Q3 2021 Agilent Technologies Inc Earnings Call
Year over year and references to revenue growth are on a core basis.
Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.
Guidance is based on exchange rates as of July 31.
We will also make forward looking statements about the financial performance of the company.
These statements are subject subject to risks and uncertainties and are only valid as of today.
The company assumes no obligation to update them. Please.
Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.
And now I'd like to turn the call over to Mike.
Pardon me and welcome to your first add on its earnings call as our new Vice President of Investor Relations and thanks to everyone for joining our call today.
Before I cover our third quarter financial results I want to acknowledge the recent passing of Dr. Atocha Yamana.
In our industry and our former Ashland Board member.
Talk to you is much more than a knowledgeable.
Involved as a board member for nine years.
As many of you on the call already know touchy lived a very full life have a doctor.
Scientists.
Humanitarian who is driven to help others.
I know that the agile team has done alone and recognize that apply to your model will be greatly missed.
And we extend our deepest sympathies to <unk> family.
Now under third quarter review and our updated outlook for the year.
In Q3, the very strong broad based momentum in our business continues.
The Ashland team delivered another outstanding quarter.
Meeting our expectations.
Q3 revenue of $1.5.9 billion is up a reported 26% and.
And is up 21% core.
This is against a modest decline of 3% in Q3 of last year.
So we are well above fiscal year 2019 pre pandemic levels.
In addition, as other positive sign of continued momentum orders outpaced revenue during the quarter.
Our growth is broad based across all business groups markets and geographies.
The combination of strong top line performance and execution translated into excellent growth and profitability and earnings per share.
Our Q3 operating margin is 26%. This is up 230 basis points from last year.
EPS is $1.10 up 41% year over year.
<unk> success continues to be driven by our build and buy growth strategy and execution prowess.
We are developing market, leading products and services investing in fast growing businesses.
While delivering outstanding customer service and continue to drive profitability.
Since the onset of the pandemic, we have taken actions to ensure ashland emerge even stronger as a company.
While we have yet to lead COVID-19 in the rearview mirror. Our Q3 results are another indicator our actions are delivering the intended results.
Bob will provide more details on end markets and geographies.
But I want to briefly highlight our performance in our two largest end markets pharma and chemical <unk> energy.
We continue to perform extremely well in pharma, our largest market growing 27% with strength in both small and large molecule segments.
Our large molecule business grew roughly 52% in the quarter.
And now represents 36% of our overall pharma revenue up from the mid Twenty's, just a few years ago.
In chemical energy, our business is recovering faster than expected expanding 23% in the quarter.
This is an acceleration of the momentum we achieved in the first half and our order funnel continues to strengthen.
Looking at our performance by business unit, the life Science and applied markets group generated revenue of $680 million.
<unk> is up 22% on a reported basis. This is up 18% core just a 4% decline last year.
<unk> growth is broad based across all end markets.
Our performance was led by strength in pharma, which is up 22% and chemical energy up 31%.
All businesses delivered strong growth.
Led by a cell analysis at 38% growth.
And our LC and LC, Ms businesses, which grew 22%.
We continue to strengthen our position in the fast growing large molecule market segment.
During the quarter the <unk> team launched three Infinity lab <unk> systems at the well attended Infinity Lab LC Virtual conference in June.
These new products further extend our <unk> leadership position.
In addition.
Building on our already strong pharma offerings, we launched new compliance Redi, LLC, Q, <unk> and <unk> solutions for our portfolio in the quarter.
The absent Crosstie group posted revenue of $560 million. This was up a reported 21% and up 15% on a core basis.
These results are on top of a 1% growth last year.
The business is benefiting from increased activity in customer labs and instrument connect rates.
This is leading to more contracted services.
On demand services and consumables consumption across all end markets.
All end markets grew mid teens or higher with exception of environmental forensics, but still grew 9%.
The pandemic has shown ACG to be our most durable business with ACG grown each quarter since COVID-19 first emerged.
Our customer focused approach and digital investments continue to pay dividends.
Looking forward instrument placements and demand bode well for continued strong performance by ACG.
As we drive attachment rates and increased customer lifetime value.
The diagnostic genomics group produced revenue of $346 million.
Up 44% reported and up 37% core compared to an 8% decline last year.
The growth was broad based across product lines and regions.
Led by our NASD GMP <unk> business.
The ramp of our facility in Frederick Colorado continues to go very well.
The quarterly results exceeded our expectations easily surpassing the $50 million revenue milestone.
While one quarter does not make a trend our team has done a tremendous job increased now put in a high quality manner.
This gives us increased confidence and ability to exceed the $200 million annual run rate of revenue with existing capacity.
In addition, the trained manufacturing line expansion is well underway and on schedule.
Our genomics instrumentation and consumables businesses rebound strongly in the quarter as did our pathology related businesses for.
For the first time in several quarters, we saw diagnostics testing above pre pandemic levels.
While we are watching the delta bearing very closely to date, we have not seen a meaningful negative impact on testing volumes.
I also want to highlight our performance in China, while still less than 10% of <unk> revenue, our China business grew 50% in the quarter, we continue to see tangible progress in building a stronger China market position.
In Q3, we signed our first ever companion diagnostic development services agreement with a China based Biopharma company.
Earlier. This month, we also announced the initiation of in country manufacturing for our <unk> product line.
We are very bullish about long term growth prospects in China for our <unk> product and services offerings.
In addition, the integration of the resolution Bioscience team is going well and we are very pleased to enter and expand our participation in the fast growing NGL based cancer diagnostic market.
It was a busy quarter at Ashland. So I have a few other achievements I'd like to share with you last month, we published Ashland's 21 annual corporate social responsibility report.
At a time when some are just starting to look at issues like sustainability and societal impact. This has always been a key part of who we are as a company.
We've been addressed these issues since our founding more than two decades ago.
I'd encourage you to review our report on the asthma website.
We're also very pleased to receive recognition of the great place to work in United States by the Great place to work Institute.
This result is just one more example of adds one having a highly engaged and energized team.
And as you know teams with high engagement win in the market.
Looking ahead bill.
Building on in another excellent quarter and the momentum we're seeing we expect the business to continue to perform well as we closed out what we believe will be an outstanding fiscal year 2021.
As a result, we are once again, raising our full year revenue and earnings guidance.
Bob will share more details, but we are expecting a continuation of our excellent top line growth and earnings generation.
While the world has yet to fully immersed in the global pandemic asthma is well positioned to deliver excellent results again in the fourth quarter.
I remain very proud of the agile teams ability to consistently deliver for our customers and shareholders.
Being on the call today and look forward to your questions.
Now I'll hand, the call off to Bob Bob.
Thanks, Mike and good afternoon, everyone.
In my remarks today I will provide some additional details on Q3 revenue and take you through the income statement and some other key financial metrics.
I'll, then finish up with our updated outlook for the fourth quarter and the full year.
Unless otherwise noted my remarks will focus on non-GAAP results.
As Mike mentioned, we had an excellent result in the third quarter.
Revenue was $1.5.9 billion, reflecting reported growth of 26%.
Core revenue growth was 21%.
Currency added four 5% for the quarter and M&A added half a point.
In addition, COVID-19 related revenues were in line with the prior year.
All end markets performed well with pharma and chemical <unk> energy as standouts versus our expectations.
Our largest market pharma grew 27% during the quarter after growing 2% last year.
The performance was led by the continued strength in our large molecule business growing 52%, while our small molecule business grew mid teens.
In all regions and the pharma market grew double digits.
Our large molecule business was driven by our NASD division and demand for LC and mass spec instrumentation solutions, while our small molecule business was primarily driven by QA QC refresh.
Chemical and energy also performed well this quarter with 23% growth.
Even after accounting for the comparison against the 10% decline last year.
This was clearly our best quarter since the onset of the pandemic.
This result was driven by increasing momentum in demand for advanced materials, and the general global economic growth.
Our view is that the chemical and energy market still has additional room to grow moving forward.
The diagnostics and clinical market grew 28% against the decline of 10% a year ago, our softest quarter last year.
We are very encouraged with the continued recovery in the market as our genomics and pathology businesses saw very good growth.
On a regional basis, all regions grew with China up 41% at Americas, delivering 38% growth.
In the academia and government market, we delivered 12% growth is most research labs continue to open globally and expand capacity.
On a regional basis Europe led the way.
The food market continued its double digit performance growing 12% on top of growing 1% last year.
<unk> manufacturers continue to invest in increased testing to ensure quality and authenticity.
A developing candidate is testing market primarily in the U S. Also contributed to growth in this market.
And regionally the food market was led by the Americas and Europe.
Rounding out our key markets environmental and forensics came in with 5% growth.
On a geographic basis, all regions demonstrated solid growth led by the Americas at 32% and Europe at 23% both exceeding our expectations. The performance was broad based across all markets.
And as expected China was up 8% on top of 11% growth last year. All three business groups grew in China during the quarter pharma chemical and energy and diagnostics were the key drivers.
Now turning to the rest of the P&L.
Third quarter gross margin was 55, 9% up 80 basis points from a year ago, Despite roughly 40 basis points of headwind from currency.
Our strong topline some positive product mix, coupled with the strong execution from our operations team drove the year on year improvement.
And our supply chain team is doing a tremendous job getting our products to customers. Despite the increase in demand.
Gross margin improvement our performance along with continued operating expense leverage resulted in operating margin for the third quarter of 26%.
<unk> 230 basis points over last year.
Putting it all together, we delivered EPS of $1.10 up 41% versus last year.
Our tax rate was 14% and three quarters percent as share count was 306 million shares as expected.
We delivered $334 million in operating cash flow during the quarter showing a strong conversion from net income and up more than 15% from last year, while crossing the $1 billion Mark in nine months during.
During the quarter, we returned $172 million to our shareholders paying out $59 million in dividends and.
And repurchasing roughly 800000 shares for $113 million year.
Year to date, we've returned $829 million to shareholders in the forms of dividends and share repurchases.
And we ended the quarter with $1.4 billion in cash $2.9 billion in outstanding debt and a net leverage ratio of 0.8.
Accounting for our Q3 performance and improved outlook in the fourth quarter. We are again, raising our full year projections for both revenue and earnings per share.
We are increasing our full year revenue projection to a range of six to nine to $6. Three 2 billion up $125 million at the mid point from previous guidance and representing reported growth of 17, 8% to 18, 4%.
And core growth of 14, 5% to 15%.
Included is roughly three points of impact from currency and a small amount from M&A.
In addition, we're on track to deliver roughly $100 million in Covid related revenue in fiscal 2021 in.
In line with our expectations from the beginning of the year and flat to last year.
We expect to continue our strong operating leverage and so we are increasing our fiscal 2021, non-GAAP EPS to a range of $4.28.
To $4.31 per share up 30% to 31% for the year.
This translates to fourth quarter revenue ranging from $1.63 billion to $1.66 billion.
This represents reported growth of 10% to 12% on top of the 6% growth in Q4 of last year. When we started to see early signs of recovery from the strict.
Lockdowns.
In addition, while Covid revenue was roughly flat year on year for the full year last year's fiscal fourth quarter represented the high watermark and our Covid related revenue and.
And as a result, we expect to see roughly a one point headwind due to COVID-19 revenue in the quarter. So our core growth, excluding COVID-19 will be comparable to nine 5% to 11%.
We are forecasting higher expenses in the fourth quarter as we invest to maintain our strong momentum, but expect continued up EPS is expected to be between $1.15, and $1.18 with growth of 17% to 20%.
Now before opening the call for questions.
I want to reiterate that we continue to see good demand in our end markets.
We have solid momentum in all our businesses and expect to close the year extremely well.
We believe our strategy is the right ones fraudulent, but we couldnt achieve these results.
We have been producing without the excellent execution by the team.
With that for me back to you for Q&A.
Thanks, Bob.
Paul If you could please provide instructions for the Q&A now.
Definitely sir.
We will now begin the question and answer session. If you would like to ask a question. Please do so by pressing star one on your telephone keypad again that star one language telephone keypad. However, if your question has been answered and you wish to remove yourself from the queue. Please press <unk>.
<unk> with J P. Morgan.
Hey, good afternoon, congrats on the quarter, Mike I want to start with.
And our outlook.
No.
China.
Fair amount of noise about companies being able to product in country and airports.
Downtown will shut down so can you maybe just talk to kind of some of the near term dynamics in China and it sounds like trade tension is also getting worse with by China policy. So how do you think about that over the next couple of quarters.
Yes, sure. Thanks for the congratulate comments that Tycho.
We actually continue to feel quite good about our performance in China as Bob and I mentioned in the call script, I think 8% up from a 11% last year and I think our what is our stack growth rate around 19% in Q3 is actually up over our stack growth of 17 Q2, we're seeing this good strong pharma and <unk> demand in China now and.
The funnel has really remained quite robust and I think now get into your specific.
Question, we're not seeing any significant changes in terms of ability to get product and I mean, theres been a lot of noise for years I have to say between the United States and China, yet the business seemed to somehow get transacted. So Bob I think we're not really overly concerned about.
About those dynamics and we did have a somewhat of a little bit of share.
Shipment interruptions as some of our academia government customers, where <unk> had to work through tax.
Tax exemption change, but I think that was relatively minor impact on the P&L. So.
Clearly were monitoring those developments.
To continue to work to make sure you've got their logistics of flowing through the country, but we've always been able to find a way and not overly concerned about it at this point, yes, I would say Tycho, we continue to invest in China as we mentioned in the call and.
There are always bumps here.
And there, but long term, we feel very good about the business in China.
Another thought here Tycho is relatively just takes we have divested a number of forward looking stocking locations over last few years that really has paid us dividends, because we're less dependent on stuff coming directly in to there'll be the port because if we have a lot of in country inventory.
Okay. That's helpful and then.
Sounds like you've got a lot of underlying momentum in the region.
Can you talk about the order book, but any preliminary comments you can make on 'twenty two at this point.
It's 5% curious.
We think that's a reasonable barring any comments on where you think margins can go next year.
Yes, Thanks, Tycho so as you might as you might imagine I'll, probably sidestep that question a little bit in terms of specifics, but what I can tell you is that we feel really good about the momentum of the business.
The order book is continued to be strong and thats as of as of today, where we got the latest view of.
And the early orders through August so order momentum remains there as I mentioned in our prior earnings call. We feel really good ability to meet and exceed those long term growth goals, we put out and margin goals I think thats, where we stand right. Now is we'll get to that in November but we're feeling good about the trajectory of the business momentum we built here.
Okay. Thanks, a lot of this happened.
Your next question is from Brandon Couillard with Jefferies.
Hey, Thanks, good afternoon.
Thank you Brandon tightly Tycho.
You can start with the Biopharma business, I mean, 50% growth in large molecule pretty impressive used elaborate kind of on the list.
Sources of growth there and what.
What that would look like if you back out <unk> contribution.
Yes, sure and then I'm actually going to invite Bob and I'll ask one have Jacob a few comments on upon those new introductions here. So I think I'll use of our broad based at least five or six times, maybe 10 times in my <unk>.
Prepared remarks, and we're seeing that in the box.
Biopharma, so we've got across the across the board double digit growth happening here.
Cell analysis LCL CMS other platforms that go into Biopharma, along with our consumables and services and then to your point really outstanding growth in NASD, but while NASD was a big contributor. It was a it was an asthma wide wide story and Bob maybe you can answer the specifics on the numbers and <unk>.
<unk> to your point.
Total total in large molecule was 52% as I mentioned before but even if you back out the NASD business is still grew in excess of 40%. So very strong business on NASD, but it shows that the rest of the business both instrumentation as well as the consumables pieces and the other elements.
On the pharma associated revenue in diagnostics and genomics also very strong businesses and Brian I just wanted to maybe have Jacob jump in very quickly because we have a continued drumbeat of new introductions into this space as well, which has been the focus and prioritization of our R&D pipeline and Jacob I know, we had two big introduction.
<unk> in Q3 as well.
Yes, thanks for that Mike.
At the Analyst day, I think we've talked about and you've got 70% of our portfolio above that was really focused on biopharma, if I'm really happy to see that momentum we have right now and as you also mentioned in prepared remarks, I'm very pleased positive with the biopsy portfolio income.
We have and.
And one.
Our momentum is that where that buyer LP would that be introduced here a few months ago, and we had a virtual conference with more than 1000 customers participating in we had more than 25 external scientific speakers with I would actually say I know it is the best in industry by far so that.
The introduction is actually creating quite a lot of momentum and it allows us to play for all the Bionetic biocompatible space with <unk>.
<unk>, but clearly also into the into the mass spec with the bounce back in the end of it and we also mentioned compliant.
The FDA put 11.
Scientists another bear employee part that most of the Biopharma.
As a requirement to do business with them and we have invested in this fall for quite a while so we ensure the data integrity, the auto readiness and historical data.
However.
The level of security and right now we have for the offering both supporting our LP, but also all of our major mothball mass spec.
Instrument.
Also in spectroscopy the reason.
And often here off the top and acute health informatics solutions.
Right now we are.
Have a very strong portfolio in that truly drives our growth.
You're talking about the cell analysis.
[laughter] Governor bounce it back to Brandon Hey, Brandon Thanks to allow us to do a little advertising on the Ashland portfolio strength, but back to Yossi if any additional questions.
Yes, I think just.
Maybe if we could just.
To elaborate on the small molecule market, you mentioned kind of QA QC refresh curious whether any we might be in there and what you see.
The market is kind of growing for small molecule relative to your 2014.
It's our view that.
There is always a replacement market going on in the small molecule space and.
Sometimes it picks up.
A bit more.
But and I think we're in that phase right now I wouldn't say, it's a huge acceleration at the solid and probably high single.
To say Brandon as we think about this prior to the pandemic, we were probably slower growth the normal where some of the QA QC.
Refresh was probably elongated in and now we're starting to see that pick back up and that typically is an 18 to 24 month kind of cycle.
I would say we're still in.
The beginning of that.
So feel good about the continued performance of the.
The refresh cycle going forward.
Great. Thank you.
Your next question is from Vijay Kumar with Evercore ISI.
Hey, guys congrats on the strong print.
Good afternoon.
Thanks Vijay.
Mike maybe on my first question here.
Revenue from buyer the BLA for you guys.
Did that come.
Come in line with expectations I'm just curious.
50 basis points contribution seasonally light.
Some ramp up phase here, that's involved and not maybe just talk about what the buildup.
How it adds to the corporate growth rate here.
Yes.
You do some very good math. So it's about it was about a half a point of reported growth by Bob and I would say relative to Q3, probably a little bit behind the revenue as we learn more about this business, there's some elements of visual lumpiness.
So we're feeling pretty good about hello.
Business will finish, but we're expecting a lot in the fourth quarter. I think this is this is a story of continued acceleration of growth in 'twenty, two and beyond and we're just super delighted by the early days of how the teams feel about being part of Ashland and then we're really building scale around this business. So I think it's.
Still relatively small part of the overall revenue picture today for fragile and we knew that going in I think is roughly as 50 ish kind of million, but we would expect really strong growth rates in the coming years.
Again, we really feel like we're off to a great start with this team.
Interacting with Mark Lisa who is the founder co founder of residential bile. He is really happy about the capabilities that we're bringing to his business due to further scale. It so early days, but feeling pretty good about things and fewer sandwich that was going to say the other thing is obviously, we're just now.
Having more and more conversations with our existing <unk> customers and the power of being able to have our established CTX business on the HD side, coupled with NGL based technology I think is going to.
A real.
A significant competitive advantage for us going forward so.
Very excited about this business going forward.
That's helpful, Mike and Bob one for you.
Expenses.
Expenses.
Year to date operating expense as a percentage of revenue you guys sort of low 30 sub 31%.
That's well below historical level I guess my question is.
Is this all just associated with that volume leverage.
Given the strong organic performance year to date or are there some timing elements on expenses.
That's 80 year and how should we if there are how should we think about those factors coming back.
In that 'twenty two.
Yes, Vijay it's great question and.
I think if you.
Remember, maybe a year ago, we talked about some of these expenses that were going down.
And our goal was not to have them come back to the same levels that they had and these would be in areas around travel, but also leveraging our digital capabilities and what we've been able to do is be very successful certainly volume is our friend.
And the leverage that we've been able to drive across across all three of our business groups has really helped but if you look at our year over year elements around travel.
Costs associated with marketing programs.
And <unk>.
Digital investments are digital investments have gone up but the actual return on those investments has actually gone up in fact, Jacob just highlighted one of the programs.
That we had and so those are our goals are for those to continue they will continue to ramp next year to come back.
But not near the level that they had come prior to the pandemic. So we do think that there's a fundamental maher.
Margin improvement associated with these expenses and Thats why Mike talked about kind of our long term margin expansion story is intact is that going to be 200 plus basis points like it was this last quarter, but certainly feel good about our continued ability to drive margin expansion.
Jay This is Mike if I could just add one additional comment to and are hopefully came out in may and our prepared remarks, but we're not holding back on investing for growth. So.
We were quite pleased with the margin performance, but it didn't come at the expense of our ability to grow down the road.
That's extremely helpful. Mike Congrats again, thank you.
Yeah.
Okay.
Your next question is from Doug Schenkel with Cowen Your line is open.
Hey, guys good afternoon.
That's the kind of build off of that last question with a quick follow up.
Again, acknowledging and recognizing you're not going to guide on 2022 today.
Just wondering though at a high level should we assume that incremental margin is going to be up a little.
Bit lower than normal next year, if we're assuming a normalization of activity in the post pandemic World I heard what you said about areas, where you're not going to need to invest as much but at the same time you are investing in growth.
Mathematically the incrementals needs to be a little bit lower than normal last year.
Yes.
And we're still building our plan, but our intent is to still be able to drive that margin expansion I will say that we are having our new train b.
In NASD come on online, which.
It will add a little pressure to it but I think we've been very good about being able to do 30% to 40% Incrementals.
Sometimes even higher than that when the margin comes in and I don't see any reason why we shouldnt be able to continue to do that Doug.
Okay, obviously very helpful. Maybe whats EMEA, maybe what's underlying your question is inflationary pressures and activities around that and I would say that.
We didn't see any material impact obviously, there is some but we're planning to manage that going forward.
Yes.
Supply constraints, that's inflationary pressure.
We're traveling a little bit more on there theres real conferences in rail site visits things like that so.
That's the spirit of the question just making sure that the capture of those dynamics. We don't have to think about something other than that 30 to 40 traditional Thai ranch. So that that's helpful. Bob.
And I would just add.
Well not only earn out sorry to starting to update but I would just say that some of our programs and such I really geared towards making sure. We can manage our way through this in 'twenty. Two so we're on this already.
Got it okay.
In terms of full year guidance as it's been noted a few times you increased the outlook by more than the magnitude of the Q3 beat.
I guess I'm just wondering what gives you confidence this change is it backlog data casing across the quarter, obviously the activity through the first month of a quarter, maybe or maybe it's all of the above and then maybe more importantly.
And we just checked everyone. Okay perfect yes.
Bob and I are smiling in the room here and I think we can profit a checkmark on all first of all those three things you mentioned.
Okay.
And then throughout the year, you've consistently beat your own targets pretty materially it definitely makes sense. The SKU the error bars are bit more conservatively.
When you set your targets given the state of the World.
Given how well you performed relative to those targets.
And recognize that we're not out of the pandemic, but we got a little more experience with it at this point is it fair to say that you are at the point, where you could adjust the philosophy a little.
And maybe kind of change the positioning of those error bars as we set guidance moving moving ahead.
Yes, I think that's fair I think what we've tried to do is.
S set prudent guidance as we've talked about in the past, but certainly as we and our customers more importantly, the market is getting used to kind of dealing in a in a COVID-19 world. There's there's fewer variables to be able to kind of understand in hand.
I would look at just kind of what we did in Q Q2 to Q3.
We dramatically improved increased our Q Q3 guidance.
And then did the same thing here for Q4 so.
I think.
While our visibility is improving you should you should take that away for.
All the things that you kind of rattled off certainly are the momentum that we're seeing.
The general economic improvements and so forth, but as you mentioned.
There's still a delta variant out there and so while as Mike mentioned, we haven't seen any impact of that yet.
We also recognize that that could change.
During the course of the quarter so.
Trying to take all of those kind of factors into account, but also try to provide some realistic guidance going forward.
Okay, Alright, thanks again guys.
You're welcome Doug.
Your next question is from Derik de Bruin with Bank of America.
Hello, and good afternoon.
Hey, Derik.
Okay.
Can we talk a little about environmental and through that and so if I wanted to dovetail that question. Two I know, it's probably a little bit early but any signs of how we should think about the GSE portfolio picking up are you.
Are you just replace or is it just sort of like catch up spending right now in the industrial.
Or any initial indications.
That the replacement cycle that you were you were going you are in the midst of prior to the pandemic.
We to restart.
Hey, Derik.
How do I take the first one and Bob.
Robin and the Jackup being able to add additional comments here, but.
Let me talk about it the question around gas chromatography. So we are seeing that.
And Thats really behind a lot of the fairly bullish comments, if you will around the <unk> space. So we're seeing it in our in our <unk> revenue and were also seen in our <unk> order book.
And I have been very reluctant to.
Call that Hey, we think this business is now in a situation of returning to growth.
That reluctance has now passed I think we're now into what looks to be.
The startup of some really good potential business on our <unk> side is that replacement cycle turns back on and Jacob I know, you're a lot closer to the detailed alignment anything else you'd add to that.
Yes, yes.
Your line I think first of all I think Bob mentioned that also the chemicals and engineered materials market certainly on fire like malware cannot in semicon.
In mining industry, including lithium for batteries, but we also see the traditional Petro Chem markets really start to see some momentum now and that's a lot of talk about a few jobs in the petrochemical market is going to pay for quite a long and I think that all the analysis show that there'll be new titles. So we see investments coming in.
And with <unk> now and the new market. That's also coming along it is renewable energy, which will also use many of our technologies and we see a great opportunity there and also in the future Thats still in development phase, but as you know.
So we are.
Putting that all of them. So we see a lot of opportunities do you see in the <unk> vaccine.
Rental both broken down in the chemical market, but now into the energy market.
Okay. So following up on that so you're feeling good about sort of your more.
Industrial Expo experiments, even even with some of the Choppiness in the Chinese market the data there.
Are you seeing in the U S in Europe to start being more or is it just youre seeing a turn out of that one and then where are we.
What remind me in annoying baseball analogies, where we were in innings on the GC replacement cycle.
So Bob I think it's fair to say that there really is no difference across the regions I mean, China actually was an area of strength for us in <unk> and I think we're seeing good good strength globally, which I think points to the importance of <unk>.
Global economic outlook for this segment and I would say we're probably.
Earlier middle innings.
And it's easy to kind of pause there for a while because we had a great run going with the new portfolio, but a pause so lets say were like.
Right.
Early any of the Midland <unk>, Yeah, I would say derrek derrek to just to give you a frame.
Ana was more than twice the China's <unk> market was was in line with the overall see any growth rate.
That we saw.
Okay.
Yes.
Thanks, Thanks for your question.
Hum.
Your next question is from Dan Leonard with Wells Fargo. Your line is open.
Thank you and good afternoon.
You could.
Mike I was hoping you could address the 5% to 7% core revenue growth model that you've introduced in December is that still relevant or do you think something has fundamentally changed in the markets from that time period.
I'd say, it's relevant till we change it.
So I'm not ready to on the fly here.
Revised our long term growth, but as.
As you May recall in our December outlook, we said think about us being more of the high high range in that area.
And I think I would like to have a tough first let me put a seven out there and any type of long term growth guidance I think what's changing is the nature of our portfolio, which is where we continue to build very very quickly.
Much bigger positions in faster growing segments.
And I think it's probably fair to say that.
<unk>.
The pharma market and particularly the Biopharma market.
Is remains very robust, but again were sticking with those.
Our long term growth goals at this point in time, yes, I would say Dan to build on what.
Mike is saying, particularly the pharma market, we do feel that that market and in fact.
Mike talked about it in his prepared remarks that we're emerging as a stronger company. We do think that the pharma market really driven by that large molecule area is a faster growing market.
Coming out of the pandemic than than going into it and I think if we look at where our investments are and the performance that we've had in the particularly the large molecule now again small market has been doing very well.
That that in and of itself.
Would elevate that overall long term growth rate to be faster than what we saw going in which which certainly helps us given that as that's our largest market. So I'll leave it at that.
Okay. That's helpful clarification, and just a follow up on China can you elaborate further on the drivers of that 50% growth rate you called out for <unk> in China.
Yes, I'm going to bite.
On this call he hasnt had a chance to work today in this call so Sam but your thoughts on what's been going on in China.
I was doing a little bragging on your growth rate there.
Yeah, Mike.
Happy to give some more perspective on China.
We actually had.
A good quarter across the board for all of our business groups within within EDG.
Specifically, we continue to see real momentum in clinical diagnostic testing led in pathology.
<unk> seen really good pickup of our PDL one.
<unk> diagnostics companion diagnostics, there as we continue to train.
More pathologist there in the us and so forth genomics also had a really really good quarter both on the <unk>.
Consumable side and we've also just recently announced within the quarter. The launch of our New V. Eight X film, which is being well received in China and globally and I'll tell you one of our.
The absolute strength in China.
As it is elsewhere.
Remain our core.
Some genomics QC portfolio. So all of those elements along with Mike as you mentioned now.
The signing of our first companion diagnostic development agreement with a biopharma there.
I think portola.
<unk> story of strength in China for <unk>.
And Mr build on Sam's comments I mean, we've been we've been working really hard the last several years, putting in the rank foundational capabilities building the right commercial channel the rate ability to handle diagnostics products ourselves. So I think and it's really great to actually see those investments starting to pay off.
In near term growth.
I appreciate all that color thanks, everyone.
<unk>.
Your next question is from Patrick Donnelly with the SEC.
Your line is open.
Hey, thanks for taking the questions guys.
Mike Mike maybe one on the chemical and energy side to follow up on some of the earlier questions I know Thats, one where you pretty closely and keep an eye on the order book and your confidence kind of goes with that are you getting more visibility of the order book builds there I'm just trying to compare to pre pandemic bid and then Mike I know you guys had a pretty short leash on in terms of how you would guide.
<unk> for that segment, how comfortable you would allow yourselves to get just wondering how the order book is looking there relative to some of the past quarters and how youre feeling about that segment certainly seems like the cone is pretty positive here yes.
Yes, no I'm glad you picked up on that but we really want that to come through in the call and I think the confidence is coming from not only the revenue that we reported.
And <unk>.
You may recall I was talking a lot of.
In prior calls I've talked a lot about.
Just turning into orders.
So so.
So we're feeling.
Much better about the trajectory of the <unk> space.
Historically been very very cautious too to give any real kind of positive trends in this area, but I think we've seen enough over the last two quarters and what we're seeing.
With our customers and the order book is it really the basis for this.
Not only the pent up demand there.
Yeah.
Asia.
Also what we hear from our customers.
They are much more confident about where the global economy is going so they are willing to make investments in others, but in general the churn remains very poor.
I think as Bob mentioned earlier.
Our customers have learned to deal with us so.
We've talked a lot about this anything I missed there okay. Okay.
No. That's helpful. I appreciate it Mike and then on the diagnostics side given levels can you just talk about the pace.
It's the recovery in the quarter and then expectations for the further ramp from here and I just wanted to clarify.
I have that clear thank you.
Yes, yes, I mean, we saw continued recovery I think we mentioned at the beginning at the end of Q2 that we were kind of prepay.
Pre pandemic, we exited there the average was still below and that steady.
Improvement across across our business across really across all Q3 and by the end of Q3.
We were above.
And.
Patrick to your to your specific question about Delta, we have not seen any impact to date associated with that.
Great. Thanks, Bob.
Yeah.
So yeah the Goldman Sachs. Your line is open.
Oh, Hey, guys. Thanks for taking my question congrats on the quarter.
Thank you.
Just on ACG you guys.
I had a pretty impressive operating margin over 29% for the quarter.
I'm just wondering what you feel about sustainability of those margins and then and then any progress that you've made on attachment rates.
That business I know you mentioned a little bit in your prepared remarks, but any additional color on that would be helpful.
Yes, I think I'll pass it on to pork is who can provide some additional color on the ACG and <unk> to answer your questions go ahead Mark.
Great. Thanks, Thanks, Mike.
We're getting back to a more normalized service support with our customers, which is which has more profit associated of course to travel, but we're starting to see an accretive margin in Q3, and we're seeing that income continued to improve into Q4 is very very strong investment in terms of attach rate. We are seeing increased attach on our services and consumer needs and of course.
With the larger install base this bodes really well for the future of more touch.
Attach rates for services and consumer.
You're saying in terms of sustainability.
We feel very very very good about the ability.
To continue to sustain those levels of margin it gets back to the work that our service engineers do and servicing our customers is mission critical for our customers keeping those labs and those instruments up and our ability to continue to invest in digital as well as.
B there onsite on the labs are with the labs, there's really important one piece that I would add is we continue to invest in that digital as I mentioned before in our online orders actually grew faster our revenue grew faster than the overall ACG business, which actually speaks to our continued relevance in that space.
And obviously that's good for.
For our customers in terms of ease of doing business with Agila, but it also helps from that margin perspective as well.
Great. Thanks for that color is very helpful. And then just one more on <unk> I know you've answered a lot of questions on it already but I'm just wondering how the competitive landscape might have changed I mean, obviously it had a challenging time during COVID-19.
A while for it to recover and now it certainly in recovery mode. I'm, just wondering as you look out at the competitive landscape have you seen some competitors.
Slow investment and therefore, there is some share gain opportunities in that growth that youre seeing.
I don't know if they slowed I'm not sure that we're investing for that segment. So.
<unk>.
We're we're not seeing much happened on the competitive front whereby far this as we're the clear leader in this space, we are continuing to invest.
In our core portfolio pretty bullish about our ability to outgrow the competition in this space.
Yeah.
Let me add.
It seems like a long time ago.
But we launched.
Two new juice gcs back in in 2019, both at the high end and mid.
Mid range GC, and we talked about one of the reasons that we did that as we've got we've got leadership position in the G seemed at the high end and so the ability for us to be able to have this mid.
It was really critical and.
We're starting to see that benefit and maybe.
Jacob wants to jump in the Commerce area.
Yes, you are accurate drybulk thought on the GCN and I will strengthen our D C. But I think we should also mentioned our spectroscopy business on the <unk>, where we have a very strong market share for the material.
And we are continuing to take market share.
8000 or so.
We have also.
And we will continue to invest into that going forward. So that's a lot more on back with our customers going forward.
Great. Thanks, Thanks very much.
Your next question is from Joshua <unk> with Cleveland Cleveland Research. Your line is open.
Taking my questions just two for you Mike you mentioned overall orders outpaced sales in the quarter and it sounds like book to Bill and the <unk> businesses.
Likely positive.
Just wondering if you could provide us with your assumptions for core growth as we look beyond.
FY 'twenty, one given the broad based strength you've spoken about on the call today.
I guess is it fair to assume that.
We look to FY 'twenty two this business should likely grow something about kind of a low to mid single digit longer term average.
Yes, let me, let me talk about the fourth quarter and I'm not sure we're going to answer the last one just yet.
We're going through our plan, but I had one.
Yes, no that's right, yeah, but I would say for Q4.
You're you're accurate in the belief that our book to Bill was positive for the quarter and if you think about Q4, our guidance comprehend comprehend high single digit low double digit growth for the LSA business core growth and.
So ill leave it at that.
Got it and then.
It seems like year to date pharma has outperformed what you expected coming into the year I just wondered if you could comment on any kind of current thoughts you have around the potential magnitude of any year end budget flush I guess, given it seems like investments from these customers they have.
It has been fairly consistent.
Strong throughout the year is that kind of deflate any kind of year end spending.
Yes, we'll address that in our Q1 call.
But to your point we've been.
Pleasantly surprised and it has continued to be stronger than what we've anticipated throughout the first three quarters and what I would say is we don't expect that to slow down any in Q4 either.
Got it thank you.
And your last question is from Jack Meehan with Nephron research.
Your line is open.
Thanks, Good afternoon.
Jack you talked about job that your team is doing managing the supply chain was wondering if you can elaborate on a hotspot youre seeing in terms of input shipping or labor and.
When you look at the fourth quarter guidance is that are.
Are you taking any more prudent conservative type approach based on what's going on with supply chain.
Yes, I mean this has been a.
A lot of the discussions that I think everybody is talking about supply chain constraints.
On a global basis, and Thats, but its been a challenge for us but it is.
As Bob noted this call script, our team has just done a tremendous job getting management products to our customers.
And we're really good at this about manage these situations. So we've been working on this.
A number of commodity areas, which for some time.
Also have done things.
<unk> chain and alternative sources of supply. So we've been able to do that we've had we've had a last minute.
Changes to notification from logistics suppliers that they won't pick up our boxes. So we switched to another another supplier. So we've been able to manage our way through that.
No.
It was it was conspicuous it was absent our call script, a lot of details because while we continue to monitor it and we really don't believe that as a material risk to to the come at this time.
We feel like we've factored all that into our guide for the fourth quarter and Bob I know that you've been up close study of this as well and anything else you'd add to that the only thing I would say is it's the usual suspects.
Other folks have called out like restaurants, and chips and our team has done to date.
Outstanding job of being able to continue to satisfy demand here.
And our expectation is that that's going.
<unk> going to continue to happen and to enter into Q4, and we've got a <unk>.
Continuous improvement.
Program that continues to drive.
Productivity and efficiency gains and we're expecting that in.
To combat some of these inflationary pressures as well as continuing to deliver.
Customers and we'll continue to do that into 'twenty two as well.
Great.
And then one other follow up is on Covid. So the fourth quarter guidance assumes it's a one point headwind, though we're obviously in the middle of another Delta wave here. So was curious what you're seeing on the ground or whether your products are just starting to wane in general and any preliminary thoughts around how are you.
You have $100 million this year.
How you're going to guide as you go into 2022 related to that.
Yeah, what I would say Jack is a good question.
Our products are.
Directly tied to the testing.
We didn't see the dramatic increase but also didn't see the dramatic declines with the.
With the testing, they're ours is more around expanding capacity both in in testing.
Over over this course of this last year, we've actually seen it.
Migrate to more.
Therapeutic capacity or excuse me vaccine capacity and demand there and so we don't see it.
Spiking up we're not building that into the into Q4 I think it's a little too early to tell for for FY 'twenty two.
It's been it's been reasonably steady the last couple of quarters and we do expect contribution in 'twenty two.
And we will provide more color as we get through our planning process, but we don't see it dramatically dropping off.
Sounds good thanks, Bob.
Yes.
I do apologize we do have an additional question. The last question is from Dan Arias with Stifel. Your line is open.
Yeah, Hi, guys. Thanks for that EMEA again.
No problem just just one for me just Bob maybe a high level question, just sort of to the idea of getting to a post COVID-19 world whenever that might be.
Wondering which of the three segments, you think might stand the best chance of maybe rebates thing at a higher level at the op margin line just by virtue of some of the success that you're having and then to your point some of the fundamental changes that might come to the expense structure.
I mean is that something you think is possible and if so would you be willing to sort of help us with which one is looking most promising there.
Yes, I do think it's possible I'm not going to call out because I'm not going to let if I call out one I'm not going to let the other two division presidents off the hook.
Well I think we can continue to do it across the board.
Certainly.
We are making investments across all three of the businesses to continue to grow.
<unk>.
We certainly feel like we have opportunities to continue to drive margin enhancement across all three of our business groups.
Sorry, guys.
Okay. Thanks, Bob.
Thanks, Dan.
And that concludes the question and answer session for this conference call I'll now turn the conference back to part.
He was there for closing remarks.
Thanks, Paul and thanks, everyone.
With that we would like to wrap up the call for today have a great rest of your day.
Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect stay safe and well.
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