior year ETR of 26% due to the revaluation of foreign deferred income tax balances driven by changes in foreign tax rates.
Fourth quarter adjusted net income was $105 million, resulting in an EPS of $1 37 up for sensor, 3% over prior year adjusted EPS.
Full year adjusted net income was $397 million, resulting in adjusted EPS of $5 19 down 61 cents or 11% compared to prior year.
Finally free cash flow for the quarter was $149 million up 9% compared to prior year and was 142% of adjusted net income for the year free cash flow was $518 million a record for IDEXX up 9% versus last year and 131 per cent of adjusted net income driven by strong.
Long working capital performance.
Moving on to slide 12.
We're going to review our full year adjusted operating income.
As Eric mentioned, we faced unprecedented challenges in 2020, but the structural and discretionary actions. We took were critical to lessen the volume impact on her income and margins.
Using a similar framework as we have for the previous two quarters, we wanted to walk through the components of our full year adjusted operating income.
Adjusted operating income declined $66 million for the year with organic sales down around $247 million, we would've expected a negative impact on operating income of $148 million and roughly 60% contribution margin range.
The $148 million was offset by $58 million of executed operational actions 23 million from the impact of restructuring actions combined with $35 million discretionary cost control items and $10 million of price net productivity and negative business mix.
Finally, we had $7 million of reduced variable compensation for the year.
This yielded a better than expected flow through of 34 per cent.
Again organic flow through is based on taking reported sales and op income less the impact of FX and acquisitions, which is roughly $77 million on the top line and $7 million of profit.
Overall, our teams focused on quickly managing the crisis at hand, and effectively managing cost and mitigate revenue declines and has IDEXX well positioned to leverage the leverage the recovery we expect in 2021.
Moving onto guidance I'm on slide 13.
Based on current order rates and expected market recoveries, we see an accelerating 2021 and expect organic revenue for the year to be up 6% to 8%.
This translates to an EPS impact of roughly 75 to 95 cents depending.
Depending on our top line results.
We expect our productivity initiatives for more than offset inflation, providing for a benefits.
The structural cost actions, we have taken are expected to provide 12 cents of EPS benefit in the year.
As we move past the pandemic, we will aggressively invest in both organic and inorganic opportunities as business recovers, we will loosen discretionary cost controls as appropriate.
As mentioned previously.
Expect approximately two thirds of other discretionary cost to return over time.
Additionally, we will be making investments to enhance our ability to execute and integrate M&A opportunities as we view this as a critical time to enhance our capabilities as well as continue to fund our targeted organic growth initiatives.
These discretionary add backs and strategic investments will provide approximately 19 to 26 cents of pressure in our 'twenty and 'twenty one guidance.
Next we anticipate eight to 11 cents headwind from variable compensation as we reset our incentive comp for the year.
Finally F M D as one quarter of inorganic results, which we expect to provide $3 million of revenue, but provide three cents of EPS pressure the.
The structural actions, we have made to improve fmt's profit profile based on the situation in the energy market will get F. N b back to a positive op profit in the second quarter.
Now, let's take a look at a couple of nonoperational items for.
We expect an 18th cent headwind from tax primarily related to discrete benefits, we realized in 2020 associated with equity vesting and option exercising.
Second we expect a 2% tailwind from FX, providing 13 cents of EPS benefit.
So in summary, we are projecting organic revenue growth of six to eight per cent for the year and EPS expectations are in the range of $5 65 to $5 95.
One 9% to 15% increase over 2020.
Moving to slide 14.
Let me provide some additional details regarding our 'twenty 'twenty one guidance for both the first quarter and full year.
In Q1, we are projecting EPS to range from $1 38 to $1 42, with organic revenue growth of 2% to 4% and operating margins of approximately 23 five per cent.
Our Q1 effective tax rate is expected to be approximately 23 per cent.
We expect a 3% top line benefit from the impact of FX and corporate costs in the first quarter are expected to be around $18 million.
Turning to some additional details for the full year guidance again, we're projecting full year EPS in the range of $5 65 to $5 95.
With full year organic revenue to be up 6% to 8% with operating margins between 23, and a half to 24 five per cent.
We expect FX to provide a two per cent benefit to top line results for.
Full year effective tax rate is expected to be around 23%.
Capital expenditures are anticipated to be around $55 million.
And free cash flow is expected to be between 115% to 120% of net income.
Corporate costs are expected to be approximately $70 million for the year.
Finally, our earnings guidance excludes any associated costs, our earnings with future acquisitions or restructuring charges.
<unk> pump is not included in these estimates and we will revise guidance once that deal is closed.
With that I'll throw it back to Eric for some final thoughts.
Thanks, Bill for questions I would like to once again, thank our employees and stakeholders for their contributions from what I consider exceptional execution in a challenging environment we.
We have proven the resilience of our businesses and clearly demonstrated the impact of the IDEXX difference in our operating model. While we are not completely out of the woods. This is the time for optimism and I believe that our businesses are well positioned to focus on the critical priorities that will accelerate our growth on the other side of the pandemic with that let me pause and turn it over to the operator for your questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Allison <unk> with Wells Fargo. Please proceed with your question.
Wanted to go back to your comment Eric on M&A and there's this concept of technology and investing there could you maybe give us a little bit of color on what that means in terms of size or if theres a vertical and then also how do you. How are you reconciling those opportunities with the historical disk.
Net IDEXX has always held with M&A.
Yeah, what's great too great to talk to Alex and thank you. So so.
So look I know we talked.
Talked a little bit here before about obviously, we think the technology cycle has compressed a lot.
And no doubt it was already kind of flying in a dynamic way. So as we're thinking about that at IDEXX. You know, we're thinking about organic bets and development that we're gonna do internally, but no doubt we're gonna have to appropriate some of this from the outside world and you know that.
I think that you can think of that as a range of technologies I mean for a lot of our component products.
It's probably going to come down to things like sensors and data readouts.
From other businesses that we have it might be more analytical in nature. So it's going to take some of the inputs that we're able to provide in a severe duty space and come up to some determinant outcome and present that to our customers.
So I think it would run the gamut from everything from embedded sensors.
And control elements up to frankly, some software pieces that might be out there that would stick and sit very nice comfortably next to some pieces of our business and I just think ultimately the call on that is gonna be speed speed and the ability to impact our solution in a way that we think will give us some differentiated edge.
No doubt you know when you're looking at assets, especially on the inorganic side.
The economics can often work in different ways and so we've challenged our teams to think about value creation.
In a different way as well in terms of how it might extend our solutions bring us closer to customers lead to other open doors. So we're spending an awful lot of time on that as a team bill and I and the rest of the senior team and really putting our heads together and what that will look like for for IDEXX, but we're excited about it.
No. That's helpful. And then I just want to go to your comment on capital projects. It sounds like Youre getting some inquiries or they're starting to increase their but that.
The balance for that going forward potentially it sounds like it's almost like a reopening kind of theme that are you feeling like theyre starting to be sort of this pent up demand as as people look out into the balance of 'twenty, one just any thoughts there.
Yeah, well I think so as you know I mean, especially I'll just take the FMT segment in General you know, there's a ton of support there on the day rate side and much of the improvement that we've seen in Q3 and Q4, and that's where it's coming from the system is working in other people are adding shifts there just more output and we come along with that.
And then there's a important component of project business.
We would need to see to kind of take it to the next level and I will say that you know you don't you don't see a lot of that yet in the the actual order numbers that we have as good as they are but the discussions that support that.
The discussions around spec points in applications and problems that we can solve it can feel that building and I think that's behind some of the optimism that we feel are coming ahead.
Particularly as the virus the course of the virus becomes more understood.
Great. Thanks, a lot I'll pass it along.
Thanks Allison.
Yeah.
Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Thank you and good morning, everyone.
Hey, Eric So congratulations you got your first quarter under your belt.
And as we look at the results from the quality of the earnings it looks just like vintage IDEXX and <unk> seen the ink.
Incrementals come back.
But could you share with us any like high level thoughts here now where do you think you'll.
You'll be focusing a little bit differently, where might there be and Eric and print here as C E O.
Is I suspect it a lot of it is just a continued focus on 80 20, and IDEXX way, but just for broad broad strokes. How are you thinking about that now.
Yeah sure sure day and book.
I think ex some of it we touched on in my opening comments, I mean, I would actually start with where the cultural aspects.
I think one other reasons, we performed as well as we have we've been as nimble as we have I mean, it really comes back to what we built here in terms of the culture and organizational mentality that allows us to course, correct and really focus on things without frankly, a lot of control coming from below or I or the rest of the team. So in an environment that probably has even more of that.
Ill go into the next level there is usually important than.
And then I think you know.
Partially thinking back a bit to the ER.
Comments are.
Around Allison's question, you know technology, and how that's going to layer across the solution sets that we have at IDEXX, recognizing we've got a lot of different states of evolution, depending on the companies. That's a place where I'm spending an awful lot of time to make sure that we're thoughtful and not in some ways you know kind of overdoing. It with a center led answer because that's not really the appropriate response.
And then I would I would end with certainly capital our capital allocation and a lot of focus on how we can frankly put some more of it for work and the environment is tough, but we're doing some things around and focus resources focused pieces for the company and in a lot of just very iterative thinking as a team of how we can tackle that and frankly capitalize on.
The engine that we've really built over the last two years I mean, I think we're uniquely positioned here even in a in a difficult environment to bring that bring that to bear.
That's really helpful and I.
I think you've given us from a good insight into how youre thinking about the end markets that page nine was especially helpful. As was the bridge debt Bill walked us through.
So if I could just take a moment and ask a more specifics on your muni outlook because that came up a couple of different times, where you talked about the toll that COVID-19 is taking but there's two pieces to muni one is water.
Which tends to be more resilient in fire and rescue a little more capex, but what what are your assumptions on a muni budgets and spending here on those two areas.
Yeah, I mean, no doubt that that's definitely an area that we're watching with a lot of focus is as you know I mean, those markets tend to lag of an awful lot and so something something bad happens in the world and it takes a while for it to read through and then of course, if you think of kind of our exposure layered on top of it particularly the two areas that you mentioned.
We're doing very important work that that many times. It is buffered against some of it so on the water side, we're heavily tilted towards the analytical side analytical services and support and so even if the system has to make do.
You know with with our infrastructure might have to delay some some kind of lay out a heavy infrastructure. They often turn to our kind of work to make sure that they're leveraging the system that they do have.
Frankly.
Also on the water side I mean, if we go into an era, where the environmental compliance has stepped up a bit that's another dynamic that helps us there so that against that sort of other trend that we are watching around budget support and budget a certain assurance. So the two things that kind of work in there together, but we see that same resiliency no fire and rescue again.
This is one of the most global stories that we have.
So no doubt in the more mature spaces capex purchases.
Considering where the source of that funding is going to come from it's always something that we're thinking about and tracking them, but we are you know we course corrected that here and so it's you know it's a different story and some of the emerging markets, where we've got great presence in and frankly, a lot of technology and people on the ground. So I think that global breadth helps us on that side as well.
But no doubt you know we're we're watching the same dynamics that you all are as we go forward. We're looking to see if there's backstopping it support or not all over the world and so we think we're well positioned.
Got it thank you.
Thanks, Dave.
And our next question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.
Hey, good morning, everyone.
Hum.
So let's start on the on the demand curve here I.
Obviously understand the optimism comments really good to hear is that how is that optimism embedded in the guidance range. How are you thinking about trends as you work through the year here and there.
Any commentary on how customers are thinking about what their what their spend patterns look like and how much optimism is bearing the channel when you're having those conversations and then I guess, one more tail to that what do you think that means for the next couple of years.
Well, maybe I'll also have for the first part of your question relative to how we're thinking about pacing through the year and our guidance I think it's kind of.
Insistent sequential growth as we progress for the year, you're looking for 6% to 8% and where we are in the first quarter. There is kind of a gradual improvement that we need to achieve each quarter. That's reasonable you know when you think about the six to eight you know between the segments.
HST a little bit on the high end of FMC in the middle in FSD.
Sure side, so generally balanced with you know small sequential improvements as we progressed, obviously and we've got some targeted growth things that will phase out through the year that could inflect debt, you'll plus or minus but you know what.
Not looking for significant growth in any specific quarter as we progress through the year.
Oh, My God I, just would continue to point to I mean from anyway, what we call it internally as sort of predictable uncertainty.
There's a lot of stuff going on no doubt, but it's.
It's at least found a level, where you know one other things we've noticed all around the world is certainly we're going to keep the machines on and keep the factories running and keep the borders open and keep products moving it'd be difficult at times, but that assurances there and certainly with what you know.
Some good signs in terms of you know.
Virus mitigation, that's and that provides another piece of assurance and then I think most people recognize there's a lot of pent up energy more broadly.
<unk> continue to go this way would be released at some point and you know again IDEXX has such broad exposure, we think we'd participate in that.
So so second question just maybe some thoughts on supply chains, how do they look for us specifically with channel inventories look like and then lastly, how are you thinking about price cost dynamics.
Yeah sure on the without the supply chain is tricky to maneuver I mean, we're seeing that as well as everybody else I mean that the ports are clogged up and they've got some staffing issues in both of the health of the coast.
Containers are in the wrong places all of that stuff and just frankly, there's not enough aircraft in the sky. So we're not immune to that however, as you know we were very localized generally in terms of our supply our production and our sell through into markets.
Very localized model.
So I think relative to a lot of people, we probably don't experience at the same levels.
Our teams now for for quite a while and frankly, even going back to the times, you're talking a lot more about tariffs and things like that have been thinking about where we are you know key sources of supply how we can make that I'm thinking more flexible and to this day every Tuesday, we kind of go around the horn and talk both about kind of how we're holding up.
In terms of the virus, how we're navigating supply chains and.
Unfortunately, it seems its been able to react to navigate around that and that's the go forward assumption for us.
I appreciate it thank you.
Thanks, Michael.
Our next question comes from the line of Matt Summerville with D. A Davidson. Please proceed with your question.
Thanks, and good morning, guys can you maybe talk about a little bit about the order cadence you experienced through the quarter. It sounds like things got better and what you've seen so far in January and if you wouldn't mind, adding some geographic overlay to that as well.
Yeah, so relative to the order pattern through and through the quarter, we mentioned it a little bit in the prepared remarks, our day rate business has continued to progress as we March through the fourth quarter. There's some timing of OE OEM blanket that made the absolute number is a little bit choppy, but for the things that we look as indicator of the sequential improvement was there that's.
On the January with another positive months of broad based order improvement across all of our businesses.
On the geographic side, you know I think it was.
Really strong performance in Asia.
Europe.
North America lagged a little bit only because of hey, that's where most of our for industrial and energy exposure is.
But it was the only area that was the lowest out of the three but again still sequentially improve it.
And then realizing just I'm seems a fairly small piece of overall IDEXX, they can still kind of bounce around.
The EBIT I would imagine some of the orders you received maybe for future periods is there any sort of sequential cadence, we should be thinking about as it pertains to FSD because of some of that lumpiness as we fine tune our models. Thank you.
Yeah, no. So obviously strong order quarter for dispensing I would say.
It's got a pace out through the first three quarters of the year for the most part maybe a little bit more heavily weighted towards the first two quarters.
And because we did receive from some orders for the for the full year from several customers.
Great. Thank you.
Our next question comes from the line of Scott Graham with Rosenblatt Securities. Please proceed with your question.
Yes.
Hey, good morning, and congratulations on your first solo quarter.
Look Scott.
I wanted to maybe.
Get a little bit more on your 6% to 8% organic for the year, which obviously suggests a pretty.
Steady, but pretty healthy improvement to Q3, Q for Q and maybe specifically in S. M T, where you're kind of saying that's sort of like in the middle what are the markets that you're looking at an S. M. T that are going to be the drivers for.
That level of growth as the year progresses.
Well I mean, as you know Scott I mean F. N T is such a broad collection catch all of you know of a wide variety of industrial markets, but you know it's honestly it runs the gamut so food production isn't there.
Related to starting to work on infrastructure and build out of <unk>.
Hi ways in buildings and things were going to participate there as well so the chemical sector that kind of coming back to life. We've got a significant presence there I mean, it's it really is that sort of broad based.
Support coming from the industrial sector, largely in kind of our mature geographic markets that just day rates, that's kind of in the first chapter of it I think the projects that we talked about earlier starting to come on starting to get funded you put those two things together, that's sort of what the picture would look like and it we see it as a pretty steady March I mean, it's it's not it's not like a hockey stick out there.
We just think the line sort of continues as the world heels.
Right.
Your shortest cycle, so that makes sense.
Bill one for you cause.
You give us an idea that you've got you guys have been kind enough in the past to kind of share with us. Some your revenues that are from Opex, which includes the day rates versus Capex, what was the exit rate on that.
I would say, it's more and more heavily opex related again to the terrorists comments relative to the larger capital projects I think the conversations are around those are picking up we havent seen a significant increase in order book relative to those things fall through yet though.
Would you say bill that the Opex is maybe 70 75 per cent of the well.
Revenue run rate right now.
Yeah, plus or minus it's around there.
Great. Thanks.
Thanks Scott.
Our next question comes from the line of Andrew Buscaglia with Wehrenberg. Please proceed with your question.
Good morning, guys.
Right.
I wanted to just focus on the health and science technologies for a second.
So you you gave some color there on the rapid test.
Cant come in roughly in line with kind of what you thought revenue wise, but what are the puts and takes elsewhere.
Elsewhere in the business throughout the year, because it seems I was I'm actually surprised that life sciences is more stable and analytical instrumentation, just given what we're seeing with other companies.
I don't know I guess, what are you seeing in in 'twenty 'twenty, one in that segment and how that ex kind of ebb and flow throughout the year.
Well I mean look I think the day.
Analytical instrumentation story for us.
Pretty mature business you know it was obviously it faced some headwinds last year like a lot of life sciences debt related to sort of you know.
Sort of up and down the street and our medical things and analytical services, we did see a nice bounce back there in the in the fourth quarter for AI I think it kind of returns to its sort of historical rates. As we go forward you know the IBD bio side, which is also a pretty mature that's the one that's got the most pressure on it its much more dependent on people going and visiting.
Labs, and then as a consumable stream that tends to be out ahead of capital purchases and that's kind of where we come in so consider that a bit of an offset.
To the to the AI story and I'm pretty quickly you know we get into the more dynamic pieces of this related to and other work that we do in genomics and obviously the rapid test is the most dynamic of them. All so you put all that together I think we tried to lay that out here you know, but I would say in general book. This is this is a robust sector. It's obviously done.
Any work that the world needs right now, we think we're well positioned in all of it and you know the single biggest catalyst for US still remains debt that work, we're doing around the testing program.
Okay.
You know based on your orders.
Order trends you know, what I guess I'm looking out to 'twenty 'twenty one for the full year.
You know is it safe to say fluid metering probably needs.
Bye.
H S T and then fire and safety or I guess.
Can you rank order those organically.
For orders or sales.
First sales I mean, yes.
Yes.
I think I mentioned it a little bit earlier I think the HST is probably on the higher end FMT as down the middle in Ssds.
On the low end Yep yep, Okay, sorry, I missed that.
Okay, and then just one last one on M&A you guys indicated you know look.
Order or two ago that there were some deals in the H S T perking up anything or any update there or anything.
Just broadly on M&A.
Well like I said as I said in our in that both from the comments at the beginning and some other questions here I mean, we got a lot of work going on and frankly, all three segments.
So I I I.
Wouldn't say that one is tilted more than the other I mean, we've got good opportunities in all three we've got teams associated in and positioned in places where we're focused in all three so I'd.
I'd hesitate to color it is slanted one way or another.
Okay.
Alright, Thank you guys.
As a reminder, ladies and gentlemen, it is star one to ask a good question. Our next question comes from the line of Joseph Giordano with Cowen. Please proceed with your question.
Hey, guys. Good morning. This is francisco on for Joe.
Wanted to ask with regards to them to slide nine which is which is obviously very helpful. Your general thoughts on automotive we've seen some headlines on potential production cuts coming from the shortage in semiconductors. How exposed are you to that and if you can just provide some incremental commentary there. Please.
Yeah, well I mean, no doubt we've seen the same headlines I mean, you know this is still relatively small piece of IDEXX I mean, we have exposure there and a couple of businesses.
And none of which is related to the electronics side. So.
Look I think what we've seen so far the momentum as the recovery of a of an industry that was largely kind of shut down for different parts of the year and then frankly most of our growth. There is true growth platforms. The technologies, where we're actually focused on.
Our teams have done just a great job of being able to introduce that to more and more people more and more players in the market and then secure those wings and then wins and we would see the run out over several years. So am I, we haven't seen a big interruption debt.
We're not we're not in that sort of same area. Other parts bins, and we've got really really good exposure for the platform wins and a couple of businesses.
Thanks, that's helpful and just going back quickly to the to the M&A topic.
Just on the environment would you say, it's more favorable than it was a couple of quarters ago. I think you guys are men.
And at some point that multiples were still pretty high and people were maybe not as willing to sell how has that changed in the last couple of months.
Well I mean like the valuation remains at certainly high and enrich for in and maybe because of that and in some of the confidence that we're seeing generally you put those two things together I would say the flow of properties for sale is better.
And it continues to grow kind of with the confidence and assurance.
Same things that we're citing here so.
No valuation was frankly high before it gets high now we're going to stay at these elevated levels as we go forward that's the challenge for us.
But you know we think we've got the certainly have the firepower to do the work.
Both in terms of the teams the franchises, we're thinking of building around and the demonstrated ability to execute and drive value in our company.
Great. Thank you very much.
Yeah.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Okay, well, hey, thanks for for everybody, joining and I know, there's always a lot of IDEXX folks that joined this call as well. So I do want once again want to thank everybody across IDEXX for their for their really really hard work and solid execution in 2020, and and frankly, a great start already for the year here. So thank you for your efforts there.
As you can see I mean, we're pretty or we're cautiously bullish we're leaning forward you know, we're generally optimistic about where things are going here.
No doubt, there's a lot of uncertainty that's still out there, but I think if we learned anything in 2020, it's it's how resilient everybody is and how quickly we can kind of course, correct and I think our company does that better than many so we've got the people in place. We've got the teams we've got focus and I'm, just really really pleased to be.
B hereof, and leading the charge with bill and others. So thanks for your interest in times of day.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.