Revvity, Inc. (RVTY) Q3 2021 Earnings Call Transcript

Good day, and thank you for standing by, and welcome to the PerkinElmer's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, this conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Willoughby, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to PerkinElmer's Third Quarter 2021 Earnings Conference Call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer; Jamey Mock, our Senior Vice President and Chief Financial Officer; and Peter Wrighton-Smith, Founder and Chief Executive of Oxford Immunotec. If you have not yet received a copy of our earnings press release or slide presentation, you may find copies of them on the Investors section of our website at perkinelmer.com. Please note that this call is being webcast and will be archived on our website. Before we begin, I'd like to remind everyone of the safe harbor statements that we have outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. Statements or comments made on this call will be forward-looking statements, which may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment, we will do so promptly. With that, I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good afternoon, everyone. Reflecting on the third quarter of 2021, I can confidently say that our efforts, our investments and our business performance together truly reflected the essence and impact of the new PerkinElmer, a concept we introduced at our analyst meeting back in June. The operational improvements, recent acquisitions in life sciences and diagnostics, R&D investments in the food and applied markets, accelerated innovation across the board and a ramped up focus on culture, employee engagement and technological innovation have collectively been bearing fruit. While there is still significantly more to come, I think between our very strong financial results and the additional context that Jamey, Peter and I will share with you today, we will further illustrate the immense incremental value we are delivering to all our stakeholders now and are positioned to do so well into the future. To stay on this idea for a moment, our ongoing portfolio transformation into higher-growth end markets continued during the third quarter as we closed on our previously announced acquisitions of SIRION Biotech and Immunodiagnostic Systems. We also announced and were able to fairly quickly close on our largest acquisition to date, BioLegend, three months ahead of schedule. I'll touch more on these great recent additions in a bit, but I'm thrilled to see the initial teamwork that is already occurring between these businesses and the rest of PerkinElmer. While collaborations are already underway, I expect there will only be expanded and turbocharged coming out of a company-wide innovation summit we are hosting in a couple of weeks. I'm very proud of how our now 15,000 employees around the world have continued to execute during the third quarter despite facing existing challenges and even starting to come across some new ones. While Jamey will provide more details in a bit, I'd like to highlight the 16% non-COVID organic growth we generated in the quarter, which was again solidly ahead of our guidance. Our COVID revenues came in close to twice our expectation as testing remained similar to the levels we experienced in the second quarter and our teams were again well supplied and ready to meet the incremental demand. This led to adjusted earnings per share in the quarter of $2.31, which was over 40% above our guidance despite the ongoing strong investments back in the business. Overall, we continued to see strong non-COVID demand trends across the business with double-digit growth in all major regions. So while we may be facing a few new headwinds, I feel the team is proactively responding and executing for our customers. Just as we have successfully done over the past few years, we're now up against numerous other pressures across our business and the global economy. While I'm pleased with our strong performance in the third quarter and excited about all our recent acquisitions, I wanted to spend a little more time today sharing some insight into two of the newer additions as we haven't had the opportunity to discuss them in greater detail with investors up until this point. First, I'd like to touch on Oxford Immunotec, which we closed back in March. As Steve mentioned, Oxford's Founder and CEO, Peter Wrighton-Smith, has joined us on today's call. As many of you may know, from its days as a stand-alone publicly traded company, Oxford is currently the #2 player in the latent tuberculosis testing market globally. And I think with some of our core capabilities and broader regulatory, distribution and service offerings, the business is well positioned to gain share in the years ahead. In terms of what's been happening since Oxford joined the PerkinElmer family earlier this year, I'm extremely pleased to share that it is on pace to exceed its revenue targets for this year and has been making great progress on rolling out its automation workflows around the world with an anticipated approval for this new workflow in the U.S. next year. I thought it might be helpful to share just some of the ways that two companies have been already collaborating within the first six months of being under the same roof. I hope it will give you a feel for the synergy potential we both believe exists. With the help of our integration transformation office, which was set up last year, Oxford and PerkinElmer are already leveraging each other's capabilities in a number of ways, such as integrating our JANUS liquid handlers into Oxford's medium throughput automation workflow that is currently seeking and receiving regulatory approvals around the world, or Oxford's utilizing Nexcelom's Celigo cell counting instruments in its new high throughput automation workflow. In addition, Oxford is also already starting to leverage PerkinElmer's existing field service force to assist with the installation of these automation offerings. Oxford is now beginning to transition from being a developer and manufacturer of diagnostic kits to now offering customers fully automated workflows for TB testing. While it is still early and we have many other plans in process that will play out over the longer-term, those are just a few examples of the initial progress that we are quite excited about. Now I'd like to turn it over to Peter to share some thoughts on the business since becoming part of the PerkinElmer family and maybe some perspective on where he sees the business going in the coming years. Peter?

Thank you, Prahlad. Our strategy for advancing in the attractive growing latent TB testing market is based on a number of key pillars: firstly, expanding our commercial presence to maximize our penetration of existing and new countries; secondly, dramatically improving our workflow through automating our assay and bringing that new automated workflow to all major jurisdictions worldwide and in a variety of throughputs to suit customers of different sizes; thirdly, improving the economics for our customers and us. This is about reducing our cost of goods to our customers and our advantage, but it's also about capturing more value from the product and service ecosystem created by automation. Being part of the wider PerkinElmer family is helping us to execute better in all three of those areas. For example, we're already leveraging EUROIMMUN's presence and field forces to access new countries in South America and leveraging Tulip's presence and relationships in the Indian subcontinent. We are accelerating our automation journey, as Prahlad already mentioned, by adopting PerkinElmer's suite of automation both from core PerkinElmer in the form of JANUS and by utilizing technology from acquired companies such as EUROIMMUN and Nexcelom. We're also able now to capture more of the value from automation as we have a pathway through PerkinElmer's OneSource business and its global supply chain capabilities to sell automation consumables and automation service contracts, both things that we were not equipped to do on our own. We're now also exploring a number of additional COGS reduction opportunities by in-sourcing key raw materials that we currently purchase from third parties. BioLegend in particular has a number of antibodies and other immunological reagents that we're looking to incorporate into our own immunology-based technology. At the same time, we've been able to streamline our cost structure. Clearly, we're no longer supporting a public company infrastructure ourselves, but more generally, we've been able to reduce our G&A spend by leveraging PerkinElmer's capabilities in those areas. Putting all this together, even just six months since becoming part of the PerkinElmer family, we're seeing intensified revenue growth and improved profitability on the bottom line. We're also having growing success in deploying our T cell technology in SARS-CoV-2. Our testing service revenues continue to grow in support of the Phase II and Phase III licensure studies and in support of vaccine deployment decisions under the umbrella of the U.K. vaccine's task force. On the kit side, we're also seeing growing and maturing demand as the important role of T cells has become more widely recognized as a critical means of assessing vaccine efficacy, particularly in immunosuppressed and other high-risk populations. Supported by close to 15 peer-reviewed publications on our technology, T cell testing is now coming into the mainstream in several European countries. We believe this testing will last well into 2022 and probably beyond as we learn to live with SARS-CoV-2 as an endemic mutating global virus. We also see an opportunity to grow our immunology testing services in support of vaccine and pharma clients more broadly outside of SARS-CoV-2. Clearly, we have our own well-respected capabilities in T cell testing. But as part of PerkinElmer, we have two other distinct advantages. Firstly, we can leverage the infrastructure of PerkinElmer's global network of specialty clinical laboratories to establish wider worldwide coverage, something of growing importance to vaccine and pharma clients that want to run trials all over the world. Secondly, we're now partnering with BioLegend as their world-leading portfolio of immunology research reagents gives us the expertise to rapidly expand our service offering beyond our own core technology. With that, I'd like to hand it back to Prahlad.

Thank you, Peter. I look forward to seeing the progress we achieve in the upcoming quarters. I would also like to discuss our recent acquisition of Immunodiagnostic Systems, or IDS, which was finalized in early July and may have been somewhat overlooked due to our analyst meeting and the announcement to acquire BioLegend. I want to ensure that our shareholders understand why we are enthusiastic about IDS joining PerkinElmer and what value it adds to the company. The incorporation of IDS is a prime example of where we anticipate significant synergy. Let me share a bit about the company. IDS develops and manufactures medium throughput chemiluminescence analyzers and assays and was previously publicly traded in the U.K. It has been evolving its assay menu over the last few years. With the addition of IDS, we have greatly improved our in-house expertise in chemiluminescence assay development, enhancing our resources to support the development and launch of EUROIMMUN's high-throughput, random access chemiluminescent system, Accentis, which we plan to introduce next year. Furthermore, by incorporating IDS's existing mid-throughput RA10 chemiluminescence analyzer and its current customer base, we will broaden our product offerings upon the launch of the Accentis platform. In just the few months since closing the acquisition, we have begun to leverage our combined commercial and distribution strengths. For instance, at the recent AACC meeting in Atlanta, PerkinElmer diagnostics, EUROIMMUN, IDS, and Oxford Immunotec jointly showcased our offerings and engaged with customers in person for the first time. Moreover, the acquisition of BioLegend, which was finalized in mid-September and stands as the largest deal in our company's history, has kept us notably active. I am pleased that we managed to close the deal months before the year ended, allowing all involved teams to be prepared and energized as we enter next year. Although BioLegend has only been part of PerkinElmer for about 45 days, its financial results have remained exceptionally strong and have continued seamlessly during this transition. This reflects the effective leadership from the BioLegend team, who are doing an outstanding job in maintaining business operations for customers while ensuring a smooth integration into the PerkinElmer family. I am particularly excited about the collaborative efforts that are starting to emerge between the BioLegend team and the broader PerkinElmer organization. As I briefly mentioned earlier, I’m looking forward to our upcoming company-wide Innovation Summit planned for later this year at BioLegend's San Diego campus. This event will bring together leaders and experts from R&D, innovation, commercial, and operational sectors across the company for several days of collaboration, strategy, and bonding. I am eager to see the valuable ideas and connections that arise from this gathering. In terms of innovation, we received U.S. FDA Emergency Use Authorization in early October for our PKamp respiratory SARS-CoV-2 PCR assay, which detects flu, RSV, and COVID in one test, a development expected to play a more significant role in testing as winter approaches in the Northern Hemisphere. Additionally, our EUROIMMUN division received FDA Emergency Use Authorization for its quantitative COVID serology assay, targeting the S1 protein. These two new COVID assays strengthen our robust portfolio of serology, antigen, and PCR assays used in the ongoing battle against the pandemic. From a corporate responsibility perspective, I was encouraged by the efforts of my colleagues during our recent company-wide global impact day held last month, where over 350 different initiatives were carried out by our colleagues worldwide. As you may recall, we outlined our initial ESG-related targets during our analyst meeting in June, and I’m pleased to see activity already underway to achieve them. For example, we recently conducted a new company-wide employee engagement survey to ensure that PerkinElmer remains a great workplace and a team everyone is proud to be part of. The initial results are very promising in areas such as engagement, diversity and inclusion, and health and well-being. However, I believe there is always an opportunity for improvement. Furthermore, in our recently released corporate social responsibility report, we have begun reporting under SASB, which is now regarded as the leading industry standards platform. By adhering to this framework, we are building on our prior reporting practices aligned with the carbon disclosure project, consistent with the task force on climate-related financial disclosures. I am confident we have solid plans and initial targets established, and I am pleased to see the company formally rallying around these initiatives. In conclusion, despite various external pressures such as the current semiconductor shortage, logistics challenges, and potential global tax reforms, I am proud to witness our team proactively navigating these issues with agility, innovation, and a strong focus on customer service through effective global teamwork. This dedication has enabled us to mitigate these challenges' impacts successfully and continue achieving and even surpassing our objectives, as we did again in the third quarter. The end of the year is typically a busy time filled with commercial activities, strategic and operational planning, and both professional and personal commitments, and I anticipate it will be the same this year; however, I am confident that our teams are prepared for the task. I will now turn the call over to Jamey for more details and insights regarding our third-quarter results and guidance for the fourth quarter. Jamey?

Thanks, Prahlad, and good evening, everyone. Before turning to the financial results, I want to remind everyone that our third quarter earnings call presentation has been posted on the Investors section of our website under Financial Information. As Prahlad mentioned, it was quite a busy quarter for the company. I believe the team performed extremely well, and we continue to make great traction on executing the transformation of the business from both an organic and operational perspective, but also inorganically as well, which I'll touch on in a bit. Both our COVID and non-COVID revenue performance exceeded our expectations with double-digit growth in both our Discovery & Analytical Solutions and Diagnostics segments. Additionally, the recent additions to the PerkinElmer family remain on track. So we are set up well heading into the end of the year. During the third quarter, adjusted revenue grew 21% compared to last year to almost $1.2 billion and included a 1% foreign exchange tailwind and an 8% contribution from recent acquisitions. Organic revenue grew 12%, 17 percentage points better than our guidance as our non-COVID revenue grew 16% organically, ahead of our 12% assumption, and our COVID revenue did not fall off to the degree that we had anticipated. As it relates to COVID, we generated approximately $300 million of revenue from our related products and services, which was close to double the $165 million we had projected and down only slightly from the $365 million we generated in the second quarter. Approximately $170 million of our COVID-related revenue in Q3 came from core products with the remainder coming from our COVID-related lab services. As also highlighted by others, we saw a noticeable uptick in demand for our PCR tests and RNA extraction kits in the latter half of the quarter, and some contribution from recently awarded testing contracts such as with the Department of Health and Human Services and Mount Sinai. As we have assumed in our guidance, we reduced capacity made available for the State of California in our Lab-In-A-Lab offering at the beginning of the quarter, which brought down its revenue contribution as compared to the first half of the year. However, we did see average daily volumes in the lab increase significantly as the quarter progressed with a number of days in late September surpassing 40,000 tests per day. I'm extremely proud of what we've been able to accomplish at our lab in California over the last year from setting it up from scratch in under 70 days to immediately and appropriately addressing all workflow challenges that may come up when getting something like this off the ground in such a short period of time and in the middle of a pandemic to successfully meeting and delivering on varying levels of demand on a week-by-week and month-by-month basis. Given the successful contributions, I'm happy to report that our contract with the state for this COVID testing lab has been extended by another year through the end of October 2022. As it relates to our business segments, Diagnostics generated $654 million of revenue in the third quarter, which represented 56% of total revenue and was up 21% year-over-year. Organically, the business grew 13% and was up 25% organically on a non-COVID basis. Geographically, our Diagnostics business was strong around the world, with strong double-digit non-COVID organic growth in all regions. As it relates to our immunodiagnostics franchise, total revenue was up more than 40% in the quarter, with strong growth in both COVID and non-COVID products and services. EUROIMMUN continued to grow robustly and was up more than 20% organically. This business is fantastic and one that we continue to invest in heavily as it is now on pace to do more than $500 million in revenue this year. As Prahlad mentioned, we closed on our acquisition of IDS in early July and are excited to see the R&D and commercial synergies it can provide with our existing EUROIMMUN franchise. Our applied genomics business, which also falls within our broader Diagnostics segment, continues to take share on our improved brand recognition. While COVID-related sales in the business have fallen off as equipment-related capacity has been built out, we continue to see strong demand for NGS reagents related to COVID variant detection, and our high-throughput real-time PCR workstation, the explorer G3, continues to see strong uptick. Our non-COVID revenue was up more than 50% as core NGS and large molecule activities continue to bounce back after being initially hampered during the pandemic, and funding continues to remain strong. When I think about all the ways the pandemic has impacted our business, I believe our applied genomics business in particular is one that is going to permanently benefit over the longer-term as customers now have so much more experience with our high-quality instruments and kits, and our sales force is now even better connected with key opinion leaders in this space. In our reproductive health business, while we continue to face pressure globally from declining birth rates, particularly in China, we were again able to grow this business double-digits overall in Q3 through a combination of menu and geographic expansion, new product introductions, growth within our labs business and a modest benefit from easier year-ago comps, particularly in Asia. Turning to our Discovery & Analytical Solutions segment. The business generated $513 million in revenue in the quarter, which represented 44% of total revenue and was up 21% year-over-year. Organically, the business grew 10%, led by continued strength in our life science business with double-digit growth from pharma customers and mid-single-digit growth from academic and government end markets. In our discovery business, we are pleased to have closed on our acquisitions of both SIRION and BioLegend in the quarter, and we are excited to see their contributions to our growth in large molecule in the years to come. Sales into industrial and applied markets grew in the low double-digits, driven by strong growth in mass spec, while food was up mid-single digits. Looking at the company overall from a geographic basis, we saw double-digit non-COVID growth in all regions and greater than 20% non-COVID organic growth in China. This led to our total company non-COVID organic growth coming in at 16%, which was 400 basis points above our guidance. Operationally, we are extremely pleased with our performance in light of various macro pressures. Our adjusted operating margins of 31% remained strong, driven by volume leverage, favorable mix and productivity programs, slightly offset by continued investment in our talent and culture, research and development, improved e-commerce, network and security infrastructure, digital capabilities and strengthening our customer relationships, which we expect to help drive results in the years to come. Overall, adjusted earnings per share were $2.31, which is up 11% versus a year ago and 43% above our Q3 guidance. As it relates to the balance sheet, we had a lot of moving pieces this quarter with the closing of IDS and SIRION and the financing and closing of BioLegend. We finished the quarter with $5.1 billion of debt and approximately $500 million of cash. Free cash flow was extremely strong in the quarter and so far this year. We generated $324 million of adjusted free cash flow in the quarter, which equates to a 122% conversion of our net income. This brings our adjusted free cash flow so far this year through the first nine months to over $1 billion with a conversion rate of over 100%. Given these strong cash flows and the better-than-expected earnings, our leverage at the end of the quarter stood at 2.2x net debt-to-EBITDA on a trailing 12-month basis as we added $2.8 billion in new debt to fund the acquisition of BioLegend. It may be a little counterintuitive, but we expect our net leverage to increase over the next few quarters even as we begin to aggressively delever as we expected earnings-related tailwinds from our COVID revenues to come down. As it relates to guidance, we are expecting Q4 adjusted revenues of approximately $1.2 billion, which assumes 8% non-COVID organic growth, $200 million in COVID-related revenues and an 11% contribution from M&A and a neutral impact from foreign exchange. On the bottom line, we are now expecting adjusted earnings per share of $2.05, which assumes approximately $26 million of interest expense, a tax rate of 22% and 126 million to 127 million of diluted shares outstanding. Given our strong performance year-to-date and our confidence in our fourth quarter outlook, I'm happy to report we are raising our full year revenue and earnings guidance for the third consecutive quarter this year. We now expect over $1.4 billion of COVID revenue and at least 15% non-COVID organic revenue growth for the full year. This brings our total adjusted revenue to just under $5 billion, including an 8% contribution from M&A and a 2% tailwind from foreign exchange. We are now bringing our adjusted earnings per share guidance for the year up nearly $1 to $10.81 per share, which equates to 30% year-over-year growth. All of this guidance is detailed on the second to last page of today's presentation as well. As it relates to BioLegend, we expect total year sales this year of approximately $320 million, which would be up 33% from 2020, included in our fourth quarter adjusted revenue guidance is approximately $80 million of contribution. Due to the faster-than-expected close of the deal, we are even more confident in the previously announced accretion of $0.30 and greater than $0.50 in 2022 and 2023 respectively, while there will be a modest dilutive impact in the fourth quarter as a result of the earlier closing. Importantly, integration activities have commenced sooner than anticipated. And as Prahlad mentioned, we are excited about our upcoming company-wide Innovation Summit in a few weeks at the BioLegend headquarters. Additionally, we were able to close on our financing at rates slightly below our deal model and current interest rate levels. So overall, a fantastic outcome, and our teams are off and running. In closing, I'm encouraged as our team continues to perform at a high level. Our organic and inorganic investments are paying dividends now and set us up well looking forward and our transformation of the business to the new PerkinElmer is well underway. We are excited for a strong finish to the year and are well positioned heading into 2022 and the years ahead, not just financially, but also with our people and culture and most importantly, for our customers. With that, I'd now like to turn it over to the operator to begin Q&A.

First question comes from Derik De Bruin with Bank of America.

This is Mike Ryskin on for Derik. I want to start with your comments on the COVID lab contract being renewed. That was always an option, but not something that was necessary price paying. So anything you could say in terms of expectation for testing volumes going forward in Q4 and certainly into '22? Is something in the $100 million a quarter range a fair assumption to start? Or are you being even more conservative than that?

Mike, so yes, we are proud to have this renewed. The way I think about it is, while it's renewed for a year, COVID is such a fluid environment, and we continue to work with the state that it's more like a quarter-by-quarter basis. So as you may know, if you read the contract, the state has the ability to cancel within 45 days. So we really only have line of sight to the next 90 days at this point. We also restructured it to take down the capacity to 40,000 tests per day. We also restructured the variable fees. So for the most part, it's a pretty steady base in terms of revenue, regardless of whether it's 20,000 tests per day or 40,000 tests per day; the revenue remains relatively stagnant and the fourth quarter is probably to the tune of about $90 million baked into our estimate.

Okay. Great. And then on the base business, you had some comments on China in the prepared remarks. I was wondering if you can go into a little bit more detail on what you saw during the quarter and sort of how that's trended. There's been a lot of noise there both from a sort of a supply chain perspective, but also just underlying demand. If you could go into more detail on that, both for DAS and Diagnostics, actually.

Yes. Mike, I want to address the current situation we're hearing about. The circumstances in China are still evolving, especially with the recent news regarding lockdowns in some provinces. Overall, we feel positive about our end markets, including in China, where our backlog is at an all-time high, and we are executing effectively. For the mid-to-long term, we remain optimistic about China. However, we need to stay alert and attentive to the developments regarding the ongoing lockdowns.

Any sense you could give us the growth number that you saw in the quarter?

Yes, it's a little over 20%, Mike. And I would say Diagnostics led the way. DAS was still double digits, but DAS didn't go down as much last year, if you remember, it's a little bit of an easier comp from a Diagnostics perspective because much of the reproductive health and autoimmune testing shut down really in the second quarter last year, a little bit in the first quarter. By the third quarter, it started to come back, but I'd say it's a little bit of an easier comp on the Diagnostics side, but both businesses grew nicely and have for the last three quarters here.

Our next question comes from Tycho Peterson with JPMorgan.

Sorry to press a little more on the China dynamic. But I think one of the questions that's coming up is just on the tender front, right? We've seen Anhui and probably other regions, Sichuan, Yunnan, et cetera, following similar policies. So is your view that the tender headwinds around the IVD market could expand nationally over the next year or two? And what type of pricing impact do you expect? And are there offsets from your perspective with volume?

Yes. Building on what Prahlad mentioned, I believe we are well-prepared for this situation, and it seems inevitable at some point. Localization isn't a new trend; it has been getting more attention lately. This has already affected some of our Diagnostics products. We have five sites where we are localizing EUROIMMUN, and they should be operational by 2022. With over 2,000 employees in the area and strong local brands, we have established a solid relationship. Each challenge presents an opportunity. While there may be pricing discussions on tenders, having the best value proposition can help us gain significant market share. This situation will arise eventually, and we will navigate through it. We have two strong businesses in autoimmune testing and reproductive health. Though we haven't been impacted yet, I believe it will affect us at some point.

And Tycho, I think as we've shared in the past, we've already transitioned most of our reproductive health reagents manufacturing in Taicang. So that transition has already taken place over several years. As Jamey pointed out, this is not something new. Additionally, immunodiagnostics is a very small component of our overall revenue.

And I think maybe you saw, Tycho, that the government has come out and tried to say there's no disadvantage for multinational companies that are local in China. So to Prahlad's point, we have the reproductive health side that's local there, and the EUROIMMUN side will be local by the start of '22.

Okay. That's helpful. And then a follow-up on just guidance here for the fourth quarter, are you implying that instruments might be down sequentially? And then as we think about 2022, you obviously laid out the 2023 bridge at the Analyst Day. Have any of the underlying assumptions for 2022 change in terms of kind of non-COVID revenue growth in the 5% to 7% range?

Yes. Regarding our instruments, there are two main aspects to consider. Our applied genomics business, excluding COVID-related areas, has been experiencing remarkable growth, exceeding 50% as mentioned in my prepared remarks. While I believe this growth remains strong, I do not anticipate it to continue at such a high rate. Therefore, we've adjusted our expectations slightly. Additionally, we have accounted for potential supply chain disruptions across all our instruments, which adds some buffer. We feel confident about our guidance; although instrument sales may decrease slightly, we have managed effectively so far, and we hope to exceed our guidance again.

Okay. And then on 2022?

Yes, 2022. Yes, not too much. I think the way we think about the business in terms of the core growing 5% to 7%, and then the numerous acquisitions have all been mid-teens to high double-digit growers, and I don't think anything has changed there. So as we head into 2022, the end market still seems strong, and we feel pretty confident about the 5% to 7%.

Our next question comes from Matt Sykes with Goldman Sachs.

I wanted to ask a big picture question regarding your comments about Oxford Immunotec in-sourcing some of BioLegend's products. From a broader viewpoint, as you merge these companies, what in-sourcing opportunities do you foresee? Do you think these opportunities are greater than what you currently anticipate? Additionally, could you provide any context or potential quantification regarding in-sourcing opportunities and the benefits that may arise as you continue the integration of these companies?

Matt, this is Prahlad. So I'll let Peter talk specifically around Oxford and BioLegend and how that's panning out. But I think overall, in most cases, what we have seen is around Horizon or Nexcelom, I think initially, when we started putting the story together, to where we are now. The more and more we get to know these companies and the more and more we get to know the technologies, it's easy for us to foresee that one plus one is definitely more than two. And probably in more cases, more than three. Just take a look at Horizon and how SIRION fits into the bill, right? The licensing technology that allows us to bring the cell and gene therapy markets together. Going to our customers, being able to look at small molecule and biologics now at the same time, synergies from a commercial perspective, technology perspective, it continues to help bolster the story that we have seen. On the diagnostic side, with the addition of IDS while EUROIMMUN was working on Accentis as a big automated platform, the ability to leverage their RA10 platform, and at the same time, the several assays which they have already qualified now being able to do that both on a smaller platform and a fully automated platform. It gives you a much more expansive menu than what we thought we could leverage. So these are just a couple of examples, and I'll sort of ask Peter to talk specifically around Oxford and BioLegend. Peter?

Yes. Thanks, Prahlad. So from my perspective, as we have learned more and more about the different aspects of the PerkinElmer family, the opportunity set for us just continues to grow. And PerkinElmer is very unusual in having a huge amount of life science reagents, which a lot of Diagnostics companies, obviously, consumes raw materials in production of their kits. But it goes far beyond that; we are starting to benefit from PerkinElmer's purchasing power as a combined entity. We also have the fact that PerkinElmer makes instruments and a lot of different kind of instruments, which is very helpful for us in our automation journey. And we also have the fact that PerkinElmer has a great service infrastructure. And all of those things mean that companies like us who joined the family then have to replicate and duplicate those capabilities. So from my perspective, I'm seeing ever-increasing opportunities to in-source either products, raw materials or services from the wider PerkinElmer family, and I'm seeing my synergy opportunities that grow as a consequence.

Great. That's very helpful. And then just a specific question. Just DAS margins. You guys have made a lot of progress over the past 1.5 years. And you cited a couple of things with the improvement in operating margins for DAS, mix volume leverage productivity. Of those elements, which can we kind of perceive to be fairly durable? And where do you think the limit might be for increased margin expansion within DAS?

I think they're all durable, Matt, I would say mix is probably the biggest beneficiary, particularly in the discovery and life sciences side as that becomes a bigger portion of DAS; it typically comes with higher margins. Now with the addition of BioLegend and now having a $700 million reagent business sitting in DAS, in terms of life sciences, those normally come with pretty high profit margins. So I'd say mix going forward will be durable and probably the biggest driver. Certainly, there are programs that we've been putting in place that we've been talking about in terms of better procurement as we roll out NPIs, refreshing all the configurations and the number of configurations we have, and the simplicity of them. We've been doing a little bit around sites, and we've been doing a lot with our service team to be more efficient from a royalty service perspective. So I think all are durable, but I think the quickest, biggest impact you get is from mix. And I think that's what you're seeing in DAS this quarter with life sciences growing double-digits here.

Next question comes from Vijay Kumar with Evercore ISI.

Jamey, one on the guidance, and I had one for Prahlad, big picture. On Q4 here, so the base non-COVID business, organic of 8%, considering that you guys just did 16% in 3Q, your comps don't get materially harder. So I'm curious what that 8% is contemplating in Q4? Is there some China noise? Or is this just conservatism on your part?

Yes, that's a good question, Vijay. I believe it's mainly a matter of being conservative. To begin with, the end markets are performing excellently right now. All segments are experiencing at least mid-single-digit growth, with many exceeding double-digit growth. Our backlog has significantly increased this year, even compared to the last quarter. I think the slight conservatism we incorporated for the fourth quarter comes down to two main factors: potential supply chain disruptions, which we can discuss further, but we haven't encountered much so far, including transportation issues, and any developments related to COVID lockdowns, especially in the APAC region. We have noticed some effects, particularly in our newborn screening operations in countries like the Philippines and Vietnam, where our screening activities have been limited. Those are the two elements we considered. Otherwise, the end markets remain strong, and we are not overly worried. The backlog continues to grow. Ideally, our approach will turn out to be conservative, but I believe it is a wise decision at this time.

That's helpful, Jamey. Prahlad, one for you. I think most of your peers, we've had a number of Analyst Days heading into the earnings season. And the message from your peers is we're emerging stronger from the pandemic. And if I look at your business, all the acquisitions you guys have done, these are growth accretive, and some of them perhaps even transformational. And I think I just heard you guys talk about fiscal '22 as being in line with LRP, 5% to 7%. Is there something different about Perkin, why you guys shouldn't be in this emerging stronger from pandemic bandwagon or I'm curious on the 5% to 7% versus how your peers are messaging?

I mean look, Vijay, I think we extensively talked about this at the Analyst Day and then even at the end of the last earnings call. I could not be more confident about the future of PerkinElmer than I am today. The end markets that we are playing in, the portfolio alignment that we have done around growth markets of life sciences and diagnostics, and the team and the talent that we have put in place, and that's executing on all cylinders. So there is no hesitancy on our part in saying that the future is very bright. And if you're asking specifically around 2022, I don't think we are doing guidance right now, but Jamey is there.

Let me clarify one thing, Vijay, regarding the 5% to 7%. That figure pertains to the core business before considering any acquisitions. To ensure everyone understands, the 5% to 7% won't remain the same once we factor in the acquisitions. For instance, Oxford will be included in 2022 in our organic base, along with Horizon and Nexcelom, which will increase that percentage. We revisited our long-range plan, initially separating it into two parts: one before the acquisitions, which is projected at 5% to 7%, and the additional impact from the nine acquisitions we've made, which will obviously exceed that growth rate. BioLegend alone will also have a significant impact. Therefore, the 5% to 7% is based on our business prior to acquisitions, and those acquisitions will ultimately drive that number higher.

Next question comes from Patrick Donnelly with Citi.

Prahlad, maybe picking up on that last one on the acquisition growth rate side. I know BioLegend is only closed for about 1.5 months. But can you just talk about the revenue synergy opportunity there, particularly with some of the more recent acquisitions. It seems like a pretty significant one. And now that you've had some people in the same room, can you just talk about how you're feeling about those opportunities and what we can expect there?

Yes. You heard from Peter about Oxford, and he explained the technology synergies and service opportunities quite well. The same theme applies across the board, whether it's Nexcelom or Horizon. We have the ability to leverage our direct commercial presence in over 180 countries, something most of these companies cannot access as they rely on distributors. Additionally, the technology portfolio we bring together around instruments and services is very beneficial for the acquired companies. Another key aspect is technology. As discussions and interactions progress, Peter mentioned a couple of examples, and through our work with BioLegend, we've established ourselves as a primary raw material supplier for antibodies. These are three important elements I'd like to highlight. For example, Jamey or I mentioned earlier that we're hosting an Innovation Summit at the BioLegend campus in a couple of weeks, focusing on three pillars: cell and gene therapy, diagnostics, and genomics, exploring the synergies from a technology perspective. We'll continue this work, and hopefully, in the coming months, we can provide more details. I hope that gives you a better understanding of our outlook.

Yes, I would just add one thing, Patrick. As we talk about the accretion, I think many of the things that Prahlad has just hit on around BioLegend is really the same sentiments for a lot of the acquisitions we've done, and that continues to be true for us as we integrate these acquisitions in a three-year post-acquisition plan for them as they stabilize and continue to develop good synergies with the rest of the organization.

And I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Prahlad Singh for closing comments.

Thank you, Norma, and thank you all for dialing in today. We are very excited and remain very excited with the trajectory on which the new PerkinElmer is embarked on and are very proud of the accomplishments that the team has achieved in the third quarter. And I'm very thankful to my 15,000 colleagues around the world for their continued hard work and contributions. I look forward to speaking to you all soon. Please stay safe and healthy. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.