Revvity, Inc. Morgan Stanley 24th Annual Global Healthcare Conference

Great. Welcome, everyone. My name is Mike Polark. I lead our U.S. Life Science Tools and Diagnostics coverage on the healthcare investment banking side at Morgan Stanley. Pleasure to be joined here by Max Krakowiak, the CFO of Revvity. Maybe to kick things off, Max, Revvity is an organization that's been through a pretty big transformation over the past several years. For an investor that's newer to the Revvity story, what do you think the simplest way is to kind of understand where the business is today?

Yeah, I think, as you mentioned, we've undergone a tremendous amount of transformation, and I think the company we now have is an innovative life sciences and diagnostics company that's focused on differentiation. I think when you look on the life sciences side, we are focused on pre-clinical research, and on the diagnostic side, we really have specialty focus across reproductive health, autoimmune, and allergy markets. As you mentioned, we've gone through a tremendous transformation to simplify the portfolio, again, with a big focus on innovation and differentiation, and I'm sure we'll get into more of the transformation as we go along here.

Yeah. On that transformation, can you talk a little bit about how that kind of positions you for the future, where you're heading, especially within the context of AI in life sciences?

Yeah. Maybe even just spending a little bit on the transformation overall. From our standpoint, if you look at where we've gone to, for us, the big areas of focus was one, being in highly competitive market positions and faster-growing markets. We think we've accomplished that now with our focus across life sciences and diagnostics. We've also undergone a tremendous amount of, I would say, cultural transformation over the past few years, becoming Revvity. I would say we were a little bit more of an old school, scientific, heavy instrument-based company, and now we are much more focused on innovation, scientific differentiation with a much higher mix of reoccurring revenue. I think if you look at the financial transformation, we've also taken a significant step change there. I've already mentioned that we're in faster-growing end markets.

If you look at our cash flow conversion performance, it's dramatically improved since becoming Revvity with the new portfolio and operational execution. Our conversion now has been consistently north of 90% versus historically 70%. Even when you look at it from a margin profile perspective, this year we're anticipating being upper 20s from an operating margin standpoint. Before the transformation, it was low 20s, which is a significant change over a short period of years, and I think, again, really a testament to the vision we had we wanted to create.

That's great. You've talked before about the longer-term kind of growth algorithm or the long-range plan being in kind of that 6% to 8% range. How would you kind of deconstruct that? What are the kind of constituent components of that growth, and how should investors think about that?

For the 6% to 8% long range forecast for us as a company, the key baseline assumption is that in a normal market environment, markets grow sort of mid-single digits, and we should be growing several hundred basis points above that. I think when you look at the 6% to 8% and how it decomps by business unit, diagnostics is probably maybe slightly on the lower end of that 6% to 8% range, with life sciences being on the upper end of that range. Even when you look a little bit further underneath both diagnostics and life sciences, from a diagnostics perspective, we have two main business units. You have your reproductive health franchise, which in our LRP is assumed to grow 2% to 4%. It's been growing nicely above that, which again, I'm sure we'll get into some details on.

On the immunodiagnostic side, it's been 9% to 11% LRP, where it's mostly been executing within. I think then on the life sciences side, where we have two business units, our life science solutions, which is our instruments and reagents. We anticipate that sort of, I would say, being in the mid to high single digits growth over the long term, with maybe some particular tailwinds that might drive us to grow above it. One of which you mentioned around sort of this AI momentum. Then we've got our software business, which we anticipate growing 9% to 11% over the LRP, and it's actually been probably growing above that as well over the past couple of years.

Great. The past several quarters, I think, in the tool space more broadly, I think a lot of us are all aware of some of the challenges, but Revvity has managed to grow the reagents business in most of those quarters. How should investors think about where that growth is coming from? Is it market share gain? And where do you see that business position going forward, and what do you need to do to drive more accelerated growth, even?

Yeah. So I think if you look at it from an overall reagents perspective, as you mentioned, the last couple of years have been a challenging market environment. I think, though, we've been very encouraged that we've been able to grow, I think, several hundred basis points above that sort of market or peer average over those past couple of years, which is a testament to the strength of our portfolio. And I think when you look at what's the real differentiation for us on the reagent standpoint, I would call it a couple factors. One, we are, I would say, very proud of our customer relations and really our ability to deliver best-in-class service. More than 95% of our reagents are delivered within 24 hours of the order, which is a true strength for us from a customer engagement perspective.

I'd say additionally, we pride ourself in being one of the more innovative reagent companies out there, but also being able to deliver that innovation with incredibly high quality at the best value price in the market. And then I think third, I think when you look at our, just again, overall reagents portfolio, we do have some, I would say, very strong full value chain offering for our customers in their pre-clinical research and being able to span across their full continuum of needs. So I would say that differentiation is what's really led us to grow above market over these past couple of years. I think when you then flip it in terms of saying longer term, what do you need to get to do to sort of get back to that LRP growth? I think it's a combination of factors.

One, if you look at things from an academic and government perspective for us, that's roughly about a quarter of our reagents exposure. You just need more stability there from a policy perspective. That whipsaw makes it very difficult for customers to sort of plan over the long term and be comfortable sort of releasing their budgets. I think the bigger concentration is obviously with pharma biotech, though. And I think over the past couple of years, you've seen a real pinch down on the budgets from a pre-clinical perspective. That narrative has definitely changed over the past couple of quarters. You're starting to see the opening of the faucet in terms of pre-clinical funds, which we knew they could not keep compressed for a long period of time. They need to keep feeding that innovation engine.

And then even on top of that sort of, I would say, normal return to preclinical spending, we are starting to see some incremental tailwinds from some of the AI momentum.

Great. So certainly in the last year, we have seen a meaningful amount of M&A and consolidation, especially involving large flow cytometry and antibody portfolios. You all have indicated that flow represents roughly 40% of Revvity's reagent business. What comprises the remainder of that portfolio, and how should investors think about why that is attractive?