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

All right. Terrific. Welcome, day 2 of the TD Cowen Global Healthcare Conference, 46th Annual. I'm 55, so that's interesting. So really pleased to be with me on stage here with senior management of Revvity. We've got Prahlad Singh, President and CEO. So Prahlad welcome, and thank you for being here.

Thank you, Dan.

Terrific. So yes, I mean, as we started off, most of these, given the timing of this conference, 4Q wasn't that long ago and you offered '26 guidance. Maybe just hit upon what you thought the key takeaways were and kind of the message for '26 for Revvity.

Yes. I think for us, 4Q played out pretty well, both from an end market perspective and from a product execution perspective. On the diagnostics side, reproductive health, newborn screening especially did pretty well. On the immunodiagnostics side, ex China, immunodiagnostics did very well. Even on the China side, despite all the pressure, it did better than we had anticipated. And then I think for us, what the encouraging thing was to see pharma biotech continuing to stabilize, and that reflected to some extent in our results. But I think the one -- the thing for me that I took most positively was our performance and our execution all throughout the P&L, above the line, below the line, I think we executed very well. And that positions us pretty well for 2026. In early summer, I think it was late summer, early fall last year, and I think it was at TD Cowen when we came out at 2026 and talked about what 2026 would look like. We've sort of stuck with that in terms of organic growth. We've put a lot of cost measures in place, which started taking effect in the fourth quarter and will continue to do so in the first half of 2026, the impact of which we will see in the second half of 2026. And that's sort of one of the drivers of the outsized margin expansion opportunity for 2026. But I think more importantly, one aspect which has been probably missing from folks' mind is that we will still see outsized margin expansion performance in 2027, at least in the first half from the activities and the actions that we would have taken this year.

Okay. So this is a standard question we've been giving to most of your peers, and we'll give it to you in terms of the 2% to 3% guide, not the same as everyone, but kind of in the same ZIP code. You don't assume any change, which is maybe different than some others in the current underlying end market environment, right? So no change. We're just always looking at, given how far below your LRP this year is starting out, what are some of the key levers in the revenue outlook maybe that could provide upside to that number?

Yes. I think, Dan, if I can break that down into 2 components. One is when you look at our LRP, 70% of our portfolio is in our LRP, signals on the diagnostics side, reproductive health, immunodiagnostics ex China. I think the pharma biotech market is the one where we've made an assumption that it will continue to be stable. And I think that's sort of what is the 2% to 3% factor that we've played out in organic growth, along similar to what our peers have done. I think pharma biotech now needs to continue to improve and start seeing the growth trajectory that we expected to get to what would a normal market environment look like. All the signs are there, but we need to see the proof points for us to be able to then come out and say that now we expect normal market environment.

Okay. So maybe jumping off that then right in like some of your segments, which is a good segue. So LSS, Life Science Solutions, the growth outlook is something, I think, close to 1%, maybe after a similar negative decline of 1% last year. And you just mentioned the pharma market, you haven't assumed much of an improvement. But the preclinical outlook or the preclinical market has just been a weak spot, I think not just for you, but for other players, Techne and others. Just kind of help frame the preclinical spending. What will it take do you think for demand to inflect? I think you mentioned instruments got a little bit better, but maybe what are you seeing and what can drive it higher?

Yes. I mean I think if you look on the reagent side of the Life Sciences business, Dan, I think if I'm wrong, 4 out of 5 quarters, we've had positive growth. I think -- and then that has been, I would say, a differentiated performance versus our peer group. I think the challenge for us was on the platform side of the business where we were having negative growth. And that's where I think in the fourth quarter, we started seeing a good performance, and we continue to expect that to be better. And I think that's going to be one of the drivers because the more platforms that get out, the more pull-through you see on the reagent side of the business, and that's where we are going to see an impact. So I think the -- from, I would say, negative low single to positive low single is one driver of that, but that's what we've assumed in our baseline case in our guidance right now.

For reagents, I would assume, when things are humming, I forget what your Investor Day deck had probably 5% growth, I would think, maybe even high single digits. It's a pretty attractive portfolio. So those are -- even though it was positive, you're probably still well -- probably well below that. I guess maybe asked a different way then, you're saying once instruments really start to go, then you think instrument consumables will follow. Is that the way to think about it?

So maybe we start to -- we look at the -- what are the proof points and the green shoots or whatever adjective you want to use, right? Pharma biotech, I would say today, the market environment is stable. And then I think there's a lot more discussion going around. You are seeing funding coming in. You are seeing M&A activity improve. All of these are signs that the market is continuing to move from stable to growth. I think the uncertainty and the chaos around MFN, around tariffs and all of that has sort of subsided. And if you talk to me and our peers on the pharma biotech side, the mindset and the thought process is more around growth and investment right now rather than cutting and saving, I guess, is a way to think of it. And these are all positive signs that the growth will come to what normal looks like over the next few quarters. The question really is for us is to start actually seeing proof points of that coming to play. Right now, I think stable is good. And that's the way we sort of have played it out and guided accordingly.

And I'm sure there's no normal year anymore. But in a normal year, like with pharma, is there a cadence? Like we've heard in the past, pharma budgets are locked now and then we can start to -- they can start to spend. We're sitting here in the early March. Like is there any reason why we shouldn't start to see this in 1Q, 2Q building through the year? Or I guess, is there no real playbook to how pharma spends in a given year?

I think you will start seeing -- as confidence comes back and as you start seeing the cadence of this improving, I would expect that to improve over the next few quarters. Again, I'll qualify that we've got to start seeing that happen.

Okay. So on instruments, you've got areas across high-content screening, in vivo imaging, sample prep detection, right? Maybe just before we ask you a little bit about the drivers, just from a high level, how would you kind of characterize your position or outlook? I mean you don't have to go through each one of those. But just when you think of those 4 businesses, how should investors contemplate those businesses?

I think the way to think of it is that -- and we talked about this in the third and fourth quarter earnings calls, right? The high content screening business has started to come back and started to do well. I would say that the in vivo imaging, where we have a lot more reliance on academia and research, that's the one that still needs to come back to what normal would look like. But that's the way I would categorize the 2 different poles of it.

And the sample prep and detection, those are just smaller pieces.

Yes, those are smaller pieces and those are -- I would say those are not as differentiated as high content screening or in vivo is right.

Got it. Got it. And kind of the improvement you saw in high-content screening, any more color around that, GLP-1s, other things? Just kind of what was the driver there in terms of a bit of an improvement in 4Q?

I think all of the above. Obviously, GLP-1 is one. I think the M&A funding in biotech, as you get funding, you get more instrumentations being acquired. So there are several elements to it. And those are, to use the word, some of the green shoots that you start seeing.

Are those continuing in 1Q?

Yes. Yes. I mean, again, we don't give intra-quarter guidance, but I would say that the market continues to stay stable and as it was in 4Q.

Okay. Just maybe back to the reagent portfolio for a minute because I was front-running my own questions. We have a colleague here who follows Techne and we try to do work on the reagent market, and there's a bunch of different players there. So you each play a different part. Some of you serve academia more, some pharma more. Some are tied like to more certain products like flow cytometry. How would you characterize your competitive positioning there and kind of what supports that 9% to 11% LRP?

Yes. I mean even in, I would say, a depressed market over the past 8 quarters, if you were to look at it then, I think we've grown, as I said, 5 to 6 out of the 7 quarters, and we've clearly taken share because the market hasn't grown, and we've grown. So we've clearly taken share. I think there are 2 or 3 aspects to look at it. And this is despite the academia market where I think BioLegend plays a larger role despite that. And BioLegend has done, I think, differentiated itself well, taking some advantage of the disruption that has been in the marketplace. But I think more importantly, the portfolio that we have has a lot of stickiness to it. So once you get on to a GLP program, you are not going to be there only for a quarter or 2 quarters. That has a long cycle to it. And the more of these programs that we have gotten on to the more stickiness and the more predictability that you have for the reagents business.

And then maybe one more on that front, bringing my own question here. So I know your reagent kind of business is expected to be more like short cycle, right? So you kind of see it kind of quick. So maybe it's not instruments first. But just back to maybe one more question. You did grow, you grew 1% in '25. Like why do you think it's so far below? Is it just pharma and is it more academia? Is it more pharma? It just seems like it's such a gap, and it's not you alone in this front, but there is a reasonable size gap.

I think if you look at just the market and the whole market itself, as you pointed out, the end market has been depressed. And I think this is the longest negative cycle that we have seen for a long period of time. I mean, in my history, this is the longest period that we've seen. And there have been several sequential events, which have been positive factors for it, right? Whether it is the MFN status, whether it was initially coming out of COVID, CapEx, interest rates, inflation. But I think as we entered the fall of 2025 and as the uncertainty started subsiding and the chaos started coming back to what normal would look like post some of the White House meetings with some of our pharma biotech leaders, -- that has been probably the biggest inflection point to start seeing more stability in the market, more of a longer-term thinking around the investments that would happen in pharma biotech. I would say that was probably an indicator of markets getting back towards stability. Now it's not going to be a flip of a switch where it will turn over overnight, but I think we are starting to see signs of that.

Okay. So maybe moving over to software, which I know you've probably gotten a bunch of questions on, just given the volatility in that market from AI. Just maybe starting with Revvity Signals offering. And to what extent -- how would you frame the competitive risk from AI?

That question has not been asked today. To put it in the simplest form that I can, AI, Revvity Signals is a net beneficiary from the AI phenomenon. To put it very simply, the way to think of it is today, Revvity Signals is for matter of record, the platform that is used by preclinical scientists. That is where the experimentation happens. That is where data is housed and that is where analysis is done, right? On top of Revvity Signals suite, we have launched Xynthetica, which becomes sort of the gateway or the marketplace for using AI models, whether it is homegrown or from the pharma biotech partner or third party or from the public domain. Revvity Signals suite provides a secure and a regulated environment in which you can then use AI models to do drug design in silico, which can then transition on to lead candidates where you start then moving on to the wet lab side. So there is no better place to leverage the opportunity of AI than for our signals platform. And we could not be more differentiated than what the perception is versus what the truth is. And the best way to do is to do channel checks with our pharma biotech partners and see where and what they are using today and what they anticipate to use it for.

So is there any pricing element to Revvity Signals such that like the way the product is priced like there is a premium price attributed not just to what it does, but from the analysis that could be placed on top of it. So if there's AI software that could come on top of it, maybe it would kind of lessen maybe the value of how you price it. I'm just trying to think out loud about.

Yes. I mean I think, obviously, on the AI side, it's going to be a different pricing model with tokens that you would be using. But essentially, to be able to do that, you would have to have a license to Revvity signals. So I think step one to think of it is no different than SAP or Oracle, where you have an ERP system that you have a license, you buy a number of licenses for. And that's what 49 of the 50 pharma biotech companies have today. And then that, again, as I say, that provides the ecosystem in which research is done and where you would leverage the opportunity that AI brings to do that research in a federated model in a secure environment.

So obviously, you've got a deep software team at Revvity. How much work have you guys done just to pressure test that there's like your thesis and your view here, I mean there's no holes in it.

We do user groups, as I have said at your conferences and many others, we do user groups with our scientists 3 times a year. This year is our biggest launch in the history of the Signals business where we've got 3 product launches coming out. Each one of them in its own would be probably one of the biggest launches for Signals. But with BioDesign, with which we sort of move on to the biomolecule side with Xynthetica, which provides the platform for what we are doing and with LabGistics, which comes out towards the end of the year. We have the elements that are needed to continue to see the validation and verification for the Signals business. The user group that we have from our customers, they provide the needs that they have for their use. So it's not that we are doing any of this in isolation to what the marketplace's need is.

When will Xynthetica have the full launch?

I would say that probably towards the end of the year or early '27, but we are -- we announced it in December, January time frame. I think we are going to do probably June, July is when it will come out in collaboration with Lilly where we would have the first launch. And then the full launch would probably be towards the end of the year or '27, early '27...

Maybe just one more back to AI risk before we go back to Xynthetica and BioDesign. So what about like Signal Synergy and Signals Clinical? Are those as immune to any kind of AI? I mean, are they exactly incorporated what you're saying on the core signals? Or are those adjacent that could have some risk?

Again, they are modules on the Signals suite portfolio. So they in isolation themselves, they are not big needle movers. So it's not going to be impacted one way or the other, but they are more of an offering that is part of the whole Signals suite.

Okay. So how would you frame Xynthetica? Like what's the -- I mean, we'll find out more as the year goes on into '27. But what's the -- I mean, is there any way to frame what this could mean for the business?

I mean, maybe I can say this for the Signals business as a whole. In the next 5 years, if the Signals business has not doubled, we've not done our job. And a big key component of that is the Xynthetica platform because that essentially becomes the marketplace on which the AI opportunity sort of takes life.

Okay. How about BioDesign? Like what do we think about that product?

Yes. I mean, look, that has been a gap in our portfolio. And with our customers, one of the user group requirements has been that you've got to do on the bio side, on the biomolecule side, what you have done on the small molecule side. So it has been in a gap in our portfolio. And some of our esteemed competitors had a lead on that. And I think that is filling a gap in what we needed to do that.

So you felt it could be one of like that on its own would be a meaningful launch. Is a meaningful launch like a point of growth or what?

It is definitely, I would say, a major NPI launch on its own because it sort of meets a critical need for our customers, which we did not have in our portfolio.

Is there a revenue size of that market?

Generally, most of the -- if you look at most of the NPIs that launch, the way I would frame or quantify the opportunities with this NPI, these NPIs is I would say these are the key elements that will double the business in the next 5 years. Rather than break them out, what BioDesign would do or what logistics would do.

I got it. Okay. So maybe switching gears off software then. Just maybe ImmunoDx really did well ex China or it's been doing well ex China. Just kind of where are we? I know the -- you gave color on the U.S. business. U.S. business has been -- it's been growing a lot. It's been kind of -- I know it's still not a huge part of your business, but it's done well. Just maybe give some color on that part of the business and what kind of growth we can expect there?

Yes. I think U.S. will be an outsized portion of the growth for the immune diagnostics business ex China. When we acquired EUROIMMUN, it was -- U.S. was 5% of total revenue. It's now about 20% of total revenue. Rightfully, the share of it is 40% should be what it should be. So I think it needs to double from where it is today is the way to think of it.

Who do you take share from there? Is it just older, less -- kind of less accurate tests...

I think it's an element of all of the above. One, there is a need. Autoimmune disease itself, testing for it is growing in high single digits. So that itself is a big driver of it. The portfolio that the more comprehensive panels that we bring in sort of takes a market from whether it's other LDTs or homegrown tests or more inaccurate tests.

Okay. Maybe just on China. I mean, I'm sure you got a lot of...

Sorry. Just to complete 2 more elements of it. And as autoimmune moves forward, the expansion into more, I would say, esoteric testing for autoimmune disease, whether it's on neuro autoimmune diseases or nephrology, those are areas that are still uncharted and unexplored territories where we are finding that a lot of the diseases that come out of it are more autoimmune related, which have not been tested before. So these becomes really key markers for growth there.

Okay. Yes, I was just kind of hitting on the China growth, which you kind of took down your guide for conservatism. You said you're not seeing anything. So just kind of discuss that a little bit more, like the reduction in the guide and kind of what was kind of what drove that?

Yes. I mean China today is immunodiagnostics is about 5% or slightly lower than that as part of the total business. I would say that as we look forward, our assumption is it's not going to go above 5%. If anything, it's going to go below. Look, our assumption on China diagnostics is -- immunodiagnostics is we've assumed in our guidance that it's going to go down in the mid-20s or so, right? I mean it did better than anticipated in the fourth quarter. However, from a guidance perspective, we've tried to be conservative enough that we are able to manage it in case of unforeseen policy changes that might happen.

And is there anything because I know in December, there was some noise and -- is there anything that you see possibly on the horizon that led to that? Or is it?

No. I mean, there was some noise, as you pointed out in December. But I think that -- if that were to play out, that would be more towards the health care providers than through manufacturers. But from our perspective, we've tried to sort of calibrate our guidance so that we learned a lesson from last year, I guess.

Maybe just a question I didn't write down here, but maybe just zooming out for a second before we hit reproductive health and then go to the P&L. Just in terms of the targets that you guys set, just kind of remind us like what's the way like management compensation is set? Like what are the targets? Is it 3-year targets, 1-year targets? How do we think about growth rates? Is it on organic growth? Is it on margins? Just can you provide some color?

So I think -- and it's out there in the proxy for us, it's around organic growth. It's around operating margin expansion and around cash flow conversion. Those are the 3 elements that we are compensated on.

Yes. And is usually 1-year targets or 3-year target?

Well, 3-year targets. The long-term incentive plan is 3 years.

Got it. Got it. What's a 3-year target...

You got to go look it up in the proxy.

All right. Okay. So maybe just on reproductive health. Gel, we assume -- I think you've guided for this, right? I mean, $13 million of gel contribution across the first 3 quarters. Is there like tremendous visibility in that? Is that in the bank? Or is there -- is there any uncertainty around that contribution?

No, there is no uncertainty around the gel component of it. But I think overall, you've got to look at the reproductive health business and more importantly, on the newborn screening business. That business has had outsized growth. And it continues to do very well despite birth rates being depressed in most of the developed markets. And that is a direct correlation of a geographic expansion that we've seen and the new disorders that we are launching. And we've got 2 new disorders that just got approved by the HHS. And as we are bringing those into the market through the regulatory bodies, that business is very well positioned to grow at the same rate that it has grown. And that's one of the drivers, Dan, that in terms of what we have in our LRP versus how we've done, it has had disproportionate growth.

Yes. No, it's run well above your LRP for sure. I mean right now... Yes. Okay. So maybe just to ask or talk about the Sanofi partnership a little bit on early detection of type 1. And is that like a nice incremental driver? Just could that actually show up in the numbers?

I think the way to think of it is it's a greenfield, right? It's a new territory. Today, the way a child -- you detect a child has juvenile diabetes or Type 1 diabetes as if there is an event. And that's pretty devastating to parents. I think Sanofi with Tzield has the first approved drug that delays the onset of juvenile diabetes. But you can only give the drug if you know that a child has Type 1 diabetes. And that's where screening plays a very important role. And the partnership with Sanofi is exactly that, that we develop companion diagnostic along with them that allows to identify kids through a screening program as to who has Type 1 diabetes. And in some progressive countries, Italy being an example, that have implemented that as a mass screening for all kids. And I think you will see that over the next few years, that is going to be adopted by other countries and hopefully, the United States where I think it's whatever another word for criminal is, is to not test kids for a simple screening that allows you to know whether your child has Type 1 diabetes or not.

Okay. So maybe before I hit the P&L, maybe just zooming out, you bought back 15 million shares of stock over the last 2.5 years. Talk a little bit about -- you're -- obviously, you're very positive on your stock price. But talk about cap allocation, talk about maybe M&A, talk about like -- that's a meaningful amount and kind of what you do from here?

Yes. Look, I think if we had the opportunity, we'll continue to be opportunistic in share buyback. I think there is no better opportunity for us than to put our money towards buying our shares. We do have a EUR 500 million bond, which is due in July. So our focus is on paying that back. But as you pointed out, we've bought back 12% of our shares. And I think our focus right now, if we are to do deals, they will be more like the ACD/Labs deal that we did on the Signal side of the business and more bolt-on acquisitions. I think we are very acquisitive, as you know, since I've joined the company, I have deployed nearly $10 billion in M&A towards mergers and acquisition and divestiture of PerkinElmer. So we are not shy of being acquisitive, but I think it has to make strategic sense and financial sense both for us to be able to want to do a deal.

Right now, it's more bolt-ons is what you're seeing today.

Right now, we are going to -- I mean, right now, our focus is on, a, paying back the debt and continuing to be opportunistic on -- there are no gaps in our portfolio. I think we've gone through the journey of portfolio transformation. We are very happy with what we have. But if there's something that makes sense strategically, we will look at it.

So what's the market missing then? You're buying back your stock hand over fist and you're saying it's the best value you see for your -- for cash, stock trades at -- it's not a super low multiple, but it's one of the lower multiples kind of in that peer group. So what's the market missing?

Yes, I think we are still a proven story. Revvity is a, I would say, 15-quarter company. PerkinElmer was an 80-year company, but Revvity is not. 65% of our revenue was nonexistent 5 years ago, 7 years ago. So I think we've got to be able to put the proof points. But let me give you an example of what we've done in 2025. We came out at the beginning of '25, we said we would be 3% to 5% organic growth, $4.90 to $5 in EPS, right? We had tariffs hit. We had China immunodiagnostics. We had NIH funding issues. You can go down the litany of items that hit all of us. We still grew 3% in that market environment. We beat our EPS guidance by $0.06. Yes, we had some benefit from below-the-line items. But I think we showed exemplary performance in terms of how we executed on things that were in our control from all across the P&L, top to bottom, and we are really proud of it. And I think that is the differentiated performance you will see. We just need to see the market come back to somewhat of a normal environment for us to be able to prove the value and the strength of the portfolio that we have assembled together. That's the opportunity that we are looking for and waiting for.

Maybe just -- we have a minute left, I want to jump into a margin question. I know I kind of front ran the ending. But just back to gel for one moment, right? So as you articulated -- excuse me, reproductive health was growing that mid-single-digit rate. That was above your LRP, and that's kind of -- we model 2% to 3% in '26. So the mid-single-digit growth rate, you said it was outpacing birth rates. Is there a chance to can sustain mid-single this year above the kind of 2% to 4% that I think or 2% to 3% where the Street is?

I don't know what we've said, but I would say that you see he's shaking his head in the right direction. So the answer is, yes.

That you could grow above that rate. Yes. Okay. That sounds good. Okay. So maybe final question. We talked about just a moment ago, like you need to see the recovery. I don't know, like what's something in 2026, if we look back that will one or two things you think that will not surprise, but will be key for how Revvity does?

I think the things that have been in our control and execution. I'll give you the opportunity around the margin story, right? There has been some skepticism that the margin expansion from Q1 to Q4 is large. But typically, the revenue difference between Q1 and Q4 is $100 million. So that itself accounts for 600 bps of margin expansion, right? We have a $10 million cost aspect in Q1, which is because of the extra week, which won't be there in Q4. So that adds another element to it. The cost initiatives that we have put forth in Q1 -- Q4 and Q3 and that are also ongoing in the first and the second quarter of this year will have a $20 million impact in the second half of the year and in Q4, but more importantly, also in the first half of '27. So we've got a clear line of sight to the margin expansion opportunities in Q4 to hit 28% a year. I don't think that story is fully understood. And I think what is still not understood is that you will also see the benefit of that in the first half of second year. So we are going to have 2 years of outsized margin expansion performance by the company. I think we just need to go through and demonstrate that to the Street.

Terrific. Well, that's a great way to end it. So thank you for being here, and I hope you guys have a great rest of the day.