Q4 2021 Agilent Technologies Inc Earnings Call
And divestitures completed within the past 12 months.
Guidance is based on exchange rates as of October 31.
We will also make forward looking statements about the financial performance of the company.
These statements are subject to risks and uncertainties and are only valid as of today.
The company assumes no obligation to update them.
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.
Thanks, <unk> and thanks, everyone for joining our call today.
<unk> delivered another excellent quarter to close out an outstanding record setting 2021 at.
At 632 billion for fiscal two zero 21 revenues are almost a $1 billion higher than last year full year core growth is up 15% on top of growing 1% last year.
The strength was broad based with our three business units all growing more than 10% core for the year.
Our full year operating margin up 200 basis points.
Earnings per share of $4 34 are up 32%.
Let's now take a closer look at our strong finish to 2021 and review Q4 results.
Our momentum continues as orders increased faster than revenue in Q4.
And at the same time, we delivered our fourth straight quarter of double digit revenue growth.
At 1.66 billion revenues are up 12% on a reported basis.
Our core revenues grew 11% exceeding our expectations. This was on top of 6% core growth last year.
Our Q4 operating margin is 26, 5%. This is up 160 basis points from last year.
EPS is $1 21 up.
Up 23% year over year.
Our earnings growth also exceeded our expectations.
We continue to perform extremely well in pharma, our largest market growing 21% driven by our Biopharma business.
Total pharma now represents 36% of our overall revenue.
This compares to 31% of our revenues just two years ago.
The strong growth in our chemical and energy business continues.
As we delivered 11% growth in the quarter.
This is on top of growing 3% in Q4 of last year.
PMI numbers are positive and we expect that chemical energy will continue its strong growth trajectory into fiscal 2022.
In diagnostics and clinical revenues grew 11% on top of growing 1% last year as testing volumes started to recover.
On a geographic basis, our results were led by a strong performance in the Americas and China.
Our business in the Americas grew 15% on top of 5% last year.
China grew 8% core on top of strong 13% growth in Q4 of last year.
China order growth outpaced revenue growth for the third quarter in a row.
Now looking at our performance by business unit, the life Science and applied markets group generate revenue of 747 million.
<unk> is up 11% of both our reported and a core basis.
The pharma and chemical <unk> energy markets were particularly strong for new instrument purchases.
Our cell analysis business crossed a $100 million revenue mark in the quarter for the first time.
During the quarter, the <unk> team announced a new iron mobility, <unk> and enhancements to our <unk> automation software suite.
These new well received offerings are used to improve the analysis of proteins and peptides to speed development of new protein based therapeutics.
The Ashland Cross-eyed group posted revenue of 572 million. This was up a reported 10% and 9% core.
Growth was broad based driven by strength in service contracts and on demand services as well as for Chemistries and supplies.
Our focus on increasing connect rates continues to pay off for us.
The strong expansion of our installed base in 2021, and increasing connect rates bodes well for continued strength in our ACG business moving forward.
Our ability to drive growth and leverage our scale produce operating margins of roughly 30% up more than 200 basis points from the prior year.
The diagnostic genomics group delivered revenue of $341 million up 16% reported and up 13% core.
Our NASD Oligos business led the way with robust double digit growth in the quarter.
And achieve full year revenues exceeding $225 million.
We expect another year of strong double digit growth as the team continues to do a great job increasing throughput with the existing capacity.
The expansion of our training be Allergan manufacturing facility in Frederick Colorado is proceeding as planned.
We expect this additional capacity to come online by the end of calendar year 2022.
Moving on from our other business group updates there are several other significant developments for agile in this quarter.
We announced our commitment to achieving net zero greenhouse gas emissions by 2050.
We believe our approach delivers the same rigorous sustainability that'd be applied everything else we do.
We also believe these actions are not only the right thing to do but fundamental to achieving long term success.
Our sustainable leadership continues to be prominently recognized as well.
I am seeing that investor's business daily recently named Ashland to its top 100 ESG companies list.
We're also a company where a diversity and inclusion represent a company priority and is a core element of our culture.
During the quarter, we achieved recognition by Forbes as one of the world's best employers and as a best workplace for women.
While the Ashland team has a strong track record of delivering above market growth and leading customer satisfaction.
We're always looking to do more to.
To further accelerate growth and strengthen our focus on customers.
We are implementing a new one Ashland commercial organization.
Combining for the first time, all customer facing activities under one leader.
The new organization brings together and strengthens our sales marketing digital channel and services team.
The new enterprise level commercial organization is led by pork Mcdonald pork will continue to lead the Ashland Crosstie group as business group President.
As well as serve as Ashland's first ever Chief commercial officer.
The way I like to characterize this move to say we are doubling down on the success, we've achieved with ACG applying a holistic customer focused approach to all aspects of our business.
We're also moving the Chemistries and supplies division to LSA G. This closer organizational alignment between instrument and chemistry development will further accelerate our progress on instrument connect rates for Chemistries and consumables.
We believe that structure follows strategy and that this new organizational structure will further enhance our customer focus and the execution of our growth strategies.
Looking ahead to the coming year, we are in a strong position to continue to deliver on our build and buy growth strategy.
<unk> business remains strong.
We entered the new year with a robust backlog and have multiple growth drivers coupled with our proven execution excellence of the Ashland team.
A year ago to on our agile in Investor Day, we raised our long term annual growth outlook to the 5% to 7% range.
While reaffirming our commitment to annual operating margin improvement and double digit EPS growth.
We're now one year end and well on our way to achieving these long term goals.
Bob will provide more details.
But for fiscal 2022, our initial full year guide calls for core growth in a range of five 5% to 7%.
We expect to continue our top line growth as we launch market leading products and services.
Invest in fast growing businesses.
And deliver outstanding customer service.
My confidence in the unstoppable, one agile team and our ability to execute and deliver remains firmly intact.
This is our formula for delivering solid financial results outstanding shareholder returns and continued strong growth.
We are very pleased with our performance in 2021, but not satisfied.
As I tell the agile team.
The best is yet to come for our customers our team and our shareholders.
Thank you for being on the call today and I look forward to your questions I will now hand, the call off to Bob Bob.
Thanks, Mike and good afternoon, everyone.
In my remarks today I'll provide some additional details on revenue and take you through the income statement and some other key financial metrics.
I'll, then finish up with our initial outlook for the upcoming year and for the first quarter.
Unless otherwise noted my remarks will focus on non-GAAP results.
As Mike mentioned, we had very strong results in the fourth quarter revenue was $1 66 billion, reflecting reported growth of 12%.
And before I get into the details on acknowledged our supply chain team, which has been doing a great job managing in a very challenging global environment.
Core revenue growth of 11% was appointed above our top end guidance range Curran.
Currency accounted for 0.8% of growth, while M&A contributed half a point of growth during Q4.
And as expected COVID-19 related revenues were roughly flat sequentially and resulted in just over a point headwind to the quarterly revenue growth.
Late in the quarter, we did see transit times that we're in certain cases greater than anticipated, resulting in some revenues being deferred into Q1.
Our results were driven by a continuation of outstanding momentum in pharma and in Biopharma in particular, while chemical and energy in diagnostics and clinical also delivered strong results for us.
Our largest market pharma grew 21% during the quarter against a tough compare of 12% last year.
<unk> molecule segment delivered mid teens growth, while large molecule grew 31%.
Pharma was a standout all year growing 24% for the full year after growing 6% in 2020.
And in FY 'twenty, two we expect our pharma business to grow in the high single digits.
Chemical and energy continued to show strength growing 11% with instrument growth in the mid teens during the quarter.
This impressive performance was against a 3% increase last year.
Growth was driven by continued momentum in chemicals and engineered materials.
And we expect our <unk> business to continue to grow solidly next year in the high single digits.
Diagnostics and clinical grew 11% with all three groups growing nicely during the quarter.
While the largest dollar contributor to this market as DDG driven by our pathology related businesses. The LSA business continues to penetrate the clinical market and drive growth with strong performances by cell analysis in mass spec.
We saw mid teens growth in the Americas and strong growth in China, albeit off a small base.
For the year, the diagnostics and clinical business grew 15% for the year after declining slightly by 1% in 2020.
And we expect to continue to grow in the mid to high single digits in 2022.
Academia and government, which can be lumpy and represents less than 10% of our business was up 1% in Q4 versus a flat growth last year.
Most research labs continue to remain open globally and increased capacity to pre pandemic levels.
China came in at low single digits, while the Americas and Europe were roughly flat for.
For the year, we grew 7% after declining 4% last year.
We expect this market will continue to improve slightly in fiscal year, 2022, and I expect growth of low to mid single digits.
Food was flat during the quarter against a very tough 16% compare.
Europe and the Americas grew while China declined for.
For the year food grew 13% after growing 7% in 2020 looking.
Looking forward, we expect food to return to historical growth rates in the low single digits.
And rounding out the markets environmental and forensics declined 2% in the fourth quarter of a 5% decline last year as growth in environmental was overshadowed by a decline in forensics for the year, we grew 5% off a 2% decline in 2020.
And looking forward like food, we expect environmental and forensics to grow in the low single digits in the coming year.
For agile it overall on a geographic basis all regions again grew in Q4 led by Americas, 15%, China grew 8% and Europe grew 4% and.
And for the year Americas led the way with 21% growth followed by China at 13, and Europe at 12%.
Now, let's turn to the rest of the P&L.
Fourth quarter gross margin was 55, 9% up 90 basis points from a year ago.
Gross margin performance along with continued operating expense leverage resulted in an operating margin for the fourth quarter of 26, 5% improving 160 basis points over last year.
Putting it altogether, we delivered EPS of $1 21 up 23% versus last year.
And during the quarter, we benefited from some additional tax savings, resulting in a quarterly tax rate of 13% and our full year tax rate was 14.25%.
Our share count was 305 million shares as expected.
And for the year EPS came in at $4 34, an.
An increase of 32% from 2020.
We continued our strong cash flow generation, resulting in $441 million for the quarter, an increase of 17% versus last year.
For all of 2021, we generated almost 1 billion and a half in operating cash and invested $188 million in capital expenditures.
During the quarter, we returned $195 million to our shareholders paying out $59 million in dividends and repurchasing roughly 830000 shares for $136 million and.
And for the year, we returned over $1 billion to shareholders in the forms of dividends and share repurchases.
And we ended the year with $1 5 billion in cash and $2 7 billion in outstanding debt.
And our net leverage ratio of 0.7 times all in all a great end to an outstanding year.
Now, let's move on to the outlook for fiscal 2022.
While we are still dealing with the pandemic and we have the additional challenges around logistics and inflationary pressures.
We entered the year with strong backlog and momentum.
For the full year, we're expecting revenue to range between $6 65, and $6 73 billion.
Representing reported growth of five to six 5% and core growth of five 5% to 7% consistent with our long range goals.
This incorporates absorbing roughly half a point headwind associated with Covid related revenues with the majority of that impact coming in Q1.
We are expecting all three of our businesses to grow led by DDG.
We expect EDG DDG to grow high single digits with the continued contribution of NASD in cancer diagnostics.
We expect ACG to grow in high single digits with both services and our Chemistries and supplies businesses growing comparably, while <unk> is expected to grow in mid single digits.
We expect operating margin expansion of 60 to 80 basis points for the year as we absorbed the buildout cost of train B at our Frederick Colorado NASD site.
And then helping you build out your models, we're planning for a tax rate of 14 on quarter percent consistent with current tax policies and 305 million fully diluted shares outstanding.
All of this translates to a fiscal 2022, non-GAAP EPS expected to be between $4 76.
To $4 86 per share, resulting in double digit growth.
And finally, we expect operating cash flow of approximately one four to $1 5 billion and capital expenditures of $300 million. This.
This capital investment represents an increase over 2021 as we continue our focus on growth, bringing our NASD train b expansion online and expanding consumables manufacturing capacity for our cell analysis and genomics businesses.
We have also announced raising our dividend by 8% continuing an important streak of dividend increases and providing another source of value to our shareholders.
Now, let's move on to our first quarter guidance.
But before I get into the specifics.
Additional context lunar new year is February <unk>. This year, a shift from last year when it was in mid February.
As a result, we expect some Q1 revenue to shift to the second quarter of this year as customer shut down ahead of the holiday.
In addition, as I mentioned, we do expect to see the largest impact to COVID-19 related revenue headwinds in the first quarter.
We estimate these two factors will impact our base business growth by two to three points and a roughly equal in impact.
For Q1, we're expecting revenue to range from $1 64 to $1 66 billion.
Representing reported and core growth of five 9% to seven 2%.
Adjusting for the timing of lunar new year, and Covid related headwinds core growth would be roughly 8% to 10% in the quarter.
First quarter 2022, non-GAAP earnings are expected to be in the range of $1 16 to $1 18.
And a couple of additional points before opening the call for questions.
In conjunction with the new one agile and commercial organization, Mike talked about we will reveal be reporting under the new structure starting in Q1.
In addition, we will be providing a recast of certain <unk> and ACG historical financials to account for the segment changes after the filing of our annual report on Form 10-K in December.
I am extremely proud of what the <unk> team achieved in 2021 and look forward to another strong performance in 2022 with that for me back to you for Q&A.
Thanks, Bob.
If you could please provide instructions for the Q&A now.
Second lien.
You would like to ask a question. Please press star followed by one telephone keypad.
Any reason you would like to remove that question. Please press star followed by Tim again to ask a question. Please press star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question we will pause briefly to allow questions to generate in Q.
The first question comes from the line of.
P J Kumar with Evercore you May proceed.
Hey, guys congrats on a nice sprint here and thanks for taking my question.
I think my first one on <unk>.
Mike maybe my first one on the guidance here.
A lot of.
Questions around supply chain inflationary environment.
The guide of five 5%, 7% core growth for fiscal 'twenty two.
What is it assuming for <unk>.
Pricing versus volume and doesn't assume any contribution from interest around.
Hey, Vijay this is Bob I didn't get the last part of your question maybe <unk> Clifford.
Yes, so on the on the price we do have built in roughly a point of price into our plan, which was slightly higher than what we had this year Vijay and.
In terms of inclusion we won't get into individual customer.
Products, but but what I would say as NASD is expecting another growth year of very strong growth.
And just on that last point Bob.
Maybe Mike for you.
Sure I think the analyst day outlook had an SPE.
Ramping up quite meaningfully has anything change on NASD did this up in a capacity ramp up our timing changed at all and.
I am curious on notice around.
Anything change post the CRM.
In our response letter to Novartis.
Not at all what I would say the one big changes in the business is doing even better than we had than we had communicated in December of last year. So I really really appreciate the question as you know we've been talking about the new capacity coming online and Thats still going right Viper scheduled fact, we distribute it earlier last week.
And that's due to come on line by the end of calendar 2000, 22022, but I think the team has just done a fabulous job, which is where we're going to be able to grow double digit.
In 'twenty, two even without that new capacity because they are able to continue to drive process improvements a broader book of business in larger batches. So the business is really on fire I mean, we're very very happy with it yes, Vijay if we looked at our order backlog were taking orders for 2023 already yeah.
I imagine, it's Bobby or they Vijay that a year ago, we were talking about could you fill up the factory could it ramp.
We blow right through that.
Yes, that's fantastic, Mike and just sorry to clarify post the complete response letter to Novartis no change in interest around assumptions for you guys.
Correct no.
No no.
Fantastic. Thank you guys.
You're welcome I appreciate the feedback.
Thank you Mr Kumar.
The next question comes from the line of Tycho Peterson with Jpmorgan you May proceed.
Tycho.
Okay.
I can hear you if you're wrong.
Your line is now open.
Oh great.
Let me jump to the next.
Q.
Yeah.
Alright.
Yeah.
The next question.
Yeah.
Comes from the line.
Excuse me.
Brandon courtyard with Jefferies. You May proceed.
Hey, Thanks, good afternoon.
Hey, Brandon Mike, maybe just Mike maybe just starting with the guide for next year, just kind of talk through some of the variables upside downside that considered when building the outlook would be curious what you've embedded for China, specifically as well.
Yeah. So why don't I talk about the what we see as the potential upside in the guide and Bob maybe you can.
Talk about the our China assumptions and by the way we hope it came through a very happy with the momentum we have in China I think the upside sits with the with our two largest end markets.
Pharma.
In chemical energy and as Bob indicated in his script, we are assuming the high singles I believe Bob for the pharma market, we're really coming off this towards growth here in the in 2021.
That at that high level growth continues that would represent upside in our biggest market and we've got a lot of early Pos things happening in the pharma I think pharma, let's say see any as well right. So we've always I think this is the most bullish language that I've had in the call for some time about the <unk>. So you can imagine there's been even some caution about not over over over plan it too much but.
Say the two our two largest end market represent the the highest.
Where we think we may have some upside relative to our initial initial first our first guide for the year and Bob can you remind what we had assumed for China, Yes, Brandon Good question on China, and we continue to be very positive on China, If we look at our backlog.
Our order growth rate has has increased higher than our revenue for the last three quarters, we exited 2021 with a record backlog going into 2022 for China, and our guidance comprehends high single digit growth in China. So both.
Being led by from a geographic basis.
Growth will be led by Americas, and China going forward.
Okay, and then Mike in terms of the new organizational structure.
Finally, the CFO role now and then correct me if I'm wrong are you planning to collapse ACG.
The <unk> segment entirely.
Okay.
Yeah.
Yeah, Yeah. So thanks for that clarifying question. So let me handle the second part of your question first which is the ACG group will be 100% services in 2022, and then we're moving we're moving over the CSD portion of the chemistry and supplies portion of that business over to Jacob for two reasons one is.
Just the breadth of responsibility that the port would have if we had made that change, but we think it's actually gonna be a driver of growth in ask Jacobs to make a comment on that here in a second because I think by having this teams even closer together, we're going to be able to.
Even further accelerate our connect rates on instruments with our chemistry products why the change Hey, it's best to make when things are going really well, it's really time to put down the hammer and really go as hard as you can and that's what we're doing here. So as you may know when I first came in as CEO.
Had five sales forces like collapse those into two this is the next evolution of that overall.
A transformation of the company with this one Ashland culture behind it the real belief is that the segmentation of our markets really calls for a much more of a customer orientation as opposed to a product centric view of how we want to sell and reach our customers and you think about the scale you get with a digital platform digital infrastructure our services organization. This makes.
Sense to do this while youre on top of your game. So all things are going well, we thought it was time.
Kind of fit the seller down even further and.
Jacob you wouldn't mind, just to comment to what Youre thinking about your new responsibilities.
Yeah, Thanks for that Mike and I'm sort of excited I think Scott.
With or without the consumable part of it I think we will.
Controllable dose and <unk> solutions.
That will really drive customer expectations and I think.
Oregon the team have over the past few years.
It's shown that that the defined in consumables, we didn't drive a tremendous connect quite so I think that already on the path forward.
Barbara.
And.
Completely emswiler. Thank you.
They don't like that.
Yeah, and hey, Thanks for that Jacob and then maybe just to close off. This this is a line of response of pork and any thoughts about your additional new responsibilities.
Yeah. Thanks, Mike first of all really excited about his new role and I think a unified commercial strategy and organization, we really continue to strengthen the arguments customer focus.
To align capabilities for the future, where we're going to kind of maximize our connect rate and customer lifetime value and also I think accelerated execution of our digital ambitions for <unk>.
<unk> near term growth and strategically invest for the future. So very excited and already building on what is a great capability in the company.
Hmm.
Okay. That's helpful. Thank you.
Thanks, Brad I appreciate the question.
Thank you Mr call yet.
The next question comes from the line of.
Eric There, Brian with Bank of America, You May proceed.
Hi, good afternoon.
Hey, Derik.
Hey.
Just maybe starting there so a couple of questions I guess can you talk a little bit about the margin expansion.
A basis point is.
And just to tease that out.
Thanks, Jerry pressures.
You've got some COVID-19 headwinds coming off can you just provide tease out what the underlying margin expansion just move normalize. It you also have obviously, the new capacity coming on in Colorado.
Just how should we think about the margins and just different uses.
I'm going to take that yeah, yeah. Thanks, Eric It's a great question and what we have.
Been able to do.
Even in this last quarter in the face of inflationary pressures as being able to drive pretty significant margin expansion across our businesses and so as we think about that 60 to 80 basis points just to put.
Perspective, we're anticipating roughly 15 basis point headwind associated with that train b.
Buildup and that's hiring the people and getting at the product coming online and so forth and.
And so if we think about that that's closer to 75% closer to that 100 basis points a lot of that is going to come through SG&A operating leverage and the activities associated with just not growing or our business expenses as fast as the top line and we are going to be cover looking to cover some of the inflationary pressures on the top.
Line without price that I talked about before which we didn't really have.
Any significant price.
In 2021, we have started to see that we took quick action earlier this year to reflect that and so a combination of it most of it being in opex leverage, but there will be some small operating leverage at the top line as well if you take out the alright excuse me at the gross margin if you take out.
The.
NASD expenses.
As a result of covering our costs through pricing increases.
Thanks, and then just a couple of quick follow ups.
Any evidence.
Shocking.
Our transportation and supply chain, particularly in the consumable side and just an update on <unk>. It looks like it's so good.
Our initial expectations. Thank you.
Eric a follow up on those two questions. So I will have Sam coming on.
The second question so.
We've not seen any real evidence of stocking on the consumables. So I think thats, a pretty fair Sam right, Bob Yeah, that's correct.
And then.
What you're going to hear from Salman of minute he'll probably little bit more color. We remain very very bullish about the long term prospects with <unk> in and a lot of the work is being done to develop new opportunities with our pharma partners.
But where we're where are we on the short term as well Sam.
Yeah, Hey, Thanks, Mike.
In terms of Q4, whereas the revenue came in a little bit below expectations.
And that's driven in part by COVID-19 related delays in clinical trial enrollment overall, the interest that we're seeing both from our existing customers on the.
Pharma side that we've been doing I see work with as well as new customers.
That's very very real in fact, we've now signed.
An agreement.
Our first with a large existing customer getting evidence to the interest up there.
In terms of the work that we're doing on the PMA.
Also related to existing agreements with.
Our resolution Bioscience business, we're making good progress on that.
So you know a lot of momentum in a number of areas. So we're very pleased to have.
Have them as part of our business to really bring together the strategy, we've had which is to be the companion diagnostic development and commercialization partner leveraging multiple modalities, including amino histochemistry and next generation sequencing.
Yeah.
Thanks Sam.
Thank you Mr Debruin.
The next question comes from the line.
Excuse me of Tycho Peterson.
I do apologize.
Next question comes from the line of Ronald.
Donald <unk> with Wells Fargo you May proceed.
Yeah.
Hi, good afternoon.
Good afternoon, Dan.
So my first question relates to the 2022 guide.
What are some of the factors that might pull performance back down to the mid single digit range, specifically something that would start with a five handle.
Yeah I think.
What I would say is first of all I think our guidance is prudent.
Given the beginning of the year.
If we saw a continued greater than expected disruptions in the supply chain that may impact.
Demand, particularly in some of the applied markets that could do it although we haven't seen that to be very clear Dan.
We feel very good about where we are given our forecast and backlog.
So I would say, our we have a bias towards the upside in our forecast as opposed to bias towards the downside.
I appreciate that and then a follow up on the shift in chemicals and supplies from ACG to all Sag.
The logic behind the move is to increase the connect rate can you remind me where is the connect rate today, and where you want it at the year over some period of time.
Yeah, It's a great question and you know the.
The team continues to do a great job under Paul's leadership here.
Do that both at the.
Purchase and then on the ongoing aftermarket what I would say is right now if you look at the overall attach rate is probably in the mid Twenty's right now.
If you look at the attach rates.
Year on year, we saw very nice growth on the on the new placements. So all the new instruments that Jacob and team have been able to sell that's why we feel very good about the ACG business going forward. So we still have a long way to go there in terms of opportunity.
Across both the services as well as the consumables.
Some of our competitors are higher than that and so we've got aspirations that are well above that mid 'twenty, yes.
And Dan I would like to make sure. That's clear is we're not making this change because we were dissatisfied with the improvement in our connect rate.
And on top of the cake to further accelerated as we look to balance.
Span of control and business responsibilities with the the real driver was the one commercial creation on the one commercial organization and I think this is a nice secondary benefit that we're actually going to get we think even more focus and tighter alignment between our product development groups on the CSD side and instrument side.
Helpful clarification, Mike Thank you.
Youre welcome.
Thank you Ms Orlando.
Hey, Mike.
All right.
Puneet suitor with SVP Leerink you May proceed.
Yeah, Hi, Mike Thanks for taking the question sure.
Sure.
So first one is on the environmental I mean, you'll have a leading position there but.
A number of products across the outside.
Energy product line.
Maybe just could you elaborate a bit more for us what's going on there.
Pacifically related to China, the timing in China is that just lunar new year or is there something more that we need to consider.
Yes, I think theres out maybe I'll start Bob you can jump in on this so I think when we talked about and we've talking about environment, environmental and forensics I think as a sort of a tale of two cities. So so buried in that number is is a decline in forensics and I think that's probably really tied to governments prioritize other investments in this COVID-19.
World.
The demand is just not there.
Relative to China, it's been more about priorities.
Right now they're shifting.
Some of the priorities towards the pharma and other COVID-19 related type.
Investments. So I think that's probably the only thing I would add on that Mike is there is some shift but its also timing yes. There are some something.
Yeah.
There is some budget that we've seen that that has shifted into our fiscal first quarter and then into FY 'twenty two in particular in China, I think long term, we still see the.
The importance of the environmental testing.
In China and around the world remains to be seen or is still intact puneet.
And it's more a function of timing than anything yeah. Thanks for jumping on that Bob because we still are very very confident about our ability to grow environment in China, I think is well known.
The government's real emphasis on continuing to to make improvements in the quality of life of citizens.
Got it.
Then just on.
On the liquid chromatography, just staying on that point I really appreciate your comments on the.
Chemistry columns and consumables now being part of <unk>, but you know when we look at the business World. Today, you. Obviously have a strong 1200 series offering we're also seeing pickup from another leading competitor in the market space.
<unk> lost some share over the last few years and there seems like there theyre gaining some back but just wondering what you are seeing in the field and in terms of further competition.
This side of the market, but I appreciate any thoughts thank you.
Yeah, Hey, Jacob I'll have my lead off on here and.
First of all I'd say is.
The key competitors in the LCD market remained remain unchanged or somebody new in the market and what I can tell you is that we're.
We're very very happy with where we are in liquid chromatography. So we're not planning any kind of catch up game at all here, we delivered high teens growth in the quarter and exited the year with record backlog.
With our growth rate in orders was significantly higher than our revenue growth rate.
And I think Jake it's fair to say that the strength is both on the large and small molecule size with a with a real stand out of China geographically and I think you exited the year with.
We see as record backlog. So we're we're really bullish on our <unk> business and maybe you want to have some additional comments.
Yeah. Thanks Margaret.
Proud off and I think we're going to go down we are right now as you said we are a vehicle very strongly I can see when I look into the market. We are in a very strong position versus our competition also and just to remind over here.
Well have to go we did announce that we have expanded our buyout portfolio substantially.
So we really have the full ramp up of biopsy biopsy about that but we also have Judy outfits and also online to really drive growth in that area. So you really cant pardon me with all the investment that goes into large molecule right now so I truly believe we have momentum continue with that over the next two apartment.
Great. Thanks, Thanks Jacob.
Thank you Mr. Xu that.
Your next question comes from the line of Patrick.
Patrick Donnelly with Citi You May proceed.
Hey, guys. Thanks for taking my questions.
Bob maybe one for you.
For you to start just on the margin side I know you talked about 60 to 80 bps of expansion it sounds like the NSA D facility.
Be a little bit of a headwind can you just talk through the moving pieces. There I know you called out price a little bit as well can you just talk about the levers and how much of an offset the facility is just we can kind of think about the underlying number as well.
Yeah, So I would say maybe.
On NASD.
If I look at it and I'll break it into two components, if I look at it with the existing capacity that team not only has driven top line growth, but if we looked at the margin. It actually is accretive to the overall agile op margins. So that team has done a fabulous job ramping up at a very accretive.
[laughter] very very nicely, so and so we're making the investment on train B.
It's roughly 15 basis points.
Inclusive of that 60 to 80, so its a roughly 10.
$10 million to $15 million of incremental costs associated with the training and investments.
So as the lines come onboard.
So we're seeing that.
Take that two aside because those are kind of discrete and if I look at the business. What we're seeing is the faster growing areas. We actually are seeing the benefit of mix and so we talked a little bit about cell analysis, but also cell analysis and L. S E G.
It's been very accretive both on the gross margin as well as the.
Operating profit side and so we've got these faster growing businesses that are helping with with mix and then we're adding on the incremental price to cover the.
Inflationary pressures that we're seeing and so forth, but we've also got productivity measures in place and this is where I think the one agile in our approach to our systems and.
Our our infrastructure really pays dividends, because we're able to leverage those.
Those costs across a larger base and because of a lot of that is internal we don't have that same level of pressure or cost.
As we are seeing in some other areas and so it's a combination of product mix that price.
Talked about 1% price and then leverage in the operating expense side.
That's helpful. Thanks, Bob.
Then Mike maybe one for you on <unk>.
So if you kind of called out and maybe having the most positive tone you've had in a little while here on that segment.
Obviously, the end market health seems pretty high.
Customers can you just talk about I guess the conversations you are having their visibility again guiding to high single for next year off a pretty strong 'twenty. One is encouraging so maybe just your confidence and then again it sounds like maybe there's even some upside to that number.
Yes, sure Patrick so yeah.
So we're seeing really good end market demand for and I think Bob highlighted a lot of those like the advanced materials or chemicals. It really speaks to the overall recovery economically on a global basis and the fact that this in particular this customer base.
Had deferred a lot of investments for for some period of time, so they're in a in a in a reinvestment mode.
Hum.
And we have pretty good visibility to the funnel so.
We probably got at least a six month lead you on what's coming down on instrument purchases. So.
We're feeling really really good about the <unk> business as well as others that ACG story here as well of where were.
We're we're continuing to increase our services in this segment, which has historically been more of a self maintained or kind of market as well as the COO.
Chemistries and consumable side, so I think we've got pretty good pretty good visibility.
Given our confidence in being able to put this kind of number out there.
In our full year guide at this point in time.
Anything else you'd add to that I know I know, we spent a lot of time talking about this so I think you've got it you said it well.
Great. Thanks, Mike.
You are quite welcome.
Thank you Mr Donnelly.
Hi, Thanks for taking my questions wanted to start with on.
On supply chain, Yeah, Hey, Hey, Bob.
To start with a quick follow up on supply chain I wondered if you could give us the magnitude of the push out you referenced and as this all LLC.
Well I'm going to pass it to Bob here in a second but let's be real.
Clear in terms of our language when I use supply chain that means material constraints and then we have logistics.
I think the issues that Bob.
Tens of times it was really logistics.
Issuers in terms of our ability to get product to customers and get the raw materials, we feel pretty good about what's been going on there. So yeah exactly so it was more just longer delivery times and.
Josh It was in the LSA business as you would expect.
And it was.
It was roughly a point.
In the quarter.
Okay.
Given the transient nature it sounds like Youre, assuming this all hits in the first quarter.
Kind of what's embedded in your guide.
We're assuming that it will get better over the course of the first half of next year or first half of the fiscal year. So not all of it will come back in Q1.
Got it Okay, and then I wanted to follow up on your comments within the <unk> franchise I believe in your prepared remarks, you highlighted stronger install rates in this franchise in the fourth quarter. Just wondering if you could provide any additional color on that maybe what's driving it is.
Is it is it.
Higher or faster kind of accelerated refresh levels.
At legacy accounts are or maybe you're seeing kind of increased win rates on new accounts.
Great question, one on past that to our expert on this topic.
Jacob I'm going to talk about what's going on in the LC Ms front.
Yes, absolutely Mike and as you mentioned, we had great success with our new ion mobility and the things.
Last year, we had that fantastic work.
A user meeting also dealt with me all subscribed potash you all speak to we have tremendous <unk>.
Traction on our Triple Quad I don't think quite businesses and in particular in the Biopharma space do you see a lot of smaller accounts coming alive.
Mid sized accounts that are starting to build.
Build up that capability within the analytical instrument business.
So we see a lot of tremendous momentum there, but obviously also the bigger content monitoring refresh mode.
Yes.
So I think I think part of the story, Josh is new new customers right on particularly on the Biopharma side and also doing very well on the refi side with the existing customers.
Right.
Got it really appreciate it guys.
You're quite welcome.
Thank you Mr Waldman.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Michael <unk> with Keybanc capital markets. You May proceed.
Hey, Mike It's Paul Knight.
Hey, Paul.
<unk>.
Good good army of Amcor agreement.
Is there any way you can talk about does that give you another 5% of addressable market what are your thoughts around that deal.
Yeah, Hey, thanks for noticing that we had worked with Michael's team in and have a really agreement, we're really excited about and I am actually on a pass it over to Angeles, New commercial officer to his his view on that question.
Yeah I think.
Thanks, Mike Yeah. Thanks, Mike I think we see that it's a really mutually beneficial arrangement that we're going to see a doctor.
Different customers, but a different aspect.
Spaces within customers and it also helps with overall the addressable market and coverage. So the ultimate team and do you have onshore team will be able to share leads and so on so we'd be able to cover the market better. We'll also be able to use our digital capabilities to be able to.
Find new customers and also increased wallet share and customer sites. So all around a very positive development.
And Paul it's hard to put an exact percentage on the question, but we wouldn't be doing it if it was on the margin.
Yeah, and I was going to say Paul This is Bob just to add I mean, we didn't really see any any revenue that's all future opportunity for us and I think one of the areas that it <unk> as strong as any in the research area Academia and government and this will help us even.
You know cover that market, even broader than we do today.
Absolutely.
Okay.
Thank you.
The next question comes from the line of Dan Brennan with Cowen You May proceed.
Hey, Mike Hey, about how you guys doing alright, Dan herself.
Thank you. Thank you I'll do them all.
Maybe first question on <unk>, maybe I missed it did you guys give a number for 'twenty two what's implied.
We did not we but what we did say is we would expect strong double digit growth.
I will leave it at that and what.
What I can tell you is we let we exited we exited at a at a run rate that was higher than the if you. If you took our.
225 that we talked about and divided by four or run rate was higher than right.
So we continue to ramp yeah got it.
Thanks for that question.
It was hard to explain it in the call that narrative, but as Bob mentioned, our Q4 exit rate is higher than the full year number.
And maybe could you give a little color there I think Bob you mentioned in the prepared remarks Arne in Q&A that you take in order to 'twenty three could you just give us a sense of what the utilization is today in your capacity that's available in.
Any any color about demand trends book of business things of that nature.
Yeah.
We're running 24, seven both our Frederick facility as well as our Boulder facility, which was a legacy facility and we.
We are.
Feel very good about our ability to continue to expand capacity.
Brian and team have been able to do.
Is increase both throughput.
As well as yield and so that's really helped us drive additional capacity with the existing footprint or the existing.
Manufacturing facility and the train B as we talked about has the opportunity to add more than $100 million of incremental.
Volume.
Coming online starting at the end of this our fiscal or calendar 2022.
Got it and then maybe on the one agile and.
Could you just give us.
Mike You got there you made some changes to the sales force that are made under your predecessor, and now you're going further so.
How should we see this manifest from the outside over the next I don't know one to two years is this.
This lead to.
Stronger growth could lead to more better margins more durable growth.
The customers are going to see something but how will that manifest in reported results do you think.
I think it's I think it's a check for each one of the things you listed there, but the number one reason why we're doing this is to drive more growth.
And it's just a natural evolution of the transformation of the sales force I started a number of years ago.
And it really points to the fact that we have this broad based portfolio, that's selling into the same customer base.
And why.
Why have two separate sales forces and have to go through all the coordination between our cross sales forces and then the big push will be made over the last several years in terms of digital this will allow us I believe to even go faster unrealized in our digital ambitions and then you've got the voice of the customer will be right right and the CEO of staff.
And for example, the head of the service delivery organization, so everything relative to the customer facing that we do in this company will be under one leader, we just think it's going to find ways to.
To accelerate our growth <unk>.
Increase our customer satisfaction, and then I'm thinking as we push more and more of our business because customers want to buy that way through digital and I have a natural a knock on effect of efficiency gains in the P&L.
Great and then maybe one more obviously your balance sheet is in great shape.
The proverbial question about M&A, just wondering you know what does the funnel look like.
Any update on the strategy I know you've been pretty cognizant of not wanting to go to beg here and kind of.
Disrupt what you've built there, but just give us a sense of.
What the needs are today and what is your outlook for M&A in 'twenty two.
Yeah sure sure Dan So I've used the spin using this broader last several years of the build and buy growth strategy. So we're still very interested on the bi element of.
<unk>.
Fueling future growth for example in this past year, we did the <unk> acquisition really got us into liquid biopsy and really allows us to play to our strengths that we already have from our <unk> business. So we're going to look for continued opportunities such as those where you are in.
Hi, higher growth markets and that the total company average.
Sure.
They can really benefit by being part of Ashland, and where they have differentiated technology and different differentiated teams.
We will stay in our lane so to speak on valuations.
I'd say that the.
It's better than I do rather than the market is still very robust we're very active.
And we just want to make sure that the deal works for our shareholders, but deploying.
Deploying capital for M&A is part of our story going forward.
And it's all up great. Thanks, Jack.
Excellent great. Thank.
Yeah.
Mhm.
Thank you Mr Brennan.
The next question comes from the line of.
Jack Meehan with Nephron Research you May proceed.
Thanks, Good afternoon.
One is that he wanted to dig in a little bit more on cell analysis, so heard cleared $100 million in the quarter.
Was the 2021 contribution in somewhere to the line of questioning on the Asti, what's the target there for 2022 growth.
Yeah.
Yes.
I'll start with <unk>.
The cell analysis business, and all while bringing Jacob here because.
It has just done a fantastic job and it's really continue the momentum that we saw at the beginning you know throughout.
'twenty. So it ended just just short of $400 million for the full year.
They grew in the mid twenties, and I would expect us to.
Looking forward, if we think about where the market is headed into the fundamental demand there that'll be.
Growing double digits for sure going forward and as I mentioned before the beauty of that business is at its right in grain with with where the research and technologies are going and where a lot of money is being put in.
But it's also an extremely well run and profitable business for us and Jacob maybe you can give some insight in terms of where the end markets that are driving <unk> been driving the growth and where do we think is going to going to come from in the future.
Yeah, Thanks, a lot.
It's a really good question and obviously something I'd really like to talk about the business.
Business has been successful in the past year and our focus on the immuno oncology space has really paid off we continue to see opportunities there and we continue to see that all the portfolio.
Information lifestyle.
They are required to really drive the.
The research forward, so where we really see the opportunity.
Between Biopharma and also the academic market there, that's where have you seen the biggest the biggest momentum going forward. While we have seen here at the path here of time also that the diagnostic business, particularly with our flow cytometry.
Picking up with speed, but I would say the main opportunities.
In the Biopharma space.
Yeah.
Did you ask a question about NASD.
No.
Okay.
Continue down that line just around the comparison okay.
Alright, Bob My.
My follow up was going to be a lot of discussion obviously around driving growth.
Hoping to just get your philosophy on Capex. So I think the guidance implies about four 5% of sales for 2022.
The higher than you've done the last few years do you expect this is going to remain elevated more kind of in the medium term or is this just kind of some of the nearer term opportunities coming through.
Yes, Jack that's a great question and what I would say is if we look at where are there is different kinds of capex and not all it is.
Not all created equal, but the reason that it's being increased is really to fund that growth and capacity expansion whether that be train b in NASD or the capacity expansions in places like genomics and and cell analysis, and I would say given our growth trajectory and in those areas I would expect us to continue.
Probably an elevated level to to incorporate that growth.
As Mike said, we've got this buy and build strategy and Thats part of the build strategy and it has paid off in spades with NASD and what I would say as you know.
We're not there's more letters in the alphabet and B it doesn't end up be but.
What I would say is there is there is we're gonna be prudent about it but also be aggressive about going forward.
Thank you.
Yeah.
Thank you Mr Monahan.
Last question is from the line of Catherine Schulte with Baird You May proceed.
Hey, guys. Thanks for the questions and learn firsthand.
First one on the outside guide for mid single digits I think on the last call you talked about you know the GC replacement cycle coming back on maybe being in the midst Devin I'll see replacement cycle.
Cycle on small molecule and you'll now have chemistries in Nashville, So should we think about this as being more towards the upper end of that mid single digit range for 'twenty. Two are or is there some sort of catch up spending in 'twenty, one that that maybe it's a headwind as we get into 'twenty two.
Yes, I think youre spot on and Kathryn it's the former not the latter I'd think about it is the higher end and that's where I would say, if we think about where where are opportunities for upside or are in the instrumentation business and continue the strong momentum that we've seen now where we're also going up against.
I think a 15% core growth rate.
Year on year, but we feel very good about the momentum in that business, particularly in the areas that you just talked about in chemical and energy and pharma.
We continue to believe that the pharma business coming out of Covid is structurally a higher growth market.
And as we continue to place our focus on the Biopharma are the large molecule. If you look at that throughout 2021 that was.
Much growing much faster than the overall pharma business and so we would expect that.
We feel very good about that business going forward.
Okay, and then maybe one more just you've had a lot of success on on a nasty and do you have any interest in entering other areas of manufacturing components for Biopharma with JMP.
GMP reagents, our DNA plasmids or other areas and is that something that that you might get into in 'twenty two.
Josh.
Well, we're always looking for new drivers of growth that that would make sense for <unk> to be directly involved in.
So nothing to report for 2022, we've got our we've got a handful of adding an indifferent. Additionally.
Letters, if you will to the Alberta that'd be served in NASD, but never say never to the thesis of your question.
Okay, great. Thank you.
Quite welcome.
Thank you Michelle.
And the last question is from the line of Noah <unk>.
With J P. Morgan you May proceed.
Hey, Hey, guys good morning.
Yes.
Tycho.
It's Tycho sorry about the issues no problem no problem.
Sure.
So darko I appreciate the China, Colorado seat people are focused on China tenders at the moment doesn't sound like you're flagging any issues there specifically for <unk>, but can you talk about what you're kind of seeing on the ground there for China and then how big is the <unk> business, you mentioned that earlier, Mike and you obviously had a bunch of press releases during the quarter about new approvals for.
Yes.
Yes, so Sam I know this is something that <unk> been talking to your team about relative specifically about what may be happening in the China.
Diagnostics market in and what's going on there. So we think we've got a pretty good protected position, but why don't you elaborate a bit more.
Yes happy to Mike Tycho, Thanks for the question.
We had another just overall for our pathology business.
The former <unk> business, if you will.
A really good quarter, including in China and.
You may be referring Tycho too.
By China requirements that we're all aware of.
That are happening specifically to our former <unk> business, if you will.
The relative unique position, particularly with PDL, one and having.
A minimal number of local competitors really differentiates us so we haven't felt.
Really pressure.
From the by China impacting our business.
But we have continued to see really good interest not only in PD L. One companion diagnostics that brought more broadly speaking.
In China for our diagnostic products.
Yeah, Sam if I recall, you have got your PD L. One.
Interested in China right.
Yes, we do I mean, what we registered that almost exactly two years ago of becoming the first step of a companion diagnostic in China and its doing well for US there in China, We've actually now trained over 400 different pathologists throughout China too.
To utilize our companion diagnostic yeah yeah.
Yes, Hey, Tycho, maybe just a follow up if I looked at our business in China.
For <unk> for the year. It grew in the thirties and it was actually in excess of that for Q4. So it had very positive momentum in <unk> is roughly $100 million.
And ex the <unk> acquisition.
Great and then on cell analysis, Mike I know one of the priorities you've talked about is moving that portfolio downstream can you talk about those efforts how actively you're looking at kind of pushing that into QA QC and further downstream.
Yes, so Jacob why don't you a follow up.
Some thoughts here.
In fact, when you say downstream can you can do it.
Selling them all.
Martin about production.
R&D, yes.
On the buy box thing, yes, we see a big opportunity in the Biopharma space.
Both fall fall color analysis business, but also a falloff falloff analytical instrument business. So.
I think that's something we will continue to invest in going forward.
Yes, I think what we're seeing right now Tycho was moving from truly research into the development area and then that will then lead into the QA QC. So I think you'll see a multi step process here and so which is Jacobs said, it's just early days here from that standpoint, and making great progress across all three of those.
Sub businesses.
And have high hopes for that to continue the sooner the similar flow that we've seen in pharma for years, right, which is starting to our R&D then it works its way into QA QC.
And Tiger I think you know we built this great business through a series of acquisitions and the way, we integrate into making it one business and this would be an area of obviously future focus for us on the M&A front as well.
Great just one last one on the new adjuvant and I've had a number of questions.
Kind of a rollout.
Services, you're introducing in conjunction with that you brought in the service portfolio.
Not yet but stay tuned.
So any of this a few weeks old.
Fair enough.
Thanks.
Okay. Thanks, a lot Tycho.
So that you can get on the call.
Thank you Mr Peterson.
There are no additional questions waiting at this time I would like to pass the conference back to permit.
Any closing remarks.
Thanks, Anthony and thanks, everyone with that we would like to wrap up the call for today.
Have a great rest of your day.
That concludes the adjuvant technologies fourth quarter earnings Conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Uh huh.
Yeah.
Yeah.
Okay.
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