Q4 2020 Bruker Corp Earnings Call
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Hello, and welcome to the Brooklyn Corp, Q4, 'twenty and 'twenty earnings Conference call.
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Good morning, I would like to welcome everyone to brokers and fourth quarter and fiscal year 'twenty and 'twenty earnings Conference call. My name is nearest Laura mean, cobalt and director of Investor Relations and corporate development.
Joining me on today's call are Frank Lockean, Rocky and our president and CEO and Gerald Herman our Chief Financial Officer.
In addition to the earnings release, we issued earlier this morning during today's conference call.
I'll be referencing a slide presentation. The PDF of this presentation can be downloaded from the latest results section and brokers and Investor Relations website.
During today's call, we'll be highlighting non-GAAP financial information.
Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and they are posted on our website at IR, Doug broker Dot com.
Before we begin I would like to reference brokers Safe Harbor statement, which is which is shown on slide two.
During the course of this conference call and well make forward looking statements regarding future events and the expected future financial and operational performance of the company that involve risks and uncertainties, including risks and uncertainties related to the COVID-19 pandemic.
The company's actual results may differ materially from projected and described in such statements.
Factors that might cause such differences include but are not limited to those discussed in today's earnings release and in our form 10-K, and subsequent form 10-Q filings all of which are available on our website and on the SEC's website.
Also note that the following information is related to current business conditions and to our outlook as of today February 16th 2021.
Consistent with our prior practice, we do not intend to update our forward looking statements based on new information future events or other reasons prior to the release of our first quarter 'twenty and 'twenty one financial results expected in May 2021.
Therefore, you should not rely on these forward looking statements as representative of our views or outlook as of any date subsequent to today.
We will begin today's call with Frank providing a business summary.
Gerald will then cover the financials for the fourth quarter and the fiscal year, 'twenty and 'twenty in more detail.
Now I'd like to turn the call over to broker CEO Frank loud here.
Thanks, Thank you Marius lava and good morning, everyone. Thank you for joining us on today's call.
During the fourth quarter, we saw continued sequential quarter over quarter recovery and our financial performance from the revenue and margin dip experienced in the first half of 'twenty and 'twenty due to the pandemic and its economic repercussions.
Our Q4, 'twenty and 'twenty revenues were above prior year levels on a reported basis and essentially flat organically compared to Q4 2019.
Encouragingly, our Q4 2020, non-GAAP gross margin operating margin and EPS and free cash flow all exceeded the Q4 2019 levels.
Over the course of 'twenty and 'twenty, we stepped up up we stepped up investments and made significant progress in three areas of substantial long term growth potential.
Proteomics.
Second spatial and single cell biology, and third molecular viral diagnostics.
We also initiated further operational excellence programs for productivity improvements include.
Including restructuring and our broker nano group and invest.
As well as for capacity expansion, particularly in our bio spin and Calvert groups.
Turning to Q4 results now on slide four we're pleased with our continued sequential recovery and the fourth quarter of 2020, Q4, 'twenty and 'twenty revenues of 625 20.
$27 5 million rose 28 million or four 6% year over year, including favorable foreign currency translation of $27 million or four 6%.
On an organic basis revenues were just.
Minus <unk>, 4% below the Q4 2019 levels. Our Q4 BSI revenues were flat year over year, while best revenue has declined minus six 8% organically net of intercompany eliminations acquisitions added 4% to revenue growth and the quarter.
Our Q4 2020, non-GAAP gross margin expanded 80 bps year over year to a new high of 51, 7%.
And our non-GAAP operating margin expanded 40 bps year over year to 22, 5%.
The improvements and non-GAAP growth and operating margins were realized despite significant foreign exchange headwinds and resulted from increasing project accelerate revenue in our mix and continued SG&A expense control in the quarter.
In Q4, 2020 brokers GAAP diluted EPS were <unk> 45, compared to <unk> 44 cents and Q4 of 2019.
And our non-GAAP EPS were <unk> 58 cents, an increase of nine 4% compared to 53 in Q4 of 2019.
Continuing on slide five we show a brokerage performance for the full year and 2020 brokerage revenue decreased by minus $85 million or minus four 1% year over year to $1 99 billion, reflecting the impact of the pandemic and the related economic slowdown on and organic.
Basis revenues declined minus 6% year over year comprised of a minus five 5% organic decline and the scientific instruments business and a minus 11% organic decline at best net of intercompany eliminations acquisitions added.
5% to our topline and foreign currency translation was a benefit of one 4%.
Okay.
During 2020.
Our key 40 proteomics infectious disease diagnostics.
Hi field, MMR, Biopharma and aftermarket initiative initiatives continued to perform strongly.
Microelectronics and semiconductor metrology also grew nicely year over year, other businesses and glued, including our broader academic revenue base industrial research and the applied market stabilized and improved further in the fourth quarter.
Fiscal year 2020 order bookings for broker scientific instruments group groups increased low single digits organically.
Our BSI orders continued to strengthened sequentially and in the fourth quarter of 2020, BSI achieved 10% approximately 10% organic order growth year over year.
The strong Q4, 'twenty bookings likely included some catch up from delayed activity early in the year, particularly in our academic industrial and applied businesses.
Our Q4 2020 order rates also reflected continued strong performance and our proteomics microbiology and molecular diagnostics.
Biopharma.
And microelectronics and semiconductor metrology businesses.
Fiscal year 2020, non-GAAP gross margin decreased 130 basis points year over year, while non-GAAP operating margin declined 160 basis points growth and operating margins benefited from expense controls and cost reduction measures taken earlier in the year, but this was more than.
<unk> offset by lower volume and revenues in 2020 compared to 2019.
As noted earlier as noted already both growth and operating margins recovered and the back half of 2020 and in fact finished above prior year levels.
On a GAAP basis broker reported EPS of $1, <unk> and 2020 compared to $1 26, and 2019 fiscal year 2020, non-GAAP EPS was $1 35 compared to $8 57 in 2019.
Please turn to slides six and seven now where we provide further highlights on the 2020 performance of our three scientific instruments groups and of our best segment, all on a constant currency basis and in comparison to 2019.
Fiscal year 2020, biased and group revenue declined mid single digits to 600 million. The revenue decline at <unk> was due to COVID-19 related customer disruption and installation delays and mostly in the first half of 2020.
In fiscal year, 2020, <unk>, and <unk> and PCI systems revenue declined year over year and the fourth quarter, we received customer acceptance of an additional one two gigahertz and EMR system, ending with 312 gigahertz systems accepted in 2020, a major achievement and development milestone for us.
<unk>.
<unk> aftermarket grew slightly year over year, whereas <unk> scientific software revenues were substantially higher although from a modest space.
Moving on to fiscal two the Calvert group fiscal year 2020 revenues of $654 million grew mid single digits compared to 2019 College performance accelerated sequentially with low teens growth and the fourth quarter.
<unk> spell tonics, microbiology, and molecular diagnostics and life science mass spectrometry businesses delivered double digit revenue growth and the full year.
This reflected in part the uptake of neutral nucleic acid extraction, and Sars cov, two PCR kits as well as the multi bio type of consumables, which all grew significantly year over year.
Q4, 2020, COVID-19 nucleic.
Acid extraction, and PCR test kit revenues totaled just under $14 million.
For the full year 2020, and we grew our COVID-19, PCR business to approximately $30 million and revenue.
Virtually all in Europe and other countries.
In December we introduced our Fluoro type winter Fourplex as we call. It PCR panel and Europe, detecting COVID-19 flu a flu b and RSV and we also began to market two different types of fast antigen tests in Europe and collaboration with partner companies.
In late December we received U S FDA clearance for the mall, the biotech versus subsea tie per kit. The MBT substance hyper allows for rapid identification of more than 425 or micro organisms bacteria and yeast from a positive blood culture on our multi <unk> platform the <unk>.
Perhaps the type of work flow typically takes less than 30 minutes from a positive blood culture.
<unk> identification saving valuable time, and the diagnosis and treatment of critically ill sepsis patients.
We anticipate that this will provide a meaningful tailwind to our multi biotype a business and the U S in 2021 and beyond.
Our teams top unbiased 40, proteomics business had strong revenue growth and 2020, despite the challenging conditions and academia, we exited 2020 with very strong order and revenue growth and and installed customer base of more than 250 teams tough instruments globally.
Our <unk> molecular spectroscopy revenues declined year over year due to the weakened FTIR and Nir our markets and earlier in 2000 20-F.
FTIR and Nir IR and Raman molecular spectroscopy demand strengthened substantially in the fourth quarter of 2020.
Please turn to slide seven and now.
Broker nano revenues declined low teens low teens year over year to 556 million and fiscal year 2020. This reflects last year's academic market slowdown and weakened industrial and industrial research demand.
The nano group's X ray and his surface nano analysis tools revenues all declined in 2020 against the backdrop of reduced academic and industrial research demand revenue for nanos microelectronics and semiconductor metrology products grew double digits as semi markets were strong.
And the fourth quarter of 2020, we initiated additional restructuring and cost actions within the nano group to improve the fundamental cost structure.
<unk> investing and nanos spatial biology, and targeted multi omics strategy.
We anticipate these restructurings and restructuring actions to benefit Nanos financial performance in late 2021 and in 2022.
Finally, and fiscal year 2020, best revenue declined low double digits net of intercompany eliminations and reduced superconductor demand by MRI companies. This was partially offset by growth invest Big science projects. We also took restructuring and cost actions and invest in Q4.
Four of 2020, which are expected to benefit best performance in 2021.
Turning to slide eight now during 2020, we further expanded investments and our project accelerate high growth high margin initiatives programs, which we now refer to as project accelerate to debt.
We have broadened our proteomics initiative to include plasma proteomics cancer Proteomics translational research and emerging true single cell proteomics Targa.
Targeted proteomics and multi omics as well as Biomolecular condensate research by MMR and fluorescence microscopy.
Our microbiology and diagnostics initiatives and initiative now also covers viral molecular diagnostics, primarily with a fast growing PCR business and emerging antigen detection.
And importantly, we launched a spatial biology and single cell biology initiatives in our nano group.
As presented at the recent Jpmorgan Health care conference each of proteomics.
<unk> biology, and microbiology and molecular diagnostics addresses large additional total addressable markets are tamps.
In 2020 for the first time, our six project accelerate initiatives initiatives together comprised more than 50% of our revenues and on average they grew and the high single digits organically year over year.
Turning to slide nine we continue to make excellent progress with Tim's top 40, proteomics as our workflows and capabilities keep expanding and publications increase rapidly. We are currently serving a $750 million to $1 billion served addressable market or Sam with Tim's tough within.
And a $5 billion to $6 billion overall proteomics instrumentation instruments 10.
We exited 2020 within and default base of greater than 250, <unk> instruments and significant growth.
In 2020, we also made substantial progress with our ultra high field <unk> and EMR program for functional structural biology, and Biomolecular condensate research receiving customer acceptance of our first 312 gigahertz systems, new capabilities of gigahertz class MMR and enable research discoveries.
And discoveries and diseases with significant societal impacts.
Such as COVID-19.
All timers, and other neuro degenerative diseases cancer and cardiovascular disease.
For example, a recently published example.
The structure or the structure and intrinsically disordered regions of the Sars Cov, two and our nucleocapsid protein, which contribute to membrane list, Oregon, ALS also known as biological condensates, which enable viral RNA replication and host cells.
Interestingly without these biological condensates, there would be no COVID-19 pandemic.
But unfortunately, they also would be no life to begin with as in recent years Science has learned that these ubiquitous biological condensates that we can study with MMR and fluorescence microscopy, a really crucial for many key cell biology functions and healthy cell biology, as well as and many disease processes very.
Exciting new area for us.
In 2021, we anticipate continued ultra high field LMR growth with customer acceptances of four to five gigahertz class systems.
So in conclusion brokerage performance strengthened sequentially in Q4 as customer activity continues to recover.
Our high growth initiatives have expanded with project accelerate to Dino and our core margin and initiatives are progressing with ongoing and additional operational excellence programs underway.
We are very excited about our future opportunities and proteomics structural functional biology, spatial and single cell biology.
As well as and microbiology and molecular diagnostics, we entered 2021 with BSI order momentum and a solid backlog.
And we anticipate high single digit organic revenue growth at our <unk> and nano groups and low double digit organic revenue growth at our Calvert group.
We also expect healthy non-GAAP operating margin expansion and very strong non-GAAP EPS growth and 2021, four broker overall and with that I'd like to now turn the call over to our CFO Gerald Herman who will review our financial performance in more detail Gerald.
Thank you Frank and thanks for joining us on the call today I'll be reviewing the fourth quarter and full year 2020 financial highlights starting on slide 11.
Brokers reported revenue and the fourth quarter of 2020 increased four 6% year over year to $627 5 million, which reflects a modest organic revenue decline and zero point and 4%.
Despite relatively flat organic revenue results, our non-GAAP operating profit grew six 5% year over year, and our non-GAAP operating margin expanded 40 basis points year over year.
We delivered this operating margin expansion, while absorbing approximately 80 basis points of negative foreign exchange translation effects.
We reported GAAP EPS of <unk> 45 per share compared to 44 in the fourth quarter of 2019.
Fourth quarter 2020, GAAP EPS included material and restructuring charges related to the broker Nano group and best segment intended to strengthen long term financial performance of those businesses.
On a non-GAAP basis fourth quarter 2020, EPS was <unk> 58 per share and 9% increase compared to the 53 and.
And Q4 2019.
We exited the fourth quarter of 2020, and a strong cash and liquidity position with $731 8 million and cash cash equivalents and short term investments higher sequentially and compared to the fourth quarter of 2019.
And this reflects strong cash generation in the fourth quarter and for the full year and 2020.
Our net debt position as of December 31, 2020 showed a slight and slightly lower net debt position compared to a year ago.
During the fourth quarter, we continued to deploy cash to fund strategic capital investments dividends and our stock buyback program.
And the fourth quarter of 2020, we repurchased one 4 million shares of repurchase stock for a total of $68 2 million.
This brings our total buyback activity for the full year of 2020 to $2 7 million shares and $123 2 million.
As of December 31, 2020, we had $34 $5 million remaining on our share repurchase authorization, which is valid until mid may of 2021.
At the end of the fourth quarter of 2020, our working capital to revenue ratio remained elevated versus a year ago on lower 2020 revenue and as we carried higher inventory to address supply chain risks related to the pandemic and set ourselves up for a strong organic growth in the first quarter of 2021.
Slide 12 shows the revenue bridge for the fourth quarter of 2020.
As noted earlier organic revenue in the quarter was down 0.4%.
We had a positive revenue contribution from foreign currency translation of four 6% and a modest positive contribution from acquisitions of 0.4%.
From an organic revenue perspective, the fourth quarter 2020, bio spin revenues declined low single digits again against a strong comparison a year ago.
<unk> revenues increased low teens led by greater than 20% growth and Cowlitz microbiology and mass spectrometry businesses on the strength of Kellogg's infectious disease consumables and the uptake of Tim's talk proteomics.
Nano revenues declined high single digits.
<unk> continued to experience softness and its core academic and industrial and industrial research markets, partially offset by solid micro electronics and semiconductor demand.
For our three BSI groups fourth quarter organic systems revenue declined mid single digits, while aftermarket revenue grew in the low teens organically year over year.
Our BSI book to Bill ratio in the fourth quarter of 2020 was $1 one we.
We exited 2020 building DSI backlog year over year.
Best revenues declined six 8% year over year net of intercompany eliminations due to reduced superconductor demand, partially offset by higher Big science revenue.
Geographically and on an organic basis in the fourth quarter of 2020, our European revenues grew quite strongly in the mid teens year over year, North American revenue declined high teens Asia Pacific revenues grew.
Low single digits, the rest of the world revenues declined year over year.
Slide 13 reflects our P&L results for the fourth quarter of 2020 on and on GAAP basis.
Fourth quarter 2020, non-GAAP gross profit margin of 51, 7% increased 80 basis points from 59% in the fourth quarter of 2019.
This year over year improvement and gross margin reflects favorable mix trends and operational efficiencies within our BSI groups, partially offset by a headwind from foreign exchange.
Non-GAAP SG&A expenses were flat year over year in the fourth quarter of 2020, reflecting solid cost discipline in the quarter largely offsetting the unfavorable impact of foreign currency translation.
And the fourth quarter, we continue to support the expansion of project accelerate to Dot O initiatives with our R&D investments up compared to a year ago.
All in we delivered record non-GAAP operating margin of 22, 5% in the fourth quarter and increase of 40 basis points from the fourth quarter of 2019, driven by improved gross margins and SG&A expense control, which more than offset and approximately 80 basis points foreign currency translation.
And headwind on operating margin.
Fourth quarter 2020, non-GAAP interest and other expense of $7 $1 million was similar to that in the fourth quarter of 2019.
For the fourth quarter of 2020, our non-GAAP effective tax rate was 31, 9% compared to 34, 4% in the fourth quarter of <unk> 19.
Although the year below the year ago level, our fourth quarter 2020 tax rate was impacted unfavorably by jurisdictional tax mix.
Weighted average diluted shares outstanding and the fourth quarter of 2020 were $153 8 million a reduction of approximately $1 6 million shares from the fourth quarter of 2019, reflecting our share repurchase activity.
Finally, the fourth quarter 2020, non-GAAP EPS of <unk> 58.
Increased nine 4% year over year on favorable mix and expense control and a lower tax rate.
Slide 14 shows the year over year revenue bridge for the full year 2020.
Revenue declined to $85 million of four 1%, including a full year 2020 organic decline of 6.0%.
This reflects an organic decline of five 5% at the three BSI groups, collectively and and 11% organic decline and past net of intercompany eliminations.
Geographically and on an organic basis and in the full year of 2020 brokers European revenue was up low single digits year over year.
North American revenue declined mid teens.
Asia Pacific revenues declined mid single digits with similar mid single digit declines in both China and Japan.
Our revenues and the rest of the World were also lower year over year.
On slide 15, and our full year 2020, non-GAAP gross profit margin of 48, 7% decreased 130 basis points year over year.
Lower volume and reduced productivity from COVID-19 disruptions earlier in the year.
And its related economic slowdown drove the decline relative to 2019.
Full year 2020, non-GAAP operating expenses declined three 5% year over year on cost control and cost reduction measures all in our non-GAAP operating margin in the full year of 2020 was 16.0% and 160 basis points below 2019.
Interest and other expense of $22 $5 million was slightly above the 2019 level.
Our interest costs were lower in 2020, following our December 2019 debt financing. This was offset by a net loss on foreign exchange transactions associated with unfavorable currency movements during the year.
Finally, non-GAAP EPS of $1 35 was down 14% relative to the full year 2019.
Turning now to slide 16 free cash flow and 2020 was approximately $235 million $95 million higher than that in 2019.
And increase in customer advances and favorable other items in 2020 more than offset reduced cash generation from lower net income inventory build to address risks related to the pandemic and continued capital expenditures and high capacity higher capacity and productivity.
Our cash conversion cycle at the end of the fourth quarter of 2020 of 220 days worsened from 198 days a year ago due to the step up and <unk>, partially offset by a reduction and DSO improved receivables collections.
Turning now to slide 18, we are resuming guidance for 2021.
While we cannot rule out further temporary business disruptions related to the pandemic our visibility for the full year of 2021 has improved compared to 2020 as major end markets have stabilized.
We enter 2021 with a healthy backlog and all three BSI groups.
Together with some anticipated catch up from delayed spend and installations from 2020 for the full year 2021, we anticipate our revenues to grow 7% to 9% on an organic basis.
Foreign currency is expected to contribute approximately 4% to revenue growth.
And we therefore expect and.
2021 reported revenue growth in a range between 11 and 13%.
Baked into this projection is the assumption that all three of our BSI groups will drive growth.
And best revenue is expected to be flat to down organically on a full year basis.
We expect our 2021 non-GAAP operating margin to expand $150 to 190 basis points compared to the 16.0% reported in 2020.
And this also absorbs and expected foreign currency headwind of approximately 80 basis points on operating margin.
On the bottom line, we expect 2021 non-GAAP EPS in a range between $1 72, and $1 77, which would represent an increase of between 27 and 31% compared to 2020.
At the midpoint and this would also represent double digit growth from the $1 57 in 2019 pre pandemic non-GAAP EPS level.
Our 2021 projected non-GAAP operating margin expansion and non-GAAP EPS, taking into account a very deliberate increase in R&D investment to approximately 10% of revenues as we fund further investments and project accelerate to dato expansion areas.
Are there assumptions for 2021 include a projected non-GAAP tax rate of approximately 28% fully diluted share count of approximately 152 to 153 million shares and capital expenditures of about $100 million.
We continue to project elevated capital expenditure levels in 2021, as we fund important capacity expansion and productivity enhancements.
Foreign exchange rate assumptions are listed on the slide.
And while we don't provide quarterly guidance I'd like to give you some additional color on our first quarter 2021 expectations.
And given the relatively weak comparisons from the first quarter of 2020, we currently expect our first quarter 2021, and financial performance to be relatively strong barring any major additional adverse pandemic.
The impact, we expect greater than 15% organic revenue growth and a greater than 100% non-GAAP EPS growth year over year to be likely.
To wrap up we concluded 2020 with a solid financial performance in the fourth quarter, delivering sequential quarterly improvement and revenue margins EPS and cash flow.
And are challenging business conditions, we enter 2021 with strong backlog and momentum and with an expectation and solid organic revenue growth and very good earnings growth year over year.
The strategic investments, we made in 2020 and product and production expansion and operational excellence acquisitions, and and project accelerate to Dot O give us confidence that brokers emerging out of the pandemic a much stronger company.
We look forward to updating you on our progress on future calls.
And with that I'd like to turn the call over to Miroslaw <unk> to start the Q&A session. Thank you very much. Thank you Gerald.
I would now like to turn the call over to the operator and begin the Q&A portion.
Order to allow everyone time for questions.
And you limit yourself to one question and one follow up.
Thank you.
Operator, we are ready to begin the Q&A, yes. Thank you as mentioned we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to try your question. Please press Star then two.
And we will pause momentarily to assemble the roster.
And this morning's first question comes from Dan monitored with Wells Fargo.
Okay.
Please go ahead, Mr Lard Euro wildlife.
Apologies I was on mute. Thanks for taking the question first off could you elaborate on your expectations for bookings growth and in 2021 and also touch on your pipeline for the gigahertz class and EMR systems.
Hi, Dan Frank bookings growth for 2021 remains to be seen.
And we.
We will report on that as we go forward, we have not set formal guidance for that.
Our gigahertz pipeline is certainly fully booked for 2021 and 2022 and further growth. During these years in terms of revenue and into 'twenty and 'twenty three.
Okay. Thank you and just a quick follow up on the tax rate.
Gerald do you still see the low twenty's tax rate as feasible and what would drive that thanks.
Yes, we do Dan and I would say you likely saw we.
We had some unfavorable jurisdictional tax mix for the fourth quarter, which helped to pull that rate up but fundamentally there is still some really interesting opportunities in front of us, which we're going after you know I think about some of our movement of production activities to Malaysia for example, which is.
Where we have some tax holiday.
Tom.
Available to us as well in Switzerland and theirs.
And very good opportunities there both in terms of the Swiss patent box as well as other rates.
We continue to have a fairly strong demand in the SME and micro electronics area, which should favor us from me.
U S based rate perspective, depending of course on what happens with defined and administration and.
And corporate rates, but fundamentally we think we can still move into that area.
And we kept the 28% rate for the full 2021 on the basis that we're.
And our mix is still leaning towards more of our European.
And business growth.
Okay. Thanks for the color Youre welcome.
Thank you and the next question comes from Dan Arias with Stifel.
Good morning, guys. Thanks, Frank maybe just an overarching question here as you as you enter the new year and you guys have kind of.
Taken stock of the business and where you want to go with it and relation and some of the initiatives that you've laid out and the past where if anywhere.
As the pandemic sort of puts you behind the pace that you were hoping for and on the flip side are there things that you would call out at this point that you have sort of accelerated were pulled forward as you as you re prioritize things and the portfolio and.
And the set of things that Youre looking to do.
And just sort of look at what's more important versus less important relative to maybe six or 12 months ago.
Sure then so I mean, clearly the academic market have taken quite a hit in 'twenty and 'twenty and have not fully recovered the 10.
More recovered and China and in Europe, and in the U S. The academic markets have not recovered yet for us.
Industrial is gradually recovering but it is also not fully recovered and.
And.
Applied has moved pretty strongly in Q4, but throughout 2020 took a hit and last month, but not these best was certainly declining last year and will not be all that strong and 2021, either mostly because of indirectly the MRI markets that we serve and directly with our superconductors our week so those debt.
The list of the guidance of the of the bad Guy So to speak although I have to say almost all of them.
We are seeing a recovery.
And though we're not projecting a full recovery yet at least not for the first half of 2021.
Going to project accelerate initiatives, they have grow and of course and as we said high single digits organically throughout last year, that's pretty impressive and we continue to see higher than average growth. Although our core business also will see good growth and 2021.
I, certainly proteomics and ultra high field and EMR for protein functional structure, and elucidation and our great markets. Our microbiology business has held up remarkably well, particularly the consumables and of course, we are now emerging also as a molecular diagnostics company.
We are starting on scientific software on spatial biology on single cell targeted multi omics restarting at modest levels, but we think those will become great additional growth drivers and.
And 'twenty 'twenty, one and beyond and we are investing pretty heavily and that.
And Oh our.
And our Biopharma Mark business has done really well with a good double digit growth organic.
In 2020, so our rather differentiated MMR and mass spec solutions force for various pharma and Biopharma.
Discovery and development problems.
And have really continued to grow very very nicely. That's nice secular growth of course, the biopharma industries is healthy anyway, So thats, just becoming a bigger and bigger part of our business.
And sorry, last but not least microelectronics and semiconductor metrology tools, where our problem child, if you like financially in 2019, and they've done really really well and 2020, so that part of our industrial exposure. If you like is actually a big plus right now because these markets are healthy and are likely to.
We remain healthy for the foreseeable future.
Okay. That's helpful.
And then you referenced capacity expansion and <unk> spend and some of the earlier parts of your remarks can you just update update us on the site consolidation in Germany.
Are you still tracking to your 2021 goal there.
And is that something that you might call out as either a source of risk given the pandemic or maybe a source of margin benefit. If you. Just think that you are and are pleased to recognize some productivity gains and see where do things stand there.
Stayed very much on track remarkably the construction activity and some initial moves have occurred already as all on track and on time.
And we expect debt by I believe Mitch 'twenty 'twenty, one we will have consolidated those German us and <unk> sites similar activities slightly smaller scales are going on at <unk> and Switzerland.
And we've expanded our ability to deliver ultra high field <unk>, there as well some capacity expansion and a lot of consolidation in terms of site and Thats over time also supports its not really additional margin expansion, but you know we have long term margin expansion goals. So that all supports that.
In addition, we've we've.
We're expanding pretty in 2020 and the beginnings wealth.
Beginning in 2020, but accelerating and $21 22, our life science mass spectrometry, and our diagnostics capacity, including facilities associated with that and we're expanding and phase two our Penang, Malaysia, mostly broker nano and final Assembly and systems test, which is of course cost.
<unk>.
As well as tax advantages so so.
A lot a lot of good investments going on in 2020 sort of they stayed on track remarkably nothing there really fell behind very much and continued and 'twenty 'twenty one and into 2022. Those are all very good investment opportunities. Some of that will help us on productivity some of that is margin expansion and capacity.
And it's all margin expansion some of it is capacity expansion, both productivity and capacity expansion for our project accelerate initiatives of course are expected to provide not only margin expansion. This year, but continued margin expansion into the future years, that's always been our modus operandi.
And obviously somewhat disrupted and temporarily in 2020.
Okay I appreciate your response Frank.
Yes.
Thank you and the next question comes from Doug Schenkel with Cowen.
Good morning, and thank you for taking my questions.
My first question is just a guidance clarification question and then I'll.
Want to come back and talk a bit about project accelerate.
Just on guidance I was hoping you could provide a bit more detail.
On the growth expectations.
Within BSI really by segment, specifically I am curious why nano is expected to grow.
I hate to say it but only high single digit despite a favorable low teens year over year decline.
Yes, I would think that could be a little bit higher and then on the flip side.
I believe you said you expect <unk> to grow low double digits in 2021.
And that's pretty robust keeping in mind.
The year over year comps, a little bit tougher at mid single digit growth.
I'm, just curious what kind of whats driving those assumptions and are there specific things you can point to that gave you confidence to.
To set expectations at those levels.
Why don't I pause, there and I'll come back to project accelerate and a second okay.
Okay got Frank.
We're actually broke broker nano as we said we do not expect the.
U S academic markets and the industrial industrial research markets to fully recover we don't think they have fully recovered at this time and we will keep observing that obviously throughout the year.
Throughout the first half of this year 'twenty and 'twenty. One so we expect a partial recovery there and we have lots of good indications, including order bookings that that's on its way, but it is not a full recovery.
So.
And on the flip side agreed Calvert and.
And mass spec and and microbiology and diagnostics molecular diagnostics had decent growth in 'twenty and 'twenty, even and we expect continued very solid growth and 2021, there as well so it turns out as Gerald said earlier that all three of our BSI groups in 'twenty and 'twenty.
And one interestingly are going to have comparable growth rates in.
And the high single digits organically.
And Cal it a little bit higher than that.
We haven't spoken about <unk>, but we also expect bio spin.
High single digit organic growth rates in 2021, the only laggard is really best which is smaller.
And there are recovery may take until either till 2022, or maybe the second half of 2021 that remains to be seen.
Okay. Thank you for all that detail and then on project accelerate.
Frank I think you said that project accelerate grew at high single digit levels in 2020.
Did that include COVID-19 revenue I'm, just hoping you can elaborate.
<unk> included about <unk> <unk>.
Well, it's pretty pretty close to $30 million three zero $30 million of COVID-19 revenue and nucleic acid extraction, and then the actual PCR tests.
So yes. That's included in that Okay, and then and from 2021, sorry, if I missed this but what are you assuming for project project accelerate revenue growth within guidance, we expect both project accelerate and project advantage, which is sort of our core business with operational excellence to have somewhat more comparable growth rates.
Obviously big.
Big discrepancy and 2020 with more similar growth rates in 2021, as our core business and some of the businesses that got hit harder or mostly recovering maybe not fully but mostly.
And but we still expect project accelerate to grow faster or north of the corporate organic growth average in 2021, but there'll be much closer to each other.
Okay, Alright that was and it's Super helpful. Thank you guys. So much really appreciate it thank you Doug.
Thank you and the next question comes from Puneet <unk> with SBB Leerink.
Yeah, Hi, Frank Thanks.
So the first question is on the.
A strong 15% growth to debt you're projecting here just wondering how much of.
Testing is included in that and how much of that sort of the kids and Covid related benefit is included in that and.
And as Jim That's also part of project accelerate and there than just one.
Wanted to get and get that given the obviously you are looking at easier comps, but wondering how much of that is COVID-19.
Yes, so the 15% or greater organic revenue growth for Q1 21 year over year I assume that's what you're referring to.
It is in part a recovery, obviously, a weaker Q1 'twenty comparison.
We expect our Covid testing business to continue to grow.
In 2021, although perhaps not explosively so in in.
In Q4, 'twenty it was about $14 million, just shy of $14 million. So maybe it would be 15, 16 and $17 million and Q1, so it's not all COVID-19 driven.
It is one of the elements that helps us with Q1, but it's not the major factor.
And of course, yeah.
Year over year in Q1 of 'twenty, we had essentially no COVID-19 business, so and in that sense year over year Q1 year over year that 15, 16, and $17 million of PCR of Covid testing business is all incremental.
But there are many other healthy growth drivers in Q1 as well.
Okay and hope that answered your question yet.
Yes.
That's helpful.
Thanks for the details there and and.
On proteomics.
I could get a sense of one of the questions. We've been getting is.
The exposure that you have two day and proteomics and obviously Tim's tosses core to that the instrument is doing well you obviously have experience with instruments now a couple of years and the market.
And so as you look at the current proteomics exposure that you have and what it could be.
And obviously, an important growth driver and maybe if you could give us a sense of where it is today and where it could be.
And a few years and also what are you baking for Tims task for the and the full year guide.
Thanks.
So Tim stuff is growing very nicely.
And so.
Certainly north of $50 million per year now.
The we have of course, other proteomics and protein analysis instrumentation from SPR to X Ray crystallography, particularly also gigahertz and EMR for structural biology, So our total proteomics multi omics exposure.
In 'twenty and 'twenty is around $200 million to $250 million.
And.
Teamstaff is is part of that it's not the largest part yet but it is the fastest growing part for sure and.
And.
Over time, we expect that Tim's tough franchise, especially as it branches out into you know theres. The flex system that you can also do spatial low mix before you do proteomics there'll be a future true single cell.
<unk> system that gets derived from that kind of gave you a little bit specialized probably launching in early 2000 22020. Due so we expect continued certainly double digit growth and Tim stuff proteomics and we.
Last year with our orders grew more than 30% and Tim's tough with all the different product points and.
And I don't know that we can maintain that growth rate, but we expect above company average growth rates, certainly double digit growth and proteomics and and Tim stuff in particular.
And the demand for that and the reception and the publications with that system are really going well. It is very robust. So we think we have a lot of satisfied customers and they are spreading the word of mouth.
That's great that's great and if I could squeeze the last one.
And uhm gigahertz magnets.
No youre, providing and guide airport for the size of those but wondering.
And if all of those are in Europe as.
And as well or do you expect North America to pick up.
Sometime.
These are previous orders. So these acceptances and revenue that we're expecting for 'twenty 'twenty one of the 45 systems actually all in Europe.
We do have.
And order in for the U S and and also one for Asia and backlog, but as you know we're expect we're hoping we're expecting actually that the U S and perhaps also certain Asian countries will begin to really look at the enormous benefits you get even for disease research for highly relevant disease research from the gigahertz class.
And that type of functional structural biology looking at this you'll be hearing me talking about Biomolecular condensates, a lot with both MMR and and fluorescence microscopy, it's and exploding area of cell biology, and disease biology tremendously important.
Science at a complete blind spot there until a few years ago.
And we're going to play a big role and that as well, including with MMR. So.
That's.
To cut to the business Punch line, we think there'll be.
Strong momentum and driving for funding and getting additional orders and the next one or two years also from the U S. Certainly the U S academic community really needs those capabilities as they can.
And I'll just hop on a plane and go to Europe right now.
That's great. Thanks, Brian.
Tom.
Thank you and.
The next question comes from Tycho Peterson with J P. Morgan.
Hey, good morning, Frank Im wondering how youre sizing the market for special and single cell and and when you think that could start to become more and more material to revenues is it. The same 12 billion ish and we've heard about from net Australia and connection can you. Maybe also just talk about some of the investments you did allude to the new single cell system. So maybe talk about investments you need to make there yes.
For us good questions Tycho.
For us it starts at a modest level of spatial biology and single cell multi omics.
I think around $25 million to $30 million. So we have some ways to go but we haven't started it's not that it's all aspirational.
And we think we think of these markets.
The way we've added it up we end up at a more conservative 4 billion dollar market size for what we can see and spatial biology and single cell multi omics.
It's still really large there's a lot of growth you can do within our 4 billion Tam.
And I won't I know, there's higher numbers out there.
And the and growth growth.
Growth growth revenue growth, which would be more meaningful than whatever people have is different different people are very different tam numbers and newer more conservative there.
Okay, and then Frank on the fourth quarter, you did call out a little bit of a budget flush and I think that especially the two BSI can you maybe just touch on that dynamic did you see it and any other parts of the portfolio and anything you could quantify.
Yes, I mean budget flush because we don't have such short so much so much consumables or things that ship immediately budget flush for us is not so significant but you are right in a way I think the BSI across all three groups the BSI average organic bookings growth.
Was 10% year over year, so not only sequential but really excellent year over year for our fourth quarter and we just have to assume we cannot really.
Figure out that's budget flush and Thats, a secular growth, we don't know exactly Tycho, but maybe assume theres a little bit of catch up for things that you know that when people got delayed and Q2 and Q3 years or so.
And so we're not projecting that we now have a 10% growth momentum every quarter.
So.
Hard to say its the answer but would we assume there was a little bit of catch up as well. We don't think this was all just catch up we think theyre good secular fundamental growth drivers.
Okay and then.
One last one for Gerald before I hop off if we think about kind of the margin guide 150 to 190 bps traditionally you've talked about two thirds of that coming from gross margin and obviously this year it will be more from some of the structural initiatives you've talked about but.
And how should we think about all of this and the context and kind of the longer term outlook of 75 to 100 Bips of margin expansion and in other words, if some of these structural changes kind of positioning you for maybe.
Range above that and longer term.
Well I think we'll talk multiyear more in our Investor day, when we move into June.
And just fundamentally we're starting to see some improvements on the mix side.
Part of our project accelerate initiatives are helping to change the mix and Thats all favorable from an operating margin perspective for us so.
And this is also the starting point for us for 2021, and it's early in the year and clearly there are still some uncertainties out there.
And mentally yes, I think.
The mix shift is helping us and we will do that both on the gross margin line and we expect net to dropdown and ultimately into the operating margin line.
Okay. Thank you.
Okay.
And.
Thank you and the next question comes from Dan Ryan and West UBS.
Yes.
Great. Thanks, Laura Thanks for taking the questions maybe Frank just with the new two point now accelerate which obviously rolled out earlier this year I'm just wondering if.
If we think about the long term growth growth profile that you laid out previously.
Eric.
On project accelerate to point out I'm just wondering.
How did the new.
Initiatives that you have some and larger Tam.
How do they impact from position broker over the longer term I know, we're going to get probably and update at the Investor day, but I'm wondering if you can give us a sense of what impact. These new markets are opening up in terms of your growth rate.
Yeah, right, we're not going to ask.
That'd be a qualitative rather than a quantitative discussion right now so.
We certainly think debt.
Proteomics, both targeted and unbiased, we're pursuing both and a very broad sense is going to be the very very large opportunity and very large growth opportunity for broker for all sorts of reasons that are well that are being discussed and the industry and others are sharing that more and more others are sharing that vision and we think we.
And to have a very crucial role to play here.
We also think.
And while we are not projecting the $12 billion Tam, we think that spatial biology, including single cell multi omics.
And targeted molecule mix is going to be big and I think we wanted and going to be one of the major players and that spatial biology field with things that we've announced already and more things and the pipeline I understand with at about 30%, 25% to $30 million, we're starting at a modest level, but I think youll see that ramp up quite a bit with very good growth rates as well and.
Good margin opportunities.
And then as we are becoming a more sizeable diagnostics player focused on infectious disease diagnostics.
But also more and more research use tools for cancer translational research.
Which eventually could also go into laboratory developed tests, we expect that actually will happen over time, although that's not for 2021. We think there are some very very large secular growth opportunities for broke or where we have where we're really well positioned.
And have in many cases very very unique tools that can really contribute to the overall mix and those markets. So I would highlight those as the three among the six project accelerate judo initiatives. So I think there are three that are very large and I call those proteomics spatial biology.
And infectious disease diagnostics and those are very large long term opportunities for broker and we're really well positioned for those.
Great. Thank you for that and then just maybe as a follow up I know.
And the 15% organic guide was kind of touched upon already a few times here, but I'm just wondering even when you back out the COVID-19 contribution it looks like.
And that guidance looks stronger than kind of your full year guidance would imply it looks like you have and easy comps and I'm. Just wondering is that something we should be aware of as we can.
And into the year, why you know and attacks on basis, when we do the math it looks like the HEICO and just wanted to give you. Some modeling guidance right. I mean, obviously Q1 and Q2 of last year were weaker for us. So the relative growth will be strong, but we also did have strong order momentum and strong very solid backlog right now and all three BSI groups.
We also wanted to highlight that the last year the discrepancy between groups with huge whereas this year, we expect it to be actually a pretty tight spread.
And we thought those would just be useful modeling opportunities and yes. We are excited I mean, we think we're going to see.
Great organic growth and really pretty good growth organic growth for the entire year, but particularly strong in Q1 and Q2.
Great. Thanks, Frank Thanks, Joe.
Sure.
Thank you and then last question comes from Derik de Bruin with Bank of America.
Hi, Good morning, just a couple of quick ones.
Gerald can you talk a little bit about and if I missed that apologies what the free cash flow target is for 'twenty, one and then I have a follow up.
Yes.
Yes, I would say just generally we don't provide targets specifically publicly but you can see I think from.
Free cash flow generation and head into fourth quarter and actually for the full year, we kind of Reengineered our.
Cash and engine, if we can put it that way and we had some success for sure and the fourth quarter, where we had strong order performance plus cash flow and flowed it so well.
And we will talk more about multiyear cash flow concept.
Concept when we move into the June Investor day, but fundamentally it's pretty healthy at the moment.
But I think I should we would could see derik debt, our cash flow can fluctuate from year to year and.
And we've seen that before that it's not always a steady incremental.
Incremental function. So we had very good strong cash flow and in 2020.
You cannot always just add another whatever 10% for the next year, our cash flow. If you look at US historically has been fluctuating from year to year and that could happen again.
Great and just one just one more.
Gerald how should we think about the margin progression for this year.
Very impressive guide and the numbers given all things going on but just some quarterly guidance would be very helpful. If you have any.
Well as you know we don't provide.
<unk> guidance at the quarters, we just give you a little bit of color on each piece as we move through the year and fundamentally we are we're pretty optimistic about where we stand and I mentioned earlier that you know.
We have delivered very good we actually had record operating margin performance and the fourth quarter.
We expect a strong first quarter and I made some comments about EPS and to bottom line.
Fundamentally our mix has helped us at the gross margin line and our cost control measures.
And the operating expense area at least and SG&A. It really made a difference for us so.
We'll talk more about that as we move through the year, but im pretty optimistic actually about where we stand from the gross margin line and the dropdown and ultimately into the operating margin line.
Great.
Thank you very much.
And then.
Thank you and our next question comes from Jack Meehan with Nephron research.
Thank you good morning.
Frank I was wondering if you could just give some higher level thoughts around what's going on and the academic and market now I know you mentioned, obviously it took a bit of a hit and.
2020, but what are you seeing entering 2021 in terms of research activity and willingness to invest and new capital equipment.
No.
I think very strong and Europe pretty strong and China.
Throughout last year, most of last year weak and Japan weaken India weaken Latin America weakened the U S and particular and not fully recovered yet in those geographies.
Now in the U S. We expect this to change I mean endowments are at record highs.
And you administration seems to support investment and NIH and similar type of.
Scientific and biomedical and investment in particular.
I think there'll be more confidence in among U S academics, but some of the students are still are not on campus and and you have some of the.
State universities with budget issues so.
But we expect a continuing improvement trend and the U S. But also the U S.
Had not fully recovered and academic.
And Japan last year was just generally quite weak with a little bit of strength.
Early signs of maybe some improvement in Q4 and countries like India Latin America. They just really just fell behind and academic spending.
We hope we're not suggesting that that's all going to be just all good and Q1 and Q2, but we hope that it sorts itself out throughout this throughout the year. So hopefully by the second half of the year with again, China and Europe being remarkably strong.
Great and then Gerald and I was wondering if you could give us some color on cash flow what does your guidance assume in terms of cash flow generation in 2021, and can you just help us with some of the moving parts around working capital.
Net inventories took a step up in 'twenty and 'twenty when do you expect that.
Normalized and then also seeing some increase in customer advances what is that related to.
Yes, so all good questions. So fundamentally in terms of our 2000 and 'twenty one guidance. We don't provide details around every cash flow item, but just qualitatively if I may I'll give you some some commentary.
<unk>.
With respect to the <unk>.
<unk> 'twenty performance, we did see and strong customer advances, which followed very strong order bookings performance Frank mentioned.
And your bookings performance across all the groups.
You may know.
And most of our larger pieces of equipment for sure require advances on when the orders book. So so that tends to bring those when the order performance is strong.
Customer advance collection activity is strong in addition to that we we did reengineer as I mentioned earlier and earlier question some of our cash and.
Cash flow.
And that helped us very significantly in a very challenging business year to improve our and our.
And collection activities.
And interestingly that's across all the regions net net.
Specific to any one.
I would also say just generally with respect to the inventory level Youre right our D.
Our inventory levels have been up.
For 2020, we were building inventory largely to make sure we addressed supply chain risks associated with the pandemic and in addition, we are building inventory for more significant rebound as you've already heard from 2021. So we are expecting those inventory levels to be managed very carefully as we move.
Through the rest of 2021, but I have to be honest, we still do see some potential disruptions.
And particularly around some of the variants that are still floating around and and.
And the world. So we're trying to be cautious and.
Not overly conservative here, but we expect to see some improvement and both the inventory management level and certainly continue to strength and we had in our and receivables collection and our.
<unk> and payables activities.
And on the free cash flow just one other point I'll make is and you may have seen also that we are continuing to project a significant capital expenditure level and this is largely to focus on production capacity increases and productivity enhancements across many of the businesses.
And we expect that to impact our free cash flow over and over time.
And largely higher for.
For 2021, we don't expect to leave it at that level forever, but for the moment, we've got some really exciting opportunities we need to capture through through Capex, but 'twenty, one 'twenty capex will be comparable yeah, a little bit higher in 'twenty, one and not much higher.
And we're not going to have absolutely optimized inventories. This year, we think theres still disruption potential so having slightly higher safety inventories this year will probably be.
And until that pandemic really is.
Is gone and it becomes endemic we're probably going to operate with elevated inventory levels for so that we can deliver.
Yes.
Thank you and the next question comes from Patrick Donnelly with Citi.
Hey, Thanks for taking the question guys.
Frank maybe just to follow up and one of the earlier questions on single cell and spatial young.
Did that spatial acquisition in late 2020 canopy, you've talked a little bit more about it to your point and J P and coffee.
A good amount about the market can you just talk through how we should expect this business progress and 'twenty one here what are the expectations.
You said, it's a real business now it's not a future thing. So just wanted to get a feel for what to look out for this year, yes.
Yes, its the Kennedy chip cytometry businesses, plus the services that go with that so they'll build there'll be continued fast product development and.
And that business. Its also things from our florescence microscopy business. The <unk> block, so launch, which can really go into not only spatial transcriptome mixed but true spatial genomics for which you need.
<unk> less and the 100 or and in our case with Super resolution.
Microscopy U K and they had to meet that 20 nanometer resolution to look at details not only of the nucleus, but the chromatin the chromosomes and the chromatin and so we really can address different scales. When we talk about spatial biology, we're talking about resolution scales that many others that are in that space cannot.
And touch or are nowhere close to doing that so we have a range of tools for spatial biology, and some of them also.
And that single cell targeted proteomics and targeted multi omics.
And.
It's not a one trick pony it's multiple.
Technologies, primarily microscopy.
Related debt look at cellular sub cellular all the way down to chromosome and chromatin structure, which is of course much much smaller at the tens of nanometers scales. So and we have the targeting technologies and the software and the labor flow lift.
The flow labeling technologies combined with microscopy, that's pretty unique to really have a pretty multifaceted spatial biology, if I use that as the overarching terminology.
Portfolio that we think will do very well and in many cases exceeds what anybody else can do.
Great. That's helpful. And then maybe just a quick one on Europe.
Can you just talk to I guess the trends you've seen recently on the academic side expectations and 21.
And I know you guys have seen some pockets of strength and then some a little more mixed but just wanted to get a feel for what the expectations there going forward.
I mean, Europe European academic funding tends to be much more steady and it's of course doesn't depend on tuition or on revenue from and.
Sports teams or or cafeteria, and things like that.
So it's it's steady and then of course, it's really the allocation single cell biology, proteomics or big funding themes in Europe that were good programs with preclinical imaging and a few others. So.
It's.
It's steady and probably low single digit growth and these budgets, but the allocation to the.
Project accelerate fields that were particularly interested and particularly good at.
It's been very gratifying and beneficial.
And of course, it's not identical and southern Europe is weaker central Europe companies countries that have a strong pharma industry are really very strong we believe that the UK will actually heavily invest in research and innovation also on the academic side after Brexit.
So.
Europe overall has been strong in especially in the way they've allocated to scientific priorities that match, what we can do and where we can grow and where we are unique.
Understood. Thanks, Frank.
Thank you and.
The last question and I have confidence I would like to return the call over to him and her staff up my cover for any closing remarks.
Thank you for joining us today in the first quarter of 2021, okay, well participate virtually and the cerave Leerink Global Healthcare conference and the Cowen annual Healthcare conference.
<unk> to meet us at these conferences or reach out to us for a virtual meeting during the quarter.
And have a nice day.
Thank you. The conference has now concluded. Thank you for attending today's presentation, you may not a central lines.