Q4 2020 Ortho Clinical Diagnostics Holdings PLC Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Ortho clinical diagnostics fourth quarter 2020 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask the question during the session you will need to press Star then one on your telephone.
If people go out any further assistance. Please press Star then zero.
I would now like to hand, the conference over to your speaker for today, John Sanders Treasurer, and head of Investor Relations you may begin.
Thank you operator, and good afternoon, everyone with me today to discuss our financial results are Chris Smith, Ortho clinical diagnostics, Chairman and CEO, Joe Borowski, Orthos, Chief Financial Officer, and joining us for Q&A will be might get scrubbed, our EVP of commercial excellence and strategy.
This conference call is being simultaneously webcast on the investors section of our website and a version of today's presentation can be downloaded there.
Let me remind you that the presentation and remarks made today include forward looking statements as defined in section 21 E of the Securities Exchange Act, except for historical information all of the statements expectations and assumptions discussed in today's call are forward looking statements that involve a number of risks and uncertainties.
Actual results might differ materially from the results discussed in the forward looking statements.
These risks and uncertainties include but are not limited to those factors identified on slide two of today's presentation in our form 10-K for the year ended January three 2021, and other filings with the Securities and Exchange Commission, except as expressly required by the securities laws. The company undertakes no.
The obligation to update those factors or any forward looking statements to reflect future events developments or changed circumstances or for any other reason during today's call. There will also be a discussion of some items that do not conform to U S. Generally accepted accounting principles or GAAP. Please see slide three.
These include but are not limited to core revenue constant currency EBITDA adjusted EBITDA adjusted free cash flow and adjusted diluted earnings per share reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and all.
So in the press release issued this afternoon, both of which are available in the investors section of the ortho website bunch.
On today's call. We will also refer to our core in our non core business, our clinical labs in transfusion medicine businesses represent our core business. Our noncore business is comprised of our contract manufacturing and licensing revenue.
Now I will turn the call over to Chris Smith, Chairman and CEO of Ortho, Chris Thanks, Sean and good afternoon, everyone and welcome to Ortho. His first earnings call as a publicly traded company. It's an honor to be with you today to share all of ortho is fourth quarter updates.
You should have received the deck and have the ability to go through it with us so rather than us steering I will we will call out slides today as we address each one I'm going to start on slide four.
We always love to start all our presentations, whether it's with a customer or a field organization or with investors around our mission and especially our tag line because every test as a life.
It's what we do and why we do it every single day. It truly is the accretive that drives the company and we always love to be able to share that as we move into it to give you. An example, today will help about 800000 patients around the world.
I'd also like to take a moment and thank and recognize the many ortho teammates who make it a priority take exceptional care of our customers and our patients they serve which was the utmost important during this challenging year, where that we experienced in 2020.
'twenty 'twenty was also a year of opportunity for us ortho when our customers need urgent reliable solutions to tackle the challenges caused by the pandemic. We answered the call. For example in just 19 days, we launched the first high throughput Covid antibody tests, followed by a high volume antigen test in Q4, it's just kind of innovation and dedication.
To our customers and patients over the last few years has helped us transform ortho into the market leader it is today.
I'd like us to move on to slide five now to talk and remind you about the markets in which we compete.
As you know the IBD market is a very large industry with about 76 billion and when you break down the segments that we compete and that's about 26 billion of that market opportunity and we see that growing about 5% to 32 billion over the next four to five years.
We compete in two key markets. The first market in which we play is the clinical labs market I'm going to move to slide six here, which will give you a highlight of these two businesses. They clinical labs market is about $24 billion market and growing about 5% a year. We're the only company to have dry side technology, which does not require access to water and designed to make <unk>.
Quality critical chemistry testing accessible when you think about emerging markets, where there's many have limited water supplies are technologies available to make a significant difference. We also saw this important during the initial phases of COVID-19 with pop up hospitals.
The second area, where we compete is in transfusion medicine.
This is about a $2 billion business and it's projected to grow 3%. This business is comprised of two categories. The first is Amy hematology, which is when someone needs a unit of blood in the hospital, they're blood must be tested in typewriter, receiving a transfusion to confirm capability compatibility and we're the number one provider in this market around the world.
The second piece is the donor screening business.
Where we are a top leadership position and in to 2021, we'll be closing that competitive gap, even more with the recent win of the creative testing solution agreement. We won this agreement at the end of Q3, beginning of Q4 of last year and to begin to place instruments in January and revenue will be reported in the Q1.
Results later in May.
Cts represents about 70% of the U S blood supply.
And we're excited about that partnership and where else continue to move.
If you move onto slide seven it'll give you a highlight of our Q1 results.
I wanted to share that over the past 12 months, it's been foundational for ortho, we strengthened our leadership team expand our position as an innovator in infectious disease and donor screening we completed our IPO in early February we strengthened our balance sheet and we established our position as one of the largest pure play publicly traded companies in the IDB markets Q.
Q4 was our first results that we're reporting and we're very proud of these results. We grew our core revenue to $501 million an increase of nine 1%.
And Joe is going to talk a little bit more about this but that was split pretty evenly between our base business and the addition of Covid testing.
We also increased our operating income by 33% and we ended the year with adjusted EBITDA of $133.6 million. It was an increase of 3.5% just as importantly, we've significantly improved our cash position.
In February as you know, we completed our IPO and we raised $1.4 billion, which we used to pay down debt and increase our cash position.
This significant deleveraging of our balance sheet allows ortho as opportunities to continue to grow the business not only organically, but also in partnerships and potential M&A opportunities.
I would now like you to move to slide eight slide.
Slide eight really is the slide that talks about our economic engine and this is what drives ortho going forward. We've talked about this during our roadshow that we really focus on the lifetime customer value of our customers and it really is about building. These long term relationships with customers historically in the diagnostic business. Our contract may initially be for only five to seven years, but what we find.
'cause of our great differentiation and service and the excellent products that we provide that we historically will extend the life of these contracts for 10 2030 years. If you look at this slide it'll give you a snapshot of how we see this business moving.
Today about 75% of our installed base is still a standalone analyzer, and it's usually a chemistry analyzer.
Then what we find is we continued to bring new technology out we launched our first integrated analyzer about 10 years ago, and our second one a couple of years ago. The 7600 and since then we've actually moved about 24% of our install base to an integrated instrument, but when we moved one of our existing customers from our standalone instrument to an integrator.
We increased our annual revenue by 65% because we expand our menu offering from just not only chemistry, but the immunoassay.
And then what we'll see is that customer will grow 3% to 7% with us for the next several years and you can see down at the bottom here. It highlights that when we do add disagreement we historically will add 13 years to the life of the agreement with our customer.
Now more and more hospitals in our sweet spot, which is anywhere from a 250 bed two 500 bed <unk>.
Hospital are moving to automation in the early days automation was very focused on large reference labs or big University settings, but even the community hospitals today are moving to automation because it improves the efficiency of the lab.
And what we find is when we move a customer to automation not only do we increase our revenue by 300%. We added another 15 years to life of that agreement and you start to see how this builds value over time through our relationships with our customers.
And when we think about how do we enact this on a daily basis I'll have you turn to slide nine and this really focuses on our three strategic priorities that drive our profitable growth now.
Now again, we've talked about these before as a company, but in each earnings cycle, we'll spend time talking about what the company has done in these three key areas over the prior quarter. The first one is around product innovation and really is focused in two key areas. One is around menu expansion you can see the highlights here some significant impacts that we had as a company with the introduction of <unk>.
Of new menus, not only in the United States, but China, Latin America and EMEA.
Last at the end of last year, but it's also about introducing disruptive platforms and I'm really excited that we began our feasibility work on our dry dry technology, which will take our dry slide technology and not only enhanced multiplexing it'll also allow us to move into driving me assay.
The second one area that we focus on is really around global commercial excellence and think about this is our global field organization today will have about 2200 people around the world in the field and we do business in about 130 countries and we believe for US to continue to win we have to excel here and it really is around kind of the customer experience and our go to market.
Strategies, you can see that we again continued to have double digit growth in our integrated install base and this is an important indicator of future opportunities from a revenue perspective and in seeing this grow double digits. Fantastic. In addition, we continue to be ranked number one in services, our fifth year in a row and when you think about this business you can go get.
Blood result from any analyzer, but really becomes about the one or two things you can do different as a company more and more companies are focused on the leading service provider to be their partner and that's really done well and it's one of the reasons, you'll see this 9% growth in Q4, and we're also excited about where the growth is in the future and the other one is about taking what's worked.
<unk> well in the Americas around our E. Three our commercial excellence program and expanding it to other programs, which we got underway in Q4 and finally, it was adding an additional 61 people into the field organization, because we believe that in our position from a market share perspective, and what the market opportunity as this will be a key driver of growth.
Finally, our third strategic priority is really around operational efficiency, how do we get better every single day at the things that we do to free up cash to invest in the first two and you can see an excellent quarter. There you know the manufacturing improvements and a favorable mix resulted in 40 basis points of gross margin improvement, we expanded our operating flexibility with a $101 million.
Adjusted free cash flow and also we actually delivered all the instruments and all the reagents into the C. T. S accounts in late Q4 and began recognizing revenue in Q1 and finally, it's about it.
Initiating the China localization strategy one of the things that we've talked a lot about is that China is our second largest market and for us as we look out three 510 years from now it's important that we have a footprint in China that we continue to expand that footprint one of the ways to do that is to develop both instruments as well as reagents locally.
In China.
If you think about this business and where we're going as a company. We really think <unk> 'twenty 'twenty. One has started incredibly strong driven by our continued focus on these three strategic priorities to drive growth and shareholder value.
As we move forward I want us to go to slide 10, as I wrap up and then I'll hand, it over to Joe, but we believe these results in the fourth quarter indicative of the considerable minimum we're seeing as we head into the year, Joe will go through it in more detail more materially, but we see ample opportunity to carry this forward for the years to come.
Lastly, I'm pleased to report that we anticipate exceeding our original expectations for the full year 2021 financial performance, where are we initially went out and talked about 7%.
Growth, we are now talking to seven or guiding to seven and 9% core revenue growth or approximately 10% without the impact of Covid as we've mentioned in the past, we believe COVID-19 as a headwind in the current guidance, we see COVID-19 sales slowing in the second half of 'twenty. One. However, we are working on initiatives that may accelerate antibody test sales.
As the vaccine starts to rollout depending on countries.
Logistics and priorities as far as testing people post vaccine I will now turn it over to Joe for him to give you more detailed color into the Q4 financial results for 'twenty in Q4, and also 2021 Joe.
Alright, Thanks, Chris.
As Chris noted 2020 was certainly a foundational year for ortho, we grew our core revenue over and above our expectations, we prepared for life as a public company and most importantly, we played a vital role in the health care continuum as we all.
We battled through the global pandemic I'm excited about the opportunity we have here at ortho that drive long term shareholder value and I look forward to sharing our progress with you over the coming quarters. So so let's go a little bit deeper into the operating results for the quarter and the full year now starting with the breakdown in the fourth quarter revenues on slide 11.
Now please note that all the comparisons are versus the prior year period, unless otherwise mentioned, we delivered strong results for the fourth quarter ahead of our initial expectations and have considerable momentum heading into 2021 fourth quarter total revenue was $516 7 million compared to 473.
<unk> 7 million in the fourth quarter of 19, which represents that nine 1% increase or eight 2% growth on a constant currency basis.
Core revenue of $501 million.
Which excludes manufacturing of a contract manufacturing I should say and other licensing revenue increased nine 1% on a constant currency basis.
The substantial revenue growth in the fourth quarter was primarily driven by higher volumes within Clinton labs, including $26 million in Covid related revenue.
And transfusion medicine, as well as continued recovering and Americas, excluding that Covid related revenue reported core revenue growth would have been four 4%.
So as the trusted partner of hospitals hospital networks and blood banks in labs around the world our base business bounce back fairly well from the pandemic induced low points, we saw in the second quarter of 2020.
I'm pleased to say our base business has resumed its trajectory of year over year growth.
<unk> revenue grew to $334 8 million from $296 8 million a 12.4 increase.
On a constant currency basis, largely driven by healthy growth in our Americas, and western Europe geographies as well as COVID-19 antibody and antigen assay sales.
In transfusion medicine, we saw two 9% growth on a constant currency basis or $166 2 million in revenue for the quarter compared to $158 3 million in the year ago period.
Within T M. We experienced growth in our Americas, Japan and as Pac regions.
We also spent time in the fourth quarter preparing for our new partnership with Cts that went live in the first quarter of 'twenty one.
Noncore revenue fell approximately 15% to $15 6 million for the fourth quarter as compared to $18 4 million due to a decrease in contract manufacturing revenue, which was partially offset by growth in license revenue.
If you move to slide 12, which outlines our geographic region results for Q4, our business in emerging markets slightly lagged the robust recovery seen in more developed countries, but we are seeing growth in those areas return.
With that said Americas revenue in the fourth quarter grew to $311 6 million from $2 $73 4 million in the prior year quarter. This was 15 15, 6% on a constant currency basis due to growth in calling labs and transfusion medicine within the region.
And it was partially offset by a decline in noncore revenue.
The EMEA segment revenue revenue of $72 3 million was down 5% on a constant currency basis compared to the prior year quarter. As a result of the pandemic impact on sales in the region and the timing of shipments distributor markets.
Our greater China segment revenues of $67 2 million increased 1% on a constant currency basis with growth slightly inhibited by the impact of the pandemic and distributor decisions to reduce their inventory in response to the pandemic.
Our other segment, which includes the Japan and Asia Pacific regions had revenue of $65 5 million, which was relatively flat on a constant currency basis and was impacted by lower sales of elective procedures and aspect in Japan as a result of the pandemic.
However, we are seeing good signs of recovery in many countries in this segment, including India, which exceeded our expectations for the quarter.
If you move to page or slide 13, which shows our annual performance by segment Americas revenue totaled $1 7 billion versus one point over $4 billion in 2019, representing four 1% growth on a constant currency basis.
The Americas region benefited from substantial growth in Clinton labs, specifically, COVID-19 assay sales, which more than offset the negative impacts of the pandemic on the other testing and the decline in noncore revenue.
EMEA sales of $240 6 million declined by five 2% on a constant currency basis, primarily due to the pandemic.
Also impacted greater China in the other segment also grew.
Greater China sales of $229 6 million in the other segment sales of $228 7 million fell by 6% and 13, 9% on a constant currency basis, respectively.
Now turning to slide 14.
We are pleased with the acceleration we experienced throughout numerous areas of our income statement during the quarter as we continued to make progress against our growth plan. This.
This is seen to a lesser extent in our full year 'twenty numbers, which were more severely impacted by the pandemic in particular in the second quarter of 2020.
For fiscal 'twenty revenue was down 2% to $1 77 billion compared to $1 8 billion in fiscal 19 on a constant currency basis total 2020 revenue decreased one 3% and.
Core revenue for 2020 was was up point.
4% to 1.74 billion.
Now moving back to Q4 and sort of working down the income statement from gross margin to earnings fourth quarter gross margin of 51% increased 40 basis points due to favorable product and segment mix as well as lower manufacturing costs for.
Full year gross margin fell 20 bps to 48, 6% largely due to the negative pandemic impacts.
Largely offset by $74 million in full year Covid testing revenue.
Operating income for the fourth quarter increased 33% to $40 4 million, primarily driven by higher gross profit, but was partially offset by higher SG&A and R&D spend.
While full year operating income increased three 3% to $88 3 million.
Non-GAAP adjusted EBITDA for the fourth quarter was $133 6 million, increasing three 5% compared to $129 million in the comparable period.
Net loss for the fourth quarter was $40 9 million or 28 cents per share compared with net income of $4 6 million or a penny per share.
Adjusted net income increased 44, 8% during the quarter to $29 1 million.
The variance between actual and adjusted fourth quarter net income is driven primarily by intangible amortization unrealized FX and other onetime costs.
We generated 101 5 million of non-GAAP adjusted free cash flow during the fourth quarter, it's a 185% increase compared to the prior year quarter.
Alright, let's turn to slide 15 to discuss the balance sheet and liquidity as of the end of fiscal 'twenty. Our total cash and cash equivalents was $132 8 million up from 72 million at year end 2019.
Total debt stood at just over $3 7 billion.
And the net proceeds as Chris said of $1 4 billion from the IPO, which included the exercise of the full over allotment.
Would have reduced net debt to two 3 billion on a pro forma basis.
We use the $1 $4 billion in net proceeds entirely to reduce our outstanding debt, thereby reducing our net debt to EBITDA ratio to four and four five times and given our significantly enhanced financial flexibility. Please note that these forward looking ratio was based on the midpoint of our 21 projected EBITDA, which I will talk you through in a minute.
From our continued cash flow generation, we plan to reduce this leverage ratio by an additional half turn per year over the next several years to achieve a target leverage ratio of three to three five times.
In other good news as expected, both Moody's and S&P upgraded our credit ratings subsequent to the receipt of our IPO proceeds and we recently upsized, our revolving credit facility by 150 million <unk>.
<unk> and total borrowing capacity of $500 million under this facility.
Supporting the strongest liquidity position that ortho is seen in years.
Our healthy cash position reduced interest burden and overall flexibility enabled by the IPO will allow us to have a much more balanced capital allocation strategy over the coming years. It will be focused not only on deleveraging, but also in supporting both organic and inorganic growth opportunities for investments in the development of the industry, leading innovative solutions.
With that in mind I would now like to turn to slide 16 for the outlook for 2021.
We are already seeing real strong momentum across our portfolio during the first quarter and for the full year 'twenty. One we expect the following.
Full year 2021 core revenue within a range of 1.86 to $1 9 billion in core revenue to grow between seven and 9% on a constant currency basis.
21 full year adjusted EBITDA between five O four and $5 17, or 10% to 13% growth on a reported basis.
And adjusted diluted EPS in the range of 57 to 63 per share.
Based on our full year average share count of 234 million shares.
For 'twenty one we also expect annual interest expense of between 140 and $150 million.
And our tax our effective tax rate in 2020, one is expected to be a negative 15% on a net loss.
Our cash taxes are approximately $20 million for the year.
And while we plan to stick to an annual model with our guidance program in the future I did want to give you a few observations to help better model 2021, we now anticipate core revenue growth to be stronger than the first half of the year versus the second half.
This is being driven by a very strong start to the year in our core business and in expectation of a declining overall COVID-19 market. We are also assuming that our COVID-19 antibody assay will decline in the second half of the year.
Since we're so far into the first quarter.
We're going to share some quarterly top line expectations. This one time.
We believe that Q1 core revenue growth will be 15% to 18% versus prior year Q1.
We feel confident in these projections is the recurring nature of 73% of our revenue gives us substantial visibility into the future of the business, we expect to grow the top line across our core business and all of the various segments. We also expect to see continued margin expansion and operating leverage growth as a result of our value capture program and ongoing shifts to the increase.
Non of integrated the analyzers.
To quantify this a bit more for you for every percentage point of revenue growth, we expect our non-GAAP adjusted EBITDA margin to grow by one point to two times debt depending.
Depending on our investments for that particular period.
I'm very encouraged by what the future holds for ortho. This is an exciting time for us and I'd like to end by offering my personal thanks to all of our teammates around the world and welcome to all of our new shareholders.
That I'm going to turn the call back over to Chris Thanks, Joe.
To close off two quick points, one as Joe mentioned that 73% is reoccurring revenue, it's actually 93%. So I just wanted to make that quick correction before we go to the investment thesis, which is the next slide and look we continue to believe the things that we've talked about really over the last six months about ortho and why it's a great invest.
We continue to hold true number one is we really are the only pure play IBD company. If you think about Roche Abbott Siemens. These are diagnostic divisions, and large conglomerates and that industry continues to be a highly attractive and growing market.
Second is is that we're seeing more and more of the clear differentiation of our products and services makes a significant difference as we focus on these lifetime customer value and is 93% reoccurring revenue base and we've really seen that indicative not only in the results of Q4, but what we're seeing as we move into Q1 and as Joe gave you this guidance of.
7% to 9%.
Our growth for this year and really 10% when you back out Covid, which will be a headwind and finally, it's about the momentum that we have on in this business and as we continue to expand our field organization expand our menu in place integrated analyzers at double digits, we think that we see strong momentum moving through the year and as we continue to focus on profitable sustainable.
So why don't we pause there I mean, we're sure that a lot of folks have some questions to go through and we will turn it back to John and we'll take some Q&A for the next 30 to 40 minutes very good. Thanks, John Thank you Chris Thank you Joe.
Ladies and gentlemen, we now have time for Q&A in the interest of time today. Please limit yourself to one question and one follow up if time permits you may rejoin the queue for four additional follow up questions. Operator at this time to wander if he would give instructions for how to join the queue and open the line to our first questioner.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
Withdraw your question press the pound key again Thats star one to ask the question.
Our first question comes from the line of Tycho Peterson with Jpmorgan. Your line is open.
Hey, good afternoon.
Start with a couple of things.
Hey, just a couple quick ones on guidance I'm wondering if you could provide any segment color clinical labs are for transfusion and then I think previously you talked about Cps static about 5% to 7% growth for transfusion. This year is that correct assumption.
And then the <unk> guidance actually coming in quite a bit about the street.
Can you just talk about how much of that is driven by recovery in the base business.
Yeah.
Yes, so a couple on that so Tycho so we don't break out the Clint labs in transfusion, but remember we mentioned that Cts would be a few points of growth, 2% to 3% of growth in that in our total business. So that kind of gives you a highlight you know as far as recovery I would say a couple of.
Things have happened we've seen nice recovery in Western Europe to give you. An example, western Europe grew about 4% in Q4, which was what bubble or we would have thought and I think a lot of that is being driven by that leadership change that we made over the last 18 months, both in our cluster leaders as well as the head.
The other thing is really nice recovery in India. We grew 13% in Q4 in India and in particular, the south cone of Latin America. So I think what we saw is why we didn't see the recovery in Q3 and some of these countries or markets. We really saw a nice recovery, but leading the way Tycho continues to be really North America, where.
We're growing double digits.
Heard Joe mentioned 15, plus percent and why some of that is related to the Covid test. It really is only about been about half of that growth. We're seeing high single digits growth in our base business and we think a lot of that's been driven by this placement in the installed base, especially around these integrated analyzers.
I think that got to all your questions you've got yes. It really quick so I hope I got it that's.
That's great and then one follow up on China, If I think back to kind of the original discussions around the IPO I think China was positioned to be one of the potential sources of upside. This year I know you talked about timing of distributor shipments. So maybe just talk through that and then I think you announced the localization strategy to produce instruments and reagents can you maybe just touch on that too.
Yeah look China, obviously is one of our key markets is where we've invested heavily over the last 18 months at Joe did mentioned kind of the slowing with some of our distributors because of the pandemic I would say that that we think kind of the the silver lining there, though tycho is that we actually grew the install base, 9% last year.
And I mean in Q4 in China, and we actually grew the integrated 17% so really about placing these instruments. So we feel really good about this year, we're guiding right, we're not giving individual guidance, we're seeing China growing in the low double digits. This year and it has started the year very strong. So we feel really good that China will have a nice bounce back year, but candidly.
The recovery there had taken longer than I think we thought it was really driven by Doctor and hospital visits being semi restricted so really people ongoing in the case of emergency as a as.
Compared to the large electric procedures, which so much of our business is driven by.
Okay, and the localization strategy yeah. The localization strategy. So one of the things I think we mentioned this.
On the road show is that we want a bigger presence we have over 300 people now in China, and we think you know I think one of our challenges we are developing a majority of our products in the United States. So whether analyzers are assays and what we decided to do is kind of a.
Developed in China for China, and the emerging markets and we've now signed two localization agreements one for an analyzer and one for reagents, where were working with two partner companies in China, where we will develop those products first for China, but then we will take those products to the emerging markets.
Okay, Great I'll, let others. Those are signed in Q4, both of those agreements Tycho was signed in Q4.
Okay. Thanks.
Very good question.
Our next question comes from the line of Derik de Bruin with Bank of America. Your line is open.
Hi, Good afternoon, Hey, Derik.
Hey.
I guess first question can we talk a little bit about the pace of reinvestment.
And basically.
Thinking about the R&D targets and sort of margin pacing.
The quarter for the year. Thanks, Yeah, well why don't we take that two ways I'll start and then I'll throw it to Joe to kind of give you more in kind of the margin improvements, but look you know we historically, it's been around 5% on R&D, we have lifted that number closer to six six plus percent of revenues in R&D, because we believe that that's going to be one of our turbocharger.
To growth I think we had spent a lot of money coming out of the carve out with carlile just to get the menu back to being competitive but now. It's also about some of these disruptive technologies like dry dry. So we have lifted that R&D spend as we start to think about future platforms that will pay dividends for five six years from now and I would say accelerating menu.
Expansion and then it and we're continuing to invest in the feel that you know you mentioned you probably saw on the slides we added over 60 people in the field in the fourth quarter, because we believe that's going to be a driver of growth, but on margin expansion, let me throw it over to Joe Yeah, Hey, Derik.
We've talked about this before on the road show, but we're going to see nice margin improvement in 'twenty, one as compared to 20 and I'm talking gross gross margin here now.
Mainly because of the impacts of the pandemic that we saw in 2020 with idle plant facilities and freight premiums and things like that so we should expect to see about 125 to 150 basis point improvement year over year in the gross margin and we will see stronger margins in the first half of the year and that's driven by a couple of things.
We've got like we said in the prepared remarks, we're going to have likely higher COVID-19 revenue in the first half of the year versus the second half, which which drives higher margins and we also are we going to see as inventory was building in the first half of the year coming out of the pandemic, you'll see some nice absorption impacts hitting the P&L.
And we're going to see some favorable product mix I think you know I would expect to see the gross margins a little stronger than the first half of the year than in the second half of the year, but overall again full year should be about 125 to 150 basis point margin improvement year over year.
Yeah, maybe also Derek to follow on to that is as Joe has talked about I mean, if you back COVID-19 out what we're guiding to close to 10% in our in our core business and with the Formula Jos built this 1.2 to two times operating leverage you can see that'll get us some nice.
Margins for the for the total year.
Great.
Can you talk a little bit just to follow up on that can you talk a little bit more about inflation sensitivity and just labor cost and sort of are you beat it sounds like youre going to be able to offset what you think is going to be coming in for potential labor potential inflationary pressures.
Yeah, that's right.
Got the price erosion that this industry has been seen for years now without a point a year and then you've got the.
The normal Merit increase that you would see with employees, which is which is fairly low this year it should be between one and 2%.
On this year's numbers for the full year and with the value capture program that we've had in place for several years. It's just as a reminder has generated over $200 million of cumulative savings and we're targeting $20 million to $25 million annually a lot of that value capture.
The savings that we generate offsets and more that that inflation that we that I just mentioned.
Thank you.
Our next question comes from the line of Erin Wright with Credit Suisse. Your line is open.
Alright, Thanks, Hi.
This first quarter trends in particular, what are you seeing in terms of like docking dynamic.
What are you seeing in terms of the actual pull through on in either year to date.
Yes.
Yeah look I think Aaron as you know on the analyzers, we kind of look at the installed base in two categories. We look at the total number which you know we always want to be around that 4% to 5% in that total number.
Which we which we would've been at in the fourth quarter as well as we believe in Q1, but we more importantly want to see that integrated in double digits, and that's where I think we're seeing a significant difference and it's not only our existing analyzers upgrading to integrated but it's winning new business with the integrated so I think that's one that is driving a lot of this this growth in.
I think that.
That and I think a lot of it you know we expanded the field organization, starting 12 months to 18 months ago and in this industry. It takes a good 12 months to really kind of get time and grade and starting to make an impact and I think we're seeing that menu pull through on the analyzers that are out there and I think COVID-19 gets a lot of press and Joe talked about this with our Covid.
Number.
Last year, but we also have our introducing other tests like P. C. T was a big test for us to introduce for example in the United States in the second half of the year. So we'll continue to add on to that but we'll probably see similar installed base numbers in the first quarter.
Okay, Great and then in Europe, given there has been some additional locked in for instance in Italy. How are you thinking about the recovery across that market in particular.
Yeah look I think you are and what we've seen is it's almost similar to the United States and the developed markets, where it would locked down so hard in Q2, while you're seeing a lot of protocols put in place from a lockdown perspective like I said, we saw 4% growth in western Europe and in the in Q4, and that's probably the first time, we'd grown in western Europe.
I don't know in three or four years. So we're actually seeing nice recovery in western Europe, and winning a lot of business. There I would say the challenge for us and in the EMEA region really had been the middle East I think one it was our comparable in two we changed out the leadership team down there at the very end of the year and I think that's going to make a difference for us, but we feel.
Pretty comfortable with that four 3% to 4% number that we think we can get in that market.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of.
With H C. Wainwright your line is open.
Thank you for taking my question Hi.
Hi, Thank you for taking the question you mentioned that the the Chinese distributors has reduced their inventory in response to the pandemic, but considering the pandemic is largely under control in country compared to the Americas and Europe.
Is there anything that has fundamentally changed over there in terms of.
Hello.
In this space.
Yeah look I would say looking again, and obviously you know it's a different market than the United States. The thing that we think we're seeing that significantly different in the U. S is this doctor and hospital visits being semi restricted to people really focused on emergency so youre not seeing the lift at least we're not in the elective procedures. So what we were really.
<unk> would say, it's two things number one our E connectivity, which that tells US every single day with the analyzers, what the tests are being run and why we've seen Tesla we have not lost business I would say the more important one as I mentioned the silver lining is this growth that we're seeing it at 17% and the integrated analyzers and 9%.
Sent in the total analyzers on the installed base. So we think as we move into 'twenty. One at least this is what we've seen in the first couple of months, we've seen back to that double digit growth and things are coming back I think it's just coming back slower than what we saw in some of these developed markets.
Got it thank you.
Sure. Thank you.
You.
As a reminder, ladies and gentlemen, we ask that you limit yourself to one question and one follow up please.
Our next question comes from the line of Steve <unk> with Wolfe Research. Your line is open.
Hey, Steve.
Hi, good afternoon, and thanks for the time here.
What are the things that folks like I've spent a lot of time thinking about is of course, COVID-19 testing and I know there's been a lot of focus on antigen testing in the call, but I Wonder if you could just maybe this might also bring in Mike but.
Talk about how the market has evolved over the last year and what Covid has meant.
For your customers and how you interface with them and if Covid has had an impact on how you and your core business I.
Think about competing with other companies in the market that are growing really fast, but a lot of moving parts just be interested to hear how you think about that high level.
Yeah, Steve I'm going to let Mike take that one and remember we are not doing molecular right now or point of care. So we are a little bit different than some of the Abbott and.
And the Siemens, but let me have Mike kind of spend more time on how he's seen it evolve because he kind of leads that group.
Steve So a couple of things here.
To step away from the test and just talk about some of the dynamics have changed in the market interfacing with customers.
I think one thing that really hum.
Has changed it's just the ability to deliver effective communication and services remotely are virtually and I think that's a trend that we were on a path to and was accelerated by Covid.
Ortho.
We feel really good about is we were focused on those things before COVID-19 and we're able to already have some things in motion and we will turn them on I think what we now see as clearly those things last longer but it has created new ways to interact with customers I think we've figured that out to some degree, but I expect that to continue to evolve and so that's a heavy emphasis.
For us from a commercial point of view is finding ways to be effective in that manner and there is some some leverage from that as you can imagine when you can start to do things from from home versus having to travel. So much. So I think that dynamic changed we've taken advantage of it we will continue to take advantage of it.
As far as testing goes.
I just would call the whole scenario, one that you just need to read and react and.
There've been a lot of predictions on COVID-19 more wrong than right and I think we've been careful to kind of play this quarter by quarter, but I think what's clear is that testing has a significant role in while we see what's happening with testing.
It may come off the peak as we're talking about second half of this year there will be ongoing testing. It has accelerated some of the trends to a decentralized testing.
Testing environment, whether it's decentralized.
Affectional point of care with pickup at universities, even employer health services and pharmacies, but what we see here rapidly and a lot of news. This past week from the by the administration, particularly about driving and ultimately to the home.
You're seeing those were trends that were happening and it's accelerating.
So when we look at this it's a matter of seeing where we participate and.
Our first focus has always been on our hospital customers to to help make sure. They are taken care of but clearly this dovetails with some of the other things we've talked about whether it's getting into molecular as an adjacency or point of care, so that kind of crosses over into our our M&A strategy.
<unk> IPO, we have a little more freedom to execute on.
That's right.
Steve maybe one other thing Mike just talk about if the Ana but some of the things we're working on in the antibody test like Crump semi quant like case with depending what happens with the vaccine.
So again early on Chris talked about it we were out early with test very high quality high performing tests, but as we monitor these trends, particularly around vaccine.
I think it's anticipated that that market will move to a quantitative need. So we're working on that for our antibody test. We are also working on and evaluating nucleocapsid test for the antibody as you know our initial test with spike, but as you move forward, if we want to look for reinfection.
In patients that have already had a vaccine it's going to be important that we measure both the spike and the nucleocapsid. So we can detect what the antibody reaction is due to some of those things are underway.
And we'll be looking to develop and release in the not too distant future.
Thanks.
Okay, Okay, I'm not sure I think.
Steve had a follow up I'm sorry.
One for Joe.
I thought the the perspective, you gave on deleveraging that half a turn per year really helpful. I wonder if you'd be willing to put any sort of color on the components of that bridge.
One can you talk about what you think about free cash flow conversion in 'twenty, one and beyond.
To what extent should we think about cash taxes over the next few years and then I'll drop back in queue. Thank you.
Yeah. So I'll take the last couple of questions first so the free cash flow conversion for 'twenty, one should be around 50% of our EBITDA and.
And that's going to be achieved through the increased EBITDA growth, we're going to see in the business as well as the increased cash flow from the lower debt levels as a result of the IPO.
The leverage ratio half a turn a year decline.
C was really just based on the growing EBITDA and our projections as well as the <unk>.
The required debt payments only.
And so I also want to remind you that that mine leverage ratio uses of net debt calculation. So I'm I'm, assuming that all excess cash within the business stays in the cash line won't reduce debt, but its still reduces the leverage ratio.
No.
Hopefully that that helps.
That is super helpful. Thanks, everybody. Okay. Thanks, Thank you.
Thank you operator.
Our next question comes from the line of Patrick Donnelly with Citi. Your line is open.
Hey, Patrick.
Hey, guys. Thanks for taking the question, maybe just to piggyback on that leverage one obviously I know it's early to talk about thinking inorganically, but as you guys get below four as we get into 'twenty. Two Chris can you just talk about I guess priorities, obviously point of care. It seems like a pretty logical extension for you guys in terms of where the portfolio is can you talk about what makes sense.
Inorganically for you guys to continue to expand the portfolio here.
Yeah, Theres a lot to unpack on that one so let me maybe take it a couple different ways. So if you think about it.
I'll start Inorganically and then finish with organically if you think about.
Inorganic we're very focused on our call point or where we believe our differentiation makes a difference for so for example, I think the obvious place of our call point or things like molecular and I look we had a pretty robust business development group already because we couldn't do acquisitions. We are doing so many park strategic partnerships things like IDEXX, where where are they.
Exclusive provider at IDEXX, and so that group has pivoted and I will said, we think that molecular is an interesting opportunity for us because it's where our call point is I think the other place that that is interesting is point of care. We believe that through this COVID-19 did youre going to see a significant rise in things like point of care and even home test.
While we want to continue to partner with our hospitals and make sure that we're providing the testing in the hospitals, we do believe especially around infectious disease, and even tighter around respiratory and even maybe COVID-19 that theres an opportunity from a category killer perspective, So I would say that that would be a very interesting place for us I look Logan I'd say.
The other place that we think is interesting is that we're number one in transfusion medicine are definitely NIH and we think that that's an underserved market, where theres opportunities. So that I would say are all kind of some areas that we're looking at.
Inorganically when you think about organically look our belief as to continue to do the menu expansion that we have we think again that debt and you probably heard this in many places I. We don't think we've seen the first or the last Covid and we think you'd be ahead of the curve. We think it was advantageous for us to be on the front end of that as being a world leader in <unk>.
This disease. So we'll continue to expand and bring out that menu. There, we think cardiac and acute care is an interesting place where we can continue to expand it and utilize it and then we think it's about <unk>.
Continuing from a new platform and we think we will talk more about <unk>.
Dry dry later in the year when we do.
Kind of an Investor day, but we think that there are some unique opportunities there Mike kind of drives all that Mike and I took I hope I didn't take too much but let me, let Mike kind of finish off the question on organically some stuff that you and your team are thinking about he also runs M&A, yes, Chris I think he covered the main items are the one I would say when you put it into work.
Organic growth is the IH menu, but that is for us as we look at some of our potential M&A targets or partnerships.
What can we do with some some current external companies to accelerate that faster you can get to some novel new areas that come back into our base technology. So that's the only addition, I think that plays on both inorganic and organic is a priority for us.
I think we saw really through Covid and also.
Through PCT, our broad footprint of 'twenty 200, plus people if we can get the right test we can move it pretty quickly and keep them.
You have growth higher than the market.
That's really helpful. And then maybe one for Joe just on the guidance I think it was mentioned earlier <unk> came in well above expectations to Q.
Really easy comp on the Covid side, so it feels like the first half.
Much de risks kind of the overall range and almost calls for the second half to be to be more flattish can you just talk to I guess, given it's your first quarter coming out with guidance. Your philosophy around this how conservative you are in the back half given obviously a lot of moving parts in the global World at this point.
Yeah, I think that that's a good point.
Second half revenue.
We did in our original expectations had some COVID-19 antibody test revenue in it that we're going to pull down a bit because based on what Mike said earlier the <unk>.
General expectations.
In the market right now are coming down in the second half.
Across many of the diagnostic company. So so we are pulling down some of the.
Some of the second half revenue due to Covid only but the base business is still growing very solidly in that mid single digit to even on into upper single digit.
Growth range, so no no impact there.
But we are and I wouldn't say it being conservative.
States resetting with the expectations of Covid now and in the second half that most companies are seeing.
Yeah, I think the way to think about it as base business running faster than we had seen and COVID-19 slowing in H two yeah.
Makes sense. Thank you guys.
Thank you.
Our next question comes from the line of Vijay Kumar with Evercore. Your line is open.
Hey, guys. Thanks for taking my question Hi, Chris I was thinking of asking a 10 part question, but I'll be cognizant of the time.
On the August Guide man.
On the guidance here.
What is I guess, how much where code revenues in 2020, yet I think I heard if 74, what are you assuming for Q1 on Covid and.
For rest of FY 'twenty one.
Yeah, So vijay the Youre right the 'twenty the full year 'twenty 'twenty number was 74.
The Q4 number was 26 in the prepared remarks.
We didn't say what Q1 is but Chris did say earlier that the COVID-19 revenue in our projection for 'twenty. One is a couple points of headwind and so you could put that in the $40 million to $50 million range full year for 2021.
Front end and it's and it's nearly going to be all front end as I just said answering the previous question.
First half of the year.
What we're seeing Vijay also good I'm a good rule of thumb is that whatever our growth is we're finding it being.
It kind of half and half and so if you think about.
That that fourth quarter and as we move into Q1 that the guidance Joe gave that 15 to 18.
We'll be doing obviously, COVID-19 and H, one, but it'll slow down considerably we think an H two.
That's helpful. Chris and then one follow up on I guess, the Siemens health nurses I think theyre looking at close close to $400 million of antigen revenues.
Any reason why your central lab engine revenues would look different from Siemens and then integrated analyzers up double digits is that an excellent ratio, perhaps more in line with that.
What you guys saw in 19 and 20. Thank you.
Yeah, I'll, let Mike talk a little bit about Siemens.
Vijay So the revenue Siemens is seeing and report on as rapid point of care.
Mostly out of Europe, I think they've they've done well there with their launch.
But as you know our antigen based test is a high throughput lab based.
<unk> test, we do not yet have an offering for rapid point of care, so kind of a different comp between the between the two.
Yeah, So I think it can.
Careful that on those comparables, because we've been looking at core diagnostics and we backed off that a little bit with Q4, because a lot of them had thrown in there point of care diagnostics, and that's where all of that revenue is coming from which we don't have.
Yeah, I want to come back to Joe I think guided that we'll only do 40% to 50 and total COVID-19 revenue in 'twenty one.
Understood. Thanks, guys.
Thank you.
Our next question comes from line of Tejas Savant.
Stanley Your line is open.
Hey, guys good evening.
Chris I just wanted to pick your brain, a little bit on India, and Brazil, I mean, you highlighted those as areas of strength in the fourth quarter.
Both of that are sort of very marked recent resurgence here.
How should we think about that I mean, perhaps sort of <unk> isn't too impacted certainly sounds that way given your strong growth that youre expecting in <unk>, but in <unk>, what exactly should we expect those to Joes I believe India, you had mentioned in the past as being over half of <unk>.
Asia Pacific outside of China.
Yeah look we've seen really nice continuation of that momentum that we saw in India in Q4 into Q1. So we feel we continue to feel really good about that kind of double digit growth in India and.
In Brazil, I would say high single to low double digit growth again, Brazil, we think is a little bit more of a challenged market for us than India because of the install base, but.
That business continues to do well and so they're obviously contributing to our Q1 guidance that Joe gave.
And I would say so as our developed markets I think we're seeing good candidly, we're seeing really nice performance from all markets right now.
Got it got it and then just one follow up on the pipeline in terms of sort of key assay launches to look forward to later this year I mean.
Are there any that you'd like to highlight that are particularly impactful I believe in the past you've talked about triple and then and there.
Then the vision Swift launch I mean, how should we think about sort of progress there.
Yeah, let me, let have might take that one.
Yes.
I think look we consider ourselves still in the midst of launching PCT in.
The Americas in particular, which was good performance last year, but we expect.
To be good this year, we'll be expanding that China as a market will be getting into for PCT. Later, this year and so I'd call that out as the probably the main highlight high sensitivity Troponin again is launched in certain markets, we expect to be submitting that for the FDA and are working towards that for the.
The us market, so that would be beneficial there.
When I come to Swift Swift is on target for launch first half of this year and again, we're excited about it as we've talked about it there is a certain number of enhancements.
To that platform that helps us with security speed.
And ease of use and we think will be a value enhancer for not just our current customers, but attractive to those customers that did not convert to the original vision. So again looking to get that launched this year in most markets and.
We are excited about that one.
Got it thanks, so much guys.
And of.
And just a note to Monza to everybody I know that we are at six o'clock right now we're willing to run a few minutes over we have a few people in the queue still so we will take those questions.
For anybody who wants to stay on to continue for those questions.
Let's go to our next questioner.
Our next question comes from the lineup Rishi Parekh with Barclays. Your line is open hey.
Hey, how are you doing thanks for taking my questions I guess I have to learn how to hit star one faster.
Yes.
You went through a lot of the operational questions. You did talk a little bit about direction in terms of acquisition focus can you, maybe just dive a little bit more into the M&A front exactly what areas are you looking to fill in or are there any particular regions and as you think about M&A can you talk about target leverage I know youre going to <unk>.
To delever half a turn a year, but what is your target leverage and whats your comfort level in terms of leverage if you decide to focus on some of these M&A targets, which arguably could come in at higher multiples.
And I guess, that's it and that's it.
Yeah look I'll talk a little bit and maybe Joe can.
Move from there, but look we think there's some innovative ways, obviously to structure deals depending on.
What is going on inside that business and I think in particular things that we've been looking at what in that business is COVID-19 related versus base business I think so kind of put that there.
I think that.
We think that theres the opportunity because of our footprint to be able to accelerate growth in a couple of these key areas that I'd mentioned kind of earlier in places like molecular or.
And point of care I would say the other thing that we would potentially look for our strength is obviously in North America. I think we're we believe that China and Europe. There are some interesting technologies and companies that would also strengthen our position. There. So I think that would be something that would be interesting to us but on leverage Joe do you want to.
Talk a little bit where you would get comfortable and maybe talking about the expansion of line of credit and we've got the ability to re finance and stuff. Yeah. So so rishi, we I said in the prepared remarks that that our target target leverage ratio over the next couple of years is three to three and a half times.
But that could change based on strategic initiatives or growth opportunities will potentially be be delayed if necessary and you know our business model and as you can probably tell from our comments is pretty supportive.
With a highly recurring revenue stream and strong free cash flow generation for for us to be acquisitive.
We've got visibility to the four times leverage at the end of the end of 'twenty one.
But we do want to grow the company and so we're going to continue to look at partnerships and creative ways to structure deals as we've done in the past there could be earn outs.
We could we could structure a deal that could limit the amount of debt that we take on but we are.
We do want to grow this company and so we're going to we're going to have to balance that.
And that target leverage ratio with the growth.
But ultimately yes. The goal is to get down to three to three five times at some point, yeah and bill as you will be a very disciplined buyer. So I think that's really key I think when you go public and you start to drop your leverage everybody thinks you're going to want a shopping spree I don't think thats. The case, we think I think we're gonna be very fundamental where we have where we believe that we have.
Jason and I think we can make a difference and we think theres. Some unique partnerships, we will talk more in the future about some of these China localization, but it's giving us significant advantages from a local perspective, and it's going to give us quicker development of some assays that that we think we couldnt have done for example, so there are some other way.
To go about it versus just true M&A.
Thank you.
Thanks.
And a quick question left.
Go ahead.
Our next question comes from Atlanta.
Matt <unk> with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking my question good.
Just on you guys talked about the growth in the integrated platforms.
I'm also curious about and you guys mentioned in the IPO you guys talked about the growth you've seen in automated.
I know, it's a much smaller part of your installed base, but just any curious any comments on that on that growth and what youre seeing there.
Okay.
Yeah from an automation perspective, Mike do you want to kind of talk a little bit about what's going on with automation yes.
So I think one of the things we've talked about is the automation.
Is a focus area right, it's in that progression for laboratory.
But what I think that we've benefited from initially with as we've refocused on automation over the last several years is the higher end of our our own customers being ready for automation. We've also seen as an opportunity to take.
Our business has helped us win competitive accounts.
Ross the Globe, frankly, and then now our attentions.
To continue to do both of those things, but add in some automation solutions that are geared towards our more core customer so helping us with with more of the the middle tier of our customer group.
And better penetrate them with automation and I've commented before you know one of the advantages of our automation is that we don't have to bolted to the floor. It's very flexible customers can start with one configuration. It as they grow in their lab expands then we can add we can add things in but in the end overall it has.
While it's been a small percentage, it's growing is 18% installed base growth in 2020.
And one that again, we expect to see ways that we can keep growing that further in 2021, yeah just to kind of bring it home I was in the Pacific Northwest last week with our team and we just won a deal there that started as a competitive bid for a couple of 76, hundreds and one of the things that we've done a really nice job of is <unk>.
Helping these reference accounts, where we can take customers and they weren't even thinking about automation at the time because of the size, even though there are large as it was a couple of hospital system, leaving their largest hospital, but after going on this site visit and really spending time with customers. They pivoted to not only doing $2 7600, and say added on $2 34, hundreds and in automation.
System and it was because of the modularity and the flexibility where it could work so well in a hospital that size and that drive the efficiencies and I think those are things, where we now are I think introducing which is unique to us in the past rather than us just going and bidding on a couple of analyzers. We went in and gave them a full solution, which included automation showed them how it works.
Adam talked to customers, who have experienced the amazing impact on efficiency and it allowed us to win the deal where we may not have wanted if we and then automation.
Great and just one quick follow up it sounds like we're going to get a lot more details on dry dry at the Investor Day, you guys talked about but just given that you've initiated feasibility work.
Are you still kind of sticking to that I believe it was like a three to five year timeframe to roll that out or is it could it be accelerated or we can have more details at the investor day later.
Yeah, I think Luc will give you a lot more details later I mean, obviously a lot of that will be driven from where we come out of validation and then regulatory approvals, but yeah. I think that's probably fair to think of it the way way you're thinking at three of our four to five years, great. Thanks, guys.
Thank you operator last question.
Last question comes from the line of John So really UBS. Your line is open.
Hey, John.
Hey, congrats on the quarter guys and thanks for taking my question My Soul dropped during the call and I apologize. If this was already asked but the North America growth was pretty solid in <unk> and given the anticipation and COVID-19 revenue clients in the second half do you find any color on how you think this geography growth throughout the year.
Yeah, So we're not giving guidance on the individual markets for the year, but I would say that we came out and told you guys. A couple of months ago, we were thinking about I think 7% growth and we've lifted at the 7% to nine are saying 10 without COVID-19 and I can tell you that the U S is the biggest driver of that growth.
So the U S for us is performing incredibly well and we see that continuing.
And a lot of it's been driven over the last several.
Orders as we expanded the installed base, but it is also this menu expansion.
And we.
We have to keep it we're going to have to start a tradition and let you be the last call last question, we want to get off early we may call you early and let you take the first question.
Sure I'm happy to take the first one.
I guess, just lastly here did you break out the difference between the antigen and antibody revenues in the Covid revenue guidance of $40 million to $50 million.
No.
No it's all in there.
I can provide any color between the two.
No not at this point that when you think about what the dollar amount is not its not big when you look at the size of the overall business, it's only $40 $50 million right.
So with that thanks for taking my questions.
Thank you Tun with that we'll turn it back to Chris for a few closing costs. So we've got a few more size of notice.
Everybody listen thank you for taking the time look I promise, we'll get better at this as we we go along from a.
Our quarter to quarter perspective, but we really appreciate the interest and the questions and we'll look forward to hopefully seeing you guys were talking to you soon.
Take care. Thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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