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

Yes. And if I take a step back in a non-COVID world, I think several years ago, you'd set a target of getting to high single-digit revenue growth by 2020, took that target off the table earlier this year. But do you think your current non-COVID portfolio still supports that goal longer term?

Yes. Well, I'd go back to what we've been trying to communicate is that I think what's not well understood is that we have market-leading positions in over 2/3 of our portfolio. We've done a great job changing our capabilities and adding technology and solutions in various -- in those end markets that I spoke about. And there's good structural trends. So we do foresee above-market weighted average growth rates. I won't comment on high single digits, in particular. But we're much more optimistic about the growth rate of our non-COVID portfolio as well because we've done a lot of work. From a inorganic standpoint, getting the capabilities straight. From an organizational structure standpoint, to harness the full power of PerkinElmer. I think our geographic reach is terrific. And from a cultural standpoint on how to innovate quickly and solve customer problems quickly and bring products to market as fast as possible.

And what do you think are the most important growth drivers within your portfolio to kind of help you achieve that above market growth? You have growth drivers like Vanadis, cannabis, food, obviously, your diagnostics portfolio, genomics. But what do you think are kind of the key growth drivers?

Yes. I mean I'd like to keep us focused as opposed to anyone. I mean, I'll mention a few. You mentioned them. But I mean, I think in general, we'd like people to think about each of our end markets, we think we can do fairly well in. So Diagnostics, to touch on reproductive health. You mentioned Vanadis, we're quite excited about that platform. Geographic expansion and continuing to move the envelope globally to test more babies and mothers. Immunodiagnostics, I think there are strong structural trends. I mentioned the random access instrument for EUROIMMUN. I think infectious disease is a whole new world. We've got a great business in Tulip. EUROIMMUN did some infectious disease testing. We have an infectious disease testing in China. So I think that will be different. Our applied genomics business. Everything I just mentioned around our RNA extraction capabilities, I think, would be great. Our genomics testing business. So Diagnostics, we've always thought, could be high single, double-digit growth rate. And I think we have a lot of different levers to do that. I don't think we have to point to any particular one. On the DAS side of the house, I mean, life science is over 50% of the DAS business. That is formed between instruments and reagents, and we continue to expand the portfolio there and with best-in-class kind of preclinical research and reagents. Our informatics business is doing extremely well. We've really repositioned that portfolio. Our enterprise services business. We think that we bring new and different types of solutions for customers. And I think there's still a lot of room to grow there, both in life sciences and outside of life sciences, actually. Food business, we've invested a lot in. And I'll be honest that it has not been perfect. And so we think that we are getting the commercial relationships correct there, and we are optimistic about the growth opportunity in our food business. And then applied markets won't be as high-growth rate driver. But I think we've got a product portfolio and a different cadence, new product introductions there that we're excited about over the coming years, and that's not only a growth opportunity, but also, in particular, a margin opportunity as well. So I don't think there's any one thing. I think we are well positioned in all those end markets with a lot of different shots on goals that we'd like to keep people focused on.

And can you just give us an update on Vanadis? Maybe remind us the rationale for going into the NIPT market. And how it complements your existing reproductive health portfolio and maybe initial commercial plans there?

Yes. So Vanadis, we are quite excited about the product. And I think we launched it a couple of years ago. And it did have some growing pains early that we were trying to work out some bugs and win. While it's been a little bit difficult to sell Vanadis, we've gone and put a lot of time into making sure it's robust right now and also have a future kind of product portfolio that we are ready to also introduce to Vanadis, and that's in various different forms. So I would say noninvasive prenatal testing is more important moving forward. And I think we're hearing that from a lot of physicians. And I think right now, we've seen the demand and the customer interest actually go up, but I would say, in the year 2020, the actual sales process is very difficult. So I think we're preparing with a lot of virtual webinars and talking to people and making sure the product is extremely robust, and we're ready that once we can really start installing many more of these, I think, noninvasive prenatal testing, just due to the safety element of it, is being recognized as probably the more important testing moving forward as opposed to biochemical.

Yes. And we had some good news from ACOG recently just around NIPT and average risk in the U.S. Can you remind us your plans on entering the U.S. market? And if that ACOG update haven't had any impact on your plans?

Yes. I mean, we are selling into the U.S. market from an LDT perspective. And I think the ACOG news is positive. But I think, in general, we were already hoping that people would believe that -- at our cost point, which is, I think, very different than other noninvasive prenatal testing platforms out there, that it would already be recognized as a benefit, but I don't think ACOG hurts at all. I think it only helps. And so we are expanding in the U.S., have our dozens of instruments placed already, a good portion of those are already in the U.S. So we're excited about the opportunity.

And then on cannabis, you mentioned that it's still pretty early, but could potentially be a big market. I know it's kind of a nebulous market analysis to be trying to do it early on. But any update on how big you think that market could be for you over the next couple of years?

Yes. We're still very enthused by the cannabis opportunity. I would say right now, the appetite for new investment into the testing space has been quite limited, and we've seen funds on the sidelines. So we're not expecting much sales in the year 2020. I think that's coming off $25-plus million last year. But I think the long-term potential behind cannabis is still significant. And I think we're using the time right now to get a different type of product portfolio ready for that. We've always talked about the fact that we have a full solution around cannabis. And I think we can change that and add to it in terms of different reagents and kits to put on it. And I think we're excited about the future opportunity. But I think for the year 2020, it's probably relatively minimal sales.

Yes. And on the DAS side, maybe it doesn't apply as much to parts of your portfolio like food, but do you think COVID has the opportunity to potentially increase that market growth rate longer term and when you hear talks of NIH funding potentially getting a bigger increase than it would have in a non-COVID world, do you think pharma R&D is increased after this? I'm just curious how you view those structural growth drivers of the DAS business in a post-COVID world.

Yes, I agree. I mean, I think a lot of research and additional investment will go into the life sciences business broadly and so help our life sciences trends. But I think there's been continued investment in life sciences. So I think it's been growing at a nice kind of mid-single to high-single digit clip for a while. And I think that just solidifies the fact that it should continue to do so. The other area, I think, would be food safety. I think food safety will continue to be important. We've got, I think, probably about $100 million in our DAS business that is food safety related, thereabouts. And so I think continued investment there should also help the DAS business. So I think COVID just kind of helped continue the belief that I think the DAS business can grow, which I don't think is well understood externally.

Yes. Yes. And obviously, COVID has provided a pretty meaningful lift to margins and you also had some productivity initiatives that provided a lift in the second quarter. Can you just talk a bit more about those initiatives? And what kind of margin expansion runway you see ahead for the core business?

Yes. We've spent a lot of time understanding our cost structure over the last 2.5 years. Before that as well, but since I've been here the last 2.5 years. And I think we have terrific visibility. We've obviously taken some actions that I would say were more low-hanging fruit over the last couple of years. And now I think we've got -- and I'm quite excited about the future potential around probably 3 or 4 different areas that we've been working on, but over the 3- to 10-year basis or years' outlook, we have several hundred basis points of opportunity on the gross margin line, in my opinion. I think our analytical technologies, broadly, which largely serve our applied markets, but also life sciences and food, has a lot of opportunity through many different areas. I think our services business has a lot of opportunity. We started to see some yield on that, but I think there's plenty more to go. I think our EUROIMMUN business, we've always known since the date of acquisition that it will uptick over time with volume leverage and we're excited about that. So yes, I think we're excited about the long-term margin opportunity here. I think we've done a nice job over the last 3 or 4 years to get it up to -- I think we were 20 -- almost 21% op margin last year. And I think in the long term, it should be mid-20s to high 20s. And so long term, certainly, that's more of a 5-year play, but I think we have a lot of opportunity to continue to expand margins here and feel very good about our visibility and programs in place.

And are there things you've done to change your cost structure during COVID. And are some of the more OpEx items, T&E, things like that. Do you think those could be more permanent type reductions than your overall cost structure?

I do think so. I mean, I think some of it will come back. But I think in general, I think COVID has really taught us a new way to work. I think more interactions will be virtual. So there's probably a little bit more investment needed there. But I think the long-term operating expense related to travel will be different. I think there'll be some uptick again, but I don't think it will be at the same levels that we saw in the past. And I think the efficiency we see in our organization is incredible right now. And I think we're learning how to operate in a different way. I think if you look at the footprint as well. I mean, everybody is working from home, and we have a lot of sites across the globe, most in terms of back offices, less so manufacturing sites, although there's a little bit of work to do there. But as it pertains to COVID, I think the back offices can be reimagined as well. So I do think that there's going to be continued leverage opportunities even in a post-COVID world.

And clearly, hoped, high margins, you're getting a nice revenue lift, generating some pretty meaningful free cash flow. Curious on your thoughts from a capital deployment standpoint. How do you think about the M&A landscape here? And what areas of the portfolio do you think M&A might be more applicable?

Yes. M&A remains our top capital deployment priority, I should say. And I would say we have been canvassing quite a few targets and opportunities. It was a little harder earlier on to have those conversations because I think people were just trying to understand what's going on with COVID and just tied up with it. But I think those conversations are more encouraging now even in a virtual world. So we're excited about the pipeline. I would say in terms of where we're focused, it's largely in Diagnostics and life sciences. I think we've done a lot with food as of late, and I think we feel content to just make that business better right now. And so I'd look for us to do more acquisitions in the life sciences and Diagnostics side.

And typically, you've gone after more of a tuck-in strategy with the exception of EUROIMMUN as a much bigger acquisition. Do you think that tuck-in spot is more your sweet spot? Or could we expect you to do something bigger?

Hey, it's probably -- it's more of a probability basis than it is a sweet spot, I'd say. I mean, I think we would go after both, but in terms of the higher probability to close on more tuck-ins than it is for transformative acquisitions like a EUROIMMUN, but that's not to say that we're not interested in it or is it not the sweet spot as well.

And you've done some divestitures in the past to really prune your portfolio and get to where you are today. Do you think divestitures will continue to be a part of the story? Or do you think you have the right starting point in terms of a portfolio?

We're pretty happy with the portfolio right now. I think, if anything, it's going to be small, relatively insignificant in the grand scheme of things from a divestiture standpoint at this point. I think we want to continue to scale the company and are excited to do so.

In terms of internal investments, we talked about some of the growth areas and maybe addressed from an R&D perspective. To your point, China, India, they've been big growth drivers for you. Is there anything from a geographic perspective where you would want to invest more in the commercial infrastructure of your organization?

Commercial infrastructure, I'd say it's relatively insignificant in the grand scheme of PerkinElmer. But if there were a couple of pockets more into Vanadis sales, I think we think that, that's a large opportunity for us. I'd say, more into digital platforms as it pertains to commercial broadly, whether that's e-commerce or virtual tools or marketing content, et cetera. I think we're excited to capitalize on the brand equity improvement that we've had and feel a need to continue to get our name out there and capitalize.

All right. Perfect. Well, with that, I think we are out of time. But Jamie, thank you so much for joining us, and thank you to everyone on the line.