Revvity, Inc.

Hello and welcome to the Q2 2024 REVITI earnings conference call. My name is Elliott and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I would now like to hand over to Steve Willoughby, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to REVITI's second quarter 2024 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. I would like to remind you of the 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 may not be limited to, financial projections and other statements of the company's plans, objectives, expectations, or intentions. 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 gap 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. The power and potential of Revitivon displayed during the second quarter, which allowed us to exceed our financial expectations for the quarter despite continued market uncertainty, persisting amongst some in the pharma biotech market. While we had count reductions, site consolidations, and other cost-cutting measures we have seen from these customers since mid last year continued, we were more than able to offset the impact of these actions through meaningful strength in our other businesses. Revity's uniqueness enabled us to overcome these challenges and continue to post leading financial performance. I expect this differentiation to continue even as pharma spending eventually normalizes. Max will provide more specifics, but I wanted to briefly touch on a few key points as it pertains to our recent financial performance. Our negative 1% organic revenue decline was at the upper end of our expectations for the quarter. Our customers are continuing to work through temporary cyclical pressures with their preclinical spending, and I'm confident in the eventual return to a more normalized environment like we've seen over the last two decades. We had fantastic performance in a number of other areas of the business in the quarter, which should continue over the remainder of the year, specifically within our signal software and diagnostics franchises both of which are somewhat unique to Revity compared to our general peer group. We also continued to tightly manage spending, which resulted in 29% adjusted operating margins in the quarter, up significantly from the first quarter. These good top line results combined with our strong margin performance led to adjusted EPS of $1.22 which was meaningfully above our expectations. In addition to the strong P&L performance, we continued to show great progress on managing our operations, leading to another quarter of excellent cash generation. We had over 100% free cash flow conversion of our adjusted net income for the third consecutive quarter which brings our free cash flow generated so far this year to approximately $300 million. In addition to our robust cash generation, I'm happy to report we also received nearly $150 million of additional inflows that were owed to us related to the divestiture of the PerkinElmer analytical and enterprise services business. Given we expect this strong year-to-date performance to continue into the second half of the year and that we do not believe the market is currently appreciating either our recent relative outperformance or the significant potential still in front of us, we intend to use our healthy balance sheet to more aggressively repurchase shares over the remainder of the year. We believe this represents a tremendous long-term value creation opportunity for our shareholders, which will not exist forever. We currently have roughly $330 million remaining on our existing buyback authorization, which we will look to opportunistically capitalize on. Our operating margin performance and cash flow generation so far this year are both great examples of the company executing at a very high level. It is this determined ability to strongly execute in our key focus areas that will also contribute to our differentiated performance in the years to come. Now, moving on to other highlights in the quarter. It was great to see how we continue to lead with innovation for our customers. In late April, we launched the more highly automated AP2400 workflow in our latent TB testing business. This new offering, which we expect to receive FDA clearance later this quarter, has launched in Europe and will be launching in the U.S. and China upon receiving regulatory clearance. We anticipate that the increased automation and decreased hands-on time for our lab customers, combined with the superior sensitivity and specificity of our T-SPOT assay, should lead to improved competitiveness for us in the IGRA latent TB testing market globally. This is of particular importance in the US, which is by far the largest market in the world for latent TB testing. as customers will now be able to have the latent TB test they really want with the level of automation they need. It was also great to see at the recent World Health Assembly in Geneva that a new resolution passed by all 194 countries recommends that newborn screening programs be established in every single country. With this key resolution being adopted, Additional government agencies such as the World Bank and other federal governments will now consider providing funding for newborn screening. Additionally, a new World Health Organization working group has been created focused on developing guidance to drive the adoption of newborn screening to cover more of the approximately 70% of babies around the world who go untested at birth today. We have also continued to make good progress in adopting new technologies, including AI, to further streamline our operations and improve our product offerings. A few examples of this are how we are now using an AI-based tool to drive improved collections from our customers. We can now instantaneously engage with multiple customers in any language identify why an invoice has not been paid based on the customer's response, and flag the concern to the appropriate internal team for resolution. Just 90 days ago, this same process would have required a person speaking a specific language to either personally email or call a customer, have a conversation, take notes, investigate internally and to follow up with the customer. Obviously a much more manual and time consuming process given a high volume of predominantly consumable related invoices. We expect to broaden the use of this system across the entire company in the coming months. With our customers, We are building on our past efforts in machine learning to adapt generative artificial intelligence into more of our offerings themselves. Since the beginning of the year, we have been using AI to support the design and sourcing of new materials used in the development of our life science reagent offerings. With this information, we can develop more complex biological structures more quickly using new and different materials than in the past. We have also recently been using AlphaFold to validate data from some of our high content screening offerings in a key project looking to uncover new insights on the GLP-1 receptor. These findings have recently been submitted to a key scientific journal for publication. I look forward to sharing more details on how we are using AI in our R&D and building it into our products themselves at our upcoming investor day in November. As it pertains to our upcoming investor day on November 21st, We are preparing what should be a great day to get up close and personal with Revity. Attendees will better understand who we are, the impact we are having on customers and patients, and how we plan to accomplish our key goals over the coming years. It will also be a great opportunity to see BioLegends operations and beautiful campus in San Diego. So I hope you join us either in person, or virtually. Finally, I wanted to share that we continue to have a keen focus on not only what we are doing for the advancement of science and diagnosis of disease, but also how we are doing it. These efforts were recently recognized by the ESG Rating Agency MSCI, who increased our ESG rating to AA from single A. We remain active on a number of fronts to increase our sustainability in our operations, R&D, and logistics, which will continue. But it was great to see our progress so far resulting in an improved and now upper tier rating from one of the most prominent ESG rating agencies in the world. So in closing, before turning it over to Max, we had a very good second quarter on many fronts, from our top line to margins to our cash flow generation. They were all strong and reflective of our organization's commitment to successful execution as we navigate this evolving end market environment. These results put us on a good trajectory for the year and allow us to raise our earnings expectations overall. While it is uncertain at this point as to when pharma spending will return to a normal environment, we are optimistic that the worst is behind us as the long-term potential of our business remains bright. With that, I will now turn the call over to Max.