All right, can everybody hear me? Great. Good morning. Welcome to the Wells Fargo Healthcare Conference. I'm Brandon Couillard. I cover tools and diagnostics here at the firm. Thrilled to have Revvity with us at the conference today, here to share a little bit about the story, CFO Max Krakowiak. Max, thanks for being here.
Yeah, thanks for having us.
Maybe just to start off, in general, it's been a little over a year since you've rebranded as Revvity. I think you've outperformed most peers, depending on what metric, you know, we're looking at, maybe ex Qiagen. When it comes to organic growth, can we just start with what you believe is maybe the most misunderstood part of the company right now, or the investment thesis and what investors might potentially be missing?
Yeah, for sure. I think to start, I think we have been pleased with the performance the past couple of years. I do agree from an organic growth standpoint, we have been outperforming the majority of the peer group for the past two years. I think when you look at the investment thesis, you know, I would say there's probably a few things that are probably the most misunderstood or underappreciated. I think one is that we have a brand, a completely different portfolio than what we were, you know, five, six years ago. It's a portfolio that has much stronger market-leading positions, truly differentiated technology, higher recurring revenue mix.
And so I think that's probably one area that we're really looking to educate investors on at our upcoming Analyst Day in November, and hopefully give them a better understanding of our new portfolio. You know, I'd say the second thing is probably our ability to consistently execute. You know, I think. If you look at the past two years, with everything going on, too, in terms of the divestiture and the rebranding, we've still been able to execute and deliver, and achieve our objectives.
You know, I think in the past, PerkinElmer maybe didn't have the best reputation around execution, and I think that's something that we've proven the ability to do so as part of the new leadership team under the new Revvity brand name, and I think that is still an area that, you know, we're continuing to show our ability to execute to investors. I'd say the third area continues to be the power of our margin profile. I think that we haven't really had the chance to show our true margin opportunity because it's been a little bit tougher market environment from the pharma biotech customers for us, but it is something we're incredibly excited about over the long term, is the power of our margin profile under the new Revvity brand.
I think your result in China has been, you know, definitely differentiated from what peers, you know, have delivered. I think the life sciences business actually grew in 2023, in an environment that was pretty tough for most other peers. I think your guidance calls for China to be flat this year, which is, you know, better than most. Seems to be largely tied to immunodiagnostics, which I think is roughly 70% of your China mix. Can you just talk about your China business in general, the split between life science and diagnostics, and, you know, degree to which VBP, you're seeing any impact from that?
Yeah, so I think China, for us, has been another area of differentiation over the past couple of years. So actually, in twenty twenty-three, we grew mid-single digits, where I think most in the industry contracted. I think in twenty twenty-four, you're correct, we're assuming about flat growth in China this year, again, which is a differentiated performance versus the peer group. You know, I think it's really a testament of our portfolio. It's a different mix in China for us versus others. One, we're not heavily instrumentation-heavy in China, and two, we don't sell anything that's sort of routine or commodity in terms of running your lab. It's truly unique and differentiated technology that we're selling. I think as you look at our exposure, so China, for us, is roughly 17% of our company revenues.
10% of that is diagnostics, 7% is life sciences. Within diagnostics, you know, 75% of that is immunodiagnostics. So that is the biggest portion of our diagnostics portfolio in China, and the remaining 20-25% is reproductive health, and then the trailing, you know, 5% or so is applied genomics. If you look out on the life sciences side, again, it's 7% of that 17%, and it's a majority of reagents, which is new for us. I think if you go back three or four years ago, we were still mostly instrumentation. Now that we've grown the install base, have a stronger presence, reagents is actually the majority of our life sciences exposure in China. Yeah, you lastly mentioned just on VBP.
You know, I think for us, it's something that we obviously spend a lot of time talking about, but for us, it's really not as big of a future impact for us, particularly in our immunodiagnostics business. The reason for that, again, is because it's truly differentiated tests that we're selling. You're trying to find a needle in the haystack, in terms of the disease that the customer is suffering from. So from that standpoint, we think we still have enough differentiation where it won't, you know, be pulled in as part of VBP, but it's something we'll, you know, continue to monitor.
Understanding that the LRP is still relatively new, have you broken out, you know, what you assume for growth in China, in particular, as part of that six to eight range?
No, not particularly. I think if we were to look at the situation, I wouldn't say it's growing faster than the, than the total overall company. It would be in line to maybe, a little bit slightly lower. Yeah, I think with the 17% of, revenue exposure we have in China, I don't envision that number getting larger.
So you don't need China to grow double digits as it has for most peers, for that six to eight to be-
Correct.
you know, relevant?
Yeah.
Okay. All right, that's good. I'd like to start off with life sciences and kind of dig into the portfolio and the markets a little bit there.
Yep.
Pharma was down mid-single digits in 2Q. Is there any differentiation here between large pharma and small biotechs, and sort of what you're seeing?
Yeah, so if you look at our pharma biotech exposure, about 85% of our pharma biotech exposure is with the medium and large-sized pharma customers. So that's obviously the more important group for us. If you look at the sort of pre-revenue biotech or the smaller players, it has been facing larger headwinds than the medium and large-sized pharma customers. I would say, though, that it has gotten less of a headwind in the second quarter than what it was really when it started in 2023, the beginning of 2023, when you started to see that downturn. I think we're starting to see some of the pull-through or increased activity from the higher funding levels in the first half of this year for the pre-revenue biotech customers.
And so again, what's something we'll continue to take advantage of as those funds continue to flow through, but it's not the biggest piece of our pharma exposure. That's really mostly tied to the medium- and large-sized customers.
On the 2Q call, you alluded to maybe the worst being behind you in terms of the portfolio rationalization headwinds, the site consolidations that you've seen that have been a drag on the life sciences business, but I still continue to see kind of headlines around more layoffs, more restructuring cuts. Can you just remind us about, you know, what's implied for pharma in the second half of the year, and what gives you confidence that, you know, things actually improve directionally from the first half?
Yeah, I think in terms of the sentiment right now, I think as you mentioned on the Q2 call, you know, we had discussed the fact that things weren't necessarily getting worse, that things were more or less stabilizing. There were still pockets of rationalization or site closures. It caused a little bit of noise in our reagents portfolio. But then as we look at in terms of the second half and the conversations we're having with our customers, there definitely has been a little bit of, I would say, improved conversations.
It's part of the reason now why when we look at the second half guidance, I would say the two real key assumptions around pharma is, one, you know, we're expecting a similar reagent volume that we had in the first half from a dollar perspective. And the second piece is we are expecting a return to more, I would say, normalized seasonality for our instrumentation portfolio. And again, that's really just a testament to the more recent pipeline conversations we've had with our customers.
Focusing on the reagents business specifically, you know, it's about $700-$750 million, you know, I think overall, BioLegend's maybe half of that. Can you just break down, you know, what's assumed for that reagents portfolio in your six to eight LRP and kind of what's needed, you know, macro-wise for that business to get back to growth? Is it early-stage biotech funding? Is it clinical trial starts? What are some of the KPIs we should be focused on?
Yeah. So if we look at the LRP and the assumption around our reagents business, you're right, it's about $750 million. The assumption in again, normalized market environment is we believe the reagents portfolio should be growing high single to low double digits. If you look at the sort of sub-breakdown among our sort of reagent product lines, BioLegend is the largest piece of that. It's about 55% of our reagents portfolio. That should be, I would say, growing above the company average from a reagents perspective. If you look at you know, the next sort of 30% of our reagents portfolio, that's really our immunoassay, our specialized reagents that's heavily tied to our sort of instrumentation workflows. That should probably grow in line, I would say, with the overall reagent average.
And then the remaining, you know, call it 15% of our reagents portfolio, which is really our oligos and our radiometric reagents, should probably go maybe slightly below the total reagents average. So that gives you a little bit of a breakdown just in terms of the different product families we have. In terms of what we need to see to be in a more normalized market environment, it's really just consistent lab activity. I think what you're seeing this year in terms of the lab shutdowns, consolidations, relocations, it causes disruptions. And I think for us, as we start to see more normalized lab activity, that's when we'll really start to know that we're, I would say, in a more normalized environment.
Do you see any change in the competitive landscape? I mean, has the integration of Abcam and Danaher kind of opened up any share opportunities?
I don't think we've seen any real changes so far in terms of the competitive landscape. I think if you go back over the past couple of years, I think our performance has been stronger than the competitors from a reagent standpoint over 2023 and 2024, and we haven't really seen, I would say, any change in approach from either Abcam or Tecan that would make us feel otherwise.
Okay. You, within life sciences, you have a couple of businesses that license reagents to other companies. For example, Horizon has a deal with AstraZeneca. You also have one with Sirion. That business, you know, has been a surprisingly large headwind, the licensing component. Can you just unpack what's going on there? It's been a sizable, you know, drag on reagents overall. When does that kind of diminish, and kind of what do we expect for the, I guess, the second half and going forward there?
Yeah. So, maybe just to take a step back and talking about the licensing portfolio overall. So the two big components for us from a licensing standpoint is actually one, our Pin-point-based editing technology, and then the second one is actually with our viral vectors, which is the Sirion business.
So it's not necessarily licensing reagents. It's completely different technology than reagents. It's just grouped with our reagents business.
It's booked within the reagents portfolio.
That's right.
Right.
And so, you know, I think it's a portfolio that we're very excited about long term. The way it works from a commercial standpoint is you basically enter into a licensing agreement, there's some sort of upfront payment for that licensing, and then you get milestone payments as it moves through the clinical trials. Then once the drug becomes commercialized, you get royalty payments. So when you're in this sort of early phase of licensing, you are gonna see volatility, right? Some years you're gonna sign licensing agreements, you'll get the gain from that, then there'll be other years where maybe you don't have the licensing gain. There'll be another couple of years, you get the milestone payment. So there will always be some level of volatility with the portfolio.
The most important thing is to get as many shots on goal as possible, and so that you can have as much of your pipeline convert to ultimately royalties, which is really the, you know, I would say, the most material opportunity for that portfolio.
How diverse is that revenue stream? And, you know, is there a pipeline of, you know, business development deals that-
We can't talk, obviously, customer specific, but I would say right now we've got a healthy blend of stuff that's in, you know, still in the licensing stage versus, you know, phase I, phase II, to later phases, and we have seen a couple that are either just commercialized or on the edge of being commercialized.
Okay. Maybe switching gears to life science instruments, that piece of the business, I think, was down low teens in the second quarter, with China down thirty or so. On the call, you pointed to some sequential improvement outside of China and a further improvement kind of expected over the balance of the year, particularly in the fourth quarter, as you alluded to, more normalized seasonality. Commentary is a little bit more constructive than I feel like we've seen from kind of other instrumentation, you know, companies. Can you talk about what areas of the portfolio are doing better, and kind of what the funnel looks like and gives you confidence that you do see that uptick in instrumentation, particularly in the fourth quarter?
Yeah. So I think we are seeing a divergence geographically. So as you mentioned, in the second quarter, China was a headwind for overall instrumentation portfolio. We're really seeing customers, I would say, be a little bit more cautious until we sort of get the final funding decisions and timing from a stimulus standpoint. We can talk more about the stimulus program as well. But outside of China, the U.S. and Europe have improved sequentially for the past three quarters now. I would say that the pieces of the portfolio within U.S. and Europe that are doing better is really our imaging portfolio. So we did just launch a refresh of our imaging portfolio in the second half of last year.
Probably took a little bit longer, in terms of the uptake in some of the customer conversations, just due to the market headwinds, but we are starting to see more of those conversations, start to take fruit, into more, I would say, commercial or orders type discussions. And so that really is what's giving us, I would say, more confidence in the, in the second half, returning to, you know, quote-unquote, "a little bit more normalized seasonality.
How big is imaging as a % of the instrument portfolio? What else is in there, and what is your guide assume for instruments for the full year?
Yeah. So from a full year perspective, the instrumentation assumption is down mid-single digits. If you look at it on a five-year CAGR basis, that would put it more or less in line with the LRP assumptions we have laid out. So one could take the assumption that that means that maybe exiting this year, you're in a quote-unquote "more normalized" environment. We'll have to see how the market dynamics play out over the you know the second half of the year here before giving some 2025 guidance, but that's at least what's assumed for 2024. I think if you look at the breakdown of the instrumentation portfolio, there's really three pieces to it. It's your high content screening, it is your imaging, and then you have detection and your cellular analysis.
I think as you look at the splits of that, the high content screening and imaging are the two larger pieces of the portfolio.
Gotcha, and just to clarify, so it's really hard, you know, given the spin, and it's a different portfolio now, and so it's really impossible, I think, to go back to twenty nineteen, but you're saying that the instrument business, as it stands now, if you drew a line back to twenty nineteen pre-COVID, that the five-year CAGR would actually be, like, mid-single digits?
Yes, that's correct.
Okay. That's better than most instrument businesses. I think, like, Agilent, Waters are kind of more like closer to flat, low singles, but that's-
Yeah, and I think it's a testament, too, that we have a completely different portfolio.
Yeah.
Right? I think a lot of what they're selling is can be commoditized sort of instrumentation, right around chromatography, even mass spec to some degree, really helping you run your lab. We're selling specific fit for purpose instrumentation. You might have hundreds of their instrumentation in your lab. You maybe only have one or two, and it's designed for a very specific scientific purpose in terms of our instrumentation.
Okay, that's interesting. You alluded to it in the last response around China, maybe see an air pocket in the second quarter as folks kind of wait for stimulus clarity. You know, what's your latest view of, you know, where we are as far as stimulus disbursements? What does your funnel look like, and have you started to see any orders that are stimulus related in China?
In regards to stimulus, you know, I think, one, it's always been a dynamic in China. I think now it's just getting a little bit more airtime, but it is something that I would say is quite normal in terms of how the commercial team operates there. I think if you look at this package in particular, we continue to believe it's just a matter of when the funding gets finalized, not a matter of if. You know, our stance has been that we might see some orders here in the second half. The more material impact would be in 2025. But as a reminder, too, instrumentation in China for us is only 3% of total company revenue.
So we will benefit to stimulus being deployed in China, but it's not something that, you know, it's gonna be a massive exposure or tailwind for us to the total overall company.
Gotcha. Maybe just closing the loop on life sciences. The software business, about 15% of that segment, probably your best performing business this year within that SBU. Where are you seeing the most traction in software? Has it been new product introductions, new customers? And really, what's unique about the portfolio that you'd like investors to understand? It's not really something I think that's tangible, you know, but, you know, what's really differentiating about that business?
For sure. I think it's probably one of the more underappreciated or misunderstood pieces of our portfolio. You know, I think it leads to, again, part of why we're differentiated from the overall peer group. So when you look at our software business, about $200 million in revenue on an annual basis, it is not tied to our instrumentation. So I think that's probably the first misnomer to put out there. It is a truly standalone software offering that we have with our customers. And when you look at what the offering is, it's really sort of three components. It's mostly with large pharma, and it is all in the pre- sort of preclinical side today. And so those three offerings are: one, you've got your ChemDraw, which is basically the designing of your compound or chemical.
The second is you have your electronic lab notebook, which is basically where the scientists go and design what and document what their experiment is going to be, and then you've got our analytics platform that sits on top of it, so they can analyze the results of their experiment, and so that's the offering today. About 30% of it is SaaS related versus on-prem. You know, that's a journey that we're continuing to go on, and we believe we're ahead of the competition in terms of the SaaS journey, so that is definitely helping fuel some of the growth, and then when you look at what's really driving the strong performance in the business, one, it's that it's incredibly sticky with customers. So when you talk about our penetration with large pharma, again, this is like their ERP. It's what they're using on a daily basis.
It's in their labs around the globe. So for them to switch out would basically be like another company saying, "Okay, tomorrow - today, we run SAP. Tomorrow, we're gonna go to Oracle," and changing all of their internal business processes. Really, everything they do is ingrained in their software, our software from a lab activity standpoint. So that stickiness has helped driving the growth. We have about a net retention of 107% on average. And then when you look at what, you know, really drives, I would say, the strong double-digit growth, it's the additional drivers that we're pushing with the business, whether it's, you know, SaaS, right, and the adoption of SaaS. The second is we continue to move a little bit further downstream from preclinical.
We just launched two new products, Signals Synergy and Signals Clinical, which helps us move a little bit further downstream with our customers. Another opportunity for us is a lot of our workflow design was for small molecule. Our customers are coming to us and saying, "Can you do the same thing on the large molecule side?" And so that's an additional lever for us as well, that we're excited about over the next couple of years.
There are some timing and comp issues, I think, to be aware of in the third and fourth quarter. Can you walk us through, you know, what those are and, you know, should the lumpiness in this business kind of diminish relative to what we've seen for the last, you know, year or so?
Yeah. I wish the lumpiness would not be the case. But unfortunately, given again, that the portfolio is still heavy on-prem and the revenue recognition guidelines, that's always gonna be a dynamic until you see more of the portfolio into sort of that SaaS, the SaaS revenue model. In terms of the second half comp, specifically, yeah, the third quarter, we're expecting it to be down low single digits. In the fourth quarter, it should be up or growing in the low twenties. So for the full year, it's still growing overall in the low double digits. But again, because of that renewal timing of the on-prem solutions, you will see some quarterly noise in the second half.
Gotcha. Okay. Shifting gears over to diagnostics, immunodiagnostics, you know, performed well in the second quarter, I think up high singles. Your LRP, I think, assumes that that piece grows kind of 9%-11%. What are the key drivers to reaching that level of growth? Where is the market growth rate, and are you taking share in immunodiagnostics?
Yeah, I think when you look at immunodiagnostics for us, the business has continued to perform well, not only in 2024, in 2023. In 2023, it grew mid-teens. In 2024, we're assuming it grows high single digits. If you kind of do a two-year stack on that, you are more or less in line with the LRP assumptions of high single to low double digits. You know, when you look at that portfolio for us, again, the biggest piece of immunodiagnostics for us is our autoimmune business. Autoimmune is still an immature area of testing from a diagnostic standpoint, and we believe that the market is growing high single digits. So for us, really, what pushes us to grow above the market, I would say is two things. One is the continued menu expansion.
So we continue to come out with new assays in the areas of, like, neuro diseases. And then when you look at the second lever, it's really from a geographic standpoint. For us, the U.S. is the big focus from a geographic penetration standpoint. So when we acquired Euroimmun back in 2017, which is the biggest part of our, you know, autoimmune portfolio, only 5% of its revenue was in the U.S. Now that's at 15%, so it's been growing quite substantially since the time of acquisition. But when you look at the actual overall market, 40% of the immunodiagnostics market is in the U.S. And so for us, it's a continued focus on, one, driving more automation in the U.S. market. The second is continuing to get more of our menu approved from an FDA standpoint.
So those are the two areas we continue to focus on. Our growth in the U.S., our goal, I should say, from a growth standpoint, is to get our U.S. penetration closer to overall market share of about 40%.
Off the top of your head, you know, where is the U.S. approved menu today versus what's available the rest of the world? I mean, something talked about since the deal, surprised that there's still wood to chop there, actually.
Yeah, I would say there's still probably a decent amount of wood to chop there. I think that we're probably only in the early innings from a menu approval standpoint with the FDA, and I think it's something you'll see more meaningful progress over the next three to five years.
Gotcha. Okay. Shifting gears over to newborn screening. You know, this business is up low singles worldwide in the second quarter. Ex-China was up kinda high singles, which is pretty good. You know, I feel like relative to what global births are doing, which is hard to find a positive geography kind of anywhere. But what is the regional mix of this business? How much is actually concentrated in China? And you talked about China actually improving this year, Year of the Dragon. What's your outlook for this business 'cause moving into the second half?
Yeah. So maybe to start with too, our our reproductive health business is about a $500 million business per year. Our newborn screening business is the largest piece of that. It's about 65% of the overall reproductive health portfolio. And then when you look at the newborn business, it has been performing well over the past couple of years, despite the global birth rate challenges. I think if you look back over the past three or four years, their newborn screening business has grown positive mid-single digits, when birth rates have been declining, probably in the negative mid-single digits. So that's almost, you know, 700 to 1,000 basis points spread above the birth rates. The reason why we've been able to drive that improved performance is, one, continued menu expansion.
So whether that's states or countries pulling more tests into their approved testing panel, or it's us coming out with new assays to test for newborn screening. The second piece is the geographic expansion, which is signing up more countries to roll out a global newborn screening program. Believe it or not, there's still 100 million babies born each year that get zero level of testing today. So there is still immense opportunity from a geographic expansion standpoint. When you look at the geographic split of our newborn screening business, it's about 55% in the Americas, 25% in Europe, 10% in China, and then 10% in other Asia. To your point, we have spent a little bit more time talking about the China dynamics this year.
It is, you know, one of the years where we're expecting to see improved birth rate performance because of the Year of the Dragon, which, you know, it's an interesting dynamic, but it is really true that more babies tend to get born in the Year of the Dragon. And the reason why, you know, we have confidence in that, too, in our second half guidance assumption, is we've already seen the uptick in our prenatal screening business in China. So that grew in the first half for the first time in a long time, which then gives us comfort that we're gonna see that tail-on effect from our newborn screening business in the second half.
Gotcha. Okay, lastly, I just—I wanna touch on Applied Genomics. You know, I feel like this is kind of a black box in terms of, you know, what's actually in there. You know, it was a COVID beneficiary. It's been under pressure for some time. I think the last quarter you talked about pharma biotech headwinds. You just unpack, you know, what's going on in this segment. When do you expect it maybe to normalize, and how much of the drag, you know, recently has been just related to NGS and services?
Yes, I think when you look at our Applied Genomics business, roughly about $200 million in revenue. If you look at the past couple of years, there's been a couple dynamics that have been impacting that business. One is COVID. So, during the COVID period, you saw a massive spike in growth in our install base and instrumentation placement. That obviously has now faced a little bit of a headwind coming out of that over the past couple of years, just given how much more volume was really put into the overall industry.
I think the second dynamic it's now facing is we do sell a lot of our sort of liquid handling and extraction capabilities to pharma biotech customers, so it's kind of getting a double hit at the moment of, one, coming off the COVID install base ramp, and then, two, the headwinds that our pharma biotech customers are facing. So from that standpoint, the business has been challenged the past couple of years. The assumption in our guidance for twenty twenty-four is negative mid-single-digit growth for our applied genomics business. If you then look at the five-year CAGR of our applied genomics business exiting this year, it is positive mid-single digits, which again, is closely aligned to what the assumption in our LRP is. So not that dissimilar from what I was mentioning on the life sciences instrumentation side as well.
Gotcha. Okay. Maybe shifting gears over to the balance sheet and cash flow. What are your capital deployment, you know, priorities and expectations right now? Free cash flow conversion is actually really good in the first half of the year. I mean, I think you did $300 million. You've only guided to $450 million for the year. Is there room for upside to that? And you know, remind us about what your expectations are in terms of debt paydown. I think there's a big tranche you plan to pay off in the third quarter.
Yes, a couple questions. A couple of questions loaded in there.
Yeah, sorry.
Let's start with first free cash flow. No worries. So from a free cash flow standpoint, I think we've been very encouraged by the performance of the first half. I think it's a combination of, one, our newer portfolio should perform just naturally better from a free cash flow standpoint, given, again, that's a higher reagent business, as opposed to the capital-intensive, instrumentation business that we divested. I think the second piece is we have really focused on, I think, some of the new, some newer operating rhythms and operating, rigor around free cash flow, and I think we're starting to see the benefits of that.
We also talked on our previous earnings call, too, around the use of artificial intelligence in some of our working capital processes and how we interact with customers from a receivable standpoint, and we are seeing positive signs with that. So I think when you look at the full year, I think we actually upped our recent guidance on it. So I think we've now committed to north of $500 million from a free cash flow standpoint. We expect the second half to still be strong, although there might be some timing dynamics between the third and fourth quarter. But overall, for the full year, we are expecting a strong free cash flow result. I think when you look at just capital deployment, more broadly, from a debt paydown perspective, let's start with that.
We do have a short-term note that's due here in September. It's roughly $700 million left on it. We have it fully matched to U.S. Treasuries, so that'll transact here in September. When you look outside of that, we only have then about $3 billion of long-term debt. It's 100% fixed cost, you know, with an average maturity to 2031. We'll see if there's other opportunities to take advantage of some, you know, paydown of that debt, but it's definitely, I would not say, the top priority for us from a capital deployment standpoint.
I think when you look at capital deployment for us, the long-term preference is M&A, but I think in the short term, as we mentioned on our call, I think we are gonna be more opportunistic in terms of the share repurchases. Our stock is still at a discount from where we think it should be trading at, and we don't believe that's gonna last forever. So I think you're gonna see us be more aggressive from a share buyback perspective here in the second half.
Is your bias toward buybacks because you're focused on executing the deals that you did over the last two or three years, or because of where the market is right now on valuations?
I would say it's a combination of things. I think it's-
Maybe both.
One, where the market and the valuations are. I think, one, there's still a lot of things on our plate in terms of, you know, taking in all the deals and really getting, you know, the Revvity portfolio, you know, humming with all the different pieces. I think a third piece of it, the M&A sticker prices right now are still, I would say, a large disconnect from where we think valuation should be, just given the market environment.
Gotcha. Want to touch on the guide for a minute. We've talked about this kind of fourth quarter ramp, partly given the timing of some unique puts and takes, third and fourth quarter. You've talked about instrumentation, seasonality. The step-up is, you know, looks pretty steep. It's in roughly $80 million sequentially from 3Q to 4Q, if I kind of take the midpoint of your guidance, you know, in that ballpark. Can you just, I guess, talk about the level of confidence you have in exiting the year at kind of like a 9-10% organic growth rate, and should we, you know, view that as, like, a normalized sort of level, as we think about, like, 2025? Or are there just too many one-time factors, new software, what have you, to read through to that?
Yeah, I think I'll probably hold on the twenty-five commentary until we get a little bit later in the year and see how the market continues to evolve. But I think when we look at least the second half or the fourth quarter ramp that you referred to, the way I'd probably look at it. So third quarter, we've guided positive low single-digit growth. To get to then 2% for the full year, it does imply a high single- to low double-digit growth in the fourth quarter.
So call it an eight-point spread or ramp between the third and fourth quarter. I would say half of that is really company-specific dynamics. So one, you've got the software timing renewal, and two, we've talked about the China diagnostics impact from reproductive health, and we also have an easier comp in immunodiagnostics in the fourth quarter of this year. The second half of that eight-point jump is really just a return to normal seasonality from an instrumentation standpoint. So those are really the two dynamics that are leading to the ramp between the third and fourth quarter.
Gotcha. Last one, just on margins. SG&A has been basically flat for four-to-six quarters. Pretty impressive. Does that need to grow for the top line to get back to that six-to-eight LRP that you've talked about?
No, and I think that's probably the area that, again, we continue to be most excited about from a margin opportunity standpoint.
Yeah.
You know, the beauty of our new portfolio is that SG&A does not need to grow at the same rate of sales. You can think of it growing, you know, half of the rate of sales, and it's still gonna enable us, in a normalized environment, to deliver that 75 basis points of op margin expansion.
Super. Well, we're out of time. We'll have to leave it there. Max, thanks for being here.
Yeah, thanks for having us.