This morning. I'm Vijay Kumar, the life science tools and med tech analyst at Evercore. A pleasure to have with us Revvity. Representing the company, we have CEO Prahlad Singh. And we also have Steve Willoughby in the audience. Steve was shy. He didn't wanna come up on stage, but we'll let Steve relax for a few minutes there. Prahlad, maybe you know, tools, there has never been a dull moment for life science tools this year. Pretty remarkable 2023 for a variety of reasons. But before we get into some of the macro issues, you know, for you guys, you've had, like, a tremendous portfolio transformation, right?
Just at a high level, you know, give us a big picture view on, you know, how Revvity has changed, you know, over the past few years?
Thank you, Vijay. Good morning, everyone. It's the first time I've heard Steve being shy, but, you know, there are weirder things we've heard. You know, to your question, Vijay, you know, it's true that we've gone through a lot of transformation, and maybe sort of to give you a sense of the level of transformation the company has gone through, I'll start with, you know, when I joined the company, I joined the diagnostics business. It was about a $450 million business, primarily focused on reproductive health. You know, and we really focused at that time on expanding the TAM and the addressable market for diagnostics itself to a point where it's, you know, plus $1 billion business, in 2022. You know, with the acquisitions of EUROIMMUN, Tulip Diagnostics, and several other companies, we really built a strong, portfolio on the diagnostics side.
And when I moved into the CEO role, essentially, you know, COVID hit, and that gave us an opportunity where we had the most sensitive and specific RT-PCR test on the market, if you look on the FDA's website. But more importantly, what it also gave us was an opportunity to leverage the balance sheet and go and do a similar strategy on the life sciences side of the business that we had done on the diagnostics, with the acquisitions of BioLegend, Horizon, Oxford Immunotec, SIRION Biotech. And, you know, we did 11 acquisitions and spent around $78 billion. Because we knew that when COVID was going away, we needed to sort of replace that revenue stream and that profit stream.
The company reached a confluence point where we had a life sciences and diagnostics business, which was, you know, high growth, high margin business, and our legacy PerkinElmer instrument and services business, which was much slower growth and lower margin. And, you know, and that's when we moved forward with the divestment of the portfolio there, rebranding the name of the company to Revvity. So essentially, when you fast-forward, we've gone from being one-third pharma, one-third food, industrial, and one-third diagnostics, to now being 50/50 life sciences and diagnostics company. Our recurring revenue stream has gone from it being 40% instruments, to now less than 20% of the business is instruments. So it's a very dramatic transformation of the portfolio that has happened over a short period of time.
More importantly, what it has done is it has set the company for future in a way that it has got strong end markets, geographically very diverse, and a portfolio which is primarily focused around consumables and software and services.
Fantastic. And just, within the life sciences side, what is your exposure to pharma, industrial, government, academia?
Yeah. So pharma, biotech is about 35% of the business now. Industrial, like, government, academia is about 15%, and the other 15, 50% is around clinical diagnostics. You know, and what it does, it, in times, you know, when markets are, you know, going through a tough phase, as we are now, you know, the diagnostics side of the business is really an, a source of a buffer, which sort of puts us in a place where we are today. That, you know, despite all the downturn, we are still in, still in the top quartile in terms of, organic growth amongst our peer group.
Just on that point, we started the year at 9% high singles for fiscal 2023. Current guidance contemplates, I think, low singles, right? Off the top, 700 basis points change. Can you just remind us, like, where did that change come from? Is this all, like, pharma? How much of this was China?
Yeah, I mean, look, we will be one of the very few companies that will come out of the year with mid-single-digit growth in China this year, so I think that should be a reflection of how unique our portfolio is. Yes, we know we expect it to be high single digits, and we ended up, we'll end up in low single digits, similar to a majority of our peer group. But I think the point of reflection here should also be the fact, Vijay, that we'll be on the top quartile of organic growth in this term, in this tough economic and market environment.
Understood. Sorry, just on the guidance change, Prahlad, like, was this—how much of this was, a change in China outlook versus global biopharma change when you look at the overall portfolio, right?
Yeah, I think it's probably predominantly it was pharma, biotech. And you know, to some extent, if there was an impact on China, it was correlated to the pharma exposure in the China market with the CRO piece there.
Gotcha. And, and, you know, that biopharma change, I think, I, I think we hear different reasons from different companies. Just from your perspective, like, when you speak with your customers, what's driven this change in outlook for biopharma customers?
Well, I don't think there is one silver bullet that we can Pin-point to and say, "This is the reason why it is." It is, you know, obviously interest rates play a role. To some extent, IRA plays a role. But I think the thing is that we have to also keep in mind the fact that our life sciences instruments business from 2020 to 2023 grew at a CAGR of 13%, you know? And our expectation is that business should be growing mid to high single digits. So to some extent, this is also a recalibration of what needs to happen and how that needs to be reset, you know.
Understood. And, I'm probably gonna switch up my questions a little bit-
Sure
Prahlad, but, just, on that instrumentation in a teens CAGR versus mid-single sort of, outlook rate, are we, are we done with this recalibration as fiscal 2023 the bottom, or, or, is this going to bleed in, in, into 2024?
So I wish I had a crystal ball, Vijay, and I could call the bottom, but I don't, and I won't. Look, I think it. As we said during our Q3 earnings call, right? The market's going through a recalibration phase, and at least our expectation is, you know, and as we've said on the earnings call, that I think this will go on for a couple of more quarters before, you know, we see it reaching a point where we will see it going back into a growth curve.
Gotcha. And we'll come back to the growth curve, but, you know, before getting to 2024, in Q4, I think your guidance contemplated mid-single declines for the business, base business. Based on trends so far, the macro, does it support your view for Q4?
Yeah, again, I'm not providing an update on the Q4 guidance, just to be clear.
Yeah.
What I can say is, you know, essentially, the end markets have performed pretty consistent and generally in line as to what our expectations were coming into the quarter. And then I think that's essentially what I would communicate to you, is that they have been pretty in line with what we expected it to be and consistently performing at that end.
Have you? Is there any change in instrumentation versus reagents, Prahlad? And the reason I ask is I think one of your peers created a bit of a stir with a book-to-bill commentary for instrumentation. So I'm curious. I know your business is different-
Sure
B ut any change in instrumentation versus reagents?
So I think you have to keep in mind that instruments is, you know, say, 18%-19% of our portfolio, and most of what we sell are, I would call, esoteric, specialized instruments that go into labs on the research and discovery side. So I don't think it's an apples-to-apples comparison, and I don't know what the commentary was, so I won't comment on that. But what I can say is that, you know, from our perspective, again, it's been generally consistent with the way we thought it would perform in our reagent, both on the reagents and the instrument side of the portfolio.
Understood. And you did mention pharma, one of your largest end markets, at 35% of revenues. Typically, we do see some sort of budget flush heading into the year-end. Have you seen any signs of, you know, customers, you know, releasing budgets as we head into year-end?
Well, you know, just to sort of put it in perspective, generally, we expect a dollar-to-dollar upside of about 20% from 3Q going into 4Q in a normal year. We've not assumed any, you know, any capital flush into our Q4 guidance, as we said during the call, during our 3Q earnings call.
Gotcha. So we haven't seen any budget flush-
Well, we haven't assumed any is what I will, what I'll be clear in, in what I say.
Understood. But we don't know if we have seen it or not seen it?
We haven't assumed any, Vijay. I'll end up answering the question the same way any way we ask.
Within that pharma, 35% of revenues, what is your exposure to large versus small molecule, early-stage biotech, CROs? I think some different companies have seen different dynamics in those different buckets.
Yeah, good question, and I think we've said that. You know, just to sort of break it down, our exposure to pre-revenue biotech is 5% of the company. You know, pre-revenue biotech pharma is 5% of the company.
Mm.
Majority of it tends to be more big to medium-sized pharma biotech is where we tend to play a role, both on the research and discovery side of the business. In terms of China, you know, as you know, just to sort of, again, calibrate, 17% of our revenue comes from China. 10% of that is on the diagnostic side, 7% of that is on the life sciences side, and now, you know, majority of that is on the consumable side of the business. So sort of that's how it plays out.
You know, and then, you know, again, just as a reflection point, I realize that, you know, as we have just evolved as a new company, you know, for us, it is important to sort of remind you and continue to reintroduce to you and the listeners as to who Revvity is, and then what are the end markets that we play in?
Understood, understood. And then I think, you know, when I look at the guidance, I think for pharma Q4, you're assuming double-digit declines in pharma. Are you seeing any geographic trends or perhaps across those different buckets, large versus small, you know, CRO, you know, where someone is performing better versus worse, or are all segments within pharma expected to be down double digits?
So again, Vijay, when we provide guidance, and if I recall, and I'm sure Steve will throw stones at me if I'm incorrect here, we tend to provide guidance around life sciences as an end market. We don't provide guidance on pharma customer base as such. So our life sciences instrument business is what we've said is, you know, going to decline double digits in the Q4 , is what we have said.
Understood. Understood. Sorry, what is Q4 assuming on the reagent side, Prahlad, if instrumentations are down double digits?
I think what we've said. Overall, life sciences is down.
Understood. Thank you. And is there a way to—I think some of your peers have characterized, like pharma, "Hey, look at the CAGR versus 2019," and those CAGRs have normalized.
Yeah.
Like, have you looked at those, either for life sciences or from pharma, however you want to characterize it? What are those CAGRs now? Have we normalized?
So I think, you know, again, Vijay, if you look at the portfolio of the company that we have today, it's very difficult to sort of, you know, look at the CAGR of the company as a whole on life sciences from 2019. Because, you know, essentially there is a lot of assets that are new to the portfolio. I mean, you know, BioLegend, Horizon, Sirion Biotech, Nexcelom, all of these are new acquisitions and, you know, Cisbio prior to that. So it's tough for us, because, you know, because of our unique transformation, that we can look at the CAGR. But I think when we look at the instrument side, that was one data point that I gave you that should be a reflection of how the portfolio is.
Gotcha. Gotcha. Sorry, getting back to, I think a comment you made about normalization in back half of next year, right? I think you mentioned these biopharma challenges, perhaps this transition could last another six months. Is there some historical analogy, you know, for us to base why these challenges would last for another couple of quarters, and then the markets normalize?
I think generally, if you look at downturn in pharma biotech, they have lasted 4-6 quarters, you know. And then sort of that's the trend analysis that you look. But also, if you look at the historical, you know, organic growth for the sector, they tend to be in the mid to high single digits. And then, as I said, right, the data point here is that for 3 years, these have gone double digits. And, you know, even after the decline this year, it will still be in the mid to high, high single digits, right? So I, I think it, it requires that period of time for it to recalibrate before you start seeing growth. And essentially, that's the data point that we are looking at.
Understood. Understood. And I, I think, another, you know, topic that's come up is the software business. You talk about Signals software. Is that, like, a new branding initiative? What, what is, you know, Signals software and, and how large is this business for you?
Yeah. Yeah, again, this is, with the transformation. You know, Signals software was our informatics business, which was part of our business, you know, for, for more than nearly a decade or more. It's just that when we were part of PerkinElmer, we were in so many end markets, that by the time we got through our analytical, enterprise, food, cannabis, reproductive health, we never got to the software side of the business to talk about it. You know, it's nearly a couple of $200 million business growing at how software markets grow, and, it's really got a strong market position in research and discovery, and we are in, you know, I think 48 or 49 of the top pharma biotechs', research and discovery labs.
Understood. And I think you also,
For all those chemists in the audience that have ever used ChemDraw, that is part of the portfolio. Electronic lab notebooks that you'll have used, that's part of the portfolio.
Gotcha. And what is, you know, that business, you know, the high single-digit growth, what does it correlate to? Is that like R&D pipeline or, you know, acquiring new customers? Just give us a flavor on what drives that high singles growth for Signals.
Mm-hmm. So it's a very sticky business to begin with, right? Because 85%-95% of it is renewals that comes through, and as you renew contracts with more pharma biotech, you add more and more features to the portfolio. So there's an opportunity for renewal, there's an opportunity for upsell, and there's an opportunity for new contracts. And, and this is not even counting the fact that as you develop, you know, new NPIs, and you bring that to the portfolio. Again, similar to our life sciences reagents and instruments business, Vijay, most of our focus on the software side has been on research and discovery. And the opportunity for us is how do we now extend the value proposition that we bring to our customers from just being in preclinical research and discovery around CROs, around, you know, clinical trial?
That's where the expansion and the growth opportunities is there for that business.
Understood. And, you know, another thing that you brought up, Prahlad, on recent calls is base editing technology.
Mm-hmm.
Is that, like, unique to Revvity? Who else competes in that business, and who are your customers? Is this like pharma biotech or pre-commercial biotech companies?
Yeah. I mean, you know, again, that, that was one of the novel innovation opportunities that we had, that, A, either we need to do a better job of communicating what it does, or two, you know, it was surprising that it did not get enough of an inquisitiveness. You know, again, the ability that we have now with the acquisitions that we have made is we've got novel IP and technology that we can license out. So Pin-point base editing technology is, again, a CRISPR, is CRISPR 2.0 is what we refer to as, where instead of snipping at both strands of the DNA, you snip one. You know, you edit one, so sort of minimizes the, you know, the impact of CRISPR around mutations or other side effects that would have.
You know, with the AstraZeneca, we announced the licensing opportunities, but there are other companies that now we just announced the kits that we have started providing to other pharma biotech that would explore that to see if they would use that as a vehicle for the development or discovery of novel therapeutics at their end. So again, it's a unique opportunity that we have with Horizon and SIRION combination, where we are able to license technology around AAV, lentivirus, Pin-point base editing. You know, very few companies have access to this technology. I think, you know, Beam Therapeutics is one that's out there, but they use it primarily for themselves. Our intent really is how do we democratize and provide this as a licensing opportunity for all pharma biotech, and that's the strategic direction where we are taking that technology in.
What's been the reception to this product? Any, any sense on how big or meaningful this could become?
Well, again, you know, think of it this way, that we have licensed it to one big pharma in one particular disease area. And then they, you know, not just within that company, that they could leverage that technology to other disease areas, but other pharma biotechs that are exploring, they could again use it as a technology to... for development of their drugs. So the reception has been something that we are very satisfied with and excited about the opportunity that it brings to our customers. And again, you have to link that to the opportunity that once you open the door with the technology, Vijay, you are now able to provide reagents, tools, capabilities to that customer.
Then, as you move it down the value chain, if there was a need for companion diagnostics, you know, they are able to do that with the diagnostic side of the business. If it's a rare disease, they are able to leverage our lab CLIA CAP infrastructure around the globe to be able to do the screening of patients, clinical testing, monitoring. This is sort of where, you know, we keep talking about how do you narrow the chasm between life sciences and diagnostics? Those are not really distinct businesses, but they are pretty conjoined and able to leverage off each other in terms of what technology, and tools and capabilities that we provide to our customers.
Understood. Then, you know, since you brought it up, sticking on to this novel technologies, I think genomics... You know, when Gravity says genomics, how do you participate in genomics? Some of your customers have cited end market challenges within that piece as well. Has that impacted your business?
Well, again, if you look at the applied genomic side of the business, right, in diagnostics, the pharma biotech, obviously, the instrument side of the portfolio has been impacted. You know, during COVID, you know, the amount of, DNA extraction, RNA extraction equipment with Chemagen or liquid handling platforms, those definitely have been impacted, very similar to what the life sciences instrument side of the business is. I think what I refer to on the genomics, or what I was previously referring to on the genomics side of the business, was around the esoteric technology and capabilities that we provide to our customers. In terms of companion diagnostic development, in terms of doing esoteric testing for clinical trials, or doing, you know, being sort of a specialized CRO, is the term that you could use.
Gotcha. And have you seen any sort of, you know, when you look at customer cautiousness, have you seen any change within that part of, like, when you look at applied genomics, and any change in sentiment?
Again, on the instrument side of the business, it is no different than what you would see on the life sciences instrument side of the business. You know, on the licensing side and on the companion diagnostic, there has been some slowness, but those discussions generally tend to take months. You know, it is no different than developing any collaborative research agreement with pharma biotech. So those discussions haven't slowed down in terms of intensity, but it takes longer just because it also tends to be a CapEx spend on the pharma biotech side.
Understood. Then, switching over to China, which is high teens revenue exposure for Revvity, it's, it's been a tale of two cities, right? Obviously, your immunodiagnostics has been pretty strong in China. Pharma life sciences saw you know I think you said China diagnostics is about 10%. Like, what is immunodiagnostics of the 10%, and what is do you have, like, non-immunodiagnostic exposure in China as well?
Well, there are 9 million newborns in China, so yeah, we definitely have a non-immunodiagnostics exposure in China, you know, to put it in perspective, again, just sort of a reminder, we have 17% revenue from China. 10% of that is on the diagnostic side, and I think 60% of that is immunodiagnostics, and 40% is non-immunodiagnostics. And that is, you know, whether it's in applied genomics, newborn screening, prenatal testing, some infectious disease testing. So that sort of comprises the diagnostic side. 7% of that, of the rest is life sciences, of which about, I would say, majority of it is now consumables and software. So sort of that is the breakdown, just to put it in perspective.
Gotcha. And I know immunodiagnostics within China was impacted by the lockdown trade. Is there some way to quantify has immunodiagnostics normalized? Are we back at pre-pandemic levels, or where are we right now for immunodiagnostics?
Well, immunodiagnostics has played out exactly as we had predicted it would. You know, we had said that it would be the last ones that would come back post-pandemic in terms of getting normalized. That business grew in the second and Q3 in the mid to high teens. You know, but it has also, we cannot lose sight of the fact, and it will continue to do so in China. So I think, you know, China immunodiagnostics will continue to do double digits. I think the more important reflection is immunodiagnostics has grown double digits for us, not just in China, but everywhere else around the globe. It is a strong business.
You know, when we acquired EUROIMMUN, we said you should assume 12% in the deal model, and it has done at least that much, if not better, you know, ex-COVID, China. So, you know, and that is as much about the portfolio as it is about, you know, the awareness of, autoimmune diseases around the world, and that continues to be a strong growth trajectory for the portfolio.
you know, obviously, the easy comps help immunodiagnostics-
Absolutely.
-in China.
Mm-hmm.
But what should, you know, when you think about 2024 or the out years, right, should this be back, like, double-digit growth, or any nuances from a utilization perspective we should be aware of?
I think autoimmune disease has grown double digits, as I said, pre-COVID. And, you know, obviously, COVID got impacted, and that's why, as you said, it was a very favorable comp this year. But I think it would be probably, you know, as you move back and it gets more normalized, it would be a very high single digit, double-digit grower.
Understood. And reproductive health, you know, that's been soft. What are you assuming, you know, for China reproductive health in fiscal 2024? 'Cause I think I saw some numbers about, like, birth rates being down, like, 10%-20%. That's a big... I mean, should birth rates be that cyclical?
Well, it's not cyclical, unfortunately. Since 2016, when the two-child policy was announced, and then subsequently last year, the Chinese government again provided more incentives for folks to have kids. You know, just to put it in perspective, you know, when I started doing this in 2014, you know, the, there were 13.4-13.5 million babies born in China. Last year, it was 9 million. So, you know, that should give you a sense of, you know, the US's population is, you know, the birth rate that you have in the US is what sort of on an annual basis is what was lost on an annual basis there. So it's been a significant decline.
But, you know, with the menu expansion, with our new NPIs that are coming out, you know, we've held pretty well, and our newborn screening business has continued to grow mid-single digits. And, you know, and with the new NPIs that we have, we expect that to continue.
Gotcha. So the growth for China reproductive health, this is mostly from menu expansion. We're, we're not just-
Well, it's both menu expansion, obviously, and, and then, then the new NPIs that we have got. So there are two ways to think of menu expansion, right? I mean, I've given this example before, but if you take a state like California, you know, they do more than 40 disorders that they test for. You know, some of the provinces in China test for 2-4, some test for 4-6, some test for 8-10. So there's still an opportunities with the NPIs that we have that we can continue to expand. In addition to that, you know, you also have the newer NPIs around spinal muscular atrophy, Duchenne muscular dystrophy, MPS II, that we, we are either in the process of filing with the NMPA or will, hopefully be recent, you know, soon receiving approval.
Gotcha. And then, a similar question on China. Like, when you look at your China revenue base, exiting 2023, what's the implied CAGR versus pre-pandemic levels? Have you normalized some of the China disruption?
I would say that, look, this is where it is important to not use the same brush to paint, you know, every canvas. You know, the uniqueness of our China portfolio is that despite all the ups and downs, as I said, China, for us, will grow mid-single digits this year. And I think that's a reflection of the portfolio that we have and the resilience of it in tough markets. You know, of course, the biopharma exposure to CROs, et cetera, has impacted that portfolio. Otherwise, that would have, you know, grown high single digits or double digits, and that is the impact that we have seen. So we are not immune, and we will get impacted, but at least we are more resilient compared to our peer group, given the portfolio that we have assembled now.
Gotcha. Are we expecting any stimulus in China? What are you hearing on the ground from a stimulus perspective?
Yeah, I mean, look, I, I think it's tough to say. You know, you would expect that there will be a stimulus coming in, but you expected that at the end of last year, and that stimulus came and went away. So, you know, it's tough to predict, and it's tough to have a crystal ball around what will come where. I mean, you know, when it does, you have to also think of which side of the business. Look, we don't have instrumentation now around QA/QC pharma that, you know, we used to. So obviously, we won't see the, you know, bolus upside of that. But, you know, around CDC, as they establish life sciences lab and research, you know, that will definitely help us there.
Gotcha. Some questions longer term on China. Is China, just given all the geopolitics, should China still be a creator to overall revenue growth outlook when you look at the longer term, medium to longer term?
Yeah, again, you know, we'll talk about what our growth projections will be when, you know, next year. But what I can tell you is China is an important market for us, and, you know, and just like any other market, you have to deal with the challenges that come, whether it's geopolitical, pricing, competition, you know, all of the above. And we have addressed it strategically in the way that we think is the best way to deal with it. To give you an example, on the reproductive health side of the business, we have now. Most of our products are manufactured in country for country. Most of the R&D is done in country for country. You know, all of the NMPA filings, all the documentation, everything is localized.
So there is no reliance or dependence, whether it's from a vendor, partnership, or any other site around the globe. So we sort of encamped it in that manner. On the autoimmune side of the business, you know, we have more of the routine autoimmune testing, we have brought it locally. But something which is more esoteric and specialized, where there is no local competition, we have kept that in Germany. And, you know, we sort of, you know, wanna make sure that. So each of it is very specific situation that we, you know, we address it strategically, depending on what the market environment is.
Gotcha. Government, academia is about, you know, double-digit exposure, 10%-12% of revenues. It's... Obviously, it's been strong for most of your peers as well, but for you guys, it's been exceptionally strong, double-digit growth. What's driving this, and are these comps a concern, you know, when you think about 2024?
Yeah, I mean, I think government, academia is 10%-15% of our portfolio. You know, recall that BioLegend is a major component of that business. So that is-- You know, we don't have any reliance on NIH. You know, less than, I think, 1% or less than 1% of our academia numbers are from NIH, and these are global academia government numbers. And this is where the competitive advantage that BioLegend brings through their partnerships, through their KOL relationships, is what drives that growth trajectory for us.
Gotcha. In a similar question on the reagent side, obviously, that, that'll, you know, incorporate BioLegend, et cetera. You know, when you look at that first half or second half, clearly we saw a step down, where I think some of your customers have pointed out, "Look, this is just destocking." Customer activity levels have actually been pretty robust. I'm curious, do you have that level of visibility when you speak with the customers? Are customer activity levels still pretty robust, and what we're seeing right now on the reagent side, just a destocking phenomenon?
Well, again, you have to look at the portfolio. What we sell on the reagent side of the business, there is nothing that you can really stock. And as I've said on BioLegend, 90%+ of what they deliver is within 24 hours around the globe. So there is no inventory, there is no stocking, there is nothing that, you know, customers can keep on their shelves. There are not that many bulk reagents that we sell, which customers can, you know, sort of have. So it. There definitely was a tempering of use post people coming back from vacation, whether that was through, you know, programs cancellation or site consolidation or expense control. But, you know, eventually, we expect that to get normalized. So again, it's very different depending on, you know, who the provider is.
Understood. Understood. Then maybe switching over to margins, Prahlad. You know, we started the year at 30% operating margins. Obviously, with revenues coming down, I think the latest guidance is 28%. You know, how should we think about operating leverage heading into fiscal 2024, right? I think you made some comments about or hinted there being no leverage if revenues were to be low singles. I'm curious, when you think about price versus inflation and the current level being at 28%, how should we think about margin expansion?
Well, obviously, margin expansion, that is, you know, growth, organic growth is a big factor. But just to sort of calibrate, you know, we were, as you said, very high single digits. At 9%, we had said that our operating margin will be at 30%. Our organic growth, as you said, we projected to be at 2%, and our operating margin is gonna be 28%. It is still at the top quartile of our peer group. Despite 700 basis points of you know, pressure on top line, we have only a 200 basis points pressure on our bottom line. We've taken $80 million in cost out, and we've also talked about what we are going to go and do in the next few quarters. Look, this is going to be a high-growth, high-margin business once things normalize.
There is no doubt in our minds about that. I think what we have, you know, what we've also said is, given the scenarios that may play out in 2024, if organic growth is going to be pressured, there will be organic margin expansion, albeit it will be nominal, you know, just given the growth rates that you have, so.
Understood. Just maybe back on this LRP, I think some of your peers have signaled that, you know, perhaps the LRPs issued during the pandemic years were perhaps a little bit robust. And I think you hinted something similar. What's the new algorithm or broad strokes in how to think about the prior, I think, like, double-digit organic and 100 basis points? Clearly, the environment has changed, but I'm just trying to parse out what's short-term noise versus underlying normalized. Clearly, when you look at the stock, I think the stock's pricing in more of near-term headwinds, and perhaps ignoring what the business could look like in the medium term.
Yeah, I think it's a great question, Vijay. Again, I'm not providing midterm or long, long-range guidance today. What I will say is that, look, as you rightly said, and as some of our peers have said, you know, when we were giving out these guidance, you know, the market was in a very robust phase. You know, there were 2-3 years of double-digit growth, and clearly, that's not the case right now. So we have to go back, recalibrate, look at what it is. But I think what is important to appreciate is, fundamentally, the portfolio transformation that we have done has set up the business for strong growth in the future. You know, 80% of our business, as I said, comes from consumable software and services. Less than 20% comes from reagents.
50% of our business is from clinical diagnostics now, you know, which is a very resilient side of the business that is not as much dependent on market environments. So, you know, if you just go back and look and, you know, and dissect the portfolio and see what it comprises of, it is set up for resiliency in tough market environments. From our perspective, you know, it is how we perform during tough financial cycles is the barometer that we are using for our mark of success, and then hopefully you will see that. You know, you should see that, given the growth rates that we have, albeit they are much more depressed than what we thought at the beginning of the year. They are still again in the top quartile, both from a top-line and a bottom-line perspective.
Understood. Clearly, the macro has changed from a top-line perspective, but, when you think of the margin targets, Prahlad, I think the prior was 100 basis points annual expansion. Is that still intact off of, you know, the lower base of 28%? Is it still reasonable for us to expect 100 basis points expansion?
I think if you have a decent organic growth, you should expect that, right? Absolutely. But I think if the organic growth is in the scenario, one of the scenarios that we pay, you know, Max talked about during our Q3 call, then I think that would be a tough part, but in a more normalized organic growth, absolutely. I don't think our targets around operating margin expansion, EPS, EPS, growth is not changing.
Fantastic. And, just to clarify, when you say decent organic, perhaps it doesn't have to be double digit, but as long as it's robust, we should still continue to see some robust margin expansion?
That is correct.
Great. And I think, you know, when I look at the stock, where it is right now, you have, you know, close to $1.5 billion of cash on the balance sheet. Should share repo be a focus for the company, just given... You guys, clearly the portfolio's undergone a transformation, but the market isn't giving you credit. So should you perhaps be looking at share repo?
So we've obviously bought close to $400 million in shares, if I'm not wrong with the number, Steve. But there are three pieces to this, three legs to this stool, Vijay. One is, yes, we've got the cash, but we have to pay $700 million in debt that is coming up and maturing in September of 2024. So we've got that secured in treasuries that we have to pay off. We also have a leverage ratio that we have to be cognizant of. We continue to look for acquisition opportunities, and as appropriate, we will continue to do buybacks, as appropriate. So I think, you know, we continue to manage, as I said, all three legs of the stool.
Gotcha.
And then I think, you know, to your point around the Street not giving us credit for the portfolio transformation, I think we need to provide the proof points quarter- over- quarter that we are going to deliver or beat what guidance that we, that we put out there, and we plan to do that.
Understood. And, you know, last, you know, fiscal 2023, I think cash conversion was, obviously, with AES sale, I think it muddied the picture. But when you think about fiscal 2024, irrespective of the macro, should free cash conversion be at your typical normalized, above 85% levels?
That is correct. So in the 80%-85% range is what you should expect. You know, there was a lot of noise with the AES and still continues to be, I mean, and it will be for the next, at least this quarter and the next quarter, till things get back to normal, and we sort of close on working capital aspects, et cetera.
Gotcha. Then a few more sort of P&L, sort of questions. I think, you know, global minimum tax Pillar Two came up. My understanding is it's not a fiscal 2024 impact. Should it have any impact in fiscal 2025 or beyond for Revvity?
Yeah, no, I mean, just looking at the portfolio and where we are, we don't see that having any impact to us.
Gotcha. And when you think about the free cash, you know, generation in fiscal 2024, is the priority still gonna be M&A for you guys in 2024?
Again, as I said, right, we've got two, three things that we have to take care of. We have to pay off the 2024 debt. We continue to look for acquisition opportunities, but we are going to be diligent, and we are going to be, you know, very stringent around what we acquire and add to the portfolio. And it has to be very compelling for us to make a case for us to add to that portfolio. 'Cause we still have a lot of integration opportunities that we need to focus our attention on with all the 11-plus acquisitions that we have done over the past 24 months.
Gotcha. The last minute here, any closing comments when you think about the macro environment and perhaps, you know, how the street's looking at Revvity? Any closing comments on, you know, why Revvity is differentiated in the space?
Yeah. I think you just have to look at the portfolio transformation and what we have assembled, and then I think, you know, you should hold us accountable for execution. But from our perspective, we've got the right portfolio, we've got the right team in place, and we've focused on the right end markets. You know, this market's gonna turn around. It might take a couple of quarters, but it will. But I think what you should focus on is how we are positioned versus our peer group, and we are positioned... We feel very confident around high growth and building a high-growth, high-margin business that provides a high quality of earnings to our investors.
Fantastic. I think, we're out of time with that, Prahlad. Thanks so much for spending the time this morning.
Thank you, Vijay. Thank you, everyone.