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

Good morning, everybody. Welcome to day 1 of the JPMorgan Healthcare Conference. I'm pleased to introduce our first company this morning, PerkinElmer. For those listening in on the webcast, we'll do Q&A after about 20 minutes, and there is a Submit Question function, so please submit questions if you want them addressed during the breakout. And with that, let me turn it over to Prahlad.

Good morning. Thank you, Tycho. Good morning, everyone, and thank you for joining us this morning. Before I share with you the progress PerkinElmer has made over the past 12 months, I wanted to invite your attention to our safe harbor statement and encourage you to visit the Investors section of the PerkinElmer website for additional details. Starting on Slide 3, while there has been a lot of uncertainty over the past 12 months, we at PerkinElmer have been having a resolute focus on executing on our strategic priorities. Last year at the JPMorgan conference, I introduced our efforts around portfolio transformation and organizational alignment where we've put a lot of effort in over the past several months and years. Today, what you'll hear from us is how we are leveraging that foundation to build a value creation framework by adding meaningful scale, maximizing our resources around the growth accelerators of Vanadis and EUROIMMUN, et cetera, and continuing to strengthen our core end markets where we have a right to win, such as life sciences and diagnostics, and all of this while we've kept our eye on the ball around operational efficiencies to ensure margin expansion and production efficiency. All of this has positioned us well for future success, and we have strong confidence that we'll create long-term value for our shareholders. To start with around portfolio transformation. And over the past 5 years, we've made a lot of effort to align our portfolio in attractive end markets of life sciences and diagnostics. In 2020, we ended that being about 80% of our revenue stream. And the product mix has now shifted to a point where 70% of our revenue comes from consumables, services and software, ensuring that our portfolio is resilient to economic vagaries. Our acquisition strategy over the past 5 years has also ensured that we have broad geographic reach and our revenue is well balanced across the 3 big regions, with more than 1/3 of our revenue now coming from higher growth emerging markets. And while we've done that, we've ensured that wherever there are gaps in our portfolio, we've continued to fill that and strengthened our capabilities by deploying more than $2.5 billion of capital over the past 5 years, and increasing our total addressable market in areas of adjacencies to about $70 billion, $75 billion. And 2 recent examples of that have been Horizon and Oxford Immunotec. We announced the close of Horizon on December 23, and we announced the signing of Oxford last week. Both of these have zero overlap with our current product portfolio, and provide us exposure to markets where we don't play today. As publicly listed companies, they do provide us cost synergies. But what we are more excited about the fact that there are commercial synergies because of our channel reach across the globe and also technology synergies, say, for example, around automation that we can bring into play with these 2 acquisitions. I talked to you about organizational alignment last year, and this has been around unifying R&D, combining our commercial teams and centralizing our global operations. This has brought more product vitality, reduced our time-to-market, reduced our cost to serve while increasing customer intimacy. But I think the one which is most relevant is during this pandemic, we were able to significantly derisk our supply chain as we leveraged our global expertise around operations. So from that perspective, if you look at the slide on strategic priorities, right, this is where we've put our focus on. How do we continue to improve our customer experience by providing more digital tools to our teams? Again, earlier, I've talked to you about innovation, as we've seen the number of EUAs and CE Marks that came out last year. But at the same time, there was significant new core -- non-COVID-related NPIs that were launched last year, which will have significant traction over the next several years. And all of this has been done while we've kept our eye on operational excellence. Again, a few metrics to point out. We've improved our quote-to-delivery time by 20% while at the same time, increasing transparency around the order execution process. The one aspect I do want to highlight, and one that we are really proud of, is the effort that has been made by more than 13,000 employees across the globe. PerkinElmer is a very different company today than it was 5 years ago. We have one of the strongest employee retention amongst our peers, more than 50% diversity at leadership level and more than 2/3 of our workforce is outside the U.S. And we've done all of this while enhancing our ESG principles as evidenced by a recent CSR report that was released. So this is something I'm really proud of and thankful for our employee base for what they did during the COVID-19 epidemic. Today, as a result of all of this, albeit helped by the tailwinds from COVID, PerkinElmer is a $3.8 billion company, equally divided between Diagnostics and DAS, with less than 1/4 of our revenue now coming from instruments. As you can see from the map on the slide, we are equally divided amongst the 3 big regions of Americas, Europe and Asia. I'm not going to go through the financials, you can read them, but needless to say, we are really proud of our performance in 2020. And again, I'm very thankful to our employees for that. The question is, where do we go from here? And as I pointed out, we are focusing on how do we continue to create value across the portfolio? How do we make it a sustainable effort over the next several years? Jamey and the team did a deep dive around the life sciences business, which is a big component of our DAS portfolio. Today, I'm going to do a deep dive on Diagnostics and give you a sense of what our long-term outlook is and why we have confidence on value creation. And to do that, I've got to start with our response around COVID-19. The effort that we have put around value creation, around organizational alignment and around portfolio transformation, we expected that to yield dividends over the next few years. But COVID-19 really for us became a live event that validated our foundational efforts. To start with, we were not the first ones to come out with a SARS-CoV-2 detection assay. But our PCR kit is the best in the market with the lowest limit of detection that is available today. And it established us as a player in the molecular diagnostics market. More than 25 million tests have been shipped, and it has generated more than $350 million revenue today. Similarly, around extraction, while we were known for our automation expertise, our customer base was not aware of the performance and the fully automated high-throughput processing that chemagen provided. Its ability to do that with a shorter protocol time, while providing higher yield at a lower cost, was what made chemagen a success in 2020 in the pandemic. But more importantly, we have more than 1,000 units of installed base that our customers are using routinely on a daily basis and love it, and it's generated more than -- and it's done more than 75 million tests in 2020. As you look on the next slide, while I've talked about our serology solutions, this is more to give you a sense of how we are able to bring things together by unifying our R&D team. We are very well known in the newborn screening side with our fully automated solutions such as GSP. And at the same time, our processing there is how do we decentralize sample collection with a dried blood spot card and do automation in a centralized manner -- or testing in a centralized manner. We were able to bring all of that together and are able to use our GSP platform while using dried blood spot sample collection to do more than 5,000 samples per day. This is going to become very relevant as we move to the vaccination phase. Around serology, we and others saw a spike earlier in the year in 2020, and we've generated about $75 million in revenue in 2020, and we are entering 2021 with a backlog of more than $50 million. Another example of how unifying our resources and putting critical mass together around R&D has yielded dividends for us. Customers were looking for an end-to-end automated workstation for COVID-19 testing. Our explorer workstation is the best-in-class, generating more than -- it can do a throughput of more than 10,000 samples per day. But more importantly, the flexibility that it provides to our customers by the modular way in which it is set up is really what makes it more unique. And by the way, our customers can replace PCR by a next-gen sequencer and use the same system for next-gen sequencing or other forms of detection of testing post pandemic phase. We've got a very healthy pipeline here, and we continue to provide this to our customers who are very excited about this product. So all in all, if you look at the results slides from COVID, we've generated more than $1 billion in revenue from COVID-19. We've installed more than 1,750 new instruments across the portfolio. But really, what makes this sustainable and more unique is it has established PerkinElmer Diagnostics as a global brand which is here to stay. So the question is really, given our performance around COVID-19, what does our business -- our Diagnostics business look like as we move forward? As you know, our Diagnostics business has got 3 subsegments around immunodiagnostics, applied genomics and our franchise portfolio around reproductive health. Starting with immunodiagnostics. While we are very well known for being a strong player and leader in autoimmune and allergy with an extensive menu portfolio, the uniqueness that we have is how we are able to leverage our detection capabilities, especially around emerging diseases, for example, Zika and now COVID-19, and bring tests to market fast. But really, as we look forward, how do we create value for this portfolio? While we've got good automation around the middle throughput, for example, around ELISA with our EUROIMMUN portfolio, what we realize is that we needed to put automation in place both at the lower end of throughput with a tabletop or a point-of-care and at higher throughput for the larger reference labs. We recently launched Superflex, which is a tabletop, chemiluminescence, random access automated 12-channel platform, which can be used by point-of-care and tabletop smaller-sized customers. And Accentis is something we are looking forward to the launch of in 2021. That will continue to give us a share opportunities as we expand the usage with our customer base. But on the same lines, we are not just looking for the instrument side. If you look on the next slide, we talk about -- there are 2 examples of how we continue to scale our menu. Our flu pack test, which is awaiting FDA approval and has been CE Marked and is being used, is something that we are going to take de novo and file a 510(k) so that it becomes a permanent part of our portfolio going forward as a flu test, with COVID-19 as one of the tests in it. Similarly, around serology, we've got QuantiVac which we recently got CE Mark for and we await FDA approval in 2021. It allows for quantification of the antibody titer levels as we move into the vaccination phase, and it's going to become very relevant. These are examples of tests of how we continue to enhance our portfolio around immunodiagnostics. Moving to applied genomics. While we've been well known for our automating science and our portfolio around liquid handling and extraction, really the thing to keep in mind here is, as we talk to our customers, our voice of customers tells us is the need of the hour is flexible but validated workflows. And this is where, if you look at the next couple of slides around our value creation focus there, we are focused around differentiating through 3 Ds: Detection, Decentralization and Digitization. With different sample types coming in, our customers are looking for an ability to have a validated but flexible workflow so they can put in stuff that they want or use components as per their convenience. And our total workflow provides them the ability to do that. At the same time, be able to do the testing in a decentralized manner. Because at the end of the day what our customers are looking for is how can they get -- may do -- have actionable insights with the data that they get out of the system. But the underlying theme of all of this, what our customers are looking for, as you see on the next slide on emerging technologies, is for true walkaway automation. Today, when a test is done, a scientist or a technologist is still standing and looking at the experiment ongoing. We recently launched PKI, which gives our customers a true option for walkaway automation. It's a handheld monitor that a scientist/technologist can use to modify, modulate or view the experiment that's ongoing in the lab. At the same time, in applied genomics, we are continuing to invest in breakthrough technologies. Honeycomb is one example of that. We expect to launch the portfolio there that provides for true decentralized single cell separation and storage. Honeycomb provides scientists and technologists the ability to separate and store single cells for later analysis. Clinicians and scientists are very interested in looking at transcriptome of single cells. And Honeycomb provides the ability to do that at a different point of time when the separation is done. Most of the products that are out in the market, this has to be done in situ because of the stability of the RNA. Honeycomb is unique from that perspective, and we are really excited about getting this out in the market next year. Moving to reproductive health. This is really our franchise portfolio, with decades of expertise there and very strong brand recognition, both in prenatal and newborn screening. Our efforts there is to continue to round out the omics portfolio around rare disease detection, both from a product and from PerkinElmer genomics services perspective. If you look on the next slide, the technology around newborn screening has evolved from clinical and biochemistry to immunoassays, mass spec and now molecular, which is in the midst of where we are playing today, not only from the instrument side but even around the menu expansion strategy there. We recently launched our EONIS reagent, which looks at spinal muscular atrophy, SCID and XLA. This has received CE-IVD, and we hope to have FDA approval in 2021. And this will, again, expand our reagent portfolio around rare diseases. But truly, our #1 growth driver around reproductive health is Vanadis. With the recent expansion of insurance coverage in the U.S., Vanadis is perfectly fitted to provide affordable NIPT testing for all pregnant women regardless of the risk profile. We've recently got some publications out and some are imminent, which is where most of our efforts had gone in 2020 because of the pandemic. We have a very strong pipeline. And as soon as the market opens, we expect to start shipping Vanadis to our customers, where -- again, this is a product we are very excited about, and we see a lot of growth coming out of this. Now if you put it all together, right, as we look at our approach over the past 2, 3 years, this is a segment for us, around immunodiagnostics, applied genomics and reproductive health, which has grown 6% to 8%, and we've typically grown above market. Given the value creation opportunities that I have laid out, we are very confident that we are going to grow above market and high single digits around Diagnostics. If you look at -- over the past few years, we've not really given long-term targets or forecasts. Our intent was, when I got into my role in January, to provide that at the Analyst Day in 2020. Well, that did not happen because of the pandemic. We are going to have one in 2021, whether remote or in person, but I do want to provide you an insight into some long-term forecasts for the company. To begin that, if you look at the slide that talks about consistent and faster growth, we are -- if you exclude COVID, PerkinElmer is a $2.7 billion business, growing at 5% to 7% based on what I talked about Diagnostics today, which will grow higher single digit, and DAS, which will grow mid-single digit. There are strong growth drivers, and we are very confident to do that. We expect PerkinElmer to be a $4 billion-plus company in 2023. And if you -- I'll not walk through each and every element of that column, but given the investments that we have made in capital and a very conservative estimate of $100 million in what we call durable COVID product revenue over the future, we feel very confident to reach that $4 billion number. I'll talk about capital deployment in a couple of slides, but this -- I just wanted to lay out a path to $4 billion, which you can see on the right side of that slide. I want to switch a little bit to margin expansion before I go to the capital deployment story. We ended 2019 at 20.7%. And our goal is to beat 23% operating margin in 2023. Now keep in mind, a good chunk of our $4 billion revenue is going to come from inorganic. And typically when they come in, they are a little lower than our corporate operating margin. For example, EUROIMMUN was in its late teens, but it has quickly come up to the mid-20s. And we feel very confident that as we make the acquisitions, they'll get there. So that's why we've put a number of 23% as a target to confidently beat in 2023 from an operating margin perspective. But the real story for us around our financials is our capital deployment flexibility. While COVID-19 changed a lot for us culturally in the company, made us more resilient, agile, truly what it has done is it has given us a very strong balance sheet that we can now leverage. If you look at between 2016 to 2020, we typically deployed approximately $650 million on average per year. Over the next 3 years, we have an opportunity to double -- nearly double that to about $1.2 billion per year in capital deployment. The capital that we've deployed over the past 5 years has paid rich dividends. More than $0.5 billion of our revenue now comes from the $2.5 billion of capital that we deployed over the past 5 years. It's a really good story, and we plan to continue on that path around life sciences and diagnostics. In addition, we expect to make some investments around technologies such as new ERP solutions and keep our outstanding shares at the same level by doing some share buybacks. This again has been a good story for us, returning more than 27% over the past few years. So all in all, putting it together, we feel confident of being a $4 billion-plus company in 2023, generating more than $6.50 in adjusted EPS, and we are very confident that we will get there, especially if you keep in mind is that we've got more than $4 billion in capital to deploy. I know I talked about this earlier, but we are going to hold an Analyst Day in Q2 of 2021, where we look forward to providing you a deeper dive into our business segments and more details around our longer term forecast. Whether in person or virtual, we plan to do that in Q2 of 2021. And I want to end the discussion by saying, again, thank you to our employee base across the globe that has continued to focus on our mission of innovating for a healthier world. Thank you very much. And we'll move to the Q&A session.

All right. Thanks, Prahlad. Yes, in the last 15 minutes or so, we'll jump into some questions. And I want to start with the COVID dynamic. I'm wondering if you could talk to what you're forecasting in terms of demand for PCR tests this year? Will the sensitivity of the test help it remain relevant post vaccine? How do you think about competing with some of the other high-throughput automated solutions? And then obviously, the new twist with the COVID variants, how are you positioned in terms of detecting some of the newer variants?

Yes. So there are a lot of questions in there. So I'll try and break it down, and there are some pieces where I'll ask Masoud, who heads the Diagnostics business, to jump in. So Tycho we've -- the one thing to keep in mind is that our RT-PCR business, especially in our COVID response, is global in nature. It's not just U.S. focused. We've got a lot going on outside the U.S., and I think that's where -- let's start with the variant, because that's a question that is on top of folks' mind. Again, there's the S, the N and the ORF domains that you look for. What we've -- the variant today that's out there is around the S protein. And our RT-PCR kit focuses around the N and the ORF protein. So we've, in fact, actually got an advantage that our -- the purported false negatives that may come out from a variant is not seen from our test. Masoud, anything else to add on that?

Yes. No, I think, Prahlad, you got it exactly -- that's exactly right. Our test is not affected by the variants that we're seeing in the market. And we believe that the FDA recently issued an alert about some tests in the market that may be affected. We believe the best way to track these variants is going to be through sequencing. And we hope to help in that effort with our workflow.

And then around -- looking forward, Tycho, I think RT-PCR test is here to stay, at least for the near to midterm. You see what's the -- the vaccine implementation as it's happening, we are still peaking in many regions around what's going on with the COVID infection rates, and we haven't seen any slowdown around that.

Agree. Yes, agree. Yes. I think it's difficult to predict exactly what will happen here, Tycho, but I think one thing is for sure, I think the labs will continue to ramp up. We've seen that over the fourth quarter, and I think we'll continue to see that into the first quarter. But the core book of COVID, understanding the trajectory of that will be something that we look at every single quarter.

And how are you thinking about serology? That did drop off in 3Q sequentially. Obviously, that whole market hasn't really taken off yet. As we think about the vaccine rollout, do you see that being -- becoming more of a material contributor?

I think from 2 aspects. I don't know how material it will be, Tycho. But I think, one, as you see different vaccines have a different response rate, and whether it's antibody or T cell, I think serology will play a role from 2 perspective: one, to measure the antibody titer levels, and that's where QuantiVac will be very helpful as it does that. And the second also is as we look at epidemiology trends over the next several months and years, that's where I think serology will play a role mid to longer term. I think it's tough to say what's the size of that right now, depending on how the vaccination flow comes through.

And then maybe a higher level question on the kind of base business. You've lagged some of the peers just given the industrial exposure on a base business recovery. If we look at the pre-announcement today, you were down 3%. The guidance was down 4% to 6%, a little bit better than the pre-announcement. But what's your visibility in terms of a recovery in the base business for this year?

Yes. I mean I'll start, and I'll ask Jamey to jump in. Again, we beat our forecast around the base business, as you said, right? We've announced a negative 3% versus 4% to 6%. Keep in mind that there is no true comparison to where we play, right? Our Diagnostics, for example, is more than 50% in China. And it is around autoimmune and allergy, right? That comes as part of what is now we call our base business. So there are different ways to look at this. But we feel -- we've started seeing the turnaround, and we feel very good that this will start recovering in 2021. One caveat that with the recent lockdown in U.K. and if that does go into any other markets, how that will play is uncertain, not just for us but for any -- everyone else playing in there.

Yes. I mean it's been a slow and steady recovery, Tycho. So in the second quarter, we were down 14%; in the third quarter, we were down 6%; this quarter, we're down 3% with some difficult comps in there. So I think we've expected it to kind of recover over time, but to Prahlad's point, it's a pretty volatile world. So barring that, I think we'll continue to see a nice recovery here.

And then the pre-COVID guide for that business had been high single digit, is that still kind of the longer-term bogey for the base business post COVID?

No. I think what we put out today was 5% to 7%, Tycho. So I think that's our long-term target here that we're expecting here. That's comprised of DAS growing mid-single digits, which we laid out in December. And then Prahlad laid out today how we think Diagnostics will grow high single digits, and that blends to a 5% to 7% rate.

One of the things for Diagnostics, obviously there's a lot of focus on the labs you're opening up. So a couple of questions there. How should we think about in California and the U.K. what these businesses look like in 12 to 18 months post-vaccine, post-COVID tailwinds trailing off? And what value should people put on these labs relative to the reference labs that trade at 9x EBITDA, for example?

Yes. Let me start as to how we are thinking strategically and then I'll, again, ask Jamey to jump in. Honestly, in both these places, the pandemic is rampant, if you look at California and U.K. And the focus of our -- our focus and the state and the country's focus is on battling the pandemic. So there have not really been deep level discussions with our partners as to what the future looks like. But having said that, the initial discussions are positive, is how we leverage this infrastructure post COVID in terms of population testing, in terms of providing infrastructure and competencies to the state and the country so that they have the ability in the event something happens and while -- how do they leverage it in the meantime. I've given the example of Vanadis as one. The EONIS test that I talked about today. Again, that's a molecular test, which mostly state labs today don't have the competency to do that. So there is the infrastructure which they already have in place to be able to do that. So it's just looking at that and bringing in more infectious disease testing into the lab along with rare diseases as an example.

Yes. What I'd add is, not specific to the labs, but just in general, how we think about durable COVID revenue. So the $100 million that Prahlad laid out today was, if you look at the 1,750 instruments we put out there, we've kind of taken an approach to look at some amount of decommissioning and what is the utilization versus pre-COVID levels? And assuming even a lower utilization than pre-COVID levels, we think that $100 million is possible. Hopefully, it's more than that. But we think that that's at least a durable amount that these instruments will utilize that. And it also applies to the labs that you're talking about. But broadly speaking, that's our kind of COVID durable revenue number that we're tracking.

And then for the labs, you're opening, like in California, I think you're around 20,000 tests a day. I know the high end of that outlook is about 150,000 per month. So can you just talk a little bit about what the early rollout has been? And how is the U.K. lab doing versus the California lab at this point?

Yes. So in California, I mean the Governor had said, look, this is supposed to be supplemental testing. So it's not to take away from current testing that was already available in the state of California. So they've gone to try to hit many different parts of demographics of California. I think they have over 100 different sites that are now sending volume to the California lab. And I think they've got a look at another 500 sites. So they've asked us to continue to ramp it. As you mentioned, today, it's at 20,000, and we expect that to continue to uptick over the near future here. But they're small sites. They're veterans homes, nursing homes. They're starting to look at schools, et cetera. So they get 100 to 200 samples per day from each of those. So it's ramping nicely. In the U.K., similarly, the first site that was up, [ IP5 ] is almost at 20,000 tests per day, which is the maximum capacity there. And then Charnwood that is starting to ramp up, I think, started at 20,000 and has the capacity to go to 50,000. So they've also been ramping nicely.

Maybe a question on Oxford to the extent you're able to comment since the deal hasn't closed yet. But anything you can share on their COVID tests, time line for the EUA submission, how you think about the T cell immune response test? They obviously have a big relationship with Quest. How do you think about that in relationship to your own labs that you're opening up?

Yes. And again, just -- maybe I'll start with the last part first. Our intent and our strategy is not to be a reference lab. We are not looking to compete with Quest or LabCorp. In -- specifically in the event of California, it was because of our partnership around newborn screening that the state invited us to partner with them and help set up this supplemental facility to support the state, as Jamey pointed out. Now having said that, again, as you pointed out, around Oxford, we can't speak much because we've just signed. But broadly speaking, we are excited about T cell. I think longer term, that's an opportunity that we'll continue to explore as to how it becomes another weapon in fighting the pandemic. But again, our relationship with Quest and LabCorp and all the reference labs are as they are our customers, and we continue to expect to support them now and in the future.

Prahlad, you talked about capital deployment in your presentation. You've obviously done 2 interesting deals here with Horizon and Oxford. What's your kind of bandwidth and capacity to look at additional M&A now? Or should we think about things on pause here for the near term as you integrate these 2 businesses?

We'll be very active around M&A, Tycho. We've got the capital. We've got a strong balance sheet. I would love to do a large EUROIMMUN kind of size of deal. There are few and far of those around. But I think you will see us to be very eager and active in that space.

Is there a lot you can do around Horizon? As we think about kind of cell engineering and pharma services, is there a lot that you could do to kind of complement that business, both organically and inorganically?

I think the benefit that, Tycho, Horizon brings to us that we played in the small molecule arena. We have got the imaging and detection portfolio around life sciences. It truly rounds us up by providing more around the gene and cell engineering and gene editing. And this is where we didn't play a role. So while we have the channel, while we have the reach, we did not have the portfolio, and it fills the gap there. So I think we are really excited about that. And what it also does is that opens us up to continue to fill other portfolio gaps that might be in a space where we didn't play a role today. So sort of the way I would think of it is Horizon is a foundation on which -- or platform on which we are going to continue to build our portfolio there.

Maybe in the last minute here, just a question on some of the businesses that had been lagging and thinking about food and applied, in particular in China, had been kind of down, low- to mid-single digits. Do you see those markets recovering here in the near term? Or is that more kind of a back half of '21 story?

Yes. I mean we've seen some recovery here, both in food and applied. I think it's slow and steady, though. I think food, in particular, is one of the more volatile markets in this environment. Cannabis, certainly, the investments behind that had shut down for the most part of 2020, and we've started to see a little bit of uptick here. And then applied, there's been a slow recovery, but still down. But I think as we head into 2021, it's off a relatively low base here.

And any comments on just how pharma played out for you guys in the fourth quarter budget/dynamics, anything to note there?

It was -- I mean it played out quite nicely, and there was a lot of spending in the fourth quarter. How much budget flush, I'm not exactly sure, but life sciences was strong, particularly in the Discovery side. I think we mentioned heading into the quarter that Informatics has a difficult comp. So I think Discovery was strong. Informatics was still a great quarter, but -- and a great year overall, but in the particular quarter it was down substantially.

Great. Well, I think we're running out of time. So we'll leave it at that. Appreciate you guys taking the time today, and we're going to see you again tonight. So thanks, again.

Thank you, Tycho.

Thanks, Tycho.