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

All right. Great. Everybody, just wanted to welcome you to the Wells Fargo 2023 Healthcare Conference here in Boston. We're kicking it off with Revvity. I've got Max Krakowiak, SVP and CFO of Revvity here and welcome, obviously. Thanks, everybody, for coming.

And we're just going to dive into it here with hot topics to [indiscernible]. So -- if you could just give us some color on how August, September have been trending. Obviously, the market right now is quite volatile on a month-to-month basis. So if we could just kind of start with non-China Pharma Biotech capital equipment?

Yes, sure. So I don't think we're going to probably give updated guidance or confirmation of it. So I'll probably stay away from the monthly trends, but I will just mention that when we had guided for the rest of the year, we were basically going off of what we had seen in the first couple of weeks of July, which is what had led us to sort of take down our midpoint of the guidance from the 8% to the 5% midpoint. And that was predominantly on the back of softer expectations across Life Sciences CapEx spending.

Okay. That's great. And then just wanted to kind of dig into that July exit rate. I think it's how you guys framed it for some of these businesses with increased headwinds here. And also, the guide does assume no budget flush at the midpoint along with a kind of flat line July exit rate. Just curious, when this year, will you guys get visibility on, if a budget flush is happening or not? Like how do those conversations go with Pharma Biotech customers? When do you get the visibility? Any insights that would be great.

Yes. So maybe just talking about in terms of the budget flush. So normally, what we would see is about a 20% sort of volume step-up in our instrumentation between the third and the fourth quarter. I would say this year, we are not expecting that significant of a volume step-up from instrumentation. So we are expecting a lower instrumentation volume in the fourth quarter. And then in terms of the timing of when we would normally start to see a budget flush? Normally, our commercial pipeline is somewhere around 3 to 4 months. So if you kind of back that up, it would start to be kind of in the end of August, early September where we are now. And so we'll see how this next month over September plays out and if we need to do any updates of our guidance in October.

Got it. Okay. And then staying on the Pharma Biotech side of things, you guys on the earnings call called out European customers being incrementally cautious versus U.S. Just -- can you help us understand that, why is that? How does that dynamic play out to the rest of the year, do you expect? Maybe European clients or I guess, leading indicator of U.S. clients or anything kind of helpful on that?

I think -- I don't remember the exact context -- maybe -- where that comment was given. I don't think we've seen a too disperse of a trend between the U.S. and European large Pharma customers in terms of their CapEx trends could have been a comp dynamic, et cetera. But I think those are -- both across the U.S. and Europe have performed relatively similar.

Okay. And then another comment I did want to dig into was, I think it was broadly Life Science and not just isolated the Pharma Biotech, correct me if I'm wrong, that you said, the softness in reagents was isolated to China, didn't really see it in the western market to that point and you're expecting these 2-year stacked growth comps in the first half -- in the second half for reagents to be consistent. So I'm just trying to understand that with the, I guess, conservatism that was baked into the guidance around Pharma Biotech specifically. Is that really just offset with academic government? That is something that kind of, I guess, in my mind, meshes less obvious?

Yes. So I think in terms of the guidance commentary, maybe to take a step back, right, in terms of what we had updated when we moved from the 8% to the 5%. Essentially, what it was, was we baked in 400 basis points of headwind in terms of the Life Sciences market. And that 400 basis point was sort of split evenly between instrumentation, reagents and our software and labs business. And so if we unpack the reagents piece, the one big change in the guidance was, one, a little bit softer performance in China but then the second dynamic was we did take out any assumptions around licensing technology, which we roll up into our reagents business. So we decided to derisk that in our guidance for the second half. And similarly, on the software and lab side, we derisked it as well in terms of not assuming any new contract growth on the software business or any new partnership agreements in our Omics business. And so those generally tend to behave similar to how CapEx does from an instrumentation standpoint. And just given the current market environment, we thought it was prudent to assume that -- or take that assumption out of our guidance.

Got it. Okay. While we're on this, just wanted to touch on China, have to do it. But the dynamic in China, obviously, this week, we saw some stimulus granted it was real estate focused. But is that the type of stimulus that gets even these end markets going? Or again, we hear about fraud stimulus is something that people are looking out for. But just is it -- do we need some specific Life Sciences or Healthcare-focused stimulus to kind of get that market going again? Or is real estate stimulus enough to kind of stave off all the broader concerns in the country?

Yes. I think it would probably be more Life Sciences Healthcare specific. We did have the benefit in the first half this year of some stimulus packages that had been granted in the fourth quarter and we are deliver on in the first half of this year. And then what's really changed since our kind of assumptions or outlook in December, January of this year is, that we expected that stimulus packages to continue into the second half, which was always the signal. And now what we've kind of seen is that it's less clear and so until those stimulus packages sort of get restarted, we have taken down our assumptions in China for Life Sciences in the second half.

Got it. Okay. And staying on stimulus here. So ACA GOV, very strong expectations towards continue called out, which a lot of other companies have. There were stimulus packages in Europe, stimulus packages in China in 2022. How -- like what's the legs to these? Like when do these -- how long do they keep kicking if there's no additional packages layered on top of that?

Yes. So for academic and government, for us, it's about 10% to 12% of our total company revenue. Now of that 10% to 12%, half of it is BioLegend, which is our predominantly reagents business, which is not really driven as much by the stimulus packages. That's just based on general research activity in the academic and government labs. And so now you're really only talking about 5% to 6% of our total company revenue that could be "impacted" from the stimulus programs. And so yes, it's been relatively strong growth in the first half. We do expect that more or less to continue in the second half in the U.S. and Europe. And so we'll keep monitoring, but I think we expect relatively consistent performance.

Got it. And within ACA GOV like what products, what -- I guess, if it's -- there's any capital equipment that's staying resilient or you're seeing increased demand from this end market or certain consumables or services, what is it? And just trying to understand that dynamic when you look at NIH funding, obviously, there's so much volatility around that, granted. I think there's probably some upside to what the headline numbers suggest. But at the same time, in a macro situation you would expect rising tide, if you will. So like what are the specific services products that are seeing the outsized growth within ACA GOV and you expect resiliency in for the rest of the year and into '24?

Right. So again, if we look at that academic and government split, right, with BioLegend being half of it, we -- that business has been a relatively steady growth rate in terms of the academic and government reagent growth, and we would expect that, again, more or less to continue. If you look on the instrumentation side, which is the other half, that's predominantly our preclinical instrumentation business, which is going to be our high content streaming, our in vivo imaging platforms. And so those are, I would say, the really the 2 big product portfolio families.

Okay. All right. No, that's helpful. So I guess kind of staying within China here. So China, ImmunoDx, obviously, great growth expected to, I think, moderate from 30% to still healthy double digits in the back half of the year. You've talked to a bit of, I don't know, if it's a pent-up demand or backlog getting worked down from lockdowns. Like how long does that last, if you will? And then if we were to think about China ImmunoDx, what's embedded in that 10% midterm guidance? What's kind of the assumption there?

For sure. So maybe to start with the current trends of just what we're seeing in China more so specifically. So if you remember coming into this year, we had always said Q1 was going to continue to be challenged due to the lockdowns, which it was. And then when we looked in the second quarter, we were hoping that by the exit of the second quarter, we would have -- be closer to what we would consider more normalized activity in the China hospitals. That is kind of what played out in the second quarter. We were encouraged there by the strong growth, as you mentioned. But I wouldn't say we've gotten into like pent-up demand or backlog. Right now, where we exited the second quarter was really more "normalized growth", normalized volume that we would see in the hospitals, and that's what we expect to continue in the second half. And we've got the benefit of softer comps is still -- the back half of '22 was relatively weak for the China IDX business. When you look at the midterm outlook, our immunodiagnostics business is a low double-digit growth assumption for us. And if you look at that even geographically, I would say it's relatively consistent, maybe the only 2 places where you might have some deviation from that is probably the Western European markets is probably a little bit softer than that. And I would say the U.S. market is actually stronger than that is if you remember when we bought EUROIMMUN, the U.S. market was one of their biggest opportunities for additional penetration, and that has been a robust growth rate since the acquisition. So over the past 4 or 5 years, it's been averaging about a 20%, 25% CAGR.

Okay. Interesting. So maybe that -- I guess, U.S. or guess, non-China growth you're expecting to stay or get -- has delivered above that low double-digit range that -- is that pent-up demand or I guess the kind of return to healthcare dynamic that you're seeing out of other diagnostics and healthcare, med tech companies like that. Is that why we're growing above the midterm trend? Or is it easy comps or...

The U.S. specifically? It's more than just a new market, right? So when we had bought EUROIMMUN, that was only like 1%, 2% of their total revenue. Now it is much higher to like 6%, 7% of their total revenue. So it's just been the growth and penetration of them in the U.S. market sort of using our legacy revenue channels.

Got it. Okay. That's helpful. And I guess thinking about moving here to the other pieces of diagnostics business. So prenatal, it's been resilient in the face of birth rate trends. Obviously, a lot of excitement around Vanadis when you guys launched it a bit of a -- taking a bit longer to materialize. Is that the driver here, where is Vanadis today? And at the same time, can you help us understand how you're growing above, I guess, the macro volumes? Is it share gains? Is it pricing? Any help there?

Yes. So I think when you look at our reproductive health business, right? There's, I would say, kind of 4 different channels associated with the [indiscernible] and reproductive health. You have prenatal, you have Vanadis, you have neonatal and then you have our Omics Labs business. When you look at the different components of it, the one I think you're referring to is we're actually neonatal. And so Neonatal is a business that in the first half this year grew 10%. And I wouldn't say that's sort of our midterm outlook. But the reason why that business has been able to grow above an environment where we have sort of declining birth rates globally is basically 2 levers. One is geographic expansion, so finding new countries to go do our neonatal testing in. And then the second dynamic is really around menu expansion. And so this is on the backbone of our innovation and new disease areas, getting states to take out additional tests in their panel or getting other countries to expand their testing capabilities. And so those are really, I would say, the big 2 commercial levers that we've been able to drive for neonatal and we do expect the ability to be able to grow, I would say, above what's happening from a macro perspective, although it wouldn't hurt to have birth rates start to increase again.

I guess the whole world would like that. So -- if we were to think about, I guess, Prahlad called out Ohio, incremental coverage decision and -- or just statewide decisions. Just how big is the individual state like that to, I guess, the top line in terms of whether you call it the SAM or the TAM or how much of that is -- is it just simply, okay, we look at the population of the U.S. population globally? Like how do you guys think about that market broadly? And these incremental wins, if you will.

Right. And so it's a little bit tricky because it kind of depends on what's been approved across each one of the different panels. But since this one was just particularly for Ohio, it's really limited to just what the Ohio market size is. For the rest of the state, it's going to depend on us getting them to also adopt it within their panel. And so what we would look at is the number of babies born in that particular state and apply a $1 per test, et cetera. So I would say it's -- I think the more exciting piece on the Ohio example is really around the innovation and our ability to bring this product to the market. I don't think it would be something that will be overly material to the overall company, but it will certainly help the neonatal business in the U.S.

Got it. Okay. And then moving to thinking about lab and software and genomics, just I think you guys called out there was a bit of softness, obviously, because some of that exposure is in Pharma Biotech. Like what's the breakdown of that business probably in terms of end market?

Yes, it's a good question. So I would say that it's actually probably about 60%, 65% is actually related to backup testing for our state labs in the U.S. And then the other about roughly 1/3 of it is related to these Pharma partnerships. What's the dynamic that's played out this year is, we knew we had a bunch of projects coming to completion in the first half of this year. We are expecting to re-up that pipeline across different projects with our Pharma customers. But then given the sort of macro environment with the Pharma customers, they just want as quick to close. And there's been a little bit of a delay there. We still have confidence that these deals are eventually going to close because they are in high-tech areas that are aligned with the Pharma innovation pipeline. It's just a little bit a matter of timing right now and working through the logistics of [indiscernible] . So that's kind of the reason why we wanted to derisk the second half is -- there was just too much unknown given the macro uncertainty or exactly when these deals would close.

Yes. No, that makes a lot of sense. And if we were to think about the 2, I guess, biggest buckets of the spending pause elongated decision-making time lines, whatever flavor you want to kind of describe this dynamic as within Pharma. What snaps back faster? Is there -- we've heard, obviously, initially it was anything above $100,000 on the capital equipment side was where the weakness was, and then all of a sudden starting to get a bit more below that line. And then obviously, software, again, like what's the average contract size of the software? Is that it? Is it $1 amount of the spend? Or should we expect software to snap back? First, then kind of sub-$100,000 equipment and above $100,000 equipment. Any kind of just general frameworks on the recovery dynamic here?

For sure. So maybe just speaking broadly to about the -- our Signals business is what I think you're referring to as our software business on the Life Sciences side. Coming into this year, we knew that there was going to be headwinds in this business, agnostic to the market environment. And the reason why we're going to have those headwinds is because it was just a lighter renewal year. So these are multiyear software contracts that we sign up. It just so happened that we knew '23 was going to be very light in terms of the timing of these contract renewals. It was a 1-year blip that we are aware of. The dynamic that really was unforeseen coming into this year was the market environment and how that would impact our software business. And so our software business has had a little bit more challenge in terms of signing the new deals that are particular CapEx investments for the Pharma customers but that's not all software deals. So for instance, if they're signing up SaaS instead of an on-prem solution, SaaS for them is an OpEx decision. And so for that, that is less of a capital outlay out front versus if it's an on-prem solution that they are interested in, that is very much a CapEx decision with much more significant upfront cash. And that is where we have really felt the -- I would say, the brunt of the market environment is on the on-prem solutions with Pharma customers.

Got it. And then like -- what's the split of on-prem or SaaS in that businesses?

So the SaaS, if you go back 3 or 4 years ago, it was literally 0 for us. And now that is about, I would say, roughly 25% to 30% of our portfolio, but then the remaining 70%, 75% of it is still on-prem solutions.

Okay. All right. That's helpful. And within, I guess, the broader Signals or I guess if you want to kind of combine the 2 that we were just talking about SaaS and on-prem, what's the growth rate embedded in that 10% midterm guide? How big do you think this business can be ultimately?

Yes. So in terms of the midterm guide, it's a low-teens. I think in terms of where this business is going over the next couple of years, we remain incredibly excited about it. Again, we knew 2023 was going to be a 1-year blip for this business on the renewal timings. But as you look at the commercial levers over the next couple of years, we definitely have the opportunity to expand into the -- a little bit more, I would say, further downstream and some of the partnerships that we're looking at even with CROs and some new capabilities there, but then also building out our software capabilities around biologics, cell and gene therapy is an area that we continue to invest heavily in. Our customers are asking us for those solutions. So we feel confident in our ability to deliver on it. It's just a matter of time in terms of getting the products to market.

Got it. Okay. And across the -- be it software plus capital equipment that's going to Pharma Biotech, we've heard kind of mixed reviews about whether the resiliency in mRNA versus cell therapy versus gene therapy versus traditional MAbs or even the kind of biosimilars pipeline? Is there -- have you guys seen any bifurcation in the demand coming from one group of customers that happen to be leaning into one modality or another cell therapy falling apart? Or is it staying resilience?

Yes. I don't think we've seen it one way or the other, truthfully.

Okay. All right. That's helpful. And then I guess just thinking about -- so we covered the ImmunoDX genomics. And then if you could just kind of update us, if we take a step back, the diagnostics subsegments, the growth rates that are embedded in that 10%. I think we mentioned, I think -- we said we're midterm above double digits in China, immunodiagnostics consistently with the rest of world here. Just Neonatal kind of 10% midterm growth, like what are the other pieces that make up that pie? And if we were to think about Life Sciences versus Diagnostics has that 10% hole what's all, I guess, embedded pieces? If you could take step back and kind of -- open kind of piece...

I got you. And so I think if you look at that 10% midterm outlook, if the 2 big pieces, Life Sciences and Diagnostics, Life Sciences should be above that 10%. So call it a low double-digits and our assumption on Diagnostics is high single-digits. And so if we look at the diagnostics components, the 3 business signs of reproductive health, applied genomics and immunodiagnostics. Immunodiagnostics should be the fastest grower at about a low double-digit growth. And then the assumption around applied genomics and reproductive health is both kind of around a low to mid-single-digit growth rate. And then if you look on the Life Sciences side, the 3 components, right, being our instruments, reagents and software. Both our reagents and software, we expect to be in the low double digits and instrumentation is more of a mid-to-high single-digit growth rate assumption in that midterm outlook.

Got it. Okay. No, that's really helpful. And then if we were to kind of do a sensitivity analysis, if you will, around the midterm guide here, focusing on growth, I want to go to the margin and the cost actions after this. But like -- what's the beta on that, if you will. I think the 10% assumes normal market conditions, pretty consistent with every one of your peers and their kind of LRPs, if you will. Just what's the -- if we stay in below normal conditions, like is it mid-single? Is it a high-single? If we all of a sudden come out of this much stronger. Are we now looking at kind of low teens, mid-teens? Any kind of guardrails, if you will, around macro, I guess, stickiness if you will.

Yes. I don't think I'll comment on a number higher than the 10%. But in terms of your question maybe in terms of the beta or downside opportunity. I mean if you look at this year, right, so this year, a new guidance now is the 4% to 6%. I would say the main components are, I mean, you've got instrumentation across both our Life Sciences and really our Applied Genomics portfolio that's essentially flat growth year-over-year. Then when you also look at specific onetime headwinds that we have this year around our Signals renewals that I have mentioned and then the, I would say, the contract timing headwinds in our Omics businesses. Those 2 pieces together contribute about 200 basis points to 250 basis points of organic growth headwind. And so maybe I would probably not consider those real sticky headwinds. So if you were to normalize those, that should kind of give you an indication of the [indiscernible] 200 basis points to 250 basis points is sort of what our beta would be as...

All right. That's helpful framing. And moving to the cost actions. So I think you guys hit $60 million of annualized run rate as of the second quarter. Just -- if you were to think about the extent that it can go is the low-hanging fruit kind of pluck at this point? Is it now a bit more of a longer burn to gain additional cost savings and I think you're at almost a 6-month mark here post divestiture. So how should we think about that as your thought process of all? Obviously, clearly, you guys kind of up index that last quarter. So just help us through the extent of the cost savings, where we could get to and I guess, the additional trajectory from here?

Yes. So I think maybe I'll take you a little bit back into the past maybe 18 months of history here. So when we had first come out and had mentioned at the time of the divestiture that we were looking for a 30% operating margins this year. That was on the assumption of 9% organic growth and $100 million of COVID, which was -- has very favorable margins as you've seen over the past 3 years for us with COVID. And so the fact that we were able to only go down from 30% to what now is a 29% operating margin assumption for this year, while losing $100 million of COVID and dropping organic growth from 9% to 5%, I think, shows the strength of our portfolio from a margin capability standpoint. And so I think we remain incredibly encouraged. And as we look out over the next couple of years, I don't think we're going to commit to something more than what we've kind of said in the midterm of 75 basis points to 100 basis points per year of margin expansion to take us through 2026. But then what's the really exciting thing for us is really probably what's beyond 2026. So once we work through sort of those "stranded costs" over the next couple of years, really focusing, I would say, more so on the supply chain synergies. So whether that's around rooftop consolidation, freight lane optimization, insourcing, consolidation of suppliers, I think that is one area we continue to remain incredibly optimistic about. And I think we're just scratching the surface of our new portfolio with all of our recent acquisitions and our ability to drive, I would say, meaningful margin expansion, even post 2026.

Okay. So kind of that -- those heavy lifting efforts that you just kind of listed off multiyear progression and evolution, that's really not included in this -- what's been done to date or anything here that's really kind of just post divestiture rightsizing headcount, if you will and maybe some other factors.

Exactly.

Okay. All right. That's helpful. And if we were to do that same exercise about the beta of the growth rates, how should we be thinking about that 75 bps to 100 bps of operating margin accretion? Is it -- I guess, kind of we lost almost 500 bps of growth and the margin was down 100 bps. Obviously, COVID has pretty high incrementals, if we were to try to kind of reverse engineer that and think about [indiscernible], if that 10% is mid-single digit. Is it 50 bps, 25 bps, just kind of framing that up?

Yes. So I mean, we're obviously not providing organic growth assumption here or guidance for the next year. But I think probably the best way to think about it is if we are a similar growth rate to what we have this year, we'll probably be closer to the 75 basis points versus the 100 basis points. And on the flip side, if we are actually closer to the 10% growth next year, I wouldn't expect more than the 100 basis points either. There are definitely some investments this year where we maybe put pause on that we would like to restart, if you will. So I think probably the 100 bps is probably the upper range of what I would expect for next year.

Okay. Yes. No, I think that was -- that came across -- you guys still have a lot of things that you want to take action on right away that were [indiscernible] and almost critical path, if you will. So that's helpful. And if we were to think about, I guess, the -- moving on to here, the capital allocation, as I said before, coming up on 6 months of divestiture you guys have been kind of deploying, leaning heavily on share buybacks in the quarter, obviously open and evaluating inorganic opportunities. What is the white space out there really that you guys are focused on the near-term plugging any holes on or adding capabilities? Is it Life Sciences and Diagnostics? Is it specifically in one of these subverticals? Any thoughts there?

Yes. I mean maybe just to paint a little bit of a broader picture on the capital allocation. So -- as a reminder to everyone, we do have about $1.3 billion of short-term debt that's coming -- there's $500 million coming due end of this month and then we've got another $800 million in September of '24 that we need to take care of. The second piece around our priority really being M&A, and we will continue to be diligent there, I think, in our underwriting and what we go after, and I can talk a little bit more about what areas that would be in. And then the third area is share buyback. So we are not assuming any further share buyback than what has been done to date, but we will obviously continue to monitor what happens here from a market perspective. In terms of the acquisition and where we might want to go, I would say we love both our children equally across the Life Sciences and Diagnostics space, which maybe wasn't always the case free divestiture. And so I think for us, when you look at those 2 markets, Life Sciences has more efficiency. So it is a little bit easier to have a more robust pipeline there, but that doesn't mean we are excluding looking at Diagnostics opportunities and then even within each one of those spaces, I think I would say we are very excited about the portfolio that we've built, right? It's a high recurring mix business. I think that would be a continued theme we'd want to ensure, we've maintained sort of the margin profitability, all those type of things that we've now worked so hard to build. I don't think we would -- it would take something, I would say, outsized to want us to deviate from the new look of the company that we've built.

Got it. Okay. That's helpful. And yes, I know having the Diagnostics piece today is definitely keeping the numbers a bit more resilient versus peers. So as you guys obviously opened up the call with last quarter. So I guess if we were to think about the size, magnitude of potential deals you guys are looking at, obviously have some recent home runs that are really helping you guys out here. Like are we looking at $1 billion deals? Are we looking at bolt-on, smaller magnitude. Just, I guess, size and then we can -- I do want to touch on the hurdle rates and kind of how you guys think about what makes it deeper into the funnel versus what doesn't?

Yes. I think in terms of the -- I don't know that I would necessarily say that we've -- like our hurdle rates and our strategy, I don't think is that different on what you're going to hear from anybody else right? From a strategy perspective, we are very much focused on the technology fit within the company as the first hurdle. The second hurdle is going to be from a financial perspective. Again, as I just mentioned, it's going to take something outsized for us to buy something overly dilutive from a financial perspective as we want to maintain a new profile we've sort of built up. And then from a hurdle or returns perspective, we are in the same camp, looking for high single-digit ROIC here, ideally between years 3 and 5.

Okay. That's helpful. And just kind of again, last 2 minutes here, I just did want to kind of re-touch on that 10% growth expectations by individual end market. Do you guys have views on what each of the individual geographies, whether it be China, ex-China, APAC, Europe and U.S.? Like what kind of growth rates are embedded in each of those geographies to build up to the 10% midterm?

Yes. So I think if you look at the 3 sort of major geographic regions, I would say that the Americas and the U.S. should probably be slightly above, I would say, our overall company average, I would say Asia, including China should be more or less right in line with the company average and then Europe probably slightly below. It's probably how I'd break it down geographically. And if you look at even our sort of midterm -- current year guidance versus that midterm outlook, the real deviation is in the Americas. And the reason for that is because if you look at the 2 major headwinds across Signals and our Omics business, those are predominantly U.S.-based businesses. And so our assumption for the Americas this year is closer to low single digits versus what would be implied sort of a low double-digit in that midterm outlook.

Got it. Okay. No, that's really helpful. And if we were to do, I guess, a similar exercise with the 75 bps to 100 bps margin accretion in breaking out Diagnostics for Life Sciences there, are they both kind of on par? Or is there more, I guess, upside potential in any of the businesses? Obviously, they have very different starting points and obviously very different governors, if you were to think of the top end, but if we were to think of 75 bps to 100 bps is one segment or one subsegment really choosing that up where others are a bit more mature?

Yes. I would say both businesses should have margin expansion, but I do think it will probably be more tilted towards the Diagnostic side of things. If you just look at our -- to your point, the starting point, right? You've got Life Sciences already at sort of the mid- to high-30s, and you've got diagnostics probably closer to a mid-20s op margin percentage. So I think there is a little bit more opportunity on the Diagnostics side, especially when you look at some of our -- maybe our recent acquisitions and where we have the opportunity to turn them in from loss generating businesses to money-making businesses. So there will be some margin expansion there. And that's why I'd say it's probably more of the opportunity. But again, both businesses should have margin expansion.

Perfect. All right. It looks like we're pretty much ringht on time. So great. This has been just really helpful, really enlightening, and Max, I appreciate it. Yes, hopefully, everybody else has great set to the conference, and we'll see you all soon. Thank you.

Appreciate it.