Conference Transcript - RVTY 2026-09-15

Robbie Bamberger, Analyst — Baird

All right, great. Good morning, everyone. My name is Robbie Bamberger, senior research analyst covering life science and diagnostic. I'm very pleased to be joined this morning by Steve Willoughby, senior VP of investor relations at Revity. Steve, thanks for making the trip. I guess, you know, before we get into segment specifics on the company, would you just mind giving us a quick breakdown, Snapchat of the company coming off of Q2 earnings print? what went right in the quarter, and anything you'd like to just point out to investors about the quarter in general?

Steve Willoughby, Head of Investor Relations

Sure. So maybe, thanks for having me, first of all. Maybe just a quick overview of the company for those who are not familiar. Revity, a couple of years ago, was previously known as Perkin Elmer. We divested 30% of the company, including the Perkin Elmer brand name, rebranded as Revity in the middle of 2023. Revity today is in the life science tools and diagnostics industry, and what I'd like to say is what we do in life science tools and what we do in diagnostics is typically a little bit different than other publicly traded companies. So specialty diagnostics, and then on the life science tool side, really focused in preclinical R&D, providing instruments, consumable software that are used by academic and pharma biotech customers to really drive innovative science, which I'm sure we'll get into. As it pertains to the second quarter, the second quarter for us overall was better THAN ANTICIPATED, I WOULD SAY SORT OF TOP TO BOTTOM LINE, YOU KNOW, REVENUE, ORGANIC GROWTH, MARGINS, WE'RE ALL A BIT BETTER THAN WE WERE ANTICIPATING. YOU KNOW, WHEN YOU BREAK THAT DOWN, WE HAD VERY STRONG GROWTH WITHIN OUR DIAGNOSTICS BUSINESS, BOTH IN REPRODUCTIVE HEALTH AS WELL AS OUR IMMUNO-DIAGNOSTICS BUSINESS. ON THE LIFE SCIENCES SIDE, OUR SOFTWARE BUSINESS WAS DOWN REALLY DUE TO COMPS AND TIMING, WHICH sure we'll get into. And then our consumables and instruments on the life sciences side both grew in the low single digits, which were in line with our expectations, maybe a smidge below. But as we talked about, we built some fairly significant backlog, which should help us here as we move into the back half of the year.

Robbie Bamberger, Analyst — Baird

Awesome. And maybe just has anything changed in your view about Q3 or 2026 in the six weeks since reporting Q2?

Steve Willoughby, Head of Investor Relations

You know, we're not going to provide any inter-quarter commentary. So I appreciate the question, but we'll leave that for when we report 3Q.

Robbie Bamberger, Analyst — Baird

Yep. Makes sense. And then maybe just starting on life sciences, that's about half of revenue for Revity. Organic growth went from 3% in the first quarter down to negative 3% in the second quarter. That swing was essentially that 20% software decline, which you mentioned was due to the comp and the contract timing issue versus anything really demand related there. So life sciences solutions was up low single digits. Maybe just focusing on life sciences solutions, can you walk us through what drove that low single digit growth in the quarter in Q2 between both, you know, instruments and reagents?

Steve Willoughby, Head of Investor Relations

Sure. So maybe first, from an in market perspective, academic and government for us is roughly a quarter of our life science business. So it's about 12% of the total company. You know, that is, I would say, consistently soft, stably soft we haven't you know obviously there were some fairly significant pressures throughout much of last year so far this year with academic and government including our outlook for the back half is that it doesn't really change all that much doesn't get much better doesn't get much worse from a pharma biotech perspective again the end market was pressured for the last several years including 2025 the pressures last year again were fairly policy induced related I would say we've started to see some recovery in pharma biotech, you know, starting, you know, I would say in mid to late February. And that recovery, you know, has continued through, you know, June and July. And so I think it's, you know, we're starting to, customers are starting to move back to, towards more normalized levels of investment spending on the pharma biotech side, particularly amongst the larger customers, which even though we are pre-clinically focused, our products really go into preclinical research, you know, the bulk of our revenue goes towards from those medium and larger sized pharma companies. So, you know, as it relates to the actual product lines, you know, within instruments, you know, we commented that we exited the second quarter with, you know, the strongest backlog we've seen in the last three, four, probably even five years. And so it's really being driven by one category of instruments so far, which is what's called high-content screening, which we are the market leader in, where I would say in high-content screening, you know, these are, we sell at the high-end million-dollar instruments, at the mid-range, you know, several hundred thousand-dollar instruments, and, you know, we came out with a new high-end instrument in late February, and, you know, it's really taken off, and, you know, we can probably talk about why that's been, but we saw sort of an inflection, not just a pickup in demand, but an inflection in demand for these systems starting in mid to late May. And they typically take us several months to build. And this is a brand new instrument. So it maybe takes us even a little bit longer than normal, just given the complexity of a brand new instrument. But we saw that change. And so we didn't get those new products right out the door in the second quarter. On the consumable side, we did have actually, built even a little bit of backlog in consumables, which is not typically normal, but we had some larger bulk orders that just didn't get done in the second quarter and will get made up here in the third and fourth quarter.

Robbie Bamberger, Analyst — Baird

Yeah. Maybe just double clicking on instruments there. You talked about that strongest backlog in three to four years. What does that actually represent in terms of weeks or dollars? Is there any way to size that? And then how much should we think about that converting in Q3 and Q4 maybe into 2027?

Steve Willoughby, Head of Investor Relations

Yeah. For a variety of reasons, we have not quantified the backlog or booked a bill, but let's just say it's, you know, orders, you know, outpaced revenue. And so it's definitely above one. You know, we will start delivering those instruments here in the third quarter and in, you know, in the fourth quarter. It's one of the reasons why in our guidance assumptions for the back half of the year, you know, we're assuming life science instruments goes from being up low single digits in the second quarter to mid single digits in the third and fourth quarter. It's really being driven by that high content screening where the other instrument categories that we offer, we are not assuming any improvements in those business lines over the remainder of the year.

Robbie Bamberger, Analyst — Baird

Yep. And then on reagents, you've been growing at low single digits last two quarters. You now got into low single digits again in Q3 and then a step up to mid-single digits exiting the year. I guess what gets you there in Q4 up to mid-single digits?

Steve Willoughby, Head of Investor Relations

So as I just mentioned, we have some larger orders that were not fulfilled in the second quarter, which we will fulfill here in the third quarter, which helps reagents within the low single-digit range, probably a little bit at the upper end of the low single-digit range versus in the second quarter where it was at the lower end of the low single-digit range. As we move into the fourth quarter then and stepping up into the mid-single-digit range, it's really just due to some easier comps. So we're not assuming any underlying market improvement in our outlook. There could be maybe some of the little bulk stuff that gets pushed even into the fourth quarter that could help a little bit, but it's really just driven by comps. I would say the one thing to understand about our guidance is we're not assuming, while I do think that the market could be recovering right now, we're not assuming any further market recovery in our assumptions.

Robbie Bamberger, Analyst — Baird

And then on China, how are reagents growing there versus the U.S., and what's driving the China reagent growth there?

Steve Willoughby, Head of Investor Relations

Yeah, so China Life Sciences is about 7% of total company revenue now. And as you probably well know, we announced that we are divesting our diagnostics business, the majority of our diagnostics business in China. And so excluding the diagnostics piece that we're divesting, China overall for us is about 8.5% of revenue today, 7% is life sciences. Our life science business in China, which the majority of it is reagents, has been the strongest growing region for us geographically, year to date, as well as over the last several years. And our life science business in China, I think, has also been performing better than any of our peers. When you look at all the pure commentary, we've been putting up much better growth numbers over the last several years. And so I think the question is why? You know, why are we doing well in life sciences in China? And I think there is a connection here to I'm sure we'll get into it related to A.I. as well. As you know, China's pharmaceutical industry has shifted its R&D over the last handful of years to focus much more on innovative medicines and innovative science. You use our consumables and our instruments to do innovative science. And so, you know, our instruments and consumables are not used in, you know, we don't sell liquid chromatography. We're not doing the same thing over and over and over again. We're working and focusing on new science, and it plays right into the priorities of what the Chinese industry is focused on right now. So our overall life science business continued to grow, you know, above company average in the second quarter, you know, with reagents leading that strength um i think reagents were double digit growth in the second quarter for example in china and then overall just on competition you've said that you've seen no share change over the past couple quarters how do you measure that what gives you confidence and then where do you think you're gaining share if anywhere yeah so yes i do think that we have continued to uh perform you know in line to above our peers recently certainly over the last several of years where the industry has been under pressure, you know, where that's coming from, I would say it's coming from a variety of factors, from, you know, feedback from the field. You know, we're not seeing any meaningful changes out in the, you know, the marketplace itself. But also, you can just look at some of the reported numbers. You know, our life science reagents were up low single digits. Our peers were up low single digits against easier comparisons. You know, here are the most recent quarter. And as I talked about, we built some backlog even in reagents, which will, you know, come through here in the third and fourth quarter. So, but no, we're not, you know, the competitive advantages we have, you know, first and foremost is innovation. You know, again, people buy our products when they want to do something new or different. And so by us, you know, driving significant innovation and consumables, that's what, why people want to buy our products. You know, I think we have the best customer service in the industry. You know, on the antibody side, more than 95% of our orders are delivered next stay. In addition to having very high quality products, which I would say it's very important that we manufacture nearly everything that we sell, unlike some of our peers that have recently come into some controversies that you might be aware of. And in addition to all of that, we're typically viewed as the value price player as well. And value priced, but still have very strong margins in this business.

Robbie Bamberger, Analyst — Baird

Maybe just double clicking on the end markets. Within In pharma and biotech, you've noted some improvement there. Maybe can you say where you've seen the improvement? Is there any particular customer subsets that are doing better than others, whether it's like early stage versus later stage?

Steve Willoughby, Head of Investor Relations

On just reagents or overall?

Robbie Bamberger, Analyst — Baird

On reagents.

Steve Willoughby, Head of Investor Relations

You know, I think that, you know, we saw a lot of reagents to academic and government. And as I mentioned, you know, we haven't seen any meaningful change there. I think, you know, what we need to see within academic and government is probably some more policy stability so that those customers feel confident enough to go out and actually start spending the budgets. I know there's a lot of focus on NIH funding. Is it up? Is it down? I think that's important, but I think another important question is, do those academic scientists feel comfortable and confident enough to actually spend the money that they're getting? On the pharma side, 85% plus of our pharma biotech-related revenue is to medium and large pharma companies. And so yes, we sell to those small biotechs, but they're And so what really moves the needle for us is the larger companies. And I think that's where you're starting to see those customers now, six, nine months post Pfizer going to the White House and starting to gain some clarity on the future of how the pharmaceutical industry is going to be in the future. I think you're starting to see those customers begin to return to more normal spending patterns.

Robbie Bamberger, Analyst — Baird

Maybe moving on to signals, organic growth swung from mid-single-digit growth to down 20% in Q2. That was due to that contract timing issue that you talked about, the tough comp. But annual portfolio value kept growing, double digits you noted, ARR grew mid-20%. So can you maybe just reconcile those two pictures for us, walk us through the mechanics of H2 accelerating from sort of down 20% in Q2 back up to high teens in the second half?

Steve Willoughby, Head of Investor Relations

Sure. This is my favorite topic, which is software revenue recognition. And today of our software business, which is 9% to 10% of our total company revenue, today a little over a third of our software revenue is SaaS in the cloud. And if you're not familiar with GAAP accounting, SaaS, software revenue, you recognize the revenue on a monthly basis, evenly over the contract. Call it two-thirds or so of our software revenue is still legacy on-premise licenses. And the way GAAP revenue recognition accounting works is it's very lumpy. You have to recognize a large portion of that revenue when the contract is signed or renewed, which can cause the lumpiness in organic growth, which is why we talk about this metric annualized portfolio value, or APV. And APV is a metric that basically looks at the growth in our software business if we were allowed to recognize revenue of all contracts evenly over the life of the contracts. And that APV metric has continued to grow in the low double-digit range, call it 12% or so. And I think another way to look at it is the APV is what our organic growth will average in the future without any new business wins. And so as we move into the back half of the year, the software business is the one that we have the highest level of visibility into just because of the contract renewal nature of the business. And so, yes, it was down 20% organically in the second quarter, which was against a 35% positive comp. Obviously, there's just a contract timing dynamic. We're assuming the software business grows high teens in the third quarter and mid to high teens in the fourth quarter. And you'll feel pretty good about that.

Robbie Bamberger, Analyst — Baird

Yep. And then you have a really dense launch cycle this year, biodesign in April, signals AI in June, and then anthropic connector in July. Signals for startup was in July also. So how do you position those competitively and how do they start contributing to revenue?

Steve Willoughby, Head of Investor Relations

Yeah, I would add a couple more to that list, too. I mean, you know, back at the beginning of the year, you know, we announced the launch of a AI model marketplace called Synthetica in collaboration with Eli Lilly. And, you know, before the end of the year, we're going to be launching another new offering called LabGistics, which is another AI native, really unique product offering that's coming out later this year. So we've talked about 2026 is easily the most important new product launch year in probably the history of our software business. Just we've got three major new product launches, and then I would say some of these, you know, Signals AI, the Anthropa Connector, some of these other ones honestly really weren't even on the drawing board 12 or 18 months ago and were things that as the market has changed, we've been able to really accelerate some innovation in this business. With any new product launch, it takes a little bit of time to get it out in the customer's hands, go through RFPs and contracts and whatnot before you start really seeing more material revenue pick up. So our assumption for the contribution here in 2026 is fairly nominal, but you should start to see it add more revenue beginning next year than the year after. I think the other thing to understand about our software business that's changing is, you know, historically our revenue model for software, whether it was SaaS or on-premise, it was all seat or license-based. So based off of, you know, in one way or another, the number of people using the product. And that will continue. But with many of these new products that we're coming out with, Synthetica, LabGistics, Signals AI, the Anthropic Connector, we are adding a consumption element to the revenue model. And so you still have to have a seat or a license, but for many of these, it'll be based off of compute usage. So how many tokens, how much compute are you using in these different product offerings? And potentially even how much storage you're using, which maybe we'll get into, but I think just data storage is changing in the AI world. And so we might need to account for data storage in addition to compute usage from a revenue perspective. Yep.

Robbie Bamberger, Analyst — Baird

And then last week you announced a deal to acquire human cell design. Wondering if you'd just give a little bit of background about that deal, walk through the strategic logic there.

Steve Willoughby, Head of Investor Relations

Sure. So, you know, I would say HCD, it's funny, you know, early in the year we acquired a tuck-in software acquisition called ACD. Now we're acquiring HCD. So whatever's next is going to be something CD. um hcd is a a novel human relevant cell line that if you think about and where we're really focused here is um you know helping customers analyze what is going on with their drug in a cell in an animal model and something that looks like a human before obviously going into a human clinical trial and this is a really novel set of cell lines one in particular is this pancreatic cell line that so far has been really being used in metabolomic research focused on diabetes and GLP-1s. And you're using the cell line to effectively see how your drug is interacting with these cells, which is very important for those types of conditions. And it plays right into the heart of our strengths, which is in high content screening and high throughput screening, where we provide the instruments of the consumables to evaluate and analyze what is going on with cells preclinically. And so it's good. And I think it's a, you know, it's a small tuck-in deal, but in a very exciting area of science that is extremely complementary to what we're already doing.

Robbie Bamberger, Analyst — Baird

That's great. Maybe moving to diagnostics, you know, organic growth was 9% in Q1, accelerated to 11% in Q2. That was above your plan. And then you raised full year to high single digits there. So maybe just set the stage on what's driving that accelerating growth.

Steve Willoughby, Head of Investor Relations

Yeah, I would say we've seen better growth in both the reproductive health side of diagnostics as well as immunodiagnostics. Immunodiagnostics, for background, the bulk of our immunodiagnostics is rare autoimmune testing. And we took our assumptions on that business to high single digits for the full year. And I would note that that high single-digit growth this year is, despite probably a couple hundred basis points of headwind from some pressures we are facing throughout all of this year in our latent TB business. Those pressures should abate as we go into 2027, but I think it's worth noting that we're growing high single digits this year with those TB pressures. On the reproductive health side, you know, our LRP assumption for reproductive health is 2% to 4%. And when you look back over the last few years, we've been growing in the 5% to 6% range. You know, year to date, we're growing double digits, you know, very strong growth. A part of that is incremental revenue contribution from a DNA sequencing contract that we won a year ago with the U.K. government, whereby it's called Genomics England, and the organization is. And we are doing sequencing of newborns for this project they are doing. So that, in the second quarter, added about 500 basis points to growth. But even excluding this Genomics England contract, our reproductive health business still grew about 10% in the second quarter, which is phenomenal, especially considering that births globally are declining 1% to 2%. So market growth is negative 1% to 2%, and we're growing double digits. Part of that is strong instrumentation placements, but we've also had very strong, you know, diagnostic test demand as well. And it's a combination of geographic expansion, greater adoption of a broader array of our portfolio, uptick of new products we've come out with. It's sort of the algorithm we laid out on Investor Day two years ago.

Robbie Bamberger, Analyst — Baird

And then on Genomics England, which you just mentioned, you know, where do the extension discussions stand there and then expectations into the back half and into 2027?

Steve Willoughby, Head of Investor Relations

Yeah, so right now, this Genomics England contract, it started in the middle of last The way it's currently structured, it will run through the middle of next year. You know, as we've talked about, we continue to remain in active discussions with them. I would say, you know, on extending the contract, continuing to do that, I would encourage you to maybe do a quick search. There's been a couple of recent BBC articles out about Genomics England and some of the very positive clinical outcomes that are happening because of this work. There have been some babies who have, their parents have opted into this program to have their DNA sequence and have been identified as having some extremely rare conditions which, if caught early enough in life, can be treated and managed and lead a normal life instead of having what otherwise would be a terminal illness. And there was another article written by the BBC just in the last two weeks. So it's pretty cool being part of this project, which I think also from a financial perspective also bodes well that it should hopefully be continued. If you're having these positive clinical outcomes, more and more parents are opting in to have their baby's DNA sequence to be part of this. So, you know, it's really, I would say, having some momentum. But, you know, until it's extended, we're not going to assume anything either.

Robbie Bamberger, Analyst — Baird

Appreciate that. Good program. And maybe thinking about immunodiagnostics, it was mid-single digit, then high single digit growth the last couple quarters. Your longer term plan is 9% to 11%. So what can consistently get you to that 9% to 11% growth? Does that China immunodiagnostics divestiture help you get there? or can you do that even without that divestiture?

Steve Willoughby, Head of Investor Relations

Yeah, I mean, so the China divestiture is now excluded from our pro-forma results. I would say that the pressures we faced in China have really been masking what has otherwise been some very strong results in our immunodiagnostics business. Our immunodiagnostics business, excluding the China piece, has been growing in the high single digits to low double digits over the last one, three, five, ten-year period, whatever period you want to look at. you know, it's been performing in that range. And the drivers to that are very strong market growth. You know, the market growth for, you know, esoteric autoimmune is probably growing in the 6%, 7% plus range. And then on top of that, we have a strong cadence of new products in additional like emerging areas. And then also very strong geographic penetration in the U.S. So we're still under penetrating the U.S. and we're growing very strongly in the U.S., which is helping us versus the market as well.

Robbie Bamberger, Analyst — Baird

Yeah, I wanted to touch on AI a little bit more. You made the case that AI generates just more hypotheses that have to be physically validated. So what's genuinely differentiated about Revity's position there to win as more AI is essentially being used?

Steve Willoughby, Head of Investor Relations

I'll reiterate some past comments, which is we believe that Revity is one of, if not the best position company to benefit from how AI is changing science. And, you know, I think that science is different. How you do science today is different than it was 12 months ago. And with AI, AI can allow customers to really process and manage and use vast quantities, vast data sets. That some of these data sets are so big that 12 or 18 months ago, they literally could not be used. And I think that is probably understanding that and what the ramifications of that are. I think it could be very meaningful to, you know, the future and the future of Revity. You know, our products on the life sciences side are used, you know, to test preclinically, test drugs preclinically. And I think most people are now in agreement that AI is making it easier to come up with new hypotheses, new drug ideas, which is likely to lead to more drugs being invented overall. all. I think many people now are also in agreement that you are still going to need to test those drugs. You can't just simulate them in the computer. Our products are used to do that wet lab research. And just using the high content screening example, our high content screening systems are these super high resolution imaging systems, imaging of what's going on in a cell with your drug. It generates so much data, terabytes of data per instrument per day, that in the past, it was not possible to actually process all that data. But now with AI, you can. And so it's changing how some of these products are even being used, which ultimately, I think, will lead to more refined and hopefully better drugs, which I think is one of the reasons why we're seeing the inflection in demand in high-content screening so far. But it would make sense, though, that over time, you start to see improvements in other areas as well.

Robbie Bamberger, Analyst — Baird

Yeah. And you mentioned some orders from non-traditional customers building AI discovery platforms. Can you maybe size that? Like how many customers, what they're buying? Is it a handful of orders?

Steve Willoughby, Head of Investor Relations

Yeah. Unfortunately, I'm not going to provide specifics on that. But I would say we have been seeing demand from both, improvement and demand from both traditional as well as non-traditional customers. I would say the uptick or inflection in orders is probably more from traditional customers than it is from non-traditional customers. But the non-traditional customers, I think it's not insignificant and it's new. So I think it's noteworthy as well.

Robbie Bamberger, Analyst — Baird

And as we're just approaching the last minute, maybe just capping off, what do you think are the two biggest opportunities for Revity over the next year?

Steve Willoughby, Head of Investor Relations

Yeah, I would say the thing with Revity, we've gone through this dramatic transformation. We did all these acquisitions during the pandemic. We sold 30% of the company. We rebranded as Revity. We've spent the last four or five years really driving a number of different operational efficiency programs. In 24 and in 2025, we bought back 15% of the company in two years. We just paid off a huge bond in July two months ago, so our leverage is in a very good spot right now. We've made dramatic improvements in our free cash flow and free cash flow conversion. We're running over 100% free cash flow conversion year to date, for example, which is a tremendous improvement from where it was five or six years ago, which is a long way of saying we've completely shifted the business. We've made a ton of improvements, you know, operationally. We've made a ton of improvements on the balance sheet from a cash flow perspective. What we need now, the company's in a great position, is just a little bit better organic growth. And the company is really positioned to do well because, you know, I think the last, you know, closing comment is we believe that Revity has some of, if not the highest incremental margins in the entire life science tools industry. We just need a little bit better organic growth to actually demonstrate that sales leverage. And so hopefully it's coming.

Robbie Bamberger, Analyst — Baird

Awesome. And that's about all the time we have. Please remain thanking Steve and Revity for coming to the conference.

Steve Willoughby, Head of Investor Relations

Thank you. Appreciate it. Thanks, Steve.