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spk01: Good day, and thank you for standing by. Welcome to the Medler Toledo's third quarter 2021 earnings conference call. This time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. 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.
spk00: Thank you and good evening, everyone. I'm Mary Finnegan. I'm responsible for investor relations at Mettler Toledo and happy to welcome you to the call. I'm joined today by Patrick Kaltenbach, our CEO, and Shawn Zadella, our Chief Financial Officer. Let me cover just a couple administrative matters. This call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we 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, level 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 our recent Form 10-K and other reports filed with the SEC. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions, factors affecting our future operating results, and in the business and management discussion and analysis of financial condition and results of operations sections of our filings. Just one other item. On today's call, we may use non-GAAP financial information. More detailed information with respect to the use of and differences between non-GAAP financial measures and most directly comparable GAAP measure is provided in our Form 8K. Let me now turn the call over to Patrick.
spk05: Thanks, Mary, and good evening, everyone. I am pleased to report another quarter of very strong results. Customer demand was robust, and our growth initiatives continue to be very effective. Our teams throughout the world are executing very well. I want to give a special acknowledgment to our global supply chain team, which is navigating a myriad of challenges with respect to raw materials, components, and transportation. Our ability to continue to meet heightened customer demand while overcoming The dynamic challenges in the supply chain is proving to be a competitive advantage in this environment. Now let me turn to our financial results. The highlights are on page three of the presentation, and you can see we had another very favorable quarter. Local currency sales were 16%, and we had broad-based growth in all regions. Our laboratory business had excellent growth and our industrial product lines also performed very well. Food retail was a headwind to our overall sales growth as we had significant decline in the quarter. With our strong sales growth and good execution, we achieved a 19% growth in adjusted operating income and a 24% increase in adjusted EPS. Cash flow generation was very strong in the quarter. Our end markets remain favorable and our strategic initiatives are very effective at capturing growth. Our spinnaker sales and marketing approach provides the framework to identify and pursue the most attractive market segments while also increasing our sales force exposure to the most strategic customers. We also continue to invest in the strength and breadth of our product portfolio, further extending our technology lead and reinforcing customer trust through our global service offering, which supports customers' productivity. We have successfully navigated the challenges of the global supply chain to date, but are cautious as dynamics remain challenging and conditions can change rapidly. Although pockets of uncertainty exist in the global economy, we believe we are ideally positioned to gain market share. With proven strategies, good demand in our land markets, and continued focused execution on our growth and margin initiatives, we believe we are in an excellent position to deliver strong results in 2021 and 2022. Let me now turn it to Sean to cover the financial and guidance details, and then I will come back with some additional commentary on the business and our outlook for next year.
spk07: Sean? Thanks, Patrick, and good evening, everybody. Sales were $952 million in the quarter, an increase of 16% in local currency. On a US dollar basis, sales increased 18% as currency benefited sales growth by 2% in the quarter. The Pendotek acquisition contributed approximately 1% to local currency sales growth in the quarter, while we estimate that COVID testing was a headwind of approximately 1% to sales growth. Last year, the benefit in our pipette business from COVID testing labs was particularly strong. On slide number four, we show sales growth by region. Local currency sales increased 20% in the Americas, 10% in Europe, and 16% in Asia, rest of the world. Local currency sales increased 19% in China in the quarter. The next slide shows sales growth by region year to date. Local currency sales grew 20% for the nine months, with a 21% increase in the Americas, 15% in Europe, and 23% growth in Asia, rest of the world. On slide number six, we summarize local currency sales growth by product area. For the third quarter, laboratory sales increased 23%, industrial increased 12%, with core industrial up 11%, and product inspection up 13%. Food retail came in worse than we expected with a decline of 19% in the quarter. The next slide shows local currency sales growth by product area year-to-date. Laboratory sales increased 26%, industrial increased 16%, with core industrial up 21% and product inspection up 9%. Food retail declined 1% for the nine-month period. Let me now move to the rest of the P&L, which is summarized on slide number eight. Gross margin in the quarter was 58.4%, a 20 basis point increase over the prior year level of 58.2%. We benefited from volume in pricing, which was offset in part by the challenges in the global supply chain, namely higher transportation, logistics, and material costs, as well as the impact of temporary cost actions we undertook in 2020. R&D amounted to $42.3 million in the quarter, which is a 19% increase in local currency over the prior period. The impact of temporary cost savings undertaken last year and greater project activity contributed to this increase. SG&A amounted to $240.7 million, a 16% increase in local currency over the prior year. The impact of the temporary cost savings that we undertook last year, higher variable compensation, and increased investments in sales and marketing were the principal factors driving the increase. Adjusted operating profit amounted to $272.8 million in the quarter, a 19% increase over the prior year amount of $230 million. We are pleased with this increase, which reflects very strong sales growth combined with good execution. Adjusted operating margins reached 28.7%, a 20 basis point increase over the prior year level of 28.5%. On a two-year combined basis, our margins were up 270 basis points as the prior year margin benefited from the cost actions we implemented due to the pandemic. A couple final comments on the P&L. Amortization amounted to $16 million in the quarter, Interest expense was $11.8 million in the quarter. Other income in the quarter amounted to $3.3 million, primarily reflecting non-service related pension income. Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19.5%. Fully diluted shares amounted to $23.4 million in the quarter, which is a 3% decline from the prior year. Adjusted EPS for the quarter was $8.72, a 24% increase over the prior year amount of $7.02. On a reported basis in the quarter, EPS was $8.71 as compared to $6.68 in the prior year. Reported EPS in the quarter includes 18 cents of purchased intangible amortization, 2 cents of restructuring offset by 19 cents due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. The next slide shows our P&L year-to-date. Local currency sales grew 20%. Adjusted operating income increased 35%, with margins up 210 basis points. Adjusted EPS grew 43% on a year-to-date basis. That covers the P&L, and let me now comment on cash flow. In the quarter, adjusted free cash flow amounted to $243.1 million, which is an increase of 19% on a per share basis as compared to the prior year. We're very happy with our cash flow generation. DSO was 35 days, which is two days less than the prior year. ITO came in at four and a half times, which is slightly better than last year. On a year-to-date basis, adjusted free cash flow amounted to $615.3 million, an increase of 48% on a per-year basis as compared to the prior year. Let me now turn to guidance. While our end markets remain favorable, forecasting continues to be challenging. There are pockets of uncertainty in the global economy, most notably in China. Furthermore, the widespread challenges within the supply chain and in transportation and logistics and the corresponding inflationary impact also creates uncertainty. Finally, we have seen over the last several months how COVID variants and lockdowns can occur quickly. We recognize the importance of remaining agile and adapting to unexpected changes in the environment. We are very pleased with our ability to navigate the unprecedented challenges of the last two years which we believe reflects the strength of our organization. While we remain cautious about factors outside of our control, we feel very good about our growth initiatives and our ability to continue to gain market share and drive margin improvement via our pricing and stern drive initiatives. Now let me cover the specifics. For the full year 2021, we now expect local currency sales growth in 2021 to be approximately 17%. This compares to previous guidance of 15%. We expect full-year adjusted EPS to be in the range of $33.35 to $33.40, which is a growth rate of 30%. This compares to previous guidance of adjusted EPS in the range of $32.60 to $32.90. With respect to the fourth quarter, we would expect local currency sales growth to be approximately 8% and expect adjusted EPS to be in the range of $10 to $10.05, a growth rate of 8% to 9%. For the full year 2022, based on our assessment of market conditions today, we would expect local currency sales growth to be approximately 6% and adjusted EPS to be in the range of $37.25, to $37.65. Using the midpoint of 2021 guidance, this reflects a growth rate of 12% to 13%. Some further comments on 2022 guidance. We expect a slight headwind to sales growth from the impact of COVID testing on our pipette business. We expect interest expense to be approximately $50 million in 2022 in total amortization including purchased intangible amortization to be $65 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $24 million on a pre-tax basis or 79 cents per share in 2022. In 2022, other income, which is below operating profit, will amount to approximately $13.5 million. This is higher than the $10.7 million expected in 2021 due to an expected increase in pension income. Finally, we assume our effective tax rate before discrete items will be 19.5% in both 2021 and 2022. In terms of free cash flow for 2021, We now estimate it will reach $810 million, which reflects a 29% growth on a per share basis. For 2022, we would estimate free cash flow in the range of $845 million. Cash flow in 2022 is impacted by higher variable compensation payments related to the very strong performance in 2021. Once we get beyond 2022, we expect free cash flow per share will grow in line with earnings per share and net income conversion will be in the 100% range. We expect to repurchase approximately $1 billion in shares in both 2021 and 2022, which should allow us to maintain a net debt to EBITDA ratio of approximately one and a half times. Some final details on guidance. With respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately 3% in 2021 and be relatively neutral to sales growth in Q4. In 2022, we would expect currency to decrease sales growth by approximately 1%. In terms of adjusted EPS, currency will benefit growth by approximately 4% in 2021 and be a slight headwind to adjusted EPS growth in 2022. We do not expect currency to impact adjusted EPS in the fourth quarter. That is it from my side, and I'll now turn it back to Patrick.
spk05: Thanks, Sean. Let me start with some comments on our operating results. Our lab business had outstanding growth in the third quarter despite having more challenging comparisons than it faced in the first half of the year. Almost all product lines and regions had very strong growth. We expect good growth in the fourth quarter, but it won't be the same level we have seen year to date. As we look at 2022, we expect the strong biopharma trends to continue to be favorable and expect other end markets to do well, but we won't benefit from catch-up demand segments like chemical that we benefited from this year. We also expect a bit of headwind in our pipette business from lower COVID testing activity. Overall, we believe we are well positioned to continue to capture growth and get market share in our laboratory business. An additional nice development within our lab business is that we obtained a $36 million grant from the U.S. Department of Defense to expand our pipette tip production in California. We estimate that by the end of 2023, we will expand our global tip production by approximately 15% and the grant will also allow us to enhance manufacturing, automation, and warehouse and logistics surrounding tips. We are happy with this grant, which allows us to cost-effectively increase tip capacity while at the same time improving productivity. Turning to our industrial business, Core Industrial did well in the third quarter as we are benefiting from some catch-up in demand and have been well positioned to benefit from increasing trends in automation and digitalization. Core industrial should have a solid fourth quarter. You will face tougher comparisons in core industrial in 2022, but expect to continue to drive market share gains overall. Product inspection grew 13% in the quarter. Growth was especially strong in the Americas. We expect good growth in the fourth quarter and we are cautiously optimistic about solid growth in 2022, as we should benefit from some pent-up investments from large packaged food customers and our strong product portfolio. Finally, food retail declined 19%, with pronounced declines in Americas and Asia and the rest of the world. Our production was impacted by shortages of electronic components, as these products use more standardized components, that are also used in consumer electronic products. We were also impacted by the timing of project activity. You would expect food retail to also decline in the fourth quarter. We are not forecasting much growth in 2022 as we continue to manage this business for profitability. Now let me make some additional comments by geography. Sales in Europe increased 10% in the quarter with very strong growth in lab. We would expect solid growth in Europe in 2022 against very good growth in 2021. America has increased 20% in the quarter with excellent growth in lab, core industrial, and product inspection. As mentioned earlier, food retail was down significantly in the Americas. While we will face challenging comparisons in the Americas in 2022, we expect overall good growth. Finally, Asia and the rest of the world grew 16% in the quarter with outstanding growth in laboratory and good growth in product inspection. Core industrial also did well. China had good growth, particularly given their strong growth in the prior year. We expect good growth in China in Q4 and in 2022, although it won't be at the same level we have seen here to date. We continue to feel good about China over the medium term, but acknowledge that there can be volatility in the shorter term. We are very strongly positioned in China and the team is executing well. One final comment on the business, service and consumables performed well and were up 12% in the quarter. We continue to be very pleased with the growth in this important and profitable part of the business. That concludes my comments on the business, and now let me provide some context on our 2022 guidance. We believe we are emerging from this pandemic as a stronger company and are further distancing ourselves from competition in several ways. During the last two years, we have accelerated our digital transformation in sales and marketing. We had already started on this path, but the disruption from COVID-19 allowed us to significantly accelerate our digital approach. Our use of e-demos, our vast and expanded digital library of selling materials, further development of selling guides, and greater utilization of telesales and telemarketing resources are clear differentiators for remote selling. And while we expect our face-to-face customer interactions to continue to increase in 2022. These digital tools allow us to expand our customer reach in a cost-effective manner. In addition to the digital gains in sales and marketing, we have also made great strides in sharpening our focus on the most attractive market segments, allowing us to accelerate market share gains. Increasing sophistication in data analytics is fundamental to our ability to guide our sales force to the best growth opportunities. We continue to provide what we refer to internally as top K alerts. These alerts provide tailored, actionable information about potential sales opportunities, which our market organizations qualify and integrate into the territory planning and target setting. You see the trend for greater use and sophistication of data analytics continuing in 2022 and beyond. Our global service network and our ability to continue to service our customers during this period has led to steady increases in customer satisfaction. Service keeps us close to customers, builds trust, and the customer is much more likely to purchase additional products if they utilize our service offerings. We continue to develop service tailored specific to customer needs. For example, we quickly developed a service tool for customers who utilize analytical balances in quality control to meet new requirements from the European Pharmacopeia that goes into effect in January. In addition, as software is becoming an integral part of our solutions, harmonized services for software are becoming increasingly important. A new service offering supports our instrument control software LabX to enable customers to achieve consistent performance and meet regulatory compliance. These are just two examples. We have many more within our portfolio. We believe service will continue to provide a good opportunity for growth and differentiation from our competitors. And we use the same data analytics approach to leverage service opportunities within our installed base. New product development also continues to be core to our growth potential. I am excited about the many launches that will take place over the coming year. Our product pipeline continues to be very strong, and product launches reinforce our technology leadership. While most product and software development will continue to be done in-house, we will also complement this with small acquisitions like the one we completed in October. We acquired the software company ScaleUp Systems, which is a leading provider of scale-up and reaction modeling software for pharma and chemical customers. It is a great addition to our AutoChem offering, and we now have a comprehensive offering for process development and scale-up for the pharma and chemical industries. Turning now to supply chain and margin initiatives. As already mentioned, our supply chain team has shown tremendous agility in adapting to very dynamic market conditions and continuing to support customers. There are risks and increasing inflationary pressures in the supply chain and transportation and logistic markets. We have mitigation strategies in place to help offset and believe we can continue to manage effectively, but are cautious as conditions can change quickly. Our pricing program and stern drive productivity initiatives have good traction and will help us to offset inflationary pressures that we will likely continue to face in the coming months. I trust this provides some context to our guidance and shows the confidence we have in our ability to continue to capture growth, gain market share, and deliver solid earnings growth in 2021, in 2022, and beyond. I would now like to ask the operator to open the line for questions.
spk01: As a reminder, to ask a question, you will need to press star one in your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question will come from the line of Eric Chung from Stiefel. Please proceed with your question.
spk09: Good afternoon, guys. This is Eric Chong on for Dan Arias today. Thanks for taking the question. So first, can you separate organic growth in China lab versus industrial? And within China, are you seeing any changes, competitive dynamics emerge coming out of the pandemic within China? And if there's any market share opportunities that look different pre-COVID versus post-COVID?
spk07: Yeah. Hey, Eric, this is Sean. I'll take that one. And maybe Patrick can add some color at the end of it. So in terms of the third quarter, China was up overall, just hold on a second, I'm getting my notes here, 19%. We had growth particularly strong on the laboratory side of the business in the high 30s, but we also had double-digit growth on our industrial business. So we're really thrilled with how well both businesses are performing. And as a reminder, our industrial business group particularly strong in Q3 of last year. In particular, our core industrial business was up by 24% in Q3 of last year. So when you kind of look at these numbers on a two-year basis, we feel really good. Overall, we feel very good about the competitive environment. I feel like our supply chain in general has been a competitive advantage in China as well as globally, as Patrick mentioned in the prepared comments. And then when you look at our competitive landscape in China, I feel like we continue to take market share there, and we're positioned well. And as you know, our team there is a very strong, experienced team in the region, and they're just executing extremely well.
spk05: Well, right on. If I may add a little flavor here, for both businesses, for lab and for industrial business, the investments in lab is really driven by you know investments in new lab in investments and research that we see in china and that's a very healthy business for us i think our team is exceptionally well positioned to serve that market with our products that we that we have high-end as well as local products that we manufacture in china so we i think we have the right portfolio to really continue to see growth in the lab site as well and on industrial The demand in China is actually not similar from what we see in the rest of the world. There's a lot of demand for automation and productivity solutions. And with our industry solutions, especially the new products that we also launched, like the industry 360 terminal, et cetera, we are extremely well positioned to help our customers to drive productivity and automation. And we see, what I'm hearing from China is that demand will not continue to slow down they continue to upgrade, install systems, and they're looking for ways to become more productive.
spk09: Great. That's helpful. And to pivot to the product inspection business, I think it's been about a year or so since you got SAP up and running at the Tampa product inspection site. And that was something you guys saw as a driver of operational efficiency when you talked about it. How has that translated into recognized benefits this year and Are you seeing any concerns in that business over the next quarter, given the Delta variant emergence in the U.S., along with the rising cases in China?
spk05: I can take that. Look, we are very pleased with the business. I mean, the Tampa side is really operating extremely well. The output is great. We see strong demand for the products. I think the operations is running at full capacity right now. So we have no concerns with regard of the operations from that side. I think it's a very effective site. And we consolidated a couple of sites a couple of years ago in Tampa. Of course, there was some initial effort to pull everything together, but now I think we are very well positioned to serve the market with that site. In terms of the demand for Q4, actually we see still very good momentum for PI. And also, as I said, looking forward in 2022, we are cautiously optimistic that there is additional pent-up demand in the market that we can continue to serve. We have an extremely strong product portfolio. We just recently launched a couple of new additions to the portfolio, which underlines our technology leadership in the market. And we continue to also do that in China as well. In China, we launched actually just a quarter ago, a product, what we call the X12 system, which is a mid-range market system, to help us to also serve the mid-range market in China. And it's also a great door opener for us and helps us upsetting other products as well.
spk01: Your next question will come from the line of Vijay Kumar from Evercore. Please proceed with your question.
spk04: Hi. This is Kevin on for Vijay. Looking at guidance for 2022, can you talk to the pricing assumptions behind guide and what is being implied for operating margin expansion in 2022?
spk07: Yeah, sure, Kevin. I'll take that one. So for pricing for next year, we're kind of targeting something in the 3% kind of a range. Of course, we acknowledge we're not an inflationary environment. And so we'll adjust as necessary as we kind of proceed into the year. And then when we look at our operating margin, our operating margin expansion, we expect to be in the 100 basis point kind of range on top of this year. And when you start to kind of compound that on a multi-year basis, we feel particularly good about that. If you look at this year, we'll be 120 basis points higher than the previous year. So we're continuing to deliver at the the higher end of our long-term guidance of 70 to 100 basis points. So we feel very good about our various margin expansion initiatives, pricing as well as our stern drive program. But at the same time, we acknowledge there's also a lot of challenges out in the world in terms of material costs and transportation costs that we talked about in our prepared remarks.
spk04: As a follow-up, looking at food in the quarter being down 19%, can you talk more about the segment and outlook going forward?
spk07: Yeah, so food retailing was down 19% in the quarter. That business, as you know, is a business that we manage for profitability and not necessarily for growth. Overall, it's only about 5% of our total business. That business can be lumpy, you know, impacted by the timing of a project or customer orders. At the same time, that business out of all of our businesses was the one that was negatively impacted by some component shortages because we use common electronics components in our retail scales that are also used in certain consumer products. We expect kind of going forward to be down similarly in the fourth quarter. But then for 2022, you know, we don't expect much growth in the business, probably up low single digit. And, you know, as I always say, if you look at that business over a longer term period of time, it's probably a, you know, a low single digit business. But it will be lumpy every now and then from quarter to quarter.
spk04: Thank you.
spk01: Our next question will come from the line of Patrick Donnelly from Citi. Please proceed with your question.
spk11: Hi guys, this is Elizabeth on for Patrick. I was just wondering, you guys talk a little bit about, you know, inflation in general. I was wondering if, um, you could talk about internally, if that's affecting wages and what you're seeing in labor in general. Thanks.
spk07: Yeah. So, you know, in terms of wage inflation, you know, we're going to experience higher wage inflation. I think like every company in the world, um, there's certainly, uh, it's a competitive labor market in all parts of the world. As we kind of look at our cost structure for next year, our overall cost structure will go up about 4% or so. And of course, wages are a significant component of our overall cost structure. But if you look at it by geography, of course, it's going to be highly differentiated based upon local labor markets.
spk11: Great. Thank you. That's it for me.
spk08: Thank you.
spk01: Our next question will come from the line of Jack Meehan from Nefrin Research. Please proceed with your question.
spk08: Hey, good afternoon. This is Nisar Ghan for Jack. So to start, the lab segment performed well despite supply chain challenges. Are you expecting heightened impact here in the fourth quarter?
spk05: Can you repeat it? Can you explain? Sorry, we didn't get it. What was the question? Hey, sorry.
spk08: The lab segment performed well despite supply chain challenges in the third quarter. Are you expecting a heightened impact in the fourth quarter?
spk05: Okay, good. I can take that. Sorry, we didn't get that part about supply chain. Yeah, look, for the lab business, actually, we don't really expect a bigger impact in the fourth quarter than we have seen in Q3. It is a very dynamic situation, as I said out there. both in transport and logistics, on the material supply side for the products we have in lab, we are not as exposed as we are in the retail business. So we are not overly concerned for the lab business there, to be honest.
spk08: Great, thanks.
spk01: Our next question comes from the line of Derek DeBruin from Bank of America. Please proceed with your question.
spk03: Hey, good afternoon. So I've been bouncing around between calls, so my apologies if I'm being redundant here. But how do you sort of think about, you know, your digital marketing and campaigns and, you know, your field turbo and some of these other ones where you put a lot of feet on the street and now, you know, those costs are expanding. And it's like, is there a higher return now or a deficit on pushing more into the electronic and digital? I guess how much of those efforts can, you know, how much more do you need to spend to on building out your e-commerce capabilities and such versus hiring people. Yeah.
spk05: Good. Thanks, Derek. That's an excellent question. It's a really good question, but you have to look at it also from two different angles. And you mentioned both the digital approaches as well as the field turbos. We see a lot of demand out there, and this is also why we actually invested quite a bit this year in field turbos. We have made significant investments there and putting more feet on the street because we saw the demand and actually it's paying back very quickly for its great returns. And on the digital side, we continue to evolve our digital engine overall, whether it's a marketing engine, whether it's a direct sales engine, et cetera. We are very effective on that. It has also provided for us great returns. And we always see both approaches. We have a direct conservative sales force, which is interact with customers for our very dedicated higher end products, et cetera, that also need more conservative selling. And then we continue to build out our digital capabilities to serve more transactional sales and continue to strengthen our digital marketing capabilities. I think this year we did a significant number more webinars and other things to interact with customers, which has been extremely well received. It's a great tool for us to increase leads, despite all the SEO things that we do. So we are, again, I think we are very well positioned. We made great strides forward during the pandemic. It actually accelerated a lot of investments. And we see... great returns on that. Again, I'm always looking at a business and monitoring the number of leads that are generated by these capabilities, and we are very pleased of how well they perform and how well they are received by our customers.
spk03: Great. Thank you very much.
spk01: Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.
spk10: Thanks. Good afternoon. Patrick, I realize it was a small acquisition, small software deal in the third quarter, but any material revenues tied to that? Can you just touch on, you know, whether that filled a hole in the portfolio and kind of your thoughts on your appetite for, you know, similar type of bolt-on deals?
spk05: So what's the question specifically? What type of revenues are linked to? So look, It's that the software company required scale-up system is not a large company, but it complements our portfolio in AutoCAM specifically very well. We are a very strong player in AutoCAM. The business has been growing double-digit for a long time now. We are extremely pleased with that. And we see the combinations of our existing portfolio together with these new software capabilities that require that we continue to serve, can serve our customers and additional customers much better in the future. We will have a much better reach into regions where scale-up systems couldn't go with their sales force. I think it's a very well-received solution by the customers, and we have received also very positive feedback by the existing customers with scale-up systems on the acquisition overall. They see that one plus one actually equals more than two in this regard. And then to your other part, in terms of the other part of the question, here is in terms of bolt-on acquisitions, yeah, we will continue down that line. I mean, we've mentioned that I think in every call that we continue to make bolt-on acquisitions in either in technology areas where we say we need technologies that complement our strength, or if it's other parts of the portfolio that we think are necessary in terms of the overall customer workflows. But these are smaller, medium-sized acquisitions and nothing huge transformational.
spk10: Sean, it would be helpful if you could walk us through your top line assumptions by segment for next year and be able to quantify the impact of the lower demand on lab growth next year.
spk07: Yeah, sure. So, hey, maybe I'll start with the lab business. And do you want me to kind of do Q4 as well as next year, Brandon? That would be super. Okay, great. So, hey, I'll just kind of run through this for everybody. For lab, for Q4, we're looking at low double digit, which would put us in a 20% growth range for the full year. And then for next year, we look at high single digit for lab. For core industrial, we're looking at high single digit for Q4, which would put us at mid to high teens for the full year. And then for next year, we would be more like low to mid single digit. For product inspection, we'd be high single digit for Q4, which would put us at high single digit for the full year and also high single digit for 2022. For food retailing, we're looking at a similar decline in Q4 to what we saw in Q3, which would put us down mid to high single digit for the full year. And then for next year, we're looking at low single digit growth. By geography, we're looking at Europe to be low to mid single digit in Q4, which would put us at low double digit growth for the full year. For next year, we're looking at low to mid single digit growth. For the Americas, we're looking at low double digit growth in Q4, which would put us at mid teens for the full year. And then for next year, we're looking at mid single digit growth. And then for China, we're looking at low double-digit growth in Q4, which would put us in to the mid-20s for the full year. And for next year, we're looking at approximately 10% growth. And then in terms of the other part of your question, so in terms of the COVID testing headwinds that we would have next year, that would be a slight headwind. I think it would be probably less than 1%. So I don't know if it will quite round to 1%, but it would be a modest headwind next year. That's kind of our baseline assumption.
spk10: Excellent. Thank you. Yep.
spk07: You're welcome.
spk01: Our next question will come from the line of Josh Waldman from Cleveland Research. Please proceed with your question.
spk02: Hi, guys. Thanks for taking my question. I appreciate all the detail and the outlook. Just two for you. I guess first, a quick follow-up on product inspection. Wondered if you could, I guess, provide more context on what you're seeing from an orders and quoting activity. I mean, it sounds like the U.S. was strong. What are you seeing in other geographies? And then, you know, as you look forward, I mean, it seems like there's a bit of cautious optimism in kind of the commentary, but high single digits seems pretty strong here, you know, based on the comp. from 2021. Just any more detail on kind of the, you know, what's giving you confidence for next year would be helpful.
spk05: Yes. Yeah. Good questions, Josh. So, product inspection is that we are very pleased with the current quarter, Sean, that just gave you the, you know, the growth for Q4. How we think about that, high single digits. We see demand in America. We see good demand also in Europe. China, again, is has momentum as well. I mentioned that we have launched a new product there just a quarter ago. Overall, there is some pent-up demand. The pent-up demand is probably more, we're seeing currently more in the US. And if I look at the order situation as well as the leads we're getting, we have actually pretty high lead activity right now. We see a lot of quotes, requests, both from Europe and the US, but I would say even higher in the US than in Europe. So with that, having said that, we are, again, cautiously optimistic about 2022, that we can capture that pent-up demand. We are well positioned for our product portfolio. And also, in terms of our manufacturing capabilities, I think we are operating very well and very effective. We have not seen a lot of impact on the supply chain side for that product line. So in terms of exposure to semiconductors and components, it's not as exposed as we mentioned it for retail.
spk02: Got it. Thank you. And then I wondered if you could give us an update on what portion of your revenue now is coming from bioproduction, I guess, in light of some of the recent acquisitions, thinking Pindotec. And then maybe what's kind of built into your assumptions for 2022 from that business?
spk07: Yeah, sure. So overall, we don't have a precise number on that, Josh, but we typically like to say that overall life sciences in total is about a third of our business. I'd acknowledge it's probably a bit more than that right now, just given some of the acquisitions we've done in the last few years and the high growth we've had in that area. And then if you break that down into pieces, of course. Large molecule in general is an important piece of that, and then bioproduction in particular is also an important part of that. If you get into the pieces of bioproduction, the area that we benefit the most would be in our process analytics business, which is probably in the 10% range of our total business, maybe a little bit more, and an important part of process analytics is in bioproduction, but of course we also sell industrial scales and other applications into the bioproduction environment as well.
spk02: Yeah, appreciate it, guys.
spk07: Yep, thank you.
spk01: Our next question will come from the line of Tycho Peterson from JP Morgan. Please proceed with your question.
spk12: Hi, this is Rachel. I'm for Tycho. Thanks for taking the questions. So you flagged service and consumables as up 12% in the quarter. I was just wondering if you could talk a bit about the trends that you're seeing within both of those. Currently, I think consumables is roughly about 10% of revenue and services is about 20. What's your long-term goal for each of those? And then could you also just touch on how are you competing against third-party service providers? Thank you.
spk05: Very good question. Look, we are extremely pleased with the performance of service and consumables. It's a very profitable part of the business for us. In terms of growth rate for services, think about it mid to maybe high, at good times, high single digits, more mid-single digits growth rate. Consumables is higher right now. We are, of course, continuing to broaden that portfolio moving forward, both on the consumable side for our products, but we're also increasingly providing higher value services for our products. And I mentioned the one, for example, for the European Pharmacopeia solution out there that we just launched. That is, I think we have a lot of opportunities for our installed base of products that we have out there to increase service contracts overall and to provide more differentiated services to our customers. We serve a lot of our products, but there's of course also competition in some areas like the scale areas. I think we are positioning ourselves also in the future by providing higher sophisticated services, preventive maintenance and other things, very comprehensive inventory management solutions as well. So very optimistic about the growth opportunity. Again, we are very real position in terms of the competitive position, as we are also linking our software solutions to our hardware solutions and services, and that makes it more difficult for competitors to also take over some of the services that we can exclusively provide to some of our products.
spk12: Great. That's it for me. Thank you.
spk01: Our next question comes from the line of Matt Sykes from Goldman Sachs. Please proceed with your question.
spk06: Hey, everybody. Thanks for taking my questions. Appreciate it. Just one question for me, a big picture question. Just looking at Stern Drive as sort of a program and how institutionalized that has become and how successful that has been over the years and the iterative process and productivity enhancement it gives you, I'm just wondering, looking at this current environment, just with inflation, supply chain constraints, we just really haven't seen something like this in a number of years. Has it caused you to think differently about how you implement Stern Drive or different aspects of it? Has it made you think about different ways you can implement it or different levers you can pull, just given the change in the environment that we've seen from a cost and supply chain constraint perspective?
spk05: Yeah, good question. Look, Stern Drive has many flavors. It's back office automation ideas. It's manufacturing, setup automation. ideas. In some areas, it's product redesign. And it's a program that has been running for many years, and the team is actually going through several waves of Stern Drive. We call them internally waves. We just launched the next wave this year. The team has come up with a whole long list of good ideas that we just recently had all the fulfillment of supply chain showed us the potential of all these activities. We had some concerns this year that our stern drive activities could be impacted actually by all the other activities given that were necessary, given the restrictions we have seen in the market, logistics challenges, et cetera. But I'm happy to say the team didn't skip a beat there, and they actually delivered on the promised savings that they had promised us for 2021 as well, which helps us to also counter some of the inflationary pressures. Now, do we make a significant shift in terms of the activities given the logistic challenges right now? I would say no, because again, they are very focused on productivity gains, on sometimes product redesigns, driving productivity and efficiency. We have on the supply chain side, we have a dedicated team in place who tackles all the other logistical challenges. on the supply chain side, like shipments and shipment alternatives, et cetera, access to different suppliers when it comes to components. We have dedicated resources who constantly screen the market for best opportunities for supply. I think this is also why we probably came through this crisis so far very well, not having a lot of issues with component shortages, except for retail that we mentioned, but in other areas where we also use semiconductors, I think the team has been very effective in finding alternatives and also working closely with the internal engineering teams in case we would have to redesign products and use alternative products. I think it's working very well. I mean, it was a long-winded answer, but overall, we are extremely pleased with SternDrive. I think it's still a lot of runway. We're driving this with a constant improvement process mindset. And, again, we have dedicated teams in all of our major sites who capture these opportunities.
spk06: Great. Thanks very much. Very helpful.
spk01: At this time, there are no further questions in queue, and I would now like to turn the call back over to Mary for closing remarks.
spk00: Hey, thank you, and thank everyone for joining us this evening. As always, if you have any questions or follow-up, please don't hesitate to reach out. Take care. Bye-bye.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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