Revvity, Inc.

Hello and welcome to the Q3 2023 Revity Earnings Conference Call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. And I'll hand it over to your host, Steve Willoughby, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Revity's third quarter 2023 Earnings Conference Call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer, and Max Krakowiak, our Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone of the Safe Harbor Statements that we have outlined in our press release issued earlier this morning and also those in our SEC filings. Statements or comments made on this call may be forward-looking statements. which may include but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested due to a variety of factors which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any date after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good morning, everyone. REVITY has been built to help accelerate the advancement of human health through science, while also being able to execute at a high level through various macroeconomic conditions. This unique and differentiated profile is intended to help make a profound impact on the future of healthcare. and to insulate our performance during periods of macro pressure while still allowing us to capitalize when industry tailwinds are at our back. We and others are in the midst of one of those periods of macroeconomic and industry pressure. This is evident with the increased headwinds that we began to experience during the second quarter, which intensified during the most recent quarter. While we attempted to build some cushion into our assumptions should industry dynamics worsen, the level of increased challenges we faced from our pharma and biotech customers, particularly in September, was more than we anticipated. As a result, while our total company organic revenue grew by 1% in the quarter, we finished well below our mid-single-digit assumption from 90 days ago. Our lighter than expected revenue was driven by softness that occurred fairly late in the quarter. Given this last minute pressure, I'm very proud of our continued strong margin and earnings performance as the incremental headwinds in September left us very little time to try to properly manage our expenses. Our adjusted EPS in the quarter of $1.18 was still in line with the low end of our implied guidance, despite our revenues coming in meaningfully below our expectations. The downturn in demand from our pharma and biotech customers led our life sciences business declining in the low single digits organically in the quarter, which was below our low single digit growth expectation. The softer spending from pharma and biotech customers also put pressure on our applied genomics and genomic lab businesses within our diagnostic segment. While our sizable immunodiagnostics business performed extremely well and grew in the high teens overall, including high teens growth in China, the pressure from softer pharma spending impacting parts of this segment resulted in our overall diagnostics business growing 4% organically year-over-year in the quarter, excluding COVID, slightly below our mid- to high single-digit expectations. While Max will touch on this in more detail, we anticipate these end-market headwinds to continue through the fourth quarter, resulting in our non-COVID organic growth expected to be down in the mid-single digits year-over-year, which would bring our full year non-COVID organic growth to approximately 2%. As to when this industry downturn might dissipate, we do not have a crystal ball, but we remain confident as ever in the future potential of our industry and for Revity itself. As of right now, though, We are anticipating the pharma biotech headwinds persist into at least the first half of 24. There is currently a wide range of potential outcomes for next year, which is why we want to take the next few months to further evaluate underlying trends. This range of potential outcomes includes the possibility that organic growth could be in a similar range to what we are now expecting for this year. with the second half of the year likely being stronger than the first half. Given this current outlook, we will look to take additional cost actions heading into next year beyond the roughly $80 million of expenses we will have cut in 2023, since some favorable items from this year are not expected to repeat at the same level in 2024. With the heightened level of industry demand over the last few years now being followed by a subsequent correction, we are also currently analyzing our previously provided 2024 through 2026 midterm outlook to ensure it remains reflective of what we expect the business to be able to produce over that timeframe. We would expect this analysis to be completed by the end of this calendar year. While the future of our end markets remain bright and we expect global investment levels into science to rebound, we are certainly seeing more end market pressure than we had previously anticipated in some of our markets. As we've highlighted in the past, while we are likely more insulated from the macro and industry pressures than many of our peers, We are not immune to the current softer spending environment from pharma and biotech customers. Our ability to still post positive organic growth in the quarter, despite these headwinds, will likely stand out as earnings season continue to progress as we prudently manage those items that are fully within our control, particularly as it relates to our margins. While we persevered through this current market, I believe we are making good progress on coming together as Revity by focusing on our operational, commercial, and R&D priorities as a new company. This focus and progress sets us up very well to prosper in the future once this period is over. A few recent examples of this were the launch of two new in vivo imaging platforms. the IVIS Spectrum 2, and the Quantum GX3. These launches represent a nearly complete refresh of our market-leading in vivo imaging portfolio. The Quantum GX3, for example, with its market-leading resolution, allows us to now have a competitive solution for the bone market, which is a field we have not previously meaningfully participated in. It was also great to see our initial set of pinpoint base editing reagents debut following a recent first license of our technology to a major pharma customer earlier this year. These new reagents provide customers for the first time ready to use consumables to allow them to begin exploring the scientific potential of our novel base editing technology and its unique ability to perform complex and multi gene editing. Our ability to now offer these two customers is another proof point for how we are leading with science and working to democratize base editing technology for all. You may have also seen recently that we've entered into two new important commercial collaborations. First, We announced a collaboration with Element Biosciences to use their cutting-edge OVT sequencer system combined with our significant portfolio of sample prep instruments and consumables to jointly offer unique, complete NGS workflows. We expect this collaboration to initially focus on continuing to expand our NGS presence in newborn screening. Secondly, we also recently announced an agreement with Danaher's CyEx business to begin providing their mass specs in select markets as a new option to be used with our new base newborn screening reagents in our customers' workflows. By expanding the breadth of instruments we offer our customers in our newborn screening business, we are providing them a greater range of options to choose from that are fully supported by both companies. Both these recent collaborations are great examples of how we seek to provide our customers the most cutting-edge and efficient solutions, even if sometimes they may not fully reside within the four walls of gravity itself. Our recently released 2023 ESG report also highlights how we are having a meaningful impact on society. This year's report shows how we have dramatically expanded our environmental data collection efforts across the new company to provide us with an even more solid footing to build on in the years to come. Based on stakeholder feedback from our last materiality assessment, The report also highlights our continued focus on top employee issues and how we have introduced many new company policies targeting emerging topics such as bioethics, animal welfare, and sustainable procurement, amongst others. Finally, we have provided a new external ESG goal that we plan to pursue going forward. These include a 50% reduction in our scope one and two emissions over the next decade, maintaining greater than 40% of senior leadership roles held by females, and achieving a 75% or greater employee satisfaction rate. In closing, before handing it to Max, our industry is currently going through one of its most difficult periods in the last two decades. While this period is not enjoyable for anyone, I'm thankful for the transformation that has occurred at the company over the last three years, including our successful divestiture back in March. As I mentioned, we are not immune to the current pressures, but I think you will see that Revity has been built to perform better than most through macroeconomic environments, including tough ones like we are now in. We are focused on maintaining a strong relative margin profile and are making good progress on our operational, commercial, and R&D initiatives. We also have a strong balance sheet, which we believe will likely become an even greater asset to us in the coming quarters. I'm excited about our future and know we will come out of this period and even stronger and more efficient company than we are already today. With that, I'll now turn the call over to Max.