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

Good morning, everybody, and thank you all for joining us for 8 a.m. session with Revvity. We're lucky to have with us today, Max Krakowiak and Steve Willoughby. Welcome both of you.

Thank you, Dan. Thanks for having us.

And we'll just kick things straight off. Max. This is your first public venue since your earnings call a couple of weeks earlier, I believe. And I was hoping we could start by reflecting back on Q3. What were the highlights? What were the points that needed clarification in your mind?

Yes. So I think if you look at the third quarter results, I would say it was a solid quarter overall. Organic growth and our operating margins were in line with our expectations in the period. It was another strong quarter from a free cash flow perspective. We generated about 90% conversion from a free cash flow standpoint. I think when you look at things from an organic growth standpoint, the quarter mostly played out as anticipated. I think you continue to see really strong performance in our software business, which grew 20%. We had really strong performance in our newborn screening business, which grew high single digits globally. And then we continue to see real progress on our U.S. immunodiagnostics franchise, which grew mid-teens in the quarter. So I think some of our key growth pillars over the long term continue to perform well in the third quarter and definitely have us excited for the coming quarters here.

Okay. And I think there was other disclosure on the quarter about month-to-month activity as well and perhaps some green shoots. Could you revisit that?

Yes, sure. So that commentary, I think, was mostly related to our instrumentation business. We did start to see, I would say, some increased commercial activity in the months of September and early first couple of weeks of October. I think from our standpoint, we'll have to see if this is a new market trend or if this is sort of a one-off flurry of commercial activity. I think just given the past couple of years, it's prudent to take more of a little bit of a wait-and-see approach on how things play out, but we definitely saw a decent uptick, at least in the commercial engagement and pipeline activity with pharma as it relates to instrumentation.

Okay. So it was an instrumentation-specific comment. And that isn't something -- just to clarify at the outset, that's not something that you flowed through into your 2026 framework. Is it?

No, that's correct.

Okay.

I'm sure we'll talk about the '26 framework as we go through today, but...

Yes, that's on the list. But first, maybe we could transition to talking about your business segments. You mentioned a couple of the performance metrics in your opening remarks there. I think the first line of questioning I'd like to address is idiosyncratic growth drivers at Revvity because we spend a lot of time talking about end markets with different tools companies, end markets have been tough. When they get better, it helps everybody, right? And really, what I'm more interested in is what will help you more than everybody. And so let's start off with the reagents business. How do you think about your ability to grow above market in reagents? And what are the drivers of that?

Yes. Look, I think when you look at our reagents portfolio, I believe that there's a key -- couple of differentiators for us versus our peer group, whether that be around the rate of innovation as we launch thousands of new reagents every year or whether it's around our customer service and delivery model, where 90-plus percent of reagents are shipped within 24, 36 hours, which is a differentiator for us. I think as you look at it, we're also, I would say, the value-based offering in the market at the lowest price point with what we feel is the highest quality. So I would say those are some real underlying fundamentals of our reagents business that have helped us, I think, perform better than our peers over the past couple of years and continue to take share. I think if you look at some maybe idiosyncratic stuff specific for Revvity on the reagent side, I think one is around GMP which we can talk further about. And then the second one is really around some of the progress we've made on e-commerce as well as we had been, I think, behind the 8 ball a little bit there for the first couple of years that we really had a reagents franchise, but we've started to make some real meaningful progress there.

Let's start with e-commerce. Where are you in trying to bring the non-BioLegend portion of your reagents portfolio onto the BioLegend e-commerce platform?

Yes. So when we acquired BioLegend, I would say less than 10% of our reagents at that time were sold on e-commerce. After the acquisition of BioLegend, that had gotten up to about maybe 25%, 30% just with their penetration. We recently relaunched our e-commerce platform in early 2024. And so we've been on that new platform now for a couple of years. And I would actually say our reagent channel through e-commerce has almost doubled now in those 2 years. So we've gone from about, again, 25% to closer to 45% now, are going through the e-commerce channel.

And what's the goal?

I think the goal is as close to 100% as we can get it. I don't think we'll ever get to 100%, but north of 65%, 70%.

And what are the benefits of that?

Well, obviously, one is you have less cost, right? A much easier synergistic sales through e-commerce. Customers tend to be a little bit stickier as well as they go through the e-commerce platform and you hook up directly with their procurement system. So I think you see it both from an efficiency side, but also in terms of the amount of customer wallet share you get.

Okay. GMP?

Yes. So from a GMP perspective, we had -- when we had acquired BioLegend, they did not have a GMP offering. They were strictly RUO. And so as part of that, we had heard consistently from their customers, the desire for us to sell GMP reagents and move a little bit further downstream as opposed to being just RUO and on the preclinical side of things. So we made an investment to build out a GMP facility. I would say it was a modest level of investment, not the hundreds of millions that sometimes you see with the GMP facility. And so that was completed sort of by the end of 2023. That build-out was completed. We had mentioned at that time, we anticipated it probably taking 3 to 5 years for it to really start driving meaningful results in our financials. I think when you put that in context of what some of our peers have experienced from the time they built out GMP to seeing it through their financials, it's closer to about 7 years. So we do anticipate to be quicker than that. But it will still be, I would say, a couple of years before you start seeing meaningful results. We're excited about the pipeline. We continue to see good commercial traction. But again, it will just take a couple of years before you start seeing that meaningfully in the financials.

How do you frame the revenue capacity of your GMP build-out?

Truthfully, I wouldn't say there's necessarily a huge cap on the capacity that we have in terms of where we're trying to play. From our GMP standpoint, we're moving from preclinical to sort of the early stages of the clinical trial, not all the way downstream into like the contract manufacturing of reagents where you would need a much more significant build-out from a GMP perspective.

Okay. So you're some period of time before there's any lumpiness in GMP orders that would influence your financials?

Correct.

Got it. Well, let's pivot to instruments. You touched on it a moment ago that the trends have improved from an end market perspective. But from a Revvity-specific perspective, what gets you excited about your instrument portfolio?

Yes. I mean I think we're -- look, we're continuing to innovate from an instrumentation standpoint. We just refreshed our in vivo platform in 2023, and we've seen really good traction from that refresh. I think when you look at over the past couple of years, we've also had a decent amount of launches from an AI software perspective and continuing to boost the analytical and interpretation power of our instrumentation and the ease of use for the scientists. I think as you look out over the next couple of years, I think you'll continue to see launches from an AI perspective and the software on our instruments. And then I also think you could probably expect to see a refresh of the high-content screening portfolio in the near future. Usually, we do product, I would say, refreshes an instrument family every 5 or 6 years. The last one on high-content screening was in 2020. So I think you'll see, again, in the near term, some real exciting announcements around our high-content screening business.

Okay. And any new launch in high-content screening would be coupled with an AI way to read the image, presumably?

Correct. But I mean, I think even in the interim, you'll continue to see sort of interim software releases as things come available.

Got it. Well, I do have a bunch of AI questions, so we'll get to that. All right. Moving on to the Signals business, which you mentioned has been a standout performer for the company. How are you thinking about the durability of that performance? And I know you have a new product launch coming, so help the audience frame what are the implications of that.

Yes. Look, I think our software business continues to be a really unique asset for us. Again, it's a software business that not many of our -- really any of our peers has and the fact that it is a true stand-alone offering from a preclinical workflow to our pharma customers. I think as you look at the performance over the past couple of years, it's grown healthily in the double digits. We expect that trend to continue over the long term here. And what you're seeing with our software business is we're kind of in the midst of a significant NPI cycle. And so in end of '23, early '24, we released 2 product offerings that moved us a little bit further downstream outside of the preclinical side, a little bit further downstream into the clinical trial side. Those were our Signal Synergy and Signals Clinical launches. We've talked about the upcoming launch, particularly as it relates to the large molecule offering, which I'm happy to spend more time talking through, but we think that will be a significant tailwind for us. And then we've also talked about the growth driver of expanding outside of just the Tier 1, Tier 2 pharma, which is where the predominant presence has been. So one, moving further downstream into the Tier 3 and smaller biotechs, but also expanding into areas like material sciences, where there's a lot of synergistic overlap with our product portfolio that we offer to pharma.

But you framed the forward year for Signals as being more of a mid-single-digit growth year instead of double digits. Can you walk me through why the softening in trend?

Yes. Well, I mean, first, organic growth is not necessarily the best metric to evaluate a software business. And given that we still have on-prem solutions, you are going to see from a rev rec standpoint, some lumpiness from organic growth. And I think when we really look at the performance of the software business, I would say we really analyze more software-specific metrics, one of those being APV or the annualized portfolio value. And so what that does is basically straight lines your revenue recognition and simulates if everything was done on an apples-to-apples basis. If you look at the APV, even this year where organic growth will be close to 20% for that business, the APV will still be low teens growth.

Next year?

This year. And then even next year, I would expect, although organic growth might be more mid-single digits, the APV would still be in the low double digits, low teens.

Okay. That's a very helpful clarification. And so the difference between organic revenue growth and what you're getting in APV, that's timing of renewals for on-prem.

Correct.

Okay. So this was a favorable year when it comes to timing.

Correct. I mean, again, because the APV is still strong, it's showing that it's still good underlying growth within the business. But yes, you will have years like this one where there's just more renewals than less.

Okay. And remind me, where are you in your transition to a more Software-as-a-Service model?

Yes. So look, I think we've made really good progress. I would say right now, we're about 1/3 of the portfolio is sold via SaaS. I think we believe our entitlement is closer to mid-60s, 70%. As some customers, one will never make the conversion; and two, some of our legacy products, it doesn't make sense from an economic standpoint to switch them over to a SaaS product. So I don't think the entitlement is 100%, probably closer to 65%, 70%, and we're probably halfway through that journey. And I would imagine after another 3 to 5 years, call it, 20 30-ish, we'll be pretty close to entitlement.

2030-ish?

Yes.

Okay. And tell us more about the large molecule launch.

Yes. So the large molecule launch, again, it's something we're incredibly excited about. It should be launched here in early 2026. How this really came about is, historically, our offerings had been small molecule focused on the preclinical side, again, with the Tier 1 and Tier 2 pharma. This was something that they had routinely asked us to start developing on the large molecule side, as for them, they'd rather just have one provider of their preclinical workflows, both on the small and large molecule side. And so it's been something that's been in the works for a couple of years. We're excited again about the launch here early '26. I anticipate probably taking about a year for it to take traction and really start seeing it again in the financial results. If you look at the 2 recent launches I just mentioned around Signal Synergy and Signals Clinical, we launched those in late '23, early '24. And in 2025, we started seeing meaningful results from them. So I would assume a similar sort of cadence on the large molecule side as well.

Is the competitive environment any different in large molecule compared to small molecule?

No, it's the same competitors. But I would say, again, they've probably been more focused on the large molecule side than we have. But I think for us, again, I believe and with the feedback we're hearing from Tier 1, Tier 2, it's an offering that they're looking to come out of our portfolio. So I think we've got some real excitement about our ability to gain traction there.

Okay. And you announced a new acquisition this morning in the software business. So appreciate the current events update. What can you tell us about the new acquisition and where it fits into the software portfolio?

Yes. So this is the ACD/Labs announcement. It's a software business that is going to be a nice tuck-in and fill in some of the gaps that we had in terms of our preclinical workflow. It's something where it's focused on analytical characterization and molecular design on the preclinical side. The business is roughly $20 million in annual revenue. The deal will be, I would say, EPS neutral in 2026 and should be accretive thereafter. There are some really unique, I would say, synergy opportunities with that business. We anticipate being double-digit growth sort of in line with the overall Signals growth algorithm. And for us, I think the interesting synergy parts are really around, one, the ability for them to leverage, I think, our presence in Tier 1, Tier 2 pharma, which they don't have a huge presence in today. And then two, they have a really good presence actually in the material science market. And I mentioned that, that's something that we're interested in further expanding upon. And so they will be able to, I think, help us at least drive some early progress there from a channel standpoint.

I'm surprised the software acquisition wouldn't be immediately accretive.

Yes. I mean I think from a business standpoint, it's probably closer, I would say, to breakeven from a profitability standpoint right now. I think there's some synergies we'll be able to drive rather quickly from a cost standpoint to get it in line with the overall Signals business. But again, I think, again, as I mentioned, it should be it accretive for us post 2026.

And can you say what you paid for it?

Yes. So from a payment standpoint, it's roughly $70 million acquisition price. So if you look at things from a software perspective, that's a really attractive multiple standpoint for what we view as a strong double-digit growing software business.

Yes. Sometimes the software multiples can get pretty hefty.

Yes.

All right. Well, before we leave the Life Sciences segment of the discussion, what can you tell me about your AI efforts?

Yes. So from an AI perspective, and for those that listened to the call, I think we really wanted to take that opportunity to talk both, one, what we're doing externally from a customer standpoint and also two, what we're driving sort of internally from an operations standpoint. I think when you look at things from an external standpoint, we've already, as I've mentioned, had launches around, one, our life sciences instrumentation portfolio and some of the AI software there. Second, we've announced or had some launches related to DX interpretation software, particularly related to our newborn screening business. And then we've also had a recent announcement around how we're leveraging AI with some of the reagent development and the CRISPR technology. And so I think where you will potentially still see some future announcements is really on the Signal side of things. Prahlad mentioned it a little bit as a teaser, in his remarks on the earnings call. And I think you'll continue to see new offerings there around our preclinical workflow and how we are leveraging AI there. I think when you look at the internal operations, again, I think it was something that we wanted to specifically spike out where we're getting some real tangible benefit, whether that's around the AI agents that we've deployed with our sales reps, where we've seen a 3 to 4x increase in our lead generation or whether it's around AI agents and our software development, where we've seen up to a 10% reduction in our software development time lines or even around collections and some of the agents we have released there are driving some real benefit and definitely contributions to our strong cash flow performance.

What should we use as the measuring stick for tangible contribution from these AI efforts to your business?

Well, I think one, again, from an external standpoint, it will be contributions to our organic growth for the overall company. And then second, from a margin perspective, obviously, that internal productivity comes with benefits. And then I already talked about to the increased cash flow from a collection standpoint.

So I should see your accounts receivable days go down.

I think if you looked at them over the past 2 or 3 years, and we've had these agents in place at least for the past 12 months on the collection side, I think you've seen some real reduction in our DSOs.

Okay. I'll have to get into the guts of my model and confirm that afterwards. And on the instrument side, can you charge more for an instrument when it has an AI-enabled interpretation layer to it? Or is it more -- is the benefit more you can just sell more instruments at the prevailing price of an instrument?

I think you've seen both of those. But I'd also say some of the more recent AI software offerings we have are actually just stand-alone solutions as well, where they can be sort of agnostic to the screening or imaging instrument that you're using. And so some of them we're actually selling as stand-alone offerings as well.

Okay. So a specific offering that has a price associated with it that will have a revenue stream associated with it.

Correct.

Got it. Well, to confess, I think I missed the newborn screening AI mentioned on the conference call. I thought that's why I tucked AI into the Life Sciences segment. So maybe...

No, it's definitely on both businesses.

Maybe that's a good segue to talk about diagnostics. High single digits for newborn screening, what would possibly drive that in a world where birth rates have been pretty depressed for a long period of time?

Yes. Look, and I think we really tried at least on the Analyst Day, what was that a year ago or so. For us, the big thing on the newborn screening side is really a factor of three things. One, continued geographic expansion. There's still 100 million babies born each year that don't get screening today. Two is continued adoptions from the states and countries in terms of what disease areas they do test for. And the third is continuing to launch new areas for them to test and trying to petition things to get added through different panels. So from that standpoint, it's really those three things have allowed us, not even just this quarter, but over the last couple of years from a newborn screening side to really grow heavily above what is still a compressed birth rate environment.

Are any of those three growth vectors more responsible for the high single-digit growth rate than another? Like is there a new region that you won business in or a new public health department, anything like that or...

In the third quarter, specifically, no. I would say more broadly, it's a mix of them. Obviously, when a new country starts up, like we saw in '24, you'll get some immediate sort of benefit from that. But I would really say in total, it's a combination of the 3.

And what would be the AI angle on newborn screening? I've thought that newborn screening was pretty straightforward, either disease or no disease. Where would AI come into play?

Yes. It's less actually on the sort of readout of the results, and it's more a little bit on the lab efficiency side. And so like we have the dry blood card box -- cards that you use. When you prick the heel of the baby, you put it on the dry blood card, you send it out to a lab. Most oftentimes, those are handwritten in terms of the name of who the patient was, all their information. And so a lab technician would have to sit there and manually copy over the handwritten notes to the computer. And so we've been able to use AI software to basically automate the reading of those cards and put it all into the system and start your workflow, saves the labs a tremendous amount of time.

So you got to get public health labs to adopt AI.

And it seems -- I mean, as soon as you run it through one time and show them that it has 90-plus percent accuracy, it's not that hard of an argument.

Okay. Well, there's a lot of other things happening in your diagnostic business that are pretty idiosyncratic. So can we start talking about perhaps EUROIMMUN? You mentioned what was it, mid-teens growth in the United States for EUROIMMUN. Drivers behind that mid-teens growth rate and the sustainability of that?

Yes. I think for anybody that's followed us, you've heard us routinely talk about the importance of growth in the Americas for our immunodiagnostics business. When we acquired EUROIMMUN back in 2018, only 5% of its revenues were in the U.S. and EUROIMMUN is our biggest piece of our immunodiagnostics portfolio. Since that time, I would say the Americas has continued to grow north of 10%. We're now up to about 20% of our revenue in immunodiagnostics comes from the Americas. If you look at the overall market in immunodiagnostics, about 40% of it is in the Americas. So we still have a way to go to what we view as sort of the correct indexing of our portfolio to the Americas. And really for us, the key focus there is on 2 things: One, approvals from an FDA perspective on our menu. And then second is increased levels of automation. You saw with our -- related to our TB workflow offering. In the past 2 years, we've come out with both a low throughput and a medium throughput automated workflow. And we've started to see some really good traction, particularly on the medium throughput side of things. And that automation really puts us, I would say, in a much more level competitive playing field, if not a superior playing field, I would say, versus our competition of QIAGEN in the U.S.

So you include TB in that EUROIMMUN midteens growth rate?

That's right.

Okay.

That's an overall immunodiagnostics U.S. number.

Understood. How has TB been doing? I don't feel like you talk about it all that much. And QIAGEN, as you mentioned, they've been growing double digits all day every day. So where is the Revvity TB business at this point?

Yes. I would say from a TB perspective, look, the biggest market for TB is in the U.S. And when we acquired Oxford, they were again heavily under-indexed to the U.S. And so from that standpoint, that's really been the big focus for us. The business outside the U.S. has continued to perform well and grow. In the U.S., it's been challenging for us. And that's why there's been that sort of immense focus from an automation standpoint. And again, since we've launched the medium throughput, we've started to start to see some real traction in the U.S. I think we've placed now roughly about 20 of the medium throughputs in the U.S. Some of those are displacements of the competition. And we should have about probably another 20 by year-end, bringing us up to 40 and really what's been sort of the first year launch of it.

Is the U.S. market more concentrated than elsewhere? I mean if you don't have Quest and Labcorp, is this the kind of thing where you're boxed out of a large portion of the market?

Yes. I mean the large reference labs are an important piece of the TB market in the U.S. And again, for them, the big focus is on automation. And so for us, that's why we put so much effort in terms of the launches. And I think, hopefully, in the near term here, you'll see another launch is related to the high throughput automation as well.

Okay. How is the Revvity genomics business doing?

Genomics has been doing very well. Again, this is the business where we have sort of a couple of different pieces of genomics. One, we do a lot of the backup testing for newborn screening around the world. The second is a lot of the partnerships with pharma. We have announced one of them this year with the type 1 diabetes partnerships with Sanofi. And the other area of our genomics business is related to partnerships on the large screening programs, which, again, we had the Gel announcement for this year. So I think in terms of a lot of the long-term growth drivers for us, there's been a lot of traction from a pipeline perspective. Glad to see that we were able to announce some wins here in 2025. And hopefully, we have another group of wins that we'll be able to announce in 2026.

Is that business accretive to the fleet average growth rate at this point? Is it fleet average? Or is it lesser than fleet average?

When you say fleet, you mean company average or...

Yes, diagnostics segment even.

For Diagnostics segment for this year, it's definitely been, I would say, accretive to the overall growth for DX.

Okay. Because of Gel or are there other?

Gel is the biggest piece of that.

Got it. Okay. Well, I almost hate to ask about China, but it's on my list of questions for the Diagnostics business. 6% of revenue for 2025 for total revenue is China diagnostics, correct?

China Immunodiagnostics.

China Immunodiagnostics.

Yes.

What would be total China diagnostics?

Probably closer to 8% when you add in reproductive health.

Okay. When we're having this conversation a year from now, what's the new number?

I mean I think you might see it slightly lower than that, maybe call it, 7% overall for DX-IDX, maybe closer to 5% I think as we've talked about on previous earnings calls, we did have the impact from DRG that's impacting us in the back half of this year and the first half of next year. Once we lap that and establish sort of the new baseline, we do anticipate to modestly grow off of that, call it, in the low single digits range. But it is a headwind that we do expect to have to work our way through in the first half.

How do you get comfortable that there is even a low single-digit growth rate once you baseline the DRG headwinds?

I mean I think it's a little bit of to of where we play in the immunodiagnostics markets, particularly around autoimmune and allergy. Those are still high-growth volume markets, and so although there is policy right now, I think, to try and curb the volume of tests that are being done, it's still a high-growing area of diagnostic disease. If you think of autoimmune, it is trying to find that needle in the haystack, and in order to properly serve the patient, you're going to have to run a series of tests to be able to properly diagnose them, and so it's just a high-growth area that, again, there's not a whole bunch of local competition for us, and so I think we believe firmly that once we work our way through the policy headwinds here, we'll be able to keep growing that business.

Okay. All right. Time to pivot to 2026 framing. 2% to 3% organic growth. What's embedded in that framework?

Yes. So from a -- again, that's the framework for next year that we've already put out there. We'll give formal guidance at a later point here as we see how the next couple of months play out and how Q4 ends up. But at least in terms of that framework, I would say it's somewhat of a similar segment split to what you're seeing this year. So Life Sciences kind of growing in the low single-digit range and DX in the low to mid-single-digit range. I think when you look at things from a Life Sciences standpoint, we anticipate software being mid-single, as you talked about, a little bit tougher comps next year, less renewals planned. And then from a Life Sciences Solutions standpoint, which is our instrumentation and reagents, we anticipate that business to be roughly low single digits with instruments probably being closer to flattish and then modest growth in our reagents portfolio. When you look at it from a DX side, again, low to mid-single digits overall. I would say similar performance on both reproductive health and immunodiagnostics. Immunodiagnostics, as we mentioned, has the China headwinds that's tempering its growth expectations for 2026, but outside of China, we still expect that business to be growing in the high single, low double digits.

But you are expecting an improvement in trend in both instruments as well as reagents, correct?

I don't think we're necessarily assuming a fundamental change in the market environment that we're in right now. I think, again, our stance is trying to be as prudent when we're giving framework conversations here. I'd say instruments being flat as we've sort of established that new baseline as we've gone through here in '25. So it's not necessarily that we're expecting significant growth. It's just that we're expecting for the declines to basically stop.

Got it. Okay. And I know in our conversations in the past, you felt that the incremental margin opportunity at Revvity was underappreciated. Can you walk me through the building blocks to that view?

Yes. Look, I think from a margin standpoint, since we've become Revvity, we have not really had the opportunity, I think, to really show the full power of our margin potential given the market environment that we're in. I think when you look at the future margin contributions for us, what makes us really excited is that our fastest-growing areas of our business have the highest amount of gross margin, whether that be on the life science reagent side, whether that be in our software business or even the DX reagents across newborn screening and immunodiagnostics in the U.S. And so from that standpoint, you just get sort of the natural GM benefit as you -- those businesses grow faster from a mix standpoint. I think the second is, as you look at the areas, again, that are faster growing, they don't require us to be investing in incremental selling sales reps to be able to drive that growth. It's really a matter of getting more product through the existing channels. And so whether you look at things from a reagent standpoint and our focus on e-commerce or whether you look at things from a software standpoint and that we're in the midst of a heavy NPI cycle, but we're basically mostly selling those NPIs to existing customers or even on the immunodiagnostic side and newborn screening side, it's established relationships with either state governments or large reference labs that you're just pushing more product through. And so I think that SG&A leverage for us is a real differentiator. And as we see markets sort of return to more normalized levels here, we do believe our incrementals are going to be a differentiator versus our peers.

Okay. So you think you can get more channel leverage than most companies basically?

Yes.

Okay. What is the -- so that sounded heavily mix-driven and channel leverage driven, as you just mentioned. Do you have anything regarding project-oriented pipeline you could speak to that could drive margins higher, cost-out programs or anything along those lines?

Yes, for sure. So I think we've mentioned in the past as well that we are taking structural actions to get back to sort of a 28% operating margin baseline for 2026. I think when you look at some of those specific actions, one, we've talked about that we are going to be taking some actions to address the China channel, particularly given the new policy headwinds as well as the manufacturing fallout from the lower volumes there. I think second, when you look at things from a supply chain perspective, we continue to remain focused on footprint optimization. There's been some recent announcements related to our Northeast consolidation. And over the past couple of years, we've taken what was 4 manufacturing sites in the Northeast area down to 1, and that should be completed here sort of midway through 2026. And then also, I think when you look at it from a supply chain standpoint, we continue to be very focused from a material cost-out perspective, whether that be continuing to drive in-sourcing between our Life Sciences and Diagnostics business, but then also just, I would say, some value engineering on our products. TB is a great example of that where we continue to find opportunities to drive cost out of our workflow offering. And I'd say the third bucket is, look, we continue to really, I would say, execute on some of the synergy opportunities from our string of M&A that we've done over the past 5 or 6 years. There's still some opportunity for us there to be continuing to invest in Centers Of Excellence and consolidations of teams around the globe and capabilities. And so I think that's another area where you continue to see us tactically execute synergy opportunities.

Okay. Well, with only 2 minutes left, I want to make sure we touch the topic of capital allocation.

Yes.

You started the year with a $250 million share repurchase objective. You're tracking closer to $1 billion or $900 million. What changed over that time frame? And how do we think about that going forward and balancing share repo with other priorities?

Yes. I don't know if anything has necessarily changed. At least from a valuation standpoint, I think things have remained compressed. And I think we've talked about being aggressively opportunistic, leveraging our strong cash flow performance, leveraging our strong balance sheet. And I think we've been fortunate to take advantage of this opportunity to repurchase shares at what we think is a very good price for our shareholders. I think as you look at things from a long-term perspective, we'll continue to remain acquisitive from an M&A perspective, but it's got to be in the right strike zone. And I think when you look at, again, where our shares are currently priced, that's a pretty attractive return opportunity for us. And so it makes the strike zone for M&A more difficult. I think you saw from the announcement this morning, though, that when we find something that's in our strike zone and really meets our investment criteria, we will continue to do M&A.

But do we think about M&A being more bolt-on going forward as opposed to a big BioLegend or EUROIMMUN type of transaction?

I don't think I want to put a size restriction on it. Again, I think it's more -- from a return standpoint, again, we have a really healthy balance sheet at the moment. For us, as we look at capital deployment, debt retirement is not necessarily something that we would go and do proactively. You look at our debt, we've got roughly $3 billion of gross debt. It's all at fixed costs, roughly 2.6% weighted interest rate on it, maturities on average out to 2030 plus. And so for us, it doesn't make sense to economically retire that debt early. We are committed to remaining investment grade, but we'll have to see, again, what happens from a pipeline perspective, what assets come available, what's sort of within our strike zone, and I wouldn't want to put a caveat on it one way or the other.

Do you have a target debt to EBITDA?

From what the credit agencies ask us, they're more in the low 3s is where they would ideally like to see us. But again, we remain committed to investment grade. We have active conversations with them about what our plans are. And so from that, I don't think there's anything there that's sort of "showstopper" for us that would prevent us from doing the things we want to do.

Got it. Well, with that, we're out of time. Thank you, Max.

Yes. Thanks, Dan. Appreciate it.

Thanks, everyone.