Thanks, everybody. This is Paul Knight, the life science analyst at KeyBanc. With me today is Steve Willoughby, one of the top investor relation people in the industry. Steve, welcome. You used to be a venerable sell-side analyst. How's the role in corporate IR?
Good morning, Paul. Thanks for having me. You know, the transition to IR has been fun. Revvity, as you know, has been a very—we've been busy over the last four years since I moved from the sell-side to the corporate world. You know, I think the company is one that, you know, in my career, you know, I haven't seen a company go through as much of a transformation as Revvity has, let alone in such a short period of time. You know, in just four or five years, you know, really transforming what the business is and does, let alone, you know, what the business is called. You know, it's been fun. It's been busy. I've been learning a lot, but certainly missed a number of different aspects of the sell-side as well.
Yeah, yeah. It has been a dramatic transformation. You know, what's the recap on the business profile? It's like, how much consumables, how much services now?
Yep. Yeah. It has dramatically changed. I guess when you first step back, compared to six or seven years ago, approximately 70% of our revenue is new to the company within the last, call it, seven years. It is, you know, literally what we do for a living is very different than it was less than a decade ago. When you look at the business today, a little under $3 billion in total revenue, fairly evenly split between life sciences and diagnostics. Of the, call it, $2.8 billion in revenue, approximately 80%, or maybe even slightly over 80%, is recurring revenue, which is all of our consumables, our software business, and, you know, some various related services. Today we are 20% or a little under instrumentation.
You know, and if you look back, call it five or six years ago, that number was much, much higher.
Yeah. You know, one question we've had over the last couple of months has been around software. We all know that Revvity had been buying a lot of software assets over the last decade. Can you talk to the level of, you know, how ingrained it is into the user base, you know, and your thoughts on it?
Yeah. Our software business, which is called Signals, is approximately $200 million in revenue last year, which represents about 8% of total company revenue. It is about 15% or so of our life science business. You know, our software business has been growing at a double-digit CAGR over the past, you know, more than a handful of years, including 13% growth last year. You know, our outlook for this year is for it to grow in the low double digits, call it, you know, 10%, which is right in the middle of the 9-11% we assume that our software business will grow in our most updated LRP. You know, in terms of how ingrained this business is, you know, this is a business that is historically focused really within the top 50 pharma.
I think we're in either 46 or 47 of the top 50 pharma out there. That doesn't mean that we're in every single lab within these customers or, you know, in every single location around the world, or they don't have every single piece of our various parts of our software business. You know, we've been able to continue to grow. I think there's a long runway still in front of us in order to grow even within existing accounts. You know, we highlighted at our investor day last November on how our software business has, you know, in 2024, was on pace for about a 106% net retention rate.
Net retention, for those of you who are not, you know, software inclined, really takes into account your retention, your renewal rate, which for our software business is in the upper 90s, and then adds the expansion of those existing contracts at renewal by either adding more seats, adding more licenses, adding a new lab, or adding more, you know, components or modules to what we are offering the customers. Think of it as like almost a 6-7% in also some price. Think of it as sort of 6-7% growth, very consistent upon contracts coming up for renewal.
You know, our business then is able to grow in the, you know, double digits historically because of, you know, new business wins with either some of those larger customers we're not penetrated into yet, or we're also starting to move a little bit further downstream into smaller customers. One of the things we highlighted at the investor day was how we are beginning to also penetrate what we're calling material science customers. Those customers in more industrial applied chemicals, cosmetics, things like that, where they can really leverage some of the very same types of software we use. The last, there are last two things on our software business. Today, about a third of it is SaaS. About two-thirds of it is still legacy on-premise multi-year licenses. The final thing I would say is what our software actually is.
What the software business is, the flagship product is called the Signals Research Suite, which think of it as a, it's workflow software for a preclinical R&D lab. Think of it as almost a type of like ERP for a preclinical R&D lab. It is software that is used to set up your experiment, document your experiment, collaborate with your colleagues, report out on the results, and then analyze those results. It is extremely ingrained in customers' workflow. It is very, very sticky.
It's a lab book.
It's a lab book. It's literally moved from a notebook to emails and Excel spreadsheets to on-premise software and now progressively moving into, you know, SaaS-based cloud software.
How long has this software been in the market?
Probably 15 or so years, 15, 20 years. To your point in your earlier question, you know, one of the areas of differentiation for our software compared to our competitors is it's actually all organically developed. You know, we have not actually in the, you know, well over a decade, really done any acquisitions to build this software business. It's really been homegrown, which is a nice competitive offering where it's all, all of our offerings are, you know, completely, you know, tied in together under single logins. They work well together. They look similar. Customers are really familiar with how they work.
The antibody business, next question.
Yep.
It's been growing better recently. What's happening? Market's better, I'm assuming, of course. Could you talk to the antibody business?
Sure. So, you know, antibodies, we got into the antibody business with the 2021 acquisition of a privately owned company called BioLegend. Today, that antibody business represents a little over half of our $725 million reagent portfolio. And so we have, I would say, a very significant presence in life specialty, life science consumables outside of antibodies as well. You know, within antibodies, yes, I would say we have been performing while the market has been under pressure over the last, call it, two years because of the slowdown in pharma biotech spending. You know, our performance has been above, you know, the most of what we can view from our peer set. You know, we have a really unique competitive offering.
I would say one is, you know, we're very focused on having strong relationships with key opinion leaders to really be developing new products on where science is going. We come out with between 100 and 150 new products every single month on average. You're talking about, you know, a couple thousand new products per year. I think the other thing that you should know that really differentiates our business is we manufacture essentially all of the products we sell. Compared to some of our peers who might have a very large library of other products that they source from other manufacturers and really sort of act as a distributor, you know, close to 99%, if not close to 100% of our revenue is from products we sell ourselves.
You know, in addition to having very innovative products, very high quality and consistent products, we have better service than any other competitor in the industry. And what I mean by service is when you order one of our products, you know, and usually you're buying, you know, a single vial of antibody or maybe two of them, we deliver a high 90% of our orders next day. We do not ship them next day. We deliver them next day globally. For example, if you're at a lab at Harvard in Boston, you can order a product up until three o'clock in the afternoon, and it is going to be on your lab bench by 10:00 A.M. the next morning. We have built a proprietary way to distribute product that, you know, is unlike anything else in the industry that allows us to have that rapid deployment.
In addition to having very innovative products, very high quality products, better service than anyone else, you know, we also pride ourselves on being the value price player in the market. You know, we are typically a little bit lower cost as well. Despite that lower cost, we still have very, very strong margins within this business as well.
Is BioLegend or what was its historical presence in flow cytometry?
That's where it started. You know, when we did the acquisition now, you know, three and a half years ago, which, you know, time flies, it's been three and a half years since we did that acquisition. You know, when we did that acquisition, approximately 60% of its revenue was flow cytometry related. I would say we've continued to see good growth in flow, but I would say we've been seeing even faster growth in other areas of antibodies outside of flow. That percentage of the business has probably shifted a bit.
It's what % do you think now, Steve?
I mean, its flow is less than 60. I don't know the exact percentage off the top of my head right now.
Yeah. Okay. You never had your own flow cytometer, correct?
That's right. You know, we don't participate in the instrumentation side of that business. I would say we've continued to, you know, gain share consistently without having an instrument. It really speaks to the, you know, innovative nature, the high quality nature, the competitive pricing, you know, of our consumables that we've been able to take share despite not having an instrument.
Your competitor in that area of flow?
In that area, you know, the two largest players would be us and Becton Dickinson, and then, you know, the other key antibody players like, you know, Bio-Techne and Abcam and Thermo Fisher, et cetera.
Yeah. Okay. And then the other half of the antibody, or I shouldn't say this.
Consumables.
Yeah, the other half of the consumables portfolio. Can you talk to that a little bit?
Yeah. It's really the, you know, various portfolios of specialty consumables and reagent kits that are used in conjunction with our specialty instruments. Maybe just touching real briefly on our instruments, you know, roughly $400 million in revenue. One of the key things with the divestiture that we completed two years ago in March of 2023 was we divested all of our traditional analytical instrumentation. We divested all of our liquid chromatography, gas chromatography, mass spectrometry, spectroscopy that I would say investors are typically maybe a little bit more familiar with.
Yeah.
Our instrumentation portfolio today consists of preclinical imaging, high content screening, cell counting, and some other various sample prep instruments. The other, you know, several hundred million dollars in specialty consumables is really different types of reagents that provide various different types of functionality on the instruments. Different types of dyes and fluorophores and AlphaLISA and HTRF reagents that are used either in high content screening or preclinical imaging.
Okay. Great. You know, we've already, you know, there's always a couple of hot buttons in any given.
Of course.
In our market. Can you talk to China and then can we talk to academic market?
Sure. I mean, you know, maybe first starting on academic and government, I would say that's probably been the hottest topic of the last month or so. You know, at a high level, academic and government represents approximately 12% of our total company revenue. Approximately 40% of that, or roughly 5% of total company revenue, is academic and government revenue in the U.S. So 5% is U.S. academic, I would say. You know, right around or even a little under 1% is directly tied to the NIH. And I would say, you know, it's hard for us to decipher how much is indirectly tied to the NIH. So we just say, listen, you know, 5% is all of our U.S. academic and government exposure.
Yeah.
You know, there's obviously been a, you know, number of changes, ups and downs and uncertainties here in the last month or so, five weeks, I would say. You know, the other thing to understand about our academic and government exposure is, you know, a little over 80%, maybe call it 85% of that revenue is consumables. You know, we have, I would say, even less exposure to instrumentation within our academic and government revenue overall.
Okay.
You know, on China.
Yep.
You know, China, I would say, you know, 16% of revenue, 7% is life sciences, 9% is diagnostics. On the 7% that's life sciences, you know, we had pretty good growth and performance in the fourth quarter. You know, our China life science business in the fourth quarter of last year grew in the high single digits. For the entirety of last year, our consumables in China, which represent the majority of our revenue, our life science revenue in China, grew in the mid-single digits. I think that's something that maybe surprises folks is that, listen, you know, we had mid-single digit growth for life science consumables in China last year. I think maybe the perception is that, you know, China was a very difficult market for the last year or two. I would say it was for instrumentation, particularly in the second and third quarter.
When you're selling innovative consumables that allow customers to do innovative science, there is demand for that and allowed our reagents to grow mid-single digits last year. You know, on the diagnostic side, you know, it's 9% of revenue is diagnostics in China. The vast majority of that is our immunodiagnostics business. You know, our immunodiagnostics business in China grew mid-single digits last year. I know that there's a lot of discussion and concern over various different pricing programs going on in China, whether it's VBP or other pricing pressure type programs that are happening to some of our other publicly traded peers. You know, right now those really are not impacting us. We were able to continue to grow mid-single digits last year. I think it really speaks to both the specialty nature of the types of diagnostics we do.
You know, we really are focused in sort of esoteric autoimmune conditions, esoteric infectious disease conditions that, you know, are not as big of markets. You know, they're not as big on the radar screen. There's not as high a volume. They haven't come under the, you know, more significant or drastic pricing pressure programs that others may have been seen. I would also say that while we do have some local market competition in China, it's not as significant as compared to some of the more routine areas of diagnostics that maybe don't require the same level of specificity or sensitivity that's demanded when you're looking essentially for a needle in the haystack in some of these esoteric conditions that, you know, we provide diagnostics for.
Yeah. You know, I think one other company yesterday was citing, you know, the high level of innovation in the biologic, you know, the biotech market in China. I assume that's what's helping drive your growth. There's true innovation coming.
Yeah. I think that's one thing that's been interesting in the last few years is the, you know, pharma biotech industry in China, as you know, just a handful of years ago was really more focused on developing, I would say to a degree, maybe copycat type of innovation.
Yeah.
You know, that really got cleaned up coming out of the pandemic. A lot of that got consolidated away. You know, what you're seeing now is, you know, many more Chinese companies announce partnerships with Western companies to help develop and commercialize the innovative medicines that they're creating. Yes, I think that is probably one of the things that is helping drive particularly our consumables because if, again, if you think about it, you know, customers buy our consumables to do something new or different in their science. If we provide them the tools and the consumables to do "new science," there's going to be demand for that. I think that is, you know, the growing market for innovative science in China, I think is one thing that is a tailwind to our business there right now.
Yeah. In the consumables area, is it the usual competitors being Bio-Techne and Abcam?
We have some others in, you know, some of the other areas, you know, that we compete with on the non-antibody side. So there's some other players there. Danaher is there, Thermo is there. There are some privately owned companies as well who make some of the consumables that are used in preclinical imaging and high content screening. You know, I would say on the life science side, you know, the local market competition is not as well developed in China in particular, you know, so far.
Yeah. The diagnostics business for you, Steve, could you talk a little bit and start off with a newborn screening?
Sure. Yeah. You know, newborn screening is by far the largest piece of our reproductive health portfolio. You know, reproductive health is approximately $500 million in annual revenue. So call it, you know, a third to 40% of our overall diagnostics business. You know, our reproductive health business grew, you know, mid-single digits last year. And that is despite continued pressure on global birth rates.
Yeah.
You know, when you look back over the last, call it, handful of years, you know, births globally have been going down approximately 2% per year. During that time, our business has continued to grow in the mid-single digits. I would say we've been able to basically outperform the underlying birth rate by approximately 700 basis points per year on average. We're able to do that through a combination of geographic expansion, menu expansion of existing assays, and then also just new product innovation. Today, there's about 140 million babies who are born every year around the world. Unfortunately, 100 million of them don't receive any screening at birth whatsoever.
Over time, and it's, you know, it takes time, but we can get countries and governments to adopt doing newborn screening for the first time, that's all incremental revenue for us. I would say second, and potentially an even larger growth driver is getting more of our existing assays to be adopted by governments around the world. For example, the state of California, every baby there is tested for over 60 different disorders. In many other states in the U.S., it's, you know, in the low to mid-40s. You know, I believe like in England, it's only 16 or 17 different disorders per baby. You know, in China, it's only seven or eight different disorders per baby.
If we can get, you know, all the babies born in China to be tested for 10 disorders or 11 disorders or 12 disorders instead of seven or eight, you know, that's an all-incremental growth driver for us. In addition to that, you know, we're continuing to have very strong, you know, new product innovation. In the last couple of years here, we've come out with new screening assays for rare diseases such as, you know, Duchenne muscular dystrophy, spinal muscular atrophy, MPS-II. We're continuing to expand the overall menu as well.
What is the, what's the package in newborn? Is it you supply the reagents? Is it a mass spec-based technology or what is it?
You know, it's a good distinction here. It's a good question because newborn screening everywhere around the world, including in the U.S., is government-mandated, government-paid for testing. Even here in the U.S., this testing is not going through commercial insurance or Medicaid. It is being paid for and mandated by the states outside of any type of reimbursement program. We are working with, you know, in the U.S., we work with state health labs. In, you know, Canada, we work with provincial health labs. In other countries around the world, we might work with national health labs. We provide the instrumentation, the analyzers, the dry blood spot card that the baby, a little bit of blood from the baby is put on. We sell the, you know, diagnostic assays. We sell the software.
We have really, you know, provided a complete workflow solution here for the customers. It's a combination of different technologies. You know, there is a portion of the tests that are done via biochemistry. There are some that are done via mass spec. And now there are some that are done genomically. You can look at some of our recent press releases on how, you know, we are working on developing and we have come out with a new workflow, sequencing-based workflow for newborn screening. We just recently announced that we are working in partnership with a privately owned sequencing company called Element Biosciences.
Yeah.
We're jointly working on developing a workflow, a sequencing-based workflow for newborn screening. We're seeking FDA approval for that workflow as well. That's something that, you know, is in process as well.
How many tests would that be on the Element?
How many tests? I mean, I think the potential, you know, is, you know, expands tremendously. You know, if the overall menu today is, you know, 60 or 70, you know, I think it dramatically expands that. I think the other thing to keep in mind though is there is going to be an opportunity for both traditional types of testing and genomic. There is, you know, it can be as a frontline screen and a confirmatory screen. I think there is also the cost aspect as well that takes into account here. Because, you know, Paul, if there are 140 million babies born every year around the world, you know, there are 100 million who still do not get screened at all. There is a reason for that. That reason usually is cost. As you know, sequencing-based testing is only even, you know, multiples more expensive than traditional methods.
Yeah. Very, you know, very fascinating. The diagnostics business, the long-term growth target there is what?
For the overall diagnostics business, you know, half the company is 6%-8%. That is really broken down with reproductive health being in the 2%-4% range. Then our immunodiagnostics business, which makes up, call it two-thirds of the diagnostics business, being in the 9-11% range. You know, that immunodiagnostics, it is the autoimmune, it is the, you know, esoteric infectious disease, allergy. The beauty of this business, one of the beauties of this business is, and one of the key reasons why we entered into this business, you know, a number of years ago is very strong and durable underlying market growth. The market growth for autoimmune conditions is growing in, call it the mid to high single digits because autoimmune is still a very underdiagnosed set of conditions even in developed markets.
There is very strong growth just for greater awareness and greater testing of autoimmune conditions in both developed markets, let alone underdeveloped markets.
Yeah. What does an autoimmune test cost?
An individual test, I honestly don't know that off the top of my head, Paul, so I don't want to misstate. I don't know what the exact dollar amount of an individual test. Usually it's a panel of tests though. Because, you know, you're thinking of it, if you know of anybody who's ever had an autoimmune condition, many times they have to go through rounds and rounds and rounds of testing. You know, you might start with a general practitioner and then you might go to a rheumatologist before you eventually go to an autoimmune specialist. Sometimes, unfortunately with these patients, you know, it can take months, if not years, to figure out what is exactly wrong with them and properly diagnose them. You really need that highly sensitive, highly specific test that can go after that fairly, you know, uncommon disorder.
You know, one of the reasons why we are, you know, the market leader here is because we have the broadest menu of these fairly esoteric tests and they perform at a very high level. We are able to help really try and diagnose some of these conditions that are very difficult to diagnose.
What's your, backing away from the micro a little bit, what's your long-term growth goal now?
You know, LRP is 6%-8% top line, which we believe is 200 basis points above underlying market growth, you know, in normal conditions. Obviously, the last two years have not been normal. I would say the two to three years before that have not been normal during the pandemic when things really exploded. You know, I think the 4%-6% market growth is, you know, over a, it's the long-range plan. It's over the average of a number of years. I think given the nature of our businesses and our ability, just the underlying market growth of our businesses, as well as our ability to, you know, innovate, take share, et cetera, you know, we should be growing roughly 200 basis points above market.
You look at our performance over the last two years, we've been doing that in a, what I would say, you know, with some headwinds to the market. You know, last year we grew organically 1%, which was better than the vast majority of our peers who were flat and down. In 2023, we grew 2%, which again was better than the vast majority of our peers who were, you know, negative, you know, declines. Even if you look at our guidance for this year, you know, we're calling for 3%-5% top line growth. We're moving in the right direction. We're not quite back to fully normal is our expectation starting out of the gate here. But 3%-5% growth is again above the vast majority of our peers, particularly those larger, more diversified players.
I think, you know, we're showing the differentiation in, or, you know, financial performance. I think it'll be even more impactful when we're able to show that financial differentiation under even stronger market environment conditions.
The M&A team must be very quiet because they need a rest after what they did during COVID.
They've been, you know, we did 11 acquisitions in less than two years. When I joined the company in May of 2021, we did five acquisitions, my first five months on the job, including the BioLegend acquisition, which was the largest in our company's history. Nine months later, we announced the intention to divest our analytical and food businesses. We wrapped that up, that divestiture closed in May of 2023. Two months later, we rebranded the company as Revvity. You know, really it's been three and a half years since we've done an acquisition. It's now been over two years since we did the divestiture. You know, I would say over the last two years, we've been acutely focused on driving, you know, operational synergies and really showing that synergy potential. I think that was on display last year.
You look at 2024, we grew organically 1%, but expanded operating margins 30 basis points despite incentive comp coming back into our P&L. We had very good margin expansion with, I would say, modest top line growth. That is really because we are starting to, you know, capitalize on some of those operating synergies.
Yeah. Yeah. What would you attribute the improved market outlook to this year? Is it easier COVID cash flow comps by customers? What are your factors behind your thinking?
Sure. You know, when you look at it, half our business being diagnostics, I would say even that business, our diagnostics business, even last year in 2024 was sort of back to normal. You know, grew in the upper mid-single digits last year within our LRP expectations. As we look for 2025, again, we're assuming it to be within our LRP range, you know, roughly call it 6% or so.
Yeah.
You know, 8% of our business is the software business. As I mentioned at the beginning of the call, you know, that grew in the low teens last year. You know, for this year, we're looking for it to grow low double digits, call it 10%, you know, within our LRP assumptions. So you've got nearly 60% of our revenue that was sort of back to normal last year and we expected to continue to be normal this year. It's really the 40% of our revenue that is still in the process of getting back to normal, which is all of the, you know, life science consumables, life science instrumentation. And you know, we saw a, in the second half of last year, we saw a stabilization in demand from our pharma biotech customers, really stemming from a stabilization in them doing large restructuring announcements and large job cuts.
That was one of the things that throughout 2023 and the first half of 2024 was, I would say it was a, it was, you know, a pressure where, you know, large pharma companies were announcing, you know, thousand person, several thousand person layoffs. You know, that was having an unexpected negative impact on demand for both our consumables and our instrumentation. We saw that sort of stabilize as we moved into the second half of 2024. You saw our reagents grow sequentially 2Q- 3Q and then 3Q- 4Q. You know, we had, you know, good momentum entering into 2025, still not back to normal, but moving in the right direction. I think one thing to highlight is while things were starting to move in the right direction, we're not assuming any improvement in our guidance here for 2025.
If things do continue to move in the right direction, you know, we should be well positioned from a guidance perspective.
You know, and I think if you can really scrub the biopharma R&D data, which is not easy due to their acquisitions, it does kind of correlate to exactly what you're saying. Things improved in 2024 as the year rolled out, right?
Yeah. I think too, you got to think through where is that R&D money going? You know, our business is predominantly focused on upstream preclinical R&D. I think you can make the case that over the last, you know, couple of years here, you've seen a greater allocation of R&D dollars being used downstream in clinical trials to get that drug into the next phase of clinical trials or try to get that drug commercialized to the detriment of preclinical R&D. Despite that tide sort of going against us over the last two years, obviously, as we just talked about earlier, I would say we've been holding our own on a relative basis from a financial performance perspective. Eventually, I can't tell you exactly when, but eventually that pendulum has to swing back.
Pharma companies are going to have to start reinvesting more significantly back into their preclinical pipelines. Otherwise, they won't have a clinical pipeline eventually. When that pendulum swings back, you know, I don't know of a company that's better positioned to benefit from it.
Maybe we'll see a GLP-1 dividend of cash flow helping everything, right?
That would be great. Eventually it has to get, you know, redeployed, I would say.
Yeah. Great. Steve, this has been awesome. Thanks for your time.
Thank you, Paul.
I know you're doing some meetings today, so good luck with that.
Thank you.
Great to see you again.
Okay. Take care. Thanks, everyone.
Good luck.