Q1 2021 Ortho Clinical Diagnostics Holdings PLC Earnings Call
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After the speaker's presentation, there will be a question and answer session to ask a question during that time, you will need to press star one on your telephone.
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I would now like to hand, the conference over to Air France, Our first speaker for today, Mr. Jan Sandri, Vice President of Finance Treasurer, and head of Investor Relations. Thank you. Please go ahead.
Thank you Dan.
Good afternoon, everyone with me today to discuss our financial results are the chairman and CEO of ortho clinical.
Diagnostics, Chris Smith and Joe.
As Chief Financial Officer, Mike <unk>, our EVP of commercial excellence strategy will join us on the Q&A portion of the call. This conference call is being simultaneously webcast on the investors section of our web site at 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 involve a number of risks and uncertainties actual results may differ materially from the results.
Forward looking statements.
These risks and uncertainties include but are not limited to the factors.
As identified on slide two of today's slide.
In our form 8-K for the quarter filed today and other filings with the Securities and Exchange Commission.
Except as expressly required by securities laws. The company undertakes no 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 for a bunch of these non-GAAP measures, including but 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 press release issued this afternoon, both of which are available in the investors section that would be worth it.
In addition on today's call, we will refer to our core in our noncore business. Our clinical laboratories also known as clinical lab and transfusion medicine businesses represent our core business.
Our non core businesses comprised of our contract manufacturing and licensing revenue our base business, excluding sales of COVID-19.
The antibody test now.
Now I'll turn the call over to Chris Smith, Chairman and CEO of Ford.
Chris.
Thanks, John and good afternoon, everyone and welcome to Ortho is first quarter 2021 earnings call.
To be sharing with all of your ortho first quarter results I will start on slide four I wasn't really like to start all our presentations, whether theyre with investors our customers our teammates with our mission statement.
Really is why we do what we do because every test as of late we embraced this credo and has a critical role we play in the global Health care systems every day.
So I wanted to take a second just to thank our global teammates around the world for everything they do every single day to deliver on this promise.
Shifting to our Q1 'twenty one of the highlights on slide five.
Our financial about momentum has continued from Q4 into Q1, and we're very proud of our results of the hard work by our teammates around the world to achieve these results during.
During the first quarter as compared to last year's first quarter. We grew our core revenues of $499 million, an increase of 23, 5% in reported currency.
We increased our operating income by 382% and we finished Q1 with adjusted EBITDA of $152 million, an increase of 49% as compared to the first quarter of last year just.
Just as importantly, we reduced our debt by $1 $4 billion and improved our cash position and we IPO the company in the first quarter.
Pleased with our performance in the first quarter, it's really reflects our team's dedication and focus on growing the business and we've talked about this often is shifting a company that was once managed just for value to one that's managed for growth.
If we move to slide 16 illustrates our topline growth. These results are indicative of the considerable momentum we are seeing as we start 2021 with core revenue growth of 21% constant currency, 14% of this is in the base business, which excludes COVID-19 revenue.
And Joe will get into more detail on this in a second but we'll see said Nick and opportunity as we carry this strength as we move out throughout the year and into 2022.
Lastly, I'm pleased to report that we've raised our guidance for our full year 2021 financial performance based on the momentum we're seeing in the base business.
Our top line estimate for the full year was 7% to 9% growth for the core and we're now lifting that guidance to 9% to 11% of revenue growth.
As you May recall, COVID-19, as a headwind for us in our planning cycle.
We're also raising our full year projected adjusted EBITDA growth guidance from 10% to 13% as previously reported.
14 to 16, 5% growth.
So I will we will increase the growth of the revenue will also increase the growth of our earnings.
And our current update guidance, we see COVID-19 related sales slowing in the second half of 2021, however, as the pandemic continues to evolve worldwide with different rates of infection. We may see additional benefit from COVID-19 products, which are not reflected in our updated guidance.
On slide seven we identified the key drivers of strong sustainable results and long term shareholder value creation.
We continue to make investments in and devote energy to delivering on these initiatives.
Fiscal 2021 has started very strong driven by our continued focus on following our strategic priorities to drive growth and shareholder value, which are around product innovation commercial excellence and operational efficiency.
What are the areas.
Our product innovation focus in our organic growth opportunity that I want to highlight today is around the immunoassay market and each quarter, we'll highlight different growth drivers in our business.
Please turn to slide eight.
Ortho has historically been a leader in the Clinton labs business and we're the only company in the world to have dry fly technology was does not require access to water and is designed to make quality critical chemistry testing accessible.
The <unk> business has an addressable market of approximately $26 billion and we compete in the largest IVF markets here with our clinical chemistry offering in our immunoassay solutions.
As you see on this slide the 2021 arent mix of revenue was very heavily weighted towards clinical chemistry, with a 62% to 38% split.
The market. However is the rhythm with our increasing focus on lifetime customer value and expanding our installed base of integrated analyzers, we see strong uptake from labs with the ability to run an expanded menu on our devices.
As you might expect given it's more sophisticated targets IAA testing for infectious disease in advanced diagnostics is typically higher revenue are high priced higher as well as contribute higher margins in clinical chemistry.
That opportunity can easily be seen clearly in the chart on the right, which shows that is made up of 67% of the 2019 market, which is really pre COVID-19 and we believe that split is reflected in the market today as we head out of Coke. Thus, we believe we have a significant room for solid more profitable growth as we continued to expand our strategy.
Round, placing integrated analyzers and automated install systems.
We believe that this ultimately will create more value for our customers.
Again this quarter, we grew our integrated install base double digit so to give you. An example, we grew 14% in the quarter.
So we've talked about the opportunities for organic growth, but it's important from our improved balance sheet to now also focus as we head out of the IPO and expanding our cash generating power of our business that we believe that there are unique M&A opportunities ahead of us.
Slide nine outlines a number of those at a high level for you.
As the only publicly traded pure play company in the attractive IBD market with truly global reach we believe we believe we have an excellent platform for bolt on acquisitions to accelerate profitable growth.
Ortho has a very successful history of partnerships with several find companies like ripples IDEXX thermo and many others.
And we have an increasing balance sheet provides flexibility and this will allow us to continue to build on this partnership success.
In addition, we are targeting high growth high margin products that we can sell through our existing global call points and distributors, including molecular, especially I E and point of care diagnostic systems.
We also believe there will be additional opportunities to bring more value for our customers and patients over time through digital informatic solutions.
We see those opportunities playing across both the Clinton labs in the transfusion medicine businesses, where our leadership position promises, even greater synergies and deal economics.
In terms of financial criteria, our focus remains primarily on bolt on niche opportunities, where we can add growth accretive earnings and deliver an increase on return invested capital.
Finally on Monday, we filed an 8-K announcing the departure of Chad <unk>, our Chief operating officer, Chad is leaving to pursue another opportunity and I wanted to take a minute just to thank Chad for his five years of service to the company and seeing us through significant changes as we pillage ortho and return the organization to growth and becoming a public company.
I will turn the call over to Joe to further discuss our Q1 financial results and then we'll come back with Q&A later on Joe. Thanks.
Thanks, Chris.
As noted financially we've had a really good start to 2021, if we saw a meaningful recovery in our base business that surpassed our own expectations and fueled solid growth across all of our geographies and segments.
Now, let me provide a bit more detail on our operating results for the quarter and full year, starting with a breakdown of our revenues on slide 11.
Please note that all comparisons are versus the prior year period, unless otherwise mentioned.
First quarter total revenue was $506 8 million compared with $4 $7 9 million in the first quarter of 2020.
Which represents a 24, 2% increase or 21, 8% growth on a constant currency basis core revenue for $99 3 million, which excludes contract manufacturing and other licensing revenue grew 21, 1% on a constant currency basis, which exceeded our initial estimate for Q1 provided.
Last quarter.
The substantial revenue growth in the first quarter was primarily driven by higher volumes within clean labs, including $29 million in COVID-19 related revenue and.
In transfusion medicine, as well as continued recovery in the Americas and as Pac regions excluding.
Excluding that $29 million of COVID-19 related revenue reported core revenue growth would have been 14%.
As a trusted partner of hospitals hospital networks blood banks in labs around the world our base business bounced back fairly well from a pandemic induced low points. We saw in the second quarter of 2020, I am pleased to say our base business has continued its trajectory of year over year growth.
Clinton last revenue grew to $338 million from $256 4 million, which is a 29, 9% increase on a constant currency basis, largely driven by healthy growth in the Americas region, but with really all geographies showing double digit growth on a reported currency basis.
In transfusion medicine, we saw 6% growth on a constant currency basis, or $161 4 million revenue for the quarter compared to $147 9 million in the prior year period.
Within transfusion medicine, we experienced growth in the Americas region, and the other region, primarily Japan in.
In the first quarter of 'twenty, one our new partnership with Cts went live we continue to ramp the new Cts business and value of the relationship we're building with them.
Non core revenue grew just under 4 million to $7 5 million for the first quarter as compared to $3 6 million a year ago and this was primarily due to an increase in some contract manufacturing revenue.
Okay now on to slide 12, which outlines our geographic region results for Q1.
While the developed markets, where a clear strong spot again, we saw a meaningful recovery in many of our emerging markets as well as period Americans Americas' revenue in the first quarter grew to $321 4 million from $255 million in the prior year period, or 28, 8% on constant currency basis.
This is due to the pronounced growth in <unk> labs, and transfusion medicine within the region.
Excluding COVID-19 growth your Americas year over year growth was still an impressive 18%.
The EMEA segment revenue of $68 5 million was up eight 2% on a constant currency basis compared to the prior year quarter.
Our greater China segment revenues of $55 million increased just under 11% on a constant currency basis as we passed the anniversary of the initial impacts of the pandemic last year in the region.
But we're very pleased to see both EMEA and in greater China returned to a strong growth trajectory joined the first quarter and believe our base businesses will continue to rebound in these regions.
Our other segment, which includes the Japan and Asia Pacific regions had revenue of $61 9 million, which was up on a constant currency basis by 15, 1%.
This region also includes strong contribution from India, where we had a strong uptick.
I'll kick in revenues as well, we're happy to be part of the solution in the region and our thoughts our thoughts are with our teammates and their family members who are working through the recent COVID-19 surge there.
Now turning to slide 13, we delivered another solid quarter performance below the top line as we continue to make strides in value capture and increased productivity first quarter gross margin came in at 51% an increase of 330 basis points due to favorable product and segment mix as well as lower manufacturing costs.
Operating income for the first quarter increased 382% to $57 4 million from $11 9 million in the year ago period.
Primarily driven by higher gross profit, partially offset by higher SG&A and R&D spend.
Our non-GAAP adjusted EBITDA for the first quarter was $152 4 million, increasing 49, 4% compared to $102 million in the comparable period last year.
The net loss for the first quarter was $39 $1 million or <unk> 19 per share compared to a net loss of 101 million or <unk> 69 per share benefiting from lower interest expense largely due to the debt paydown with the IPO proceeds.
Non-GAAP adjusted net income, which excludes intangible damage.
Tangible amortization and other onetime costs increased to $54 9 million.
Let's turn to slide 14, now to discuss the balance sheet and liquidity position as though the end of the first quarter of 'twenty, one our total cash and cash equivalents totaled a $153 8 million, which is up 16% from $132 8 million at year end 2020.
While total debt stood at just under two four.
Yeah.
Net proceeds of our initial public offering which included the exercise by the underwriters of the full over allotment option reduced net debt by approximately $1 4 billion.
Our net debt to EBITDA ratio fell to four four times as of quarter end driven by stronger EBITDA in Q1, higher cash balance and favorable foreign exchange impact from the euro term loan debt.
Due to the sustainable cash flow, we were able to generate we remain very confident in our ability to reduce this leverage ratio by at least a half a turn a year.
And we typically have had seasonality in our cash generation in the first quarter, where we see cash outflow in Q1, so looking at our adjusted cash flow in Q1, we used $13 1 million of cash in operations, which is a $15 million improvement over Q1 2020.
We do however are expected to generate over $100 million of adjusted free cash flow in the second quarter. Further we still expect significant adjusted free cash flow generation for the full year of approximately 50% of adjusted EBITDA.
Now let me remind you that continued debt reduction is just one facet of our balanced capital allocation strategy as Chris mentioned, we're actively evaluating organic and inorganic growth opportunities that would complement our core business further increased operating leverage and give us new or additional exposure to high growth markets.
Our healthy cash position reduced interest burden in.
An improved financial position as a result of the IPO will allow us to continue to pursue this strategy over the coming years, while we are guided by our focus on the continued development of industry, leading innovative solutions for patients all around the world.
In other positive news as discussed on our last call, both Moody's and S&P upgraded our credit rating.
After the receipt of our IPO proceeds.
We also upsized, our revolving credit facility by $150 million, resulting in total borrowing capacity of $500 million in this facility.
Supporting the strongest liquidity position and ortho is seen in many years.
With that in mind I'd like to now turn to slide 15 for our outlook on 2021 with the very strong momentum across our portfolio. During the first quarter and continued strength in the early part of Q2, we are raising our guidance as follows full year 2021 core revenue will be within a range of $1 93 to $1 96.
6 billion growing between nine and 11% on a constant currency basis, that's up two full percentage points of growth from our original projections as Chris noted earlier.
2021, adjusted EBITDA has also increased to between 520 and $532 million or 14% to 16, 5% growth on a reported basis and a correspondingly the adjusted diluted EPS will now be in the range of 64 69 cents per share for the full year 'twenty one based on a full year average share.
Count of 234 million shares.
We remain confident in our ability to model our business as the recurring nature of 93% of our revenue gives us substantial visibility in the future.
And we expect to continue to grow the top line across our core business and all of our 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 increased placement of integrated analyzer, which leads us to believe that for every percentage point of revenue growth. We expect our non-GAAP adjusted EBITDA margin to grow by one to two times debt depending on our best.
For that period.
I am very pleased with ortho <unk> financial performance in the first quarter of 'twenty, one and confident that we're building a platform for continued growth.
Thanks to all of our associates worldwide and have delivered these fantastic results with that I'll turn the call back over to Chris. Thanks, Joe.
Before opening the line for Q&A I'd like to just spend a few minutes on our final slide 16, which really talks about the investment thesis for ortho.
We continue to believe it's an amazing opportunity from an investment perspective from an it with ortho. If you think about it. We're really are the only pure play IBD company and more and more of that this IBD markets, becoming a highly attractive.
Market and growing and we will talk about this as we go through Q&A, but why are we definitely saw some uplift due to COVID-19, we really see significant growth in our base business, which is exciting. The second one is really around the differentiators that we offer our customers that are really focuses on this lifetime customer value and this reoccurring revenue base, which too.
Still is around 93% of our revenue is reoccurring.
Finally, it's about momentum and as you can see from the results in Q1, we've continued excellent momentum coming out of Q4 into Q1 and why we had very strong growth in several places coming out of Q4, we're seeing across the globe really into Q1, a nice growth in places like Western Europe and in several of the emerging markets as opposed to just.
The Americas and that's obviously leading to continued profitable growth. So really excited about where the business is going and on that John I will turn it back over to you and we'll move on to Q&A. Thank you Chris operator at this time.
Sure.
You can open the line for our first question.
Thank you as a reminder to ask a question you will need to press Star then the number one.
Bob.
To withdraw your question. Please go ahead stefanski.
Yes, My first question from the line of Derrick.
Bank of America. Your line is now open.
Hi, good afternoon.
Thank you Erik Thank you Jonathan.
Hey.
So.
Congratulations on the quarter really strong to see you come out of the gate so strong.
Hey.
One of the things that sort of struck me and I. Appreciate the slide eight you had on the immunoassay market.
Just was wondering on that one.
That is an opportunity there how long until you can see that shift I guess.
Can you remind where are you through like soft in the EMEA market.
Market, what is sort of like the revenue opportunity gained and the growth there a little bit more color when it's going to take you sort of do that shift.
Yeah look I think that shifts.
<unk> to happen I mean, if you think about if you look down on the right you can see that we show that what percent of our installed base integrated analyzers, and we moved up to 25% in the quarter and the total growth of our integrated analyzers for the quarter was 14% and that really is the.
Driver just to give you a kind of a high level like we had a great quarter really across the business. So look our clinical chemistry group still 12%, so thats kind of our slides the chips, but when you look at our I IAA business. It grew 60% and even 30 without COVID-19. So obviously youre going to say look Chris your business is going to grow because of that.
Cause of COVID-19 in the IAA, but our IAA just to give you. An example of a carve out COVID-19 or <unk> grew 30% and our clinic Callaway grew 12%. So you can start to see that acceleration of the growth and you start to see that reflected also in some of the gross margins with the big lift in gross margins. So.
For us and I think we've talked about this with you all as we look at our teams out in the marketplace, we really focus on shifting standalone analyzers to integrate it and then pulling through that IAA business.
Great.
One follow up question on that one.
Very.
Ganic revenue growth target upgrades, there is a lot better than <unk>.
Certainly, what we anticipated and what you've shared with us on the.
During the IPO process, but it does beg the question how do we see that the 22.
Basically creates really tough comps in this room.
I know it's too early as we were talking about this but I mean are you comfortable with a mid single digit outlook for the core business in 'twenty two even off of these comps.
Yeah, well look we believe so again just use Q1 as an example of.
19, I mean, we really had we came out of the gates in January and February of 19, excuse me of 'twenty. We came out of the gate in the first two months of 'twenty with 8% growth in January and February.
Because China is our second largest market COVID-19 hit early there and obviously, we can pull that pulled back but the business has historically been running at that four to six.
Percent base business growth and Thats before we've added on more analyzers as far as moving share as well as other tests like things like DCT pushing vitamin D. Farther across so we do feel very comfortable with that mid single digit growth outlook and look Fortunately, we're running even well above that because I think we're winning more than we've ever.
One before and as we.
You'll start to share and talk about the business I think that's the biggest difference I look we still have we wanted to have wonderful chance were getting pull through but the reality is we are winning more against competition than we've ever done in the history of the company.
And that's really helping to drive that growth.
Got it thank you.
Sure.
Okay.
Our next question comes from the line of.
From Morgan Stanley.
Your line is now.
Hey, guys. Good evening, so two questions.
On the deal front.
To what extent.
Chris.
The weather have an impact in February for you guys in the states and.
What's underlying strength, even stronger than what the numbers suggest here and then second on the point you made around sort of India and I'm not sure. If you mentioned, Brazil that as well, but given the resurgence. There can you help us think through the base business offset versus the COVID-19 testing upside that youre benefiting from those deals.
And how much cumulatively those two markets represent for you.
Yeah. So look the weather I think like a lot of people have heard us for about a week in February our main distribution centers in Memphis, and they pretty much got shut down for about six days.
As you can imagine so it definitely impacted the Americas.
You know in that timeframe February I would say the team did a really good job of probably recovering all of that in March. So by the time, we close out the quarter. I think you were pretty I think it worked its way through the system. If that makes sense look as far as India look we're really we're pleased with what's going on in India.
Give you. An example that business was up almost 30% for the quarter and just in India alone and remember India is about 60% of our business in Asia Pac. So as India goes So does Asia Pac now look we're obviously concerned not only for the well being of our teammates in all of the people in India with what's going on in the research, but we're also a little bit concerned.
But the way that businesses I will say look April has started strong in India, but I think look we need to keep an eye on kind of may and June and see what happens, but we have seen very nice recovery really at the end of Q4 and all through Q1, and then again, Brazil very very good market for US up there was probably up more than 40%.
In Q1, and so a Brazil again, our big Brazil, and Mexico are two big markets, where we need to wind down in Latin America. Our team has done a fantastic job managing through the and again in the last year and this year. So those markets are doing I would say very well.
As far as recovery, we obviously need to keep an eye on and build it but right now they are in very nice recovery mode.
Okay.
Okay.
Okay.
Did we lose you.
Operator.
Oh, Okay and our next question comes from the line of Vijay Kumar from Evercore. Your line is now open.
Hi can you hear me this is Paul on for Vijay.
Yes, we can hear you Paul.
Thanks for taking the question I was just hoping you could walk us.
More through the assumptions that are baked into the guide.
Back half look like any color on the guidance by segment or geography.
Yeah, I'll, let Joe take the.
One on the guidance yes.
Paul We've got continued strong growth in across all of the segments.
In the second half of balance of year.
We've got as I said.
That on the last call on the COVID-19. The COVID-19 front, we said we were going to do $40 million to $50 million of full year of COVID-19 on our last call. So we did $29 million in Q1. So we're looking at about $20 million of COVID-19 in Q2 somewhere in that range and again as I said on the last call. We in the guidance, we don't expect to see much COVID-19 at all in the second half.
Although again, we hope there is upside to that guidance.
As far as Gulf moving down the P&L I think I've said this on the last quarter call as well in terms of gross profit margin, we expect to see stronger gross profit margin in stronger EBITDA margin in the first half.
Versus the second half and Thats really driven by <unk>.
<unk> got favorable favorable manufacturing variances rolling through in the first half than in the second half and the COVID-19 revenue in the first half comes through at a higher margin than some of our other immunoassay.
Revenue and so that's going to drive some higher gross margins in the first half versus second half two as well as those EBITDA margins will be will be stronger first half versus second half for those same reasons, yes, I think the other thing Paul is that when we look at the business that we try to get to the guidance. When we look at obviously backing out things like COVID-19, but we also.
Back out some things that we think are tests that kind of aligned a lot with COVID-19. So we really do dig into to get to where we think the forecast is going to be or the guidance. So I think what's really driving it is America as I mentioned, when he but Americas is moving much faster.
In the base business, So just and I think the second one is EMEA and in particular Western Europe continues to perform better I think a lot. So while we knew that China and the emerging markets would be doing well in the double digits I'd say it goes to big developed markets are moving quicker and that's why it would really help to lead our raise of the guidance.
Great. Thank you and I don't know if you already mentioned it but assumptions on antigen and serology for for the rest of the year.
Yes, So Joe mentioned that we did close to $30 million in Q1, and we're projected to do about $20 million in Q2, and we have nothing built into our forecast for the second half of the year. So I think getting COVID-19 is still I think it is still an unknown, but the way we built our forecast, it's all front loaded and it's about $50 million on.
The front half of the year.
Hey, one other thing on the.
On the guidance I do want to come back.
Back to is remember 93% of our business is reoccurring. So when we start to place. We went into account we place. The analyzer, we start gaining revenue that really youll be occurred. So I think once we get into that flow. When we're building out our models you really can't look at the placement of analyzers and.
And build that.
Okay.
Got it thank you.
Thank you.
And then questions.
Thank you. Our next question comes from the line of Sanchez from Keybanc. Your line is now open.
Hey, guys. Thanks for taking the question.
Maybe you could go back to the geographical front you know China has obviously been a big focus area for you guys go back to the IPO can you just talk through.
A little more detail the trends you saw in the quarter the outlook for the remainder of the year I know last quarter, you guys talked through some disruption around destocking by distributors seem to be improving and then also just where you are on the localization strategy. There I know, it's a big focus for us.
Yes, So look I would say that China has I think come back and rebounded incredibly well they grew about 11% in the quarter I think just as important to US is that integrated analyzers grew 14%. So we want to see them growing at or above market on the on the integrated analyzers and saw that so.
I feel really good I would say that's one of the places where we see the forecast continuing to rise throughout the year I mean, obviously Q2 for every part of the world can be pretty low comparable but we see China will continue to rise because we really see a nice bounce back as far as the localization strategy, we feel really good about where we are on that I mean.
As you know we we.
Our first step was to partnerships one on the development of some assays and one on the development of a low cost a lower volume analyzer that will not only use in China, but we will use in emerging markets and the reason, we really like that product for China is that a lot of our presence is currently and those stat labs and large hospitals and we think it helps us further push deeper into <unk>.
China and some of these second and third markets. So both of those go are going incredibly well. So I would say that that's kind of where we are right now from a localization perspective.
Look when it looks at when we look at M&A opportunities I mean, obviously, China, we believe will be one of if not the biggest market one of the biggest markets in the next five years will Pat conventionally catch up to the Americas, So where do we have a keen eye to that part of the world as well.
Okay. That's helpful. And then maybe just one on the margin side you know certainly appreciate first half stronger second half comps can you just talk through how you guys are balancing the revenue stream.
Flow through to the bottom line versus reinvestment in some key areas on the R&D side and then following that what are the big focus areas in the organic investment side for you guys.
Yes look I mean, we.
Talk about it two ways, Joe may get specific on the numbers, but I think youll Patrick.
This is a business if you go back 17 <unk>.
<unk> 17 and <unk>.
<unk> was growing zero to 1% and <unk>.
Now you've got a business growing consistently in the high single digits. I think the question came up earlier from Derek about that mid single digit, which we feel good at.
Right now, we're running really hot and I think a lot of people think it's COVID-19 and one of the things we've talked a lot about we really aren't a COVID-19 business I mean, youre looking at $50 million. This year of our business. We're focused on is the base business and its running incredibly well and we believe that we are in a very unique position because number one where the world with you know we're the market leader in transfusion medicine.
But the second thing in that big market, where the number five player from a market share and we feel that our commercial excellence sales strategy is allowing us to move market share, especially against one or two of our competitors. So there is investment going into the global commercial organization, because we believe that we can get in our analyzers and then start to pull.
Through the menu and Thats why were really excited when we see the high growth of IAA because that strategy is working so we are investing at a faster rate Joe always talks about we're going to take of that revenue and we're going to do a one two to two <unk> down to the bottom line. So we're holding that but right now I'd say, we're on the lower end of that we're probably at around a one three to one four.
Yes, because we believe that the opportunity for investors is better in 'twenty two 'twenty three 'twenty four by investing those dollars now because even a short contract is five years right. So you win a deal today, it's going to be paying dividends. So I would say one is the commercial the second is that we.
We've talked a little bit I think about this about our next platform and where are you.
Youll see the lift in R&D and that majority of that additional lift as an advanced research and our next platform, which really allows us to take the technology from dry chemistry and move it into <unk> and that's going to be we think a game changer, where no water source needed to run run IAA and his footprint that's about <unk>.
Side that we're on today with higher throughput and so we're trying to accelerate the development of that as you can imagine those are long development cycles.
Four to five years.
But that would be the other place that we believe there's the opportunity. So I would say that those are two of the two big places we're investing right now.
I think you had a follow on and I am sorry.
No.
Yeah.
I really appreciate it.
Right.
And.
Thank you. Our next question from the line of cycle from Jpmorgan. Your line is now open.
Hey, guys. Good afternoon, a question on transfusion just curious.
Yes.
John lives there as that contributed anything in the quarter, how we think about that ramp and then can you just talk a little bit about the swift launch how are you.
Think about it.
Take care.
Yes, So Cts did go live pretty big celebration around here at the end of January.
And so we were running that pretty much as.
As we went into February and March and look it was it was like I think we've always talked about 2% to 3% growth or the total to the total revenue and it did represent that probably on a little bit on the higher side of that because the initial stocking and get it going but it definitely contributed to.
To that as far as Swift excited about Swift rolling out we haven't gone out and started to disclose orders, but I will say, we are starting to take orders.
For that I think it's been very well received I think they've taken there's really two strategies on that one is making sure that we maintain our current base of business that are really.
Customers that maybe had not have you or had a vision that they are at six seven years on whatever that technology is and the ability to bring them over to swift and extend the life kind of that lifetime customer value, but also really a market share play.
Thank you know why we're the market leader I will say you know that Griffin <unk> bio Rad in particular out, especially in the emerging markets trying to to to grow their business. So we think theres opportunities there as well, but we haven't it's still really early days.
Okay. That's helpful. And then I was going to ask a follow up on the drag right chemistry, you talked about a minute ago I know you initiated the feasibility work.
Is that the right timeframe to think about kind of quarter five year development cycle or are the things that we could see sooner than that.
Yeah, No look I think.
We will you could see donor screening earlier than that if it's depending on regulators and the timelines, but Clinton labs, I think you're probably playing with the right.
Right timelines.
Okay last one for me I know you don't give segment level guidance, but with the increased from 79 to 911 for the core business can you just talk about whether that's.
More weighted to one one segment versus the other.
Or weighted towards what I'm, sorry, the MRC Ortho lab yeah.
Yes.
I'm, sorry, I didn't get particular, it's more probably more heavily weighted towards clinical apps. If you think about that increase in guidance yes.
Okay. Thank you.
Thank you next question.
Thank you. Our next question comes from the line of.
From Barclays. Your line is now open.
Hey, guys. Thanks for taking the question so.
Got it.
Appear on Derek.
One point I think so when you guys placed an integrated instrument or and automate. It is can you give us a sense of the immunoassay Quinn Tim mix.
So it's just really about modeling when that kind of flips.
Yes, Luke maybe mics.
<unk> wanted to take that kind of a wholesale strategy and how the team takes it from a standalone to tie in and we start to rollout.
But the percentage and how it flips overdone.
Thanks Kristen.
Christopher this slightly when you look at the revenue split in the market which is.
Closer to 60 40 immunoassay.
Much holds true with the customer base as well so when we have a chemistry customer and we add on immunoassay and you have your new total of about 60% of that will be on the immunoassay business.
Compared to about 40% of the value in the clinical chemistry.
Over time, maybe you can just tell them how long does that take our time lets say it was a standalone and we move it to an integrated how long it historically does it take to build to that well. There is two things that happened what you tend to see that pretty quickly.
As you move to integrated Youre, the mainframe analyzer theres a lot of incentive for the customer and consolidate all of their testing them onto <unk> analyzers.
But again, what we also know as when you go back and look at market growth Immunoassay side is not only for revenue point of view larger faster growing size of the business, because that's where a lot more new menu is coming from as well. So ongoing not just that initial bump there, but ongoing that's a better growth driver for us faster pace going forward as well.
Alright, Thats helpful and then as you.
Think about the M&A landscape I love that slide you guys put up there with two of the recent molecular companies off the table is that change your timing and strategy.
[laughter].
<unk>.
Yeah those words.
Look I would say.
We're going to be prudent and we're going to be opportunistic and I think.
I think one of those was very interesting and the other I think went above where we felt the value us so.
But we were definitely I think we're looking at those type of businesses. So I wouldn't say it changes our timing I think it depends a lot on the business and why molecular is there. We think there are some interesting opportunities in IAA, we think POC.
Look at transfusion Medicine, Theres, a couple of categories that we like in the transfusion medicine side of the business and the other one is I think obviously.
There are some interesting companies that are not U S or European based as well so look I wouldn't I wouldn't say, it's changing our timing.
Running after it I mean I will tell you there is a 5000 people who work here and there is definitely a group of people a small group that will enable focusing on where we can identify those opportunities but.
98% of the people or whatever at work here Theyre focus is day to day, placing integrated analyzer is pulling through menu, becoming more efficient. So I think I think it's working and when the right opportunity comes along we believe we're positioned now to acquire it and do whatever makes sense.
I don't know if I answered your question.
Okay.
But I don't think we're chasing its not like were out chasing because we feel like we need to do it. We think it we think as you look at 'twenty three 'twenty four it'd be nice to have the right business. The full day because of our call point, our 'twenty 200 people in the field.
Alright. Thanks.
Thank you. Our next question comes from the line.
John from UBS. Your line is now open.
Hi, congrats on the quarter and thanks for taking my question I guess, just building a little bit on the the upgrade cycles I think automation is small today around 1%.
Can you provide an update on just where the whole automation was in the quarter and how does that mix look across for the year and then did you provide a total placements.
Number for the quarter.
No. We're not we're only talking about growth not total you mean total unit base.
I think you gave the integrated placement, but did you give the total units across although yes, we.
We gave the integrated growth so integrated grew about 14%.
Yes.
Look on automation look I would say it was a good a good quarter.
As far as growth perspective, I'm, just looking here, but pretty much double digits.
Yes, you can take that Mike yeah. So when we look at the quarter. Good automation has been that you guys are a focus for us along with integrated.
Our objective there is the drivers that support the need for automation.
Our pretty prominent with our customer base, we're trying to make sure customers see the benefit of our flexibility and cost effectiveness and we've been getting more and more traction.
Bringing that and we are off as far as installed base up 20 over 20% on automation, so again, even faster growth there and in line with our strategy of how we want to grow our base overall.
Installed base growth driven by integrated and then even faster.
With automation, so that held true for Q1.
Thanks.
I think leverage was four four times in the quarter a little ahead of schedule.
Any updates on the deleveraging plans for the year and year end targets and then I guess just with the current level of leverage is there any target level, where you'd be more comfortable on when executing deals or are you comfortable with the current levels.
Yes, we are John we are a little bit ahead of schedule and the leverage ratio at $4 four at Q1, and I would say for the full year by the end of the year, we should be at four slightly below four.
Without too much difficulty, we're definitely trending that way at all of our internal forecast say that.
I've talked before about getting to a target target level of around three five times and we're gonna be darn close to that by the end of this year. So we've.
We've got a lot of capacity or will have a lot of capacity by the end of the year to do deals and as I said, a much more balanced capital allocation strategy, we have a lot more ability.
The ability to new investments, both inorganic and organic.
Yeah, and I think it obviously depends on the deal.
Yes look I think one of the challenges I think if you heard this earlier in the question about the two recent molecular I mean, I would say the one thing I'm really proud of our team.
And business development, if you look at some of the innovative partnerships, we create along the way like with IDEXX and.
With thermo and with <unk> I would say that we the deals we like are the ones where it before the bank book as outflows on the street and I and I think Thats really some of those are going to be very different when you look at what they do to leverage.
Got it thanks for taking my questions.
Q.
Thank you. Thank you. Our next question comes from the line of Matt <unk> from Goldman Sachs. Your line is now open.
Hey, guys. Thanks for taking my questions. Just two quick ones from me one just hey, guys on pricing I know I think if my memory serves me during the IPO you guys talked about generally expect sort of a 100 150 basis points of price erosion over the course of the year, but I'm just wondering I know, it's only been a few quarters, but have you seen anything in the market suggests that that's change.
Maybe inflationary pressures in the supply chain or anything.
And secondly, I'm not no I would say, Matt we're not seeing any any change from that we're still tracking right along that same estimate we talked about in the roadshow no changes.
Okay, and then just on.
Going back to sort of M&A on that slide you guys talk about not just M&A, but also partnerships, but as your balance sheet continues to strengthen over the course of this year and next year does your thought process in terms of whether you do M&A or whether you do partnerships change.
Boy, that's a really good question, Matt and one that we have look I think the partnership has to be the right way I can tell you just to give you. An example, when COVID-19 was going on and a lot of people were chasing.
Point of care or lateral flow. Our view is we don't want to build someone else's business. So I think if we create a partnership it has to be launched will give you. An example of the grip those partnerships 50 year partnership that we've been in so where do I think with 30 years into it I think it has to be a partnership where we believe.
That it makes sense long term versus just something that's short term because I think and the reason being we talked a lot about this inside our business. Our runway. We believe is so great with where we are in the market that we're in that we really want to stay within that area. So I think it's got to be the right. The right partnership at the right time and the.
Things that we can do and I think you've seen that that's kind of been our history. These long term partnerships, but from an M&A perspective, obviously, if you have control of the asset.
Or the right distribution.
Ownership, but we think those are good good way reps to go.
Alright, great. Thanks, guys appreciate it.
Thank you. Our next question from the line of Steve <unk> from Wolfe Research. Your line is now open.
Afternoon, guys.
One is on for Steve.
Yeah.
Hum.
Okay, I kind of understand a little bit more if you could talk about the BARDA contract that you won.
Kind of think about that kind of flowing through.
The first one and then just understanding kind of.
Yes.
Where you're seeing kind of I know that.
But it's a little bit different because it's an adjacent space, but some diagnostic players not just you called out and there is a different dynamic here where.
So the reagent rental model mix has shifted if you've seen any shift in that if you could just speak to that.
Well thank you.
Okay. So look Mike was really instrumental in that BARDA is do you want to take the BARDA.
Yes sure.
The BARDA agreement as you've probably read through there is funding through BARDA with EOG partnered in that.
To fund the expansion of manufacturing capabilities.
In Rochester, New York, that's for both COVID-19 related reagents and.
Instrumentation, which is our immunoassay product lines, there and from our point of view, we do assume that manufacturing on the reagent side in Wales, and an ex U S and some of the instruments and so this is an opportunity for us actually as the need for increased manufacturing.
As existed to bring that onshore in the U S and in partnership General comment on how that's going to flow through yes.
What are the gift 10 seconds on the accounting just so everyone's clear because we are booking some BARDA revenue now for previous grant, we got one assay development, but this graph a little bit different in that it's a capital grant to build a line. So it will come through essentially as an offset to capex.
On the balance sheet. So you will get we'll get favorable depreciation expense going forward, because you'll have less of an asset on the balance sheet. So all comfortable with revenue.
Grant we have now come through as an offset to an asset.
Oh and.
But the other question you had on I think you had a question on the reagent rental versus cash we're not seeing a big difference year over year in our cash versus reagent rental mix its pretty flat year over year.
Great. Thank you so much.
Thank you everyone that concludes our Q&A.
Chris do you have any.
No just thanks, everybody. We really appreciate you taking the time I know, we'll be talking to some of you throughout the day and.
Yeah again.
We appreciate it was a great quarter.
Thanks for the time to be able to share with you and we'll look forward to talking to everybody soon and operator I think he would have taken care.
Instructions they think availability of the recorded thank you again for joining us.
Thank you ladies and gentlemen. This concludes today's conference call recording will be available. After this call. Thank you for participating you may now disconnect.
Yeah.
[music].
Okay.