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Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX)
Q1 2021 Earnings Call
May 05, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and thank you for standing by. Welcome to the Ortho Clinical Diagnostics quarter one 2021 earnings conference call. [Operator instructions] I would now like to hand the conference over to your first -- our first speaker for today, Mr. John Sanders, vice president of finance, treasurer, and head of investor relations.

Thank you. Please go ahead.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you, Ann. And good afternoon, everyone. With me today to discuss our financial results are the chairman and CEO of Ortho Clinical Diagnostics, Chris Smith; and Joe Busky, Ortho's chief financial officer; Mike Iskra, our EVP of commercial excellence and strategy, will join us on the Q&A portion of the call. This conference call is being simultaneously webcast on the Investors section of our website, and a version of today's presentation can be downloaded there.

Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange app. Except historical information, all of the statements, expectations and assumptions discussed in today's call are forward-looking statements that involve a number of risks and uncertainties. Actual results might differ materially from the results expect in forward-looking statements. These risks and uncertainties include, but are not limited to, the factors identified on Slide 2 of today's slide presentation.

In our Form 8-K for the quarter filed today and other filings with the Securities and Exchange Commission. Except as expressed or required by SEC securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments or changed circumstances or for any other reason. During today's call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP.

Please see Slide 3 for a lot of these non-GAAP measures including but not limited to core revenue, constant currency, EBITDA, adjusted EBITDA, adjusted free cash flow and adjusted diluted earnings per share. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release dated this afternoon, both of which are available in the Investors section of the Ortho website. In addition, on today's call, we will refer to our core and our noncore business. Our Clinical Laboratories, also known as Clinical Lab and Transfusion Medicine businesses represent our core business.

Our noncore business is comprised of our contract manufacturing and licensing revenue. Our base business excludes sales of COVID-19 antigens and antibody test. Now I will turn the call over to Chris Smith, chairman and CEO of Ortho. Chris?

Chris Smith -- Chairman and Chief Executive Officer

Thanks, John, and good afternoon, everyone, and welcome to Ortho's first-quarter 2021 earnings call. I'm pleased to be sharing with all of you Ortho's first-quarter results, and we'll start on Slide 4. I always really like to start all our presentations, whether they're with investors or customers or our teammates with our mission statement. It really is why we do what we do because every test is a life.

We embrace this credo as a critical role we play in the global healthcare systems every day. I also want to take a second just to thank our global teammates around the world for everything they do every single day to deliver on this promise. Shifting to our Q1 '21 highlights on Slide 5. Our financial momentum has continued from Q4 into Q1, and we're very proud of our results and the hard work by our teammates around the world to achieve these results.

During the first quarter, as compared to last year's first quarter, we grew our core revenue to $499 million, an increase of 23.5% in reported currency. We increased our operating income by 382%, and we finished Q1 with adjusted EBITDA of $152 million, an increase of 49% as compared to the first quarter of last year. Just importantly, we reduced our debt by $1.4 billion and improved our cash position when we IPOed the company in the first quarter. I'm pleased with our performance in the first quarter, which really reflects our team's dedication and focus on growing the business.

And we've talked about this often as shifting a company that was once managed just for value to one that's managed for growth. If we move to Slide 6, it illustrates our top-line growth. These results are indicative of the considerable momentum we are seeing as we start 2021 with core revenue growth of 21% in constant currency. 14% of this is in the base business which excludes COVID revenue.

And as Joe will get into more detail on this in a second, but we'll see significant opportunity as we carry this strength as we move out throughout the year and into 2022. Lastly, I'm pleased to report that we've raised our guidance for our full-year 2021 financial performance based on the momentum we're seeing in the base business. Our top-line estimate for the full year was 7% to 9% growth for the core, and we're now lifting that guidance to 9% to 11% of revenue growth. As you may recall, COVID-19 is a headwind for us in our planning cycle.

We're also raising our full year projected adjusted EBITDA growth guidance from 10% to 13% as previously reported, to 14% to 16.5% growth. So we will increase the growth of the revenue, we'll also increase the growth of our earnings. In our current update guidance, we see COVID-19 related sales slowing in the second half of 2021. However, as the pandemic continues to evolve worldwide with different rates of infection, we may see additional benefit from COVID-19 [Inaudible] that are not reflected in our updated guidance.

On Slide 7, we identify the key drivers of strong, sustainable results and long-term shareholder value creation. We continue to make investments and devote energy to delivering on these initiatives. Fiscal 2021 has started very strong, driven by our continued focus on following our strategic priorities to drive growth and shareholder value, which are around product innovation, commercial excellence and operational efficiency. One of the areas of our product innovation focus and our organic growth opportunity that I want to highlight today is around the immunoassay market.

And each quarter, we'll highlight different growth drivers in our business. Please turn to Slide 8. Ortho has historically been a leader in the Clinical Labs business, and we're the only company in the world that have dry slide technology, which does not require access to water, and is designed to make quality critical chemistry testing accessible. The Clinical Labs business has an addressable market of approximately $26 billion, and we compete in the largest IV markets here, with our clinical chemistry offering and our immunoassay solutions.

As you see on this slide, the 2021, our mix of revenue was very heavily weighted toward clinical chemistry with a 62% to 38% split. The market, however, is the reverse. With our increasing focus on lifetime customer value and expanding our installed base of integrated analyzers, we see strong uptake from Labs with the ability to run the expanded menu on our devices. As you might expect, given its more sophisticated targets, IA testing for infectious disease and advanced diagnostics is typically higher revenue or high -- priced higher, as well as contribute higher margins in clinical chemistry.

That opportunity can easily be seen clearly in the chart on the right, which shows that IA has made up of 67% of the 2019 market, which is really pre-COVID and we believe that split is reflective of the market today as we head out of COVID. Thus, we believe we have a significant room for solid, more profitable growth as we continue to expand our strategy around placing integrated analyzers and automated install systems. And we believe that this ultimately will create more value for our customers. Again, this quarter, we grew our integrated installed base double digits.

So to give you an example, we grew at 14% in the quarter. So we've talked about the opportunities for organic growth, but it's important from an improved balance sheet to now also focus as we head out of the IPO and expanding our cash-generating power of our business that we believe that there are unique M&A opportunities ahead of us. Slide 9 outlines a number of those at a high level for you. As the only publicly traded pure-play company in the attractive IVD market with truly global reach, we believe we have an excellent platform for bolt-on acquisitions to accelerate profitable growth.

Ortho has a very successful history of partnerships with several fine companies like Ripples, IDEX, Thermo and many others. And we have an increasing balance sheet that provides flexibility, and this will allow us to continue to build on this partnership success. In addition, we are targeting high growth, high-margin products that we can sell-through our existing global call points and distributors, including molecular specialty IA and point-of-care diagnostic systems. We also believe there will be additional opportunities to bring more value to our customers and patients over time through digital informatics solutions.

We see those opportunities playing across both the Clinical Labs and the Transfusion Medicine businesses where our leadership position promises even greater synergies and deal economics. In terms of financial criteria, our focus remains primarily on bolt-on niche opportunities where we can add growth, accretive earnings and deliver an increase on return to invested capital. Finally, on Monday, we filed an 8-K announcing the departure of Chad Dale, our chief operating officer. Chad is leaving to pursue another opportunity.

And I want to take a minute just to thank Chad for his five years of service to the company and seeing us through significant changes as we pivoted Ortho and return the organization to growth in becoming a public company. I will now turn the call over to Joe to further discuss our Q1 financial results, and then we'll come back with Q&A later on. Joe?

Joe Busky -- Chief Financial Officer

Thanks, Chris. As Chris noted financially, we've had a really good start to 2021. We saw a meaningful recovery in our base business that surpassed our own expectations and fueled solid growth across all of our geographies and segments. Now let me provide a bit more detail on our operating results for the quarter and full year, starting with the breakdown of our revenues on Slide 11.

Please note that all comparisons are versus the prior-year periods unless otherwise mentioned. First-quarter total revenue was $506.8 million, compared to $407.9 million in the first quarter of 2020, which represents a 24.2% increase or 21.8% growth on a constant-currency basis. Core revenue of $499.3 million, which excludes contract manufacturing and other licensing revenue grew 21.1% on a constant-currency basis, which exceeded our initial estimate for Q1 provided last quarter. The substantial revenue growth in the first quarter was primarily driven by higher volumes within Clinical Labs, including $29 million in COVID-related revenue and Transfusion Medicine, as well as continued recovery in the Americas and ASPAC regions.

Excluding that $29 million of COVID-related revenue, reported core revenue growth would have been 14%. As a trusted partner of hospitals, hospital networks, blood banks and labs around the world, our base business bounced back fairly well from the pandemic induced low points we saw in the second quarter of 2020. I'm pleased to say our base business has continued its trajectory of year-over-year growth. Clinical Labs revenue grew to $338 million from $256.4 million, which is a 29.9% increase on a constant-currency basis, largely driven by healthy growth in the Americas region, but with really all geographies showing double-digit growth on a reported currency basis.

In Transfusion Medicine, we saw 6% growth on a constant-currency basis or $161.4 million in revenue for the quarter, compared to $147.9 million in the prior-year period. Within Transfusion Medicine, we experienced growth in the Americas region and the other region, primarily Japan. In the first quarter of '21, our new partnership with CTS went live. We continue to ramp the new CTS business and the relationship we are building with them.

Noncore revenue grew just under $4 million to $7.5 million for the first quarter as compared to $3.6 million a year ago, and this is primarily due to an increase in some contract manufacturing revenue. OK. Now on to Slide 12 which outlines our geographic region results for Q1. While the developed markets were a clear strong spot again, we saw a meaningful recovery in many of our emerging markets as well this period.

Americas revenue in the first quarter grew to $321.4 million from $250.5 million in the prior-year period or 28.8% on a constant-currency basis. This is due to pronounced growth in Clinical Labs and Transfusion Medicine in the region. Excluding COVID-19 growth, the Americas year-over-year growth was still an impressive 18%. The EMEA segment revenue of $68.5 million was up 8.2% on a constant-currency basis compared to the prior-year quarter.

Our Greater China segment revenues of $55 million increased just under 11% on a constant-currency basis as we pass the anniversary of the initial impact of the pandemic last year in the region. And we're very pleased to see both EMEA and Greater China return to a strong growth trajectory during the first quarter and believe our base businesses will continue to rebound in these regions. Our Other segment, which includes the Japan and Asia Pacific regions, have revenue of $61.9 million, which was up on a constant-currency basis by 15.1%. This region also includes strong contribution from India, where we had a strong uptick in revenues as well.

We're happy to be a part of the solution in the region, and our thoughts are with our teammates and their family members who are working through the recent COVID-19 surge there. Now turning to Slide 13. We delivered another solid quarter performance below the top line as we continue to make strides in value capture and increase productivity. First-quarter gross margin came in at 51%, an increase of 330 basis points due to favorable product and segment mix, as well as lower manufacturing costs.

Operating income for the first quarter increased 382% to $57.4 million from $11.9 million in the year-ago period, primarily driven by higher gross profit, partially offset by higher SG&A and R&D spend. Our non-GAAP adjusted EBITDA for the first quarter was $152.4 million, increasing 49.4%, compared to $102 million in the comparable period last year. The net loss for the first quarter was $39.1 million or $0.19 per share, compared to a net loss of $101 million or $0.69 per share, benefiting from lower interest expense, largely due to the debt paydown with our IPO proceeds. Non-GAAP adjusted net income, which excludes a intangible amortization and other one-time costs increased to $54.9 million.

Let's turn to Slide 14 now to discuss the balance sheet and liquidity position. As of the end of the first quarter of '21, our total cash and cash equivalents totaled $153.8 million, which is up 16% and from the $132.8 million at year-end 2020, while total debt stood at just under $2.4 billion. Net proceeds of our initial public offering, which included the exercise by the underwriters of the full over allotment option, reduced net debt by approximately $1.4 billion. Our net debt-to-EBITDA ratio fell to 4.4 times as of quarter end, driven by stronger EBITDA, Q1, higher cash balance and favorable foreign exchange impacts on the euro term loan debt.

Due to the sustainable cash flow we were able to generate, we remain very confident in our ability to reduce this leverage ratio by at least a half a turn a year. And we typically have had seasonality in our cash generation in the first quarter, where we see cash outflow in Q1. So looking at our adjusted cash flow in Q1, we used $13.1 million of cash in operations, which is a $15 million improvement over Q1 2020. We do, however, expect it to generate over $100 million of adjusted free cash flow in the second quarter.

Further, we still expect significant adjusted free cash flow generation for the full year of approximately 50% of adjusted EBITDA. Now let me remind you that continued debt reduction is just one facet of our balanced capital allocation strategy. As Chris mentioned, we're actively evaluating organic and inorganic growth opportunities that would complement our core business, further increased operating leverage and give us new or additional exposure to high-growth markets. Our healthy cash position, reduced interest burden and improved financial position as a result of the IPO will allow us to continue to pursue this strategy over the coming years, while we are guided by our focus on the continued development of industry leading, innovative solutions for patients all around the world.

In other positive news, as discussed on our last call, both Moody's and S&P upgraded our credit rating after the receipt of our IPO proceeds. We also upsized our revolving credit facility by $150 million, resulting in total borrowing capacity of $500 million in this facility. This is supporting the strongest liquidity position that Ortho has seen in many years. With that in mind, I'd like to now turn to Slide 15 for our outlook on 2021.

With a very strong momentum across our portfolio during the first quarter and continued strength in the early part of Q2, we are raising our guidance as follows: full-year 2021 core revenue will be within a range of $1.93 billion to $1.96 billion, growing between 9% and 11% on a constant-currency basis. That's up 2 full percentage points of growth from our original projections, as Chris noted earlier. 2021 adjusted EBITDA has also increased to between $520 million and $532 million or 14% to 16.5% growth on a reported basis. And of course, finally, the adjusted diluted EPS will now be in the range of $0.64 to $0.69 per share for the full-year '21 based on a full-year average share count of 234 million shares.

We remain confident in our ability to model our business as the recurring nature of 93% of our revenue gives us substantial visibility in the future. We expect to continue to grow the top line across our core business and all of our various segments. We also expect to see continued margin expansion and operating leverage growth as a result of our value capture program and ongoing shifts to the increased placement of integrated analyzers, which leads us to believe that for every percentage point of revenue growth, we expect our non-GAAP adjusted EBITDA margin to grow by 1.2 to two times that, depending on our investments for that period. I'm very pleased with Ortho's financial performance in the first quarter of '21, and I'm confident that we're building a platform for continued growth.

And thanks to all of our associates worldwide and that have delivered these fantastic results. With that, I'll turn the call back over to Chris.

Chris Smith -- Chairman and Chief Executive Officer

Thanks, Joe. Before opening the line for Q&A, I'd like to just spend a few minutes on our final Slide 16, which really talks about the investment thesis for Ortho. We continue to believe it's an amazing opportunity from an investment perspective with Ortho. If you think about it, we really are the only pure-play IVD company, and more and more this IVD market is becoming a highly attractive market and growing, and we'll talk about this as we go through Q&A.

But while we definitely saw some uplift due to COVID, we really see significant growth in our base business, which is exciting. The second one is really around the differentiators that we offer our customers, and it really focuses on this lifetime customer value and this reoccurring revenue base, which today still is around 93% of all our revenue is reoccurring. And finally, it's about momentum. And as you can see from the results in Q1, we've continued excellent momentum coming out of Q4 into Q1.

And while we had very strong growth in several places coming out of Q4, we're seeing across the globe really into Q1, nice growth in places like Western Europe and in several of the emerging markets as opposed to just the Americas. And that's obviously leading to continued profitable growth. So really excited about where the business is going. And on that, John, I'll turn it back over to you, and we'll move on to Q&A.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you, Chris. Operator, at this time, if you would give the instructions and open the line for our first question.

Questions & Answers:


Operator

Thank you. [Operator instructions] We have our first question from the line of Derik from Bank of America.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Hi. Good afternoon. Derik De Bruin. So congratulations on the quarter, really strong to see you come out of the gate so strong.

One of the things that sort of struck me, and I appreciate the Slide 8 you had on the immunoassay market. Just was wondering on that one. It's like that is an opportunity there. How long until you sort of can see that shift? I guess, can you remind -- where are you sort of like soft in the immunoassay markets? What is sort of like the revenue opportunity to be gained and the growth there? A little bit more color on when it's going to take to sort of do that shift.

Chris Smith -- Chairman and Chief Executive Officer

Yeah. Look, I think that shift continues to happen. I mean if you think about -- if you look down in the right, you can see that we show what percent of our installed base is integrated analyzers, and we moved up to 25% in the quarter. And the total growth of our integrated analyzers for the quarter was 14%.

And that really is the driver. And just to give you a kind of high level, Derik, like we had a great quarter really across the business. So look, our clinical chemistry grew still 12%. So that's kind of our slides in tips.

But when you look at our IA business, it grew 60% and even 30% without COVID. So obviously, you're going to say, look, Chris, your business is going to grow because of COVID in the IA. But our IA, just to give you an example, if you carve out COVID, our IA grew 30% and our clinical chem win grew 12%. So you can start to see that acceleration of the growth.

And you start to see that reflected also in some of the gross margins with the big lift in gross margin. So for us, and I think we've talked about this with you all, as we look at our teams out in the marketplace, we really focus on shifting stand-alone analyzers to integrate it and then pulling through that IA business.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Great. And just one follow-up question on that one. I mean, very -- the organic revenue growth target and upgrade there is a lot better than certainly what we anticipated and what you shared with us on the -- during the IPO process. But it does beg the question, sort of how do we see the 22 -- you have the comps, they decrease really tough comps.

And just sort of seeing is like, I know it's too early as sort of talk about this, but I mean, are you comfortable with a mid-single-digit outlook for the core business in '22, even off of these comps?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. We believe. So look, again, just use Q1 as an example of '19. I mean, we really had -- we came out of the gates in January, February of '19 -- excuse me, in '20.

We came out of the gate in the first two months of '20, with 8% growth in January and February. Because China is our second largest market, COVID hit early there. And obviously, we pulled back. But the business has historically been running at that 4% to 6% percent base business growth, and that's before we've added on more analyzers as far as moving share, as well as other tests like things like PCT, pushing vitamin D farther across.

So we do feel very comfortable with that mid-single-digit growth outlook. And look, fortunately, we're running even well above that because I think we're winning more than we've ever won before. And as we start to share and talk about the business, I think that's the biggest difference. Look, we still have -- have wonderful tests we're getting pull-through, but the reality is we are winning more against competition than we've ever done in the history of the company.

And that's really helping to drive that growth.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Chris Smith -- Chairman and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from the line of Tejas Savant from Morgan Stanley. Your line is now open.

Tejas Savant -- Morgan Stanley -- Analyst

Hey, guys. Good evening. So two questions on the GEO front. To what extent -- Chris, did the weather have an impact in February for you guys in the States? And was underlying strength even stronger than what the numbers suggest here? And then second, on the point you made around sort of India.

And I'm not sure if you mentioned Brazil there as well. But given the resurgence there, can you help us think through the base business offset versus the COVID testing upside that you're benefiting from in those [Inaudible]? And how much cumulatively those two markets represent for you?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. So look, the weather, I think, like a lot of people hurt us for about a week in February. Our main distribution centers in Memphis, and it pretty much got shut down for about six days. As you can imagine, so it definitely impacted the Americas in Feb -- on that time frame in February.

I would say the team did a really good job of probably recovering all that in March. So by the time we closed out the quarter, I think you were pretty -- I think it had worked its way through kind of the system, if that makes sense. Look, as far as India, look, we're really -- are pleased with what's going in on in India. To give you an example, that business was up almost 30% for the quarter in -- just in India alone.

And remember, India is about 60% of our business in Asia Pac. So as India go, so does Asia Pac. Now look, we're obviously concerned not only for the well-being of our teammates and all the people in India with what's going on with the research, but we're also a little bit concerned with where that business is. I will say, look, April has started strong in India.

But I think what we need to keep an eye on kind of May and June and see what happens. But we have seen very nice recovery, really at the end of Q4 and all through Q1. And again, Brazil, very, very good market for us. I think it was probably up more than 40% in Q1.

And so Brazil, again, our big -- Brazil and Mexico are two big markets where we need to win down in Latin America. Our team has done a fantastic job managing through the end of it -- in the last year and this year. So those markets are doing, I would say, very well as far as recovering. We obviously need to keep an eye on COVID, but right now, they're in very nice recovery month.

Do we lose you?

Joe Busky -- Chief Financial Officer

Operator?

Operator

OK. And our next question comes from the line of Vijay Kumar from Evercore. Your line is now open.

Unknown speaker -- Evercore ISI -- Analyst

Hey, can you hear me? This is Paul on for Vijay.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Yes, we can hear you, Paul.

Unknown speaker -- Evercore ISI -- Analyst

Thanks for taking the question. I was just hoping you could walk us more through the assumptions that are baked into the guide? What's the back half look like? Any color on the guidance by segment or geography?

Chris Smith -- Chairman and Chief Executive Officer

Yeah, I'll let Joe take that one on the guidance.

Joe Busky -- Chief Financial Officer

Yeah. We -- Paul, we've got continued strong growth in -- across all of the segments in the second half of the balance of the year. We've got -- as I said on the last call, on the COVID front, we said we were going to do $40 million to $50 million of full-year COVID on our last call. So we did $29 million in Q1.

So we're looking at about $20 million of COVID in Q2, somewhere in that range. And again, as I said on the last call, we -- in the guidance, we don't expect to see much COVID at all in the second half. Although, again, we hope there's upside to that guidance. As far as moving down the P&L.

I think I said this on the last quarter call as well in terms of gross profit margin, we expect to see stronger gross profit margin and stronger EBITDA margin in the first half versus the second half, and that's really driven by -- you've got more favorable manufacturing variances rolling through in the first half than in the second half. And the COVID revenue in the first half comes through at a higher-margin than some of our other immunoassay revenue, and so that's going to drive some higher gross margins in the first half versus the second half, too, as well as those EBITDA margins will be stronger first half versus second half for those same reasons.

Chris Smith -- Chairman and Chief Executive Officer

Yeah. I think the other thing, Paul, is when we look at the business and we try to get to the guidance, what we look at obviously backing out things like COVID. But we also back out some things that we think are tests that kind of align a lot with COVID. So we really do dig into to get to where we think the forecast is going to be or the guidance.

And I think what's really driving it is Americas, as I mentioned, but Americas is moving much faster in the base business. So just -- and I think the second one is EMEA, and in particular, Western Europe continues to perform better, I think, a lot. So while we knew that China and the emerging markets would be doing well in the double digits, I'd say, that those two big development markets are moving quicker, and that's why it would really hope to leave our raise of the guidance.

Unknown speaker -- Evercore ISI -- Analyst

Great. Thank you. And I don't know if you already mentioned it, but assumptions on antigen and serology for the rest of the year?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. So Joe mentioned that, we did close to $30 million in Q1, and we're projecting to do about $20 million in Q2. And we have nothing built into our forecast for the second half of the year. So I think COVID still -- I think it's still an unknown.

But the way we've built our forecast, it's all front-loaded, and it's about $50 million on the front half of the year. One other thing on the guidance, I do want to come back to is remember, 93% of our business is reoccurring. So when we start to place -- we win an account, we place the analyzer. We started gaining revenue, that really reoccurs.

So I think once we get into that flow, when we're building out our models, you really can look at the placement of analyzers and build that.

Unknown speaker -- Evercore ISI -- Analyst

Got it. Thank you.

Chris Smith -- Chairman and Chief Executive Officer

Thanks.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you. Ann, next question.

Operator

Thank you. Our next question comes from the line of Patrick from Citi. Your line is now open.

Patrick Donnelly -- Citi -- Analyst

Hey, guys. Thanks for taking my question. Maybe if you go back to the geographical front. China has obviously been a big focus area for you guys going back to the IPO.

Can you just talk through a little more detail, the trends you saw in the quarter, the outlook for the remainder of the year. I know last quarter, you guys talked through some disruption around destocking by distributors. Things seem to be improving? And then also just where you are on the localization strategy there. I know it was a big focus for you.

Chris Smith -- Chairman and Chief Executive Officer

Yeah. So look, I would say that China has, I think, come back and rebounded incredibly well. They grew about 11% in the quarter. I think just as important to us is that integrated analyzers grew 14%.

So again, we want to see them growing at or above market on the integrated analyzers and saw that. So I feel really good. I would say that's one of the places where we see the forecast continuing to rise throughout the year. I mean, obviously, Q2 for every part of the world can be pretty low comparables.

But we see China will continue to rise because we really see a nice bounce back. As far as the localization strategy, we feel really good about where we are on that. I mean, we've -- as you know, we -- our first step was in two partnerships, one on the development of some assays and one on the development of a low-cost -- a lower volume analyzer that we'll not only use in China, but we'll use in emerging markets. And the reason we really like that product for China is that a lot of our presence is currently in those staff labs in large hospitals.

So we think it helps us further push deeper into China in some of these second and third markets. So both of those are going incredibly well. So I would say that that's kind of where we are right now from a localization perspective. Look, when we look at M&A opportunities, I mean, obviously, China, we believe will be one of, if not the biggest market, one of the biggest markets in the next five years.

But [Inaudible] eventually catch up to the Americas. So we have a keen eye to that part of the world as well.

Patrick Donnelly -- Citi -- Analyst

OK. No, that's helpful. And then maybe just one on the margin side, certainly appreciate the first half being stronger in the second half based on the comps. Can you just talk through how you guys are balancing the revenue strength and letting that flow through to the bottom line versus reinvestment in some key areas on the R&D side? And then following that, just what are the big focus areas on the organic investment side for you guys?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. Look, I think we talked about it in two ways, Joe may get specifically to the numbers, but I think -- Patrick, this is a business if you go back to '17 -- '16, '17 and even '18 was growing 0% to 1%. And now you've got a business growing consistently in the high single digits. I think the question came up earlier from Derik about that mid-single digit, which we feel good at.

Right now, we're running really hot. And I think a lot of people think it's COVID. And one of the things we talk a lot about, we really aren't a COVID business. I mean, you're looking at $50 million this year of our business.

What we're focused on is the base business. And it's running incredibly well. And we believe that we are in a very unique position because, number one, we're the world -- we're the market leader in transfusion medicine. But the second thing in that big market, we're the No.

5 player from a market share. And we're -- we feel that our commercial excellence sales strategy is allowing us to move market share, especially against one or two of our competitors. So there is investment going into the global commercial organization because we believe that we can get in our analyzers and then start to pull-through the menu. And that's why we're really excited when we see the high-growth of IA because that strategy is working.

So we are investing at a faster rate. Joe always talks about we're going to take of that revenue, and we're going to do a 1.2 to two x down to the bottom line. So we're holding that. But right now, I'd say we're on the lower end of that.

We're probably at around 1.3 to 1.4 because we believe that the opportunity for investors is better in '22, '23 and '24 by investing in those dollars now because even a short contract is five years, right? So you win a deal today, it's going to be paying dividends. So I'd say, one is the commercial. The second is that we've talked a little bit, I think, about this -- about our next platform. And we you'll see the lift in R&D and that majority of that additional lift is in advanced research and in our next platform, which really allows us to take the technology from dry chemistry and move it into IA.

And that's going to be, we think, a game changer, where no water source needed to run IA. And this footprint, that's about half the size that we're on today with higher throughput. And so we're trying to accelerate the development of that. As you can imagine, those are long development cycles, four to five years.

But that would be the other place that we believe there's the opportunity. So I would say that those are two -- the two big places we're investing right now. I think you had a follow-on. And I'm sorry.

Unknown speaker -- Evercore ISI -- Analyst

Yeah. I think you covered everything. I really appreciate it.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Great. Ann?

Operator

Thank you. Our next question from the line of Tycho from J.P. Morgan. Your line is now open.

Tycho Peterson -- J.P. Morgan -- Analyst

Hey, good afternoon. A question on transfusion. Just curious, the CTS, since you've gone live there, if that contributed anything in the quarter, how we think about that ramp? And then can you just talk a little bit about the Swift launch, how you think about uptake there?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. So CTS did go live, pretty big celebration around here at the end of January. And so we were running that pretty much as we went into February and March. And look, it was -- like I think we've always talked about 2% to 3% growth to the total revenue, and it did represent that, probably a little bit on the higher side of that because the initial is stocking and getting it going.

But it definitely contributed to that. As far as Swift, excited about Swift rolling out. We haven't gone out and started to disclose orders, but I will say we are starting to take orders for that. I think it's been very well received.

I think their tactic is -- there's really two strategies on that. One is making sure that we maintain our current base of business that are really customers that maybe had an auto view or had a vision that they're at six, seven years on whatever that technology is and the ability to bring them over to the swift and extend the life kind of net lifetime customer value, but also really a market share play. I think you know why we're the market leader. I will say that Grifols, Bio-Rad in particular, out, especially in the emerging markets, trying to grow their business.

So we think there's opportunities there as well. But we haven't -- it's still really early days.

Tycho Peterson -- J.P. Morgan -- Analyst

OK. That's helpful. And then I was going to ask a follow-up on the dry slide chemistry you talked about a minute ago. I know you had initiated the feasibility work.

Is that the right time frame to think about kind of four to five-year development cycle? Or are there things that we could see sooner than that?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. No, look, I think we will -- you could see donor screening earlier than that if it's depending on regulators and the time lines. But Clinical Labs, I think you're probably playing with the right time lines.

Tycho Peterson -- J.P. Morgan -- Analyst

OK. Last one for me. I know you don't give segment level guidance, but with the increase from 7% to 9% to 9% to 11% for the core business, can you just talk about whether that's more weighted to one segment versus the other?

Chris Smith -- Chairman and Chief Executive Officer

More weighted toward what? I'm sorry.

Joe Busky -- Chief Financial Officer

[Inaudible] or Clinical Lab.

Tycho Peterson -- J.P. Morgan -- Analyst

Yeah. I mean, and if we think about the increase --

Joe Busky -- Chief Financial Officer

Tycho, it's more -- it's probably more heavily weighted toward Clinical Labs as you think about that increase in guidance. Yeah.

Tycho Peterson -- J.P. Morgan -- Analyst

OK. Thank you.

Chris Smith -- Chairman and Chief Executive Officer

Yup.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you. Next question.

Operator

Thank you. Our next question comes from the line of Luke from Barclays. Your line is now open.

Luke Sergott -- Barclays -- Analyst

Hey, guys. Thanks for taking my question. So kind of a follow-up here on Derik is an important point, I think. So when you guys place in an integrated instrument or an automated, can you give us a sense of the immunoassay clin/chem mix? And so it's just really about modeling when that kind of flips.

Chris Smith -- Chairman and Chief Executive Officer

Yeah. Look, maybe Mike's the best one to take that kind of the wholesale strategy and how the team takes it from a stand-alone to so high end, how we start to roll out with the percentage and how it flips over time.

Mike Iskra -- Executive Vice President of Commercial Excellence and Strategy

Yeah. Thanks, Chris, and Luke. Luke, Chris shared the slide. When you look at the revenue split in the market, which is closer to 60-40 immunoassay, that pretty much holds true with the customer base as well.

So when we have a chemistry customer and we add on a new assay, and you have your new total, about 60% of that will be on the immunoassay business, compared to about 40% of value in the clinical chemistry.

Chris Smith -- Chairman and Chief Executive Officer

And over time, maybe just to help, how long does that take over time? Let's say, it was a stand-alone and we move it to and integrated how long historically does it take to build on that?

Mike Iskra -- Executive Vice President of Commercial Excellence and Strategy

Well, there's two things that happen. One, you tend to see that pretty quickly. Again, these -- as you move to integrated, you're the mainframe analyzer, there's a lot of incentive for the customer to consolidate all of their testing onto these analyzers. But again, what we also know is when you go back and look at market growth, the immunoassay side is not only from a revenue point of view, larger, it's the faster-growing side of the business because that's where a lot more new menu is coming from as well.

So ongoing, not just that initial bump there, but ongoing, that's a better growth driver for us, faster pace going forward as well.

Luke Sergott -- Barclays -- Analyst

Got it. That's helpful. And then as you think about the M&A landscape, I love that slide you guys put up there. With two of the recent molecular companies off the table, does that change your timing and strategy?

Chris Smith -- Chairman and Chief Executive Officer

Yeah, those were -- look, I would say we're going to be prudent, and we're going to be opportunistic. And I think I think one of those was very interesting. And the other, I think, went above where we felt the value was. So but we were definitely -- I think we're looking at those type of businesses.

So I wouldn't say it changes our timing. I think it depends a lot on the business. And why molecular is there, we think there's some interesting opportunities in IA. We think BOC, look at Transfusion Medicine.

There's a couple of categories that we like in the transfusion medicine side of the business. And the other one is, I think, obviously, there are some interesting companies that are not U.S. or European-based as well. So look, I wouldn't say it's changing our timing.

We're not running after it. I mean, I will tell you, there's 5,000 people that work here. There is definitely a group of people, a small group though, of people focusing on where we can identify those opportunities. But 98% of the people or whatever work here, their focus is day-to-day placing integrating analyzers, pulling through menu, becoming more efficient.

So I think it's working. And when the right opportunity comes along, we believe we're positioned now to acquire it and then do whatever makes sense. I don't know if I answered your question.

Luke Sergott -- Barclays -- Analyst

You did.

Chris Smith -- Chairman and Chief Executive Officer

OK. But I don't think we're change -- it's not like we're out chasing because we feel like we need to do it. We think as you look at '23, '24, it'd be nice to have the right business to fold in because of our call point and our 2,200 people in the field.

Luke Sergott -- Barclays -- Analyst

All right. Thanks.

Operator

Thank you. Our next question comes from the line of John from UBS. Your line is now open.

John Sourbeer -- UBS -- Analyst

Hi. Congrats on the quarter, and thanks for taking my question. I guess, just building a little bit on the upgrade cycles. I think automation is small, say, around 1%.

Can you provide an update on just where -- how automation was in the quarter? And how does that mix look across for the year? And then did you provide a total placement number for the quarter?

Chris Smith -- Chairman and Chief Executive Officer

No. We're only talking about growth, not total -- you mean total units?

John Sourbeer -- UBS -- Analyst

I think you gave the integrated placement but did you get the total units across all that?

Chris Smith -- Chairman and Chief Executive Officer

Yeah. We gave the integrated growth. So integrated grew about 14%. Yeah.

Look, on automation, look, I would say it was a good quarter as far as growth perspective. I'm just looking here, but pretty much double digits. Yeah, you want to take that, Mike?

Mike Iskra -- Executive Vice President of Commercial Excellence and Strategy

Yeah. So when we look at the quarter, good, automation has been, as you guys know, a focus for us, along with integrated. Our objective there is the drivers that support the need for automation are pretty prominent with our customer base. We're trying to make sure customers see the benefit of our flexibility, cost effectiveness, and we've been getting more and more traction, bringing that in.

We are up as far as installed base, up over 20% on automation. So again, even faster growth there and in line with our strategy of how we want to grow our base. Overall installed base growth, driven by integrated and then even faster with automation. So that held true for Q1.

John Sourbeer -- UBS -- Analyst

And I think leverage is around 4.4 times in the quarter, a little ahead of schedule. Any updates on the delevering plans for the year and year-end targets? And then, I guess, just with the current level of leverage, is there any target level where you'd be more comfortable on executing deals? Or are you comfortable at the current levels?

Joe Busky -- Chief Financial Officer

Yeah. We are -- John, we are a little bit ahead of schedule and the leverage ratio at 4.4 at Q1. And I would say for the full year, by the end of the year, we should be at four, slightly below four without too much difficulty. We're definitely trending that way and all of our internal forecast to say that.

I've talked before about getting to a target level of around three and a half times, and we're going to be darn close to that by the end of this year. So we've got a lot of capacity or will have a lot of capacity by the end of the year to do deals. And as I said, a much more balanced capital allocation strategy. I think we have a lot more ability to do investments, both inorganic and organic.

Chris Smith -- Chairman and Chief Executive Officer

Yeah. I think look, it obviously depends on the deal. Yeah. Look, I think one of the challenges, I think you heard this earlier in the question about the two recent moleculars, I mean I would say the one thing I'm really proud of our team that's in business development, if you look at some of the innovative partnerships we've created along the way, like with IDEX and with Thermo and with Grifols.

I would say that we -- the deals we like are the ones where -- before the bank book is outflowed in The Street. And I think that's really -- some of those are going to be very different when you look at what they do to leverage.

John Sourbeer -- UBS -- Analyst

Got it. Thanks for taking my questions.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you. Operator?

Operator

Thank you. Our next question comes from the line of Matt from Goldman Sachs. Your line is now open.

Matt Sykes -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking my questions. Just two quick ones for me. One, just on pricing, I know -- I think if my memory serves me, during the IPO, you guys talked about you generally expect sort of 100 to 150 basis points of price erosion over the course of the year.

But I'm just wondering, I know it's only been a few quarters, but have you seen anything in the market to suggest that that's changed? Maybe inflationary pressures in the supply chain or anything?

Chris Smith -- Chairman and Chief Executive Officer

Do you want to take that, Mike or Joe?

Joe Busky -- Chief Financial Officer

I'm not -- no, I would say, Matt, we're not seeing any change in that. We're still tracking right along to that same estimate we talked about in the road show, no change.

Matt Sykes -- Goldman Sachs -- Analyst

OK. And then just going back to sort of M&A. On that slide, you guys talk about not just M&A but also partnerships. But as your balance sheet continues to strengthen over the course of this year and next year, does your thought process in terms of whether you do M&A or whether you do partnerships change?

Chris Smith -- Chairman and Chief Executive Officer

Well, that's a really good question, Matt. And one that we have -- look, I think the partnership has to be the right way. I can tell you, just to give you an example, when COVID was going on and a lot of people were chasing point-of-care or lateral flow. Our view is we don't want to build someone else's business.

So I think it -- if we create a partnership, it has to be long. I'll give you an example of the Ripples partnership's 50-year partnership that we've been in. So I think we're 30 years into it. I think it has to be a partnership where we believe that it makes sense long-term versus just something that's short-term because I think -- and the reason being, we talked a lot about this inside our business.

Our runway, we believe, is so great with where we are that we're in, that we really want to stay within that area. So I think it's got to be the right partnership at the right time and the things that we can do. And I think you've seen that that's kind of been our history, these long-term partnerships. But from an M&A perspective, obviously, you control the asset or the right distribution partnership, we think those are good ways for us to go.

Matt Sykes -- Goldman Sachs -- Analyst

OK. Great. Thanks, guys. Appreciate it.

Operator

Thank you. Our next question from the line of Steve from Wolfe Research. Your line is now open.

Liza Garcia -- Wolfe Research -- Analyst

Afternoon, guys. You've got Liza on for Steve. I guess I just wanted to kind of understand a little bit more, if you could talk about the BARDA contract that you won and how to kind of think about that kind of flowing through? That's the first one. And then just understanding kind of where you're seeing kind of -- I know that other -- that it's a little bit different because it's an adjacent space, but some diagnostic players have obviously called out and there's different dynamics here, where the lease range and rental model mix has shifted.

If you've seen any shift in that, if you could just speak to that as well? Thank you.

Chris Smith -- Chairman and Chief Executive Officer

OK. So look, Mike was really instrumental in that BARDA. Do you want to take the BARDA?

Mike Iskra -- Executive Vice President of Commercial Excellence and Strategy

Yeah, sure. So the BARDA agreement, as you probably read through there is funding, that's through BARDA, the DOD partnered in that to fund the expansion of manufacturing capabilities in Rochester, New York. That's for both COVID related reagents and an instrumentation, which is our immunoassay product lines there. And from our point of view, we do some of that manufacturing on the reagent side, in Penford Wales and ex-U.S.

with some of the instruments. And so this is an opportunity for us actually, as the need for increased manufacturing has existed, to bring that onshore into the U.S. and in partnership. John I don't know if you want to comment on how that's going to flow through?

Joe Busky -- Chief Financial Officer

Yeah. I mean, I just wanted to give 10 seconds on the accounting, just so everyone's clear, because we are booking some BARDA revenue now for a previous grant we got on assay development. But this grant is a little bit different in that it's a capital grant to build a line. So it will come through essentially as an offset to capex on the balance sheet.

So we'll get favorable depreciation expense going forward because you'll have less of an asset on the balance sheet. So it won't come as revenue like the grant we have now come through as an offset to an asset. And I the other question you had, I think you had a question on the reagent rental versus cash. We're not seeing a big difference year over year in our cash versus reagent rental mix.

It's pretty flat year over year.

Liza Garcia -- Wolfe Research -- Analyst

Great. Thank you so much.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Thank you, everyone. That concludes our Q&A for day. Chris, do you have any closing comments?

Chris Smith -- Chairman and Chief Executive Officer

No. Just thanks, everybody. We really appreciate you taking the time. I know we'll be talking to some of you throughout the day.

And yes, again, we appreciate it. It was a great quarter and thanks for the time to be able to share with you, and we look forward to talking to everybody soon.

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

And operator, I think you have here final instructions on the availability of the recording. Thank you again for joining.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

John Sanders -- Vice President of Finance, Treasurer, and Head of Investor Relations

Chris Smith -- Chairman and Chief Executive Officer

Joe Busky -- Chief Financial Officer

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Tejas Savant -- Morgan Stanley -- Analyst

Unknown speaker -- Evercore ISI -- Analyst

Patrick Donnelly -- Citi -- Analyst

Tycho Peterson -- J.P. Morgan -- Analyst

Luke Sergott -- Barclays -- Analyst

Mike Iskra -- Executive Vice President of Commercial Excellence and Strategy

John Sourbeer -- UBS -- Analyst

Matt Sykes -- Goldman Sachs -- Analyst

Liza Garcia -- Wolfe Research -- Analyst

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