All right. Good morning, everyone. I'm Evie Kozlowski, the life science tools and diagnostics analyst here at Goldman Sachs. I'm joined here by Prahlad Singh, the president and CEO of Revity. Thank you so much for being here. Maybe to kick us off, you know, you had a solid start to the year, growth driven by both diagnostics and life sciences. Maybe start by walking through some of the key takeaways in the quarter and how things have progressed since then. Yeah, Evie, good
morning. Just as we look at the businesses, as you said, we had a great start to the year. You know, on the diagnostic side, reproductive health franchise continues to do very well. Immunodiagnostic to ex-China was performing well across other geographies. On the life sciences side, you know, climate single, our reagents business grew low single, coming back, as we've said now, for a couple of quarters. Academia and research did well. So it was more broad-based, and we've started seeing signs of recovery, as we pointed out during the earnings call, across geographies and across end markets. So we feel very optimistic as to what's in front of us. Great.
Sort of the other major announcement on your quarterly call is the divestiture of your China immunodiagnostics business. So maybe digging into some of the implications there, that was a drag on growth, but also on the cash flow side as well. So maybe now that you've stripped that out, how do you think about plans for reinvesting this cash flow? and any particular areas in the remaining portfolio that you would focus it on?
Yeah, I mean, again, as we mentioned during the earnings call, this is the expect to close on this towards the end of 2027. And, you know, as you said, it was a drag blow both on growth and on cash flow. So, you know, we don't expect to have a huge cash influx coming in from the acquisition, from the divestiture. But, you know, we would typically use it, whatever comes in, for typically the share buybacks, which is probably our primary target right now, or look at tuck-in acquisitions that would fill any gaps you would have in our portfolio. But primarily, I think if you would see us, we will continue to be, as we have been, aggressive in our share buyback.
Yeah. And maybe touching on some of the logistics of the divestiture itself, you know, you signed a letter of intent. And can you talk through your confidence in the level of communication that you have with the management-led buyer group and then when we should expect to see kind of a definitive agreement on the deal?
Yeah. As we've said, you know, and as you mentioned, Eve, we know the buyers. They are the management team that have led and created this business over the past few decades. We have a very high degree of confidence in their ability to run the business. and for us on closing the deal. You know, timing-wise, we hope to sign in the near future, and when we do, we'll sort of publicly announce it. But it is progressing very well.
Great. And shifting to diagnostics and maybe specifically reproductive health, which I think, you know, had a very healthy growth rate, low double digits. So I understand you had the Genomic England contribution, you had extra selling days, but there's also some Revity-specific drivers there. So maybe walk us through the moving pieces and then how durable the above LRP growth is in reproductive health.
Yeah, I mean, again, let's start from the LRP piece that you pointed out. You know, the reproductive health business has done much better than what we have had it in our LRP model. And this is despite significant pressure on birth rates that we've seen across geographies. So I think inherently and fundamentally what we have put in place in terms of geographic expansion, as we know there are nearly 100 million newborns today that are still not screened, and menu expansion with more and more emergence of therapeutics for rare diseases, there is a desire and intent to have a screening program for those diseases. You know, SMA, DMD, MPS2, there are a whole host of these rare diseases which require screening programs. So that has really been the engine of growth for the reproductive health business. You know, in terms of the extra big, that reproductive health really didn't contribute towards that. All of that came from the reagent side of the business, so on the life sciences reagent side of the business.
And I think, you know, within newborn screening, the guide does imply a little bit of a step down in growth from 1Q. How much conservative is baked into that assumption, and why shouldn't we see the strength kind of continue in that market?
Yeah, I mean, I think as you pointed out, maybe there is a level of conservatism in the guidance that we have for the reproductive health business. And as you pointed out in the first quarter, it is not just in the reproductive health business. If you look at the way we've guided for the year, we don't have any ramp in the second half at all. So I think we feel very comfortable and optimistic about the way we've guided for the year. And the reproductive health business, if you look at it, it's not that the growth that came in in the first quarter was from any one-offs or any big capex deals that we did. So we feel, I would say, very optimistic about the way we have forecasted it.
Great. And you touched on the geographic expansion a little bit earlier, but maybe dig into that a bit more. Are there any particular areas where you're finding success in penetrating new markets?
Yeah, I would say globally we are seeing markets where, you know, wherever newborn screening programs are going. And even in there, it is a twofold approach. Areas where newborn screening today has been adopted, they are taking on newer disorders which were not screened. UK and France being two primary examples, where the number of disorders that they are screening for has now increased. Italy has always been at the forefront of screening. Type 1 diabetes that they have launched, that's the only country right now that screens all newborns for type 1 diabetes. Among emerging geographies, Indonesia, India are two countries where we are starting to see an adoption of newborn screening at the more basic level, you know, TSH, PKU, basic disorders that program and prog that countries start screening for.
Great. And moving to the ex-China immunodiagnostics, you know, this grew mid-syngo-digit and 1Q. Is there a framework we should think about moving forward on the path to ramp back to the LRP target of 9% to 11%?
Yeah, I think, you know, obviously China has been a drag on that business for some time. But if you look at other geographies, right, and the U.S. is a primary example, as we said, you know, it was 5% of the revenue for Euroimmune when we acquired the business. It's around 15% to 20%. You know, rightfully, it should be around 40%, 45% of revenue coming from the U.S. So there's a lot of traction in this geography. Latin America, Asia, parts of Europe, that, you know, the incidence of detection of autoimmune diseases is still in its nascency. And that's where I think, you know, the Euroimmune business and overall immunodiagnostics portfolio will do well. I think the one piece that has been a bit of, or has dragged it a bit, has been the Oxford Immunotech business. You know, with latent tuberculosis, as you've heard, whether it's around immigration policies or around testing for latent TB, has seen a significant slowdown. So, until that comes back up and ramps up, that will be the one, I would say, the opposite side of it, where it will be a bit of a drag on the portfolio.
Got it. And I guess within the U.S. IDX market, what are the gating factors for driving further penetration there, maybe excluding TB? I think in the past you've talked about additional automation. So maybe where are you in terms of commercializing a high-throughput system, and how should we think about the penetration ramp in the U.S. over time?
So the automation and the high-throughput system is for latent tuberculosis. So as that comes on board, obviously that will help get some more market share on the latent tuberculosis side. But outside of that, it is just us getting more and more assays through the system, whether it's through the FDA regulatory bodies or putting LDTs out in the marketplace. So on autoimmune, on the autoimmune side, there is still a lot of room and leeway for growth in the U.S. marketplace. On the latent TB side is where we would need to get the high throughput system into place.
Okay. And shifting to the life science side of the portfolio, you know, they saw low standard growth in 1Q, which is a slight acceleration off of the 4Q exit rate. Maybe talk through some of the moving pieces in that portfolio. How much of an impact did the extra selling days have versus underlying improvement of what you saw in the end markets?
Yeah, I would say the extra selling days were probably about a percent of the growth that you saw. But, you know, I would say 50 bps of it was also a drag from the snow and the storm days that we expressed. As you know, this is a run rate business. So, you know, every day that reagents are not used is a day lost. So I would say it was overall a 50 bps net improvement, net benefit from the extra selling days. But I would say, you know, again, if you recall, for us, what's in academia and research life and coming back, which is actually a very good sign.
Yeah, digging into the bio-pharma, biotech piece to start, we've seen improved funding in recent quarters. You know, this can take a while to translate into performance for the tools companies, maybe less so on the consumable side. but it feels like a lot of that funding is actually focused on clinical stage assets rather than preclinical. So what are you hearing in the market? And maybe help us understand how we should think about these recent funding improvements in biotech.
Yeah. I think it's just to bifurcate the question. You're absolutely right. When the funding that you're seeing primarily tends to go into clinical side of it, and that's where you see the initial benefit of it, both in terms of the actual clinical trials, but everything else that supports that piece to get, you know, new therapeutics out for approval and commercialization. But overall, I think these fundings eventually requires that you start filling the funnel back from an innovation perspective through discovery and development. And I think that's where, if you recall, you know, what we've said is over the last couple of quarters, we are starting to see signs of that coming back clearly, as you've seen in our performance on both in the fourth quarter and even in the first quarter. And this is where eventually, whether it's big pharma or biotech or even mid-small pharma biotech, the innovation engine will have to take off.
And then you mentioned an improvement in the academic end market. I guess what are you seeing from those customers? You know, the budget, the NIH budget seems to be slightly higher. Are you seeing that start to flow through, and what's the activity level at the academic customer?
I would say still at the initial stages because in the first quarter there was still a level of nervousness that is this permanent or is there going to be another wave or another policy change that might impact there. So as you would naturally expect, there is a level of nervousness and edginess in that customer base, but that eventually is starting to subside, and then whatever the new normal is, is essentially taking place. Signs, I would say, of stability and research, but signs of growth in pharma biotech. That's the way I would differentiate between those two end markets.
Okay, that makes sense. And another piece of the life science portfolio that's been particularly strong for Revity is the China piece. We've seen a lot of funding go into that market from MNC Pharma, sort of entering the region, I guess, why is Revity well-positioned to capitalize on this growth, and what are you seeing from the biotech investments there, and maybe how you think about
the durability of that market in China? Yeah, I mean, China, you know, if you look and you compare our performance in the life sciences side of China versus our peers over the last even two and a half, three years, when the market has been quite depressed, we've done exceedingly well. And I think that is where the differentiation in our portfolio shows up. And I know we are talking about China as a region, but even in other geographies, that is where we are going to start seeing the benefit of the portfolio that we have. If you look on the platform side, we sell non-commoditized specialty instruments. We are also on the reagent side. Once we get into a program, whether it's for screening or validation purposes, they are very sticky. So they are there for several years. And it is a big turn for a customer to swap from what they are using to another reagent or an assay. And that's the benefit that we are seeing in terms of how the growth of our reagents business is taking on, and also on the life sciences platform side.
Great. And then another kind of key growth driver that you mentioned on the earnings call was GLP-1s and the impact those have on your instrument portfolio. Can you remind us how your portfolio is positioned in that market?
Yeah, I mean, again, it comes down to screening and validation. You know, once a customer puts a screening program, I mean, the hurdle rate to get into that program, whether it's from a validation perspective or a screening perspective, is But once you get into that program, and GLP-1 is a classic example, as GLP-1s are being explored for newer indications, they are already on the screening pathway where our assays and our platforms are being used. So that stickiness is where we see the advantage coming from. And as more and more, and then GLP-1 is just one example, whether it's around GLP-1s, neurodegenerative diseases, or nephrology. These are areas where there is a lot of stickiness to our reagents, and that's the benefit that we'll see earlier on, I would say, than compared to our peers.
Okay, okay. And shifting to the signals business, I mean, you've had a lot of recent innovation in the signal software side. Maybe highlight some of the recent and upcoming launches and then timing of when we should expect those to actually float through the P&L.
Yeah, I mean, I think, as Steve likes to say, either one of these NPIs would be one of the biggest launches that we would have in the history of that business. And having three of them in the same year is going to pay very rich dividends over the next several years for that business and Revity as a whole. I mean, you know, starting with biodesign, that was essentially adding features to our Signals 1 portfolio in the large molecule area where we did have a gap. And I think this fills that gap on the biomolecules and the large molecule side. Synthetica, which we announced the partnership and launched off it earlier in January, will be launched in a couple of weeks. So that launch is coming up. And that brings the ecosystem of 200-plus biotech companies that TuneLabs and Lilly brings to the table. And then the last one is LabGistics, that essentially provides an AI-integrated workflow into Signals 1, seamlessly bringing in from discovery to filing to taking it on to the clinical, one unique enterprise-level platform that is able to have all of this ecosystem for drug discovery to commercialization.
And then biodesign is one. It was very recently launched, and you mentioned that it kind of fills this unmet need. I guess what has the early feedback been on that launch, and what are you hearing from customers?
Yeah, I mean, I think if you recall, the way we develop our NPI portfolio, especially on the signal side, is through user groups that we hold three to four times a year. So biodesign is an ask from our customers. So the features that they are is something that they have been trying and playing with for several quarters, even before the launch of it. And then I think, you know, early beta customer feedback has been pretty positive. But typically, it takes a couple of quarters or a few quarters before you start seeing traction. And it all comes down to contract renewals or when those features are added on to the new contract for the customer.
And the ACD Lab acquisition, which closed in January, are there any areas of the software portfolio where you feel another small tuck-in acquisition would make sense? And how do you balance the decision to build versus buy?
Yeah, I mean, you know, ACD Lab is a perfect example of a tuck-in for the signals portfolio specifically where it was an add-on. It provided a lot of synergies both from a revenue perspective and from a cost perspective. as it seamlessly integrates to our offering today. You know, we have a great team of talent that came along with the acquisition, and not only are they going to help with what currently ACD Lab offers, but also the newer pipeline. And then I think, you know, as we look for opportunities, if something come along that fits that mold, whether it's in signals or in life sciences or diagnostics, we will continue to be acquisitive.
Would there be like a ranking of where you would be focused on more? Is it more, you know, when the deal comes along?
I think more than ranking, we tend to look at strategic fit, you know, unmet need, and financial profile. I think we sort of rank more based on those three elements than which company it is.
Okay, okay. Okay. In AI impacts, you know, thinking about your software portfolio, you know, what's the risk that pharma companies try to develop some of these software solutions in-house? And in thinking about that investment from a pharma biotech perspective, how quickly could they replicate these internally using AI? And would it even make sense for them to do so?
Well, let me start by saying, you know, signals is in every pharma and biotech environment today from a research perspective. It is the plan of record over the past several decades in terms of where all the research is done, where all the data is collected, where all the analysis is done, but more important, where all the information is housed for QA, QC, nomenclature, IP filing, regulatory filings. So I would say that it is the system of record. Now, would you be able to eventually move to a point where some of the mundane and more routine work can be done in an automated fashion? Absolutely. But I think the real benefit for our customers, which our customers also fully appreciate and realize, is how do we take advantage of what automation and what AI does to bring it into the ecosystem and work and collaborate together so that the output improves both productivity and efficiency for our customers. And I think that is where our focus is on working with all of, you know, all if not some of the automation companies.
The other question we get from investors often related to AI is how pharma companies change their behaviors in the preclinical R&D settings in terms of, you know, wet lab work versus in silico. And I think an emerging theme is the need to actually build out data sets to fuel AI models. So what instruments in your portfolio do we most exposed to this trend, and how do you kind of see that playing out over the longer term?
I mean, we and others have talked about this lab-in-the-loop model, right? When you start with in-silico design, you take it to the wet lab, you do the validation post-discovery, and then take that data, come back to the in-silico design. I think our portfolio is the best suited, and I'm not just saying because of where I sit, But if you think about it, right, on the in-silico site, you've got signals. That sort of is the plan of record in terms of the platform where in-silico designing would be done. As these compounds come and become lead candidates, they would go through the validation phase in discovery and into validation. This is where high-content screening is required. As you go into animal studies, you would require in-vivo imaging. You require reagents to do the research and then move to screening and validation. This is where our reagent portfolio fits well. So I think, you know, the way the portfolio is designed and unlocking the value of the portfolio is what the new process, as in silico designing, becomes an integral part of drug discovery will start playing a role.
And is the data set built out something that will be continuous over time? Will it get to the point where you have your data set and you can just keep, you know, going back to that same set, or will it be something they have to continue to do over time?
I mean, I think it's like akin to saying that, you know, in the next five years, drug discovery will be done, and then there'll be no more drug discovery, right? So it's not going to happen, right? There's always going to be new diseases, unfortunately, and there's always going to be new discoveries, both for existing diseases and newer diseases. So I don't think innovation is going to stop. I think what definitely will happen is that it will be much faster, much more efficient, much more productive. So I think the way to envision it is that there will be a whole lot more therapeutics coming out at a faster pace, but that will require where the bottleneck will end up being is around the validation of these compounds. As these lead candidates move from early discovery to lead candidates to IND candidates, that's where the validation probably. Or another way to think of it is that the mouth of the funnel, as I keep saying, might get narrower, but the stem of the funnel will get broader. So you'll have a lot more compounds moving into the development phase. That will require more and more of our reagents and instruments.
And when we talk about some of these trends, I guess, what are you seeing today? with customers? Or are these more conversations that you're having as they talk about their
plans longer term? I think some of the initial growth rates that we are starting to see in our portfolio is a direct result of this. As the discovery, I would say probably towards the second half of last year when there was a new way of thinking and more of certainty around MFN status and sanctions and tariffs and all of that. And as the discovery engine started to take traction again, we've started to see this new behavior coming into play, where this is now another integral part of discussion around drug discovery and development. Okay.
Maybe shifting to guide, you updated the pro-form organic revenue growth. It's 3% to 4% now for the full year. but that kind of implies a step down from what you saw in 1Q. So maybe remind us of some of the moving pieces as we move throughout the remainder of the year and then anything on cadence that you would call out.
Yeah, I think we did close to 6% pro forma in 1Q and we've set 2% to 3% in the second quarter. I mean, I think the best way to think of it, Evie, is that we have no ramp up in the second half and then I think that's what should give significant level of confidence to our investors and shareholders as to how we have structured and guided to the second half. You talked about reproductive health as to how much conservatism you might expect to be baked in. Our reagents business is starting to do very well, and pharma, biotech, and academia research is coming back. And our platforms business, again, grew mid-single digit in the first quarter, and we expect that to continue to do well. So I would say rather than skepticism, there is a significant way of optimism on our side and then some level of conservatism that we have built in our forecast.
That's great. And on the margin piece, the divestiture helps, but you also had some underlying margin in EPS improvement as well in the first quarter, excluding the divestiture. So how should we think about the margin cadence throughout the year? And I know there was an impact in extra selling days in 1Q. So I guess, should this actually help you later in terms of RAMP?
Yeah, I mean, I think we did 24% in the first quarter, which was better than what we had expected. And this was despite, I think, 50 bps from FX drag and 100 bps coming from the extra week that we have, which would not be there in the second quarter. And I think we are at 27% in the second quarter. And in the second half, we are 29 and 33. I think we'll start seeing, as we have said, the impact of the cost measures that we have taken in the second half of the year. And the fourth quarter is just the normal volume growth that you see typically in the business towards the end of the year. So, again, we feel very comfortable with the margin profile that we have now, especially as we look at it pro forma. But I think more importantly, as we move into 2027, that is also going to be a significant driver of continued margin growth into 2027 and beyond.
And that's like the operating leverage kind of on some of these end markets coming back.
And the calendarization that you would naturally see from the second half of this year on to the first half of next year. And, you know, because these are structural costs that are coming out of the system, whether it's from rooftop optimization, integration activities that are going on in the company. And we'll start, and these will be lasting, these will have a lasting favorable impact on the margin.
Okay, great. And you touched on it a little bit before, but the capital deployment strategy, you know, in balancing between share repurchase and M&A moving forward, how do you view the M&A environment? and then, yeah, balancing with your aggressive share repurchase strategy.
Yeah, I think if you were to ask me today, we still feel that share buyback is the best opportunity that we have in the marketplace. But at the same time, as we've said, we will continue to keep our eyes and ears open. And as long as there is a strategic fit, a good financial profile, and something that fills a gap in our portfolio, we'll continue to do more tuck-in acquisitions, similar to the ACD lab acquisitions. But outside of that, we've got the bond that we have to pay off, which we plan to do in the second half of the year, and be acquisitive around share buyback. We feel very strongly that today there is no better opportunity than buying our shares back, given the growth profile that we have for this year and beyond. I mean, you know, if you were to, all we need is for the pharma market to come back to normal, and we are already in our LRP range. You know, if you look at our signals business, if you look at our reproductive health business, you know, we are already in our LRP range. It's the life sciences piece of the portfolio. With pharma biotech coming back, we feel very good that we will soon be in the LRP range of what we have projected.
Yeah, and I guess touching on the pharma biotech piece, I mean, we've seen the funding improve, but is there anything else that you think has fundamentally changed in that market? I mean, I think as we look at the tools, growth rate broadly, not even just, you know, for Revity specifically, but there's a concern of is this market something that is fundamentally changed now post-COVID? I guess, how do you kind of see the moving pieces of what we should look for of this coming back?
I think there were two or three things that really hit pharma biotech post-COVID. One was that there's significant amount of overbuying that happened during the COVID phase. I don't think people really appreciated the amount of money that was spent during COVID in pharma biotech. Then we had the interest issue, inflation issue, you know, CapEx spending drying up, MFN. I mean, there were so many acronyms of three-letter words, policy changes that were happening. Then tariffs hit. So we've had, you know, pharma biotech has had to endure a significant amount of external policy changes that have impacted the end market. But at the end of the day, as these therapeutics are going off a patent clip, right, If the pharma biotech industry is to succeed, survive, and we as a human generation, we need the therapeutics. And that is only possible through innovation. And I bring it back to, if you look at it, whether it's through in silico design or drug discovery and development. And over the past five-plus years, we've done a really good job assembling a portfolio that fits that infinity-in-a-loop model, which we've talked about for a couple of years now. And now we're glad to see that it is coming to fruition and it's actually playing out as we had hoped for. And that benefits us because not only do we have the software component of it, but even on the reagents and instruments side, the non-commoditized portfolio that we have, fully leverages this opportunity. So we're really excited with the portfolio we have, and we hope to be able to demonstrate the value of it in the next quarters.
Great. And then one thing you have talked about in the past is building out some GMP capacity as well. So how do you view that shifting over time and your ability to kind of stay with these programs in the early stage through the clinical? Yeah, I think even the way to think of
it is one of the growth drivers. It's one of the ions that we have in the fire. Because as you know, to get onto a GMP program, it takes a few years for it to get on. But once you're on, not different to our reagent side of the business, they become very sticky and lumpy. But I think as we get into late 2027, 2028, we are going to start seeing the benefit of that. But that is one of the ions that we have in fire. You know, the extended number of disorders on reproductive health the application of automation and machine learning on a life sciences platforms business, all of these are grow drivers. The partnership opportunities that we have with PharmaBiotech, whether it's around T1D with Sanofi or TuneLabs with Lilly or what we are doing on population genomics with UK and Gel as an example, these are all grow drivers that add to the baseline that we have on our LRP. So there are significant opportunities above that provide upside to what we have put on the LRP.
And just, I guess, with a couple of minutes we have left, what do you feel investors are most underappreciating about the Revity story today? I mean, you walked through some of these growth drivers, but if you had to call out a couple, it's probably most exciting over the next couple of years.
I think, Evie, I talked about them just 30 seconds ago. But I think the component that really is we feel not fully appreciated is our ability to be executed. You know, I think as we've brought this in, you know, we are still a very new company and our investors are looking that will we be able to execute consistently and flawlessly. And I think we've shown that over the past several quarters and we will continue to do so. You know, if you look at our cash flow conversion, I would contend that it is at least the best, if not amongst the best in the industry. If you look at our organic growth rate this year, it is in the top quartile. On the margin profile, we probably will have the significant margin improvement that we will see this year that will continue in the next several years. So in each of these components, I think you will see the benefit that bringing together this portfolio will have on a financial profile.
Great. All right. Good place, An. Thank you so much.
Thanks, Evie. Thank you.