Q3 2021 Mettler-Toledo International Inc Earnings Call

November 4, 2021

Good day and thank you for standing by welcome to the medical Toledo's third quarter 2021 earnings Conference call. This time, all participants or listen only mode. After the speaker presentation. There will be a question and answer session sounds good.

And during the session you will need a pet star one and your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero, Oh, and I would like to hand, the conference over to your Speaker today Mary Finnegan. Please go ahead.

Thank you and good evening, everyone I'm, Mary and again I'm responsible for Investor Relations that Mettler, Toledo and happy to welcome you should call I'm joined today by Patrick Hoff Kaltenbacher C E O and Sean to download our Chief Financial Officer, Let me cover just a couple of administrative matters. This call is being webcast and it's.

Available for replay on our website a copy of the press release and the presentation that we referred to on today's call is also available on the website let.

Let me summarize the safe Harbor language, which is outlined on page two of the presentation statements. In this presentation, which are not historical facts constitute forward looking statements within the meaning of the U S security Sapped of 1933 and the U S Securities Exchange Act of 1934. These statements involve risks.

Uncertainties and other factors that may cause our actual results level of activity performance her achievements to be materially different from those expressed or implied by any forward looking statements.

For a discussion of these risks and uncertainties. Please see our recent Form 10-K, and other reports filed with the SEC.

All of the forward looking statements are qualified in their entirety by reference to the factors discussed under the captions factors affecting our future operating results and in the business and management discussion and analysis, a financial condition and results of operations sections of our filings just one other item on today's call.

Call, we may use non-GAAP financial information more detailed information with respect to the use of an differences between non-GAAP financial measures and most directly comparable gap measure is provided in our form 10 8-K, Let me now turn the call over to Patrick.

Thanks, Mary Good evening, everyone I'm pleased to enfold, another poodle very strongly sauce.

Most of them animals for lost another Rosemary just continue to be very effective.

Oh, jeez, grilled robotics cute and very well.

I want to give a special acknowledgment dwell with global just watching team, which is Medicaid and a myriad of challenges with respect to roll materials components in transportation.

Oh ability to continue to need heightened customer cause somebody ma'am.

Overcoming.

I've done any challenges is watching is proving to via competitive advantage in this environment.

No. Let me drill drove an initial results the highlights on page for your presentation and you can see if you had a novel very favorably quarter.

Local currency sales will 16%.

Send you hurt broad based growth in all regions.

Oh, well the bold jewelry business have excellent growth for normal industrial product lines also performed very well.

Food retail will be hesitant doable since group S. We had significant decline in the quarter.

The bold strong sales growth and good execution be achieved in 19% growth and adjusted operating and cool and a 24% increase in adjusted EPS cash.

Cash flow generation was very strong in the form.

Markets remain favorable and all the strategic initiatives are very effective at capturing growth.

We show sales growth by region.

Local currency sales increased 20% in the Americas, 10% in Europe, and 16% in Asia rest of the world local currency sales increased 19% and China in the quarter.

The next slide shows sales growth by region year to date local currency sales grew 20% for the nine months with a 21% increase in the Americas, 15% in Europe, and 23% growth in Asia rest of the world.

On slide number six we summarize local currency sales growth by product area.

For the third quarter laboratory sales increased 23% industrial increased 12% with core industrial up 11% and product inspection up 13% food.

Food retail came in worse than we expected with a decline of 19% in the quarter.

The next slide shows local currency sales growth by product area year to date laboratory sales increased 26% industrial increased 16% with core industrial up 21% and product inspection up 9% food.

Food retail declined 1% for the nine month period.

Let me now move to the rest of the P&L, which is summarized on slide number eight.

Gross.

Margin in the quarter was 58, 4%, a 20 basis point increase over the prior year level of 58, 2%.

We benefited from volume and pricing, which was offset in part by the challenges in the global supply chain, namely higher transportation logistics and material costs as well as the impact of temporary cost actions, we undertook in 2020.

R&D amounted to $42 $3 million in the quarter, which is a 19% increase in local currency over the prior period the.

The impact of temporary cost savings undertaken last year and greater project activity contributed to this increase.

SG&A amounted to $247 million, a 16% increase in local currency over the prior year.

The impact of the temporary cost savings that we undertook last year higher variable compensation and increased investments in sales and marketing were the principal factors driving the increase.

Adjusted operating profit amounted to $272 $8 million in the quarter, a 19% increase over the prior year amount of $230 million.

We are pleased with this increase which reflects very strong sales growth combined with good execution.

Adjusted operating margins reached 28, 7%, a 20 basis point increase over the prior year level of 28, 5%.

On a two year combined basis, our margins were up 270 basis points as the prior year margin benefited from the cost actions, we implemented due to the pandemic.

A couple of final comments on the P&L amortization amounted to $16 million in the quarter interest expense was $11 $8 million in the quarter. Other income in the quarter amount to $3 $3 million, primarily reflecting non service related pension income.

Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19, 5%.

Fully diluted shares amounted to $23 4 million in the quarter, which is a 3% decline from the prior year adjusted.

Adjusted EPS for the quarter was $8 70 to a.

A 24% increase over the prior year amount of $7 <unk>.

On a reported basis in the quarter EPS was $8 71.

As compared to $6 68 in the prior year.

Reported EPS in the quarter includes 18 <unk> of purchased intangible amortization.

<unk> <unk> of restructuring offset by 19.

Due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises.

The next slide shows our P&L year to date.

As in the environment, we're very pleased with our ability to navigate the unprecedented challenges of the last two years, which we believe reflects the strength of our organization.

Well well, we remain cautious about factors outside of our control we feel very good about our growth initiatives and our ability to continue to gain market share and drive margin improvement via our pricing and stern drive initiatives.

Now let me cover the specifics.

For the full year 2021, we now expect local currency sales growth in 2021 to be approximately 17%.

This compares to previous guidance of 15%.

We expect full year adjusted EPS to be in the range of $33.35.

To $33.40.

Which is a growth rate of 30%.

This compares to previous guidance of adjusted EPS in the range of $32 60.

To $32.90.

With respect to the fourth quarter, we would expect local currency sales growth to be approximately 8% and expect adjusted EPS to be in the range of $10 to $10.05.

A growth rate of 8% to 9%.

For the full year 2022 based on our assessment of market conditions. Today, we would expect local currency sales growth to be approximately 6% and adjusted EPS to be in the range of $37.25 to.

To $37.65 using.

Using the midpoint of 2021 guidance. This reflects the growth rate of 12% to 13%.

Some further comments on 2022 guidance, we expect a slight headwind to sales growth from the impact of Covid testing on our pipette business.

We expect interest expense to be approximately $50 million in 2022, and total amortization, including purchased intangible amortization to be $65 million.

Purchased intangible amortization is excluded from adjusted EPS and is and is estimated at $24 million on a pretax basis or 79 cents per share in 2022.

Which impacted adjusted EPS in the fourth quarter that is it for my side and I'll now turn it back to Patrick.

Sure.

Let me start with some comments on our operating results.

Oh, well that business had outstanding growth in the third quarter, despite having more challenging comparisons, but it faced in the first half of the year.

Almost all product lines and regions had very strong growth.

Good growth in the fourth quarter, but it won't be the same level you have seen year to date.

As we look at 2022, we expect the strong biopharma trends to continue to be favorable and expect other end markets to do well, but we won't benefit from catch up demand segments like chemical that we benefit from this year.

We also expect a bit of headwind at all pipette business from lower Covid testing activity.

Overall, we believe we are well positioned to continue to capture growth and gain market share in all of the voluntary business.

An additional nice development within all of that business is that we obtained a $36 million grant from the U S Department of defense to expand our pipette tips production in California.

The estimate by the estimated by the end of 2023, we will expand our global production by approximately 15% and the Grand Villa will also allow us to enhance manufacturing automation and warehouse and logistics surrounding tips.

Yeah happy with this grant, which allows us to cost effectively increase chip capacity, while at the same time improving productivity.

Turning to our industrial business core industrial did well in the third quarter SVR benefiting from some catch up in demand and have been well positioned to benefit from increasing trends in automation and digitalization.

Core industrial it should have a solid fourth quarter.

We will face tougher comparisons in core industrial in 2022, but expect to continue to drive market share gains overall.

Product inspection grew 13% in the quarter growth was especially strong in the Americas.

We expect growth good growth in the fourth quarter and we are cautiously optimistic about solid growth in 2022, as we should benefit from some pent up investments from large packaged food customers and our strong product portfolio.

Finally, food retail declined 19% with pronounced declines in Americas, and Asia and the rest of the world.

Our production was impacted by shortages of electronic components.

These products use more standardized components that are also used in consumer electronic products.

We are also impacted by the timing of project activity.

You would expect fruit retail to also declined in the fourth quarter.

We are not forecasting much growth in 2022, as we continue to manage this business for profitability.

Now, let me make some additional comments by geography.

Sales in Europe increased 10% in the quarter with very strong growth in lap.

We would expect solid growth in Europe in 2022 against very good growth in 2021.

Americas increased 20% in the quarter with excellent growth in lab core industrial and product inspection.

As mentioned earlier food retail was down significantly in the Americas.

While we will face challenging comparisons in the Americas in 2020 do you expect overall good for us.

Finally Asia the rest of the World grew 16% in the quarter with outstanding growth in laboratory and good growth in product inspection.

Core industrial also did well.

Digital transformation and sales and marketing.

We had already started on this path, but the disruption from COVID-19 allowed us to significantly accelerate our digital approach.

Although use of EDI most of our vast and expanded digital library of selling materials drove the element of selling guides.

And greater utilization of timber sales and telemarketing resources are clear differentiators for remote selling.

And while we expect our face to face customer interactions to continue to increase in 2022.

Digital tools allow us to expand our customer reach in a cost effective manner.

In addition to the digital gains in sales and marketing.

<unk> also made great strides in sharpening our focus on the most attractive market segments, allowing us to accelerate market share gains.

Increasing sophistication and data analytics is fundamental to our ability to guide our sales force to the best growth opportunities.

We continue to provide what we refer to internally as top payloads. These alerts provide tailored actionable information about potential sales opportunities, which are market organizations qualify and integrate into the territory planning and target setting.

You see the trend for greater use and sufficient sophistication of data analytics, continuing in 2022 and beyond.

Our global service network and our ability to continue to service our customers. During this period has led to steady increases in customer satisfaction.

In House, if you will also complement this with small acquisitions like the one we completed in October.

We acquired a software company scale up systems, which is the leading provider of scale up and reaction modeling software for pharma and chemical customers.

It is a great addition to our <unk> offering and we now have a comprehensive offering for process development and scale up for the pharma and chemical industries.

Turning now to supply chain and margin initiatives.

As already mentioned our supply chain team has shown tremendous agility in adapting to very dynamic market conditions and continuing to support customers.

There are risks and increasing inflationary pressures into supply chain and transportation and logistic markets.

We have mitigation strategies in place to help offset and believe we can continue to manage effectively but.

Our cautious as competitions conditions can change quickly.

Our pricing program and Stern drive productivity initiatives have good traction and will help us to offset inflationary pressures that we will likely continue to phase in the coming months.

With how well both businesses are performing as a reminder, or industrial business grew particularly strong in in Q3 of last year in particular core industrial business was up by 24.

24% in Q3 of last year. So when you when you kind of look at these numbers on a two year basis, we feel really good overall, we feel very good about the competitive environment I feel like our supply chain in general has been a competitive advantage.

In China as well as globally as Patrick mentioned in the prepared comments and then when you look at our competitive the competitive landscape and China I feel like we continues to take market share there and we're position well and as you know our team. There is is very strong experienced team in the region in there.

Executing extremely well.

Well rational if I may.

Made it a little flavor here is for both businesses for lap and form industrial business open investments in lab is really driven by investments in your lap.

Vestments and research that we see in China.

That's a very healthy pieces for us. So I think I will achieve is exceptionally well positioned surfed a market revival products that the that can be have high end as well as local product will be manufactured in China. So we I think we have to write portfolio to really continue to see growth.

The lap side as well and an industrial the demand in China, and it's actually not similar from what you've seen the rest of the world. There's a lump demanded automation and productivity solutions and if our industry solutions, especially the new products have launched but the industry is 362 on the list as well.

Dreamy well positioned to help our customers to drive productivity and automation.

Let me see what I, what I'm getting from China is that demand will not continue to slow down. They continue to operate installed systems and they are looking for ways to become more productive.

Great that's helpful and to cause it to the product inspection business.

It's been about a year or so since you got SAP up and running at the Tampa product inspection site and that was something you guys saw as a driver of operational efficiency when you talked about it how.

Year.

And then when we look at our operating margin.

Our operating margin expansion, we expect to be in the 100 basis point kind of range on top of this year and when you start to kind of compound that on a multiyear basis.

We feel particularly good about that you know if you look at this year will be a 120 basis points higher than the previous year. So so we're continuing to deliver at the higher end of our of our long term guidance of 70 to 100 basis points. So we feel very good about our various margin expansion initiatives pricing is.

Well as our Stern drive program, but at the same time, we acknowledge there's also a lot of challenges out in the world in terms of material costs and transportation costs that we talked about in our prepared remarks.

And.

I have a follow up looking at food in the corner being down 19% can you talk more about the segment and outlook going forward.

Yes, so so food retailing was down 19% in the quarter.

That business as you know is a business that we manage for profitability and not necessarily for growth overall, it's only about 5% of our total business.

That business can be lumpy.

<unk> by the timing of project our customer orders at.

At the same time that business out of all of our businesses was the one that was negative negatively impacted by some component shortages because we use a common.

Common electronics components.

Our retail sales that are also used in certain consumer products.

We expect kind of going forward to be down similarly in the fourth quarter, but then for 2022.

The challenges are you expecting heightened impact here in the fourth quarter.

Can you repeat it can you would expect so maybe you didn't get get it can put both the question.

Hey, sorry, the lab segment performed well despite supply chain supply chain challenges in the third quarter are you expecting a heightened impacted the fourth quarter. Okay cool can take as long as we didn't get the part about [laughter] supply chain, Yeah look for the lab.

The business actually.

We don't we don't really expect.

A bigger impact in the fourth quarter and you have seen in Q3 is a very dynamic situation as I say that there.

Both <unk> and but you see some of the material supplied slide for the product for the products. We have on lap you'll know that is exposed as we are in the retail business. So.

I'm not overly consumed for that business you have to be honest.

Great. Thanks.

Our next question comes from the lineup Derek dip ruin from Bank of America. Please proceed with your question.

Hey, good afternoon.

So I've been bouncing around between call from my apologies, if I'm being redundant here, but how do you sort of think about.

Your digital marketing and and.

And campaigns in your field turbo and some of the other ones, where you put a lot of feet on the street and.

And how Billy how we see from our customers.

Great. Thank you very much.

Our next question comes from the line of Brant include yard with Jeffries. Please proceed with your question.

Good afternoon.

Really small acquisitions small software deal in third quarter, but any material revenues tied to that.

Touch on you know whether that.

Still the whole of the portfolio and kind of your thoughts on.

Or appetite for similar type.

Bolt on deals.

So what's the question specifically what type of revenue saw link too so.

Is that high single digit for the full year and also high single digit for 2022.

For food retailing, we're looking at a similar decline in Q4 to what we saw in Q3, which would put us down mid to high single digit for the full year and then for next year, we'd be we're looking at low single digit growth.

By geography, we're looking at Europe to be low to mid single digit in Q4, which would be put us at low double digit growth for the full year.

For next year, we're looking at low to mid single digit growth.

For the Americas, we're looking at low double digit growth in Q, Q4, which would put us at mid teens for the full year and then for next year, we're looking at mid single digit growth.

And then for China, we have.

We're looking at low double digit growth in Q4, which would put us in to the mid <unk> for the full year.

It hasn't.

It has momentum as well I mentioned that would be app launching new product just a quarter ago.

Overall, there is some pent up demand the pent up demand is putting more than were seeing currently more in the U S.

If I look at the order.

All of the situation as well as the leads who are getting actually pretty high lead activity right now we see a lot of.

Books requests both from from Europe, and the U S slipped appetite even high on the horizon.

Europe.

So with that having said that.

We are again cautiously optimistic about 2022.

Can capture the pent up demand well positions of our product portfolio.

And although we are in terms of our manufacturing capabilities.

BR operating very well and very effective we have not seen a lot of impact on the supply chain side.

Product lines, so in terms of <unk>.

Exposure to semiconductors, and the components that are not as exposed to as few as we mentioned it for retail.

Got it. Thank you and then I wondered if you could give us an update on what.

<unk> of your revenue now is coming from bio production I guess.

Light of some of the recent acquisitions thinking pillow attack.

And then maybe what's what's kind of built into your assumptions for 2020 period from that business.

Yes sure. So so overall, we don't have a.

Pleased with the performance of citizens consumer most events very prominent policy business for us.

Jumps up growth rate for services think about it too maybe high it could times high single digits moment single digits growth rate.

Consumables is higher.

Right now.

We are of course, continuing to broaden that patrolling moving from both on a consumable side for all products, but they're also increasingly.

Providing higher value services for our products and I mentioned, one fall example for the European Pharmacopoeia solution out there that that'd be just launched that is I think we have a lot of opportunities faller installed base of product said, we have out there to increase service contracts all over.

Hall.

And to provide more differentiated services to our customers we serve a lot of our products.

But there is a causal to competition in some areas like the scale areas.

I think we are positioning ourselves on the future by providing higher sophisticated services preventative maintenance and other things have been comprehensive inventory management.

Solutions as well so.

Very optimistic about the crude opportunity.

Again be are very very well positioned in terms of the competitive position SVO also linking.

Facilities install Mahatma solutions and services and that makes it more difficult for competitors also take over some of the services that can excuse me, we provide some horrible products.

Hello Polka pool. Thank you.

Our next question comes from the lineup, Matt Sikes from Goldman Sachs. Please proceed with your question.

Hi, everybody. Thanks for taking my question I. Appreciate it just just one question for me Big Picture question.

Just looking at at at Stern drive is sort of a program and how.

Institutionalized that has become and how successful that it's been.

Over the years and the iterative process and productivity have since it gives you I'm just wondering looking at this current environment just with inflation supply chain constraints, we just really haven't seen something like this and a number of years.

Is it is it caused you to think differently about how you implement certain driver different aspects of it has it made you think about a.

Different ways you can implement it are are different leverage that you can pull just given the change in the environment that we've seen from a cost and supply chain constraint perspective.

Good question now Okay Stern-drive has many flavors.

Office automation ideas, it's manufacturing setup.

Ideas.

Some areas this product redesign and.

Yeah. It's a program just asking you running for many years and the team is actually going through several waves of stone drive to call. It internally ways. We just launched next right. This year. The team has come up with a whole long list of good ideas.

Just to reason yellow.

Mhm and supply chain.

<unk>.

The potential of all of these activities.

We had some concerns D C at the.

Stern drive activities could be impacted actually by all the other activities given that both if necessary given the restrictions we have seen the model logistic challenges et cetera, but I'm happy to say the team didn't skip a beat.

Actually delivered on the promise savings.

Almost as 442021, as well, which helps us to overcome to some of inflationary pressures now do we make a significant shift in terms of the activities given the look to see challenges right now I wouldn't say I would say no because.

Any focus on productivity gains on sometimes product redesigns, joining productivity and efficiency behalf on the on the supply chain site, David Dedicatedly team in place who take off all the all the logistical challenges almost like Jane slides like shipments in shipment alternatives et cetera.

Access to different suppliers when it comes to components, if dedicated researchers who concert constantly screen demark or best.

Opportunities for supply I think this is also why B E.

It came came through described so far are very well not having a lot of issues.

Component shortages, except for retail it'd be mentioned, but in other areas, where we also use semiconductors I think the team has been very effective in finding alternatives and also looking closely.

The internal engineering teams in case, we'd have to redesign products than usual Tony products cause I think it's working very well I mean, it was a long winded answer but.

Big City Police was John drive, it's I think it's it's still a lot of fun way B.

Be driving this with the constant improvement.

Process mindset.

Again.

Teams and all of our major sites, who who kept with these opportunities.

Great. Thanks, very much very helpful.

At this time there are no further questions in queue and I would now like to turn the call back over to marry for closing remarks.

Thank you and thank you to everyone for joining us this evening.

Always if you have any questions or follow up please don't hesitate to reach out take care Bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by and welcome to the Mettler Toledo's third quarter 2021 earnings conference call. This time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you have.

Any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today Mary Finnegan. Please go ahead.

Thank you and good evening, everyone I'm Mary Finnegan I'm responsible for Investor Relations at Mettler, Toledo and happy to welcome you should call I'm joined today by Patrick Kaltenbach, our CEO and Shawn to dial up our Chief Financial Officer, Let me cover just a couple of administrative matters. This call is being webcast and is available.

Both for replay on our website.

A copy of the press release and the presentation that we referred to on today's call is also available on the website.

Let me summarize the safe Harbor language, which is outlined on page two of the presentation statements. In this presentation, which are not historical facts constitute forward looking statements within the meaning of the U S. Securities Act of 1933 in the U S Securities Exchange Act of 1934. These statements involve risks.

Uncertainties and other factors that may cause our actual results level of activity performance or achievements to be materially different from those expressed or implied by any forward looking statements.

For a discussion of these risks and uncertainties. Please see our recent Form 10-K, and other reports filed with the SEC.

All of the forward looking statements are qualified in their entirety by reference to the factors discussed under the captions factors affecting our future operating results and in the business and management discussion and analysis of financial condition and results of operations sections of our filings just one other item on today's call.

Paul We may use non-GAAP financial information more detailed information with respect to the use of and differences between non-GAAP financial measures and most directly comparable GAAP measure is provided in our form 10 8-K, Let me now turn the call over to Patrick.

Thanks, Mary and good evening, everyone I am pleased to report another quarter of very strong results.

Customer demand was robust and our growth initiatives continue to be very effective.

Our teams throughout the world are executing very well.

I want to give a special acknowledgment to our global supply chain team, which has navigated and a myriad of challenges with respect to raw materials components and transportation.

Our ability to continue to meet heightened customer customer demand while overcoming.

Dynamic challenges in the supply chain is proving to be a competitive advantage in this environment.

Now, let me turn to our financial results. The highlights on page three of the presentation and you can see we had a novel very favorable quarter.

Local currency sales was 16%.

We had broad based growth in all regions.

Although jewelry business had excellent growth in our industrial product lines also performed very well.

Food retail was a headwind to overall sales growth as we had significant decline in the quarter.

We are all strong sales growth and good execution, we achieved a 19% growth in adjusted operating income and a 24% increase in adjusted EPS.

Cash flow generation was very strong in the quarter.

Oh end markets remained favorable and our strategic initiatives are very effective at capturing growth.

Our spinnaker sales and marketing approach provides the framework to identify and pursue the most attractive market segments. While also increasing our sales force exposure to the most strategic customers.

We also continued to invest in the strength and breadth of our product portfolio further extending our technology lead and reinforcing customer trust through our global service offering which supports customers' productivity.

Yes, several we have successfully navigated the challenges of the global supply chain to date.

Cautious as dynamics.

Net dynamics remain challenging and conditions can change rapidly.

Although pockets of uncertainty exists in the global economy. We believe we are ideally positioned to gain market share.

This proven strategies good demand in all end markets and continued focused execution on our growth and margin initiatives. We believe we are in.

An excellent position to deliver strong results in 2021 and 2022.

Let me now turn it to Sean to cover the financial and guidance details and then I will come back with some additional commentary on the business and the outlook for next year.

<unk>.

Thanks, Patrick and good evening, everybody sales were $952 million in the quarter, an increase of 16% in local currency on a us dollar basis sales increased 18% as currency benefited sales growth by 2% in the quarter.

<unk> acquisition contributed approximately 1% local currency sales growth in the quarter, while we estimate that COVID-19 testing was a headwind of approximately 1% to sales growth.

Last year, the benefit of our pipette business from Covid testing labs was particularly strong.

On slide number four we show sales growth by region local currency sales increased 20% in the Americas, 10% in Europe, and 16% in Asia rest of the world.

Local currency sales increased 19% and China in the quarter.

On slide number six we summarized local currency sales growth by product area.

For the third quarter laboratory sales increased 23% industrial increased 12% with core industrial up 11% and product inspection up 13%.

Retail came in worse than we expected with a decline of 19% in the quarter.

The next slide shows local currency sales growth by product area year to date.

Laboratory sales increased 26% industrial increased 16% with core industrial up 21% and product inspection up 9%.

Food retail declined 1% for the nine month period.

Let me now move to the rest of the P&L, which is summarized on slide number eight.

Gross margin in the quarter was 58, 4%, a 20 basis point increase over the prior year level of 58, 2%.

R&D amounted to $42 3 million in the quarter, which is a 19% increase in local currency over the prior year period the.

The impact of temporary cost savings undertaken last year and greater project activity contributed to this increase.

SG&A amounted to $247 million a.

A 16% increase in local currency over the prior year the impact of the temporary cost savings that we undertook last year higher variable compensation and increased investments in sales and marketing were the principal factors driving the increase.

Adjusted operating profit amounted to $272 $8 million in the quarter, a 19% increase over the prior year amount of $230 million.

We are pleased with this increase which reflects very strong sales growth combined with good execution.

Adjusted operating margins reached 28, 7%, a 20 basis point increase over the prior year level of 28, 5%.

On a two year combined basis, our margins were up 270 basis points as the prior year margin benefited from the cost actions, we implemented due to the pandemic.

A couple of final comments on the P&L amortization amounted to $16 million in the quarter interest expense was $11 $8 million in the quarter. Other income in the quarter amounted to $3 $3 million, primarily reflecting non service related pension income.

Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19, 5%.

Fully diluted shares amounted to $23 4 million in the quarter, which is a 3% decline from the prior year adjusted.

Adjusted EPS for the quarter was $8 70 to a.

A 24% increase over the prior year amount of $7 <unk>.

On a reported basis in the quarter EPS was $8 71.

As compared to $6 68 in the prior year.

Reported EPS in the quarter includes 18 of purchased intangible amortization <unk>.

<unk> <unk> of restructuring offset by 19.

Due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises.

The next slide shows our P&L year to date.

Local currency sales grew 20% adjusted operating income increased 35% with margins up 210 basis points adjusted.

Adjusted EPS grew 43% on a year to date basis.

That covers the P&L and let me now comment on cash flow.

In the quarter adjusted free cash flow amounted to $243 $1 million, which is an increase of 19% on a per share basis as compared to the prior year, we're very happy with our cash flow generation DSO was 34, 35 days, which is two days less than the prior year.

Came in at four five times, which is slightly better than last year.

On a year to date basis, adjusted free cash flow amounted to $615 3 million, an increase of 48% on a per share basis as compared to the prior year.

Let me now turn to guidance.

While our end markets remain favorable forecasting continues to be challenging there.

There are pockets of uncertainty in the global economy economy, most notably in China.

Furthermore, the widespread challenges within the supply chain and transportation and logistics and the corresponding inflationary impact also creates uncertainty.

Finally, we have seen over the last several months, how COVID-19 variance and lockdowns can occur quickly.

We recognize the importance of remaining agile and adapting to unexpected changes in the environment.

We are very pleased with our ability to navigate the unprecedented challenges of the last two years, which we believe reflects the strength of our organization.

Well, while we remain cautious about factors outside of our control we feel very good about our growth initiatives and our ability to continue to gain market share and drive margin improvement via our pricing and stern drive initiatives.

Now, let me cover the specifics for.

For the full year 2021, we now expect local currency sales growth in 2021 to be approximately 17%.

This compares to previous guidance of 15%.

We expect full year adjusted EPS to be in the range of $33 35.

To $33 40.

Which is a growth rate of 30%.

This compares to previous guidance of adjusted EPS in the range of $32 60.

To $32 90.

With respect to the fourth quarter, we would expect local currency sales growth to be approximately 8% and expect adjusted EPS to be in the range of $10 to $10 <unk>.

Our growth rate of 8% to 9%.

For the full year 2022 based on our assessment of market conditions. Today, we would expect local currency sales growth to be approximately 6% and adjusted EPS to be in the range of $37 25 to.

To $37 65.

Using the midpoint of 2021 guidance. This reflects a growth rate of 12% to 13%.

Some further comments on 2022 guidance.

We expect a slight headwind to sales growth from the impact of Covid testing on our pipette business.

We expect interest expense to be approximately $50 million in 2022 in total amortization, including purchased intangible amortization to be $65 million.

Purchased intangible amortization is excluded from adjusted EPS.

And is estimated at $24 million on a pre tax basis or <unk> 79 per share in 2022.

In 2022, other income, which is below operating profit will amount to approximately $13 $5 million. This is higher than the $10 $7 million expected in 2021 due to an expected increase in pension income.

Finally, we assume our effective tax rate before discrete items will be 19, 5% in both 2021 and 2022.

In terms of free cash flow for 2021, we now estimate it will reach $810 million, which reflects a 29% growth on a per share basis for 2022, we would estimate free cash flow in the range of $845 million cash.

Cash flow in 2022, his impact is impacted by higher variable compensation payments related to the very strong performance in 2021.

Once we get beyond 2022, we expect free cash flow per share will grow in line with earnings per share and net income conversion will be in the 100% range.

We expect to repurchase approximately $1 billion and shares in both 2021, and 2022, which should allow us to maintain a net debt to EBITDA ratio of approximately one five times.

Some final details on guidance with respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately 3% in 2021 and be relatively neutral to sales growth in Q4.

In 2022, we would expect currency to decrease sales growth by approximately 1%.

In terms of adjusted EPS currency will benefit growth by approximately 4% in 2021.

A slight headwind to adjusted EPS growth in 2022.

We do not expect currency to impact adjusted EPS in the fourth quarter that is it from my side and I will now turn it back to Patrick.

Thanks, Sean.

Let me start with some comments on our operating results.

Our lab business had outstanding growth in the third quarter, despite having more challenging comparisons than it faced in the first half of the year.

Almost all product lines and regions had very strong growth.

We expect good growth in the fourth quarter, but it won't be the same level you have seen year to date.

As we look at 2022, we expect the strong biopharma trends to continue to be favorable and expect other end markets to do well, but we will benefit from catch up demand segments like chemical that we benefit from this year.

We also expect a bit of headwind at all pipette business from lower Covid testing activity.

Paul you believe feel well positioned to continue to capture growth and gain market share in all the voluntary business.

An additional nice development, we feel all of that business is that we obtained a $36 million grant from the U S Department of defense to export our pipette tips production in California.

The estimates the estimate that by the end of 2023, we will expand our global to production by approximately 15% and the graph below.

It will also allow us to enhance manufacturing automation and warehouse and logistics was up surrounding chips.

Yes, happy with this grant, which allows us to cost effectively increase chip capacity, while at the same time improving productivity.

Turning to our industrial business core industrial did well in the third quarter as we are benefiting from some catch up in demand and have been well positioned to benefit from increasing trends in automation and digitalization.

Core industrial and should have a solid fourth quarter.

We will face tougher comparisons in core industrial in 2022, but expect to continue to drive market share gains overall.

Product inspection grew 13% in the quarter growth was especially strong in the Americas.

Finally, food retail declined 19% with pronounced declines in Americas, and Asia and the rest of the world.

Our production was impacted by shortages of electronic components as these products use more standardized components that are also used in consumer electronic products.

We were also impacted by the timing of project activity.

You would expect food retail to also decline in the fourth quarter.

Yes, I'm not forecasting much growth in 2022, as we continue to manage this business for profitability.

Now, let me make some additional comments by geography.

Sales in Europe increased 10% in the quarter with very strong growth in lab.

We don't expect solid growth in Europe in 2022 against very good growth in 2021.

The Americas increased 20% in the quarter with excellent growth in lab core industrial and product inspection.

As mentioned earlier food retail was down significantly in the Americas.

While we will face challenging comparisons in the Americas in 2020 do you expect overall good growth.

Finally Asia the rest of the World grew 16% in the quarter with outstanding growth in laboratory and good growth in product inspection.

Core industrial also did well.

China had good growth, particularly given the strong growth in the prior year.

We expect good growth in China in Q4 and in 2022.

Though it won't be at the same level, we have seen year to date.

We continue to feel good about China.

Over the medium term, but acknowledge that.

There can be volatility in the short term.

Yeah.

Yes, very strongly positioned in China, and the team is executing well.

One final comment on the business service and consumables performed well and were up 12% in the quarter.

We continue to be very pleased with the growth in this important and profitable part of the business.

That concludes my comments on the business and now let me provide some context on our 2022 guidance.

We believe we are emerging from this pandemic as a stronger company and a further distancing ourselves from competition in several ways.

During the last two years, we have accelerated our digital transformation and sales and marketing.

It had already started on this path, but the disruption from COVID-19 allowed us to significantly accelerate our digital approach.

Although use of E demos of our vast and expanded digital library of selling materials drove element of selling guides and.

And greater utilization of timber sales and telemarketing resources are clear differentiators for remote selling.

And while we expect our face to face customer into actions to continue to increase in 2022. These digital tools allow us to expand our customer reach in a cost effective manner.

In addition to the digital gains in sales and marketing.

<unk> also made great strides in sharpening our focus on the most attractive market segments, allowing us to accelerate market share gains.

Increasing sophistication and data analytics is fundamental to our ability to guide our sales force to the best growth opportunities.

We continue to provide what we refer to internally as top tier alerts.

<unk> provides tailored actionable information about potential sales opportunities, which are market organizations qualify and integrate into the territory planning and target setting.

You see the trend for greater use since offices sophistication of data analytics continue eating in 2022 and beyond.

Our global service network and our ability to continue to service our customers. During this period has led to steady increases in customer satisfaction.

Service keeps us close to customers builds trust and the customer is much more likely to purchase additional products. If the utilized of our service offerings.

We continue to develop service tailored specific to customer needs for example.

<unk> developed a service tool for customers, who utilized analytical balances and quality control to meet new requirements from the European Pharmacopeia that goes into effect in January.

In addition, as software is becoming an integral part of our solutions harmonized services for software are becoming increasingly important.

The new service offering supports our instrument control software lab acts.

To enable customers to achieve consistent performance and meet regulatory compliance.

These are just two examples we have many more within our portfolio.

We believe service will continue to provide good opportunity for growth and differentiation from our competitors and we use the same data analytics approach to leverage service opportunities within our installed base.

New product development also continues to be core to our growth.

Growth potential IMAX.

Im excited about the many launches that will take place over the coming year, our product pipeline continues to be very strong and product launches reinforce our technology leadership.

While most of our product and software development will continue to be done in house. She will also complement this with small acquisitions like the one we completed in October.

The acquired the software company scale up systems, which is a leading provider of scale up and reaction modeling software for pharma and chemical customers.

It is a great addition to our <unk> offering and we now have a comprehensive offering for process development and scale up for the pharma and chemical industries.

Turning now to supply chain and margin initiatives.

As already mentioned our supply chain team has shown tremendous agility in adapting to very dynamic market conditions and continuing to support customers.

There are risks and increasing inflationary pressures into supply chain and transportation and logistics markets.

Yes mitigation strategies in place to help offset and believe we can continue to manage effectively but are cautious as competitions conditions can change quickly.

Our pricing program and Stern drive productivity initiatives, that's good traction and will help us to offset inflationary pressures that we will likely continue to phase in the coming months.

I Trust just provides some context of our guidance and shows the confidence we have in our ability to continue to capture growth gain market share and deliver solid earnings growth in 2021, and 2022 and beyond.

I would now like to ask the operator to open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question will come from the line of Eric Chung from Stifel. Please proceed with your question.

Good afternoon, guys. This is Eric on for Dan areas today, Thanks for taking the question.

So first can you separate organic growth in China lab versus industrial.

And within China are you seeing any changes competitive dynamics.

<unk> is coming out of the pandemic within China, and if there is any market share opportunities that look different pre COVID-19 versus post COVID-19.

Yeah, Hey, Eric This is Shawn I'll take that one and maybe Patrick can add some color at the end of it so.

In terms of the third quarter.

China was up overall.

Just hold on a second I'm getting my notes here, 19% we had.

Growth, particularly strong on the laboratory side of the business in the high <unk>.

But we also had double digit growth on our industrial business. So we're we're really thrilled with how well both businesses are performing and as a reminder, our industrial business grew.

Particularly strong and in Q3 of last year in particular, our core industrial business was up by 2000.

24% in Q3 of last year. So when you when you kind of look at these numbers on a two year basis, we feel really good overall, we feel.

Very good about the competitive environment I feel like our supply chain in general has been a competitive advantage.

In China as well as globally as Patrick mentioned in the prepared comments and then when you look at our competitive the competitive landscape in China I feel like we continue to take market share there and we're positioned well and as you know our team. There is is it's a very strong experienced team in the region.

Just.

Executing extremely well.

Well, Rachel if I may may add a little flavor here is for both businesses for lap endpoint and industrial business.

Our investments in lab is really driven by investments in new lab and investments in research to <unk> in China, and that's a very healthy business for US I think Apple team is exceptionally well positioned served market we follow.

All products that.

Have high end as well as local products that would be manufacturing in China. So we I think we have the right portfolio to really continue to see growth in the lab side as well and on industrial demand in China is actually not similar from what we see in the western part of the World. There is a lot of demand for automation and productivity solutions and with our industry.

Solutions, especially the new products that <unk> launched like the industry is 360 terminal et cetera.

<unk> well positioned to help our customers to drive productivity and automation.

We see what I hear what I'm hearing from China is that.

That demand will not continue to slow down they continue to operate our installed systems and they are looking for ways to become more productive.

Great that's helpful.

The pivot to the product inspection business I think it's been about a year or so since you've got SAP up and running at the Tampa product inspection site and that was something that you guys saw as a driver of operational efficiency when you talked about it.

How is that translated into recognized benefits. This year and are you seeing any concerns in that business over the next quarter given the delta variant.

In the U S along with rising cadence in China.

I can take that look we are very pleased with the with the business.

I mean, the Tampa side is really operating extremely well.

The output is great.

We see strong demand for our products something your operations is running at full capacity right. Now. So we have no concerns with regard of operations from that side I think it's a very effective site.

Consolidated a couple of sizes.

Couple of years ago in timber.

Some initial effort to pull everything together, but now I think we're very well positioned to serve the market with that site in terms of the demand for Q4 actually we see still very good momentum.

And also as I said looking forward into 2022, we are cautiously optimistic.

Additional sort of pent up demand.

And the market that we can continue to serve you have an extremely strong product portfolio features recently launched a couple of new additions to the portfolio, which underlines our technology leadership in the market and we continue to all to do that in China as well as in China, We launched.

Actually just a quarter ago product people can call Dx 12 system, which is a <unk> system to help us to also serve to mid range market in China and it is also great.

Ultimately for us and helps us offsetting other products as well.

Your next question will come from the line of Vijay Kumar from Evercore. Please proceed with your question.

Hi, This is Kevin on for P. J.

Looking at guidance for 2022 can you talk to the pricing assumptions behind guidance and what is being implied for operating margin expansion in 2022.

Yes, sure Kevin I'll take that one so.

For for pricing for next year, we're kind of targeting something in the 3% kind of a range of course, we acknowledge we're not infer.

Inflationary environment, and so we will adjust as necessary as we kind of proceed into the year.

And then when we look at our operating margin.

Our operating margin expansion, we expect to be in the 100 basis point kind of range on top of this year and when you start to kind of compound that on a multiyear basis, we feel particularly good about that if you look at this year will be a 120 basis points higher than the previous year. So so we're continued to deliver at that.

The higher end of our of our long term guidance of 70 to 100 basis points. So we feel very good about our various margin expansion initiatives pricing as well as our stern drive program, but at the same time, we acknowledge there's also a lot of challenges out in the world in terms of material costs and transportation costs that we talked.

About in our prepared remarks.

And.

As a follow up looking at food in the corner being down 19% can you talk more about the segment and outlook going forward.

Yes so.

Food retailing was down 19% in the quarter.

That business as you know is a business that we manage for profitability and not necessarily for growth overall, it's only about 5% of our total business.

Business can be lumpy and impacted by the timing of project our customer orders.

At the same time that business out of all of our businesses with the one that was negative negatively impacted by some component shortages because we use.

Common electronics components in our retail sales that are also used in certain consumer products.

We expect kind of going forward to be down similarly in the fourth quarter, but then for 2022.

We don't expect much growth in the business, probably up low single digit and as I always say if you look at that business over a longer term period of time is probably a low single digit business, but it will be lumpy.

Every now and then from quarter to quarter.

Thank you.

Yes.

Our next question will come from the line of Patrick Donnelly from Citi. Please proceed with your question.

Hi, guys. This is Elizabeth on for Patrick.

Wondering you guys talk a little bit about <unk>.

And in General I was wondering if.

We could talk about internally and thats affecting wages and what youre seeing in labor in general Thanks.

Yes, so in terms of wage inflation, we're going to experience higher wage inflation I think like every company in the world. There's certainly it's a competitive labor market in all parts of the world as.

As we kind of look at our cost structure for next year. Our overall cost structure will go up about 4% or so and of course wages are.

A significant component of our overall cost structure, but if you look at it by geography of course, it's going to be highly differentiated based upon local labor markets.

Great. Thank you that's it for me.

Okay.

Our next question will come from the line of Jack Meehan from Nephron Research. Please proceed with your question.

Hey, good afternoon necessary nuclear gone for Jack So to start the lab segment performed well despite supply chain challenges are you expecting heightened impact here in the fourth quarter.

Can you repeat it can we expect sorry, if you didn't get get it can what was the question.

Hey, sorry the.

The lab segment performed well despite supply chain supply chain challenges in the third quarter are you expecting a heightened impact in the fourth quarter. Okay. I can take that Tony we didn't get the part about.

Supply chain, yes.

Hello.

<unk> actually.

We don't we don't really expect.

A bigger impact in the fourth quarter and you have seen in Q3, it's a very dynamic situation as I said out there.

Both in transport and logistics all of the material supply side for the product for the products. We have in the lab. They are not as exposed as we are in the retail business. So we're not overly consumed for the lap this is joe to be honest.

Great. Thanks.

Our next question comes from the line of Derik de Bruin from Bank of America. Please proceed with your question.

Hey, good afternoon.

So I've been bouncing around between calls some my apologies if I'm being redundant here, but how do you sort of think about.

Digital marketing.

And campaigns in your field turbo and some of these other ones, where you've put a lot of feet on the street and <unk>.

And now those costs are expanding.

Is there a higher return now of our deficit.

Pushing more into the electronic and digital I.

I guess, how much of those efforts can how much more do you need to spend.

On building out your electronic at your e-commerce capabilities and such versus April.

Great. Thanks, Doug that's an excellent question I'm looking at.

Sure.

It's a really good question, but you have to look at it also from two different angles and you mentioned, both the digital approaches as well as the field tools.

We see a lot of demand out there and as well as Elias.

Actually invested quite a bit this year and <unk> made significant investments to and putting more feet on the street because we saw demand.

Actually it's paying back very quickly for us it's great returns and on the digital side, we continue to evolve our digital engine overall, whether it's marketing engine, whether it's direct sales engine et cetera.

Effective on that it has been it has.

Also provide for US great returns and we will always have both of you always see both approaches we have a direct consultative sales force, which is excellent.

Excellent with customers for very dedicated higher end products et cetera.

That also need more consultative selling and then we have we continue to build out our digital capabilities to serve multiple external sales and continue to strengthen our digital marketing capabilities I think this year we did.

Significant number more betting NAS and other things to interact with customers, which has been extremely well received it's a great tool for us to increase leads despite all the.

Things that we do.

So we are again I think we are very well positioned we made great strides forward during the pandemic it actually accelerated a lot of investments NBC.

Great returns on that again I am always looking at the business I'm wondering monitoring a number of fleets that are generated by these capabilities under the year very pleased of how well they perform and how well they always see final customers.

Great. Thank you very much.

Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Hey, Thanks, good afternoon.

They're really doing a small acquisition small software deal in the third quarter, but any material revenues tied to that touch on whether that.

Filled the hole in the portfolio and kind of your thoughts on.

Rapid tight for similar type of.

The bolt on deals.

So what's the question specifically what type of revenue saw linked to so.

It's the software company requirements cleanup system is not a large company, but it complements our portfolio in all the camps, specifically very well.

We are very strong player in the <unk> business has been growing double digit.

China now extremely pieces that.

You see the combination of our existing portfolio together with this new software capabilities that require there'd be continued to shift can serve our customers and additional customers much better in the future.

We'll have a much better reach into regions, where scaleup systems Couldnt Couldnt go with dosing force.

It's a very well received solution, Florida customers and received very positive feedback by the existing customers with scalable systems on the acquisition overall to see that one plus one plus one actually it was more than two in this regard so and then to your other part in terms of the door.

Part of the question here is in terms of bolt on acquisitions, we will continue down that line.

Pete mentioned it up in every call that the continue to make bolt on acquisitions.

<unk> technologies technology areas.

Where we see new technologies that complement our strengths.

It's.

Although part of the portfolio that you think are necessary in terms of the overall customer workloads, but these are small and medium sized acquisitions in nothing huge tensile transformation.

Thanks, Sean it'd be helpful. If you could walk.

Walk us through kind of your.

Top line assumptions by segment for next year and be able to quantify the impact of the lower.

Demand on that.

So next year.

Yes sure.

Hey, maybe I'll start with the lab business and you wanted to kind of do Q4, as well as well as next year Brandon.

Super.

Okay, great. So hey, I'll, just kind of run through this for everybody. So for lab for Q4, we're looking at low double digit which would push put us in a 20% growth range for the full year and then for next year, we look at high single digit for lab.

For core industrial we're looking at high single digit for Q4, which would put us at mid to high teens for the full year.

And then for next year, we would be more like low to mid single digit.

For product inspection will be high single digit for Q4, which would put us at high single digit for the full year and also high single digit for 2022.

By geography, we're looking at Europe to be low to mid single digit in Q4, which would be put us at low double digit growth for the full year.

For next year, we're looking at low to mid single digit growth.

For the Americas, we're looking at low double digit growth in Q, Q4, which would put us at mid teens for the full year and then for next year, we're looking at mid single digit growth.

And then for China, we have.

We're looking at low double digit growth in Q4, which would put us in to the mid <unk> for the full year and for next year, we're looking at approximately.

10% growth and then in terms of the other part of your question. So in terms of the Covid testing.

Headwinds that we would have next year.

That would be it would be a slight headwind I think it would be probably less than 1%.

So I don't know if it will quite round to 1%, but it would be.

Would be a modest headwind next year, that's kind of our baseline assumption.

Excellent. Thank you welcome.

Welcome.

Our next question will come from the line of Josh Waldman from Cleveland Research. Please. Please proceed with your question.

Hi, guys. Thanks for taking my question I appreciate all the detail on the outlook just two for you I guess first a quick follow up on product inspection.

I'm wondering if you could I guess provide more context on what youre seeing from an orders and quoting activity.

Sounds like the U S was strong.

What are you seeing in other geographies and then as you as you look forward I mean, it seems like theres a bit of cautious optimism.

And kind of the commentary, but but high single digit seems pretty strong here.

On the comp from 2021, just any more detail on kind of what's giving you confidence for next year would be helpful. Yes, Yes. Good question Josh.

Product inspection is is that we are very pleased with the current quarter Sean.

Dave just gave it to you.

The growth for <unk>.

Q4, while we are seeing if you think about it high single digits.

CD Mark demand in the Americas, we see good demand also in Europe.

China again is.

Has momentum as well as I mentioned at the half launching new product just a quarter ago.

Overall, there is some pent up demand the pent up demand is putting more proceeds coming in more in the U S.

If I look at the order.

All the situation as well as the leads who are getting efficacy pretty high lead activity right now we see a little.

Quote requests.

From from Europe, and the us flipped appetite even higher on the horizon.

Europe.

Having said that.

We are again cautiously optimistic about 2022.

Can't capture the pent up demand well positions of our product portfolio.

And also we.

In terms of our manufacturing capabilities.

<unk>.

B are operating very well.

<unk> not seen a lot of impact on the supply chain side.

That product line so in terms of.

Proposal to semiconductors and <unk>.

Our et cetera, it's not as exposed to as few as we mentioned it for retail.

Got it. Thank you and then I wondered if you could give us an update on what portion of your revenue now is coming from bio production I guess.

<unk> of some of the recent acquisitions thinking <unk>.

And then maybe what's what's kind of built into your assumptions for 2022 from that business.

Yes sure. So so overall, we don't have a.

Precise number on that Josh, but we typically like to say that overall life Sciences. In total is about a third of our business I think knowledge that is probably a bit more than that right. Now just given some of the acquisitions. We've done in the last few.

A few years in the high growth we've had in that area and then if you break that down into pieces of course.

Large molecule in general is an important piece of that and bio production. In particular is also an important part of that if you kind of like get into pieces of higher production in the area that we benefit the most would be in our process analytics business, which is probably in that 10% range of our total business.

Maybe a little bit more.

An important part of a product of process analytics.

His bio production, but of course, we we also sell industrial scales and other applications into the bio production environment as well.

Okay, Yeah I appreciate it guys.

Thank you.

Our next question will come from the line of Tyco Peterson from Jpmorgan. Please proceed with your question.

Hi, This is Rachel on for Tycho, Thanks for taking the questions.

Service and consumables is up 12% quarter I was just wondering if you could talk a bit about the trends that you're seeing within both of those.

Currently I think consumables was roughly about 10% of revenue and services about 'twenty. What's your long term goal for each of those and then can you also just touch on how are you competing against third party service providers.

Very good question.

Okay.

We are extremely pleased with the performance of service and consumables events very profitable part of the business for us.

In terms of growth rate for services think about it mid to.

Maybe high <unk> high single digit mid single digit growth rate.

Consumables is higher.

Right now.

We are of course, continuing to broaden that portfolio moving from both on the consumable side for our products, but we also increasingly.

Providing higher value services for our products and I mentioned, one for example for the <unk>.

<unk> Pharmacopeia solution of.

That just launched that is I think we have a lot of opportunities for our installed base of products that we have out there to increase service contracts overall and to <unk>.

<unk> more differentiated services to our customers, we serve a lot of our products.

But as of course also competition.

Some areas like the scale areas.

I think we are positioning ourselves also in the future by providing highly sophisticated services preventive maintenance and all those things are very comprehensive inventory management.

Solutions as well so.

Very optimistic about the crude opportunity.

Again, we are very well positioned in terms of our competitive position as we're also linking our software solutions Somohano solutions and services. So that makes it more difficult for competitors also take over some of the services that you can excuse me to provide some of mobile products.

Great that's a pool. Thank you.

Our next question comes from the line of Matt <unk> from Goldman Sachs. Please proceed with your question.

Hi, everybody. Thanks for taking my questions I. Appreciate it just just one question from me Big picture question.

Just looking at that Stern drive sort of a program and how.

Institutionalize that has become and how successful that it's been over the years and the iterative process.

And productivity enhancements it gives you.

I'm just wondering looking at this current environment, just with inflation supply chain constraints and we just really haven't seen something like this in a number of years.

Has it caused you to think differently about how you implement stern drive a different aspects of it as it may do you think about.

Different ways, you can implement into our different levers you can pull just given the change in the environment that we've seen from a cost and supply chain.

<unk>.

Respective.

Good question.

Stern drive as many flavors of certain back office automation ideas, it's manufacturing setup.

Ideas.

Some areas it's product.

<unk>.

It's a program that has been running for many years and the team is actually going through several waves of stern drive Nikola internally ways. We've just launched in next wave. This year. The team has come up as a whole long list of good ideas that Peter just reasonably well ahead of all the procurement supply chain.

<unk>.

Showed us.

The potential of all of these activities.

We had some concerns do you see at the table Stern drive activities could be impacted actually by all the other.

Activities, given the dearth of necessarily given the restrictions we have seen the module logistic challenges et cetera, but are happy to say the team didn't skip a beat there and they actually delivered on the promised savings.

Thus for for 2021, as well, which helps us tools account with some of the inflationary pressures now do we make a significant shift in terms of the activities given the look to see challenges right now I wouldn't say I would say no because again they are very focused on productivity gains.

Sometimes product redesigns driving productivity and efficiency behalf on the road.

On the supply chain side, we have a dedicated team in place who take US all the all the logistical challenges on the supply chain slides like shipment and shipment alternatives et cetera access to different suppliers when it comes to components.

<unk> who constantly.

Constantly screen demography.

Opportunities for supply I think this is also why we became came through described so far very well not having a lot of issues with component shortages, except for retail as we mentioned, but in all the areas, where we also use semiconductors I think the team has been very effective in finding alternate.

And also looking closely 50 internal engineering teams in case, we would have to redesign products and use alternative products, although I think it's working very well.

Long winded answer but.

Overall, we are extremely pleased with stern drive its I think its a still a lot of fun way.

Driving this was.

Improvement.

<unk> process.

Process mindset.

We have dedicated teams in all of them all major sites, who capture these opportunities.

Great. Thanks, very much very helpful.

At this time there are no further questions in queue and I would now like to turn the call back over to Mary for closing remarks.

Thank you and thank you everyone for joining us this evening.

Always if you have any questions or follow ups. Please don't hesitate to reach out take care Bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2021 Mettler-Toledo International Inc Earnings Call

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