Conference Transcript - RVTY 2026-09-09

Operator

All right, great. Welcome everybody. Today we have Pralad Singh, CEO of Revity. And maybe I'll just let you start. I mean, you did announce a small talk in acquisition this morning. Maybe I'll just let you kind of explain what you bought, how it fits in your portfolio, and maybe what I'll let you do that you couldn't do prior.

Prahlad Singh, CEO

Yeah, good morning, Evan. Thank you for inviting us. I think, you know, as we've talked about, human cell design is a great token acquisition for our reagents business, and it fits perfectly well with what we've talked about, how our reagents business has been doing good on the preclinical stage. You know, as you go from preclinical to clinical, you go through, you know, looking at tissue culture, cell culture, cell lines, and, you know, human cell designs that are as close to looking at humans possible. And going through this process, you know, the human cell design portfolio fits very well in our reagents business, and I think it will be a great token acquisition.

Operator

Great. So 2Q, sounds like things were generally in line with expectations, life sciences maybe a little bit weaker than expected, stronger in DX, but you also had some, I think you also had some, I guess you weren't able to fully meet demand on some of your high content screening. So maybe just walk us through the quarter, how it played out versus expectations.

Prahlad Singh, CEO

Yeah, I think 2Q, as we've talked about on the earnings call, it played out pretty much as we expected. I think, as you said, diagnostics did slightly better than what we had. Both reproductive health had a great quarter. Immunodagnostic did very well. On the life sciences side, software was as expected as we had forecasted. instruments you know on the platform side you know we've got a very strong backlog and on the reagent side you know we were low single-digit growth so it's pretty much played out you know with a little bit of nuance up and down here and there but pretty much along what we had thought it would do great okay I mean going into farmer biotech I think it was down mid single digits positive of X software.

Operator

I mean, the commentary did seem to be a little bit more optimistic, I think, or constructive than it has been in the past. Are you seeing that you're having conversation with customers and where the budgets are actually turning into orders? And is this revenue is more likely to impact later this year or more into 27?

Prahlad Singh, CEO

Yeah, I think pharma biotech, the phenomenon and has not been, you know, just from the last quarter. I think, you know, I would say there was a lot of uncertainty last year that carried into 2025 that came from, you know, a bunch of issues, whether it was tariffs in, tariffs out. And I think, you know, for us, what we use as a marker is, you know, the meeting of Pfizer at the White House sort of was somehow a key point in the turn and then brought certainty into the investments and the spending and then sort of it brought through a start of the resurgence of pharma biotech after a prolonged period of time and I think the calming down of the chaos allowed for pharma biotech customers to start planning and reinvesting back to what pretty much normal should look like and I think we've seen that continuously over the past several quarters where the investment in pharma biotech is gradually coming back to what normal should look like. And I think it's going to continue to play out, especially now with the sort of resurgence and all the, you know, engagement that you are seeing with new modalities and technologies such as AI playing a role. So that is adding an added resurgence to the end market.

Operator

Helpful. I mean, we just had Bruker up here, and I figured I'd ask you this, too, because you guys talk a lot about AI. They made a comment that they think that AI spending has likely impacted to some extent normal spending on life science tools, your more traditional life science tools. Do you sign on to that? Maybe it's not your high content screen, maybe other parts of your portfolio where there's just been a reallocation of resources maybe this year that will translate into more demand maybe for your tools, you know, next year or 28, as they look to, you know, train their models that they've been.

Prahlad Singh, CEO

Yeah, we don't believe so. I mean, From our perspective, I think the pharma biotech end market coming back to normal was more of a consequence of the calming down of the chaos and uncertainty and the reinvestment back. Because you've got to have investment in preclinical and you've got to have the innovation because of all the patent cliff issues that the pharma biotech companies are facing. facing so from our point of view we see that as more of a normal course of investment coming back I think the AI component is not taking power you know money out from left pocket and putting it in right pocket I think it's incremental investment that is going to go on and it's the beginning of it to accelerate drug discovery and development. And I think this is, as we've talked about, if you go back and listen to what we, you know, Max, Steve, and I have been talking about from the beginning of this year at, you know, investor conferences in our one Q call and our second quarter call as to how this is playing out.

Operator

And it pretty much is playing out as we had hoped and now forecasted that's great because no one's been able to forecast it makes it even more impressive um but you're right you guys like i said earlier you guys have been talking about this and kind of leading the discussion i think within um the lifeline tool space so it's nice to see it kind of play out um i mean sticking with that theme high content screening was a really big part of the conversation on on the 2Q call spent a lot of time on it um maybe maybe talk about you know how um how big that business is for you right now um what the what the funnel looks like there i know you like we talked about earlier you did have some capacity constraints um which i believe are just are pretty easily fixed by just adding more people um but yeah just just tell us about what your what the funnel looks like there and maybe what that, you know, down the line, what that could potentially mean for reagents pulling through.

Prahlad Singh, CEO

Yeah. I mean, you know, obviously high content screening is a, you know, a significant part of our platform business. It used to be around 25% or a quarter of the business. And I think now it's about a one third of it. It's increased to about a third of the business. You know, high content screening obviously is critical as you look at drug candidates as to what the impact or what the effect it's having at the cellular level. And I think with the sensitivity that we bring to it, there's a significant amount of data, terabytes of data that are generated from it. And why it plays an important role now, more specifically, is with the advent of new technology. Our high content screening platforms would generate a lot of data but basically from a scientist's perspective they were only focused on looking at the you know the the kill non-kill ratio essentially you know where the impact is having at the cellular level or not but there's also a lot of incremental data which they were not being able to leverage now with AI they are able to leverage and I think this is where we have started seeing you know a big funnel and pipeline coming simultaneously at the same time a lot of companies are starting to build LLM models around these right trying to see as to how could we build models that would allow for faster screening of drug candidates and this is where you are starting to you know we are starting to see more of a funnel and pipeline coming from non-traditional companies right companies that are a in the public domain generating data for LLM models, CROs, and, of course, the traditional pharma biotech customers.

Operator

Helpful. Like we said, I mean, you guys have been talking about AI since the early part of this year. But even still, it did feel like there was sort of a sudden change in terms of that really inflecting and coming through on the P&L. So why do you think 2Q was kind of the moment that this idea actually turned into orders and revenues for you?

Prahlad Singh, CEO

Yeah, I mean, I appreciate, you know, that sort of the impact that it was you were saying is sudden. But, you know, in our when we look at it through our lens, it was really pretty mapped out. You know, I think, as I said, when we started talking about that, this could potentially have an impact at the beginning of the year. You know, there was some signs of it coming from our, you know, account managers and people in the field, you know, who were seeing more interest from traditional and non-traditional customers and inquiries coming in. You know, if you go back and listen to my 1Q earnings call, we actually spent about 10-15 minutes talking about as to how this could potentially play a role in drug discovery. and then when we came to the second quarter we actually started seeing that in concrete evidence in terms of it translate those inquiries translating it into orders and and I think the resurgence was strong enough that these instruments each one of them take about 10 to 12 weeks to make so it's you know it's these are pretty complex instruments so that's why you are sort of, we saw more of a funnel which was big enough that we ended up with a stronger backlog than we have seen, I don't know, maybe even before COVID.

Operator

Okay, when we think about your broader portfolio, are there, I mean, we talked a lot about high content screening, but are there other parts, maybe on the instrument side or elsewhere, that we should be thinking about AI demand being a future driver?

Prahlad Singh, CEO

Yeah, I mean, we talk a lot about high content screening, A, because of the sophistication of the instruments. And, you know, these are close to a million dollars each, right? So they are big ticket items. But I think if you look at it from a drug discovery perspective, right, a researcher is looking at tissue cell, you know, in vivo, human cells, designs. So sort of our focus has been how do we build a platform portfolio and then back it up with the reagents that those platforms would need so that you have the you know the razor razor blade model going on so you've got the high content screening platform you've got in vivo imaging which still plays a very important role and on the reagent side you know we've got now a full suite of portfolio which we will continue to build on, similar to the acquisition that we did today, that would allow us to sort of have, you know, the benefit of placing all these equipment today.

Operator

Gotcha. I mean, just something came to me. Is there a reason that your high content screen, why is it open versus or would there be a benefit to having it so that it you know like you have a luminous sequencer you have to use the the this consume i mean is there is there a reason not to try to close it and have it be you have to use revity consumables and and that's just or no what what is the the thinking there i mean on the diagnostic side it tends to be closed you know we have closed systems simply because you have to go through the regulatory hurdle of getting approval on the whole workflow our belief is that we work with researchers hand in hand you know as i've

Prahlad Singh, CEO

said this publicly if you go to most labs you will be you'll have a tough time differentiating who is a gravity employee and who is a bench researcher from the institute and then we don't want to encumber or or force our customers to only use our reagents we think that the merit of our instruments and our reagents stand by itself and I think our goal is how do we build a workflow full workflow that is convenient and easy for researchers to use and then I think the both of them stand independently on the merit of their own basis.

Operator

Maybe going to A&G I mean I guess I I mean, results there, but X software, I think it was pretty similar to pharma biotech. And I think up low single digits. I mean, is this, how much of this was driven by like X U.S.? How much of this was U.S.?

Prahlad Singh, CEO

And kind of any, you know, interesting tidbits you might be able to add around the A&G market? yeah i think the ang market is still not what we would call back to fully normal i think there is a level of stability there but it's still not you know not what we would consider it to be normal under circumstances there a level there is a level of uncertainty around you know in academic asians as to what the impact could potentially be or what else could come through i would say it's a bit more stable in Europe than in the U.S. If I were to differentiate it by geography, I would say ANG is probably a bit more stable in Europe than the U.S.

Operator

Powerful. Maybe turning to software, like you said, came in as expected, down 20 on a tough comp, up mid-single digits for the full year, which I think is kind of below, I think you have been doing, you know, strong double digits the past couple of years. But the good news is the APV is low double digits. And so is that how we should be thinking about the business in the medium to longer term? Is that this is a low double digit growing business?

Prahlad Singh, CEO

Yeah, I mean, that's what we have it in our LRP. And it's done better than that. I think we have it at 9 to 11 percent, if I'm not wrong, in the LRP. And it's grown 12 to 13 percent. So it's done better than what we have said. You know, I think given that the majority of our software business is still on-prem, you know, you are going to continue to have these lumpiness quarter by quarter. But as you pointed out, Evan, if you look at the annual portfolio value, which is one way to look at what's the average revenue growth over a period, you know, that business has done, you know, the APB has been double digits. Just to give an example, it grew 19% last year, and if you were to take 5% this year, it averages out to 12% over two years, which also happens to be the APV of the signals business. But I think more importantly, if you look at our signals business, 2026 is the launch of some of the most important NPIs in the history of that business. You know, we launched Biodesign at the beginning of the year, Synthetica. We are in the process of, you know, getting Signals AI out, and it's been just recently launched. And we've got Logistics coming out, which is a key AI-based portfolio, a workflow. With these four key launches, I think, you know, the growth of the Signals business has just started. And then that's, you know, what I've said over the past couple of years. all the investment that we've made into the signals business during the pandemic and from then on, you know, is going to pay off now over the next few years with the launch of these key NPIs.

Operator

Gotcha. And maybe adding to that, I mean, these new products that you're introducing on the software side, I believe are all SaaS only. And so as you can tell us, where are we in the journey of going from on-prem to SaaS and then with these new products, if I'm correct, being SaaS only is kind of the goal or do you think this is ultimately like 100% SaaS and kind of what's the trajectory to be getting there?

Prahlad Singh, CEO

Yeah, I think we are somewhere between 32 to 34% SaaS right now. I mean, I think we will probably end up around 60s, you know, in the mid 60s in terms of what this business will be in SaaS. I think there will be always a component of our customers base for the signals business that will be on-prem, either for regulatory reasons or for in-country security reasons. So I think that's the assumption that I would make.

Operator

Okay, but is that true that all the new products are SaaS-only? All the new products are SaaS-only. Okay.

Prahlad Singh, CEO

Yeah. And then I think that also gives us an opportunity for incremental ways to look at revenue growth whether it's through you know as AI comes into play whether it's through computing or through storage it just gives us incremental revenue opportunities as we look at it right.

Operator

Immuno DX I think it just hasn't been getting a ton of attention is because it's been doing so well. I think, I mean, I think high single digits has been growing. I mean, is this, LRP is 9-11 also, I believe. Is when, I mean, do you think we can get to those, the low double digits in this business? And what's kind of been helping drive the strength there?

Prahlad Singh, CEO

Yeah, I mean, I think, look, we are very happy with the immunodiagnostics business and you know as i said when we acquired this company in 2017 since then as you pointed out it's been humming along at a pretty good rate i think the key as i've said the key for immunodiagnostics is autoimmune testing in my view is still in its nascency i mean it's still not mains in mainstream clinical medicine you know you still have to go through several hoops before you are able to see an autoimmune specialist and and I think that will continue to drive growth especially as you move from standard ANA screening to looking at you know specific disease areas around neurology or nephrology you know there's a lot of undiscovered territory here which is protected by IP and that provides the opportunity for this the business to grow at, you know, at what it has been growing. You know, ex-China, it has grown, you know, in double digits. I think we are very happy with that growth. So I'm not sure I'm going to push that team to continue to do a lot more. If they can continue to keep the pace of 10% growth, I would be very happy.

Operator

Gotcha. I mean, you said ex-China. So what has China been doing in Amino do x dx and then where um when do we kind of lap those um those headwinds i mean i think it's right now it's we are showing pro forma our revenues are pro forma anyway so those are not accounted in our numbers uh we expect that to close by the end of next year and then i think that's when that business would be out gotcha um reproductive health um i think you know that business has been strong as well. I think you've been seeing very strong interim placements and you've had gel. Maybe not just talking about gel, but you did mid-teens in the first half, forecasting low to mid-single digits in the back half. Maybe talk about some of the puts and takes there.

Prahlad Singh, CEO

Yeah, I mean, just to be clear, we are forecasting low single digit in the back half.

Operator

Okay.

Prahlad Singh, CEO

And, you know, it did well. Even NextGel, I think reproductive health grew 10 percent. And that business has been, you know, again, I've been talking about that for the past decade. Reproductive health, specifically newborn screening, has still a long way to go. You know, there are still 100 million newborns that are not tested. So geographically, that provides us a lot of opportunity despite a declining birth rate. And there are a lot of rare diseases now which are starting to see the advent of therapeutics coming out for them, right? Duchenne muscular dystrophy, spinal muscular atrophy, MPS2, you know, these are starting to see therapeutics either get approval or being in the late stages of clinical trial. But identifying patients that would benefit from these diseases is still in its early stage and that's where our newborn screening platform which is fully ingrained in our cross major geographies as a contiguous workflow that has a regulatory approval provides the distinct advantage by which it continues to grow great maybe on on I think it is set to expire in the middle of next year.

Operator

Maybe just talk about, maybe remind people exactly what you do there, how it's been going in England, and maybe how we should think about a continuation of that contract and when we might know about that. Yeah.

Prahlad Singh, CEO

Yeah, I mean, look, GEL is a great partnership with Genomics England, and they are a great partner and a pioneer in this area of doing population genomic screening, especially for newborns. And, you know, we've been very supportive of what UK's initiatives have been since the COVID day. So, you know, we established satellite labs across the country during COVID and ran tests and that sort of eventually benefited us in continuing that partnership with Genomics England, for example, on population screening. I mean, you know, the partnership is going very well. we continue to do screening and we will and you know and we are in discussions to see how we can prolong and you know and then sort of extend this to adults or other avenues I mean obviously this is a you know the government's prerogative and they go through their regular process of doing tenders and and then getting approvals etc for budgets and you know we remain hopeful that we will be there and for the long term but we've got other contracts and other partnerships with other countries and other institutes that we are continuing to explore and in due time you know we will you know those that are that allow

Operator

us to publicly announce we will announce those two okay are there any of those would that be doing something similar to newborn screening or be something it's similar to what gel is basically like doing newborn all genome sequencing And have any of those discussions or anything been made public?

Prahlad Singh, CEO

I mean, we've got a lot of discussions going on, none that we have publicly announced yet.

Operator

Helpful. Okay. And then maybe just wrapping up on reproductive health. I mean, again, the mid-teens growth in the first half versus low single digits in the back half. Is gel the main driver of that just as you lap that, or are there other things that we should be thinking?

Prahlad Singh, CEO

I don't think we heard it strong.

Operator

I mean as you pointed out earlier with a strong instrument placement and you know in the first half of the year and which we you know right now expected to normalize you know we expect it might do better than that but that's what we have in our guidance okay maybe on life sciences I think you're looking for low single digits for the full year I think you've talked about it kind of being a continuation of what you've been seeing, but there is kind of an uptick implied on that in the back half. So I assume part of this is software comps getting easier, but you also have some backlog in both instruments and reagents. So maybe just kind of unpack that for us and really what's driving that modest improvement in the back half?

Prahlad Singh, CEO

Sure. I mean, you know, I think as you point to software, you already pointed out, that's correct. You know, it just sort of gets back to, you know, new contracts coming in and it's forecasted as such. I mean, on the life sciences platform side, you know, we expect that to grow mid-single digit in the third and the fourth quarter. You know, life sciences reagents grew low single digits in the second quarter. We expect it to grow low single, but in the third quarter but better than what it did in the second quarter and then I think we'll continue to see continuous improvement. I think the one way to think of it is that as you are getting these slug of platform instruments getting placed and go through their validation sort of reagents tend to follow a couple of quarters later. So the more quickly we can install these equipments get them validated then the reagent flow through starts coming. So I think you will see that uptick continuing at a regular rate over the next couple of quarters. I think as I said right some of these instruments take 10 to 12 weeks each unit to be made so you should sort of put that lag time in place.

Operator

I mean you didn't mention consumables taking some time to kind of flow through. Is there is there a way that you could frame the potential opportunity for, I mean, these are expensive machines, so I mean, how much do people typically spend on reagents or in a given year on these instruments?

Prahlad Singh, CEO

Yeah, I mean, it's tough to sort of quantify it because it depends on where it is, right? It could be in a university in, you know, some unique place versus it could be at a pharma biotech in New Jersey which has got a very high throughput so it's tough to sort of quantify the the the reagent pull through that that comes from these instruments okay when I was sure if you're spending that much money on you know I assume it's it's meaningful right yeah I mean that's that's the point I mean because if you're spending you know close to a million bucks on the instrument you're not going to mothball it and wrap it in plastic and keep it The whole idea will be to have continuous throughput going through, especially with the advent of AI. I think that's the one piece that I think we and we'll continue to talk about this for a couple of more quarters till it sinks in. Because, you know, recall, as I said, first, a research scientist's focus would be only on the region of interest. that is this drug candidate having the impact on the cell that I wanted to know that we were hoping to and that's was the area of interest they were looking at but there is another now especially with the launch of OptiQ which we just launched which has four cameras right there is there are terabytes of data now generated which they can now take combine it with the proteomic and the genomic data on that drug candidate and be able to extract as to the validity and activity of that drug candidate which at a much faster pace which they were not able to do prior to AI.

Operator

So as that starts becoming mainstream and this still again mind you this still is being done only in some institutes as this is taking place once this became becomes mainstream this is going to really take off no I mean it's interesting you say that and so like I was going through my mind as you said that was I'm asked the question is maybe don't know exactly but I mean in the past were the were these instruments being constantly used and if not like it sounds like this opportunity enables that Where you're just going to be constantly running these machines because you're finally actually able to, you're going to be doing new experiments. You're not just going to be looking at one specific type of thing because you actually can, you know, analyze the data now where you probably physically couldn't before.

Prahlad Singh, CEO

I think the instruments were being used, whether they were used constantly or not, depending upon, was dependent upon how busy the lab is. But not all the data that was being generated. by the instruments were being used. I think it's more that that data was not being used. But now with the ability of AI, you are able to take that, combine it with the proteomic and genomic data, and be able to look at it in a much more wholesome manner, much faster, and get more productivity and efficiency out of the instrument.

Operator

So there's no reason to think that utilization slash pull-through should go higher now. It was being run.

Prahlad Singh, CEO

But I well it depends right. I mean not again. It depends on the lab Okay, yeah, the instrument right so that if if I have a whole lot more samples and if I have only one instrument The other benefit is now you have another instrument. Yeah, that's where that's where it comes there Because remember now you'll also have a whole lot more drug candidates coming because of in silico medicine right? So this is actually going to end up being a validation bottleneck, which means that you'll either have to get more real estate, place more instruments, and do more screening because you have a lot more drug candidates. And this is where, if you recall, we started talking about this at the beginning of the year, that we feel that screening of drug candidates will actually become a validation bottleneck. And to some extent, we are starting to see that, right?

Operator

The early signs of that great I think I think probably the biggest question we got I guess earlier this year on Revity or one of the one of the biggest was on the on the margin guide and you guys had confidence in it people question your ability but now you've actually raised the guidance twice this year part of his tariffs but but also just good execution. And I mean, I think it's, I think the margins, I think that the guide still, I mean, you raised it, so I assume you have confidence in it, but there is still a tick up, and I think it goes to the low 30s in the 4Q. I mean, how should investors bridge that improvement into 4Q? and what's the potential for further margin expansion, I guess, because you will have a headwind from the tariffs. So, I mean, how should we think about that going into next year?

Prahlad Singh, CEO

Yeah, I mean, you raise a couple of very pertinent questions. I think of all the aspects of our business, I think the one where we have the greatest level of confidence is in our margin story, you know, because a lot of that is in our control. I mean, just to the point, Evan, you said we've raised guidance twice. Even if there was no tariff tailwind, we would still have raised our guidance on margin. And I think this is now, with the tariffs, you get a 20-25% bips, you know, obviously tailwind. I think in the third quarter, all the cost initiatives that we have taken forth starts bearing fruit. And we start seeing the impact of that in the third quarter. And in the fourth quarter, you will have your natural, you know, upsurge in volume that you see towards the end of the year. So I think, you know, we have a very high level of confidence in our margin story. And I'm just talking about what it is for 2026. You know, beyond that, if we start seeing the, you know, getting back to 4% to 5% organic growth. So if you take the 20-25% bips out, you're still, your baseline is still 28.5. And you get to 4% organic growth, you get another 50% margin improvement. And for our business, we get 40% incremental margin. So if we are in our LRP range of 6% to 8%, that gives you 75% operating margin improvement. So that's why I've said, of all the things, we have the strongest confidence is in our margin story.

Operator

All right, great. One second left, so perfect timing. Thank you so much for coming, and it's great to see you. And thank you, everyone, for joining us.