Revvity, Inc. (RVTY) Earnings Call Transcript & Summary

Okay. We're going to go ahead and get started. I'm Tycho Peterson from the Life Science team. It's my pleasure to introduce our next company this afternoon, PerkinElmer. We'll do a breakout right after in the Olympic Room. And with that, let me turn it over to Prahlad.

Thank you, Tycho. Good afternoon. I'm excited to share with you some of the great progress that we have been making at PerkinElmer. 2019 was another year of rapid transformation at the company, one that has set us up on a solid footing for 2020 and beyond. Before I move forward with the presentation, I wanted to invite your attention to our safe harbor statement and to visit our website for additional disclosures regarding any forward-looking statements that are made during the presentation today. At PerkinElmer, we are unwaveringly committed to our mission of innovating for a healthier world. It is a basic tenet in our DNA and one mission that opens up countless opportunities for the company. I came to the company about 5-plus years ago, and since then, we've gone through a strategic transformation on the company, focused on 4 key strategic areas: number one, align our markets to attractive high-end growth markets; continue to improve our product mix towards more consumables, software and services; increase our geographic reach in emerging markets through an in-country, for-country acquisition strategy; and most importantly, expand and strengthen our capabilities in high-growth and regulated end markets of food, life sciences and diagnostics, a result of which is that we've tripled our addressable market to nearly $50 billion. Today, PerkinElmer is a -- has a stable and balanced portfolio of Diagnostics, Discovery & Analytical Solutions, with more than 2/3 of our revenue coming from consumables, services and software. Over this financial period of 5 years of transformation, our revenue has grown at 7% CAGR, and our EPS has grown at 11%. Just to give you a bit of a deeper dive into the 2 business segments, the Diagnostics portfolio has an attractive mix of assets with market leadership positions in reproductive health, autoimmune testing, among others. Remarkably, more than 50% of the revenue for the Diagnostics segment comes from product lines where we hold a top 3 market leadership position. Amongst the differentiated capabilities, the benefit that the market leadership position gives us, that it gives significant organic and inorganic opportunities to scale in structurally attractive segments of the diagnostics market. Similar to Diagnostics, the Discovery & Analytical Solutions portfolio has an attractive mix of assets, one that is not widely appreciated. Remarkably, 2/3 of our revenue, again, in the DAS segment of our portfolio, comes from product lines where we hold a top 3 market leadership position. To give you a bit of a deeper dive into the capabilities of the DAS segment of the business, in life sciences, with the acquisition of Cisbio, we've now built an end-to-end workflow solution in preclinical, phenotypic characterization for research and discovery on both the pharma and biotech segments. In food, we have built an unparalleled breadth of portfolio in food quality and safety testing, especially in grain and milling. And in organic and inorganic spectroscopy, we've built workflow solution in attractive segments of the applied markets such as microplastic research, semiconductors, amongst others. A result of all of this transformation is that we've now built leadership positions in attractive, high-growth end markets. The weighted average market growth rate of these segments we estimate is in the mid-single digits. So the question that was in front of me when I was appointed COO at the beginning of last year is now that we've built a strong strategic foundation, how do we take the business to the next level. We spent a lot of time talking to our customers and our employees, looking at our go-to-market strategy, our product innovation process, and the realization was that if -- while we were in diversified end markets, we were still pretty divergent and siloed in our approach of how we went to the market. And it became clear to us that if we wanted to rapidly address the changing market dynamics and customer needs, we needed to realign our organization. In the second half of last year, we rolled out a new organization, which had a unified go-to-market approach, a combined R&D team, both of which was backed by an operational excellence credo that brought our competencies and capabilities closer to our customer. I'm going to spend a little bit of time in each one of these pillars of our new approach, starting with the unified go-to-market approach. Our intent was that we needed to make our regional leaders more empowered and have the capabilities closer to them and the customer that would allow for agile decision-making. In addition, they would be now able to present the full breadth of our portfolio to our customers rather than a siloed approach that we had earlier, which made it complex for our customers to do business with us. Let me give you an example of what I mean by this. A big pharma in the EMEA region was generally touched upon by 5 of our account reps, 3 to 4 application specialists and a similar number of service engineers. With this new go-to-market approach, we have a more honed-in strategy that allows for increased customer intimacy, and we are already seeing signs that it is lowering our cost to serve the customer. While we appreciate that the full rollout and benefit of this new go-to-market approach will take some time for us to realize the benefits of, we will continue to hone our market approach as we move forward. Similar to the go-to-market and the commercial approach, on the R&D side, our realization is that we continue to see an increasing convergence of technologies across the end markets that we serve. So we've now aligned our organization around 4 technology verticals of reagents, instruments, software and services. As we move forward, we will continue to see a convergence of interoperability and data integration around the instruments in the end markets we serve. Again, let me give you an example of what I mean by that. If you look at a triple quad mass spec, it is used in very diverse end markets of cannabis and reproductive health. However, they have a very common usage and need around rapid throughput and automated workflows. By bringing the organization together, we are able to leverage the scale and opportunity and competencies across different market segments. However, what is most important for us is that we've got to build an operational excellence credo behind it for consistency and execution. We've now put advanced capabilities around both reagents and instruments in each of the regions. Of approximately 13,000 of our employees, more than 3/4 of them reside outside the U.S. and closer to the customer. Again, to give you an example, the APAC region is one of our most important segments and regions because as you move -- as we look forward, it's going to continue to have an aging population, which is going to spend a disproportionate amount of -- on health care and life sciences. So for us, while China and APAC continue to be important, we've spent some time and resources in building a distribution center in Singapore that we are already seeing an improved cycle time of 20%. In China, on the outskirts of Shanghai, we've built a 30,000 square meter facility, with more than 400 people there focused on R&D, distribution and logistics, with 1/4 of them in R&D. We experienced that the APAC region, and especially China, has a data-forward culture, and we've increased our digital focus in the region with 100% strong informatics and software team in Shanghai. So the opportunity in front of us was that we have a strong strategic foundation, and now on top of that, we wanted to layer a new commercial and R&D approach and back that up with a strong operational execution. I want to share with you an early win example of this new go-to-market approach. For us, cannabis was a fledgling or a nascent business at the beginning of 2018. We will probably end 2019 with more than $25 million in revenue in cannabis. And the approach here was that we spent a lot of time with our customers with a new channel that was focused on the voice of the customer, understanding their needs and building an end-to-end workflow solution from sample prep, quality and safety testing and an analytical -- and the analytics behind it from a digital perspective and building SOPs that allowed the new fledgling labs to be able to be up and running as soon as they can. And our intent is not just to stop at this competitive advantage now we have built but continue to add workflow additions to them, whether it's in terms of reagents and kits or digital solutions. So this is, again, example of an early win that we are seeing with our new go-to-market approach. So now that we had an appreciation of a strong strategic foundation and built a new aligned organization around it, the question in front of us was that where do we go from here. And our intent is really that we want to leverage our differentiated capabilities to accelerate outcomes for the betterment of people and the environment. I want to walk through the second half of the presentation now, giving you examples of what we mean by positive and accelerated outcomes, starting with the diagnostic side of the business. We look at the whole human care cycle from carrier screening, preimplantation to -- during the mid-life and you have autoimmune or allergy testing. However, at the core of this, for us, maternal and fetal health is the most important aspect, and that begins with the mother. Our intent and objective is to provide highly accurate, affordable options for maternal and fetal health testing for the mother. And for this, Vanadis is at the nucleus of this. Sorry. Could you back one? One more, one more. Keep going. That's good. That's good. So Vanadis for us is a test that we want to democratize NIPT and make it available for every woman. It is a high precision, non NGS-based, affordable test that should be available for every woman regardless of their risk profile. And this is going to be a -- I'm sorry, I'm going to try and do this. Are you guys going to press it? That's good. And in addition to it being at the core of it, we are also seeing opportunities with Vanadis for other clinical applications. However, at this point of time, our focus is on scaling Vanadis for NIPT. Next slide. Another example is how PerkinElmer Genomics leverages the power of whole genome sequencing to detect all pathogenic variations with one single test and provide actionable insight for rare disease genetic testing. I want to share with you an example of a 5-year-old patient. She came in with delayed language development and mild hypotonia and was initially diagnosed with Kleefstra syndrome. However, with whole genome sequencing, PerkinElmer Genomics was able to identify another rare type of variant, and she was then correctly diagnosed with Fabry diseases. She's now under treatment for that with enzyme replacement therapy, and she can continue to be monitored via PerkinElmer Genomics testing. These are outcomes that we are really proud of. To give you another example, autoimmune testing has -- EUROIMMUN has decades of experience with autoimmune testing. It is a core advantage that allows it to develop rapid antibody tests for diseases that could take a long time and several million dollars at times to develop a test for. Most of you know that EUROIMMUN was the first one to develop the Zika test. However, many of you may not know that EUROIMMUN was the first one to develop a receptor encephalitis test that was the subject of a book called Brain on Fire. The detection of this allowed Susan Callahan (sic) [ Susan Cahalan ], who is the author of this book and wrote this book, to have a correct diagnosis, and she is under treatment and recovery now. Similar to the Diagnostics side of the business, on the DAS side, our focus is on continuing to work on improving outcomes that impact our health. I want to share with you a few examples on the DAS side of the business, starting with food. Food and global food supply especially is an important aspect in China. The population there today has limited confidence in the quality, safety and authenticity of the food there. PerkinElmer has worked with KOLs, customers and the government over the last decade. Again, I want to give you an example. In the near-IR space, when there was a melamine scare with milk powder, we were the first ones to come out with a test that allowed for testing of adulterants in milk powder. Recently, one of the PerkinElmer companies, Meizheng, that we acquired. If you recall a few years ago, there was a scare in milk around aflatoxin. Aflatoxin is a very potent microtoxin that's known to cause liver diseases and liver cancer. Meizheng has worked with the government and KOLs and developed an end-to-end workflow solution for detection of microtoxins not just in milk but also in grain and seed. These are, again -- this is, again, an example on the food side that allows us to build an unparalleled breadth of portfolio and solutions that the customers need. Similar to -- on the food side, if you look at life sciences, with the acquisition of Cisbio, we've now built a complete workflow solutions in the discovery stage on target identification, lead generation, optimization on the preclinical side for both pharma and biotech research. Recently, we were proud to announce the launch of our gene therapy -- for gene therapy our ProteinEXact test. This is one of the key tests that is used in adeno-associated virus characterization, both on the detection side and quality control and around the gene therapy side. AAV is a very important vehicle in gene therapy with more than 280 clinical trials going on, and we are very proud to be participating in this space. Similar to life sciences, microplastics is an important and emerging area of research on the applied market side of the business. We recently had brought KOLs from Boston University, NOAA Fisheries and Greenpeace together in D.C. to focus on this area and are partnering with eXXpedition, which is an all-women sailing voyage that investigates ocean plastic solution. We have the instrument, technology and services onboard for detection of microplastics pollution onboard and later on, finding solutions and identifying opportunities to solve for this on dry land. Again, our focus -- this is another example of how we are focused on outcomes rather than products and technology. So with our differentiated capability, we've aligned our organization on the foundation that we have laid. And we feel very confident that with this, we will be able to provide accelerated outcomes in the end markets we serve. I couldn't be more proud of our team at PerkinElmer that has transformed the company and our portfolio over the past 5 years. And a lot of credit for this goes to Rob Friel, who put us on this path through his leadership. Looking forward, longer term, our intent will be to continue to align our portfolio so that we are focused on the areas where we can make the greatest impact. We will continue to focus on providing disproportionate growth in our portfolio in the area of reagents, consumables, software and services. And this will be with the passion towards the purpose of data-forward culture as we think that data is going to be the most important aspect of it. If -- as I talked to you earlier, the markets or the end markets where we serve in, the weighted average market growth rate of that is somewhere in the 4% to 6%. We feel very confident that given where we are with our portfolio today, we are very well positioned to provide sustained above-market growth in the long term. I also want to announce today that we will be hosting an Analyst Day in September, details of which will be forthcoming over the next few months. At that point, we will be providing more details around our longer-term financial target, strategic direction and vision. And with this, I want to thank you for your time and attention today and invite you to the Olympic Room for the Q&A session. Thank you.