Revvity, Inc.

Welcome, everyone, to the Q1 2025 Reverity Earnings Conference Call. My name is Sammy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Steve Willoughby, to begin. Please go ahead, Steve.

Thank you, Operator. Good morning, everyone, and welcome to Revity's first quarter 2025 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 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 or 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. 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 will now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good morning, everyone. The first quarter ended up being one of the more dynamic macroeconomic periods in recent history to navigate through, which has clearly continued during April. Our ability to continue to generate strong organic growth and better than expected earnings in this environment is a testament to the resilience of our business and the tremendous efforts of our people. While we expected uncertainties were likely to occur when we first provided our appropriately prudent guidance in January, the materiality and frequency of the changes that have transpired over the last 90 days in the global economy would have been difficult to fully contemplate in advance. Despite these new challenges, we remain very optimistic about Revity's differentiated financial profile and our ability to continue to drive new innovations for our customers to help further the advancement of science. The current environment is clearly challenging for most companies, but our unique offerings and ability to quickly adjust are allowing us to continue to deliver for both our customers and our shareholders. As we demonstrated both throughout the pandemic and over the last two years when our industry has faced softer spending from pharma customers. Revity is a nimble company which is well positioned to quickly respond to both challenges and opportunities, enabling us to continue to deliver strong relative performance. We have demonstrated that we are a team that thrives at taking on challenges while continuing to execute at a very high level. I'm confident this adaptability and agility will continue, enabling us to sustain a strong performance throughout varying macroeconomic environments, including the remainder of this year. Despite the volatility, we were able to generate solid 4% organic growth in the first quarter, which was right in line with our expectations. This performance shows the impressive balance of our company as areas of strength such as diagnostics and software were able to offset those areas facing unanticipated pressures from the dynamic environment we are experiencing in some of our end markets. In particular, Our organic growth in the quarter was negatively impacted by unforeseen choppiness in demand from U.S. academic customers throughout much of the quarter, primarily impacting our life science instruments. If it wasn't for this change in demand, our organic growth this quarter would have likely been at or above the upper end of our expectations. This solid top line performance was again combined with appropriate operational management, which led to adjusted EPS in the quarter of $1.01, solidly above our 93 to 95 cents expectations. In addition to strong income statement performance, we yet again had great results with our cash flow and balance sheet management. In the quarter, we delivered 97% free cashflow conversion of our adjusted net income and were again able to aggressively deploy this cash by repurchasing our shares. We bought back 154 million of our shares in the quarter, resulting in an outstanding share count exiting the quarter of 119.4 million. As we entered 2Q, we remained opportunistic and have been able to continue our repurchase efforts. I would highlight that we have now repurchased more than 7 million shares over the last two years, which represents a 6% decline in our total shares outstanding since we became Revity in mid 2023. From an end market perspective, We have continued to see stabilized lab activity from our pharma and biotech customers as their headcount reductions and restructurings have plateaued over the past several quarters. While instrumentation continues to remain pressured, in part because of the recent academic uncertainties, we did see continued year-over-year growth in our reagents again this quarter. We also continue to see strong demand for our resilient diagnostics franchise, which grew 5% organically in the quarter. As highlighted in the past calls, our specialty diagnostic businesses are strong and durable underlying market growth drivers that are more immune to changes in the macroeconomic environment. Consequently, we continue to believe this segment of our company is already largely back to normal following the swings in demand during and following the pandemic. A great example of our unique diagnostic businesses being at the forefront of scientific innovation is our recent announcement of our expanded alliance with Genomics England to further drive research into newborn genomic sequencing in England. Under the new agreement, Revity will now provide DNA sequencing services to screen newborns for rare genetic conditions, building upon our existing collaboration for DNA extraction services. This integrated end-to-end solution, supported by our localized lab facility, will accelerate the screening process and advance newborn health as part of the generation study. Genomics England's landmark initiative, which aims to screen up to 100,000 newborns for over 200 rare genetic disorders. This collaboration strengthens our position as a leader in newborn genomic sequencing and sets a standard for future programs. We are proud to contribute to this critical program by delivering timely and reliable sequencing data to support newborn health in England over the next several years. I'm also proud that earlier this month, we secured FDA approval for a more automated platform that is integrated with our T-SPOT latent TB test. This combination, which was initially launched outside the US late last year, allows laboratories to enhance productivity while maintaining superior clinical performance in latent tuberculosis detection. This milestone marks a significant advancement in the fight against TB, providing a faster, high throughput solution that delivers accurate diagnostic results to support timely treatment and containment, both in the U.S. and globally. By automating T-SPOT TB testing, we equip laboratories with increased throughput and reliability, ultimately leading to better patient outcomes. Considering the US market represents slightly more than half of all latent TB tests performed globally, this is an important launch in the most important market in the world for latent TB testing. I'm excited to see this new offering in the US ramp up over the coming months and quarters. I now want to take a minute and shine a spotlight on our fantastic signals software business, which I think does not garner the appreciation from the investor community that it should. This business, which represents approximately 8% of our total revenue, grew slightly more than 20% organically in the first quarter, and we expect even stronger growth for it in the second quarter. This performance position signals to deliver another year of strong double-digit growth overall. In addition to the commercial execution, it was also exciting to see the launch of our new Signals 1 offering earlier this month. Signals One is a newly reimagined version of the core signals data platform, an all-in-one solution designed to manage data across our customers' scientific workflows with new and expanded AI capabilities. This offering builds on our new product launches last year of Signals Clinical and Signal Synergy, which are off to strong starts in their first year on the market. Looking ahead, Signals continues to have a very promising new product pipeline with the upcoming launches of logistics and additional biologic-related offerings, which we expect to bring to the market in the coming quarters. It was also great to secure a recent court ruling in our favor to ensure uninterrupted access and business as usual for our Spotfire customers for many years into the next decade. Finally, it was encouraging to see a recent sale transaction announced for one of our key competitors in this space, which reflects the tremendous value and capabilities our offerings provide to our customers. Signals has an even stronger growth rate and a more ingrained enterprise footprint than anyone else in the industry and benefits from the entrenched customer relationships of our broader life sciences franchise. By leveraging our internal R&D capabilities to provide unique and responsive assistance for new product development, and capitalizing on our broader pharma and customer relationships, along with favorable market trends, Signals is in a great position to continue to generate very strong results for a very long time in the future. Overall, we had an eventful but successful start to the year. The power of Revity's specialized offerings and importance of delivering significant innovation to our customers was clearly on display. As we have shown during periods of disruption over the last few years, we have a unique capability to navigate these unforeseen challenges and continue to execute. While no company is completely immune from broader end market trends and geopolitical developments and confident that Revity will continue to be able to show differentiated performance amongst our peers and with our customers. I also want to provide you some thoughts and comments as it pertains to the current tariff situation and its potential impact on Revity. First, this is clearly a very dynamic situation, which seems to be changing on a nearly daily basis. So it is a bit of a constantly moving target. Second, we have had a cross-functional task force evaluating a variety of scenarios since shortly after the election. So we have been contingency planning for many different potential outcomes well before the first week of April. Third, as soon as the initial round of tariffs was announced, our teams immediately started taking a number of actions in an effort to mitigate potential impacts. These efforts include proactive inventory positioning, geographical manufacturing adjustments, engaging alternative suppliers, and selective pricing actions. In addition to these efforts, we have also implemented some additional temporary cost actions to offset the impact from the remaining unmitigated tariff-related pressures in the second half of the year. Based on our actions to date, which will largely be implemented by the end of this quarter, we expect to be able to mitigate most of the currently contemplated tariff impact by the end of June. While we foresee a headwind from the current tariffs here in the second quarter, we expect we will have largely offset their impact on our 2025 results by the time we enter the second half of the year and will work to minimize any lingering effects in the future years. While Max will provide more details in a bit, based on the current tariff situation, If we would not have taken any actions, we would expect to see a gross impact of approximately $135 million this year to our adjusted operating income. However, based on what we know today, with the aggressive actions we are taking, we expect to be able to mitigate the vast majority of this potential impact. we currently expect the net impact from the current tariff situation will negatively impact our adjusted operating margins by approximately 60 basis points this year. As mentioned, we anticipate the vast majority of the headwind to occur here in the second quarter as our tariff-related initiatives fully ramp up by the time we enter the second half. we are able to offset this near-term pressure with favorable below the operating line execution and a less severe headwind from FX. Consequently, we are reaffirming our full year adjusted EPS outlook of $4.90 to $5. In a sign to the uniqueness and durability of our business, we are also reaffirming our full year organic growth outlook of three to 5% as the academic and instrumentation headwinds we are now factoring in for the remainder of the year are offset by even stronger expected performance from our software business and increased growth in reproductive health due to recent commercial partnership successes. Overall, we are keeping a close eye on the dynamic macro environment and will continue to pivot as necessary to execute at a high level in all market conditions. Revity was built to thrive during periods such as this, which will only make us even stronger once the current macro uncertainty subsides. With that, I will now turn the call over to Max.