Q4 2020 PerkinElmer Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Turkey, and Elmar fourth quarter and full year 2020 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation and that will be a question and answer session to ask a question during that portion on the call you will need to press star one on your telephone.
And if you'll be quiet any further assistance. Please press star zero and I will now hand, the conference over to your Speaker today, Bryan Kipp, Vice President of Investor Relations.
Thank you operator, good afternoon, and welcome to the PERC and <unk> fourth quarter and full year 2020 earnings conference call.
With me on the call today are prolonged thing President and Chief Executive Officer, and Jamey mock senior Vice President and Chief Financial Officer.
If you've not received a copy of our earnings press release, you may get one from the investors section of our website at Www Dot Perkin Elmer Dot com.
Please note. This call is being webcast slides will be archived on our website until February 16th 2021.
Before we begin we need to remind everyone of the safe Harbor statements that we've outlined and our earnings press release issued earlier. This afternoon and also those and our SEC filings statements or comments made on this call may be forward looking statements, which may include but not are necessarily limited financial projections for other states.
<unk> of the company's plans objectives expectations for intentions vs.
These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward looking statements due to a variety of factors, which are discussed in detail and our SEC filings.
Any forward looking statements made today represent our views as of today and we disclaim any obligation to update forward looking statements in the future even if our estimates change. So you should not rely on any of today's forward looking statements as representing our views as of any date after today.
During this call we will be referring to certain non-GAAP financial measures a reconciliation of non-GAAP financial measures. We plan to use during this call for the most directly comparable GAAP measures is available as an attachment to our earnings press release.
To the extent, we use non-GAAP financial measures. During this call that are not reconciled to GAAP in that attachment. We will provide reconciliations promptly I am now pleased to introduce the president and Chief Executive Officer at Perkin Elmer collapsing a lot.
Thank you Bryan and good afternoon, everyone.
Our year ago I started my prepared remarks talking about how 2019 was a seminal year for Perkin Elmer.
And I have no doubt that the positive changes, we had completed but become increasingly apparent to external stakeholders in the quarters and years ahead.
Looking back now it is hard to believe how much has changed and such a short period of time.
From very vs turned today looking back on 2020 vs.
On a more collaborative and cohesive organization.
We've reduced debt tape from.
Total cross functional collaboration and struck a chord with employees that has resulted in our launching of several breakthrough innovations.
The energy and purpose debt, but weighted throughout 2020 was inspirational.
Our collective mission to improve lives propels us as we rallied together to respond to the call to action to help.
All while making sure that we did not lose sight of our four guiding principles that we highlighted at the onset of the pandemic.
Keeping our employees and company safe.
Utilizing our expansive capabilities to join in the fight against COVID-19.
Serving our customers with excellence during this difficult period.
And emerging from this crisis a stronger company.
I could spend the next hour highlighting the countless examples of employees, who went above and beyond and 2020.
However, I.
And I will take a moment to thank them and their families personally.
Many did not receive the spotlight day duly deserved.
The tremendous sacrifices did not go unnoticed by us.
For our customers.
They each personify our mission.
And I could not be prouder to be working alongside them and.
The rest of our 14000 colleagues on a daily basis.
Their efforts in 2020, embolden broken <unk> place in the World.
Booking and has been and continues to be a fundamental player and the fight against the global COVID-19 pandemic.
However, as I've said before we do what we do because we are passionate about helping people.
It's personal.
Our COVID-19 response is just one example of the power of our company.
We are a multi faceted and multi talented organization.
And we look ahead, one thing is for certain.
<unk> will emerge as a stronger organization.
We are a leading global diagnostics Bryan we are an exemplary global citizen and a top leader a strategic partner, which does what's right and what's the cost of achieving breakthroughs and healthcare and science for us.
Most of all day.
Have learned a lot over the past year.
Honed our collective skills and develop capabilities that we as an organization didnt have a year ago.
That's right, even when the pandemic subsides and we are operating and the new normal things will never be the same.
We have on the seat at the table by clearly demonstrating we are leaders in the fight for making the world better and safer.
And I truly hope debt that is what you take away from today's call.
In terms of the fourth quarter and full year financials.
Jamie will detail our results and a few minutes.
But at a high level and <unk>.
Very proud of our performance throughout 2020.
Fourth quarter results far surpassed the guidance, we communicated on the third quarter earnings call.
We delivered the best quarter of organic growth and profitability since the creation of the modern day, Buck and Elmar and.
In 1999.
And from a cash standpoint, we generated more cash in the quarter than all of 2019.
For the full year, the team delivered 29% organic growth and <unk>.
Moving over a $1 billion and Covid revenue.
Adjusted operating margin expansion of over 1100 basis points.
Greater than 100% adjusted EPS growth.
And in excess of $800 million and free cash flow generation.
That being said, while the headline financial performance is certainly impressive.
It is important to also not lose sight of the fact that we added more than 1000, new diagnostics customers in their efforts to combat the pandemic.
We shipped more than $25 million COVID-19, Pcr tests.
Expanded on magic installed base three times to over 1600 instruments worldwide.
And launched best in class solutions, such as our explorer workstation rich.
Which boasts unparalleled sample throughput and set up flexibility.
We also invested back into the company.
We spent an incremental $25 million and people and digital capabilities and invested more than $200 million and R&D to ensure that we continue to build a robust pipeline of new products across the full suite of technologies.
Inorganically via deploying approximately $800 million and capital.
Adding new and exciting assets to the parking and more family.
Including Horizon discovery.
Which uniquely positions us to propose cell and gene research forward.
Through our combined screening and genomics solution.
And also Oxford immunotherapy.
And we gave back.
As a thank you for their incredible efforts, we gave me and yoga and organization wide bonus to our employees.
And we seeded a pocket on and more foundation to serve as a charitable matching vehicle for future donations debt.
Our near and Dear to our employees' Hearts.
While the fourth quarter and full year financial results is certainly impressive.
We have many accomplishments beyond the headline financial numbers to be proud of.
Most of all we have always and will continue to do what is right and lead with science.
This is what our customers trust us to do and this is what we expect of ourselves.
And.
And as we transition to 2021, you can expect debt, we will continue to lead with science and deliver on our four strategic priorities.
One executing against the value creation framework, we outlined during our December what shall life Sciences deep dive.
As well as during our recent presentation at the Jpmorgan Healthcare conference in January.
In terms of our strategic priorities our goals remain the same and 2021 on the customer front.
And we aim to go above and beyond for them, while owning their trust as a true strategic partner.
I mentioned earlier that we had made significant headway and enhancing the customer experience last year and.
And we seek to further build on that momentum this year.
Okay.
To that and we launched on new global commercial function last month.
Which will support all three regions and a strategic and HIV base.
Medium Victor was recently appointed Chief commercial officer to manage our global commercial organization.
She has done a phenomenal job as the general manager of <unk>.
And our region over the past two years.
By centralizing our commercial efforts.
Hope to further refine our go to market strategy across all segments and geographies.
As well as promote collaboration and democratize best practices across the organization.
On talent and culture, we plan to accelerate our employee engagement and brand advocacy efforts in 2021.
While we are proud to have one of the lowest voluntary turnover rates and the industry. There is certainly more we can do to improve our most valuable resource our people.
In 2021, we plan to elicit feedback on our recent efforts to employee satisfaction and serviced to.
To ensure that we have the right programs in place to be certain debt.
Our employees are happy and fulfilled professionally.
On the transformational innovation front, while 2020 was an extremely successful year in terms of new product development.
David a lot of behind the scenes learning as well.
As we push the R&D organization harder than ever to respond to the rapidly evolving needs of our customers.
In 2021.
Our aim is to build on the NPI introduction successes of 2020.
While also democratizing prior learnings and institutionalizing process improvements.
So that we can continue to optimize our R&D engine for the years ahead.
Visit and operational excellence.
We continue to scale our company every function increasingly plays a role and making tuck and Alamo and more efficient and HIV.
Operational excellence is a muscle that all book and employees need to homes.
Whether it be R&D manufacturing operations of cash collection.
We're constantly looking across the organization at ways to improve our operational rigor and given the OLED and things of this effort. There's lots we can do.
Yes.
In 2021 expect debt, we will continue to March ahead, focusing heavily on quality quote to delivery and cash collection.
And from the perspective of leading with science, we will continue in 2021 to listen to our customers.
Keenly track scientific advancements.
And challenge our teams to think about ways, we can uniquely tackle the scientific challenges of today and tomorrow.
For example.
Back to a year ago, there wasn't as much focus on the diagnostic nuances between humoral and cell mediated immune response.
And a post COVID-19 world via phone believers that there will be and increased research and clinical focus on developing diagnostics for infectious diseases.
<unk> immune disorders.
A cancer that look and the patients humoral and cell mediated response to disease.
You're on immune recognize the importance only on 2020 and invested in their own T cell assays.
However, as it became more apparent to us that this is where science is likely headed.
And as an organization proactively quoted Oxford in Mueller tech to enhance our expertise and accelerate our capabilities on this front.
This is just one example.
But I think it is and for me too one embedded touches on both a focus to be at the tip of the spear of signs.
As well as agility and being able to respond quickly to evolving.
Market dynamics as we see them play out.
Before I make some closing comments I wanted to tank and congratulate Bryan.
As you know one of our strategic priorities is talent and culture.
Bryan Kipp is an exceptional talent debt joint book and on about two years ago and I'm proud of the work he has done and reshaping our investor relations function over this time.
He recently accepted our new and Tony's roll debt will result in him transitioning out of his current investor relations responsibilities.
I could not be more excited for him and I have no doubt he will do a phenomenal job and this next chapter Buck and Nomura.
In closing and where I started.
It is astounding to think about book and that most progress over the past year.
We truly are a different organization.
Though our guiding mission remains on North star innovating for a healthier world.
We have on the right to lead and key areas with the greatest impact on health and science and have built the internal momentum and his team with our customers and partners to continue to do so.
I'm inspired and humbled by our team.
And I couldnt be more excited for the opportunities that lie ahead.
I'll now turn the call over to Jamie.
Thanks, a lot and good evening, everyone to start I Echo for lots remarks, and as I've reiterated throughout 2020 and cannot be prouder of our team and how they collectively responded to address the needs of our customers and society. During these unprecedented times.
And no doubt our shared learnings position the organization well as we aim to tackle the challenges of tomorrow.
Before turning to the financial results and want to remind everyone that our fourth quarter earnings call presentation has been posted on the investors section of our website under financial information.
I will begin my prepared remarks by highlighting the fourth quarter and then I'll provide some additional color on our served end markets and financial metrics and.
And I will and with a quick look back on our 2020 results and our 2000 and 'twenty one guidance.
At a high level, we are extremely pleased with our record fourth quarter and full year results.
Organization executed remarkably well throughout 2020, and despite an extremely difficult macroeconomic backdrop.
And as we look ahead to continued sequential improvement and our customer engagement.
And business activity during the fourth quarter positions us well as we turn on the fiscal calendar 'twenty and 'twenty one.
During the fourth quarter adjusted revenue grew 68% to $1 $3 6 billion.
Compared to last year and included a 3% foreign exchange and negligible acquisition and tailwind.
Organic revenue grew 65% two percentage points better than what we previously communicated.
Overall, COVID-19 related products and services contributed $549 million and the quarter propelled primarily by our PCR test and RNA extraction solutions as.
And as well as our turnkey lab and lab testing solutions and the state of California, and the United Kingdom.
And total excluding the impact of our labs, our PCR and RNA extraction and products contributed over $300 million.
Covid revenue during the fourth quarter.
By business diagnostics, representing 63% and total sales increased 172% organically.
And our immuno diagnostics and applied genomics businesses more than offset the improving but ongoing modest declines and our reproductive health franchise.
Discovery and analytical solutions, representing 37% on total sales declined 2% organically.
Our strength in our life science business was offset by more muted demand conditions and food and applied end markets.
On a geographic basis Americas grew strong double digits.
Europe grew triple digits, and Asia Pacific grew low single digits.
China remained in negative territory and still improved sequentially early signs point to a healthy rebound and our China business as we advance into 2021.
Operationally, we are extremely pleased with our performance this quarter.
<unk> operating margins expanded approximately 800 basis points to 42%.
Led by volume leverage and business mix and productivity programs.
Adjusted earnings per share of $3.96 and the fourth quarter nearly tripled versus the fourth quarter of 2019.
Looking further into the key drivers within our segments, let's start with our diagnostics business.
And as mentioned in my earlier remarks, organic revenue increased 172% as robust growth in Europe, and the Americas drove the momentum.
Our applied genomics business led the way posting over 420% growth on broad based on minimum across all geographies with strength and our nucleic acid extraction liquid handling and sample prep product lines.
Nucleic acid extraction, and automated liquid handling room, or 12 times and seven times, respectively versus the fourth quarter of 2019 and.
As for lot recently mentioned, we installed over 1000 and <unk> systems and.
And 600, Janus liquid handlers and 2020.
Both platforms have gained share and position of our applied genomics business well as we eventually transition to a post COVID-19 world.
Meanwhile, immuno diagnostics growth increased over 250%.
And with your own and growing over 20% day.
And for our portfolio of RT, PCR assays remain particularly strong across the globe.
And serology demand was consistent on a sequential basis.
Reproductive health declined low single digits organically, driven by lower newborn and prenatal testing and Asia Pacific and Europe.
Americas newborn increased mid single digits.
Europe, and Asia Pacific declined high single and double digits, respectively.
Gross rate pressures globally remain a headwind however, early signs point to improved underlying demand trends.
Turning to discovery and analytical solutions organic revenue declined 2% and the fourth quarter versus the same period last year.
By end market, we experienced mid single digit organic revenue growth and life Science pharma biotech was up mid single digits driven by strength in enterprise up double digits and discovery up high single digits.
Academic and government increased double digits, driven by nearly 20% growth and our discovery franchise.
Applied markets declined approximately 10% for the Americas down over 20% normalizing for the tough candidates comparison and the quarter.
<unk> declined mid single digits, which we think is a more useful data point when evaluating the underlying demand trends across our applied franchise.
Food declined over 20% and the quarter. However, excluding canvas food declined 12% with dynamics consistent across all three major geographic regions.
Maybe James Solace and Baidu, all improved sequentially, which is an encouraging sign that food safety testing momentum is improving across the globe.
Meanwhile, industrial and environmental safety declined mid single digits, continuing the trend of improved sequential momentum since demand trough during the second quarter and.
Another positive sign for the applied franchise as we look ahead is that our year and applied backlog increased double digits year over year.
Shifting to below the line items adjusted net interest and other expense for the fourth quarter was approximately $11 million and.
Our adjusted tax rate was 20%.
Turning to the balance sheet, we finished the quarter with approximately $2 billion of debt and $400 million and cash adjusted free cash flow was $471 million and the quarter, which resulted in and adjusted free cash flow conversion rate of 105%.
Finally, we exited the quarter with a net debt to adjusted EBITDA ratio of approximately one two times down over a turn and a half since the beginning of the year.
Closing the books on 'twenty and 'twenty, we're extremely pleased with our overall performance, including 29% organic growth.
102% adjusted earnings per share growth.
And 159% adjusted free cash flow growth all compared to 2019.
Adjusted free cash flow conversion was 89% up from 70% for prior year debt.
DSO reduction has been a function of process improvements as well as improved monthly linearity in terms due to COVID-19 demand.
We remain encouraged by our free cash flow progress and are confident that we are well positioned to deliver consistent adjusted free cash flow conversion of at least 85% for the foreseeable future.
Turning to guidance for the pandemic continues to create uncertainty we thought it would be helpful to provide a baseline for how we are planning our business in 2021.
In total we anticipate revenue of at least for zero $8 billion.
Embedded in this guidance, we assumed COVID-19 revenues will be at least flat with 'twenty and 'twenty and.
And we expect underlying dynamics to improve for our non COVID-19 portfolio as we progressed through the year.
Translating to full year, non COVID-19 into organic growth of approximately 5% to 7%.
These assumptions do not account for any incremental lockdowns and or any COVID-19 related disruptions as well as any potential catch ups related to pent up demand.
Additionally, we are anticipating 2% benefit from both foreign exchange and acquisitions for the full year.
In total this baseline implies and organic growth range of 3% to 5%.
And on the bottom line, we anticipate adjusted net earnings per share of at least $8 50.
Which assumes approximately $40 million and adjusted interest and other expenses attached.
A tax rate of 20% to 21%.
And our average diluted share count to be and a range of $112 million to $113 million.
For the first quarter, we are forecasting reported revenue of approximately $1 $109 million.
Representing 77% organic revenue growth.
And including a 3% benefit from foreign exchange and 3% from acquisitions.
Embedded in this guidance is $500 million of Covid related revenue.
And organic growth of 1% to 3% for non Covid product lines.
There are two additional factors to keep in mind for top line modeling purposes for.
And the extra week during 2020 fell during the first quarter.
As a reminder, we estimated that the extra week contributed $11 million of revenue. So that headwind is embedded in our 1% to 3% non COVID-19 growth guidance.
And second we generated approximately $12 million and Covid revenue and <unk> 20.
So one needs to adjust for that amount and the prior year baseline and forecasting the incremental dollar growth for the non COVID-19 portfolio.
In terms of adjusted earnings per share guidance for the quarter, we are forecasting at least $3, which assumes approximately $11 million of interest and other expenses of 22% tax rate and a diluted share count of 112 to 113 million and all of this is detailed in the second and last page of our fourth quarter earnings.
<unk>.
And closing 2020 and was one of the most important years and personnel and there's long and storied history.
And I have no doubt, we are better positioned as an organization exiting 2020.
We are excited for what is ahead, how we will better serve our customers and perform for all of our stakeholders.
Before I hand, it over to the operator I also want to thank Brian.
For all of this work, leading and guiding our Investor relations efforts over the past few years. He was instrumental in our strategic evolution and a staunch proponent of increased transparency for all of our stakeholders.
And I'm excited for him as he transitioned to a new role with us and the coming weeks and I'm glad he remains a part of the PERC and all of our family.
Operator at this time, we would like to open the call to questions.
Thank you and ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone and withdraw your question press the pound or hash key.
We ask that you please limit yourself to one question only.
Please stand by while we compile the Q&A roster.
Our first question comes from Vijay Kumar with Evercore ISI. Your question. Please.
Hey, guys. Congrats on a nice print here and thanks for taking my question and I'll limit myself to one question and.
Bryan I wanted to congratulate you on and you're right on your on internal promotion and all the best.
I guess.
If I could just maybe ask one on the guidance here.
On.
On the Covid diagnostics at least flat given that you guys are doing 500 and in that Q1, I'm curious you know.
And with the U K and California contracts.
And it doesn't make sense for a pretty steep drop off from Q1 levels and when you look at the base business.
And thank the <unk>.
The 7% core.
Correct me, if I'm wrong your core.
Comp and 2020 was minus 7%.
So that seems like a pretty easy comps and maybe talk about the underlying and in that the COVID-19 coders assumptions.
Well look for to the guidance.
Thanks, P J and Theres, just a few questions and there are and we're excited for Bryan as well.
So I'll start with Covid as it pertains to the guide obviously, we said at least flat year over year and I'd say predicting the course of Covid has not been easy nor do we anticipate it to be easy over the next 12 months.
And there are certainly some variables that could make it more than this but let me talk about it and a couple of ways wanted to sequence through the year, which gets to your question about $500 million and the first quarter and then the labs versus kind of the rest of the Covid revenue piece. So in terms of a sequence. Obviously, we have much better visibility certainly to the first quarter and the for.
First half and our assumption and this guidance is at the vaccine kicks in and the second half revenue and testing comes down substantially.
And you can see that by evidenced that almost 50% of the revenue is here and the first quarter. So we feel like that's a conservative assumption, but one that we are confident and.
As it pertains to the split between core versus labs in 2020 core made up approximately 80% of the revenue and were predicting that that will make up approximately 60% of the revenue and Conversely, the labs, which made up about 20% on the revenue and 2020 will step up and be a greater contributor in 2021 to be about 40 per.
<unk>.
So I think we're assuming that starting in the first quarter here, we're expecting the testing levels on the quarter to come back down and the and the level of instruments that we sell et cetera to kind of match, what we saw probably in the third quarter.
And then as it pertains to the lab and so we've got a couple of variables at play first is in the U K our contract only is valid through the end of March. So we're not yet sure whether it'll be extended beyond March and we haven't been told yet we're obviously talking to them about that now. So this guidance assumes that the UK finishes it.
And of the first quarter and there is no revenue assumed in the end and the second quarter and beyond.
And then and California as you've seen is this slow and steady ramp so it's public information.
<unk> from almost no testing at the beginning of November and now we're probably about 20000 tests per week, but there's numerous sites throughout the state of California that theyre trying to bring into the program and so but those are slow and steady. So we expect California to ramp up here, but it's not nearly as fast as.
And we think and so therefore, we've taken a pretty conservative assumption and the first half year as well and net of Taylor's back down and the second half as well. So overall a lot of variables and play Vijay we're trying to set a floor here that says we think we can be at least flat, it's very much front and loaded here and there is certainly some potential for upside here and our supply.
And can certainly deal with it as we evidenced in 2020.
And well non COVID-19, so on the non COVID-19 side for.
First quarter I think the comp is a minus 3% not a minus 7% the.
And the rest of China was the one that was impacted the most I think China was down over 30% and the first quarter last year, the rest of Europe, and Americas was quite strong and the first quarter, which funded to down three 3%.
So if you look at our 1% to 3% guidance here and the first quarter that embeds the extra week.
Which is the equivalent of probably two percentage points. So it's more like a 3% to 5% guidance and we've seen a slow and steady uptick year. So second quarter of last year was where we trough. We had I think minus 14% on the core book third quarter, we hit and minus 6%. This past quarter, we hit minus 3% with a couple of difficult comps and there. So we.
And to see this trend up as it pertains to the five to seven overall for the year, obviously, we will probably see the largest growth from an organic growth rate perspective, and the second quarter due to the comp and then it will start to normalize and the back half of the year.
And so thanks guys.
Thanks P J.
Thank you. Our next question comes from David.
And with Bank of America on your question. Please.
Hi, good afternoon.
Hey, Derik.
So I wanted to ask on the margin.
Progression and its like.
How should we think about the.
The decremental on the operating margin for <unk>.
One and I know David at the.
Net debt Tyco's conference you put out some targets for.
The 2023 outlook, so I'm just curious.
I'm, just curious and sort of like can you sort of.
Talk about the margin progressed and going forward and they are and and what what the impact is of the recent acquisitions.
Acquisitions and.
Oxford and.
And what sort of Oxford and sort of like have an impact on the margin just I'd love to get your general thought on near term and on longer term margin profile.
Sure. So let me answer the last part quickly so Oxford and does not assume that any of this guidance. We probably should have made that clear horizon is the only one that we closed on two horizon is embedded in this overall guidance here.
And we talked for the year, and then I'll talk to the sequence throughout the year overall, obviously, we're guiding at least $8.50, which is up 20.
The total the overall revenue was flat as we mentioned and then and our core growth kicks in and so we probably get about 60 cents increase due to the volume.
And then we're reinvesting that back into Opex and I'll talk to overall gross margins. So gross margin, we're expecting to be flat year over year that had some assumptions that the COVID-19 pricing and margin starts to dilutive a little bit and then our core book as we work on our productivity programs as well as have more volume leverage kicks in and that keeps.
Gross margin overall flat and then we will continue to reinvest into Opex here. So we started that towards the second half of last year, we're going to continue to do that I would say, we have a very flexible variable cost overall cost base. So we can toggle this on and off with any level of growth that we have.
Want to continue to do so and we'll make the investments that we've happening both on our talent and R&D digital et cetera.
In terms of progressing through the year, obviously with a ship and more material Covid first half the margin rates will be much more substantial.
And then and the second half it'll be on.
And our assumption is that it comes down you know and we start to start to accrete off that 2019 platform. So you mentioned and take those conference and we laid out a 2023 gameplay and to be 23% for better. We certainly have not lost sight debt 20. This business overall can be 25% plus and we will start to.
Gross margins here on the back half of this year from our productivity programs perspective, and extra volume. So I'd look at 2019 levels towards the back half of that year and had some productivity to it and that's what we expect there.
Great. Thanks for the thanks for the.
The input I will get back on line. Thank you.
Thanks, David here.
Our next question comes from Dan Arias with Stifel. Your question. Please.
Afternoon, guys. Thanks, Jamie can I just go back to the question on the guide I mean, I thought the idea was that you.
Guys are kind of trying to convey that this is a business that can do 5% to 6% organic and a normalized environment, so against the minus 6% comp and that.
That seems pretty conservative is there something that I'm missing there or is upstairs and element that maybe I'm not understanding.
Yes, I mean, I am not sure I would say today's and normal environment. I think people are starting to live and a new normal environment, but I think right now and still I wouldn't say completely robust environment.
That said I mean, we feel confident that the long term prospects are much faster from a growth perspective coming out of 2020, then going into 'twenty and 'twenty.
And so but we've seen a study as I mentioned earlier, Dan we've seen the steady increase quarter over quarter. So for.
As I mentioned, we went up about six points each quarter and three points and the fourth quarter, but if you normalize for things, probably a little bit more and.
And so overall, we feel very confident that the five to seven is an achievable number here and where could there be a scenario that is better than that yes. We I mentioned in my prepared remarks that we're not banking on any pent up demand.
But we can go through the end markets and we feel like five to seven is an appropriate guide at this point and this market environment.
Given the uncertainty that and I think and on the second half just like on the Covid side on.
Our intent is to ensure that we put a number and given all the assumptions that we've made that we can be and.
And then that's what you are.
As for Baby forecaster.
Okay, but just just to be clear. It does look like you're you exited the year with a das backlog. That's good youre seeing some improvement in food safety demand and it makes me think that maybe overall the food businesses is trending and the right direction and then on the diagnostic side it sounds like.
On the immuno and Dx business on the non Covid side of that you're you're approaching normalized right I mean so.
If we're lining up the things that seemingly could take you higher it feels like there are a couple of elements here.
Debt that suggest that that could actually take place because that yeah.
I think there are certainly theres certainly a possibility that the end markets can perform better than what we're planning on right now.
And if that happens, we could certainly be north of 5% to 7% and.
Covid comes out faster and looking at on the economy returns back to normal and maybe have a little bit more uplift there but to your point I think food is an area that has potential upside and I think right now we're planning on high single digits for immuno diagnostics I wouldn't say that it's completely normalized.
And I think you're on mute was slightly positive across the globe and the fourth quarter. When you exclude their COVID-19 sales. So it is not yet perfectly normalize here and I think that's why we're showing kind of a slow and steady uptick here.
But certainly if it returns to all of them and if it's faster and we have some pent up demand.
We will see it but it should be much and it should be greater than 5% to 7%.
Okay.
Bryan Good luck don't be a stranger.
Thanks, Dan.
Thank you. Our next question comes from Tycho Peterson with Jpmorgan. Your question. Please.
Hey, Thanks, I just wanted to follow up came in on some of your Covid comments, a couple of clean ups here Serology I Didnt hear you mentioned that a lot and obviously with vaccine rollout I'm curious about your views on whether that gets more interesting, especially as you at Oxford and the mix also are you still planning to launch and antigen test I know you previously.
Talked about doing something with Thomas and then on the California Lab 20000 tests a day versus 150000 capacity is there any risk at some point if you don't hit certain thresholds that debt doesn't move forward.
So you went on strike and wanted to ask for California person and there so yes.
Tycho right now we're not at 150000 capacity. So we have been going at the pace that California Department of Health has asked us to.
We got up to 40000, and I think and January here and they've asked us to continue to uptick that so that we are ahead of what they how they on board sites and I think I've mentioned and maybe at your conference actually debt. There's over 500 sites that they want to bring on right now they've only brought on 100 sites for a little over 100 sites across the state of <unk>.
Before and yes, so we're not at 150000, and we're going at the pace. They asked us to be and if they will uptick there onboard their sites over time here and will stay and ahead of them and.
I'm Tycho on the serology and on.
Antigen test.
And on Serology on assumption right now is you've got quantity back CE Mark.
And we are going to submit it for an EUA from euro immune and we've got a couple of our T cells options on T cell options that you are looking obviously, one is from your own immune and they'll probably be.
Assuming Oxford clothes, and so if you have on that option too. So I think and the post vaccine worse and we see are all for it and we've not made a big assumption around that and the numbers that for Ya forecasted as all style.
On the second one and on the rapid antigen test.
You'll recall on and before in fact during the CEO series that you had done you had talked about the fact that we would come out with one.
And we feel that it is.
And it's probably off.
Same quality comparison as we have on the RT PCR and at this point, we feel pretty comfortable that you have something that we might come out with which is probably at.
And at par or if not best of best and standard in terms of what's out there.
So.
A few weeks more to go and that should that should be something and they'll be able to share.
Yeah.
And then for a lot of their plans for explorer.
10000 samples a day, obviously, a high throughput system in terms of future menu buildout or do you envision customers and decoupling that as the pandemic subsides.
I think those are both organically and future menu buildout on those ourselves and also adding other component and storage from a detection capability perspective for our customers and on Ngls and then.
Things to that effect on and I didn't get on that site. So theres a lot of work going on on that from an R&D perspective Tycho.
Okay, and then lastly, China and just curious whether you think that gets back to growth from the first quarter or where does that kind of leading indicators here.
Thank you and get back to growth from the first quarter, but I think I don't know if it's actually coming off a pretty easy comp for your Tycho so embedded in the 1% to 3% has a pretty high churn on a growth rate.
Okay. Thank you.
Yeah.
Thank you ladies and gentlemen.
And they get close to limit yourself to one question on me and our next question comes from Steve Bradshaw with Wolfe Research. Your question. Please.
Hi, good afternoon and.
And for asking anything I would echo the congrats to Bryan well deserved.
And Steve.
I'll ask a two parter.
And it's for.
Prologue.
It has to do with how you want people to think about news flow in 2021 on your on your diagnostics lineup is outside of Covid. One is you've talked a little bit about publications and validation work on Vantis I Wonder if you could give us any sort of details as to what youre thinking about there.
And then part two is you've commented before that to leverage your expanded molecular diagnostic presence in part with the pretty pretty large numbers that you have out there in terms of instrumentation, you might look at more partnerships or assay development efforts I Wonder if you could share anything incremental on that front.
And then I'll drop back in queue. Thanks, so much.
Sure. So on Validus I think we've got to keep obligations that are coming out and the first half of this year I think there was one that came out.
Gross to the end of last year. So you've got a good good pipeline off for publications coming out and again I'll reiterate what I have said earlier and Steve for the continuing to be very confident on Validus and you've got a very strong pipeline, our challenge really right and all of us being able to ship and install and training.
So maybe it's probably in the next couple of quarters, we will start seeing seeing that coming into play.
On the second question around.
And how do we you know on adding more menu.
Our installed base, our incremental installed base, we have put them again, David we are going with the three pronged approach one organically what you develop a true immune onto our telco and Tai Chung labs second partnering with other companies that have got approved and molecular assays that are out there and.
Part, obviously is the M&A and acquisition targets.
Number two and number three on in place, Steve and hopefully, we'll have something more to announce and the second half on a year.
Thanks, Good luck.
Thank you. Our next question comes from Dan Leonard with Wells Fargo. Your question. Please.
Thank you so.
Two parter on another.
Corporate assumptions I think on might be helpful to understand is the.
A component of Euro PCR RNA extraction business, you know how much of that is equipment versus consumables as we make assumptions around durability and then just a cleanup.
Can you offer up the China growth rate and the quarter and what you expect.
Broad brush strokes to look like and 21.
So yeah, I mean from an instrument perspective, Dan, it's probably less than 10% of the revenue overall from it.
Just the second time on China, what was the actual growth rate and for Q and that expectation and China was down mid teens.
And the fourth quarter. So if you go through the progression for the year down, 32% and the first quarter and it got a little bit better throughout the entire year.
And then and as we go into the next year. Our assumption is that it is high single double digits for China throughout the year here starting in the first quarter.
And Dan when you look at that it's split diagnostics is worse than what we saw and aggregate for China, and <unk> and das is better analytical stronger than the aggregate people.
Okay. Thank you.
Thank you. Our next question comes from Steve Willoughby with Cleveland Research and your question. Please.
Yes, hi, thanks for taking my questions and good luck Bryan.
Jimmy I was wondering if we could just circle back one more time on the some of the assumptions as it relates to Covid.
I guess first you talked about how the state of California has asked you to increase capacity and that lab. There. So I presume that debt, but also mean that you're basically the minimum amount of revenue you should expect to receive from that contract should increase and the first quarter versus what you saw on the fourth quarter and.
And then.
On the UK I believe your larger of your two labs didn't open until the beginning of December.
And that has continued to ramp up we believe so.
Both California, and the U K contribute meaningfully more and revenue Covid revenue in the first quarter versus what you saw on the fourth quarter.
No actually so its about flat to the fourth quarter, Dan or Steve So.
As you you're right on California that overall on the fourth quarter. It was a minimal amount of capacity and volume so that'll substantially uptick and the first quarter here, but as it pertains to the UK as I mentioned earlier.
First of all on the fourth quarter and David We had a lot of instrument sales as well as and implementation fee and.
And some stocking both due to Brexit and the risk of Brexit as well as getting ready for the first quarter ramp and.
And right now our assumption and the first quarter is that there are much less reagents, because we're not sure whether we will continue on with the contract after the first quarter.
So right now it's basically can I ask you.
And its California, it comes up and your overall flat.
Can I ask a follow up on that Jamie just how are you guys thinking about that UK contract.
Going beyond March I mean, if there's any way to ballpark. If you think that continues or not.
And if.
We don't have and you don't have it on our guidance at all so if that comes and that comes through that would be upside.
Yes.
Thanks very much.
Yeah.
Thank you. Our next question comes from Doug Schenkel with Colin Your line is open.
Hey, guys good afternoon.
Net.
Jamie I know you provided some commentary on margins in response to I think it was <unk> question earlier on the call.
Could you just maybe provide a bit more detail on why there isn't a bit more earnings leverage in 2021.
Youre expecting to grow the top line I think around 8% and I think with the flow through Youre talking about only about 3% earnings growth.
What were some of the key factors, we should be considering as we think about 8% versus three.
Yeah sure.
Two things one is that horizon is basically like we said nominally accretive here. So you have a lot more opex cost as a result of that I said overall gross margin. We're assuming is flat and then we're going to uptick our R&D and selling and marketing and some of our digital investments here Doug.
So I think we're using some of that profitability this year to invest and the Opex line and continue to improve the outlook from a growth rate standpoint.
Okay that makes sense and then one for <unk> one.
The clear goals that you've articulated and taking.
Taking the helm and CEO has been to better integrate acquisitions on the sales force and R&D organizations across the company. We've seen some clear progress on on that front I was curious if you could just provide a bit more detail on how you see Oxford and horizon filling into the strategy or I should say fitting into the strategy and what.
There are some examples of.
Areas, where you can leverage capabilities to accelerate growth for both of these deals. Thank you.
Sure, Doug I think the way and what we've done and I and the reason it has worked for us so far as we have always integrated on acquisitions right.
Other than heavy on light are appropriate.
And I think maybe I can talk a lot more around horizon than I've been on Oxford, because we havent closed on Oxford, but as you came through it right.
B.
Give you one example.
Horizon has a.
A group of strategic account managers with pharma that are very well penetrated and.
Lot of the business flow through comes from them.
And this case for us it's more of a reverse integration just to give you an example.
And we can build on that core competency that horizon hazard on strategic account managers, specifically and pharma and biotech and use them and add our assays and.
Imaging and detection portfolio and discovery portfolio and that bag.
So for US what is more critical is to look and the opportunity that and look at the targets that you've got and integrating it and see what bad debt on opportunities and most of our focus right now has gone around commercial synergies and technology synergies and obviously, Jimmy and I. Both have talked on me about the whole aspect around how we bring and auto.
Automation expertise for example of a box for so that's pretty old.
And that doesn't mean that you don't have the cost synergies on the corporate opportunity or for.
Uh huh.
The cost opportunities are on corporate costs.
For us the focus is primarily around commercial and technology synergies.
Okay.
Thank you. Our next question comes from Matt <unk> with Goldman Sachs. Your question. Please.
Thanks for taking my question and congrats again Bryan.
Well deserved I just wanted to just one question from me just on the Das Division.
Obviously life Sciences had had a good <unk>.
Fourth quarter I, just wanted to get at the sustainability of enterprise and discovery within that and.
That is sustainable how should we think about food and applied kind of coming up the curve as they recover.
And how is that kind of fit into your guide for the year.
Sure Yeah, Matt.
<unk>.
So I would say discoveries and overall as we laid out in December and we're encouraged by the life Sciences franchise as a whole and we've said that long term, we believe it can grow 6% plus.
Discovery has certainly gotten a lot better.
Enterprise and coming off a little bit of a tough comp as we head into this year. So we're a little less interest there informatics has been consistent overall and that kind of 10% plus so life Sciences look strong for.
Food has been a.
For more challenging market to understand here and see what it'll happen. We're a little we're assuming some kind of rebound here in 'twenty and 'twenty, one, but not gangbusters. So I would say, it's up mid single digits as well and so that could be an area that provides additional growth versus our current guidance.
Alright, Thanks, a lot.
Thank you. Our next question comes from Brandon Couillard with Jefferies. Your question. Please.
Hey, thanks.
Just a high level question for Alan.
Do you think about just capital deployment priorities, obviously, you're throwing off a lot of free cash flow you've already on two deals just talk about your bandwidth to absorb another acquisition right now.
Do you expect to sort of take a pause as you absorb.
Oxford and Horizon, and then just your appetite for share repurchases this year.
Right and and our priority will remain on M&A and I think our appetite is pretty good and I.
I think we will be.
Acquisitive in 2021.
And on share repurchases brand and we assume and our outlook here that we're going to keep it flat year over year.
Great. Thanks.
Thank you for our next question comes from Jack Meehan with and Nephron Research. Your question. Please.
Thank you.
Just a couple on reproductive health segment I was wondering if you could give us an update on genetic testing.
How that business performed in 2020.
Guessing a little bit of pressure from the pandemic, but what the outlook looks like for 2021, and then what are the expectations for newborn screening and you have some easy comps but.
Just talk about how that's going to trend throughout 2021.
Sure I think from a from 'twenty to 'twenty perspective, and obviously the pandemic did have an impact on genetic testing not for ourselves for the.
The industry as a whole, but it has started coming back and also keep in mind right and that's most of the team there was focused on ensuring that the California and the UK labs.
Got up and running so our focus had shifted because.
They start off for the nuclear yourself, ensuring that these labs are.
No pick off and and we execute.
Flawlessly.
All from our reproductive health perspective, our assumption I think going into interest low single digits for the year on we continue to see <unk> seen continued pressure on both sides for the past few years.
But you know again as I've said that that's not sustainable so our assumption on that is probably flat to low single digit decline on both sides, but compensating that with menu expansion and some of the new ntis that we've talked about ion as being one of them and I think SMA and <unk>.
M D right. So that's sort of our thinking on reproductive health.
Okay.
Okay.
Thank you.
And our last question comes from and Dan Brennan with UBS. Your question. Please.
Great. Thanks, Thanks for taking the question, Brian Best of luck with the new role.
So really weighted two part question on testing if you don't mind just.
How are you thinking about the.
And Mike rapid antigen.
On PCR on your franchise as you look out.
And then B, while I know, there's a very wide range of outcomes.
The vaccine and kind of what happened to testing, but any any any way to think about like kind of guidepost as we cycled past <unk> and 'twenty, one and into 'twenty two just given how big of a part of our business. It is obviously symptomatic testing may come down, but you could have a lot of screening that picks up the slack just kind of wondering just some early thoughts about just kind of a range of outcomes we might contemplate.
Thank you.
Sure I think one thing to keep in mind is even around occupancy or the benefit that we have is we have a full area of assays around occupancy on that our FDA EUA approved.
And as you look at it and we've got pull and we've got asymptomatic.
No.
As this moves forward and as polling starts to play a role around occupancy are we already have an EUA approved assay for symptomatic and asymptomatic.
Outside of that debt.
As you look at rapid antigen testing.
And then there is to bring out a test there, which has a high level of sense and respect because.
You know the idea really is that you don't want to be and your low. It is all on late seventies and terms of sense and specs when do you want to at least that test and that's why you know.
We have not been the first one for the game, but I feel very confident that when we come out with one.
And b the.
Sensitivity and specificity of the test will be a compelling enough for it to gain rapid traction.
Yeah.
Great. Okay. Thank you very much.
Yes.
So thank you. Thank you operator, and thank you all for your questions you know.
Sure both of US share at 2020 has was a seminal year and Ah.
Long and storied history, and our team is energized and focused on building off our recent successes and we wanted to challenge tackled the challenges of tomorrow I want to again take the opportunity to time for 14000 employees across the globe. Thank you for your interest and support of poking on and then look forward to providing further updates.
On our first quarterly earnings call. Thank you.
Yeah.
And ladies and gentlemen, thank you for participating in todays call James you.
You may now disconnect have a good.
[music].
And.
And.
[music].