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

All right. Great. Welcome, everybody. Today, we have Prahlad Singh, CEO of Revvity. And maybe I'll just let you start. I mean, you did announce a small tuck-in acquisition this morning. Maybe I'll let you kind of explain what you bought, how it fits in your portfolio and maybe what it let you do that you couldn't do prior.

Yes. Good morning, Evan. Thank you for inviting us. I think as we've talked about, Human Cell Design is a great tuck-in acquisition for our reagents business, and it fits perfectly well with what we've talking about how our reagents business has been doing good on the preclinical stage. As you go from preclinical to clinical, you go through looking at tissue culture, cell culture, cell lines and human cell designs that are as close to looking at humans possible. And going through this process, the Human Cell Design portfolio fits very well in our reagents business, and I think it will be a great tuck-in acquisition.

Great. So H 2Q, it sounds like things are generally in line with expectations. Life Sciences, maybe a little bit weaker than expected, stronger in Dx, but you also had some -- I think you also had some I guess you weren't able to fully meet demand on some of your high-content screening. So maybe just walk us through the quarter and how it played out versus expectations.

Yes. I think 2Q, as we've talked about on the earnings call, it played out pretty much as we expected. I think as you said, Diagnostics did slightly better than what we had, both reproductive health had a great quarter. Immunodiagnostic did very well. On the Life Sciences side, software was as expected as we had forecasted. Instruments on the platform side, we've got a very strong backlog. And on the reagent side, we were low single-digit growth. So it's pretty much played out with a little bit of nuance up and down here and there, but pretty much along what we had thought it would do.

Great. Okay. I mean going into pharma biotech, I think it was down mid-single digits. positive ex software. I mean the commentary did seem to be a little bit more optimistic, I think, than -- or constructive than it has been in the past. Are you seeing that the -- that you're having conversation with customers and where the budgets are actually turning into orders? And is this revenue -- is more likely to impact later this year or more into '27?

Yes. I think pharma biotech, the phenomenon has not been just from the last quarter. I think I would say there was a lot of uncertainty last year that carried into 2025 that came from a bunch of issues, whether it was tariffs in, tariffs out. I think for us, what we use as a marker is the meeting of Pfizer at the White House sort of was somehow a key point in the turn and then brought certainty into the investments and the spending and then sort of it brought through a start of the resurgence of pharma biotech after a prolonged period of time. And I think the calming down of the chaos allowed for pharma biotech customers to start planning and reinvesting back to what pretty much normal should look like. And I think we've seen that continuously over the past several quarters where the investment in pharma biotech is gradually coming back to what normal should look like. And then I think it's going to continue to play out, especially now with the sort of resurgence and or the engagement that we are seeing with new modalities and technologies such as AI playing a role. So that is adding an added resurgence to the end market.

Helpful. And we just have Bruker up here. And I figured I'd ask you this too because you guys talk a lot about AI. They made a comment that they think that AI spending has likely impacted to some extent, normal spending on life science tools, your more traditional life science tools.

Do you sign on to that?

Maybe it's not your high-content screening, maybe other parts of your portfolio where there's just been a reallocation of resources maybe this year that will translate into more demand maybe for your tools next year or '28 as they look to train their models that they've been.

Yes, we don't believe so. I mean from our perspective, I think the pharma biotech end market coming back to normal was more of a consequence of the calming down of the chaos and uncertainty and the reinvestment back because you've got to have investment in preclinical and you've got to have the innovation because of all the patent cliff issues that the pharma biotech companies are facing. So from our point of view, we see that as more of a normal course of investment coming back. I think the AI component is not taking money out from left pocket and putting it in right pocket. I think it's incremental investment that is going to go on and is the beginning of it to accelerate drug discovery and development. And I think this is -- as we've talked about, if you go back and listen to what we -- Max, Steve and I have been talking about from the beginning of this year at investor conferences in our 1Q call and our second quarter call as to how this is playing out. And it pretty much is playing out as we had hoped and forecasted.

That's great because no one's been able to forecast. makes me even more impressive. But you're right, you guys -- like I said earlier, you guys have been talking about this and kind of leading the discussion, I think, within the life science tools space. So it's nice to see it kind of play out. I mean, sticking with that theme, high content screening was a really big part of the conversation on the 2Q call, I spent a lot of time on it. Maybe talk about how big that business is for you right now? What the funnel looks like there? I know you -- like we talked about earlier, you did have some capacity constraints, which I believe are just are pretty easily fixed by just adding more people. But yes, just tell us about what your -- what the funnel looks like there and maybe what that -- down the line, what that could potentially mean for reagents pulling through?

Yes. I mean, obviously, high content screening is a significant part of our platform business. It used to be around 25% or 1/4 of the business. And I think now it's about 1/3 of it. It's increased to about 1/3 of the business. High content screening, obviously, is critical as you look at drug candidates as to what the impact or what the effect it's having at the cellular level. And I think with the sensitivity that we bring to it, there is a significant amount of data, terabytes of data that are generated from it. And why it plays an important role now more specifically is with the advent of new technology, our high-content screening platforms would generate a lot of data. But basically, from a scientist perspective, they were only focused on looking at the kill, non-kill ratio essentially where the impact is having at the cellular level or not. But there's also a lot of incremental data, which they were not being able to leverage. Now with AI, they are able to leverage. And I think this is where we have started seeing a big funnel and pipeline coming Simultaneously, at the same time, a lot of companies are starting to build LLM models around these, right, trying to see as to how could we build models that would allow for faster screening of drug candidates. And this is where you are starting to -- we are starting to see more of a funnel and pipeline coming from nontraditional companies, right, companies that are, a, in the public domain generating data for LLM models, CROs and of course, the traditional pharma biotech customers.

Helpful. Like we said, I mean, you guys have been talking about AI since early part of this year. But even still, it did feel like there was sort of a sudden change in terms of that really inflecting and coming through on the P&L. So why do you think 2Q was kind of the moment that this idea actually turned into orders and revenues for you?

Yes. I mean I appreciate that sort of the impact that was -- you were saying is sudden. But in our -- when we look at it through our lens, it was really pretty mapped out. I think, as I said, when we started talking about that this could potentially have an impact at the beginning of the year, there was some signs of it coming from our account managers and people in the field who were seeing more interest from traditional and nontraditional customers and inquiries coming in. In my -- if you go back and listen to my 1Q earnings call, we actually spent about 10, 15 minutes talking about as to how this could potentially play a role in drug discovery. And then when we came to the second quarter, we actually started seeing that in concrete evidence in terms of it translate those inquiries translating it into orders. And I think the resurgence was strong enough that these instruments, each one of them take about 10 to 12 weeks to make. So these are pretty complex instruments. So that's why you are sort of we saw more of a funnel which was big enough that we ended up with a stronger backlog than we have seen, I don't know, maybe even before COVID.

When we think about your broader portfolio, are there -- I mean we talk a lot about high-content screening, but are there other parts, maybe on the instrument side or elsewhere that we should be thinking about AI demand being a future driver?

Yes. I mean we talk a lot about high-content screening, a, because of the sophistication of the instruments, and these are close to $1 million each, right? So they are big ticket items. But I think if you look at it from a drug discovery perspective, right, a researcher is looking at tissue, cell, in vivo, human cells, designs. So sort of our focus has been how do we build a platform portfolio and then back it up with the reagents that those platforms will need so that you have the razor-razor blade model going on. So you've got the high-content screening platform. You've got in vivo imaging, which still plays a very important role. And on the reagent side, we've got now a full suite of portfolio, which we will continue to build on similar to the acquisition that we did today that would allow us to sort of have the benefit of placing all these equipment today.

Got you. I mean just something came to me. Is there a reason that your high content screen, why is it open versus -- or would there be a benefit to having it so that like you have Illumina sequencer, you have to use this consumed -- I mean, is there a reason not to try to close it and have it be -- you have to use Revvity consumables and that's just -- or no. What is the thinking there?

I mean on the diagnostics side, it tends to be closed. We have closed systems simply because you have to go through the regulatory hurdle of getting approval on the whole workflow. Our belief is that we work with researchers hand-in-hand. As I've said this publicly, if you go to most labs, you will be -- you'll have a tough time differentiating who is a Revvity employee and who is a bench researcher from the institute. And then we don't want to encumber or force our customers to only use our reagents. We think that the merit of our instruments and our reagents stand by itself. And I think our goal is how do we build a workflow, full workflow that is convenient and easy for researchers to use. And then I think we -- both of them stand independently on the merit of their own basis.

Okay. Maybe going to A&G. I mean, I guess -- I mean, results there ex software, I think it was pretty similar to pharma biotech and I think up low single digits. I mean, is this -- how much of this was driven by like ex U.S.? How much of this was U.S. And kind of any interesting tidbits you might be able to add around the A&G market?

Yes. I think the A&G market is still not what we would call back to fully normal. I think there is a level of stability there, but it's still not what we would consider it to be normal under circumstances. There is a level of uncertainty in academicians as to what the impact could potentially be or what else could come through. I would say it's a bit more stable in Europe than in the U.S., if I were to differentiate it by geography. I would say A&G is probably a bit more stable in Europe than the U.S.

Helpful. Maybe turning to software. Like you said, came in as expected, down 20% on a tough comp. up mid-single digits for the full year, which I think is kind of below -- I think you have been doing strong double digits the past couple of years. But the good news is the APV is low double digits. And so is that how we should be thinking about the business in the medium to longer term? Is this is a low double-digit growing business?

Yes. I mean that's what we have it in our LRP, and it's done better than that. I think we have it at 9% to 11%, if I'm not wrong, in the LRP, and it's grown 12% to 13%. So it's done better than what we have said. I think given that the majority of our software business is still on-prem, you're going to continue to have these lumpiness quarter-by-quarter. But as you pointed out, Evan, if you look at the annual portfolio value, which is one way to look at what's the average revenue growth over a period, that business has done -- the APV has been double digits. Just to give an example, it grew 19% last year. And if you were to take 5% this year, it averages out to 12% over 2 years, which also happens to be the APV of the Signals business. But I think more importantly, if you look at our Signals business, 2026 is the launch of some of the most important NPIs in the history of that business. We launched BioDesign at the beginning of the year, Xynthetica. We are in the process of getting Signals AI out, and it's been just recently launched. And we've got LabGistics coming out, which is a key AI-based workflow. With these 4 key launches, I think the growth of the Signals business has just started. And then that's what I have said over the past couple of years. All the investment that we've made into the Signals business during the pandemic and from then on, is going to pay off now over the next few years with the launch of these key NPIs.

Got you. And maybe adding to that, I mean, these new products that you're introducing on the software side, I believe, are all SaaS only. And so as you -- can you kind of tell us where are we in the journey of going from on-prem to SaaS? And then with these new products, if I'm correct, being SaaS only, is kind of the goal? Or do you think this is ultimately like 100% SaaS? And kind of what's the trajectory to be getting there?

Yes. I think we are somewhere between 32% to 34% SaaS right now. I mean, I think we will probably end up around 60 -- in the mid-60s in terms of what this business will be in SaaS. I think there will be always a component of our customers base for the signals business that will be on-prem, either for regulatory reasons or for in-country security reasons. So I think that's the assumption that I would make.

Okay. But is that true that all the new products are SaaS only?

All the new products are SaaS. And then I think that also gives us an opportunity for incremental ways to look at revenue growth, whether it's through -- as AI comes into play, whether it's through computing or through storage, it just gives us incremental revenue opportunities as we look at it right?

ImmunoDx, I think it just hasn't been getting a lot of attention because it's been doing so well. I mean I think high single digits has been growing. I mean is this -- LRP is 9% to 11% also, I believe. Is -- when -- I mean, do you think we can get to those -- the low double digits in this business? And what's kind of been helping drive the strength there?

Yes. I mean I think, look, we are very happy with the immunodiagnostics business. And as I said, when we acquired this company in 2017, since then, as you pointed out, it's been humming along at a pretty good rate. I think the -- as I've said, the key for immunodiagnostics is autoimmune testing, in my view, is still in its nascency. I mean it's still not in mainstream clinical medicine. You still have to grow through several hoops before you are able to see an autoimmune specialist. And I think that will continue to drive growth, especially as you move from standard ANA screening to looking at specific disease areas around neurology or nephrology. There's a lot of undiscovered territory here, which is protected by IP, and that provides the opportunity for this -- the business to grow at what it has been growing. Ex China, it has grown in double digits. I think we are very happy with that growth. So I'm not sure I'm going to push that team to continue to do a lot more. If they can continue to keep the pace of 10% growth, I would be very happy.

Got you. I mean you said ex China. So what has China been doing in ImmunoDx? And then where -- when do we kind of lap those headwinds?