Revvity, Inc.

Hello and welcome to today's Reverty Inc Q4 2023 earnings conference call. My name is Bailey and I will be the moderator for today's call. All lines will be muted during the presentation portion with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by the number one on your telephone keypad. I'd now like to pass the conference over to our host today, Steve Willoughby, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Revity's fourth 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'd 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, Kralad Singh. Kralad?

Thank you, Steve, and good morning, everyone. As we highlighted in our pre-announcement a few weeks ago, while industry headwinds continued throughout the end of the year, we were able to perform slightly better than we had anticipated and finish the fourth quarter with a 3% decline in non-COVID organic revenue. While Max will provide more details on the quarter in a bit, I would say that our stronger than anticipated results were broad-based as both our life sciences and diagnostic segments performed better than expected. I would also highlight that our performance was well-balanced geographically as each major region performed in line to slightly above what we had assumed. We also did a good job continuing to tightly control our expenses in light of the challenging environment that persisted through year end. And along with some favorable one-time tax benefits, helped deliver additional EPS upside in the fourth quarter. We also had a very strong cash flow in the quarter with nearly $200 million of free cash flow while continuing to execute on our capital deployment initiatives. For the full year 2023, we generated 2% non-COVID organic growth. While not what we hoped for at the start of the year, I think you will see that our performance was differentiated versus the broader industry and likely will be near the high end of the peer set for the year once the dust fully settles. We expect this differentiated financial performance to continue going forward. As demonstrated in the new financial framework we recently provided for our expected performance over the coming years. As part of this new long-range outlook, we now expect Revity's organic revenue growth to be 200 basis points above the broader industry, regardless of the macro environment. In a normal year, we would expect this to result in 6% to 8% organic growth and 75 basis points of operating margin expansion annually. In the post-COVID world we all now operate in, we anticipate this level of growth will result in performance that continues to be at the high end of our industry overall. As we highlighted during a recent investor conference, we expect approximately 60% of our business that is comprised of immunodiagnostics, life sciences reagents, and our signal software business to grow in the 9% to 11% range over the coming years, generating mid-single-digit growth on their own for the total company. Given the stronger profitability of these segments, as they continue to grow faster than the remainder of the business, we expect it to result in natural margin expansion as they become an increasingly larger piece of the overall company over time. Brevity is extremely well positioned to capitalize on some of the most exciting areas of pharmaceutical research and development, such as cell and gene therapy, multiomics, and precision medicine. We are also involved in some of the most durable, higher growth areas within clinical diagnostics, such as autoimmunity, tuberculosis, and other emerging infectious diseases. With what our company has become over the last several years and where we are planning on going in the future, I think you will see that Revity will continue to stand out as a very unique company. We have a differentiated approach with our customers, a competitive and novel product portfolio with continuous innovation, and a unique position within the attractive life sciences and diagnostic categories in which we compete. A good example of this in the fourth quarter was the launch of our IonisQ system in our newborn screening business. The IonisQ system is a first-of-its-kind workflow which streamlines molecular testing for both spinal muscular atrophy and SCID in newborns. It is a new and complete CIBD solution which consists of a new PCR equipment with dedicated software and a specialized diagnostics kit. With no wash steps being needed in the new workflow, it results in a significantly faster turnaround time and less hands-on involvement from sample to answer than existing methods. This allows for lower operating costs and greater sustainability, as fewer consumables and plastic ware are required. The introduction of this innovative solution is also perfectly timed from a commercial perspective. As the European Alliance for Newborn Screening in Spinal Muscular Atrophy mandates that by 2025, all newborns in Europe should be screened for SMA going forward. Our new IonisQ system is just one example of how we are continuing to bring cutting-edge and innovative solutions to market from across the company, benefiting both our customers and ultimately the patients they serve. We have also been making good progress on our operational initiatives. A good example of this is the launch of our new e-commerce platform, which went live in the US in mid-December, approximately five to six months earlier than we anticipated. The platform's integrated design was built specifically for the needs of what our business has become. It is expected to be extremely consumer-friendly while also over time delivering both revenue and operating synergies. We expect this new system to go live outside the U.S. in early 2Q. Another thing I'm extremely proud to see is the strong collaboration that is occurring amongst our teams across the company. A great example of this was how last year we had a sole source antibody supplier for one of our diagnostics assays begin to have quality inconsistencies in their batches. Through the rapid collaboration amongst scientists from Euroimmune, BioLegend, and Horizon, within nine weeks, we had developed our own replacement antibody, validated it, and were able to manufacture it in sufficient scale for commercial use. The ability and agility would never have been possible in the company of the past, and I'm not sure it would be possible at most companies today other than Revity. As we look ahead to this year, we expect the ongoing headwinds from our pharma and biotech customers to continue, particularly in the first half of the year, as they still are working through the impact from their elevated spending levels during the COVID years. We are assuming this pressure will begin to stabilize in the back half of the year when we are anticipating returning to growth for the company overall. In light of the dynamic end market challenges continuing into 2024, as well as the return of some of the variable costs that we reduced in 2023, we have recently implemented additional structural cost actions to protect our strong profitability through this temporary period. We anticipate these actions will allow for our operating margins to remain approximately flat year-over-year at 28% this year. Despite the low single-digit organic growth we expect to repeat into 2024. We expect this to result in our 2024 adjusted EPS to be in the range of $4.55 to $4.75. With our significant number of acquisitions over the past several years coupled with the large divestiture we completed in early 2023, we still have many areas to further optimize in order to reach our full potential as a company. The significant actions we took in 2023 combined with the additional measures being implemented as we begin 2024, have put us on a good trajectory to further streamline and adjust our operations for the business we have now become. It also strongly positions us to capitalize on the leverage potential that exists in our company once industry growth normalizes. Overall, when looking back on 2023, I'd say it certainly ended up playing out quite differently than we had anticipated when sitting here a year ago. However, I'm so proud of the transformation that we have undergone over the past few years, which we ultimately completed last year. While we are continuing to face external challenges, I'm extremely grateful for what Revity has become and the significant efforts of so many who have made it come to fruition. Without everyone's efforts and the rebirth of the company, our differentiated performance in 2023 would not have been possible. We remain confident that we will emerge from this temporary period of industry headwinds as a unique and stronger company that remains well positioned to help expand the boundaries of human potential through science. With that, I'll now turn the call over to Max.