The Revvity Second Quarter 2023 Earnings Conference Call has begun and is being coordinated by Alex. Steve Willoughby, Vice President of Investor Relations, is hosting the call and is joined by Prahlad Singh, President and Chief Executive Officer, and Max Krakowiak, Senior Vice President and Chief Financial Officer. Willoughby reminds listeners of the safe harbor statements outlined in the press release and SEC filings. He also mentions that any forward-looking statements made on the call represent the company's views as of today and disclaims any obligation to update these statements in the future. Non-GAAP financial measures will be used during the call, with reconciliations available in the earnings press release.

Revvity has gone through a dramatic transformation, and the environment for some of its end markets has also changed. Despite these challenges, the company achieved its objectives in the second quarter, with 6% non-COVID organic growth and $1.21 of adjusted EPS. However, due to softer demand from pharma biotech customers, Revvity is realigning its expectations for the full year and now expects organic growth in the 4% to 6% range. To manage this, the company is taking cost actions which will result in approximately 29% operating margins and adjusted EPS in the range of $4.70 to $4.90 for the full year.

Revvity has successfully completed a divestiture and is now fully transformed as a company. In the second quarter, their Diagnostics business grew in the high single digits, and their Newborn Screening business grew in the double digits despite spot rate pressures. This is due to their R&D and commercial strategies, which help bring new assets to the market and help to identify babies who can benefit from medical intervention at an early stage.

Ohio recently became the first state in the U.S. to require universal screening for Duchenne muscular dystrophy for all babies born in the state, which is estimated to help identify 12 babies with DMD annually. Revvity's Life Sciences business is performing well and growing above broader market trends, despite market pressures, thanks to its differentiated and high-value portfolio. The company recently launched a rebranding and a new, bold and courageous spirit.

In the last few months, Revvity has taken steps to expand the boundaries of human potential through science, appointing Arvind Sundar-Rajan as Vice President of Digital and Technology and Dr. Madhuri Hegde as Chief Scientific Officer. The company also announced a nonexclusive license of their novel base editing technology, PinPoint, with AstraZeneca. Additionally, the UNIQO 160 automated indirect immunofluorescence test system was released from the EUROIMMUN business.

Revvity performed well in the second quarter despite increased end-market pressures, launching a new all-in-one SaaS-based Signals research suite software offering and repurchasing just over $200 million of shares. Despite the challenging macro environment, Revvity is proving resilient, allowing it to stand out with its customers and other stakeholders. To preserve margins, Revvity is taking cost actions while still reinvesting for the future, expecting mid-single digit non-COVID growth overall.

In the second quarter of Revvity, the company achieved its 6% non-COVID organic growth expectation despite the pressures in its Life Sciences business. Revenue was $709 million, down 21% due to the drop in COVID-related revenues, and FX was neutral. COVID revenue was de minimis and declined significantly compared to the first quarter. Adjusted operating margins were 28.8%, up from 28% in the first quarter due to volume leverage, with an adjusted gross margin of 62.4%.

In the second quarter, the company saw a net pricing realization of 100 basis points and net interest expense and other of $8 million, which was slightly better than expected. Adjusted EPS was $1.21 and adjusted free cash flow was negative $61 million. The company repurchased 212 million of shares in the quarter, bringing the year-to-date total to nearly 290 million. Additionally, $800 million was deployed to align short-term investments for the remaining debt maturing over the next 13 months. This resulted in the net debt to adjusted EBITDA leverage ratio being 2.5 times at the end of the quarter.

In the second quarter, there was 6% non-COVID organic growth, with 3% in the Life Sciences segment and 8% in Diagnostics. In China, mid-teens growth overall was driven by non-acute testing volumes. Life Sciences generated $336 million in total adjusted revenue, up 3% year-over-year. Pharma biotech sales declined in the low single-digits organically due to increased cautiousness in CapEx spending.

The Diagnostics segment reported total revenue of $373 million, down 34% year-over-year. The immunodiagnostics business grew in the double digits, excluding COVID, while the reproductive health business was flat and the applied genomics business declined in the mid-single digits. The immunodiagnostics business in China grew more than 30%, while outside of China it grew in the high teens. The newborn business grew double digits, but the Revvity Omics genomic lab business experienced headwinds. The applied genomics business saw a double-digit decline in instrumentation due to the repurposing of equipment post-COVID.

In order to account for the trends from the pharma end market, the company has updated its guidance for the remainder of the year. The organic growth is now expected to be in the 4-6% range, with an operating margin of 29%. The net interest expense and other is now expected to be around $63 million, and the tax rate is expected to average 21%.

The company has repurchased shares and now expects its full year diluted share count to average approximately 125 million, resulting in an adjusted EPS range of $4.70 to $4.90. The company expects non-COVID organic growth in the third quarter to be in line with its updated full year outlook, with operating margins of approximately 28%. Net interest expense and other is expected to be around $12 million in the third quarter, and the tax rate in the third quarter is expected to be in the upper-teens percentage. The company is taking appropriate actions to preserve profitability while still reinvesting in strategic priorities for the future.

Max Krakowiak responded to Patrick Donnelly's question about margin expansion, saying that near-term cost actions will be taken on the OpEx side to rightsize costs while protecting strategic investments, and that gross margin expansion is a longer-term play. He then moved on to discuss the China market, specifically the immunodiagnostics piece, which has been a focus for investors.

Maxwell Krakowiak discusses the company's expectations for the second half of the year in China. He expects the immunodiagnostics business to have upper-teens growth in the second half, while the Life Sciences business is expected to be slightly down in the low to mid-single-digit range. Despite the downturn in the second half, the Life Sciences business is still growing at a mid-teens CAGR since the start of the pandemic.

Maxwell Krakowiak discussed the current view for China growth in 2023, which is expected to be low double-digit, slightly down from the previous assumption due to pressures from the China Life Sciences standpoint. He also discussed the instrument business, noting that there is a bit of a COVID digestion going on in some areas, particularly in applied genomics, which could last into the second half of the year.

Maxwell Krakowiak and Prahlad Singh of the company discussed the pace of the slowdown seen in Q2 and in August, with the midpoint of their guidance reflecting the current market environment. They observed the softening of the market in June and in China in late June/early July, and the guidance is meant to get ahead of any softer trends that may continue in the second half of the year. They also discussed some weakness in their software business due to the timing of multiyear renewals.

Maxwell Krakowiak explains that the company was already expecting the software business to grow at mid-single digits due to the timing of multiyear renewals coming into the year. However, due to softer pharma biotech and CapEx budgets impacting both instruments and software, they are now expecting the Signals business to be down mid-single digits for the year. Vijay Kumar then asks if the remaining cut in organic growth is from global biopharma and how long these cycles typically last.

Prahlad Singh and Max Krakowiak discuss the guidance for the second half of the year, with 400 bps of headwind from the pharma biotech industry offset by 100 bps from immunodiagnostics. Singh estimates the downturn will last a few quarters to three quarters, and Krakowiak explains that the third quarter operating margin will be lower than the second quarter due to lower volume and cost actions that take time to take effect.

Maxwell Krakowiak and Prahlad Singh discussed the performance of their genomics lab business in the second half of the year. They have assumed that no new orders will come in from a genomics labs perspective, and they expect similar growth rates or declines to persist in the second half. They also discussed their 10% midterm organic growth target, which assumes a stable macro environment, and they believe that this is still the right number.

Prahlad Singh and Maxwell Krakowiak discussed the current dynamics in the Life Sciences industry in China, which is experiencing a softness due to lack of stimulus. They attribute this to the fact that the expected stimulus funding has not materialized. Meanwhile, the academic and government sector is seeing double-digit growth across all regions.

In the first half of the year, ImmunoDx business outside of China grew in the high teens, and is expected to continue performing well in the second half with low teens growth. Prahlad Singh and Maxwell Krakowiak attribute the success to increased awareness of immunodiagnostics and autoimmune testing, the Uniqo 160, and the portfolio of assays they are bringing to the market.

Maxwell Krakowiak explains that the Life Science reagent business has performed well in the first half of the year with low double digit growth, due to a combination of volume and price increases of 150 basis points. He expects the business to be slightly pressured in the second half, but still have low double digit growth when compared on a two-year stack basis.

Andrew Cooper asked Maxwell Krakowiak to provide more information on the CapEx tightening. Krakowiak states that instruments, software, and genomics have been hit hard, while reagents have held up better. Cooper then asked for more context on the $30 million annualized drop in EBIT, but Krakowiak did not understand the math behind it.

Prahlad Singh and Maxwell Krakowiak discussed the impact of the macro environment on mid-large biopharma customers and their CapEx investments. They noted that pre-revenue biotech pharma is a small component of their business, but the pause, caution, and delay in CapEx spending is having an impact across the board.

Maxwell Krakowiak explains that the company's guidance for the back half of the year is more cautious due to the uncertain macro environment. The 4-6% range is driven by the uncertainty in the Life Sciences sector, with the midpoint being aligned to the current market and the low end providing cushion in case things get worse. If things get better, it would push the company closer to the upper range of the new guidance.

Maxwell Krakowiak reported that instrumentation for the portfolio is roughly 30%, and it was down mid-single digits in the second quarter. Derik De Bruin asked about the difference between excess spending during COVID and a new sense of caution due to regulatory concerns. Prahlad Singh responded to the question, but his response was not included in the paragraph.

Prahlad Singh provides insight into the demand for services in the Pharma Services business, noting that there is a strong pipeline of active discussions. He further explains that the company has attempted to assess the timing of when these discussions will materialize and has tried to derisk their forecast for the second half of the year. In response to a question about OneSource, Singh states that he cannot provide any information.

Prahlad Singh congratulated the company on the one-year anniversary of the OneSource deal. Daniel Arias asked about the split of cost reductions between Life Sciences and Diagnostics, to which Maxwell Krakowiak responded that it would be in the areas where the greatest amount of market pressures are seen. Rachel Vatnsdal then shifted the conversation to M&A.

Prahlad Singh discussed the M&A environment, noting that the market is softer but their focus areas typically remain resilient. Maxwell Krakowiak then provided an update on reagent growth in China, noting that in the second quarter they were growing low single digits positively, but that in the second half they expect a low single-digit to mid-single digit decline due to CRO volumes.

Prahlad Singh discusses the localization of manufacturing for EUROIMMUN in China, with 25% of products already in the country and the rest expected to move over the next two to three years. Maxwell Krakowiak then discusses the company's e-commerce objectives, which are currently sub-10%, with the goal of achieving a 75 to 100 bps margin over the longer-term.

The company is still targeting a 75-100 basis point expansion in their operating margin and is excited about their e-commerce platform launch in the first quarter of next year, with Europe following in six to nine months. No further questions were asked and the call ended with Steve Willoughby thanking everyone for their questions.

This summary was generated with AI and may contain some inaccuracies.