IDEX Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2022

There are 16 speakers on the call.

Operator

Greetings, and welcome to the IDEX Corporation 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Losses, Vice President and Chief Accounting Officer.

Operator

Thank you. You may begin.

Speaker 1

Good morning, everyone. This is Allison Losses, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX Q4 and full year 2021 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the 3 months year ending December 31, 2021. The press release along with the presentation slides to be used during today's webcast can be accessed on our company website at idexcorp.com.

Speaker 1

Joining me today is Eric Aschleman, our Chief Executive Officer and President and Bill Grogan, our Chief Financial Officer. The format for our call today is as follows. We will begin with Eric providing an overview of the state of IDEXX's business, including a recap of our recent performance and our 2022 outlook. Phil will then discuss our Q4 and full year 2021 financial results, we'll conclude with our outlook for the Q1 and full year 2022. Lastly, Eric will close with comments around our focus areas for 2022.

Speaker 1

Following our prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately 2 hours after the call concludes by dialing the toll free number 877-660-6853 and entering conference ID 1-three seventy two-four thousand eight hundred and two or simply log on to our company homepage for the webcast replay. Before we begin, a brief reminder. This call may contain certain forward looking statements that are subject to the Safe Harbor language in last night's press release and in IDEXX's filings with the Securities and Exchange Commission. With that, I'll now turn this call over to our CEO, Eric

Speaker 2

gentlemen. Thank you, Allison. I'm on Slide 6. 2021 year was another record year for IDEXX. We hit all time highs on most of our key metrics.

Speaker 2

Demand for our differentiated technology remains strong. This underlying momentum combined with our targeted growth initiatives ability to capture price drove a strong rebound from 2020. Across most of our portfolio, we saw an expansion beyond pre pandemic revenue levels. In the Q4, we achieved a record for orders and sales, and our backlog position is very strong as we enter 2022. We expanded our margins in a highly inflationary environment.

Speaker 2

We levered well on the previous investments we made to optimize our cost position and executed on our productivity funnel. We maintain positive price cost, albeit at a compressed level versus historic performance. We remain diligent in controlling our discretionary spend and used our eightytwenty principles to allocate resources to our most promising opportunities. Our strategic focus, purposeful resourcing and strong operating cash enabled us to deploy record capital. We acquired Abel Pumps and Airtech and made a collaborative investment in a technology company driving advancements in connected products.

Speaker 2

We also invested across the portfolio to support growth and productivity. We optimized our cost position within our Fluid Metering Technologies segment through a consolidation of our Italy facilities and our energy businesses and delivered on operational productivity projects across the segment. All of this drove a record year in order, sales, margins, earnings and capital deployment. We said in the past that we built IDEXX to outperform through a cycle, we continue to find ourselves in a very challenging one characterized by supply chain disruptions and labor scarcity exacerbated throughout the year by the emergence of new COVID-nineteen variance. Our view continues to be that we don't see gradients of bad, rather the supply chain environment is very tough and numerous challenges persist.

Speaker 2

As as pockets of issues improve, they tend to be replaced by new obstacles. Our teams have done an excellent job navigating these day to day operational issues, I'd like to take a moment to thank our IDEXX employees around the globe for their dedication and perseverance throughout this prolonged period of disruption. The agility of our teams adjusting to new issues almost every day has been and continues to be outstanding. As we look forward to 2022, we do not see any near term signs of diminishing supply chain related headwinds and the impact of COVID-nineteen remains highly variable. In the short term, these conditions have and will impact our ability to efficiently ramp production and have created significant pockets of disruption for our customers and suppliers as well.

Speaker 2

We expect that these challenges will remain at a high level at least through the first half of twenty twenty two. Regardless of the near term challenges, our overall IDEX strategy remains focused on the horizon, the core of what makes IDEXX strong, highly engineered specialized products used in mission critical applications remains a solid driver for long term success. We'll continue to deploy capital and invest in the resources necessary to drive organic growth in order to capitalize on a robust demand environment, our balance sheet has ample capacity and we will leverage its strength to continue to play offense and M and A. To that end, we expect to close on the acquisition of NexSys later this quarter. The technologies and capabilities within their business segments will we complement our water platform within FMT.

Speaker 2

With that, I'll turn to our outlook for our segments on Page 7. In our Fluid and Metering Technology segment, we anticipate growth in our industrial day rate businesses in 2022 with a return of larger projects towards the latter half of the year. In the short term, large projects continue to lag as our customers have limited capacity to execute larger upgrades or expansions. Agriculture is expected to perform well due to high crop prices, strong farmer sentiment and limited availability of new equipment driving aftermarket demand. Our municipal water business is stable.

Speaker 2

We see improved optimism in the market and project planning activities increasing. We are expecting an uptick in the energy and chemical markets. The North American mobile truck market is improving due to a strong construction market and home heating oil prices, and North American pipelines are reporting modest we expect to increase capital budgets for 2022. We see international oil and gas quote activity outpacing domestic demand, an opportunity we are well positioned to capitalize on. FMT

Operator

continues to

Speaker 2

be in a strong position to realize price, and we expect this to drive improved margins in 2022. Likewise, the projects we completed last year to optimize our cost position as well as new operational productivity projects will yield strong flow through in 2022, tempered by a discretionary spending rebound and continued resource investment in this segment. Moving to the Health and Science Technology segment. We expect the strongest growth in HST of all our three segments and we plan to make the largest resource investments in HST to support that growth. We anticipate margin improvement driven by volume leverage, partly offset by these resource additions.

Speaker 2

HST continues to have robust demand across all their major end markets, semiconductor, food and pharma, analytical instrumentation and life sciences are all expected to perform well. Next gen sequencing instrument demand is growing with research and clinical applications outpacing COVID detection and surveillance. Our ability to execute in the current environment continues to distinguish us from our competition and improve our share position. On the semiconductor side, we continue to capitalize on tailwinds generated from global broadband and satellite communication trends. In auto, supply chain issues at our customers, especially around semiconductors, mute our growth.

Speaker 2

Underlying market demand remains favorable, and we expect our results to improve as supply chain issues ease. The industrial businesses within the segment face similar trends to FMT. Finally, we expect that our Fire and Safety Diversified Products segment will be our most challenged next year. In Fire and Safety, North American OEMs are we are experiencing significant supply chain constraints around chassis and component availability, which limit their production. On the rescue side, we anticipate that larger tenders will lag, compounded by China localization policies that are driving delays.

Speaker 2

We do not anticipate near term easing of these conditions and see the potential for recovery towards the latter part of 2020 2, in our BAND IT business, like in HST, we see auto supply chain issues dampening current demand. Despite this pressure, our business continues to outperform the broader market due to our content on key vehicle models. Lastly, in the near term, we expect continued momentum within our dispensing business as customer capital investments are deployed in early 2022. However, for the year, we will see a non repeat of North America projects as we reach the end of the replenishment cycle this year as composed to last year. We anticipate that the unfavorable price cost position we experienced last year we'll rebound this year as annual contracts are renewed at current pricing.

Speaker 2

We see this improvement tempered a bit by some mix pressure as dispensing volumes reduce and we make some targeted investments. To summarize, we see favorable conditions across the majority of our end markets. However, the degree to which our customers and our facilities will be impacted by rolling supply chain and COVID related disruptions remains highly variable. We'll continue to monitor conditions and be as prepared as we can be for potential interruptions. Despite these short term headwinds, we are optimistic about our growth potential and the trajectory of our end markets.

Speaker 2

With that, I'd like to turn over to Bill to discuss our financial results.

Speaker 3

Thanks, Eric. I'll start with our consolidated financial results on Slide 9. 4th quarter orders of $795,000,000 were up 17% overall and up 13% organically. Organic orders increased across each of our segments. For the year, orders were up 26% overall and 21% organically.

Speaker 3

We experienced a strong rebound in demand for our products across all our segments and steadily built our backlog Q4 sales of $715,000,000 were up 16% overall and up 11% organically. We experienced a strong demand rebound from 2020, but our results were tempered by supply chain and COVID production limitations. Full year sales of $2,800,000,000 were up 18% overall and up 12% organically. We saw favorable results across all our segments And again, strong performance relative to full year 2019 with organic sales up 4%. 4th quarter gross margins expanded 20 basis points to 44%.

Speaker 3

For the full year, gross margins expanded 60 basis points and adjusted gross margins expanded 80 basis points to 44.7 percent, primarily driven by strong volume leverage. Q4 operating margin was 22.7%, up 10 basis points compared to prior year. Adjusted operating margin declined 60 basis points, driven by a rebound in discretionary spending, targeted resource investments and the dilutive impact of acquisition related intangible amortization, partially offset by volume leverage. Full year operating margin was 23%, up 90 basis points compared to the prior year. Adjusted operating margin was 23.9%, up 110 basis points compared to prior year.

Speaker 3

I'll discuss the drivers of adjusted operating income on the next slide. Our 4th quarter effective tax rate was 22.5%, relatively flat compared to the prior year ETR of 22.2%. Our full year effective tax rate was 22.5% compared to 19.7% in the prior year due to lower benefits associated with executive compensation and the non repeat of benefits associated with the finalization of the global intangible low income tax regulations in 2020. Q4 net income was $119,000,000 which resulted in EPS of 1.55 adjusted net income was also $119,000,000 with adjusted EPS of $1.55 which was up $0.18 or 13% over prior year adjusted EPS. Full year net income was $449,000,000 which resulted in EPS of $5.88 adjusted net income was $482,000,000 resulting in an adjusted EPS of $6.30 up $1.11 or 21% over prior year adjusted EPS.

Speaker 3

The tax rate movement I mentioned drives a $0.23 differential in EPS as compared to the prior year. Said differently, our EPS would have expanded by $1.34 or 26% had 2021 been taxed at the 2020 rate. Finally, free cash flow for the quarter was $136,000,000 115 percent of adjusted net income. For the year, free cash flow was $493,000,000 down 5% versus last year and was 102% of adjusted net income. This result was impacted by a volume driven working capital build and higher CapEx, partially offset by our higher earnings.

Speaker 3

We spent over $70,000,000 on capital projects this year, an increase of over $20,000,000 versus 2020. Moving on to Slide 10, which details the drivers of our adjusted operating income. Adjusted operating income increased $125,000,000 for the year compared to 2020. Our 12% organic growth contributed approximately $106,000,000 flowing we delivered well on this volume increase and our teams drove operational productivity to help mitigate the profit headwinds we experienced from increased supply chain costs and the associated inefficiencies. Although we have maintained positive price cost for the year, inflation continues to ramp and we saw a compressed price cost spread versus historic levels, which pressured our op margin rate and flow through percentages.

Speaker 3

The positive mix is primarily a result of the portfolio and business mix normalizing to pre pandemic levels that had a negative impact on our results last year. We reinvested $35,000,000 back into the businesses, taking the form of a partial rebound in discretionary spending to pre pandemic levels, higher variable compensation expenses and targeted reinvestment in resources to drive growth. Despite this incremental spend and a challenging supply chain environment, we achieved a solid 38% organic flow through for the year. Flow through is then negatively impacted by the dilutive impact of acquisitions and FX, getting us to our reported flow through of 30%. With that, I'd like to provide an update on our outlook for the Q1 and full year 2022.

Speaker 3

I'm on Slide 11. As a reminder, going forward, we will be adjusting EPS for acquisition related intangible amortization in both our guidance and results. Our 4th quarter adjusted EPS under this definition would have been $1.71 per share, while our full year 2021 adjusted EPS would have been $6.87 per share. Under this new definition, for the Q1 of 2022, we are projecting GAAP EPS of $1.57 to 1 $0.60 an adjusted EPS to range from $1.73 to $1.76 We expect organic revenue growth of 6% to 7% for the Q1 an operating margin of approximately 23%. Q1 expected results incorporate headwinds arising from COVID driven absenteeism and supply chain production constraints.

Speaker 3

The Q1 effective tax rate is expected to be approximately 22.5%. We expect FX to be unfavorable to our top line by 1% and acquisitions to provide a 4% benefit. Corporate costs in the Q1 are expected to be around $19,000,000 Turning to the full year 2022. We project GAAP EPS of $6.70 to $7 and adjusted EPS to range from $7.33 to $7.63 we expect full year organic revenue growth of 5% to 8% and operating margins to be around 24%. We expect FX to be unfavorable to our top line by 1% and acquisitions to provide a 2% benefit.

Speaker 3

The full year effective tax rate is expected to be around 22.5%. Capital expenditures are anticipated to be around $90,000,000 an increase over our earnings guidance excludes impacts from future acquisitions and any future restructuring charges. NexSysight is excluded from the figures above as the transaction is yet to close. Next, I will provide some additional details regarding our 2022 guidance for the full year. I'm on Slide 12.

Speaker 3

On an operational basis, we expect supply chain constraints to mitigate our output for the first half of the year, muting an otherwise strong demand environment. Therefore, we are projecting organic revenue for the year to be up 5% to 8%, which translates to an EPS impact of $0.60 to $0.95 depending on the top line results. This range also assumes improving price cost. We continue to drive operational productivity across the portfolio and expect to see benefits from our 2021 restructuring actions. This will drive $0.20 to $0.25 of favorability next year.

Speaker 3

We also continue to invest in the resources required to grow in the current year end and beyond, these investments will reduce EPS by $0.20 to $0.25 and are funded by the productivity gains I mentioned previously. Our discretionary spend partially recovered to pre pandemic levels in 2021, and we expect this spending to be fully recovered by the end of 2022. The unfavorability impacts EPS by $0.20 to $0.25 I'll note that we are ramping spend to pre pandemic levels, but with 20% higher revenues. ABL has 1 partial quarter and Aehrtec has 2 quarters inorganic results included in our guidance. We expect the acquisitions to contribute $54,000,000 of revenue and $0.08 of EPS.

Speaker 3

The incremental amortization that we see in 2022 versus 2021 is largely related to these acquisitions and will provide an additional $0.05 of EPS. Now let's take a look at a couple of non operational items. First, our guide assumes no impact from tax as our guided rate is flat year over year. Second, we expect a 1% headwind from FX providing $0.07 of EPS pressure. So in summary, we are projecting organic revenue growth a 5% to 8% for the year, adjusted EPS expectations are in the range of $7.33 to $7.63 a 7% to 11% growth over 2021 implied in our guidance is mid to high 20s year over year flow through on the low end and 30% on the high end.

Speaker 3

With that, I'll throw it back to Eric for some final thoughts.

Speaker 2

Thanks, Bill. I'm on the final slide, Slide 13. Before we open the call up for questions, I'd like to wrap up with a summary of our most critical 2022 focus areas. In an environment characterized by uncertainty and disruption, it's important not to lose sight of who we are as a company. 1st and foremost, we are a portfolio of great businesses that leverage eightytwenty with an obsessive focus to serve our customers.

Speaker 2

We refer to that simple model as the IDEX difference. We're committed to navigating the challenges of the short term landscape, but remain focused on the longer term. We must continue to utilize our eightytwenty toolkit to create efficient, innovative value creating businesses. In a world with this level of variability, the simpler you are, the more successful you'll be. We remain committed to investing in the resources needed, so our businesses are poised to take advantage of the growth potential in front of us.

Speaker 2

We're a company committed to its core values and will continue to develop top performing teams as part of an inspiring company culture. Diversity, equity and inclusion continues to be an area of focus, creating environments where people feel they belong and are comfortable bringing their true selves to work every day. Our strong operating cash flow and balance sheet put us in a great position to continue to put capital to work, and we've already identified several high return organic investment opportunities across the company that will push us past our 2021 CapEx record levels. We have invested in new industrial automation that will improve efficiency and expand capacity for growth. We're supporting focused digitalization efforts across our installed base to solidify our superior positions and expand share of wallet.

Speaker 2

Our facility expansions in China and India are well underway, effectively doubling future capacity to support growth across Asia. Lastly, our M and A opportunity pipeline continues to be strong and we look forward to deploying additional capital in 2022, welcoming new businesses to the IDEXX family. With that, let me pause and turn it over to the operator for your questions.

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question for participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question.

Speaker 4

Hey, good morning. Eric, you had talked about projects lagging in the first half in FMT. Could you maybe give us the color in terms of your customer conversations? Are these the rest of these sort of get delayed And definitely at this point, just the urgency around getting some of these projects going, just any thoughts around that?

Speaker 2

Yes, yes. Good to talk to you, Allison. So I mean, it's a bit of a continuation of the theme that we've seen now for a while. There's plenty of confidence out there that there's lots of demand support to get things done. It is really difficult to do, to just frankly bring together all the resources that you need to take a really complex project and take it from beginning to end, Lining up material, lining up resources, things like that.

Speaker 2

So what we are starting to see, frankly, are kind of smaller to medium sized versions of that, slight expansions, things you can kind of do on the fly and then continued staging for projects that are of those slightly larger incremental scale aspects, as people talk about that, I mean, quite honestly, it's kind of the same thing that we're going through in our own business. We've got a couple of critical big projects that we've deployed. They were really hard to put together. And then all over the place, we're kind of while we're running doing those things that give you that little bit of 3% to 5% output lift as we go. So I think that's really the nature of it.

Speaker 2

And of course, it varies depending on certain markets are further out ahead of that a little bit more positive, some are lagging even further because they're just inherently involved larger I was going to summarize it. I'd put it I'd describe it that way.

Speaker 4

That's helpful. And then just The free cash flow guidance, you talked about CapEx and the increased spend there, which makes sense. I know Working capital, you showed some increases in 2021. Should we expect a similar level of 2022 just given the ongoing challenges that you guys are facing? Just trying to get some color on sort of the

Speaker 3

No, Allison, it's Bill. I think it tapered down a little bit, obviously here and as we progress through the year, a little bit of inventory build to support the higher revenue load, but I don't think it'll be as big of a build as we experienced last year. Our efficiency metrics are down a little bit, But some of that's just related to increased inventory to buffer extended lead times that we have across our vendor base.

Speaker 4

Got it. And I guess along with that, you guys are still in the midst of it, so it's probably not a fair question. But are you guys kind of revisiting some of your processes in such to deal with some of these shocks that we inevitably go through at time to time, just any thoughts around that?

Speaker 2

Allison, you're asking about the supply chain Shocks in general?

Speaker 4

Yes, the supply chain shocks. I mean, are you guys trying to think of things differently going forward just to kind of avert some of this stuff? Yes.

Speaker 2

I mean, it's a great question, something we've revisited continuously as we've gone through this. I mean, we are I think we're From a high level, we're positioned really, really well. I mean, we do a lot of local supply, close proximity with people that we've known for a long, long time, Deep relationships, a lot of trust there, very, very collaborative. So I like that topology. I don't think we would try to change it or move it farther away.

Speaker 2

And frankly, any change right now is difficult because everybody's been what's constricted. So a couple of places we're looking at that, it's kind of at the sharpest reason why. We just we have to do something different and we've got resources allocated there. I will say the one thing we're spending a lot of time working on and I mentioned it in the opening comments is simplification. You can generally see our businesses that have done the most there are frankly having the easiest time of it.

Speaker 2

We have a highly customized model at the company. So that's always an inherent challenge for us. So I think one of the things we've learned here and we've gotten better at as we've gone along is trying to find a way to say, is there a simpler way to do it modular and a simpler design that's easier to reproduce against kind of a given supply base that will probably stay pretty similar for us as we go forward.

Speaker 4

Got it. Thanks so much. I'll pass it along.

Operator

Our next question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.

Speaker 5

Hey, good morning, everyone.

Speaker 3

Hi, Mike. On kind of related

Speaker 6

to Allison's first question or at least to tack on to it, when you think about some of the delays you're seeing on some of these CapEx decisions just because of bandwidth or you also put into the context Supply chain challenges and everything seeming to linger a little bit longer than people were thinking. How do you think about the risk of demand degradation or at least pipeline degradation that could materialize related to all of those moving pieces.

Speaker 2

Well, I mean, there's Inherently, always a little bit more risk as you extend things out than any other externality could jump into the mix and start to inflect decisions along the way. So I think that's there. I mean, as we've kind of thought of the projects that we're working with, when you consider and project across a long term cycle, ones I feel the most assured about or where you can just see there's not enough capacity or there's a lot of labor challenges. I mean, those things aren't going to go away in the long term. And when you sort of see that condition, let's say if that's in a food market that somebody recognizing there's a lot of demand here, we're struggling to meet it.

Speaker 2

We know it's going to be there in the long run. While the projects themselves can be delayed and they keep extending, honestly, the conversations stay pretty active. The transfer of documents and data and things is still going on. So We kind of put those into a different category. The things that are you can just tell are a little bit more susceptible to shocks, new technology, it's a launch, it's dependent upon certain conditions to be there.

Speaker 2

We probably put that in a slightly more variable category. But I honestly think over the long term, there's a lot more in the first that ultimately everybody would love to do if they could. And we've now seen and certainly we've talked about before on this call, I think we're seeing the impact of not having it deployed as we try to recover From now, it's just essentially above levels that were sort of we're here originally before the pandemic.

Speaker 6

No, that's super helpful. And then sticking kind of with the concept of moving pieces and how you're thinking about guidance through the year. Obviously, you have these Q1 challenges with absenteeism and everything else and then the price cost curve and how that works itself out through the year in the context and everything. So when you think about the guidance specifically, both on the margin side as well as on the revenue side, how would you think about profitability versus, call it a normal sequential curve through the year. Is it a little bit more slow to normal?

Speaker 6

And best guess for when you think you can start getting to something more normalized? I'm not necessarily saying back to 2019 levels of smoothness, but at least more repeatable or better understanding of what the process can look like.

Speaker 3

Well, I think hey, Mike, it's Bob. Some of that's to be determined how the year plays out, but our what's implied in our guidance is from a ramp as we progress through the year, it is obviously more weighted towards latter in the year. But if you look at the Q2, it's kind of a couple percent ramp in output versus the Q1 and it has to hold there for the balance of the year. So relative to where we're at here and the challenges we have in the Q1, There is an assumption that those will resolve. We do have some of the discretionary costs that have just built through 2021 that are in our current run rate for the Q2 and as we ramp volume, we'll lever on that incremental cost.

Speaker 3

I think you'll see our margin profile continue to expand sequentially as we progress through the year.

Speaker 6

So the point Bill is that there's not a massive assumption that there's normalization through the year. There's a Through the year, there's a step up 1Q to QQ because there's some identifiable things that normalize out. But beyond that, it's A little bit more wait and see and pretty normal sequentials from call it a 2Q run rate.

Speaker 3

Yes. So I said there's not some huge switch that needs to be flipped. I think we're comfortable with the ramp that we see here in the short term. The Q2 seasonally always goes up for us. So we've got that on top of some of just the output relief I think we'll get.

Speaker 3

And then it's Unless something created some headwind to decelerate, we should be in a reasonable position.

Speaker 6

Appreciate it, Bill. Thanks, Eric.

Speaker 7

Thanks, Mark.

Operator

Our next question comes from the line of Deane Dray with RBC. Please proceed with your question. Thank you. Good morning, everyone.

Speaker 2

Hi, Dean. I'd like

Speaker 8

to put the spotlight on these buckets of discretionary spending reinvestmentgrowthinvestment, if we could. So just so we're trued up, what was how much of that went into the Q4? So on Slide 10, that 35,000,000 did you kind of front load any of that spending into the Q4 or was it level throughout the year?

Speaker 3

No, Deane, it ramped throughout the year. I think Q3 and Q4, there's a marginal increase in the Q4. We talked about that on our Q3 call that some things had moved from Q3 to Q4. That's one of the issues we have with the Q1 is just last year, we were still extremely diligent And didn't spend a whole heck of a lot and then ramped 2, 3 and 4. So, there's a little bit of ramp here as we progress from Q4 to Q1, but it's not overly material.

Speaker 8

Got it. And then on Slide 12 for your 2022 bridge, you've got the 2 buckets, growth investments and discretionary spend rebound. I mean, collectively, that $0.40 to $0.50 in your guide, they both feel a little bit discretionary by definition, right? So, just where and how is that being targeted? Is that level throughout the Is it contingency in any way?

Speaker 8

And what would be the expected returns that you would get on some of these growth investments. Thanks.

Speaker 2

Sure. So a couple of things there. I mean, 1, in general, the nature of this kind of spend, let's say, today versus where it was years ago, and there's some differences. There's actually some productivity that we're all going to enjoy as we've learned how to work in different ways. Travel won't be as high as it ever was.

Speaker 2

Certainly marketing and digital ways to get messages out to customers much more efficient than we've seen before. And so that's one of the reasons Even with the slight increases here in the ramp up, we're basically at kind of a level we were 3 years ago with $400,000,000 more dollars of sales in the company. What it's targeted towards is a lot of our investments, frankly, it's people. And it's people on the front end of business and the technology side of the business tied to the parts of the company that we think have the most favorable wind at their backs in terms of our positioning and the end markets that they're sitting in. So we talked before about kind of the top 25 bets across IDEXX that list ebbs and flows from year to year, but about 2 thirds of it holds constant.

Speaker 2

And many of the resources that are here, some ways they are identified a year, year and a half ago. We kind of let the last year play out. We're really, really careful with things, but at some point start to see that, hey, we've got some real momentum here and the nature of people driving the investments, they've got to get in, they've got to learn the company, they've got to learn the markets and Start to add some value. So I think the return as it often is in anything we do when we're supporting organic growth is really, really strong On investments of that type, because it's people dependent, it also makes it pretty easy to be careful with as you go forward. So as Bill said, if we start to see things all of a sudden take a turn or there's something that comes into the mix that none of us expected, by nature, we can hold off, we can do more Last, we can ask people to redeploy towards other areas across IDEXX.

Speaker 2

So I think what you're seeing here a little bit is, Probably we would have liked to have more of that onboard in a more of an even ramp through the year last year. Again, because a lot of its people, as everybody knows, it's Hard to find when you find them. I think you want to be careful and make sure you bring them on board when you can. So that's part of the mix too.

Speaker 8

That's real helpful. And then just in context of the building backlog, and I might have missed this, I apologize. Did you can you calibrate how many in way of revenues could not be shipped, either you didn't have the products on hand or customers weren't ready, So you've got finished goods, but have you calibrated what that would have been?

Speaker 3

Yes, we haven't. But in the 4th quarter is probably 3% to 5% organic that we could have had incrementally to what we delivered if we had full availability of parts and labor.

Speaker 8

Got it. That's real helpful. And have you given the quick overview of NexSight? It sounds like a really interesting addition to your water business.

Speaker 2

Yes. No, I mean, it's a business we've known for a long, long time and we've partnered with them with our sewer robots franchise. They've been kind of closer to the customer and a partner for us, frankly, their predominant partner over the years. So, essentially they're going to market here in North America predominantly. They do a lot of things around sewer inspection, have a few other products that go with that, there's some tremendous software capability embedded within that business that's used in that space We think has appropriation abilities elsewhere in the kind of water technology area, and a couple of other interesting Mason extensions that they've launched We also are interested in potentially opening a door for us.

Speaker 2

So it's a really, really nice fit for a partner that we've known for a long time. And it The time is right to bring them into the IDEXX family.

Speaker 8

Great. We're hearing lots and lots of focus on stormwater from municipalities and there's just such a need right now and there's loss regulatory pressures as well, fines that will be imposed on municipalities if They don't address it, so hot area and nice to see that investment. Thank you.

Speaker 2

Yes. Compliance is a driver for our businesses in that space. Yes.

Speaker 8

Thank you.

Speaker 2

Thanks, Dean.

Operator

Our next question comes from the line of Rob Withermer with Melius Research. Please proceed with your question.

Speaker 5

Thanks. Good morning, everyone. So my question is a pretty simple one. You had positive price cost in 2 segments, negative in fire safety, and maybe some of the distinctions are obvious there. But could you just kind of walk through the pace of how things flow through on pricing changes, if it's all due to that?

Speaker 5

If there's any inherent Pricing power differentials that would be helpful too, but maybe just talk through the dynamics and what you do there? Thank you.

Speaker 3

Yes, Sure. So the dynamics of price cost is obviously it varies across the portfolio between the segments and the businesses. Holistically, FMTs, our strongest price cost relative to a lot of their business goes through channel, our ability to move price through there is favorable. Obviously, they've got more exposure to Heavy casting metal, motor inflation, but they have the power to offset it. HST is much more OEM focused.

Speaker 3

So there's opportunities, but more on an annual basis on that side of it and the stuff that looks like the FMT, the industrial parts of it, similar dynamics. FSD has been the challenge, primarily in our fire and rescue businesses. We talked about the fire OEM challenges and the large backlogs that they're sitting in excess of 12 months to 18 months and what we've priced that on, we haven't been able to reprice it. We continue to work through the lower margin profile on that through the back half of the year and most likely through the first half of this year. They've gone out with significant price increases here recently on any of the annual contracts that they have.

Speaker 3

So they're poised for a large recovery and margin improvement, as we progress through the year, but still challenged in the first half. Dispensing is fairly strong. Bandon, relative to their steel exposure and their automotive and aerospace customer base, they were challenged as well. So they were significantly under on the price cost weighing down the overall organization, but a lot of good effort from the teams to manage through it and I think are much better positioned as we stand here today, to progress through the rest of the year.

Speaker 5

Okay, that's helpful. And is there anything sort of Structural changing on how you think about those long lead times and backlogs and how you priced. And then just one more quick one. Omicron, you mentioned sick outs, which is Universalize Bose in 1Q, is that already crested and fading so that you're until the next wave you see the risk contained in 1Q or maybe January, February? And I'll stop there.

Speaker 2

Thank you. Yes, Rob. So in the nature of pricing, I mean, I will say, I think we and everybody else Are looking at kind of the historical ways that long term pricing has been done and are finding ways to make sure that we've got more opportunities for adjustment along the way. As you'd suspect though, given the pressure and the volume and just the nature of that space, it's probably going to take a while. But that is in the mix in terms of innovation and different ways to handle it.

Speaker 2

On the virus, I'd say we're plateaued slight decrease, but we're such a got such a global topography that as it decreases in one area, it kind of comes up in another one. So I'd say, kind of level right now, not increasing anywhere, But still at a higher rate than we've seen in any of the other episodes that have come across.

Operator

Thank you.

Speaker 2

Thanks, Rob.

Operator

Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Speaker 9

Good morning, everyone.

Speaker 2

Hi, Nathan.

Operator

I want to start with a couple

Speaker 9

of questions Following up on Dane's line on the growth and discretionary spend rebound, those are really the 2 large buckets in 2022 that are dragging the incrementals down from kind of the level that we would normally expect from IDEX. Specifically, you guys said that you're back to 2019 investment levels on $400,000,000 more of revenue, IDEXX has always been a big investor in growth. Does that mean that we should expect potentially more incremental growth investments in 2023? Or are you able to leverage those growth investments better and you think it's kind of a 1 year ramp up? And I assume the discretionary spend rebound is probably to be back to normal levels by the end of 2022?

Speaker 2

Yes, yes. I mean, that's Again, because of the nature kind of our model and what those investments usually are in terms of people. I mean, to be honest, there's kind of a bandwidth limit on the upper side that also governs some of this. These are not the kind of businesses where you can sort of just endlessly pull people in there And it all works better. These are super, super targeted around and aligned highly to the bets that we're talking about.

Speaker 2

And then sort of everything else, we leverage a lot of that productivity to actually support those investments and run the company that way at a pretty consistent level. So I really do think of this more along the lines as rebuilding a basic base to fuel growth of the company in the highly targeted way that we do it more than let's say a next chapter of spend profiling for the company. We don't need to do that.

Speaker 9

So long term, I think you guys have always talked about when you're at low single digit, you get 35% incremental margins, maybe getting to 40% if you got mid- to high single digit organic growth. Nothing's changed structurally in that outlook over the long term. We're just In a period of bringing the investments back after a period of underinvestment forced on you by COVID.

Speaker 3

Yes, exactly, Nathan. I think your point in the discretionary is that being somewhat of a catch up here as we progressed through the last 2 years, that will fall off. There will be nominal increases on that going forward. And then as to Eric said, it's our normal investment profile. So if you normalized for the discretionary ramp, we're at our traditional mid-30s type of flow through.

Speaker 9

Okay. Just one on capital deployment, record level of acquisition spending in 2021, but you still have rich people problems over there in an under levered balance sheet and it would take several years of spending that record level capital on acquisitions to get you into a more optimal balance sheet structure. Is the pipeline robust enough and are there enough opportunities at the right prices out there for you to look to deploy similar amounts of capital in 2021 as we go forward over the next few years?

Speaker 2

Yes, Nathan, I mean, that's exactly the target and the expectation here. I mean, we talked I know for the last several quarters about the intentionality we've put on this. Some of the investments and resources are focused in this particular area because they have to be. The achievements that we made in 2021, I think was a direct result of they're all high quality. I can assure you we looked at a lot more than those companies to get the ones that we brought in on the Board and that's the way we're thinking of it going forward.

Speaker 2

We'll consider valuations will be high, competition will be fierce and we have to make Sure, we get plenty of that bets as we go at it and hold our discipline at the same time. But we've kind of talked our ideal spot here would begin to level load at this higher At a minimum, this higher level of deployment that actually helps you build a more uniform resource base as you do the work. We're always looking for the potential to Expand it if in fact we can do that efficiently, manage the change across the company. So it is it's definitely an intentional travel To a higher level, yes.

Speaker 9

Thanks very much for taking my questions.

Speaker 3

Thanks, Nathan.

Operator

Our next question comes from the line of Matt Summerville with D. A. Davidson. Please proceed with your question.

Speaker 10

Thanks. Given some of the pluses and minuses you talk about with respect to the margins as we progress through the year across the segments, how should we be thinking about the incremental margin at the segment level relative to kind of the full year guidance range you talked about Bill at the high and low end. Can you give a little more color there?

Speaker 3

Obviously, our Q1 is going to look fairly similar to the Q4 with Ramp, I think you're going to see margin profile improve on a basis point perspective more in FMT it's probably our highest margin improvement as one obviously we had the challenges within the FMD business this year with the CapEx reduction and then being significantly lower from a volume perspective. They had several site consolidations in the incremental costs associated with that. And then just that business levers extremely well as they progress. So I would say FMT margins building throughout the year, HST is still extremely strong, but moderated relative to a lot of the investments we're making on that side of the house. And then FSD

Speaker 2

recovering on

Speaker 3

the price cost side being a primary driver of their margin improvement for the full year with pressure here in the first half. Like I mentioned earlier, with Rob's question.

Speaker 7

And then just as a follow-up,

Speaker 10

just to be clear, how much price do you anticipate achieving in 2022 versus maybe what you achieved in 2021? Thank you.

Speaker 3

So more, I mean, last year we were about 200 basis points and we'll be in excess of that here in 2022.

Speaker 7

Got it. Thank you.

Operator

Sure. Our next question comes from the line of Andrew Buscaglia with Berenberg. Please proceed with your question.

Speaker 11

Good morning, guys. I'm looking into a little bit more into your HST segment, in that your guidance it does imply some pretty decent growth despite really tough comps this year. So I'm wondering what exactly in there I mean, you're going to be lapping, I think tough comps in semis and life sciences and it sounds like auto could be source of upside, but are there other areas that just haven't recovered that are really where there's a lot of juice left?

Speaker 2

I don't know that the story is really that one where it's folks coming off the pandemic map or something like that. I mean, these are just inherently Strong sectors that we think are going to continue. We've seen good ramping in 2021 and it's honestly, it's market dynamics that are going to drive it in 2022. So the pharma space, which you didn't mention, I mean, that is a really good space now. We participate there.

Speaker 2

We make vaccines more effective. As you can imagine, that's going really, really well. That's where we're seeing some of the medium term capital projects. I spoke of Sometimes not the biggest ones, but these smaller to medium projects to get expansion out there. That's an area where we're seeing a lot of that.

Speaker 2

Our optical technologies businesses is really, really well positioned for some great applications and broadband access and Coming down from space and things that are really kind of out there. And then I would say, just stuff right down the middle of the fairway is really good for us. Next gen sequencing, of course, there's all of the growth aspects that were always there as part of that space. But let's be honest, all this COVID surveillance and variant identification, that's the year that's doing it across the world. So this is just this is a story of strong markets.

Speaker 2

We're well positioned And they continue to be needed more than ever, more than it is in any way kind of a recovery aspect. I mean, again, I always remind people there's some industrial businesses in there that might More FMT like aspects, but for what I think the spirit of the question is, the heart of it, it's a continuation and a theme that we think is going to continue.

Speaker 11

Okay. And a similar question though, I think FMT and probably IDEX seems to kind of have it seems to be somewhat influenced by energy in that even though it might not be a direct exposure, it's this indirect impact, which now seems to be kind of more topical, that area is coming back, we think. So what about your sense in maybe an FMT with an energy recovery helping that business, maybe exceed your expectations, what are your thoughts there?

Speaker 2

Well, I mean, so a couple of things. Energy in general, I mean, our single digit exposure there is localized largely in FMT. That is a story of recovering off of pandemic No doubt because of commodity pricing and some other things and just delayed investments. It's a little different than it was 2, 3 years ago, but it's positive and that will help. And you're also right, it's always hard to identify, but no doubt there are derivative impacts of that sector in terms of just The up and down the street industrial businesses that are throughout FMT.

Speaker 2

So we do think we have that factored in the mix, but to the extent any of that overachieves, that's the area that we'd see upside.

Speaker 11

Okay, got it. Thank you.

Speaker 6

Thanks.

Operator

Our next question comes from the line of Conor Lamont with Morgan Stanley. Please proceed with your

Speaker 12

question. Yes, thank you. I was wondering if we could return to the capital allocation Question and particularly the step up in M and A allocation that you're targeting over the next couple of years. I'm wondering if you can frame, are there any specific end markets that you see as you sort of look at the pipeline right now where you're overweight, underweight? How do you sort of overlay a view on end markets and cycles to that framework?

Speaker 2

It probably doesn't map as cleanly as you might imagine, because I mean, when we think about the markets that we're going after, they are often defined by kind of niche application sets. And so you can see those in any one of our 3 segments. And in some ways they might even strike you as kind of counterintuitive. So in general, we're obviously looking in areas that we think have more fundamental growth Tailwinds behind them. And so a lot of it just would be exactly where you think it would, lots of focus in the HST world, lots Focus as we've just seen here in water technology and spaces like that, but there are some great industrial franchises, that have done a great job of targeting into certain application spaces that make a lot of sense too that are sitting in places that you might not otherwise think.

Speaker 2

The 2 other examples in 2021 are Great examples of that. Apple Pumps, for example, tied to mining is one of its core markets. That's actually really attractive now because of all the mining that's going on to support alternative energy applications. Then you look at Airtech, which from far away looks like kind of just an industrial compression business or blower business, Yes, they've tuned very nicely to some alternative energy applications as well. So it really does it plays out at that kind of specific work to be done And then how well that lines up often to a high level macro trend, but we very quickly kind of bring that down into the niche kind of environments that we're comfortable with, and we could see that across any one of our overall segments.

Speaker 12

Got it. Maybe switching gears a little bit here. You mentioned labor being a constraint. I'm just curious, is some of the Increasing costs you're targeting related to outright increases in wages? Are you just seeing availability is more of the issue?

Speaker 12

How are you thinking about that as we move 2022 here.

Speaker 2

Yes. So a couple of things there. I mean, I always remind people we have a pretty light intensity in terms of labor. It's important, but it's not a huge driver in our P and L. That being said, I think everybody expects a little bit more wage inflation We have as well here this year.

Speaker 2

To be honest, we probably see more of it tangibly in terms of premium costs Things that we're doing with the existing base is we're scrambling to try to make things on Saturdays or Fridays in a disrupted manner here today. So it matters for us, but it's not a massive driver on the P and L. It is a driver, of course, as it comes in components where that same dimension is applying to businesses outside. So it's certainly we're not immune to it. We counteract it with pricing

Operator

our next question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

Speaker 13

Thank you. Good morning, everyone. A couple from me, if I could. Just first on FMT, the segment color you provided in the appendix, you note the annual headwind from FlowMD. Was it also a headwind in Q4 or is that business now stabilized?

Speaker 3

Yes, it was fairly neutral in Q4. I think their current run rate now bottomed out in the Q3 and we see progression as we progress we go over the next couple of quarters.

Speaker 13

And then on NexSys, could you just provide a little bit of color on the expected accretion and also just a little modeling guidance on what we should expect on the amortization that comes into the adjusted EPS equation as a result.

Speaker 3

Jeff, once we close, we'll add that to the guide. We have said it's a $50,000,000 business with about 20% EBITDA margins, to frame it out a little bit for you, and then we'll nail it down once we close later this quarter and include it in our revised guidance in April.

Speaker 14

Great. And then

Speaker 13

just finally, just back to labor, Appreciate that additional color. Could you just size it though roughly as a percent of COGS, You know the cost of labor?

Speaker 3

Sure. And the answer for our direct labor, so things directly associated with the product builds about 7% or 8%.

Speaker 12

Great, great.

Speaker 13

Thanks for the color. I appreciate it.

Speaker 15

Sure. You bet.

Operator

Our next question comes from the line of Vlad Bostromskiy with Citigroup. Please proceed with your question.

Speaker 8

Good morning, everyone. Thanks for taking my call.

Speaker 7

So just wanted to go back to your comments on sort of capacity constraints and lead times. I think during 3Q, you talked about some extended lead times, but also said that you felt you were pretty well positioned competitively versus others in the industry. So can you just give us an update or comment on how you think you're performing versus Competitors across the portfolio and whether there's any specific businesses where you think you're more challenged versus peers?

Speaker 2

I appreciate the question. This is something you have to kind of gauge every single business 1 by 1. So we do that when we're talking with them and when we go out there. I mean, our model generally is always designed to be more reactive and quicker than almost any competitor we have. That's why we have local Supply and all the things that we've talked about here.

Speaker 2

I would say from a performance perspective, probably just like everybody else, where we're most challenged just inherently those places that are more electronics specific or we're dependent on that probably most constrained single commodity that everybody is customized, it's very hard to scramble and get something different, things like spun boards and those things. Now the people we're competing against, They got the same electronic content that we do. So I don't see that as a net competitive disadvantage. There's a great example there, frankly, in that space where I know we outperformed our dispensing business, had a really, really strong back half push. It's some of the most electronics intensive products that we have in the entire company, they did a phenomenal job, largely because their suppliers are very local and it's they've done a great job simplifying the architecture over time.

Speaker 2

So So as I go down the list, don't see too many places where folks are pointing to conversion and suppliers that are beating us. For a couple of dimensions, I do think we performed very, very well. It's frustrating right now, but I think we're still in a good spot. And a lot of what goes into an IDEXX solution, its customized nature, the long history of it, there's kind of a natural defense that's part of it.

Speaker 8

Okay. That's really helpful color.

Speaker 7

And then just maybe one more from me. Just going back to the CapEx ramp that you're expecting again here in 2022, can you talk about sort of where you're seeing the best opportunities to deploy this capital? Is it mainly in areas like automation, for productivity? And then how should we think about this ramp, is it reflective of some chunkier one time things? Or is this kind of a more sustainable level of time?

Speaker 2

Well, there's definitely a piece of it in there that's a little chunky in our nature because it's related to facility expansion that we have talked about here for the emerging markets. Mean, we're simultaneously effectively doubling capacity over there to support growth across all of Asia that we wouldn't do all the time. I will say though that it is stepped up a bit as things like industrial automation becomes more important for companies like us and others. There are not too many places you can go automate away from people standing on a production floor in our environment, but where there are, it's quite cost effective to deploy that technology and we're doing it more than we have before. There's some great CapEx related to supporting growth In some interesting ways, digitalization is a chapter, is something that wouldn't have been in there 10 years ago or 20 years ago, is a chapter now.

Speaker 2

So I think it's a fairly typical profile, certainly reasonable capacity expansion you'd expect given the growth that we had last year and we project to have in the future. But there are a couple of these extra chapters in there, one sort of one time related to facility, but I think the other ones will become part of the mix as we go forward.

Speaker 7

Great. That's really helpful. Thanks.

Operator

Our next question comes from the line of Brett Linzey with Mizuho America, please proceed with your question.

Speaker 3

Thanks and good morning

Speaker 14

everyone. Hi. We wanted to come back to the wins you called out in life sciences and semiconductor. Are the life science wins COVID related or something outside that spectrum? And I was hoping you could put a finer point on how IDEXX might be positioned with some of this forthcoming capacity build out within semiconductor any quantification would be great too.

Speaker 2

Okay. Well, I mean a few things there. So from a life science perspective, certainly the Lingering nature of COVID is in the mix, but I wouldn't say it's the predominant driver anywhere. We talked about Next gen sequencing and variant surveillance, that's a part of it, but it's not the majority by any means. It still comes back to Quick cancer detection, point of care medicine, I mean broader trends that have long been important and are even more important as we get more focused on healthcare.

Speaker 2

Sorry, I really don't see the kind of current pandemic as being a significant driver. This is really broad based and we think has a lot of room to run for us in that space. On the semi side, it's interesting. I mean, we actually participate in kind of 2 places there in sort of the classic Infrastructure build out. So we do that and attack it from the ceiling perspective.

Speaker 2

So actually manufacturing things, we're part of that process. And then on the optical side, we do more of it on the sort of metrology and sort of after production quality side of it. So we see it from sort of 2 angles. And in terms of its run out, as you might suspect here, we've got a long way to go until capacity comes to where it needs to be for that particular sector. There's things still just being announced now that we're all seeing that are exciting for all of us.

Speaker 2

So we think that's going to continue for quite a while and Quite a while and most of it is located in our HST segment, our exposure.

Speaker 14

Thanks for that. And other question On orders, another strong year and really finish to 2021. I'm just curious as your teams drill down on the order book, are there any signs of double ordering in any of the businesses or pull forward as customers try to secure a spot in line, any color would be great.

Speaker 2

Yes, I think it's a small percentage mainly because of the kind of highly customized nature of what we make. That's Kind of a risky bet and everybody is then betting on capacity that may or may not come around again just because of the way that we attack it with the products and the kind of the product structure that we have. So it's typically not a high level. It's barely anything most days. I think we've pointed to it could be a percentage point At the current levels, I think that's pretty consistent.

Speaker 2

There's for high volume things that people can depend on, there's probably a little bit of that. But it's not that's not the majority of what we do here. It never has been. Okay, great. Appreciate it.

Speaker 2

Thanks.

Operator

Our next question comes from the line of Scott Graham with Loop Capital Markets. Please proceed with your question.

Speaker 15

Hey, good morning, Eric, Bill, Allison.

Speaker 2

Hi, Scott.

Speaker 15

Hey. So, let me just ask the harder one first and line that up for Bill. So I'm looking at the FMT margin in the quarter, we were down essentially 180 basis points, whereas in the Q3, we were up over 100 basis points. And the contribution this quarter from ABLE revenue wise was less and it looked like FMD had a less negative impact on sales in the Q4 than the 3rd. So why was the FMT margin down that much?

Speaker 3

Sequentially Q3 or Q4 to Q3?

Speaker 15

Year over year? Well, both, of course, right? But

Speaker 3

Well, I would say 2 things. If you normalize so just year over year, if you normalize FMT and take out, FMD and Avol, you're roughly flat on an out margin perspective. I think from a quarter 3 to quarter 4, there's a couple of things. 1, FMT, less working days in the vertically integrated businesses, so they have less absorption, which is seasonal and happens in most years. We had the final cost associated with the facility consolidations we had a little bit on their margins in the Q3 and then just some premium over time and freight at the end of the year to get stuff out for customers was dilutive.

Speaker 3

So, those three things on the sequential piece and year over year, it's really the Ex FMD and Avol that's pressuring the margins.

Speaker 15

Okay. And this is not an acceleration in supply chain issues there?

Speaker 2

No.

Speaker 15

Okay, great. Thanks. The second question is more for you, Eric. And Bill was kind enough to share with us what the supply chain held you back on organic 3% to 5%. And it doesn't look like you're expecting much difference in your second half organic than your first.

Speaker 15

Just kind of wondering how you're thinking about that 3% to 5% in the 4th quarter and how it affects sort of your first half versus second half thinking, doesn't that lessen in the second half of the year? Therefore, maybe you're being conservative on implied second half guide.

Speaker 2

Yes. Well, I mean, so a couple of things. I mean, I think we are definitely have a frame and a view that Q4 was tougher in a lot of regards because of the things Bill talked about in terms of as he put some boundaries around it. Clearly, we have more absenteeism here than we'd see in any other point of the year and we know the same thing was happening in And to the extent that we see that same trend kind of lagging over to the Q1, we've extended it there. We're making certain assumptions here as we go forward.

Speaker 2

1, we always get a seasonal uptick in our business. There are certain businesses that just this is the quietest time for them because they can't do their work outside. We know those come online. Not all of those are labor dependent anyways or supplier driven. There's things like that that are out there.

Speaker 2

And then look, we're already seeing some signs that this current wave is going to subside, come down. We are seeing more That people are wanting to get back into the workforce. So those kind of those pieces as well and it's always easier to run the place when it's warmer out. So there's a few things in there and I don't think the ramp is so significant that it sort of stands in the way of those expectations.

Speaker 9

Okay. Good color. Thank you both.

Operator

Our next question comes the line of Joe Giordano with Cowen and Company. Please proceed with your question.

Speaker 14

Good morning. This is Michael on ask to see a win for Joe.

Speaker 2

Hi, Michael.

Speaker 14

Thanks for the color on NexSight. You mentioned sales would be roughly $50,000,000 annually. What percentage is from the software component? Is there a portion that is reoccurring in nature?

Speaker 2

Well, I mean, it's an interesting thing because it's It's embedded in a lot of the products. So it wouldn't be as identifiable as that, like it's a for purpose definable piece. It's an extension of capabilities that's then realized in the products that we go to market with, but we love that capability.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Speaker 2

Okay. Well, Thank you all for joining the call today. I appreciate the questions as we went there and the interest in IDEXX. Just a couple of things to frame it all out. No doubt tough environment out there for everyone.

Speaker 2

As we've seen and talked about, I mean, the IDEXX model in some ways doesn't make that any easier. We've got a lot of iterative innovation and customization, short lead times is a standard expectation, high reliance on value added suppliers. I put a button here that's important, that also strengthen us for the short and the long term. I mean, we're an agile company, we're creative, we solve Problems very quickly on the fly and that supply chain that we're dependent upon, as I said a few times here today, I mean, it's very close to home. We've known those folks for a long time and there are deep relationships and trust there, mutual trust.

Speaker 2

So that's a huge asset for us, all that comes together. So we're going to attack the current situation and deliver outperformance and continue to do our best here in the months ahead, but we also want to do that and not lose sight of what we're building ultimately for the future. And I'm glad we had a chance to talk about that as well. We are going to strengthen the growth prospects that we have in our most advantaged verticals through organic and inorganic efforts. We're going to use the balance sheet to go do that and support it.

Speaker 2

We're going to continue to optimize the footprint of the company. We've done some great work over the last few years to build these more simple scalable outposts out there that for IDEX, we've stripped out a lot of complexity that's going to lever really, really well for us in terms of supporting growth and driving financials. And then lastly, we're going to inspire support it all with, I think, a very inspiring culture that strives to expand the impact of our mission, Trusted Solutions improving lives. So thanks for your time today. I wish you all a great day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
IDEX Q4 2021
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