Tools and Diagnostics team. For our next session, we're joined by Revvity. Pleased to be joined by Steve Willoughby, Senior Vice President, Investor Relations, ESG, and Risk. Steve, thanks for being here.
Thanks, Mike. Thanks for having me.
Thanks for having a longer job title than I do. Maybe just kick things off, maybe some opening high-level remarks on how the quarter played out relative to expectations. You just reported results a couple weeks ago.
Yeah.
A lot of things to dig in there, but maybe give us sort of like an overview to get us started.
Sure. You know, I, obviously, I think we had a pretty good quarter overall, you know, from both the top line perspective, margin perspective, and obviously bottom line too. You know, we've started to see some early signs of some end market improvements. I think maybe some of that could be a little bit more company specific to us for some reasons, which I'm sure we'll get into. You know, overall it was, you know, a good quarter and I would say, you know, progressed well throughout the quarter. Obviously, I would say the big news for us here in the first quarter too that we announced was the strategic decision to divest our immunodiagnostics business in China.
I'm sure you have more questions on that as well, but that was, you know, a very key thing that we announced, you know, on the first quarter. I think we also, you know, have a prudent outlook for over the remainder of the year too, which we talked about quite a bit too.
Okay. Yeah, we'll dive into all of that. Maybe let's start on the China immuno-Dx divestiture. As I said, you now said in the quarter, you haven't actually sort of formalized the deal yet, but you still, you know, you now stripped it out of the numbers. Can you walk us through the impact that has on 1Q, the impact that has on the full year guide, how to think about, you know, taking that out on the model and how that flows through?
Sure. This was, about 6% of revenue last year. We projected it would be about 4.5% of revenue this year. you know, we talked about how by removing this business, it has about $0.20 of EPS dilution, which is offset a little bit by some better execution in our full year guide. From a straight financial metric perspective, you know, it's going to improve our organic growth this year by 100 basis points. It's going to improve our adjusted operating margins, this year by 30 basis points. I think, you know, we also put out an 8-K last Tuesday. I know last week was a very busy week for investors. We provided five different documents for investors to parse through.
One of those was an 8-K. In that 8-K, we provided a couple of different disclosures that might be of interest to investors. One is a pro forma balance sheet. You can see what the business looks like at the end of the first quarter, excluding the China diagnostics business. I think if you take a look at that, one of the things you'll see is that this business had a pretty meaningful drag on our working capital, consequently our DSOs and our free cash flow conversion.
You know, Max made a comment on our earnings call on how by excluding this business, if you were to have excluded this business in our 2025 results, despite it only being roughly 6% of revenue, you know, it was a 3 percentage point drag on our free cash flow conversion. Our free cash flow conversion, you know, would've been even better last year than it otherwise was. You know, a number of different ramifications by, you know, making this decision.
Okay. In terms of, like you said, in terms of the rationale for the decision
Yeah.
You talked about it for a while, it has been a headwind. you know, it seems like it's a relatively clean cut. there are other ways you could have gone after it. You could have tried to shore up the business. You could have tried to reinvest in it. You could have tried to partner with someone. As you said, you know, there was a point that naturally the headwind would've gone away anyway. Why did you decide to go this route out of all those?
Yeah. Yeah. This is a business that has been facing, I would say, consistent mid-single-digit pricing pressure, you know, annually over the last maybe six, seven years. obviously a year ago, we have been negatively impacted by volume pressure related to DRG. You know, I would say that this market has become increasingly unpredictable, and you know, which is making it more difficult to plan the future. When we look at what has been discussed, not yet implemented or officially announced, but there are some other, you know, potential headwinds on the, you know, coming in the future related to some of these lab reimbursement unification policies, which again, we don't know the final details yet, but very well could have further pricing pressure on this business.
You know, we have taken a number of actions to offset the pressures we've been facing over the last six or seven years, including the volume pressures we've been facing over the last 12 months. You know, I think the amount of change we would've needed to do to remain competitive with further significant meaningful pricing declines, you know, we would've needed to invest significant amounts of capital, time, effort, management focus into this business, I would say, to remain as competitive as we are today. Not necessarily, you know, improve our competitiveness, but remain, you know, where we are today. You know, ultimately, given the relative size of this business, you know, roughly 4.5% of revenue, a little bit lower percentage of our profits.
I think it's also important to note too that this is not a primary growth driver for the business going forward. You know, our LRP, which is 6%-8% organic growth, within that, we're only assuming low single digit growth for this business in China. This was not what is going to be driving the performance of the company going forward. The level of investment that would've been required, we ultimately decided, you know, was not worth it for us. We looked to, you know, find a partner to divest it to.
Okay. I know you talked about $0.20 diluted EPS this year, as you sent us on those other documents you talked about. The deal's not signed, but you talked about a range, if possible.
Cash proceeds from the deal, I think it was, I think $140 million-$200 million.
Earnouts
Different. Yeah. Right. If you look at that, I mean, it looks like they'll still be meaningfully dilutive in 2027 as well. You know, how did that factor into your go-or-no-go decision?
I mean, you know, we haven't given guidance or anything like that for 2027 yet, you know, and we expect the deal to close in the latter half of 2027. Any proceeds that we would receive, you know, I wouldn't expect them to have a meaningful impact of us redeploying those to offset the dilution in 2027. You know, I think this really is going to allow us to set up to really show, be able to really demonstrate the potential of Revvity, you know, much clearer. Where the drags on this business has been a little bit masking some, you know, better underlying performance.
That, you know, we will continue to obviously, you know, work on our cost efficiency programs and, you know, if top line growth starts to come back a little bit more, that certainly, you know, helps from a sales leverage perspective as well.
Okay. On that point, that the drag has been impacting sort of the rest of the business and the optics of the rest of the business, any implications on immuno-Dx outside of China in terms of will this impact your investment or your commitment to that areas? The other question I've got is, you know, are there other pruning of the portfolio you could do? You know, is this step one, or is this really just a one-time thing?
This is, you know, I would say this is a one-time thing. I mean, the immunodiagnostics business outside of China is doing great. You know, it's continued to grow high single digits, low double digits. You know, very strong growth continuing in the U.S. It's really, I would say, the policy related impacts that are a little bit more specific to this one region that are having a, you know, a headwind on the business. You know, the immunodiagnostics business elsewhere is doing very, very well.
Okay. Let's talk about the rest of that business. Like you said, you did about 3% organic in 1Q, but pro forma for, you know, ex- China immuno-Dx, it was 6%.
It's a very solid result. Can you talk about the moving pieces that you saw there, sort of what drove that, what delivered that 6% hit?
Sure. A couple of moving pieces in the first quarter. You know, every The way our fiscal calendar works, every six years we have an extra week of selling days, and that predominantly just really impacts our reagents. The extra week impact was in line with our expectations. It added about 100 basis points to total company organic growth. However, about half of that or 50 basis points was, we had a headwind from the winter storms in, you know, January and early February. Net-net, the summation of the extra week and the winter storms was maybe about a 50 basis point contribution. You know, on a year-over-year basis, we also had the incremental contribution from our Genomics England contract, which was all incremental here in the first quarter, that helped a bit.
We had very strong performance in reproductive health, even excluding the Genomics England business. We saw, you know, mid-single- digit positive performance in life science instruments. We had positive low- single- digit growth in life science reagents. You know, we did start to see a few things, you know, start to get a little bit better than they have been over the last, you know, three going on three and a half years now.
Okay. Yeah. Let's dig into that, some of that life science performance, both on the instrument and the reagent side. You've had a little more mixed results, last couple quarters. You have had pockets of strength, you know, high content screening.
Yeah
Some of the reagents, some of the reagents businesses, is this trends of, you know, is this enough that you wanna call a stabilization in the market or recovery, or is there still a lot of noise in that market?
You know, I think we're still being a little bit more cautious in wanting to make a call on, hey, you know, we're through the thick of it here and things are really starting to turn. You know, with that being said, you know, we had, in the first quarter, we had positive growth for instruments from both academia and pharma biotech, which was the first time in three years that instruments grew in both those end markets. You know, for example, in the fourth quarter, we had positive growth in instruments from academia, but not pharma biotech. I think another thing that's sort of interesting is, you know, we have been talking about, and you mentioned it, high content screening, you know, has been growing double digits now for a year and a half.
Here in the first quarter, we started to see the instrument performance spread out a little bit. You know, for example, about a quarter of our instrument portfolio is in vivo imaging. In vivo imaging was, I would say, dramatically impacted last year from some of the pressures we were seeing in academic markets. While in vivo imaging still was softer in the first quarter, it wasn't anywhere near as soft as it has been for the last, you know, four or five quarters. That started to move in the right direction. You know, I think also interestingly is another roughly quarter of our instrument portfolio is automation and robotic liquid handling, which, you know, has been, I would say, under pressure for probably the last four years coming out of the pandemic.
If you recall, you know, those types of businesses really benefited during the pandemic, and ever since then they've been, you know, softer. We started to see some of that, you know, those businesses return to growth here in the first quarter. It's moving beyond just high-content screening. One other piece on it that I think is interesting as it relates to instruments is, again, we've been talking about, you know, good performance and high-content screening. You know, that was really with a, I would say, our high-end system being fairly dated in terms of, you know, how long it's been out in the market. In the middle of February, we, you know, announced the launch of a new Opera Phenix, Opera Phenix OptIQ system, which is a new flagship system for us.
We've been doing, performing well in this business with, I guess you could say, an older product, and now we have a brand-new fresh product, you know, which provides, you know, much greater automation and sensitivity too. Very optimistic. I would say the last piece on it is, you know, in terms of the durability, you know, we are assuming mid-single-digit growth in instrumentation continues here into the second quarter. You know, for the time being, we're not assuming that continues over the second half of the year. We are assuming that, you know, growth in instruments, and I would say in many other parts of our business, slows in the back half of the year in our current outlook. You know, we'll see how the next couple of months and next couple of quarters ultimately play out.
Okay. What's I mean, on that point, can you talk a little bit more about the funnel? For example, you know, in vivo imaging, automation liquid handling, you talked about, in broadening from high-content screening for those areas as well. If we think about the business, you know, between diagnostics and life sciences, you cut down to life sciences, and you cut down between reagents and instruments, and then you cut down into each of those four buckets, you end up with a relatively small dollar amount for each of them. We always wonder, like, is this one or two pharma companies buying two or three systems, and that's the difference between low single and mid-single, right? Is it broad-based? Is there enough there that you're calling a trend? Sort of what's the visibility in those?
Like I said, we're not calling it a trend as of right now. You know, in our guidance, we're assuming that instruments slows all the way down to flattish, actually, in the fourth quarter. No, I mean, it's You know, we sell a variety of instruments, anywhere from $20,000 to $1.2 million. I would think around our average ASP is probably, you know, $350,000-$400,000.
Wow
You know, there's always a little bit of variability quarter by quarter.
Okay. Okay. Just while we're talking about high-content screening, automation liquid handling, maybe this will be a good chance to jump into some of the AI discussions.
Sure.
A lot of different ways Revvity's exposed, and we can talk about that at length, but maybe one of the things we're wondering is, you know, pharma rolling out AI and how it's impacting their spending behavior, what they're focusing on, what they're prioritizing. We'd imagine that, you know, a lot of it has to do with more data generation, and therefore areas like high-content screening and automation liquid handling would be beneficiaries. Is that what you think is happening there? Sort of, would you draw any correlation between the two?
Yeah. I think it's very important to understand with Revvity, and this is, you know, I would say at the highest level of the company, what we do within life sciences and diagnostics is different than many other publicly traded companies in our space. We overlap with various companies, but the specific products that we sell are a little bit different than others. I think that differentiation can also, you know, there's different drivers of demand for different products. You know, over the last couple of months, there's obviously been a lot of talk about AI and how AI could or is likely to impact various companies and various businesses. You know, we've obviously been talking quite a bit about how, you know, we think AI and the emergence of AI. Sorry for my microphone.
The emergence of AI is likely to be a, you know, benefit our business and potentially meaningfully over time, depending on how things play out. You know, I think our business, you know, maybe is seeing a little bit better trends right now than some of the other, you know, some of our peers, you know, 'cause we really if you think about what our products are used for, whether it's our consumables, our instruments, our software, we're really our customers use our products to do novel science, to do something new or different, and I don't know what's going on with the mic here, but You know, our customers are using our products to do new science. When you think about AI, you know, you need novel, unique data.
I know that there's been a lot of talk on. Thanks.
It's on mute.
Sounds good. I know there's been a lot of talk on, you know, AI potentially disrupting preclinical research, but if you actually think about what our products are used for, we help generate new data. You know, we think that there could be some meaningful tailwinds. I think right now what we're seeing is probably some initial signs of AI data generation, you know, starting to impact demand. I think we're also benefiting from some other specific trends. We mentioned a few of these on the earnings call, like, you know, GLP-1 research has been benefiting parts of our businesses over the last, you know, year and a half.
I think some of the non-animal methodologies, if you think about things like organs on a chip, you know, when companies are working on developing organs on a chip, they need to validate what they're creating and that it works. How do you do that validation? High-content screening.
Yeah.
I think there's a couple of other specific things going on as well.
Okay. All right. Hopefully mic's resolved.
Yeah.
Okay. That's on the instrumentation side. Let's pivot a little bit to Software Signals. You've had a lot of updates there. You've seen really good growth in this business the last couple of years. And now in 2026 and beyond, you know, you're really excited about a number of new launches there. Could you talk about that? You know, still sort of early, but what initial feedback, interest, response are you getting from pharma?
Yeah. You know, we have three major new product launches coming this year. You know, LabGistics. Do I need to, yeah, I don't know if this is working or not. There we go. Is that Nope.
Yeah.
I can just try and hold this. Can you guys hear me now? Okay. You know, we have three major new products coming this year. You know, we announced LabGistics a few months ago. That's gonna launch in June. BioDesign we announced shortly before our last earnings call. BioDesign is actually launching next week at a major Bio-IT conference. Then at the end of the year, we're gonna be launching LabGistics, which is a AI- first workflow offering that we think is gonna be unique in the marketplace. You know, these are, as I mentioned, some of the most important new product launches in the history of our software business. When you think about software launches, they typically take six, nine , 12 months before the revenue starts really ramping.
You know, we really haven't factored in much of any revenue contribution from them this year. I think it'll be, you know, more of a 2027 phenomenon. You know, I think that the, you know, the initial discussions with customers are obviously ongoing. I think, you know, the trade show next week will be very important in talking with customers, and also not just customers, but also other, I would say, partners that, you know, we could be working with too. Yeah, it's progressing as expected, but to get in customers' hands, still a little bit yet to come.
Is pharma developing any of these solutions themselves, or are they, you know, entirely reliant on third- party vendors like you?
I think about, think about what our Signals platform is. Our Signals platform is, think of it almost like an ERP. It is the software that is used on a day-to-day basis by pre-clinical R&D labs to set up experiments, document experiments, collaborate with their colleagues, report out. It is where the data is created and stored and shared. What we are doing with these offerings is we're basically making it easier to utilize AI by the everyday scientist within their workflows. We're building the connections to anybody and everybody's AI models or systems, LLMs, so you can use all that capability right with where all your novel proprietary data is already created and sits.
Okay. I think a lot of the debate that we've had with investors, and companies in terms of, you know, how AI gets adopted and used by pharma kind of takes it from where it is now or maybe where AI and what drugs are gonna be able to take a couple of years ago.
AI revolution and what it could look like in the final state, and whether that final state is a year from now or five years or 10 years from now. You know, we'll be leveraging AI to process data to develop drugs faster.
Yeah.
Where I think there's a lot of confusion and uncertainty is that transition curve, right? Like, how is it gonna be adopted, over what time? Is there gonna be a slowdown at first and then a pickup? Is, you know, is there gonna be a broad pickup, increase in investment? Anything you can say there in terms of the pharma companies that are sort of at the forefront of adopting this, what steps are they taking? Are they, you know, are they reducing headcount? Are they reducing wet lab? With the, with the idea of picking it back up on the back end, sort of like what's that transition process? 'Cause I think there's a fear that could be painful.
Yeah. I mean, Prahlad, our CEO, touched on this a little bit on the most recent earnings call and how we think we're positioned. If you're familiar with the concept of lab-in-a-loop, you know, I think customers are increasingly looking to figure out how they can create their own lab-in-a-loop. This is the idea of, you know, because of AI, you know, you're going to have more drugs and more compounds developed, and there's just going to be more things invented that then need to be worked through the preclinical, you know, workflows, and validated and tested before you go into a clinical trial. I think there's going to be, you know, more things coming through the system.
Because of AI and the capabilities of AI, when you start to go, you know, work to test and validate, you're gonna take that data and feed it back into your AI models. That knowledge then the AI models are going to be able to essentially uncover new and different things that we might not have been able to understand otherwise, it's going to allow you to refine your drug more and more times than ever possible in the past, and that's this lab-in-a-loop idea that everyone's talking about. If you think about what our products are and how they're used, I don't know of a company that is better positioned to benefit from as customers adopt their lab-in-a-loop.
You know, we have the automation, we have the robotics, which you need as you have higher and higher volumes. We provide the high- content screening, which generates a lot of the data. We have, you know, a lot of the consumables that are used within this process as well. It's one of the reasons why over the last few months is we've been getting a lot more questions on AI and how AI is going to impact things. You know, I know there's been a lot of fears over AI and, you know, to your question too, displacing things.
You know, we think that the most likely scenario is that there ends up being a bottleneck of demand in the future, where particularly at the validation stage, where you're gonna need more, you know, instruments, you're gonna need more automation and robotics and obviously drive, you know, potentially more consumable demand too.
Okay. Just on the topic of some of your own software solutions, like Signals LabGistics, you talked about, you know, it takes time to ramp, no revenue, no meaningful revenue contribution expected in 2026.
Can you talk about some of the other dynamics, you know, talk about the result in the first quarter, but 2Q, you've got a really tough comp there.
Yeah.
Just talk us through the pacing this year in terms of the comps, expectations for software as you go through 2026.
Sure. you know, software is, you know, 9%-10% of revenue, was up mid-single digits in the first quarter. If you recall, we had phenomenal performance in the second quarter of last year, because of, you know, very strong comps as well as just normal contract timing, you know, we're anticipating the software business from an organic growth perspective is down 20% in the second quarter. However, based on contract timing and comps, you know, we anticipate this business will grow, you know, in the mid to high teens in the back half of the year. As a reminder for software, given the contract nature and the multi-year contracts, we typically have very good visibility on this business too.
You know, it's one where we're expecting it to be, you know, roughly mid-single digits for the year overall. I think what's interesting about that is if you're up mid-single digits, down 20% in the second quarter, it puts the first half at down high single digits. Let's just say, you know, mid-single digits or so, or sorry, mid-teens or so, positive growth in the back half, which obviously is an acceleration. You know, in the first half, the overall company grew approximately 4%. It is assumed in our guidance. You know, our guidance for the year is 3%-4%, which obviously then would imply a slowdown in the second half of the year, and we're assuming a slowdown in our guidance and our assumptions despite software improving, you know, somewhat meaningfully.
The other 90% of the company, you know, we're assuming slows somewhat meaningfully in the back half of the year.
Yeah, you already touched on the assumption for life science instruments being a little bit softer in the second half. Any other moving pieces there, you know, whether it's reagents or more on the diagnostic side?
You know, reagents we have growing low single digits for the year, but I would say also at the lower end or around flattish for that in the fourth quarter as well. You know, I think another key piece is reproductive health. You know, reproductive health had an excellent first quarter, even when excluding the contribution from Genomics England, which, you know, the contribution from Genomics England also did better than we had anticipated. Our newborn screening business still grew high single digits in the first quarter. You know, we're assuming that grows low single digits over the remainder of the year. You know, we'll see. Again, there was nothing in the first quarter that was sort of one time in nature or some large contract.
It was just, I would say, the culmination of, you know, a lot of good commercial execution between geographic expansion, menu adoption, new products, all coming together to lead to, you know, high single-digit growth in newborn. We have taken a more cautious assumption over the remainder of the year, which, you know, we'll see if we're proven wrong or not.
Okay. Rolling all that together, you talked about, you know, some of the more, conservative assumptions in the second half. As we're exiting 2026, you know, 3Q, 4Q, if there is a load of upside there, you know, for the full year, like you said, 3%-4%, how does that carry forward into beyond, you know, in a, in a ex-China Dx world?
You know, I think we talked about software. Software's only gonna grow mid-single digits this year. You know, the APV for software, the annualized portfolio values continue to grow double digits. You know, ultimately, you know, APV is effectively what we will average in terms of growth over the, you know, coming years. You know, at some point that will improve. You know, whether it's gonna be next year or not, we'll wait a few more quarters to share that. You know, we talked about the new products, the new products not really providing material revenue on the software side until starting in next year. I'd think about that as well. You know, we need to see what happens with the life science end markets.
You know, do the pharma, biotech, and academic end markets continue to modestly improve? Do they stay where they are? Do they improve more materially? I think some of our peers, you know, are assuming, you know, more material improvement in end market conditions over the remainder of the year, which, you know, if that occurs, that would be, you know, obviously it'd be great and, you know, not factored into our current assumptions. You know, our LRP is 6%-8% growth, and I know the last couple of years have been extremely challenging for the industry.
Our confidence in our LRP has not changed, and it's one of the reasons why we have become so aggressive on share repurchases over the last two years, is there have been a number of different headwinds for the industry, but we don't believe that the underlying market fundamentals of our industry have changed. As our stock and our multiple has come down, you know, I would say we've been, you know, aggressively, opportunistically, you know, buying back stock 'cause we don't think that this is gonna last forever.
I mean, on that point, let's talk about capital deployment a little bit. Like you said, you're not gonna get the proceeds for the, for that venture for over a year, maybe a year and a half. You still have a balance sheet that's in pretty good shape. Leverage is healthy. You know, you just touched on share buybacks. Do you see more opportunities here, and can you talk about the pros and cons of that versus M&A or maybe other moves?
Sure. You know, we were pretty active in the first quarter in capital deployment. You know, we bought back $86 million in stock. We, you know, completed the acquisition of ACD/Labs right around $70 million. Another small software tuck-in acquisition. You know, from a capital deployment perspective, the most immediate thing in front of us is paying off this EUR 500 million bond, which is maturing in the middle of July. Given the weaker dollar, it's, you know, almost $600 million. We plan to pay that off, we will knock that out here in two months from now.
You know, as we start to look in towards the back half of the year and into 2027, I think our capital deployment proceeds will be, you know, I would think they would be fairly balanced between, you know, opportunistic share repurchases, but also, you know, we continue to have a pretty active M&A pipeline. I would characterize it of largely focused on tuck-in acquisitions.
Okay. Along the lines of what you've done before in terms of.
Yeah, really-
Technology.
Focused in software and consumables.
Okay. Okay. All right. Maybe just the last couple minutes, you know, any closing remarks? Sort of our standard question is what do you feel is underappreciated? What do you think is misunderstood, or what do you think that, you know, what message would you like to leave investors with?
Sure. Yeah, I think the thing that is most, you know, maybe not appreciated or misunderstood is we went through this dramatic transformation during the pandemic and, you know, during the pandemic, we did 11 acquisitions. You know, subsequently, we sold 30% of the company, we became Revvity three years ago, almost to the day. Ever since then, right, it kind of coincided with pharma, biotech, end markets slowing down. Then you had obviously the academic pressures, incremental pressures in 2025. The entire time we have been Revvity so far, you know, we've had pharma and then academic end market pressures. We have not been able to show investors what our potential actually looks like.
I think one of the things that is most exciting for us is not only differentiated organic growth, which, you know, I think we have been showing over the last couple of years, despite, you know, the broad market conditions, but is really our incremental margins. When we start to show a little bit better organic growth, I think you will start to see industry-leading incremental margins shine through. The driver to our incremental margins is the fact that for the vast majority of our products, we don't need to add a lot more people in order to grow. So we will get tremendous SG&A leverage once we're able to generate a little bit better top line growth.
I think that is the thing. I get it, you know, we haven't been able to show it yet, and it's been three years. It's still a little bit theoretical, but, you know, I think we're getting closer and closer to, you know, having that come through.
Okay. Great. All right, that's a good point to end it on. Thanks everyone for coming. Steve, thanks so much for being here.
Thanks, Mike.
Really appreciate it.
Yep.
Thank you.