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

I'm Vijay Kumar, the life science tools and med-tech analyst at Evercore. A pleasure to have with us Revvity. Representing the company, we have CEO, Prahlad Singh. And we also have Steve Willoughby in the audience. Steve was shy, he didn't want to come up on stage, but we will let Steve relax for a few minutes there. Prahlad, maybe tools -- there has never been a dull moment for life science tools this year. Pretty remarkable '23 for a variety of reasons. But before we get into some of the macro issues, for you guys, you've had like a tremendous portfolio transformation, right?

Just at a high level, give us a big picture view on how Revvity has changed over the past few years?

Thank you, Vijay. Good morning, everyone. It's the first time I've heard Steve being shy, but there are other things we've heard. To your question, Vijay, it's true that we've gone through a lot of transformation. And maybe sort of to give you a sense of the level of transformation the company has gone through, I'll start with -- when I joined the company, I joined the diagnostics business. It was about a $450 million business, primarily focused on reproductive health. And we really focused at that time on expanding the TAM and the addressable market for diagnostics itself to a point where it's a plus $1 billion business in 2022. With the acquisitions of EUROIMMUN, Tulip Diagnostics and several other companies, we really built a strong portfolio on the diagnostic side. When I moved into the CEO role, essentially COVID hit, and that gave us an opportunity, where we had the most sensitive and specific RT-PCR test on the market, if you look on the FDA's website. But more importantly, what it also gave us was an opportunity to leverage the balance sheet and go into a similar strategy on the life sciences side of the business that we have done with diagnostics, with the acquisitions of BioLegend, Horizon, Oxford Immunotec, SIRION Biotech. And we did 11 acquisitions and spent around $7 billion, $8 billion. Because we knew that when COVID was going away, we needed to sort of replace that revenue stream and that profit stream. And the company reached a confluence point where we had a life sciences and diagnostics business, which was high growth, high-margin business. And our legacy PerkinElmer instrument and services business, which was more slower growth and lower margin. And that's when we move forward with the divestment of the portfolio there, rebranding the name of the company to Revvity. So essentially, when you fast forward, we've gone from being 1/3 pharma, 1/3 food and industrial and 1/3 diagnostics to now being 50-50 life sciences and diagnostics company. Our recurring new stream has gone from it being 40% instruments to now less than 20% of the business is instruments. So it's a very dramatic transformation of the portfolio that has happened over a short period of time. But more importantly, what it has done is it has set the company for future in a way that it has got strong end markets, geographically very diverse and a portfolio which is primarily focused around consumables and software and services.

Fantastic. And just within the life sciences side, what is your exposure to pharma, industrial, government academia?

Yes. So pharma biotech is about 35% of the business now. Industrial, like government academia is about 15%, and the other 50% is around clinical diagnostics. And what it does, in times when markets are going through a tough phase as we are now, the diagnostics side of the business is really an assurance of a buffer, which sort of puts us in a place where we are today that despite all the downturn, we are still in the top quartile in terms of organic growth amongst our peer group.

And just on that point, you started the year at 9% high singles for fiscal '23. Current guidance contemplates, I think, low singles, right? Of the 700 basis points change, can you just remind us like where did that change come from? Is this all like pharma? How much of this was China?

Yes. I mean, look, we will be one of the very few companies that will come out of the year with mid-single-digit growth in China this year. So I think that should be a reflection of how unique our portfolio is. Yes, we expected to be high single digits, and we ended up -- we'll end up in low single digits, similar to the majority of our peer group. But I think the point of reflection here should also be the fact, Vijay, that we'll be in the top quartile of organic growth in this tough economic and market environment.

Understood. And sorry, just on the guidance change, Prahlad, like was this -- how much of this was a change in China outlook versus global biopharma change when you look at the overall portfolio, right?

Yes. I think it's predominantly it was pharma biotech. And to some extent, if there was an impact on China, it was co-related to the pharma exposure in the China market with the CRO piece there.

Got you. And that biopharma change, I think we hear different reasons from different companies. Just from your perspective, like when you speak with your customers, what's driven this change in outlook for biopharma customers?

Well, I don't think there is one silver bullet that we can pinpoint to and say this is the reason why it is. It is -- obviously, interest rates play a role to some extent, IRA plays a role. But I think the thing is that we have to also keep in mind the fact that our life sciences instruments business from 2020 to 2023 grew at a CAGR of 13%. And our expectation is that business should be growing mid- to high single digits. So to some extent, this is also a recalibration of what needs to happen and how that needs to be reset.

Understood. And I'm probably going to switch up my questions a little bit here, Prahlad, but just on that instrumentation in a teens CAGR versus mid-single sort of outlook, right? Are we done with this recalibration? Is fiscal '23 the bottom? Or is this going to bleed in into '24?

So I wish I had a crystal ball, Vijay, I could call the bottom, but I don't, and I won't. Look, I think it -- as we said during our third quarter earnings call, right, the market is going through a recalibration phase. And at least our expectation is, and as we've said on the earnings call, that I think this will go on for a couple of more quarters before we see it reaching a point where we will see it going back into a growth curve.

Got you. And we'll come back to the growth curve. But before getting to '24, in Q4, I think your guidance contemplated mid-single decline for the business -- base business. Based on trends so far, the macro, does it support your view for Q4?

Yes, again, I'm not providing an update on the fourth quarter guidance, just to be clear. But what I can say is essentially the end markets have performed pretty consistent and generally in line as to what our expectations were coming into the quarter. And I think that's essentially what I would communicate to you is that they have been pretty in line with what we expected it to be and consistently performing at that end.

Have you -- is there any change in instrumentation versus reagents, Prahlad? And the reason I ask is I think one of your peers created a bit of a stir with book-to-bill commentary for instrumentation. So I'm curious, I know your business is different but any change in instrumentation versus reagents?

So I think you have to keep in mind that instruments is 18%, 19% of our portfolio. And most of what we sell are I would call esoteric specialized instruments that go into labs on the research and discovery side. So I don't think it's an apples-to-apples comparison, and I don't know what the commentary was, so I won't comment on that. But what I can say is that from our perspective, again, it's been generally consistent with the way we thought it would perform in -- both on the reagents and the instrument side of the portfolio.

Understood. And you did mention pharma, one of the largest end markets at 35% of revenues. Typically, we do see some sort of budget flush heading into the year-end. And any -- have you seen any signs of customers releasing budgets as we head into year-end?

Just to sort of put it in perspective, generally, we expect dollar to dollar upside of about 20% from 3Q going into 4Q in a normal year. We've not assumed any capital flush into our fourth quarter guidance, as we said during the call -- during our 3Q earnings call.

Got you. So we haven't seen any budget flush...

No, we haven't assumed any is what I'll be clear in what I say.

Understood. But we don't know if we have seen it or not seen it.

We haven't assumed any. I'll end up answering the questions the same way anyway you ask.

And within that pharma, 35% of revenues, what is your exposure to large versus small molecule, early-stage biotech, CROs? I think some different companies have seen different dynamics in those different buckets.

A good question. And I think that just to sort of break it down, our exposure to pre-revenue biotech is 5% of the company, pre-revenue biotech pharma is 5% of the company. Majority of it tends to be more big to medium-sized pharma biotech is where we tend to play a role both on the research and discovery side of the business. In terms of China, as you know, just to sort of again calibrate, 17% of our revenue comes from China. 10% of that is on the diagnostic side, 7% of that is on the life sciences side. And now a majority of that is on the consumable side of the business. So sort of that's how it plays out. And then again, just as a reflection point that as we have just evolved as a new company, for us, it is important to sort of remind you and continue to reintroduce to you and the listeners as to who Revvity is, and then what are the end markets that we play in.

Understood. Understood. And then I think when I look at the guidance for Q4, you're assuming double-digit declines in pharma. Are you seeing any geographic trends or perhaps across those different buckets, large versus small CRO where someone is performing better versus worse or are all segments within pharma expected to be down double digits?

So again, Vijay, when we provide guidance and if I'm sure Steve will throw stones at me if I'm incorrect here, we tend to provide guidance around life sciences as an end market. We don't provide guidance on pharma customer base as such. So our life sciences instrument business is what we've said is going to decline double digits in the fourth quarter is what we have said.

Understood. Understood. And sorry, what is Q4 assuming on the reagent side, Prahlad, if instrumentations are down double digits?

I think what we said was overall life sciences...

Understood. Thank you. And is there a way to -- I think some of your peers have characterized like pharma, hey, look at the CAGR versus 2019 and those CAGRs have normalized? Like, have you looked at those either for life sciences or from pharma, how you want to characterize it? And what are those CAGRs now? Have we normalized?

So I think, again, Vijay, if you look at the portfolio of the company that we have today, it's very difficult to sort of look at the CAGR of the company as a whole on life sciences from 2019. Because essentially, there's a lot of assets that are new to the portfolio, meaning BioLegend, Horizon, SIRION Biotech, Nexcelom, all of these are new acquisitions and Cisbio prior to that. So it's tough for us because of our unique transformation that we can look at the CAGR. But I think when we look at the instrument side, that was one data point that I gave you, that should be a reflection of how the portfolio is.

Sure. Got you. And -- sorry, getting back to, I think, a comment you made about normalization in back half of next year, right, I think you mentioned this biopharma challenges, perhaps this transition could last another 6 months. Is there some historical analogy for us to base why these challenges would last for another couple of quarters and then the markets normalize?

I think generally, if you look at downturn in pharma biotech, they have lasted 4 to 6 quarters. And then sort of that's the trend analysis that you look. But also if you look at the historical organic growth for the sector, they tend to be in the mid- to high single digits. And then as I said, right, the data point here is that for 3 years, these have gone double digits. And even after the decline this year, it will still be in the mid- to high single digits, right? So I think it requires that period of time for it to recalibrate before you start seeing growth. And essentially, that's the data point that we are looking at.

Understood. Understood. And I think another topic that's come up is the software business, you talk about Signals Software. Is that like a new branding initiative? What is Signals Software and how large is this business for you?

Yes. Again, this is with the transformation. Signals Software was our informatics business, which was part of our business for nearly a decade or more. It's just that when we were part of PerkinElmer, we were in so many end markets that by the time we got through our analytical enterprise, food, cannabis, reproductive health, we never got to the software side of the business to talk about it. It's nearly a couple of hundred million dollar business growing at how software markets grow, and it's really got a strong market position in research and discovery, and we are in, I think, 48 or 49 of the top pharma biotechs' research and discovery labs.

Understood. And I think you also...

So for all those chemists in the audience that have ever used ChemDraw, that is part of the portfolio, electronic lab notebooks that you'll have used, that's part of the portfolio.

Got you. What is that business, the high single-digit growth, what does it correlate? Is that like R&D pipeline or acquiring new customers, just give us a flavor on what drives that high singles growth for Signals?

So it's a very sticky business to begin with, right? Because 85% to 95% of it is renewals that comes through. And as you renew contracts with pharma biotech, you add more and more features to the portfolio. So there is an opportunity for renewal. There's an opportunity for upsell and there's an opportunity for new contracts. And this is not even counting the fact that as you develop new NPIs and you bring that to the portfolio. Again, similar to our life sciences reagents and instruments business, Vijay, most of our focus on the software side has been on research discovery. And the opportunity for us is how do we now extend the value proposition that we bring to our customers from just being in preclinical research and discovery around CROs, around clinical trial, and that's where the expansion and the growth opportunities is there for that business.

Understood. And another thing that you brought up, Prahlad, on recent calls is base editing technology. Is that like unique to Revvity? Who else competes in that business and who are your customers? Is this like pharma biotech or pre-commercial biotech companies?

Yes. I mean, again, that was one of the novel innovation opportunities that we had. And then, a, either we need to do a better job of communicating what it does, or 2, it was surprising that it did not get enough of an inquisitiveness. Again, the ability that we have now with the acquisitions that we have made is we've got novel IP and technology that we can license out. So pinpoint base editing technology is, again, a CRISPR -- CRISPR 2.0 is what we refer to as where instead of snipping at both strands of the DNA, you snip one, you edit one, so sort of minimizes the impact of CRISPR around mutations or the other side effects that it would have. And with AstraZeneca, we announced the licensing opportunities, but there are other companies that now we just announced the kits that we have started providing to other pharma biotech that would explore that to see if they would use that as a vehicle for the development or discovery of novel therapeutics at their end. So again, it's a unique opportunity that we have with Horizon and SIRION combination where we are able to license technology around AAV, lentivirus, Pin-point base editing. Very few companies have access to this technology. I think Beam Therapeutics is one that's out there but they use it primarily for themselves. Our intent really is how we do we democratize and provide this as a licensing opportunity for all pharma biotech. And that's the strategic direction where we are taking that technology in.

And what's been the reception to this product? Any sense on how big or meaningful this would become?

Well, again, think of it this way that we have licensed it to one big pharma in one particular disease area. And then they -- not just within that company that they could leverage that technology to other disease areas, but other pharma biotechs that are exploring, they could again use it as a technology too for development of their drugs. So the reception has been something that we are very satisfied with and excited about the opportunity that it brings to our customers. And again, you have to link that to the opportunity that once you open the door with the technology, Vijay, you are now able to provide reagents, tools, capabilities to that customer. And then as you move it down the value chain, if there was a need for companion diagnostics, they are able to do that with the diagnostic side of the business. And if it's a rare disease, they are able to leverage our lab clear cap infrastructure around the globe to be able to do the screening of patients, clinical testing, monitoring. So this is sort of where we keep talking about how do you narrow the chasm between life sciences and diagnostics. Those are not really distinct businesses, but they are pretty conjoined and able to leverage off each other in terms of what technology and tools and capabilities that we provide to our customers.

Understood. And then since you brought it up sticking on to this novel technologies, I think genomics, when Revvity says genomics, how do you participate in genomics? Some of your customers have cited end market challenges within that piece as well. Has that impacted your business?

Well, again, if you look at the applied genomics side of the business, right, in diagnostics, the pharma biotech, obviously, the instrument side of the portfolio has been impacted. During COVID, the amount of DNA extraction, RNA extraction, equipment with chemagen or liquid handling platforms, those definitely have been impacted, very similar to what the life sciences instrument side of the businesses. I think what I refer to on the genomics or what I was previously referring to on the genomics side of the business was around the esoteric technology and capabilities that we provide to our customers. In terms of companion diagnostic development, in terms of doing esoteric testing for clinical trials or doing -- being sort of a specialized CRO is the term that you could use.

Got you. And have you seen any sort of -- when you look at customer cautiousness, have you seen any change within that part of -- like when you look at applied genomics and any change in sentiment?

Again, on the instrument side of the business, it is no different than what you would see in the life sciences instrument side of the business. On the licensing side and on the companion diagnostic, there has been some slowness but that those discussions generally tend to take months. It is no different than developing any collaborative research agreement with pharma biotech. So those discussions haven't slowed down in terms of intensity, but it takes longer just because it also tends to be a CapEx spend on the pharma biotech side.

Understood. Then switching over to China, which is high teens revenue exposure for Revvity. It's been a tale of 2 cities, right? Obviously, your immunodiagnostics has been pretty strong in China, pharma life sciences saw -- this -- I think you said China diagnostics is about 10%, like -- what is immunodiagnostics of the 10%? And what is -- do you have like non-immunodiagnostic exposure in China as well?

Well, there are 9 million newborns in China. So yes, we definitely have a non-immunodiagnostics exposure in China. To put it in perspective, again, just sort of a reminder, we have 17% revenue from China. 10% of that is on the diagnostic side. And I think 60% of that is immunodiagnostics and 40% is non-immunodiagnostics. And that is whether it's an applied genomics, newborn screening, prenatal testing, some infectious disease testing, so that sort of comprises the diagnostic side. 7% of that, of the rest is life sciences, of which about, I would say majority of it is now consumables and software. So sort of that is the breakdown, just to put it in perspective.

Got you. And I know immunodiagnostics within China was impacted by the lockdown trade. Is there some way to quantify has immunodiagnostics normalized? Are we back at pre-pandemic levels? Or where are for immunodiagnostics?

Well, immunodiagnostics has played out exactly as we had predicted it would. There was -- we had said that it would be the last ones that would come back post pandemic in terms of getting normalized. That business grew in the second and third quarter in the mid- to high teens. And -- but it has also -- we cannot lose -- and it will continue to do so in China. So I think in China immunodiagnostics will continue to do double digits. I think the more important reflection is immunodiagnostics has grown double digits for us, not just in China, but everywhere else around the globe. It is a strong business. When we acquired EUROIMMUN, we said you should assume 12% in the deal model. And it has done at least that much, if not better, ex-COVID China. So -- and that is as much about the portfolio as it is about the awareness of autoimmune diseases around the world, and that continues to be a strong growth trajectory for the portfolio.

Obviously, the easy comps help immunodiagnostics in China. What should -- when you think about '24 or the out-years, right, should this be back like double-digit growth or any nuances from a utilization perspective we should be aware of?

I think autoimmune disease has grown double digits, as I said, per-COVID. And obviously, COVID got impacted. And that's why, as you said, it was a very favorable comp this year. But I think it would be probably as you move back and it gets more normalized, it would be a very high single-digit, double-digit grower.

Understood. In reproductive health, that's been soft. But what are you assuming for China reproductive health in fiscal '24? Because I think I saw some numbers about like birthrates being down like 10%, 20%. That's a big -- I mean, should birthrates be that cyclical?

Well, it's not cyclical, unfortunately. Since 2016, when the two-child policy was announced and then subsequently last year, the Chinese government, again, provided more incentives for folks to have kids. Just to put it in perspective, when I started doing this in 2014, there was 13.4 million, 13.5 million babies born in China. Last year, it was 9 million. So that should give you a sense of -- the U.S. population, the birth rate that you have in the U.S. is what sort of on an annual basis is what was lost on an annual basis there. So it's been a significant decline. But with the menu expansion, with our new NPIs that are coming out, we've held pretty well and our newborn screening business has continued to grow mid-single digits. And with the new NPIs that we have, we expect that to continue.

Got you. So the growth for China reproduction health, this is mostly from menu expansion, we're not as...

Well, It's both menu expansion, obviously, and then in the new NPIs that we have got. So there are two ways to think of menu expansion, right? I mean, I've given this example before, but if you take a state like California, they do more than 40 disorders that they test for. Some of the provinces in China test for 2 to 4, some test for 4 to 6, some tests for 8 to 10. So there is still an opportunities with the NPIs that we have that we can continue to expand. In addition to that, you also have the newer NPIs around spinal muscular atrophy, Duchenne muscular dystrophy, MPS II, that we are either in the process of filing with the NMPA or will hopefully be soon receiving approval.

Got you. And then similar question on China. Like when you look at your China revenue base exiting '23, what's the implied CAGR versus pre-pandemic levels? Have you normalized some of the China disruption?

I would say that, look, this is where it's very important. It is important to not use the same brush to paint every canvas. The uniqueness of our China portfolio is that despite all the ups and downs, as I said, China for us will grow mid-single digits this year. And I think that's a reflection of the portfolio that we have and the resilience of it in tough markets. Of course, the biopharma exposure to CROs, et cetera, has impacted that portfolio. Otherwise, that would have grown high single digits or double digits. And that is the impact that we have seen. So we are not immune, and we will get impacted, but at least we are more resilient compared to our peer group, given the portfolio that we have assembled now.

Got you. Are we expecting any stimulus in China? What are you hearing on the ground from a stimulus perspective?

Yes. I mean, look, I think it's tough to say. We would expect that there will be a stimulus coming in, but you expected that at the end of last year. And that stimulus came and went away. So it's tough to predict, and it's tough to have a crystal ball around what will come where. I mean -- when it does, you have to also think of which side of the business. Look, we don't have instrumentation now around QA/QC pharma that we used to. So obviously, we won't see the bolus upside of that. But around CDC, as they established life sciences lab and research, that will definitely help us there.

Got you. Some questions longer term on China. Is China -- just given all the geopolitics, should China still be accretive to overall Revvity growth outlook when you look at the longer term -- medium to longer term?

Yes. Again, we'll talk about what our growth projections will be next year. But what I can tell you is China is an important market for us. And just like any other market, you have to deal with the challenges that come, whether it's geopolitical, pricing, competition, all of the above. And we have addressed it strategically in the way that we think is the best way to deal with it. To give you an example, on the reproductive health side of the business, we have now most of our products are manufactured in country for country. Most of the R&D is done in country for country. All of the NMPA filings, all the documentation, everything is localized. So there is no reliance or dependence, whether it's from a vendor partnership or any other site around the globe. So we sort of enhanced it in that manner. On the autoimmune side of the business, we have more of the routine autoimmune testing, we have brought it locally, but something which is more esoteric and specialized where there is no local competition, we have kept that in Germany. And we sort of want to make sure that -- so each of it is very specific situation that we address it strategically depending on what the market environment is.

Got you. And government academia is about double-digit exposure, 10%, 12% of revenues. It's -- obviously, it's been strong for most of your peers as well. But for you guys, it's been exceptionally strong, double-digit growth. What's driving this? And are these comps a concern when you think about '24?

Yes. I mean I think government academia is 10% to 15% of our portfolio. Recall that BioLegend is a major component of that business. So that is the -- we don't have any reliance on NIH. Less than, I think, 1% or less than 1% of our academia numbers are from NIH. And these are global academia government numbers. And this is where the competitive advantage that BioLegend brings through their partnerships, through their care relationships is what drives that growth trajectory for us.

Got you. A similar question on the reagent side. Obviously, that will incorporate BioLegend, et cetera. When you look at that first half versus second half, clearly saw a step down where I think some of your customers have pointed out to, look, this is just destocking. Customer activity levels have actually been pretty robust. I'm curious, do you have that level of visibility when you speak with your customers? Are customer activity levels really robust? And what we're seeing right now on the reagent side just a destocking phenomenon?

Well, again, you have to look at the portfolio. What we sell on the reagent side of the business, there is nothing that you can really stock. And as I've said on BioLegend, 90-plus percent of what they deliver is within 24 hours around the globe. So there is no inventory, there is no stocking. There is nothing that customers can keep on their shelves. There are not that many bulk reagents that we sell, which customers can sort of have. So there definitely was a tempering of use post people coming back from vacation, whether that was through programs cancellation or site consolidation or expense control. But eventually, we expect that to get normalized. So again, it's very different depending on who the provider is.

Understood. Understood. And then maybe switching over to margins, Prahlad. We started the year at 30% operating margins. Obviously, with revenues coming down, I think the latest guidance is 28%. How should we think about operating leverage heading into fiscal '24, right? I think you made some comments about or hinted there being no leverage if revenues were to be low singles. I'm curious when you think about price versus inflation and the current level being at 28%, how should we think about margin expansion?

Well, obviously, margin expansion that is growth -- organic growth is a big factor. But just to sort of calibrate, we were, as you said, very high single digits at 9%. We had said that our operating margin will be at 30%. The organic growth, as you said, we projected to be at 2% and our operating margin is going to be 28%. It is still at the top quartile of our peer group. Despite 700 bps of pressure on top line, we have only a 200 bp pressure on our bottom line. We've taken $80 million in cost out. And we've also talked about what we are going to go and do in the next few quarters. Look, this is going to be a high growth, high-margin business once things normalize. There is no doubt in our minds about that. And I think what we have -- what we've also said is given the scenarios that may play out in 2024, if organic growth is going to be pressured, there will be organic margin expansion, albeit it will be nominal, just given the growth rates that you have. So...

Understood. Just maybe back on the LRP. I think some of your peers have signaled that perhaps the LRP issue during the pandemic years were perhaps a little bit robust. And I think you hinted something similar. What's the new algorithm or broad strokes and how to think about the prior, I think, like double-digit organic and 100 basis points? Clearly, the environment has changed, but I'm just trying to parse out what's short-term noise versus underlying normalized we should be thinking. Clearly, when you look at the stock, I think the stock is pricing in more of near-term headwinds and perhaps ignoring what the business would look like in the medium term?

Yes. And I think it's a great question, Vijay. Again, I'm not providing midterm or long -- long-range guidance today. What I will say is that, look, as you rightly said and as some of our peers have said, when we were giving out these guidance, the market was in a very robust phase. There were 2, 3 years of double-digit growth. And clearly, that's not the case right now. So we have to go back, recalibrate, look at what it is. But I think what is important to appreciate is, fundamentally, the portfolio transformation that we have done has set up the business for strong growth in the future. 80% of our business, as I said, comes from consumables, software and services, less than 20% comes from reagents. 50% of our business is from clinical diagnostics now, which is a very resilient side of the business that is not as much dependent on market environment. So if you just go back and look and dissect the portfolio and see what it comprises of, it is set up for resiliency in tough market environments. From our perspective, it is how we perform during tough financial cycles is the barometer that we are using for our mark of success. And then hopefully, you will see that. And you should see that given the growth rates that we have, albeit they are much more depressed than what we thought at the beginning of the year. They are still again in the top quartile, both from a top line and a bottom line perspective.

Understood. Clearly, the macro has changed from a top line perspective. But when you think of the margin targets, Prahlad, I think the prior was 100 basis points annual expense. Is that still intact off of in the lower base of 28%? Is it still reasonable for us to expect 100 basis points expansion?

I think if you have a decent organic growth, you should expect that, right? Absolutely. But I think if the organic growth is in the scenario -- one of the scenarios that we -- Max talked about during our third quarter call, then I think that would be a tough part. But in a more normalized organic growth, absolutely. I don't think our targets around operating margin expansion, EPS growth is not changing.

Fantastic. And just to clarify, when it's a decent organic, production have to be double digit. As long as it's robust, we should still continue to see some robust margin expansion?

That is correct.

All right. And I think when I look at the stock where it is right now, you have close to $1.5 billion of cash on the balance sheet. Should share repo be a focus for the company, just given -- you guys, clearly, the portfolio has undergone a transformation, but the market hasn't given you credit. So should you perhaps be looking at share repo?

So we obviously bought close to $400 million in shares, if I'm not wrong with the number, Steve. But there are 3 pieces to this -- 3 legs to this too, Vijay. One is, yes, we've got the cash, but we have to pay $700 million in debt that's coming up and maturing in September of 2024. So we've got that secured and treasuries that we have to pay off. We also have a leverage ratio that we have to be cognizant of. We continue to look for acquisition opportunities. And as appropriate, we will continue to do buybacks as appropriate. So I think we continue to manage, as I said, all 3 legs of the stool. And then I think to your point around the Street not giving us credit for the portfolio transformation, I think we need to provide the proof points quarter-over-quarter that we are going to deliver or beat what guidance that we put out there, and we plan to do that.

Understood. And last, fiscal '23, I think cash conversion was, obviously, with AES sale, I think it muddied the picture. But when you think about fiscal '24, irrespective of the macro, should free cash conversion be at your typical normalized above 85% levels?

That is correct. Somewhere in the 80%, 85% range is what you should expect. There was a lot of noise with the AES and still continues to be, I mean -- and it will be for the next -- at least this quarter and the next quarter till things get back to normal and we sort of close on working capital aspects, et cetera.

Got you. And then a few more sort of P&L sort of questions. I think a global minimum tax pillar too came up, my understanding is it's not a fiscal '24 impact, should it have any impact in fiscal '25 or beyond for Revvity?

Yes. No. I mean just looking at the portfolio and where we are, we don't see that having any impact to us.

Got you. And when you think about the tough free cash generation in fiscal '24, is the priority still going to be M&A for you guys in '24?

Again, as I said, right, we've got 2, 3 things that we have to take care of. We have to pay off the '24 debt. We continue to look for acquisition opportunities, but we are going to be diligent and we are going to be very stringent around what we acquire and add to the portfolio, and it has to be very compelling for us to make a case for us to add to that portfolio. Because we still have a lot of integration opportunities that we need to focus our attention on with all the 11-plus acquisitions that we have done over the past 24 months.

Got you. The last minute here, any closing comments, when you think about the macro environment and perhaps how The Street is looking at Revvity, any closing comments on why Revvity is differentiated in the space?

Yes. I think you just have to look at the portfolio transformation and what we have assembled and then I think you should hold us accountable for execution. But from our perspective, we've got the right portfolio. We've got the right team in place, and we've focused on the right end markets. This market is going to turn around. It might take a couple of quarters, but it will. But I think what you should focus on is how we are positioned versus our peer group. And we are positioned, we feel very confident around high growth -- building a high-growth, high-margin business that provides a high quality of earnings to our investors.

Fantastic. I think we're out of time with that. Prahlad, thanks so much for spending the time this morning.

Thank you, Vijay. Thank you, everyone.