The operator introduces the Q3 2023 Revvity Earnings Conference Call and hands it over to Steve Willoughby, Senior Vice President of Investor Relations. He reminds everyone of the safe harbor statements and introduces Prahlad Singh, President and CEO, and Max Krakowiak, Senior Vice President and CFO. They discuss the risks and uncertainties involved in the company's projections and refer to non-GAAP financial measures. Prahlad Singh then begins his presentation.

Revvity is a company focused on advancing human health through science and is able to perform well in various economic conditions. However, they have recently faced increased challenges and headwinds from their pharma and biotech customers, resulting in lower than expected revenue and a decline in their Life Sciences business. This also affected their Diagnostics segment, specifically their applied genomics and genomic lab businesses. Despite these challenges, the company still maintained strong margins and earnings performance.

The immunodiagnostics business had strong growth, but the overall Diagnostics business only grew 4% due to softer pharma spending. The company expects these end-market headwinds to continue in the fourth quarter and into the first half of 2024. They are currently evaluating their 2024-2026 midterm outlook to reflect the current industry conditions. They also plan to take additional cost-cutting measures in 2024.

The company expects to complete their analysis by the end of the year, but they are facing pressure in some of their markets due to softer spending from pharma and biotech customers. However, they have still managed to post positive organic growth and are focusing on their operational, commercial, and R&D priorities. They have recently launched new in vivo imaging platforms and Pin-Point base editing reagents, which will help them compete in new markets and showcase the potential of their technology.

The company has recently entered into two important commercial collaborations, one with Element Biosciences to offer complete NGS workflows and another with Danaher SCIEX to provide mass spectrometers for newborn screening. These collaborations demonstrate the company's commitment to providing cutting-edge solutions for customers. The company's 2023 ESG report also shows their efforts to expand environmental data collection and address employee issues, as well as their new external ESG goal.

The company has set ambitious goals for reducing emissions, promoting gender equality, and maintaining employee satisfaction. Despite the current challenges in the industry, the company has undergone positive changes and is well-equipped to weather the current economic climate. The company's focus on operational, commercial, and R&D initiatives, as well as its strong balance sheet, will help it emerge even stronger. The company's CEO, Prahlad, will now hand over the call to Max, who will discuss the company's performance and challenges in the past year. Despite a noticeable decline in demand from pharma and biotech customers, the company remains focused and optimistic about future opportunities.

Prahlad mentions that the company is making progress on their strategic initiatives and has identified $20 million in cost reductions to be implemented for the remainder of the year. The company experienced a 1% non-COVID organic growth and a total revenue of $671 million in the third quarter, with a 6% decrease due to COVID-related revenues. The company's adjusted operating margins were 27.5%, slightly lower than the expected 28%, and gross margins were down to 61% due to lower volume leverage and an unfavorable mix shift.

In the quarter, the company saw a favorable pricing impact and incurred lower-than-expected interest expenses. Their adjusted tax rate was also lower than expected. The company continued to repurchase shares and generated adjusted free cash flow, although it was lower compared to the previous year due to the drop in COVID revenues and one-time divestiture and rebranding costs. They expect these costs to reverse in the coming months. The company also paid off a bond and has enough cash on hand to pay off another bond due next year.

The company ended the quarter with a net debt-to-adjusted EBITDA leverage ratio of 2.8 times and had a 1% non-COVID organic growth. This was due to a 3% decline in the Life Sciences segment and 4% growth in Diagnostics. Geographically, there was a decline in the Americas, growth in Europe, and strong growth in Asia, particularly in China. Looking ahead to the fourth quarter, they expect continued growth in China, but at a lower rate. The Life Sciences segment generated $308 million in revenue, with declines in the pharma/biotech sector offset by growth in academic and government customers. Instrument revenue was down, while reagent licensing and specialty pharma services also declined. This was due to lower licensing and pharma services revenue and decreased consumable spending from customers.

The Revvity signal software business experienced low-double-digit growth due to the timing of renewals. The Diagnostics segment saw a 9% decrease in adjusted revenue, but grew 4% without the impact of COVID. The immunodiagnostics business grew in the high teens organically, and is expected to continue growing globally. The reproductive health business saw a mid-single-digit decline, with positive growth in newborns offset by weaker trends in prenatal and headwinds in the Revvity Omics genomics lab business. The applied genomics business also saw a decline in the low-double-digits due to a slowdown in pharma/biotech spending. Market demand has been volatile throughout the year.

The company expects a decline in non-COVID organic growth for the fourth quarter, with a lower end of total company organic growth range. Operating margins are expected to be similar to the previous quarter. Net interest and other expenses are predicted to be around $50 million due to less cash available for investment. The adjusted EPS for the fourth quarter is expected to be between $1.14 and $1.18. This outlook, combined with year-to-date performance, results in a full year 2023 non-COVID organic growth of approximately 2%. FX is expected to be a 1% headwind and M&A will have no impact on the full year. Total revenue for 2023 is now expected to be between $2.72 billion and $2.74 billion. Adjusted operating margins for the year are expected to be 28%, down from the previous outlook of 29%. The adjusted net interest and other expense is expected to be approximately $57 million for the full year, with a 20% adjusted tax rate. The average fully diluted share count is expected to be under 125 million shares, slightly down from the previous assumption, due to additional share repurchases in the quarter.

The company has adjusted its expected EPS for the full year to be between $4.53 and $4.57. The CEO mentioned that there are a wide range of potential outcomes for organic growth next year, but if it is similar to this year, they expect nominal margin expansion. They also expect net interest and other expenses to increase by 40% next year due to paying off bonds. Despite the challenging market environment, the company remains confident in its ability to rise to the occasion and is focused on cost control and operational initiatives. They are well positioned to take advantage of future opportunities and are now open for questions. The first question is from Patrick Donnelly of Citi, who asks about the cadence of the quarter and the exit rate in September, as well as the performance in October so far.

Prahlad Singh, CEO of PerkinElmer, discusses the impact of site consolidations and closures on reagent sales, as well as pressure from CROs in China. He also notes that without licensing revenue, reagent sales would have been flat. Looking ahead, the company is uncertain about the first half of next year and will provide an update at the end of the year.

The speaker discusses the company's 4Q budget flush and their expectations for the first half of the year. They anticipate a decrease in the first half but a potential increase in the second half due to a lower comp and the potential for things to start coming back. The company's guidance for 4Q has decreased by $90 million, mostly due to impacts on the Life Sciences side of the business, specifically in instruments and reagents. The Diagnostics side is also being impacted, with applied genomics seeing a decrease in customers due to overlap with pharma/biotech and a tougher comp in 4Q for their IDX business in China.

Max Krakowiak responds to a question about the company's 2024 outlook, stating that there is a wide range of potential outcomes and they will take time to refine it. He clarifies that if organic growth is similar to this year, there will be nominal margin expansion and a 40% increase in net interest and other. However, he does not provide specific guidance for EPS and states that there are enough pieces to model it down in the event of similar organic growth.

Prahlad Singh, the CEO of BioLegend, discusses the company's performance and trends in the pharma market. He mentions that BioLegend did better than their overall reagents business, but has seen some softening in China due to the CRO business depression. On the Horizon side, service revenue from pharma/biotech has also seen softening, while consumables remain steady. Prahlad also mentions that the company is taking the next couple of months to refine their organic growth assumption, which will impact their EPS for next year. In terms of cost actions, the company plans to cut $60 million to $80 million, with an additional $20 million coming, but it is unclear if these numbers are annualized or for the year.

The speaker discusses the cost reduction of $80 million for the current year and how it will impact the company's financials in the following year. They mention that some costs will come back into the financials while others will be offset by cost actions taken this year. The size of the Diagnostics business is also discussed, with 60% of the applied genomics business and more than half of the Revvity Omics business being related to pharma/biotech customers.

Eve Burstein of Bernstein Research asks about the company's portfolio transformation and whether they expect to be more resilient than their peers and grow significantly above market growth next year. Prahlad Singh responds by highlighting the company's differentiated portfolio, with strong growth in their immunodiagnostics and neonatal businesses, as well as a resilient reagents business. He also mentions pressure from pharma/biotech on CapEx spending and software renewals.

The speaker discusses the expected pressure on their Diagnostics business in the first half of next year, but expresses confidence in the portfolio's differentiation. They also mention the strength of immunodiagnostics in China and minimal impact from anti-corruption initiatives. The speaker confirms that the fourth quarter forecast for the Diagnostics business is flat and explains the drop in growth from the previous quarter due to headwinds from the pharma/biotech industry.

The main change from the third quarter to the fourth quarter is a decrease in demand for our products. This is due to a heavier CapEx instrumentation comp in our reproductive health business and a tougher comp in immunodiagnostics China. However, our differentiated NPIs and increased volume are expected to offset the price decline and result in double-digit growth for our immunodiagnostics portfolio in China. We anticipate a gradual price decline in China due to value-based pricing initiatives, but expect to continue seeing strong growth in our portfolio.

In response to a question about the stability of the academic and government end market, Max Krakowiak, a company representative, explains that this sector makes up about 25% of their Life Sciences portfolio and has been growing at a low-double-digit rate. He notes that while reagents make up half of this portfolio, the other half is comprised of instruments, which have been growing at a faster rate due to easier comps in 2022. In regards to the recent drop in demand from pharma/biotech, Krakowiak suggests that it may be a temporary slowdown and not indicative of long-term budget decisions.

Prahlad Singh and Matt discussed customer buying behavior and how it has been affected by the IRA Act. They believe that the current pausing or cancellations are temporary and customers are focused on getting their costs in line for the IRA Act in 2025. The next question from Josh Waldman was about the expected earnings base for 2024, but Max Krakowiak stated that they are not giving specific guidance for that year and will take the next few months to refine their organic growth outlook.

Prahlad Singh and Max Krakowiak discuss the progress and projections for the Life Science business in the fourth quarter. They mention that customer buying behavior and macro factors will play a role in determining the outcome, but they are taking measures to protect margins. They also mention a double-digit decline in instrument demand and flat reagent sales. They have adjusted their guidance to account for this decline.

The speaker explains that the company has fully eliminated the sequential step-up on instrumentation and that the immunodiagnostics business has been a bright spot with double-digit growth expected to continue due to increased awareness of autoimmune disease and new product launches. The speaker also mentions one-off headwinds affecting free cash flow, but expects healthy growth in the future.

The company's free cash flow conversion has been strong so far this year and is expected to finish above 100%. The new portfolio as Revvity is expected to improve cash flow performance in the future. In the third quarter, instrument volumes were down double-digits compared to the previous year, but relatively flat compared to the previous quarter. The immunodiagnostics business, including EUROIMMUN, grew in the high teens in the third quarter. The demand environment is expected to continue at current levels, with a potential 25-30% decrease in September.

Max Krakowiak discusses the company's September performance and how it will affect their fourth quarter guidance. He also breaks down the expected growth in China, with Life Sciences at low-single-digits and Diagnostics at high-single-digits. Krakowiak remains bullish on their immunodiagnostics franchise, despite a high teens decline in China, and mentions that they were not expecting a significant increase in demand due to pent-up demand.

The third quarter saw a return to normal volumes for the company's testing business. The company's immunodiagnostics China segment is expected to continue growing in double digits for the full year. The fourth quarter may see a slight decline in volumes for the applied genomics segment, but overall, the company is not expecting a significant increase in volumes. The company remains interested in M&A opportunities but will be cautious about valuations.

The company's focus is on growth and they are actively looking for targets, but the timing is unpredictable. They are reexamining their midterm growth outlook, particularly in the applied genomics side of the business. Reagents are expected to be flat year-over-year in the fourth quarter and slightly up compared to the third quarter.

Steve Willoughby thanks Alex and wishes everyone a good day. He also reminds them that they will be available all week. The operator then thanks everyone for joining the call and ends the call.

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