Q1 2021 Agilent Technologies Inc Earnings Call
First quarter earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
She would like to withdraw your question press the pound key.
And now I'd like to introduce you to the host for today's conference Ankur <unk>, Vice President of Investor Relations. Sir. Please go ahead.
Thank you, Jason and welcome everyone to <unk> first quarter conference call for fiscal year 'twenty 'twenty one.
With me Mike Mcmillan.
President and CEO and Bob Mcmahon Dillon.
Senior Vice President and CFO.
Joining in the Q&A after Bob's comments will be Jacob Tyson.
Is it end of <unk> life Science, and applied markets Group, Sam <unk>, President of <unk> diagnostics, and genomics group and porting Mcdonnell President of Adjuvant Cross Lab group. This presentation is being webcast live that.
The news release Investor presentation, and information to supplement today's discussion along with a recording of this webcast augment available on our website at Investor <unk> agile and Dot com.
Today's comments by Mike and Bob will do.
Refer to non-GAAP financial measures.
You will find the most directly comparable GAAP financial metrics and reconciliations on our website.
Otherwise noted all references to increases or decreases in financial metrics are.
Year over year and references to revenue growth are on a core basis.
Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.
Guidance is based on exchange rates as of January 31.
We will also make forward looking statements about the financial performance of the company.
These statements are subject to risks and uncertainties.
Uncertainties and are valid as of today.
The company assumes no obligation to update them.
Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.
And now I would like to turn the call over to Mike.
Thanks, Oscar and thank you to everyone for joining us today on our call.
Very pleased to be on the call with you today.
We are off to an excellent start to our fiscal year.
The Ashland team delivered outstanding results in the first quarter.
The momentum in our business continues.
Revenues for the quarter or 155 billion.
This is up 14% on a reported basis and 11% core exceeding our mid January revised expectations.
Also as expected COVID-19 tailwind at roughly two five points of our overall growth.
Operating margins are healthy 25, 5%.
EPS of $1 six is up 31% year over year.
Overall, a very impressive start to 2021.
Our growth is broad based all three of our business groups delivered double digit growth.
All regions grew with the two largest leading the way.
China grew 25% in the Americas posted 13% growth.
We continue to see strength in most of our end markets led by pharma growing 20%.
These results are a testament to our build and buy growth strategy.
And the agile teams relentless customer focus.
Demand remains strong for the full breadth of our offerings.
We have been gaining market share in key areas.
We're clearly keeping our foot on the gas.
Now, let's take a look at our performance by business group.
The life Science and applied markets group generated $722 million in revenue up 13% on a reported basis and up 11% core.
<unk> growth was broad based across end markets and geographies.
We are particularly pleased with our cell analysis business.
Cell analysis grew in the high teens led by biotech which grew 26%.
Growth is also strong our litho chromatography and mass spec product lines with both growing in the teens.
Overall, our LSA Jack business saw very strong demand as many customers utilize their end of year Capex budgets.
Our market share gains continued.
From an end market perspective, food and pharma led the way for LSA Jay.
Casino Biopharma investment focus we introduced new updates to our <unk> software.
This new software enabled data integrity consist with important regulatory requirements for our biopharma customers.
As we continue to build our digital lab, we introduced the Ashland 70 day 50, ICP Ms system, which provides new smart digital tools to improve workflows.
<unk> broad and continuing strengthening portfolio is well positioned and continues to outperform the industry.
The ASIC Crosstie group posted revenues of 532 million. This was up a reported 13% and up 10% core.
<unk> growth was also broad based across end markets and geographies.
Growth is strong in both services and consumables.
Our digital investments and scale are adding significant value.
We continue to drive improved attach rates to address large install base of instruments.
Annual service contract renewal rates and growth was strong in the quarter.
As we continue to build a more resilient and higher growth business.
The diagnostic genomics group revenues are $294 million up 18% reported and up 15% core.
Growth was broad based led by our NASD <unk> business.
Our generic product portfolio grew double digits aided by COVID-19 related two piece of our demand.
We also achieved strong growth in our core.
Core NGL sample prep business.
As mentioned earlier overall company growth is broad based across most of our end markets.
The pharmaceutical and food businesses led the way both growing strong double digits.
We also posted a 10% growth in environmental and forensics market.
Chemical and energy grew 2% and we see an increased business activity in the CNS space.
The academic end market is down 1% with many University labs still operating in a constrained environment.
We're also getting our efforts in the battle against COVID-19.
We have completed our development and clinical validation for serology assay to Tibet COVID-19 antibodies.
We plan to submit to the U S FDA for emergency use authorization within the next month.
In addition, we're making progress on our Q PCR based test for COVID-19 detection and plan to launch in Europe in the next couple of months and submit for emergency use authorization in the U S. Within the same timeframe.
I'm also pleased to share that Barron's again recently named <unk>, one of America's most sustainable companies.
This marks the third year in a row. We have been include among the top three companies in this ranking.
We are also in and lead our industry. All four years. The Barron's list has been published published we're very proud of this honor sustainability, a key priority for our company.
When I look back on the uncertainty we face to this time last year.
So proud about the agile team accomplished.
All time high customer satisfaction ratings bill.
Building momentum in all of our businesses and delivering excellent results.
Our first quarter results are another compelling proof point.
That we are building, an even stronger company and market position during the pandemic.
As we discussed at our December Investor event, our diverse industry, leading product portfolio has never been stronger.
Our building and buying growth strategy with a focus on high growth markets continues to deliver.
Our M&A funnel is robust and remains focused on growth accretive M&A opportunities.
We are targeting companies in markets, where we see potential for significant long term growth and agile has a strong position to win.
As we look ahead, we have a sense of realistic optimism.
We have solid momentum.
We're winning in the market and we have the right team to continue to succeed.
As a result, we are raising our core growth guidance range to $6, 5% to 8% for the year.
As you May recall, we recently guided to a long term core growth rate of between 5% and 7%.
So we are certainly off to a good start in 2021, and we have no intention of slowing down.
We have also raised our earnings guidance for the year in December I assured adds a long range plan of margin expansion at 50 to 100 basis points a year.
We are now guiding towards the top end of that range for 2021.
Bob will share more details on this in his remarks.
I couldnt be more pleased with how we have started the year.
We have momentum.
Our team is strong and energize.
We are gaining market share in key areas.
And we have an even more promising outlook for the full year.
Thank you for being on the call today and look forward to your questions I will now hand, the call off to Bob Bob.
Thanks, Mike and good afternoon, everyone.
My remarks today I'll provide some additional details on Q1 revenue and take you through the first quarter income statement and some other key financial metrics.
I'll, then finish up with our outlook for 2021 and the second quarter.
Thats otherwise noted my remarks will focus on non-GAAP results.
We are very pleased with our first quarter results as we saw strong broad based growth exceeding our revised expectations.
Revenue for the first quarter was 155 billion, reflecting reported growth of 14, 1%.
Core revenue growth was 11, 3% while currency contributed two eight points of growth.
Now before I get into the end markets, Mike earlier comments bear repeating Paul.
All three business groups delivered double digit growth.
Core growth in the quarter.
Our superior value proposition continues to resonate with our customers and our team executed well.
Capitalizing on recovering demand in our end markets.
Pharma, our largest market was strong across all regions delivering 20% growth.
Growth was led by NASD, which experienced significant growth in the quarter, albeit against the easiest comp of the year.
NASD contributed four points to the overall pharma growth rate.
We continue to be very pleased about the ramp of the Frederick Colorado facility.
And the recently announced capacity expansion in Frederick is on track.
Small molecule grew mid teens, while biopharma, excluding NASD delivered 20% growth driven in part by strong demand for LC and mass spec instrumentation.
We saw strong year end demand from pharma customers. They are also seeing increased business related to the characterization of <unk> based therapies and vaccines.
The food market also experienced strong double digit growth during the quarter posting a 22% increase in revenue.
<unk> business grew in all geographies driven by increased demand for food safety and quality testing.
China is leading the way driven by investments in both commercial and government entities.
Environmental and forensics grew double digits coming in at 10%.
Core growth broad regional growth reflected strong tech refresh a replacement demand from contract labs.
Our diagnostics and clinical revenue grew 9% during the quarter and has benefited from growth in COVID-19 related applications, primarily in the Americas and Europe.
Our pathology business grew slightly as non Covid testing continues to improve.
But it has not yet recovered to pre pandemic levels globally.
While our diagnostics and clinical and market in China is still small it experienced strong growth due to improvements in non COVID-19 testing and the uptake of our clinical L. CMS.
The chemical and energy end market continued to recover we saw last quarter and grew 2% in Q1.
We continue to see signs of increased business activity, particularly in specialty chemicals and engineered materials, along with encouraging improvements in the macro environment.
And while we are optimistic we are not yet reflecting a change in our forecast for the rest of the year.
And as expected the academia and government market recovery has lagged the other end markets down 1% year on year as research labs are still not operating at full capacity.
We continue to expect a slow but steady recovery throughout 2021.
On a geographic basis all regions grew.
China grew 25%, leading all geographies led by the food and pharma markets.
The Americas delivered a strong double digit performance during the quarter with 13% growth.
Europe was up 6%, both also led by pharma and food.
Now turning to the rest of the P&L. The first quarter gross margin was 55, 8% up 10 basis points year on year.
Adjusting for the exchange rates gross margins improved 50 basis points.
Our operating margin for the first quarter came in at 25, 5%.
This is up an impressive 260 basis points from last year.
Driven by volume and spending discipline.
This result includes the impact of increased strategic investments, we started last quarter.
Our topline growth.
Coupled with our operating leverage helped deliver EPS of $1 six per share up 31% versus last year.
Our tax rate was 14% and three quarters percent and our share count was 309 million shares as expected.
Now onto the cash flow and the balance sheet.
Our operating cash flow continues to be very strong in Q1, we had operating cash flow of $238 million a.
43% increase over last year after adjusting for last year's one year onetime tax payment.
This performance shows the strength of our business model and provides financial flexibility going forward.
We continue the balanced capital deployment strategy, we highlighted at our annual Investor event in December.
In the quarter, we invested $41 million in capital expenditures paid out $59 million in dividends and repurchased two 9 million shares for $344 million.
And as we announced earlier today, our board of directors authorized a new $2 billion share repurchase program, replacing the current program.
We ended the quarter in a strong financial position with $1 3 billion in cash and $2 5 billion in debt.
Now moving on to the outlook, we have had a strong start to the year.
And while there are still uncertainties in front of us and the business environment remains fluid, we have solid momentum and we see continued recovery in our end markets, albeit at different rates.
And as a result, we're increasing our full year projections for both revenue and earnings per share.
For revenue, we are increasing our full year to a range of five eight to five to $5 9 billion.
Up over $200 million at the midpoint and representing reported growth of 9% to 11% and core growth of six 5% to 8%.
This increase reflects strong Q1 results and some improvement in our outlook for the remainder of the year.
The increased guide assumes stronger performance in most of our end markets. The academia market continues to track as expected in our initial plans and while business activity in the chemical and energy has picked up we have not yet included any improvement in that market and this updated outlook.
In addition, we've not included any revenue associated with either the serology or PCR COVID-19 assay and the outlook.
As Mike mentioned, we also feel very good about expanding our margins.
During the Investor event in December we provided long range plan of annual margin expansion in the range of 50 to 100 basis points.
Given the volatility in results during 2020, our margin expansion profile will vary each quarter. However, we feel confident about our full year margin expansion being towards the top end of that range, while also investing for future growth.
The higher sales and margin expansion, coupled with maintaining our tax rate at 14, and three quarters percent and a lower share count of roughly 307 million shares increases our fiscal 2021, non-GAAP EPS to a range of $3 80.
To $3 90 per share.
This was growth of 16% to 19% for the year.
Now for the second fiscal quarter, we are expecting revenue to range from $1 37 to $1 39 billion, representing reported growth of 11% to 12% and core growth of 7% to 9%.
We expect second quarter 2021, non-GAAP earnings to be in the range of $78 80 per share with growth of 10% to 13% as we approach the one year anniversary of the significant reduction in expenses in Q2 of last year.
Now before opening the call for questions I want to say I couldnt be more proud of the agile and team in driving such strong performance.
We've gotten off to a great start this year and I am personally very excited to know what this company is capable of moving forward we.
We have very strong momentum the right approach that leads me believe that we're on a very solid path for Q2 and the rest of 2021.
With that I'll get back to you for the Q&A.
Thanks, Bob Jason if you can provide the instructions for Q&A. Please.
Absolutely at this time as a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question Chris with some key we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Tycho Peterson from Jpmorgan. Your line is open.
Hey, Thanks, Congrats on getting your own Cray announcement on that note, Mike actually I'm wondering if you could talk a little bit about what drove the delta to the pre announcement and then importantly on our sustainability. It sounds like you're not really calling out any kind of pull forward here.
Curious as we think about it and particularly that biopharma strength in the mid teens royalty five mark CMS, how you're thinking about and volume.
Well first of all Tycho. Thanks for the recognition really proud of the performance to even topped our earlier revise expectations for the quarter and I would say that as we got into January business. In January was stronger than we had anticipated and I think it was on the geographic perspective, you saw the strength in China obviously.
It was higher than we had we're thinking as long as very strength good strength in the Americas led by pharma and food market I'm sure will dial in today on the call about the the food market, which is both growth in China as well as the Americas.
Then no pull forward forward. So it was it was a it was a clean quarter with January being being stronger than we'd anticipated when we already had announced an increase in our in our revenue outlook for the quarter, Bob I don't if I missed anything on the <unk> got it okay.
Thank you Michael.
And then on the <unk>.
CMS strength up mid teens, certainly better numbers than we're seeing from a lot of your peers can you just talk to that.
Yes, I think that it's a continuation of the story that's been underway for several quarters, we've continued to innovate and provide.
Are the customers really see in our offerings.
Coupled with our approach to our field engagement in Italy, maintaining our field force when our customers need us most.
We're getting we're getting the business and it's very clear that not only as a day one.
Whether we saw particularly in some of the pharma and non COVID-19 areas, where they were basically making sure that they spent the capital had allocated.
For 2020, we got all of that business, but it is more than that it is a market share gain story as well for us. So I think it was a combination of a backdrop backdrop of investment by the pharma world, but also our ability to gain share in and Bob I know you've taken a close look at this and yes, I think Tycho to Mike's point I think one of the things we feel really good about is just the <unk>.
Portfolio and our offerings to our customers and I think one of the things that we've seen is our responsiveness continues to improve and that's been evidenced by the increased customer satisfaction that we've seen in and as Mike said as the year end Capex spending happened we were there and I think we took more than our fair share.
And we do think that this is an area that we continue to invest behind.
Mike talked about the investment in the mass Hunter software, which I think is going to.
Really.
Help continue this momentum that we have going forward from a compliance standpoint, and it's an area of focus in.
We're very excited about the Biopharma business going forward and there is a real holistic story here as well you know the story already Tycho with our ACG business complementing on the services and consumables compound in what we can do on leading innovative instrument solutions.
And before I hop off just one on ACG grew mid Twenty's in China off of low teens comps felt like the borrowers low are you doing anything there structurally to kind of drive that acceleration.
What I'm going to let Paul talk a little bit about that pork why don't you share your thoughts on that yes.
Yeah. Thanks, Mike I think it's a combination of our scale on our service business in China, and our connection with customers and also we've been investing in a number of years in our digital capabilities in China, which is really key.
A lot of hold true from the customers in all markets, So really driving driving the business forward and we see it sustaining over the next over.
Over the next period.
Yes, Hey, Tycho just to build on what yes, what build build on what product Youre, saying I mean this is an area where we've also increased our investments and people on the street.
As we think about Mike Mike mentioned this in his script actually our focus on actually turning.
Ongoing revenue into service contracts. This is an area, where we've had a specific focus in China, there and it's really helped us.
So we're.
That productivity aspect continues to play out in China.
Great. Thanks, guys.
<unk>.
Your next question comes from the line of Brendan cleared from Jefferies. Your line is open.
Hey, Thanks, good afternoon.
Brandon.
Maybe Mike could you elaborate.
On your comments as far as beginning to see some improved activity in the semi market and maybe Bob could you give some color on instruments versus aftermarket growth in the first quarter.
Yes.
We're really talking about order activity right. So we're seeing a lot of discussion with our field teams, particularly in the area of what I would call high value chemicals specialty chemicals. So.
There's a lot more discussion going on with our field teams right now and I think our customers are feeling more confident about the.
Economic outlook in the end market demand that they can anticipate in the in the coming quarters and as you know this is against the backdrop of a lot of pent up demand where investments have been deferred.
And we are seeing.
Inc.
Continue to see strong PMI.
But.
As you heard me share the story for our Brandon I'm always reluctant to call. The turn until we actually see a couple of quarters. So.
We're optimistic about what we're seeing so far we're not ready yet to put it into a formal guide for the year, yes, and just on the.
The second part of your question Brandon.
Our instrumentation was roughly flat and ACG was up.
Mid single digits.
Thanks, Bob.
Then one follow up for you Bob gross margins in the first quarter, a little better. We expected are you still thinking that the full year is still relatively flat to down and any chance you could quantify the impact of the NASD capacity built on gross margin in the first quarter.
Yes. It was it was a little lower than that.
We would expect that to be higher in the back half of the year as we continue to ramp up so it didn't really have a material impact on the first quarter. If you recall, we talked about that being roughly about 20 basis points.
For the full year in that.
Really didn't have an impact in the first quarter.
And in terms of the overall year I would say, where we're slightly more optimistic kind of given where certainly the first quarter came in and that's part of the increasing our.
Top end I would say of the margin expansion, it's a combination of a little more in gross margin, but most of it actually will be in operating expenses.
Great. Thank you.
You're quite welcome.
Your next question comes from the line of Vijay Kumar from Evercore ISI. Your line is open.
Hey, guys. Congrats on a really solid start to the year.
For taking my question I guess.
My first one Mike.
The guidance here.
I guess Q2 comps are pretty easy.
Just 11% in Q1.
Could you perhaps comment on the Q2.
That should step down and when you look at the annual from from an end market perspective.
<unk> didn't change I guess is this biopharma, that's changing for the for the annual outlook.
Yes, let me take a shot at it and then I'll turn it over to Mike Vijay. Thanks for the acknowledgement Yeah I'll take the second question first and then go back to the first and second quarter.
If we think about where the full year is.
It's mainly in that pharma and food markets across all of the regions that we see the uptake and we.
Our optimistic about.
Chemical and energy, but we're not yet putting it into the forecast is still at the end of the quarter as Mike said, we're seeing a lot of business activity, we're seeing the order funnel build.
And so forth, but we want to actually see those translate into orders and then ultimately into revenue. So everything there is moving in the right direction and we would expect that to continue to play out throughout the course of the year if I look at Q2.
We did have a higher than expected.
Budget year end budget dynamic that helped obviously, the 11% that doesn't repeat itself in Q2.
And but if you looked at where we feel very confident about the continued momentum of the business that was probably a couple of points of growth, yes, it's hard to estimate but that's.
The best guess that we have.
Understood and then I guess.
Is that for my follow up is the guidance assuming.
This COVID-19 Calvin but you mentioned 200 basis points in Q1 is that going to sustain and I'm curious.
What is driving the margin strength here I guess that relative to your prior guide.
Yeah. So I'll take the first one yes. So we're still in that two two percentage kind of revenue range for Covid. So that's a good number to lock into.
Yeah, and I think the.
The growth on the.
On the margin expansion has been just really the strength in our volume and I think that that when we have that strong growth.
You actually see it go into the bottom line when you look at last year, our spending profile changed pretty dramatically.
Quarter on quarter as we.
More reflecting the pandemic and so forth. If we think about Q1 to Q2. This year, our spending think about it as roughly flat sequentially.
And Vijay I'm sure you had a chance to look at.
Jacobs margins for the first quarter, but the LSA day at very strong margins and that's when you have double digit double digit growth in LC LC the strength in the cell analysis business. We had indicated when we acquired biotech to bear by not only high growth also a high margin company and I think you're seeing it in the in the numbers absolutely.
Thanks, Mike.
Youre welcome.
Your next question comes from the line of Silver from <unk>. Your line is open.
Alright, great. Thanks, Mike.
Mike Congrats.
Congrats on the quarter really strong there.
So my first question.
First question is on China, which you alluded to a little bit before.
Obviously, a strong quarter, but just walk us through where do we stand today in China food.
And where the products are resonating what's your outlook here. Obviously this has been a market that.
Has been improving for you after some disruptions a while ago and just wanted to get a sense of where it stands and how should we think about it going forward.
Yes.
Thanks for your kind comments and I'll make some initial introduction commentary about China food and I'll bite Jacob in this conversation as our solutions are a big part of the story here. So this is a quick reminder of the audience you may recall that we saw.
Slow down for the better part of over two years in the China food market as a result of the reorganization of the China food ministries, and we always had been pointing to the fact that there had been really differed investment at the national level.
Now that situation has completely changed which are there is reinvestment going into new technologies at the national level. In addition to the testing volumes continue to grow for the contract testing lab side picking up that volume and Jacob I think we've got a pretty good position here in the marketplace with our mass spec portfolio.
Absolutely, Mike you're right.
Broadband a broad based interest from our portfolio bought particular, what stands out is our triple quad both the LTM Sn the dcms with this.
With the sought after especially for pesticides testing where both technologies.
And what we have developed here, it's one workflow on <unk> that could be used for both technologies that as that Barry.
Mark better performance.
Any other way you have to have two different kinds of debt off so we see a lot of interest in that and so the triple it's really paving the way right now.
And Jacob invested in a China solution center as well so we actually again based on these leading technology platform is able to tailor our solutions for that China food market. So we're really excited about the the change in the business volume there as you can imagine.
That's great.
And if I could also.
In terms of pharma in China could you maybe just elaborate on your positioning there you had really strong growth here in terms of both small molecules and bio molecules as well maybe just if you could characterize that is that biomarker growth largely coming from NASD is that what's driving that product component in.
The small molecules you had really strong growth too. So maybe if you could parse that out.
Specific to China, There is no NASD volume at all it's zero.
In China. So that's that's purely on the what we call the NSS side, which is ACG and <unk> business.
And I was going to say puneet.
As we said in our call or if you stripped out NASD biopharma in total so this would be our ACG and <unk> businesses together along with some contribution of DDG grew 20% and that was really broad based across all regions actually it was.
Faster than that in China, but if you look across.
They were all kind of neck and neck in terms of the performance across across the regions Hey, Bob I'd just add one thing, although we don't have direct NASD business in China as Bob highlighted in his script.
We're seeing a lot of demand for <unk> based solution for all ago based R&D research and the fact that we're in this business ourselves, but their own API business and that we have a state of the art facility in our in our Frederick Colorado site really helps us be able to sell solutions to our customers doing research in this area as well. So I do think there is a linkage.
<unk> business into into China, albeit on what we're seeing on the research side.
Yes, and that small molecule in China was very strong Oh, yes, sorry about that I missed that one.
How can I missed that one respectively.
That's great.
Thanks, guys.
Your next question comes from the line of Jim <unk> from Wells Fargo. Your line is open.
Thank you so first question.
So I'm trying to think of how to interpret your chemical and energy comments, the comps get pretty easy for that end market and it doesn't sound like the 2% you reported in the quarter reflects what you're currently seeing on the order side are you still expecting kind of flattish chemical and energy performance through the balance of the year could you help me with that.
I think the headline here is potential upside to our guide and then Bob maybe you can answer yes.
Yes.
Yes.
Mike Mike mentioned the headline quite.
Quite well.
As we think about the.
The chemical and energy, we built in some slight improvement in Q1, and Q2, but have not made any changes to the back half and by the way Dan I'm not trying to be coy here or acute wood.
Just seeing this market can.
Easily.
Can turn on a dime and I have had experience where I've called too soon so once we feel confident about the book of business. We have inside Ashland, we will be sure to give you an updated view of the outlook for the year.
I appreciate that investment.
Mike I think it's worth mentioning again that our competitive positioning is very strong here and then Patrick no. We have invested very heavily into our portfolio both from an instrument and instrumentation, but also coming from our point of view, so when the mark contract and the board certainly the.
The lion's share of that.
Yes that should have been part two of my headline win the business there we're going to get it.
Okay.
I appreciate that Mike.
You've seen a lot of a lot of budget cycles could you maybe.
We just saw on the quarter in content and context.
You had a strong quarter and I know share gains part of that all your all your peers had.
Really strong quarter are we going to look back at this period a couple of years.
Dick flush, particularly in pharma was this one for the history books or was this just a good good flush like how would you characterize that.
I sure hope that.
That's for the history books, because they had the backdrop of a pandemic.
<unk>.
And what we saw was some deferred capital investment that had been.
Only what it maybe has been.
<unk> invested in the Q are Q2 Q3 because of COVID-19 concerns is just the fact that customers werent working and a deferred to capital, but again I have to say there is more to the story and our Q1 and just that the budget flush so.
And I.
Yes, I would say it certainly it was bigger than the last several years I don't know.
And but I think as we think about the momentum that we've seen when you look at where we were in Q4 as well we started seeing that turnaround.
And we felt we saw it continue through Q1, and we're expecting that to continue into the rest of this year as well. So it's not just a one quarter phenomenon certainly was stronger than we anticipated.
But.
We have higher expectations going forward for growth in pharma.
Okay. Thanks, Thanks for the context.
You're quite welcome.
Your next question comes from the line of Doug Schenkel from Cowen Your line is open.
Hey, guys. Thank you for taking my questions. So.
My first question.
Is on share gains.
In your prepared remarks.
Yeah.
Yes.
Even in the press release, you highlighted market share several times in the context of the strong revenue growth you delivered in the fiscal first quarter.
Im curious if you could opine on where you think you are taking the most share and how sustainable that says that's the first topic.
The second is on M&A.
And.
But the balance sheet is clean.
Re upping on the share buybacks I'm, just wondering how youre thinking about M&A and more specifically the parameters that you are using to evaluate potential acquisitions moving forward. Thanks guys.
Thanks, a lot for that happy to opine on both questions. So yeah.
Yes, we really wanted to make sure. The story came through that we had this is a great start to 2021 and it wasn't just about a year end budget flush. There's some really good things that have been going on for several quarters and it just continues in the first quarter and we.
Very specifically chose the <unk>.
The language in key areas. So we're gaining share in some of our biggest product line areas I would point to liquid chromatography I appoint to mass spectrometry, both gas phase that go phase and honoring inorganic side.
I'd point to our services business.
And what else might you add to that I think it's pretty pretty much broad based yes.
Are all of those businesses.
Oligos because it always comes a three day Oligos I mean, we had outstanding growth in Q1, so we're getting market share gains in the product lines, where they really are collectively needle movers for the entire company.
And then relative to the M&A.
Yes.
We were in the market.
Repurchasing shares this quarter this past quarter I should say.
Beyond anti dilutive, but our priority remains as we communicated at our December Investor and Analyst day, which is we want to invest in the business not only in terms of capital expansion. The building out NASD for example, but also growth accretive M&A.
And that.
That remains our priority you may have picked up in my in my comments prepared comments that.
The discussions with potential targets the deal activity is picking up.
Thank you.
We've seen a number of other deals announced in our space, but I'd say the.
The volume of discussion as much an increased over the last quarter or two so nothing to announce but that remains our area of focus for utilization of our strong balance sheet and Bob anything else, yes. The only thing I would say is.
Doug as we think about the markets that we compete in our framework really hasnt changed.
We're looking at markets that are faster growing than the markets that.
We are in or sub segments of those markets we think.
The last couple of acquisitions have have really borne that out with with the <unk> as well as biotech into cell analysis space and it's really helped continue that shift to higher growth markets and that's that.
The area that I would think and theres really opportunities across all of our both in instrumentation as well as in kind of consumables area are that recurring revenue stream as well. So that's the way I would think about it yes, and Doug will continue to look for companies that also don't meet that criteria. But also we think there are a strong cultural fit that really would be part of it could really be a key part of.
Overall Ashland family, so to speak and also a business, where we think we can make that business even better.
Thank you again.
Youre welcome.
Your next question comes from the line of.
<unk> from Goldman Sachs. Your line is open great.
Great. Thanks for taking my question.
Nice solid quarter guys. Thank you John.
Just wanted to I just wanted to focus on.
When you look at the <unk> operating margin first quarter was obviously very strong just Nick.
In terms of sustainability for that what was driving that and what should we expect as we go forward.
'twenty one.
Hey, Bob doing salmon and tag team on this.
I'll start and then turn it over to Sam.
Got it.
See the strength really was volume driven here and when we look at it and as we ramp up that.
Steve facility, that's generated a very.
Very nice incremental growth.
On the bottom line.
As we mentioned in an earlier call we havent had the.
The startup costs really start showing up yet there, but I think that and then some of the Q Pcr activities.
And related to have really helped us drive the Sam.
Yes, Bob Great leader and I'll, just add as you said at AFC that business. We are in a place where we are getting using more and more of our capacity and that's that's a good thing as it relates to mark.
Margin.
On the genomics or the quality side as well we have.
High value products, such as I'm, sure select and target enrichment platform, which which had a good quarter and we anticipate that continuing to grow.
That's high margin, we have leadership in NDS quality control and it's not just instruments, they're there as well.
Ongoing consumables that go along as standards. So we expect there.
Our leadership position for that to grow and we haven't talked about a little while.
This past quarter, we also announced our seventh indication for PDL, one to go along with Keytruda for Triple negative breast cancer and that's another place where.
We have leadership and drives good margin for us.
Okay, and just one quick follow up just more of a high level as you continue to grow your ACG franchise could you just talk about how that impacts some of their divisions and as you expand your reach so that really helped drive.
<unk> division and other types of.
The segments that you have just given that it just continues your reach within the marketing deeper penetrate customer penetration.
<unk> you're on the right theme here. So in fact, when I have talked about this most recently inside agile and I talked about.
This is where our LSA gene ACG businesses come together and it really is a very symbiotic relationship.
Our relationship here, which is in both businesses help one another right. So I pointed earlier to some of the strength we saw in the.
In the pharmaceutical industry in LC LC, Ms and in Q1, but it also was tied to the enterprise services story, we've been we've been talking about for a number of number of years and you start to get yourself into a different.
Our relationship with customers.
Truly see you that valued partner and for example, when they've had several years of an enterprise service arrangement with you and you show them collectively are up but you see I should say actually objectively what's been going on in a lab with various different vendors in terms of equipment.
To all of our case a decision to move more of our business to Ashland management side also I think as Bob mentioned, we were that we were there on a response at this standpoint.
Our services digital capabilities, we were able to respond to customer need even in the midst of the pandemic and maybe remember that we were there for them.
That translates into instrument business when Theyre doing their next round of capital partners. So I think there really is a very close symbiotic relationship.
Although we run them as we show we show the outside World to separate the business group results. They work very very closely together not only inside the company, but most importantly with customers.
Your next question comes from the line of Mike Rifkin from Bank of America. Your line is open.
Hey, Thanks for taking my question guys. This is Mike onshore Mike.
Paul.
And then you touched on earlier.
We've already hit on our fee and just broader pharma market is a little bit.
Higher growth in pharma expected going forward I just wanted to go a little deeper and trying to get a sense for what are the key drivers here.
Some of the moving pieces, you've got the end of year flush.
And maybe some catch up from Covid early in the year and ASD, obviously doing very well selling out becoming a bigger part of the picture by the share gains.
So I'm just wondering.
As you strip some of those out.
Are we seeing broader high levels of spend in pharma or are we at the start of another LC replacement cycle.
If you take off some of those individual drivers are we just seeing a better environment in pharma going forward for the next couple of years that would give you confidence index or the more.
Single, Hey, Guy.
A follow up to that.
Yes, so maybe just kind of parse out a couple of thoughts here.
Bob Welcome your commentary here as well so some of the things that you mentioned there are clearly areas of higher growth today and expected to be higher growth for years to come and that was part of our story back at the December Analyst day, where we talked about Hey, we think RNA based therapeutics are an area of very very strong growth for years to come.
Come and that's why you're seeing this growth in NASD happening right now as well as our continued investments to capture more of that future future growth.
Even though <unk> is an area of major investment.
Right now and Thats why we went after the cell analysis business several years ago. So we expect those segments of the market to be really strong double digit growers for many years to come. So I think thats part of the story, there which is to really have focused our investments in our portfolio towards those segments of the.
Marketplace, which we expect to have even higher growth in the overall pharma market space I think in general we expect the Biopharma R&D investments to continue.
And the move to two large molecule.
When I get the question around LC replacements.
Replacement cycle is always going on.
But what I do think is going to happen is there's going to be stable strong funding environment for from a pharma so.
We're very optimistic about the.
The long term.
I'll look for pharma.
And I think it's a.
Its a market I know, we're bidding on right now to Ashland.
Okay.
Very helpful. I appreciate that and then Paul.
My follow up on that.
By our math, if you take the the magnitude of the <unk> and then also the stronger.
Tax tailwind for the rest of the year that account for roughly $1 $75 million of the race day for your guide.
And then you have to use other items coming in should the Covid has got the all your comments on the on the strength of the core markets, So where exactly.
The downside risk.
Given the comp for the next couple of quarters.
What are the areas, we should be keeping an eye on what's keeping you from doing something closer to 10% plus core for the great great Great question.
One of the things we still are in the midst of the pandemic right. There is still the variance out there.
Haven't seen any impact of that to date, but those are some things that we're watching and we haven't built any of the COVID-19 testing that you just talked about into into the numbers.
That would definitely be something that when we get those approved that would be upside to this end.
That's not all within our control the development in time, those timings are within our control, but ultimately.
That's a bad debt both on the serology side as well as the Q PCR side that we feel confident.
About and that would be on top of these and then as we talked about before the the variability potentially in the <unk> market is more biased towards the upside as we think about the forecast going forward.
And so we feel good about where we are we're early in the year.
And just one quarter and yeah, but.
We don't expect the momentum to abate.
Okay. Thanks, so much.
You are quite welcome.
Your next question comes from the line of Daniel Brennan from UBS. Your line is open.
Great. Thank you thanks for taking the questions guys I guess further damage.
Hey, Mike maybe on China first I don't know if I missed it did you.
What number or what growth rate youre, assuming for the full year and then within that could you discuss.
A bit more detail on the components of that particular food, obviously very strong this quarter, but how much more catch up potential is there in food given how weak after this event.
Yes, let me I'll take the first one and then we can jump on it and we can tag team Mike on the on the second one yes absolutely.
China, we had forecasted roughly high single digits at the beginning of the year or certainly started much stronger than that so we're expecting it to be double digits for the full year really driven by both pharma and food those would be the two.
<unk>.
Upside drivers to our initial guide and then I think on food.
We've seen.
We saw stabilization really in the first half of 2020.
Sure.
<unk> in Q4 and that improvement continued here into into Q1 and.
We would expect that to continue given kind of the overall.
Environment and sensitivity around food testing and so forth.
But we're not quantifying how long or how much is left to catch up so to speak.
Think also with crude I'm not sure I would really would use ketchup describe this because clearly where you had some of the pharma.
Companies.
Having the research and reserves and it didn't work, but had deferred investment I think this has been part of the coming together of the new five year plan.
For China, and that's what's really driving that so we would expect to see.
Sustained investments, albeit not at this double digit level I think it's hard to know Dan.
Dan.
We've always felt this thing was not a market that was shrinking wouldn't shrink long term, which it had been for few years, but it is more like a high single digit longer term and I think thats, probably where we land on your question. Although I think it will do double digit for sure. This year in 'twenty, one yes, Mike.
Mike to your point and our initial guide, we assume kind of a mid single digit.
The recovery and Thats, probably high single digit to double digits.
For the range for the full year.
And then maybe just one follow up on NASD businesses.
What was the dollar contribution.
Quarter, what's kind of assumed in the full year I don't know if you think that at all.
I know I know you've touched upon this but.
In terms of other modality, besides interference I guess is that.
It sounds like it's something that could possibly come but we're still going to wait to hear from you guys on that thank you.
Yes, what I would say Dan is we're at our full run rate capacity, which is.
We've talked in the past $200 million a year.
We hit that kind of where we expected to in Q1.
We're really really happy with how that business is ramping.
And we're not done yet.
Hey, Bob I would just add to that.
As I've mentioned before RNA interference is our primary focus, but we are doing programs.
On guide RNA for Christopher <unk>.
<unk>.
We are we are at full tilt with that but we are always looking.
To be in tune with new modalities and if they are relevant if they're sufficiently meaningful we are we're definitely apprised of that as well.
Great. Thank you.
Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.
Hey, guys. Thanks for taking the questions sure.
Mike maybe one for you just on the chemical and energy side certainly appreciate the conservatism baked in here can you just talk a little bit I know in the past you've talked about kind of the shifts from in sourcing to outsourcing from customers and how that should play nicely into your strength.
Can you just talk about I guess, where we are in that process and how big of an opportunity that is for you guys.
Yes, I think it's I think we're still early days on that I think it's.
That's part of the discussion I think the investments that are going on.
<unk> this year.
They drop are going be more tied to.
Differed tech refresh, but I think it's probably more of a 'twenty 'twenty three kind of excuse me 22 event from a from the onshoring of in sourcing that we've been talking about and I think this is probably point to this being able to be able to sustain a mid single digit kind of end market. So.
I mean the points the fact that.
Chemical and energy would be kind of a longer term outlooks coming from our customers will not be a drag on the overall growth rate any material material.
And it also I think.
I think it's a adder to the thesis that there is growth in the <unk> market as well, albeit it can be a little bit.
We can move a little bit depend.
Depending on what's happening in the overall economy.
Okay. That's good to hear on the durability at least.
And then maybe just and I'll, let somebody.
Like I said I shouldn't use durability.
And your question.
I appreciate that.
And then maybe just one on the academic side, obviously, that's been lingering a little bit on the soft side not only for you guys, but for much of the industry I guess, where do you think we are there in terms of whatever metrics you guys look at whether its customers in the labs or whatever it may day, maybe just kind of dive a little bit.
Great question, So when we were talking to our team and our customers.
Here's our view of it right now we think about if you think about 30% of the research labs are fully operational now when you think about 60% are working at reduced capacity and only about 10% are closed and.
And we really think it's going to be all of this is really tied to the ability to get the infection rates down to get vaccinations out I think until that changes significantly.
We are expecting kind of the.
More of the same I'd say Bob.
Until we actually see change in the overall.
I think the real the real catalyst for us Patrick to Mike's point is what's going to happen in the fall semester for.
For classes, our people our students going to be back full full.
Or is it still going to be at kind of reduced rates and so forth. So we are expecting continued.
Recovery, albeit slow.
Really and that's what that's what we're looking at in addition to some of the kind of the macro levels.
I would say, though that the.
The conversation with customers is very robust right now so it's just a matter of things opening up.
Great. Thanks, Mike I appreciate it you are quite welcome.
Your next question comes from the line of Steve, but won't be immune from Cleveland Research. Your line is open.
Hi, good afternoon, Steve.
Hi, I had a follow up question to Mike risk in this question as it relates to guidance Bob.
Maybe try to ask it a different way.
Have you really changed your organic or core growth assumptions over the remainder of the year.
Because even in the first quarter here you back out a couple of hundred basis points from sort of end of your budget spending.
First quarter still did basically twice what you were initially expecting for growth in the first quarter.
Just looking at your guidance and doing some math it looks like you really haven't made too much of a change for the organic growth over the remainder of the year is that fair to us yet.
I would say we took Q1, we also upgraded Q2 and made some modest changes to the back half of the year, but.
Most of that would be in the areas that once we get further into the year that would be an opportunity to.
Revisit the forecast going forward, so I think bottom line youre youre in the ballpark.
Okay.
And then just a follow up question.
On diagnostics I guess to two things one.
Do you think we return to.
2019, or normal levels and your non Covid diagnostics business. This year and then also could you just provide a reminder, on where you see your PCR tests potentially fitting.
It does come to market you.
You want to take the first one up and Tim the second one yes. The short answer is yes, we expect it to get back, but again latter half of this year, we're starting to see an improvement if you look at it by region.
China's back.
Certain pockets in Europe are back.
Certain places in the U S are back as well.
But I think overall, it's probably going to be a few more few more months at least before it gets back to pre COVID-19 levels.
Good thanks.
Yes with regards to your second question on Q Pcr.
For COVID-19, or our master mixes our instruments are already being leveraged as part of other testing.
Testing.
Some site customers around the world.
R R.
Our own test comes to market, we see the opportunity there is still.
A dearth of.
Robust.
Testing solutions that are available. So we will have the right performance going after the.
The REIT fragments are looking at the right elements of COVID-19, and its really about our broad ability.
The ability to distribute make it available and also something that can be automated bowl on multiple platforms. So we think we will we will have a play.
Perfect. Thank you. Thanks.
Thanks Sam.
Your final question today comes from the line of Paul Knight from Keybanc. Your line is open.
Hey, Mike how are you.
Alright long time, no talk high then.
Oh, yes.
Good.
Obviously, you've got a full array of products in the analytical instrument marketplace.
And it goes back to I think Doug's question in terms of the M&A opportunity, where do you think you are in the full solution and cell analysis is there.
Is there a lot to build is there a lot to buy in that particular market.
We think so in fact, thanks for the question Paul You May recall and Jack Jacob feel free to jump into this question as well, we teed up a fairly large although we feel really proud of the business. We've built so far we think we have scale and a $300 million plus business, we're playing in a much larger.
Sam and we think theres both opportunities to further build out but also by here as well.
Jacob your thoughts there.
Certainly we've been very intentional about how we build out our portfolio with instrument platform to ensure we can get some footprint and our scale in the market.
And the next thing that would be the next day, but to look at content, how do we actually get content on our instrument portfolio. So that's clearly an area. If you are looking at so far but I think with the.
There's also opportunities to add.
Other technique modalities into that so we are we have optimized we follow mark we called the pilot strength.
Strength strength in AD.
[laughter] broadband rewrite its put another firm on that strength and so we keep our eyes open and then see what happens.
And then the last question would be you had mentioned you were.
Cost cutting program that had started in the second quarter of last year.
Where are you or are you in that process and what happens to cost cutting when travel and entertainment might come back kind of post COVID-19.
Yes.
We're seeing some of that and.
Some of that is lapping this quarter.
Because we saw a significant drop and so youre not seeing the year over year changes, we're not seeing it go back and our goal is to not have to go back. So we think we're at a new water Mark here in terms of spending particularly.
Particularly in travel and some of these other areas now we are increasing investments in places like digital and some of these other places that are driving demand as.
As well as some of the capacity that we talked about before but certainly in those types of things.
Travel and so forth, we're not looking for that to go back it will go back some but certainly not back to two the way.
We have been doing business before our customers don't want it and we are not going to let it happen absolutely to Bob pointed that spoke to the other day to our global field team and we're talking about embracing new ways of working.
And of course, a lot of people drove orders are lumpy back on the road in but.
Not everybody feels that way and customers certainly don't feel that way because we are much more responsive and attentive to their needs by using digital platforms. There is a place for face to face, but there has to be based on customer need not because we want to we want to be in the ROE to be out there doing things in a very traditional way. So we're keenly aware of the <unk>.
You posed Paul we really challenge ourselves to make sure that we really continue forward with.
These new ways of working and this allows us to put money into areas. They really do matter to customers. So I'd, rather invest there rather than travel and entertainment.
Okay. Thank you.
So that concludes Q&A and it also concludes today's agile and technologies first quarter 2021 earnings conference call. Thank you everybody for joining you may now disconnect.
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