Mettler-Toledo International, Inc.

Good day and thank you for standing by. Welcome to the quarterly earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. 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, and I'm happy to welcome you to the call tonight. I am joined today with Patrick Kaltenbach, our CEO, and Sean Videla, our chief financial officer. Let me cover just some administrative matters. The call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we will refer 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 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those expressed or implied by any forward-looking statements. For discussion of these risks and uncertainties, please see the discussion in our recent Form 10-K and other reports filed with the SEC from time to time. All of our 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 the financial condition and results of operations section of our filing. Just one other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and the differences between the non-GAAP financial measure and the most directly comparable GAAP measure is provided in our form 8K. I will now turn the call over to Patrick.

Thanks, Mary, and good evening, everyone. I'm happy to host the call tonight, which I'm doing from Switzerland while Sean and Mary are in Columbus, Ohio. I want to start by thanking you for your interest and commitment to Metal Toledo. I knew many of the analysts on the call have covered us for quite some time and now as well. We also have very long standing shareholders who are also listening in. I look forward to our future interactions and hope that they can take place in person in the not so distant future. Let me make some brief comments on my impressions of the first several months at MentorToledo. It is clear that a company's strategies and initiatives are well developed and well ingrained throughout the organization. A high level of accountability is evident throughout the company, which underpins the culture of strong execution. I'm impressed with the interactions I have had with colleagues around the world, and I share their passion for customers and innovation that is very apparent in how they approach their responsibilities. It is exciting to join MetaToledo at a time of such strong momentum, which I think is also a great reflection on Olivier's legacy as a CEO. Under his leadership, the company developed a strong foundation for future growth. I'm also grateful for the thorough onboarding process Olivier prepared for me. I am committed to the organic growth strategy of MetaToledo and will work with the team to enhance our performance and continue the strong track record of top and bottom line growth that has been in place for many years. Now let me turn to our financial results. The highlights are on page three of the presentation, and you can see we are off to a fantastic start to 2021. It was apparent with our Q1 guidance that we expected a very good quarter. However, it came in even better than we expected. Local currency growth was 18% and we had strong broad-based growth in all regions. China in particular had outstanding growth and our growth in America and Europe was also better than we expected. Since the onset of the pandemic, the organization has been focused on identifying areas of growth and ensuring that we are strongly positioned once demand recovered. The team executed well to capitalize on recovering market demand and to meet customer needs. With the excellent sales growth combined with good cost control and benefit of our margin and productivity initiatives, we achieved a 64% growth in adjusted EPS. Cashflow generation was also impressive as we achieved an almost 200% increase in our free cashflow generation. We believe the positive momentum will continue into Q2 and expect another quarter of robust sales and earnings growth. As we look to the full year 2021, we believe we can continue to gain market share and deliver very strong results. 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 an overview of the PendoTech acquisition that we completed in the quarter. Sean?

Yeah, thanks, Patrick, and good evening, everyone. Sales were $804.4 million in the quarter, an increase of 18% in local currency. On a U.S. dollar basis, sales increased 24% as currency benefited sales growth by 6% in the quarter. On slide number four, we show sales growth by region. Local currency sales increased 14% in both the Americas and Europe and increased 29% in Asia and the rest of the world. Local currency sales increased 44% in China in the first quarter. On slide number five, we outlined local currency sales growth by product area. In the quarter, laboratory sales increased 20%, industrial increased 17%, with core industrial up 26% and product inspection up 5%. Food retail increased 13% in the quarter. We estimate that we benefited approximately 2% from COVID tailwinds in the quarter, mainly related to our pipette business for COVID testing. Let me now move to the rest of the P&L, which is summarized on the next slide. Gross margin in the quarter was 58.6%, a 90 basis point increase over the prior year level of 57.7%. We benefited from pricing, volume, and temporary cost savings initiatives. These benefits were offset in part by higher transportation and material costs. RMD amounted to $39.3 million, which represents a 7% increase in local currency. SG&A amounted to $221.8 million, a 7% increase in local currency over the prior year. Increased variable compensation was offset in part by our temporary cost savings and ongoing cost containment initiatives. Adjusted operating profit amounted to $210.7 million in the quarter, a 49% increase over the prior year amount of $141.3 million. Adjusted operating margins increased 440 basis points in the quarter to 26.2%. We are extremely pleased with this margin growth, which reflects excellent sales growth combined with good margin and cost initiatives. Currency benefited operating profit growth by approximately 6%, but had very little impact on operating margins. A couple of final comments on the P&L. Amortization amounted to $13.9 million in the quarter. Interest expense was $9.5 million in the quarter. Other income in the quarter amounted to $2.1 million, primarily reflecting non-service related pension income. Offsetting this was $2.8 million in acquisition costs that is excluded from adjusted EPS. Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19.5% as compared to 21.5% in the first quarter of last year. Fully diluted shares amounted to $23.7 million in the quarter, which is a 3% decline from the prior year. Adjusted EPS for the quarter was $6.56, a 64% increase over the prior year amount of $4. Currency benefited adjusted EPS growth by approximately 7% in the quarter. On a reported basis in the quarter, EPS was $6.32, as compared to $4.03 in the prior year. Reported EPS in the quarter includes $0.12 of purchased intangible amortization, $0.10 of costs related to the PendoTech acquisition, $0.04 of restructuring, and a $0.02 benefit due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. That covers the P&L, and I'll now comment on the cash flow. In the quarter, Adjusted free cash flow amounted to $139 million, which is an increase of 196% on a per share basis as compared to the prior year. We were very happy with our cash flow generation. DSO declined by approximately six and a half days to 40 days as compared to the prior year. We continue to see good results from the new initiatives we put in place last year on the use of analytics. and productivity improvements in accounts receivables collections and cash flow management. ITO came in at 4.4 times similar to last year. Before I turn to guidance, let me provide some financial information on PendoTech acquisition which we completed late in Q1. We paid $185 million up front and there is a $20 million potential earn out as well as some post-closing amounts. We expect Pendotek to contribute approximately 1% to sales growth beginning in Q2. The transaction was financed through borrowings under our bank facility. Patrick will have some additional comments on Pendotek shortly. Let me now turn to guidance. Forecasting continues to be challenging. Market conditions are dynamic and changes to the business environment can happen quickly. Uncertainty also remains surrounding COVID-19 and the ultimate impact for the global economy. In addition, further shutdowns, unexpected material shortages, and unforeseen logistic challenges can also create potential volatility. Our end markets have good momentum, and we are well positioned to capitalize on this growth potential by leveraging our Spinnaker sales and marketing initiatives, excellent product portfolio, and service network. The organization continues to execute very well and has demonstrated a high level of resilience and agility in adapting to rapidly changing market conditions. We continue to feel positive in our ability to gain market share and generate margin improvement with our pricing and productivity initiatives. We'll also resume our field turbo program and expect to add sales resources in the second half of 2021. Now let me cover the specifics. For the full year of 2021, primarily due to the benefit of our Q1 results and with a strong outlook for Q2, we now expect local currency sales growth for the full year will be in the range of 10% to 12%. This compares to previous guidance range of 5% to 7%. We expect full year adjusted EPS guidance to be in the range of $31.45 to $31.90 which is a growth rate of 22% to 24%. This compares to our previous guidance of adjusted EPS in the range of $29.20 to $29.80. With respect to the second quarter, we would expect local currency sales growth to be in the range of 19% to 21% and expect adjusted EPS to be in a range of $7.50 to $7.65, a growth rate of 42% to 45%. Let me provide you with some additional details and guidance. As mentioned, we expect Pendotek to contribute 1% to sales growth for the remaining quarters of the year. The impact to EPS from the acquisition is relatively neutral. We would expect local currency sales growth for the second half of the year to be in the mid single digit range as we will face tougher comparisons The COVID-19 testing tailwind in our pipette business will turn to a headwind, and we won't see the same level of pent-up demand that we're currently seeing. We expect reported amortization will amount to $62 million, which is higher than previously communicated due to the Pendotech acquisition. The purchased intangible adjustment for EPS will increase to $0.66 for 2021. Other income... which is below operating profit, will approximate $2 million per quarter for the remainder of 2021. We expect our effective tax rate in 2021 to remain at 19.5%. In terms of free cash flow for the full year, we now expect it to be approximately $735 million. We expect to repurchase $637 million million shares in 2021 for the remaining three quarters of 2021. We would expect to end 2021 in our targeted net debt to EBITDA range of approximately a 1.5 times leverage ratio. Some final details and guidance. With respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately 3.5% in 2021 and 6% in the second quarter. In terms of adjusted EPS, currency will benefit growth by approximately 7.5% in the second quarter and 4% for the full year 2021. That is it from my side, and I'll 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 quarter. iPads had excellent growth and continue to benefit from COVID-19 related testing demand. All other product categories had also robust sales growth and growth in all regions was very strong. Biopharma trends continue to be very favorable and we also experienced improved customer demand in other segments such as chemicals. We expect lab to be very strong in the second quarter due to favorable biopharma trends, vaccine research, and bioproduction scale-up and production. We also expect to continue to benefit from pent-up demand in segments outside biopharma. While that will face tougher comparisons in the second half of the year, we believe we are well positioned to continue to capture share given the strength of our product portfolio and continued strong execution of our Spinnaker sales and marketing initiatives. In terms of our industrial business, Core Industrial did very well in the quarter with a 26% increase in sales driven by China, which had growth in Core Industrial in excess of 60%. Europe and Americas also had strong low to mid teens growth in core industrial. Improving market conditions combined with the strength and diversity of our product portfolio and our focus on attractive market segments contributed to the strong results. Our outlook for core industrial is very good for Q2, while they will face more difficult comparisons, particularly in China in the second half of the year. Product inspection came in pretty much as we expected with a 5% local currency sales growth in the quarter. Europe and Asia had growth while America's was flat with the prior year. You would expect modestly better growth in Q2, but this business continues to be challenged as large packaged food companies continue to face operational challenges related to COVID-19 and are careful with installing new equipment or even bringing service people into their facilities. We believe pandemic demand exists for our instruments, but ultimate timing is still hard to determine. Food retailing came in better than expected with 13% growth because of better market demand in Europe and Asia and the rest of the world. Now let me make some additional comments by geography. Sales in Europe increased 14% in the quarter with excellent growth in lab, core industrial and food retail. America has also increased 14% in the quarter with excellent growth in lab and core industrial offset by flat results in product inspection and a decline in food retail. Finally, Asia and the rest of the world grew 29% in the quarter with very strong growth in most product lines. As you heard from Sean, China had outstanding growth of 44% in the quarter with excellent growth across most product lines. We are benefiting from robust demand in many of the market segments we serve. This includes very strong growth in life sciences, food and chemical. From a product point of view, our industrial customers are seeking greater automation and digitalization, which bodes very well for our product offering. We're also seeing benefits of government spending in key priority areas, such as new research labs, safety in food supply and packaged foods, and investments in various strategic priorities. Our achievement in China are a great example of how we positioned ourselves to capture growth as demand recovered. Our spinnaker sales and marketing techniques, including our go-to-market approach, which we adapted due to a new environment, have served us very well in terms of identifying and capturing these growth opportunities. We have also worked over many years to ensure that our product portfolio in China is well suited for the local market, which gives us an advantage. We expect good momentum to continue in China this quarter, and then you will see a more modest growth in the second half of the year due to very strong growth in the prior year. One final comment on the business, service and consumables performed well and were up 11% in the quarter. That concludes my comments on the business. Not only is our business off to a great start in 2021, we also made a strategic bolt on acquisition to further expand one of our most attractive businesses, Process Analytics. Let me provide some additional insights into the acquisition. We are a global leader in real-time measurement of key process control parameters, which customers use to optimize their production processes. About 50% of the process analytics business is to the pharma and biopharma market with an emphasis on sensors to monitor pH, dissolved oxygen, carbon dioxide, and other parameters. Our solutions combine sensor technologies for specific measurements, transmitters, and services. The sensors must be calibrated, maintained, and replaced on a timely basis, which creates an attractive consumable stream. Process analytics has achieved above market growth for numerous years, benefiting from the strength in bioproduction and very successful spinnaker sales and marketing strategies and techniques. We also have a great track record of technology innovation. We are a leader in the market with our innovative intelligent sensor management technology, which optimizes sensor replacement to avoid unexpected downtime. Other examples of innovations include inline measurement of carbon dioxide and high performance optical sensors for dissolved oxygen. The company we acquired, PandaTech, is a manufacturer and distributor of single-use sensors, transmitters, control systems, and software, serving the biopharmaceutical manufacturers and life science laboratories. Their primary focus is pressure, which is a common control parameter used in bioprocess applications. They are well recognized for their leading-edge innovation in single-use sensors, that are becoming increasingly important in bioproduction as it provides greater manufacturing flexibility. They have extensive knowledge surrounding disposable flow cells and connector designs and have strong bioprocess downstream application know-how. This is an excellent strategic acquisition as it expands our presence in the very attractive high growth bioprocess market. We have a complimentary offering in bioprocessing applications with our strength in upstream and PentoJack in downstream. With the combination, we will create one of the most competitive single-use sensor offerings in the market. We see attractive cross-selling opportunities as we believe there is significant customer benefit from using the same vendor in upstream and downstream bioprocess applications. Finally, we see good opportunity to expand PendoTech's presence on a global basis, leveraging our global reach and large customer base. We are excited about this transaction and believe it will further our already strong leadership position in process analytics. Let me wrap up by commending that we are off to a very good start to the year. has shown a tremendous level of resilience and agility in adapting and reacting to market conditions that are changing rapidly. We remain focused on meeting our customer needs and believe we can continue to gain market share and deliver strong results. That concludes our remarks and we now want to open the line for questions.

Thank you, and at this time, I would like to remind everyone, in order to ask a question, simply press star one on your telephone's keypad. We'll have our first question coming from the line of Derek DeBrubin from Bank of America. Your line's open.

Hi, good afternoon, and thanks for taking my call. So a couple of questions to start. I think the first one... Appreciate the color on the pipette tailwind that you've seen. I am a little surprised, though, that you're talking about this sort of slowing down. I mean, whenever I read the scientific Twitter feeds, there's still tons of articles and complaints about the pipette shortages. I just would like a little bit more color there. And also, how has that sort of been contributed to your overall pricing? I assume that, you know, if there's a pipette shortage, then that means that people are willing to pay more for it. So can you talk about have you seen some incremental pricing gains in the business as a result of that? And so do those who anticipate as well. Thank you.

Okay. Thanks, Derek. And I'll start off and then let Sean comment on the pricing topic specifically as well. Well, first on the shortage of pipette and pipette tips in the market right now, You're absolutely spot on. There is still a shortage of markets, especially related to COVID-19 testing, but as Sean elaborated, we definitely expect the testing demand for COVID-19 going down towards the second half of the year. And there's probably not the same amount in life science research or other areas that would compensate fully for that demand. This is why we are more cautious about the outlook and don't expect the same tailwind from the pipette business in terms of revenues. in the second half. On pricing, we had the first pricing round this year already, and I'll let Sean also comment about the overall impact of that.

Yeah, so Derek, yeah, so we, you know, our pricing in pipettes is, I'd say, a little bit higher than where it would be in a typical year. That's probably been a situation that's been going on now for the last couple quarters, but maybe more recently with the increase in resin costs, we did kind of come up with a a price increase more recently in that respect. So you'll start to see actually even higher price increases for pipettes in Q2 and probably for the remainder of the year, at least until as long as these higher resin costs continue.

And so what's embedded in your overall guidance for pricing just on a full year basis?

Yeah. So, you know, for, well, maybe I'll start off with like how we did in Q1 and then I'll kind of talk about the rest of it. Yeah. So we did about 2% in the first quarter. In addition to the price increase for pipettes, we also did some price increases in other parts of the business to try to mitigate some of these material cost challenges that we started to see in the first quarter. At the moment, we probably think of pricing in the 2.5% range for the second half of the year. Maybe there's an opportunity to do a little bit better than that. And then in Q2, we'd probably be somewhere between the 2% to 2.5%.

Great. And then just one final question. What's your overall bioprocess exposure, I guess, in dollar amount right now? Just, you know, Mettler historically has not been one of the companies that sort of pops up on the list when you think about it. Can you just give us some context so we can put it measured against some of the peers in the space? Okay.

Yeah, you know, we don't have a specific number for bioprocess specifically, but, you know, we probably, you know, continue to say that about a third of our business is sold in the life sciences. Of course, bioprocess is an important part of that third. You know, with the acquisition of Pendotech, of course, we further increased our exposure into bioprocess as well.

Thank you.

Our next question will be coming from the line of Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Congratulations. Nice to meet you. Maybe, Patrick, I'll start with a big picture question for you. Perhaps it's coincidental, but, you know, what defeats we've changed? We did have an acquisition. I'm just curious, you know, as you've had some time here, What are your strategic priorities and how should we be thinking about capital deployment, capital allocation for RockMetal?

Very good question, Vijay, and thanks for the congratulations on the quarter. We are very proud of this quarter, as you can imagine, as we really performed much better than we expected. Now, to your question regarding acquisitions, look, MetaToledo has historically a very strong organic growth trend. and also success in organic growth. Definitely our business model is really on increasing market share every year by better go-to-market strategy with our spinnaker sales and marketing technologies, having unique products in the market in terms of our design, usability, et cetera, that are very much favored by our customers. And we see that growth survey to continue for quite some time. We still have plenty of headroom to grow. That will not change. It's fundamentally an organic growth story. We continue to do bolt-on acquisitions, tuck-in acquisitions, you could also call them, wherever we think it makes sense from a technology perspective or where it complements our product portfolio. So I'm personally, of course, very committed to the organic growth strategy, which doesn't mean we are looking at potential acquisitions as they would make sense. I think MetaTorito overall is a great platform for such acquisitions. Small and medium-sized tuck-in acquisitions and bolded acquisitions. But the underlying story definitely is an organic growth story.

Understood. And then perhaps one on the guidance here. It's a pretty impressive guidance. I look at some of your peers. Feels like they've been a little bit conservative. Your guidance by far, this is the best in the group so far on a comp-adjusted basis. I think you mentioned something about pent-up demand, perhaps. Did it benefit in Q1, or is that based on the 2Q guidance? Or perhaps the back half, any commentary on what's driving this underlying trend where Metro is coming in well above peers, and thoughts on pent-up demand I think will be helpful.

Let me start off and then I'll pass it over again to Sean to give some additional flavor on the guidance question. So, of course, the increased guidance is number one based on our strong Q1 result and our confidence in our Q2 number. We see how well our products received in the market. We see how strong our go-to-market strategy around spinnaker sales and marketing really plays out. As I said in the in my commentaries already is, I think we prepared a team extremely well to capture the market demand as it recovered. We guide our sales force very effectively through the opportunities out there. And that gives us strong confidence for Q2. And also of course, for the remainder of the year, even in light of the potential headwinds and risk and uncertainties that we mentioned, like shortages in in semiconductors and maybe some other shortages of material supplies, which we factored into this forecast. But overall, I would say our confidence in this guidance range is very strong. Sean, you want to add some additional flavor?

Yeah, sure. Hey, maybe just to echo a little bit what Patrick said. I mean, you know, if you look at Q1 and then you look at our Q2 guide and you put them together, you know, almost 20% growth in the first half of the year. So, of course, we feel really good about that and the momentum in the business. Of course, it's always difficult to assess topics like pent up demand and stimulus. But as we kind of like look to the second half of the year, we typically only sit on one and a half months worth of backlog. So it's always a little bit difficult. We will start to face more difficult comparisons in the second half, especially when we look at like China in Q3, which grew 17% last year in Q3. And then, you know, we won't necessarily have the same level of COVID testing that we talked about in the first question from Derek already. But if you kind of look at the second half of the year, maybe the best way to think about it is that we're looking at being at – we're assuming a more normalized multi-year growth rate in the second half of the year, again, on a multi-year type basis.

Just to be clear, Sean, so there is no pent-up demand based in the second half, correct?

No, we're not expecting any pent-up demand per se at this point in time for the second half.

Fantastic. Thank you, guys.

Our next question will be coming from the line of Tycho Peterson with JP Morgan. Your line is open. Thank you.

Thanks. I'll just pick up where we left off. On the pent-up demand, was that greatest on the industrial part of the business? And, Sean, can you comment on the order book? I mean, I know you said you wanted to have lots of backlog, but how was the order book coming out of the quarter?

Yeah, I mean, hey, it's always difficult to talk about, put your, you know, quantify pent-up demand quite specifically, but certainly the industrial business had a tremendous quarter if you look at the core industrial business. What was really impressive there at Tyco is that China's now had three really strong quarters in a row in core industrial, and we started to really see very strong momentum in China, which had many different growth drivers to it. Maybe I'll let Patrick add some more color on that one when I kind of finish the comment. But the other thing is we saw is – is really strong growth in the core industrial both in Europe and the Americas. Both grew in kind of like the low teens kind of a range. But then if you look at the lab business, I mean, biopharma has continued to do really well, but we also felt like there was like a pent-up topic there. If you look at segments outside of biopharma like chemical, you know, we felt like chemical was very strong, but we also started to see a lot of other end markets recover as well too. What was the second part of your question, Tycho? I couldn't remember.

Well, I think you answered it. It was on the order book.

Oh, on the order book. Yeah, yeah. Okay, yeah.

Okay, thanks. Patrick, you know, maybe just I'd ask you to reflect back a month into the job. You know, if you kind of think about your 180-day strategic review or, you know, your initial kind of Outlook in the business, can you maybe just talk to strategic priorities? I mean, MET was obviously a very well-run business to begin with, but are there kind of things that are top of mind for you as you step into the role?

Yeah, excellent question, Tycho. Look, I mean, as I came into MET or Toledo, actually I would almost say I found what I expected. It's a very well-run organization, very focused on the strategic priorities and really focused on execution. The strategic priorities for the company will not change. I mean, our strategies are very well engraved throughout the organization. We are focusing on our end market opportunities in terms of areas where we can gain market share. We continue to evolve all the underlying strong programs and strategies we have in place around Spinnaker, sales and marketing, which has been an evolution in strategies for more than 10 or 15 years already. The same is true on the Stern Drive program regarding operational excellence and productivity projects across the company. I will definitely continue to work with the team on both of those programs because we think and we are convinced they still have a lot of headroom. I was talking a little bit about the opportunity to gain market share. It's very, very tangible for us. You see the opportunities. We see the market opportunities. We guide the sales force into the right directions. And frankly, we also have very solid product development, new product development program underway that we continue to exit. That will be definitely also a strategic focus area for myself to make sure that we launch products into market segments where we see the strongest underlying growth over the last 10, 15 years, Medlar continuously made a shift more towards faster growing market spaces in the lab and the life science market, which continues to grow. And there's definitely, again, an emphasis also on my side to continue that trajectory to find, identify, and capture these faster growing market segments for Metro Toledo. Then on our strategy, Priorities for me, clearly also working on next generation leadership, as you would expect from every CEO, have a strong focus on that as well to make sure that we internally also develop leaders for the company that can drive the company forward and continue this exceptional growth story.

Okay, that's very helpful. And then just last one on going back to the industrial markets for a second. Consumer packaged goods has been challenged for a while. I'm wondering if there's any signs of that improving. It didn't sound like it from your commentary. And then also separately, how you think about infrastructure and stimulus here in the US if we do get a big package?

Hey, Tycho, so maybe I'll take that one. So in terms of packaged food, I think the situation you're right, I think it's generally similar to the last time we would have talked. The packaged food companies continue to be challenged by COVID. There's still a reluctance to have visitors on site. But we do see increased activity there, you know, in terms of quotations and things like that. We still feel very good about the business in terms of being positioned for a pent-up opportunity here. We didn't necessarily build that into our guidance, but we do feel like we're well positioned there. But it's still difficult to tell the timing and when that's all going to happen. In terms of government stimulus, You know, also difficult to judge. I mean, I would expect we would have some level of benefit, some of it probably more indirect than direct. We don't have necessarily a significant NIH type of exposure, but on maybe some of the infrastructure stuff, our industrial business could benefit from some of that.

Okay. Thank you.

Our next question will be coming from the line of Patrick Bonnelly with Citi. Your line is open.

Hey, thanks for taking the question, guys. Sean, maybe on the guidance, you know, now that it's bumped a little higher, do you mind just running through the segment outlook in terms of what you're thinking by segment for the rest of the year with the new range?

Yeah, sure. So, Patrick, maybe I'll start with the divisions, and then I'll talk about the regions. So, if I start with the lab division for Q2, we're looking at mid-20s growth. and for the full year, low to mid double-digit growth. In terms of industrial business, we expect our core industrial in Q2 to be in the 20% kind of a range, and then for the full year, in the low double-digit kind of a range. And then with the product inspection business being more mid to high single-digit in Q2, and maybe mid single-digit plus for the full year. And then food retailing for Q2 to be high single digit. And then for the full year to be more like mid single digit. And then if we look at the geographies, I'll start with Europe, which would be kind of like high teens to 20% kind of a range. And then for the full year, high single digit to low double digit. America's high teens for Q2. And then for the full year, also high single digit to low double digit. China, we're looking at mid-20s for Q2, and then high teens for the full year.

Okay, that's really helpful. Maybe just to zone in on China since you just finished with it, you know, high teens for the year, obviously you put up a monster number this quarter with 40-plus. Can you just talk about, I guess, the durability? Obviously the comps get a little bit harder. How you're thinking about that the rest of the year, what you saw this quarter that, you know, Was there some kind of pull forward or anything like that? That's one time just wondering in terms of the guidance for the full year versus obviously the first half is gonna be quite a bit higher than that.

Yeah, well, let me take that Patrick. Look, we are really, really happy with our results in China. I think it was truly exceptional, much better than we expected. And we commend the team for the excellent execution and capitalizing on the growth opportunities we have there. There have been several dynamics that you should consider when evaluating our China results. First, the number looks very high for the first quarter, but the comparisons are very easy because they were down 13% in the prior year. However, the two-year combined growth rate is still very good. We are very strongly positioned in China with our sales and marketing initiatives, which are allowing us to gain share and support customers. We also have worked over the last numerous years to adapt our products for the local market, which helps to support our leading position in many of the product categories in China. And in terms of the underlying dynamics, as Sean said, we see strong recovery in many of our end markets. Life Sciences in particular is very strong. And we continue to expect growth from this end market. Other dynamics we are seeing is that although we primarily serve local markets in China, our local customers there see some greater demand from the Western world actually. And that of course fuels some of the end markets for us like chemical. And finally, I think we're also benefiting from the government spending. If you look at China's five-year plan and the investments behind it in things like new labs, you know, funding research, also continue to fund safety in food supply, also packaged food is impacted, but as well, that plays out for us very well. So, and then last but not least, similar to the rest of the world, there is an increasing focus also on automation, which plays very well for our offerings in China. So we are pretty confident that the momentum in China will continue and we strongly believe we will have a very good Q2. And then as we said, also more moderate growth because of top of compares in the second half of the year.

That's really helpful. Thanks, Patrick. And maybe just a quick last one on the product inspection side. You know, nice to see it at least back to the mid-single-digit growth. Sounds like the guidance is still calling for it, more mid-single, not bumping that too much. What do you need to happen to get that segment going a little bit? It sounds like you've been a little bit sluggish for over a year now. We'd love some color on that front. Thanks.

Yeah, definitely. I can take it as well. Look, for product inspection, I think for us, the primary driver will be that the the investment in the end market comes back and the confidence in the end market comes back and that customers will be willing again to invest in their facilities, to bring people into their facilities. They had been pretty restrictive given the COVID-19 situation. As I said, I think in my introductory remarks, the product line has been facing issues even with bringing service people into some of the customer sites because they were so afraid of the COVID-19 situation there. So as that market, as the COVID-19 situation eases up, we think that some of the pent-up demand of our customers will then materialize for us also into somewhat higher growth rates towards the second half of the year.

Very helpful. Thanks, guys.

Our next question will be coming from the line of Jack Nehan with Nefron Research. Your line is open.

Hi, this is Nehan for Jack. So there's been a lot of discussion around supply chain challenges related to the pandemic. How do you see this impacting the business?

Yeah, hey, in terms of supply chain, I mean, I think we're really impressed with Our team over the past year, if you kind of go back to, you know, just over a year ago in China when the pandemic started, we already had supply chain challenges. And then if you kind of go over the last, you know, 15 months or so, it's been a tremendous journey for them. The agility in the organization has been really tremendous. We still, but at the same time, we have challenges as well. I just feel like the team has done a good job overcoming those challenges. In the short term, right now we're not, We haven't built anything in particular in terms of our projections, in terms of any supply chain disruptions. And right now we feel like we can continue to manage it. We also benefit, I think, a little bit from the diversity in our business. And so if there is a component shortage in a particular area, so far it hasn't been that significant to the overall group. But certainly stuff, don't want to downplay it either, is certainly a topic that the team's working really hard at globally.

Yeah, so if I might add some flavor there as well. Definitely, it's very high on our radar screen, so to speak, to make sure that we address the potentially upcoming topics. In some areas, we have built some safety stock, especially in areas of semiconductors that are under pressure right now. As you have heard from other parts of the industry, take the automobile industry, where they have sent thousands of workers home last week, for example, in Germany, because of shortage of electronic components. Again, our supply chain team is working with our vendors very closely to make sure that we understand the overall supply chain situation, build safety stock wherever possible, and then continue to mitigate. We also continue to mitigate internally looking into even potential design changes where it would be adequate to make sure that we can continue manufacturing with other components if needed. It's pretty unpredictable right now. I would say the supply chain spends more energy than ever on this topic to ensure that we are not facing any major shortage, but we are certainly not immune from the overall trends. So no guarantees. But I can tell you that we, at least for the most competitive components we know of, we handle them also with some safety stock, et cetera.

Great. That makes sense. And can you update us on what your target is for gross margins for the year? And are there any notable factors to call out around fixed cost leverage?

Yeah. Hey, so, you know, in terms of gross margin for the year, we're kind of like looking at The second quarter will probably be overall similar to the first quarter, could be a little bit lower. And then for the full year, the gross margin level, we're thinking in the 50 to 60 basis point kind of range in terms of margin expansion. What you'll kind of see as the year progresses, I think you'll start to see a little bit more improvement from the pricing program that we talked about in the initial question from Derek. We'll continue to also have benefits, especially in the second quarter from from higher volumes. But kind of on the other side of that, we do have higher costs related to material costs as well as freight. And then another dynamic that we're going to see in the second quarter is that if you think back a year ago, that's the quarter when we started to have a lot of temporary cost savings in the business. And a lot of those cost savings will now be coming back into the cost structure in the second quarter. And so that would be kind of like something kind of going the other way.

Our next question will be coming from the line of Matt Sacks with Goldman Sachs. Your line is open.

Yeah, thanks for taking my questions. You know, just the first one, you spent some time on PendoTech, and so I'm just curious, as the integration kind of starts coming along and they're already facing a very strong market in bioprocessing and you integrate it into your global platform, what kind of new opportunities do you think you can open up for PendoTech in terms of new customers or new geographies? I know they have a presence in Europe, but I'm just curious about what Mettler can add to PendoTech as you continue to integrate them into your platform.

Yeah, good question, and let me comment on this. So, as I said, extremely pleased with the acquisition of PendoTech. I think it's really complementary also to our strength. that we already have in some of the bioprocessing and even some single use sensors that we also have in Metal Toledo. So it's complimenting the portfolio very nicely. PendoJack definitely stronger in downstream. We are at a moment stronger in upstream. But if you look at the combination of the two businesses, as I said, it's actually very beneficial for customers to have the same window for both upstream and downstream. I think we from Esmet or Toledo bring a lot to the table for Pentotech in terms of our global reach, global footprint, our customer base and expand actually the market reach for them worldwide. We also have definitely sensor technology know-how in areas where they don't play today. But they have, on the other hand, a lot of design know-how of how to implement sensors in single-use designs that are used in downstream applications. So I think there's a lot of technology leverage that comes together, as well as a good market leverage in terms of our strength and of our global reach that we have as Metal Tomato. The integration is going extremely well. We are very pleased of how things are going. There was zero disruption for our customers. Actually, the response we have received from Pendelet customers was extremely positive. We're helping them also on supply chain side, securing supply for actually increased demand for their products as well. So I think this is really a combination of two companies that will provide a lot of benefit for customers in the biopharma space.

Great, thanks for that. It's very helpful. And I know we spent some time on product inspection, but just given the level of potential pent-up demand, given what the business has been going through over the past couple of quarters, could you just help me with the sort of the sales cycle in terms of from when a decision is made to when a product is shipped and installed? What I'm trying to get at is how quickly could this turn around once those companies decide to refocus back on spend.

Look, typically I'll start off with this and then let John then chime in as well, since he has longer experience with this product line than I have. But I can tell you that the sales cycle, of course, for investments like you would see in product inspections are definitely longer. I mean, these products are in most of the cases designed for the specific application and the specific line of the customer. So you have to think about the customer has basically a food manufacturing line and they will ask, they will want to add some specific product inspection, whether it's metal detection, whether it's x-ray, whether it's visual inspection and the devices have to fit their manufacturing line. So part of the process is basically that our sales rep would come in and work with the customer on number one, what his needs are in terms of the subject that he wants to detect in there, whether it's x-ray, whether it's metal detection, whether it's visual or check weighing even. And then it comes to the point where you say, okay, we have the right solutions. And then it comes to designing to the install base of the rest of the manufacturing line that is in place there so it fits. And that cycle actually takes a couple of days to several weeks to get through the final approval process of the customer as well. And then the system is built. So it's not something that will turn around in a couple of weeks when you talk about pent-up demand. What we're doing, however, We increased our marketing efforts. We also brought our demo trucks back on the road, especially in Europe, to be close to customers who cannot go to trade shows, et cetera. So we bring the products to customers so they can see them, how they look like, and then can basically start the conversation with the whole sales rep about potential investments for the next couple of quarters.

Sean, any additional flavor you want to... No, I think you did a really good job answering it, Patrick. I wouldn't add anything to that. I think that's very much the nature of that business, which is different than our other businesses.

Great. Thanks very much.

Next question coming from the line is Dan Brennan with UBS. Your line is open.

Great. Thanks for taking the questions, guys. I appreciate it. So just in terms of... The full-year guide, just wondering, if you think about the back half of the year, I think this question was already raised, but I'm just wondering, Q2 guide, solid. Q2 does assume a bit of a deceleration when you look at, like, whether two-year or three-year stack comes. Is that just conservatism? Is that any reflection that, you know, PMIs are peaking and you just kind of think about, you know, what the business could do? Or just maybe, again, really strong quarter, just wondering how you would characterize kind of what's implied for Q3, Q4, just in terms of the you know, kind of what got you to that level?

Yeah, sure. So when we look at Q2, just to clarify, I wouldn't characterize Q2 as any deceleration from Q1. In fact, I think if you look at the multi-year stack, it's actually going to be very similar, even excluding the PendoTech acquisition. I think as we look at the second half of the year, as we kind of talked about earlier, you know, there's a few different factors. One, we have a more difficult comparison, but I guess that would neutralize in the multi-year. But if you look at this Q1, Q2, even as we kind of ended 2020, you know, we did feel like there was an element of pent-up demand and various dynamics kind of going around, you know, already starting in China in Q3 of last year, starting to accelerate in other parts of the world in Q4, and then we saw a very significant momentum gain here in Q1 with other markets outside of biopharma really starting to recover. And so, It's always difficult to really determine or quantify how much is attributable to pent up. Right now, as we talked about earlier, we're just not assuming that there's any additional pent up for the second half of the year. But if you look at our multi-year growth rates for the second half, I think it's more consistent with our historical normalized growth rates. And, hey, of course, we'll see how Q2 plays out and we'll update everybody as we kind of get to the end of the quarter.

Great, thanks. And then when you think in kind of rest of world regions and there's a lot more volatility and kind of, you know, vaccine rollout's been slow to come by, I'm just wondering, can you just comment on the rest of world, just kind of what's baked in and, you know, kind of what trends you've been seeing there?

Yeah, so, you know, what's interesting is not only in the rest of the world, but, you know, we've kind of been really monitoring this even closely in Europe when vaccines as soon as the variants started coming out. And what we've kind of observed here with this second chapter of COVID, if you will, is that it has less impact on our end markets, and it seems to be affecting things more from a social lockdown perspective and less business impact. I'm not saying that the economies are resilient to COVID and that there couldn't ultimately be some kind of a knock-on risk effect, But if we just observe things like Europe's been in pretty heavy lockdown for the last few months and you see the business environment, but then you look at the rest of the world, like a country like India who's going through a very severe situation at the moment, our end markets are still actually doing well there. We'll continue to monitor that. Of course, that's 2% to 3% of our business, probably more in the 2% kind of a range. But other than India, we're not necessarily seeing anything significant in other parts of the world. I mean, Latin America, we have, you know, I'd say a smaller exposure and not necessarily seeing impact on our business, at least at this point in time.

Great. Thanks, Sean.

And our next question will be coming from the line. It's Brandon with Jefferies. Your line is open.

Hey, thanks. Good afternoon. Um, Just one for me, Sean. I think you mentioned in the prepared remarks plans to add some commercial sales resources under Field Turbo in the second half of the year. Did you talk about magnitude of those plans in terms of headcount, and will those be targeted at any certain geographies or specific business lines?

Thanks. Yeah, thanks, Brandon. You know, hey, we're excited to restart the Field Turbo program. I think it also demonstrates, you know, how we feel about the business and the growth potential, especially as we're kind of preparing for 2022. You know, we're going to be making investments in the Field Turbo program as well as other investments for growth and other types of investments for growth in other parts of the business as well, too. When we look at the program, it is global in nature, right? but it will have a little bit of a disproportional investment in China, just given the significant opportunity we see in China in the medium to long term. And if you look at the types of resources, you know, it will be kind of similar to the past where there will be kind of a good mixture of field resources but also inside resources, including telesales resources. And we just continue to see really excellent returns in terms of our investments in the field, but also the inside resources. I mean, the telesales program continues to generate very significant leads for the company. These resources also do a fantastic job of leveraging our field sales so that they're even more effective as well, too. So we feel very good about, you know, making these investments, and I think you'll start to see them happen in the second half of the year.

Great. Thank you.

And again, if you wish to ask a question, please press on one on your phone's keypad. Next question will be coming from the line of Josh Waldman with Cleveland Research. Your line is open.

Hey, guys. Thanks for choosing me. And I just have two questions. First, just one last follow-up on the full-year guide. I wondered if you'd be willing to more specifically kind of lay out how much of the increase to the full year was due to the 1QB. versus an improved outlook and your assumptions for the remaining three quarters. And then second, I wondered if you could walk through how you're seeing orders shape up from kind of the process within the process analytics business. I believe this was an area that performed quite well throughout 2020. And I guess just seeing wondered if you're seeing any signs of the business slowing. and maybe how you're thinking about growth in that business within your full-year guide.

Yeah, hey, so maybe I'll take that one, Josh. So in terms of, you know, a high-level bridge to the guidance, you know, if you look at the Q1 beat, of course, that's part of it. But from a sales perspective, actually a bigger part of it was our Q2 is much higher than what we would have thought three months ago, as well as a modest improvement in the rest of the year. And then, of course, it also includes 1% for PendoTech. And if you look at it from an EPS perspective, I'd say just under half of the increase is related to the Q1B. And then probably something more like in the 60% kind of range was related to higher sales volume as well as a little bit of benefit from currency, which improved a little bit since the last time we spoke. offset by some of these growth investments that we talked about. In terms of process analytics, maybe I'll start that one and I'll let Patrick add some comments if he has any additional color, but hey, process analytics is doing extremely well. About half of the business or so has an exposure to bioproduction. As you can imagine, that part of the business is doing really well. We've had a lot of really great photo ops in that business actually around the world over the last few months with leaders around the world visiting bioproduction plants and then our equipment's behind it. A recent one was when President Biden was at the Pfizer plant in Michigan. So that business is doing really well. We've always felt very strongly about that. Patrick talked about that when he talked about PendoTech as well. But what we're also seeing is that the end markets other than then biopharma are also coming back quite strongly there also.

Yeah, absolutely, Sean. And I think the only thing I could potentially add here is that, as you know, this is also a strong consumer's business, so to speak, because these sensors have to be replaced on a regular base, which builds a very healthy revenue stream for us given the strong installed base we have. And then also we have new technologies, so like the intelligent sensor management technologies which is very attractive for many customers, which allows us to upgrade them and even replace some of our competitors in the space. So we are looking actually very healthy follow up for our process analytics business.

Thanks, Guy.

And we don't have further questions coming in. I would like to hand the call back to Mary.

Thank you. Hey, and thanks, everyone, for joining us this evening. As always, if you have any questions or any follow-up, please don't hesitate to reach out. Take care, everyone. Bye-bye.

And this concludes today's quarterly conference call. Thank you, everyone, for your participation, and you may now disconnect.