The operator introduces the Revvity Inc. Q4 2023 Earnings Conference Call and passes the call over to the host, Steve Willoughby, who introduces the President and CEO, Prahlad Singh, and the CFO, Max Krakowiak. Willoughby reminds listeners of the safe harbor statements and potential risks and uncertainties involved in the company's projections. Singh then thanks Willoughby and greets the listeners.

The company performed better than expected in the fourth quarter, with a 3% decline in non-COVID organic revenue. This was due to strong performance in both the Life Sciences and Diagnostic segments and well-balanced performance across all major regions. Expenses were tightly controlled and there were favorable one-time tax benefits, resulting in additional EPS upside. The company also had strong cash flow and executed on capital deployment initiatives. For the full year, the company generated 2% non-COVID organic growth, which was differentiated from the broader industry. The company expects this differentiated financial performance to continue in the future, with a new long-range outlook predicting 200 basis points above industry organic revenue growth and 6-8% organic growth and 75 basis points of operating margin expansion annually.

Revvity expects to continue its high level of growth in the post-COVID world, with 60% of its business predicted to grow in the 9-11% range. This growth is expected to result in natural margin expansion due to the profitability of these segments. The company is well positioned to capitalize on areas such as cell and gene therapy and is involved in durable, high-growth areas in clinical diagnostics. Revvity stands out as a unique company with a differentiated approach to customers and a competitive product portfolio. The launch of the EONIS-Q system in their newborn screening business is an example of their continuous innovation and unique position in the market.

The new workflow for newborn screening and spinal muscular atrophy allows for faster turnaround time and lower costs. The company has also launched a new E-Commerce platform and has shown strong collaboration among teams to quickly develop a replacement antibody for a Diagnostics assay.

The company expects ongoing challenges in the pharma and biotech market to impact their growth in the first half of the year, but they anticipate stabilizing and returning to growth in the second half. They have implemented cost-saving measures to maintain profitability despite lower growth. The company has made significant acquisitions and divestitures and is working to optimize their operations. They are well-positioned to take advantage of industry growth once it normalizes.

The speaker expresses pride in the company's transformation and acknowledges the challenges they have faced. Despite external challenges, the company's performance in 2023 exceeded expectations. The speaker expects the current market environment to continue affecting results in the first half of 2024, but remains focused on controllable actions.

The company has implemented cost-cutting measures and made progress with their balance sheet and cash flow in 2023. They generated over $400 million of free cash flow and their adjusted revenues declined by 3% in the fourth quarter but were still above expectations. The company had a 1% tailwind from FX and no contribution from acquisitions. For the full year, they had 2% non-COVID organic growth and 27.5% adjusted operating margins.

The company's full year op margins were 28%, with a 100 basis point expansion excluding COVID-related revenues. They also had a favorable pricing impact of 130 basis points in the quarter and expect at least 100 basis points of favorable pricing annually going forward. Adjusted net interest and other expense was $16 million in the quarter and $58 million for the full year. The adjusted tax rate was 12% in the quarter and 18.6% for the full year. Adjusted EPS in the fourth quarter was $1.25, above expectations. Free cash flow was $196 million in the quarter and $198 million for the full year, with a headwind from divestiture and rebranding activities. The company remains active in capital deployment, purchasing $400 million of U.S. assets in the fourth quarter.

The company has over $700 million in Treasuries to pay off a $800 million bond due in September. Their net debt to adjusted EBITDA leverage ratio is 2.8x. In the fourth quarter, there was a 3% decline in non-COVID organic revenue, with a 9% decline in Life Sciences and 3% growth in Diagnostics. The Americas and Europe saw declines, while Asia and China had low single-digit growth. For the full year, there was 2% non-COVID organic growth, with 5% growth in Diagnostics and flat performance in Life Sciences. China had mid-single digit growth overall, with high single digit growth in immunodiagnostics and mid-single digit growth in Life Sciences. The Life Sciences business generated $320 million in total adjusted revenue in the quarter, down 8% on a reported basis and 9% on an organic basis. For the full year, the Life Sciences business was flat organically.

In the sales report for the quarter and full year, the company saw a decline in sales to pharma biotech customers, but growth from academic and government customers. Life Sciences instrument revenue was down, while reagent, licensing, and specialty pharma services revenue grew. The signal software business declined, but is expected to normalize in the future. In the Diagnostics segment, there was a decline in revenue, but on a non-COVID basis, the segment grew. The immunodiagnostics business showed strong growth globally, while the reproductive health business saw a decline due to a significant decrease in the Revvity Omics lab business.

The company expects to see a decrease in growth in the first half of 2024 due to contract completions and industry headwinds, but anticipates a return to positive growth in the third quarter. The applied genomics business was also affected by the slowdown in pharma biotech spending and the hangover effect from COVID-related clinical lab spending. The company expects a 1% to 3% organic growth rate for the year and a 1% contribution from foreign exchange rates. The operating margin is expected to remain flat at 28% due to cost-cutting measures.

The company expects low revenue in the first quarter, with a decrease in operating margins due to recent cost actions. They anticipate a 20% increase in adjusted net interest and other expenses in 2024. The tax rate is expected to be 20% and the average share count to be $123.5 million. The initial 2024 adjusted EPS guidance is in the range of $4.55 to $4.75. Approximately 20% of earnings are expected in the first quarter, with net interest expense decreasing before increasing again later in the year. The company plans to focus on managing innovation, reducing working capital, and optimizing the company following its transformation. They believe that once industry headwinds subside, they will be well-positioned to capitalize on the recovery and showcase their differentiation. The call is now open for questions.

During a conference call, Prahlad Singh, the operator, introduces the first question from Jack Meehan from Nephron Research. Meehan asks about the visibility in the business and how the macro environment is affecting it. Singh responds by acknowledging that 2023 did not go as planned, but the fourth quarter did not deteriorate as much as expected. Looking ahead to 2024, Singh does not anticipate significant improvement but expects a continuation of current trends. He is optimistic that things will pick up and provide upside to the current outlook. Singh also highlights the company's portfolio transformation journey, which has positioned them well with a strong presence in diagnostics and a less capital-intensive business. This gives them confidence in their current position.

The speaker, Max Krakowiak, confirms that the decrease in sales is mainly due to comp dynamics. He mentions a slight improvement in Q2 and a return to growth in Q3, but does not expect a major change in the market environment. The next question is about the Life Sciences segment and the impact of recent acquisitions on covering the needs of researchers. The speaker, Prahlad Singh, responds by saying that the company is capturing customers through the majority of their early R&D workflow, but there may be some gaps in their offering. He suggests that these gaps could be addressed through organic or inorganic solutions.

The company has undergone a portfolio transformation to fill gaps in their small molecule portfolio and expand into large molecules, biomolecules, cell and gene therapy. They feel confident in their current portfolio but will continue to make additions. The Diagnostics business is expected to be flat in the first half of the year due to COVID-related purchases and Life Sciences weakness, but is expected to return to mid-single digit growth in the second half.

The company expects mid-single digit growth for Immunodiagnostics China for the full year, but excluding the impact of a change in their go-to-market strategy, the growth is still similar to the previous year. This change was made to improve profitability, but may result in a slight decrease in revenue. The next question is about the Life Sciences instrument business, which performed slightly better than expected in Q4. The company did not see a budget flush in December and expects instrumentation to be pressured in 2024.

Prahlad Singh discusses the expected performance of Life Sciences instruments and applied genomics in 2024, stating they will likely be down in the high single digit range but closer to their long-term plan over a four to five year period. He also mentions an example of how Revvity, the rebranded division of the company, is making progress in being a strategic partner within the pharmaceutical industry by leveraging their relationships and capabilities in both the Diagnostic and Life Sciences sides of the business. This includes licensing technology, providing tools and services, and utilizing their global lab infrastructure to support drug development and follow-up studies. Previously, the focus was on providing reagents, tools, and instruments for research purposes.

The speaker discusses the expansion of their portfolio and how it allows them to be involved in the entire process from start to commercialization. They then address a question about margins and mention that they have confidence in a 75 basis points expansion algorithm, which was revised due to changes in top line assumptions. They also mention that they are still in the early stages of transforming the company and integrating acquisitions, which will contribute to margin expansion.

The company has various strategies in place to increase operating margins and is confident in its ability to consistently deliver strong results. In China, the company is seeing growth in its Life Sciences and immunodiagnostic segments, but instrumentation may face some pressure. The company is also anticipating growth in its reagents business in China.

The speaker discusses the factors that contribute to margin expansion in the company, including the differentiation of their portfolio in China and outside, exposure to the Diagnostics, Life Sciences, and Software market, and the return of variable costs in 2024. They also mention that in a normal environment, margin expansion can still be achieved even with lower growth.

The company's software and genomic lab businesses have faced challenges in the past year due to contract renewals and project timing, but these are expected to normalize in 2024. The company is projecting overall market growth of low single digits in 2024, with their business growing slightly above that rate.

In the first quarter of 2021, the company is expecting a decline in organic growth of mid-single digits. This is a slight increase from the previous quarter's decline in low single digits. The company attributes this to a normalization of their software and omics business, which is expected to have a 200 basis points positive impact on revenue. The software business is expected to return to high single digit growth in 2023 and the omics business is expected to remain flat in 2024, assuming no new contracts are signed. The company remains optimistic about their pipeline for the omics business and any new deals signed would be considered upside to their current guidance. In terms of free cash flow, the company generated over $400 million in the fourth quarter and is targeting $450 million in 2024, with an additional $150 million from the return of AES outflows. The next question from an analyst was about the first quarter organic growth guidance and why it has increased from the previous quarter's decline in low single digits to a decline in mid-single digits.

In the paragraph, Prahlad Singh and Max Krakowiak discuss the impact of comps and timing on the company's Q1 results. They also mention pressure from reproductive health in China and instrument sales, but attribute most of the impact to timing. Max adds that the first half of the year is expected to be similar to Q4, and the company expects gross margins to be flat in fiscal '24, with improved mix driving the step up from Q4.

The company's performance in the rest of the year will mostly depend on volume leverage rather than major changes in mixed dynamics. During a recent call, the CEO mentioned the strong growth of ImmunoDX and attributed it to their differentiated portfolio and limited competition in the Chinese market. On the other hand, the pharma sector has been a drag due to pressure on instrument sales, but the company expects this to improve in the second half of the year. They believe this is a temporary trend and anticipate a return to normal growth in the mid-single digits.

During a conference call, Eve Burstein from Bernstein Research asked the operator about the company's cost actions and integration of acquisitions. Max Krakowiak, the operator, explained that the company has already taken structural cost measures and will continue to do so in 2024. These actions involve right-sizing the company and addressing stranded costs from divestitures. Krakowiak expressed confidence in these actions and stated that they have already been executed, with some timing differences. Prahlad Singh, another company representative, did not provide a specific dollar amount for the synergy target of $100 million in year five, but mentioned that they are making progress in integrating acquisitions.

The company provided an example of how they are seeing commercial, operational, and technological synergies from the integration of their recent acquisitions. They are still in the early stages of this integration, but expect their strong and fast-growing businesses to continue performing well. Their first quarter margin target is a few hundred basis points lower than their full year target, with the main driver being a volume step down from top line perspective. Overall, gross margin and operating expenses are in line with the previous quarter.

The company expects to see an increase in volume and margins over the remainder of the year due to structural cost actions and volume leverage. The slowdown in organic growth in Q1 is mainly due to comp driven factors, particularly in the immunodiagnostics business outside of China. The company is making progress in converting customers to SaaS-based software, which should help reduce lumpiness in orders. The software business is expected to see an increase in the next year, which will contribute to overall organic growth. This is largely due to contract renewals.

The speaker discusses a business with a high renewal rate and expresses confidence in meeting expectations for the future. They also mention the transition to SaaS as a differentiator and a long-term opportunity for revenue growth and stability. The call concludes with the speaker thanking participants and ending the call.

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