Good afternoon, everyone. I'm Derik de Bruin, the Senior Life Sciences and Diagnostics Tools Analyst from Bank of America, and welcome to our 2023 Global Healthcare Conference. Our next company up today, live from London, is Revvity. And with us is Max Krakowiak, CFO. Thanks, Max, for being here.
Yeah, thanks for having us.
We'll have a chat for a bit, and then we'll open the Q&A up to the audience. But I guess to kick things off, you know, it's been a year since you announced plans to transform PKI into Revvity, and one quarter since the formal split. Certainly given some of the slowdown we've seen in some of the traditional tools markets that the business you spun out is saying, that seems like a really good idea. I guess that said, you know, I still have a lot of clients asking, "Who is Revvity?" And can you just give us a quick overview on how Revvity compares to the legacy PKI, both in portfolio composition, geographic exposure, organic growth. Basically, it's like, what is the company today?
Since we're still getting a lot of questions, when I was marketing earlier this week, and it came up multiple times.
Yeah.
Yeah.
Yeah, sure. Absolutely. So yes, a lot has gone on over the past couple of years as we have really transformed the company and become Revvity. You know, I think if you take a step back and look, you know, this journey probably started back in 2017. At that time, when we were known as PerkinElmer, you know, we were predominantly AES business, which is the one we just divested. So I think maybe 45-ish% of the portfolio and the remaining parts of the portfolio was split between life sciences and diagnostics. And so at that point in time, we knew we wanted to get into more of high growth end markets with more recurring revenue. So at that point in time, we knew we had to bulk up our diagnostics and life sciences businesses.
That really started with the acquisition of EUROIMMUN at the end of 2017. And then over the course of the past couple of years, we have bulked up our life sciences division, really focused on getting more into the large molecule preclinical research areas, and that was, you know, the acquisitions of Horizon, Nexcelom, Sirion, and then ultimately with BioLegend. And then once we had the acquisition of BioLegend, we knew we had enough scale in both our life sciences and diagnostics business to sell out our AES business. And so that's really been the story of the transformation over the past five, six years. You know, in terms of how does the company differ now, as Revvity versus the old PerkinElmer? You know, I would say, one, there's the financial component, which I can talk a little bit more about.
But the second is then also just culturally. You know, I think our company now is made up mostly of our recent acquisitions over that five- to six-year period, and those companies are, I would say, differentiated in their innovation, capabilities, as well as their customer service. And those two are really the North Star of where we are going as Revvity, which were definitely not the strengths of the old PerkinElmer. So that's kind of the cultural change that we are now embarking on as Revvity. You know, and in terms of the financial profile, you know, when back in 2017, when that was the composition of our business, our markets were growing low single digits, and we had recurring revenue that was 55%-60% of the portfolio.
Now, you look at our portfolio, you know, we believe we're playing in, you know, end markets that are growing in the high single digit range, and our recurring revenue is now 80% of our business. So a lot of change, crammed into 5 or 6 years, but we are incredibly excited about our new company.
Great. Great introduction. We'll follow up on the financial metrics in a bit. So any opening comments, like, want to recap how Q2 unfolded across your core markets and what you've seen so far in Q3? Any signs of improvement or softening since we basically reported?
Yeah, so we typically do not give inter-quarter guidance. I'm not going to break that trend today, so I can't comment on what we mentioned, as a result of our second quarter earnings result. At that point in time, we did update the full year guidance to 4%-6%. I think if you look at that full year guidance in comparison to the rest of the peer group, it is differentiated. And I think when we look back at this as we execute through the second half, I think that'll continue to be the trend for Revvity, is that we are differentiated from the rest of the peer group.
And so that 4%-6% growth rate, what's your underlying market growth assumption? I assume you're growing faster... You're... That you're, that 4%-6% is above the market.
That's right. Yeah, I mean, I would think, you know, if you say we're 4%-6%, I think we're probably growing 200 basis points above market, so that would imply something around a low single digit market growth rate.
So that goes to the point of, when do you sort of like have expectations of when things will pick up?
Yeah, it's a tough question. You know, I don't think anyone has a crystal ball in terms of when things will return. You know, until we really find out the root cause of why pharma biotech spending has slowed down across the large pharma customers, then we can really maybe start to talk about a recovery. But for right now, we're not hearing a smoking gun, you know, or finding a smoking gun or hearing a specific answer from our customers as to the exact reasons.
Yeah, I mean, the other big driver is obviously China being a big part of this. And, you know, look, I mean, China has been a huge tailwind for the life sciences sector over the last few years. I think historically, you know, PKI was 18% of sales were in China, grew faster. I guess, what's your exposure to China in total, and then in diagnostics, life sciences? And I think, is there something that you think we're just seeing a cyclical downturn in China, or is there something more structural at work?
Yeah, I would say even for China. It's different for us versus the rest of the peer group, and I think you'll hear that theme throughout today is trying to clearly delineate that we are different. So if you look at China, right, I think there's been some sell-side research reports that say Revvity has 17% of exposure, and on that bar chart, we appear to have, you know, the upper end-
Yeah.
-of exposure among the group.
Yeah.
However, our composition of what we do in China is very different. So of that 17% of total company revenues in China, 10% is diagnostics and 7% is life sciences. In the diagnostic space, that is a little bit more insulated from what is going on from a macro perspective. That is required healthcare for the general population of China, whether it be in reproductive health or immunodiagnostics. That business is going to grow in the low double digits plus this year. We expect that business to continue to perform well over the mid- to long-term outlook. Again, because it's much more insulated from the broader macro concerns that are driving China discussions right now.
So along those lines, do you know some of the immunodiagnostics, particularly EUROIMMUN , is elective. Are any implications for the ongoing anti-corruption issues? I mean, from our channel checks, it feels like those elective diagnostics may be a little bit more hesitant right now. Are you seeing anything like that?
Yeah, maybe just clarify one thing. I wouldn't say that our testing is elective. It's not acute, meaning it's life-threatening, but it is still testing that needs to get done. And so from that standpoint, as we look, you know, particularly again, around the Anti-Corruption Act, what we're hearing from the commercial teams is that it's focused on the tendering process with hospitals around high-ticket, CapEx-type tenders. If you look at our diagnostics business in China, more than 90% of it is reagents and assays. That is not in the scope of these large tendering processes that are getting the, you know, the big scrutiny from the government officials, et cetera. So it's a fluid situation, and although I'm not saying we're completely immune, but it is at a fraction of a fraction of what we're talking about for our China diagnostics business.
Got it. I mean, some companies have also flagged local competition. Is there any like that? I mean, I know PerkinElmer acquired a number of local Chinese businesses during that time period, prior to the spin. What is your sort of like China manufacturing footprint? What is the competitive landscape of domestic companies?
Yeah. So I would say from a local competition standpoint, we're not really seeing it infringe upon where we have really differentiated technology. So I think on the life sciences standpoint, we have differentiated technology with our high-tech reagents, our high-tech instrumentation, and even on the diagnostic side, if you look at what we do around autoimmune, which is in our immunodiagnostics business, those are not simple assays. So those require a high degree of science and technical specificity that really there is a massive gap between us and any of the local competitors.
So much so that we actually have some of our customers asking us not to manufacture the product in China and to keep it offshore because it changes their purchasing behavior if it is not a locally manufactured product, which is wildly different than what our assumption would have been three or four years ago. So when you look at what we actually manufacture in China today for China, because we don't export anything out of China, it is predominantly in the reproductive health area, where it is a benefit for us to have the local manufacturing.
Got it. So assuming that we're, you know, the markets will rebound at some point, you know, when you announced the separation, the initial guide was for 10%+ organic sales growth. I mean, given all the market changes, given everything that's going on right now, are you still comfortable with sort of that from a long-term perspective?
I think when you put that in context of what we believe the underlying market growth rates of where we play and what they should be, you know, that is still our, their mid- to long-term assumption. Now, obviously, a lot is going on right now from an end market perspective, and there's definitely some volatility and different dynamics going out. But again, we were very conscious in the end markets that we chose and wanted to be in as a result of our new portfolio, and those were naturally more, you know, faster growing end markets. And so we'll continue to see how, you know, the market evolves here, but I think we continue to be encouraged by the specific end markets that we chose to play in.
Got it. Well, so I got a bunch of follow-ups, but let's go more near term focus and I'll go out from there. So you took down by 300 basis points the core growth guide for this year. That's, but you said that there was 100 basis points of stronger immunodiagnostics, but there was a 400 basis points hit from biopharma, of which 100 of that came from China. Can you sort of unpack that remaining 300 basis points of where the headwinds were?
Yeah. And so, you know, the way I would probably think about the 400 basis points of pressure, you know, China was more just a, a geographical subset of that. But the way I would actually talk about the 400 basis points is maybe geographically agnostic, and I'll talk more a little bit about the, the different businesses. So what's really driving that 400 basis point drop is split between our life sciences, the instrumentation we sell into life sciences customers. It is the, the software business that we sell into life sciences customers, and then it is also related to the technology/licenses agreements that we have had in the pipeline for a while with our life sciences customers. Now, those three dynamics are all based on CapEx type purchases from-...
The large pharma customers, which is rarely where we are seeing the most cautionary spending levels. And so when we looked at it on the guidance for the second half, we really wanted to take off anything that was dependent upon those big ticket items from our pharma customers. So in our software business, for instance, we didn't want to have in there any go-live on any new commercial deals that we have in the pipeline. Same thing with our licensing or partnership agreements we have. We wanted to take those out of the assumption for the second half. And then, yes, between the first quarter and the second quarter, we did start to see a decline in the instrumentation, and looking at our July order book, we thought it was more appropriate to bake that in and assume that continued for the second half.
Got it. Speaking of the software business, I mean, frankly, I haven't thought much about it since you did the Spotfire deals way back then. Can you go a little bit deeper into what your software offerings are and how they differentiate? Because I, as I said, I don't think it's something that a lot of investors have paid attention to.
Yeah, and I mean, partially that's been our own fault, too, with not having it as well known out there because, you know, when we were the combined company with AES, it was such a smaller piece of the portfolio; it never really got the airtime that it deserved. But I would say we are incredibly enthusiastic about the future of our software business. And so it's roughly a $200 million revenue business for us. It has operating margins that are very similar to our overall life sciences business, which is in the upper 30%. And I think most of its competition is actually privately owned companies, and so there's not as much comparisons out there, but we think we are the predominant player in the space.
And so what we offer is we are focused on preclinical researchers with the large pharma and biotech customers. But predominantly our offerings are based on small molecule. So when we look out to the future, we have a couple different areas for the future of this business. One, our customers are begging us to do the same thing on the large molecule side in terms of the software offering, which we have products in the pipeline for. The second piece is expanding our customer reach, not only down further in the pharma, you know, food chain in terms of moving from large down to the mid and small-sized companies, but we also have the opportunity to play a little bit more downstream as the preclinical research starts to work itself into the clinical trials with the CROs, et cetera.
So that business has a ton of runway in front of it. And what we really offer the customers today is three different products. One is we have something called ChemDraw, which is basically the drawing of the compound that the scientists are working on. We have our LabNotebook, which is basically like the ERP for scientists. Think about it as, you know, basically documenting the 20 steps of your experiment and documenting, you know, the, basically the results of each step. And then we have, as you mentioned, Spotfire, which is really our analytics platform, which sits on top of it, allowing the customer to analyze the data from their experiment. So that's kind of our, our product portfolio. But again, I think we are hopefully going to be continuing to talk more about this business as we are very excited about its long-term potential.
Got it. And does, I guess there are a lot of, to your point, I mean, there are a lot of competitive offerings there, and a lot of companies are doing it. I guess it, how does sort of, like, pharma make a decision on purchasing for that? Because I'm just not. It's never been clear for me how they go in and choose which, like, electronic notebook or which one they're going to do with those, because there's just a lot of different offerings in that as well.
It is. But if you think—So we probably have 95% penetration in the large to mid pharma, and once you kind of have that scattered across the globe, to upend the scientist's user interface on a day-to-day basis is a very significant hill to climb. So for our business, we have a 99% renewal rate. Generally, when we get a renewal, we also have 6%-7% upsell as part of that renewal. So it is a very sticky business once you are in there. In terms of if you are a new company or trying to evaluate, you know, what type of offering you have, it, one, depends on how big of a need you have, right? Are we talking thousands of labs across the globe, or are we talking a couple, right?
One thing that's different for us when they're evaluating that is we are furthest along in the SaaS journey of any of our competitors. We started four or five years ago. Most of our competitors are starting that journey today. So we have a better SaaS offering, which is more akin to the small and mid-size pharma companies. You know, another thing that they will look for is what is the interfaces between your different modules? Since most of ours are homegrown applications, we have very good connectivity between our software modules versus some of our competitors who have built up through acquisitions. They do not have one suite that they can offer to a customer with it all integrated together. So that is another differentiator for us, and a big key as to when a customer is evaluating the purchasing decision.
Got it. We briefly mentioned biopharma, but I want to go a little bit deeper into that. I mean, what are your thoughts on just what is sort of like driving the conservative spending right now? And I guess, you know, you do still have liquid handling, high content screening tools. I mean, they're not mass specs or things like that, but, I mean, are those more or less... I guess when you sort of listen to your competitors or listeners, I mean, is that more or less at risk from spending? I'm just not sure. I don't have a really good sense of like, where pharma is as far as like, hiring and buying, where they were as to, like, buying those tools going into the pandemic.
Do you see outsized growth in those tools and that this is maybe some hangover? Just anything is sort of like an impact.
Yeah, I mean, so maybe answering your first question, in terms of, like, what are we hearing as to the reason? I mentioned a little bit earlier, we don't really have a smoking gun. The most common feedback we hear from the customers is the CFO said, "No." Right? And so there's additional layers of approvals, et cetera. We're not seeing orders being canceled. We're not seeing a slowing of our pipeline. There's still very robust discussions with the customer, but right now it's kind of stuck on the later stage of the commercial discussions because there's either additional approvals or not the desire to spend cash.
And so from that perspective, my best hunch would be that everyone enjoys getting 5% of their money sitting in the banks, and it makes it much harder to clear returns on additional CapEx or the business cases that are being offered by the, by the purchasing team. So that would be my best guess.
Yeah, yeah, yeah.
I don't have an exact answer for you. In terms of as we look at our overall instrumentation portfolio, particularly on the life sciences side, I think it's important to delineate what we are selling versus the broader group.
Yeah.
Right? So you mentioned things like, you know, mass spectrometry, right?
Yeah.
Let's talk about chromatography, liquid and gas chromatography.
Yeah.
We divested those product lines.
Yes.
And so what we are selling to our pharma customers is really around, I would say, maybe three product families in terms of instrumentation. You have in vivo imaging, you have high content screening-
Yep.
And you have the cell counting, which is really on the back of the new, the recent acquisition of Nexcelom. For those three product families or those end markets, we are the predominant market share leader in all three of those, and we are selling specific high-tech innovation for very clear scientific outcomes. These are not generalist equipment. And so in that sense, I do think that we're still being impacted, but we are being impacted less than the broader peer group when they're talking about instrumentation. As you see in our full year guidance, instrumentation for us this year, we are expected to be flat, which I think is above the broader peer group in terms of what they're staring at from an instrumentation standpoint.
Got it. Let's talk about some of those specific, business segments. You know, how should we think about the reproductive health business? I mean, birth rates in many parts of the world are declining. You know, how should we think about that impacting the business? And I guess, you know, at one point, there was a lot of focus on sort of like the, you know, the genomics-based, prenatal testing, non-invasive prenatal testing business. I mean, is Vanadis still a growth driver for the company?
Yeah, I mean, so let's just—if you start more broadly, like, our reproductive health business, roughly $500 million-ish in revenue. The biggest component of that is the neonatal-
Yeah.
-testing business. As you mentioned, birth rates have been declining, globally on average over the past four or five years. Obviously, that has an impact on our business, but the fact that our growth rate CAGR over that same time period is low to mid-single digits, despite birth rates declining globally, mid-single digits, I think is a testament to the power of our portfolio. And really, the way we're able to drive that positive growth despite the declining birth rates, is because of, one, our geographic expansion, and two, our menu expansion and our continued innovation around rare disease testing for newborns. And so we, you know, so are we agnostic to what's going on from birth rates? No, but we expect that business to continue to grow positively in the mid to long term.
In terms of your secondary question on sort of the Vanadis and the NIPT prenatal testing, it is a much smaller part of our overall portfolio.
Yeah.
Vanadis has really strong growth rates, but it is on a much smaller base. I think we continue to be excited about the potential of that differentiated technology, but we're going to continue to, you know, kind of see how the next couple of years for that platform plays out.
Got it. You know, we can we get an update on Oxford Immunotec? We've not really heard much about it in detail since the acquisition. You know, how is it differentiated from QIAGEN, and how should we think about other companies? You know, there's been some noise about Roche getting into the latent TB testing market, so how should we think about that evolving?
Yeah. So I'd say, maybe a couple things on the Oxford and TB market in general. So one, from an end market perspective, TB continues to be the number one killer, right? COVID overtook it for a little bit of period, but TB is still one of the, you know, the most deadly diseases out there. And so it's an end market that's actually growing 10% on average. So we continue to be very excited about that market. When you look at our product offering versus QuantiFERON, with QIAGEN being the biggest competitor, I think there's a couple different dynamics to understand. One is actually from a differentiation standpoint, we have the most sensitive assay. Because we have the most sensitive assay, we're actually our customers are actually eligible for higher levels of reimbursement on the test, which is very different than QuantiFERON.
The challenge that Oxford has always faced is that it has a lower level of automation than the QuantiFERON. So we came out with our first wave of automation innovation, I think about a year ago. There's going to be continued waves of automation, and as we close the gap on automation, our more sensitive assay, as well as our higher reimbursement, is going to prove to be a much bigger differentiator for us, particularly in the U.S., which is where we have the most under-penetrated. If you look outside the U.S., we're probably the number one player, and QuantiFERON is number two. The challenge is, the U.S. market is 50% of the TB market, where QuantiFERON currently has a much stronger position.
Got it. And entries from Roche and these other players?
I think it's going to be hard for them to match the sensitivity of our assay.
Got it. You mentioned COVID. You had a very nice tail end from that.... It certainly gave you a lot of cash to go out and sort of help transform the business. Beyond that sort of tailwind, any lasting benefits to PerkinElmer?
Yeah, I think, I think it would, Revvity.
Revvity. Sorry.
I know.
Sorry.
I know. I know. I, I do it myself sometimes, too. You know, I think the biggest trickle-down effect for us is really in our sample prep and lab automation business. So if you look, that's. We refer to it sometimes as our applied genomics business. If you look at that business and its market positioning pre-COVID, we were probably the number six and number seven player. I think as a result of COVID, we are probably now the number three or number four player in the space. And what really was eye-opening to our customers is, you know, because we had the most sensitive PCR test in the market, it allowed us to pull through more of this sample prep and lab automation portfolio. And what our customers realized is we have the best performing extraction kits on the market.
And so that has really opened their eyes to our portfolio, and given that that is a much more reoccurring revenue type assay, and we've built up such a large installation base from COVID, that'll continue to be a tailwind for us. The headwinds we talk about in that business is more the normalization on the instrumentation side, but our reagents continued, continue to grow well into the double digits, really on the backbone of really customers understanding the capabilities we have from an extraction standpoint.
Got it. Let's go on to Horizon next. We've heard some drug developers and CMOs sounding a tad more cautious on the cell and gene therapy market over the last six-nine months. Can you tell us sort of how Horizon fits into the cell and gene therapy landscape, and how that business is performing, and sort of like the outlook for that segment?
Yeah, so I don't think we give broader updates on, like, the cell and gene segment overall.
Yeah.
But I would say that we are still incredibly excited about the power and differentiation from a technology standpoint of the Horizon business, and it continues to perform well against our expectations we had at the time of the deal model. I'll give you a couple examples of that. One, hopefully you saw the press release related to the base editing licensing technology.
Yep.
That is on the backbone of the Horizon technology, and it's really just starting to scratch the surface of what we believe will be a very robust pipeline for our base editing technology, which there is nobody else in the market today who has that technology and is able to license it to the pharma customer. So we continue to, for that to perform well. The other dynamic I'll talk about, you mentioned it a little bit in terms of the end market dynamics and what some of the customers or the pharma, the pharma players are saying. You know, I think what you'll end up seeing on the cell and gene therapy side is, remember where we play. We play in preclinical research, which is really the top part of the innovation funnel for the pharma customers.
We don't see that really where the crunch is going to be. We believe they're going to continue to invest and find areas of innovation around cell and gene therapy, because that is the future of where everyone is trying to go from a therapeutic standpoint. What you're probably going to see is once you get more downstream in the funnel, right, is for things that you want to enter into clinical trials-
Mm-hmm.
That funnel might get more narrow in terms of what they try to push through. That is also where they start to feel the biggest increase from a cost perspective in terms of moving their therapeutic through the clinical trials. So that might get tighter, but we don't play down there. We play at the beginning of the funnel, really around the hub of innovation, around cell and gene therapy.
Got it. And let's round it out with BioLegend. How does that, how's that been going? I mean, you know, I mean, has it delivered sort of like the mid- to high-teens growth as you expected? And obviously, you know, there's we've gotten a lot of questions from investors on how BioLegend compares to Abcam, since that's obviously the news with Danaher making a bid for it. Can you just do a quick compare and contrast?
Yeah, sure.
Yeah.
I would say maybe stepping back first, you asked how it's performing, right? Obviously, the life sciences market overall is in a very different space than when we acquired the company-
Yep
in the summer of 2021. However, with that being said, our reagents growth overall as a company this year is going to be low double digits. That's embedded into our guidance. BioLegend is a massive component of our overall reagents business. So although the market might be a little bit softer than what it was a couple years ago, that business continues to perform very well.
Got it.
Now, to answer your question in terms of the comparison to Abcam, I'd say there's a couple big differences. One is that everything that BioLegend does from a content development standpoint is made in-house. That is not true for the rest of the competition. The rest of the competition will distribute other vendors'-
Yep
-antibodies into the market. BioLegend does not do that. Everything is made in-house, which helps both from a margin profitability standpoint, but also the speed at which we can deliver products to our customers. Second thing I'll say is that BioLegend's value proposition is that it has the most innovative science from a reagent, antibody perspective. The second is that, again, they have the fastest delivery time and best on-time delivery to the customers. And the third is the go-to-market strategy. We are not a vendor in the eyes of the customers. We are consultative sellers or partners with the pharma customers. So to give you, like, data points, the BioLegend team does not like to be called sales reps. They are field application scientists. Most of them have PhDs and masters. These are not sales reps.
These are true scientists sitting in the labs with the customers, trying to help them solve cutting-edge scientific challenges.
... Got it. Since you're a CFO, I have to ask some CFO questions.
Sure.
Sticking to capital allocation, you've got $1.3 billion in relatively low interest rate debt that's coming due this year and next.
Yep.
I think $500 this year, $800 next year?
That's right.
Right.
$500, due, like, tomorrow.
Yeah, it's due tomorrow. Okay. You're, you're, I mean, you said it yourself, you know, companies are getting 5% of their cash.
Yep.
Right? So how should we sort of think about net interest expense for the remainder of 2023 and then going into 2024?
Yeah. So I think our guidance right now for 2023 implies about $60 million-$65 million of net interest expense. I think as you look onto it next year, right, we won't have the $500 million that we're currently paying, tomorrow. Additionally, we are still paying some trailing taxes related to the recent divestiture, and so we will have less cash available to be reinvested next year. So I'd probably think of that 60-65 number, probably increasing maybe by 30% year-over-year as you look out to 2024.
Got it. What about additional acquisitions? I mean, after you sort of get the debt paid down, it's like, what else is, what else is attractive that would fit with the portfolio?
Yeah, I mean, I think when we look at M&A, right, the first question is: Is it a strategic fit? You know, as I mentioned, the North Star for us is really around being on the cutting edge of science, around being able to sell high-value products to our customers and being a true partner to them. So the first thing we look at is the strategic rationale. The second thing that we evaluate is the financial profile. Now, right now, our company, our new company in Revvity, in the financial profile, it's a little bit more challenging of a hurdle rate than what it would've been-
Yeah
for the PerkinElmer hold. So that's not to say we wouldn't do a dilutive deal, but it makes it much harder to find the right strategic fit that also is of, you know, comparable to our new financial profile. So that hurdle's gotten a little bit more challenging. In terms of what we go after as a company, I think our track record shows that we generally tend to like the privately owned, founder-led companies. We think that that is a, our, sort of our sweet spot, for M&A purchases. Again, not to say we wouldn't do other things. We've done some public company acquisitions in the past, but that's really always been our, sort of our, our sweet spot from M&A.
So if you compare that with it being our sweet spot of M&A, plus the fact that, as I mentioned, the financial hurdles we're looking for, if you're a privately owned, founder-led company and you have great profitability, you're agnostic to what's going on in the public markets. You're agnostic to the fact of what's going on with interest rates. You were just told a year ago, your company is worth X. It's very hard to go and convince that owner that now their company should be, they, you know, is valued on Y just because the public markets and interest rates have changed. If their company is profitable and it's continuing to grow, they will just wait for you to pay for what they think is the appropriate valuation for their company.
So we'll continue to be active in terms of our M&A pipeline, but it is still... I wouldn't say, it's still a relatively challenging environment for what we are particularly looking for for our company.
The 13%-15% EPS growth you were talking about at the time of separation, was that inclusive of capital deployment?
That was not inclusive of capital.
Got it. Let's talk a bit on margins. You know, Revvity's guiding to, you know, on this, but you were guiding to roughly an operating margin of 30%. You know, you're about 29% this year, but that's with market headwinds. How should we think about margin expansion exiting 2023? Is that 75-100 basis points of expansion still a reasonable framework going forward?
Yes. Yes, the 75-100 basis points is still what our midterm outlook is from a margin expansion standpoint. You know, the other piece I'll just mention on that is when we came into this year and said 30% operating margins, there were two key top-line assumptions with that. One was 9% organic growth.
Yep.
The second was $100 million of COVID revenue. That COVID revenue came at very favorable-
Yeah
-pull-through margins for us. So the fact that that 9% went to 4%-6% and the $100 million basically went to zero, and the fact that our operating margin only went from 30% to 29%, when it really should have been down more towards 26-26.5%, I think it shows the underlying power of of our new company-
Yeah
and the margin profile we have. And so I think we continue to have confidence in our ability to deliver the 75-100 basis points.
Got it. Any questions from the audience? If not, I guess if the slower environment lasts for longer, do you have more cost efficient, more cost levers to pull in the business?
You know, I would even say for this year, what we've done from a cost perspective, we are not hemorrhaging by any means the future of the business. I think we've done some general belt tightening-
Yeah
In order to ensure we protect margins as much as we can, given the current market slowdown. But we are not foregoing critical investments for us in the future, whether it be around GMP, e-commerce, et cetera. We continue to invest in those areas. So I think it would really depend on how soft we're talking from a market perspective. You know, I think if it's similar this year, maybe we might be close to maybe the 75 basis points. On the flip side of that, if there's a huge rebound in the market next year, I also wouldn't anticipate us blowing out the 100 basis points. I think there are some discretionary spend that we do want to put back in the business. So I think kind of if we're-
Yeah
You know, somewhat in a similar range we have this year, I think 75-100 basis points is still the appropriate range.
Got it. Yep, that's what I was looking for. So we're coming to a close now. You know, you know, my, my, my final question is always: What doesn't the street appreciate about your company? What don't they understand about Revvity?
I think hopefully you heard it in my commentary today. I try to use the word different as much as possible. I think that we are different in a couple factors. One, I think we're different in the sense that we do not try and play in commoditize offerings to our customers. We are very intentional in playing in high value, you know, high technology, differentiated offerings to our customers, whether that's around reagents, whether it's around our life sciences instrumentation, whether it's around the disease areas we play in diagnostics, right? We don't play in general respiratory, infectious disease. We are focused on much more specialized end markets which require a high degree of technology, whether that be around TB, autoimmune, et cetera. So our whole portfolio is based on the notion of being in differentiated technology.
The second is, you know, we really do have different. I hope, you know, by the end of this year, we have differentiated financial performance than the peer group. We are not immune to the end market environment, but we are less impacted on the market environment than I think the rest of the peer group. I think we just need to continue helping folks understand how different we are as a company. So that's what Steve and my job is.
Great. With that, thanks, everybody. Thanks for listening. Thanks, Max, for being here, and have a good conference, everyone. Thank you very much.
Yeah. Thank you.