Revvity, Inc.

Hello and welcome to the Q1 2024 REVITY earnings conference call. My name is Carla and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, Steve Willoughby to begin. Steve, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to REVITY's first quarter 2024 earnings conference call. On the call with me today are Prahlad Singh, our president and chief executive officer, and Max Grykowiak, our senior vice president and chief financial officer. I'd like to remind you of our safe harbor statements 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 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?

Thanks, Steve, and good morning, everyone. Following the company's transformation over the last several years, Today marks the fourth quarter that we have reported our results as Revity. And in two weeks, I look forward to celebrating with my colleagues the one-year anniversary of our new company unveiling. I'm proud to look back on all that we have accomplished in such a short period of time, and I'm excited to continue to build on the great progress we have been making towards reaching our ultimate potential. We were extremely active during the first few months of the year as the team hit the ground running on a number of key initiatives on which I thought I would provide some more insight this morning. First, from a market perspective, while we have begun to have more constructive conversations with our pharma and biotech customers over the last 45 to 60 days, their actual spending has not yet begun to meaningfully pick back up. So while it is promising to see continued stability, and there are a couple of potential trends on the horizon which could turn into tailwinds, given we have yet to see a meaningful inflection in actual order trends, we are currently maintaining our outlook for the remainder of the year. Revit's uniqueness was on display in the first quarter as our diagnostic businesses have continued to remain strong and perform well. Our immunodiagnostics franchise, which is by far the largest piece of our diagnostics segment, grew in the low double digits in the quarter. Our newborn screening business also continued to perform well with mid-single-digit growth overall, including double-digit growth outside of China. This helped to offset the significant declines that occurred as we had anticipated in our applied genomics business. The combination of these market environments led our performance overall to be better than we had anticipated, with our organic revenue declining 3% ahead of our mid-single-digit decline expectation. Given the trends we experienced over the last few months of 2023, which continued into this we entered 2024 accelerating our efforts to eliminate stranded costs from our recent transformation and offset the return of variable expenses which were reduced last year. These cost containment efforts continued through the first quarter and will help us further optimize the organization moving forward. Our newly formed enterprise operations team is making good progress on leading a number of initiatives to further streamline our business in the near term, while also setting us up to capitalize on more significant internal opportunities over the coming years, such as footprint consolidation, logistics optimization, vendor consolidation, and several very intriguing insourcing opportunities. Secondly, as part of this concerted effort to reach our full potential as quickly as possible, earlier this month, we realigned the management of a few of our business units. As part of these changes, I'm pleased to announce that Gene Lei, the founder of BioLegend, has now become the head of our overall life sciences segment. As we have mentioned in the past, we have intentionally taken a more flexible approach to the integration of our acquisitions in order to benefit from the strengths and the opportunities each of them uniquely provides. With this change, we have cemented the reverse integration process we have been working through in our life sciences business since we acquired BioLegend two years ago. This change in leadership is part of a broader streamlining of my direct organization and builds on the recently completed successful integrations of several acquisitions, including IDS, Oxford Immunotech, and Nexelon. With these changes, we are now poised for tremendous internal collaboration, and the company will be in an even stronger position to drive key initiatives going forward, including aggressively bringing new innovations to market capitalizing on new go-to-market opportunities, making consistent progress on our key areas of operational focus, and advantageously deploying capital both internally and externally. For example, these organizational changes are intended to build an even stronger connection between our life sciences, gravity omics, and diagnostics businesses. I look forward to continuing the invaluable partnership Jean and I already have built, as well as seeing the further progress that I expect will come from this evolution. From a financial standpoint, a strong focus on expense management during this current period of softer market conditions led our adjusted operating margins in the first quarter to be 25.5%. which is approximately 100 basis points above our expectations. We are making good progress in a number of areas, and I expect our margins in both our diagnostics and life sciences segments will continue to improve over the remainder of the year. The improvement in our diagnostics margins will be a key factor in the years to come, as we look to achieve our 75 basis points of annual margin expansion once organic revenue growth normalizes. Despite already having near industry-leading operating margins for the company overall, in just our first year as Revity, it has been great to see the successful impact our actions over the last few quarters are already having. and confident in our ability to drive additional margin improvement over both the remainder of this year and in the years to come. Now that the majority of our divestiture and rebranding activities are behind us, I was also very pleased to see that our cash generation performance was again quite strong in the first quarter of the year. During the first quarter, we generated over $130 million of free cash flow for the second quarter in a row. While the first quarter of the year is typically the lightest from a cash flow generation standpoint, it was great to see such strong performance this quarter. This is a testament to the keen attention being paid by the team on all things that impact our cash flow. such as purchasing an inventory, improving collections, strong management of our payables, and an otherwise tight focus on our spending. We expect these positive cash flow trends to continue over the remainder of the year and be supplemented by additional meaningful inflows related to the divestiture that are due to us in the coming months. In addition to our better-than-expected financial performance in the first quarter, we also had an extremely robust first few months from an innovation perspective. Starting in our Revity Signals software business, we launched three new SaaS-based offerings, two of which, Signals Clinical and Signals Synergy. enter us into new adjacent markets for which we have not previously served. Our signals business is off to a strong start this year by growing a better than expected high single digits in the first quarter and is well positioned to continue to perform well, both from a financial standpoint and an innovation standpoint over the remainder of the year. Also, software-related, we launched our next-generation sequencing solution for newborn screening during the first quarter. This new optimized RUO workflow will build on our already strong market leadership position in newborn screening as the technology continues to develop. One initial success story of this offering is our recently announced collaboration with the large nonprofit research institute RTI, whereby their groundbreaking early check research study for newborn screening will benefit from Revit's genomic sequencing capabilities starting in May. These are the types of cutting-edge collaborations with the world's leading scientists that Revity excels at. Finally, we again had a strong quarter of innovation in our life sciences reagents business. As our GMP reagent capacity expansion begins to fully come online, we launched a number of new GMP recombinant proteins in addition to several products incorporating our new next generation UV dyes. I'm also proud to announce that our BioLegend business was awarded several grants from the Michael J. Fox Foundation to become one of their main partners in helping to commercialize the profound scientific breakthroughs on Parkinson's disease that their impactful work is producing. So in closing, now that we are almost at one year since becoming Revity, and having already crossed over the first anniversary of completing a significant divestiture, with those time-consuming activities now largely behind us, I see every day how the company is beginning to hit its stride. We are making more profound advancement in our operating structure and our go-to-market strategy, which will both enable us to properly weather the current industry environment as well as set us up to accelerate our financial performance as more normalized demand returns, hopefully starting in the second half of this year. I wanted to share that we plan to provide additional insight on our significant potential and the progress we are making at an investor day we will host this November, both in person and virtually, from a BioLegend campus in San Diego. We look forward to being able to provide an even deeper dive on our key operational initiatives and the status of the transformation that has already occurred. We also plan to share more perspective on our new product pipelines and key strategic partnerships, as well as how our capital deployments both internally and externally over the last few years have set up the company for consistent industry-leading financial performance in the years to come. We will communicate more details on this event in the coming months, but wanted to put it on everyone's radar screen now. With that, I'll now turn the call over to Max.