RVTY - NYSE

Hello, everyone, and welcome to Revvity's Fourth Quarter 2024 Earnings Call. My name is Lydia, and I will be your operator today. After the prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] I'll now hand you over to Steve Willoughby, Senior Vice President of Investor Relations to begin. Please go ahead when you're ready.

Thank you, operator. Good morning, everyone, and welcome to Revvity's fourth quarter 2024 earnings conference call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer; and Max Krakowiak, our Senior Vice President and Chief Financial Officer. I'd like to remind you of the safe harbor statements outlined in our press release issued earlier this morning and those in our SEC filings. Statements or comments made on this call may be forward-looking statements, which may include, but may not be limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. The company's actual results may differ significantly from those projected or suggested due to a variety of factors, which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any date after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good morning, everyone. In 2024, we made substantial progress towards achieving Revvity's full potential. We expect this progress to be even more evident externally once industry demand more fully normalizes, which I believe we are now on a solid path towards as we start 2025. We've made meaningful strides in the last year by more fully integrating our recent acquisitions, capitalizing on initial synergy opportunities, rightsizing our operations for the company we've now become, all while bringing significant new innovations to market. We witnessed this progress every day within our organization, and it is becoming increasingly apparent externally as well. In 2024, we again outperformed most of our peers in terms of top line growth, margin expansion and adjusted EPS growth as our earnings per share were up a solid mid-single digits year-over-year. This differentiated performance was on display in the fourth quarter as we generated 6% organic growth overall with over 30% adjusted operating margins. This led our adjusted EPS to be $1.42, which was solidly ahead of our expectations. I expect this outperformance will continue as we move forward due to Revvity's significant operating leverage potential and differentiated growth prospects, which we believe will really start to shine through as pharma biotech spending continues to normalize. We are encouraged by the pharma biotech customer behavior we saw in the fourth quarter as our Life Science consumables continued to grow both sequentially and year-over-year. Given the fairly early cycle and quick turnover nature of our consumables due to their high degree of specificity, this was a promising sign that restructurings and other meaningful reductions from our pharma customers may now be behind us. However, we have yet to see a complete return to more normalized customer behavior given our continued softer trends during the latter part of 2024, particularly for our high-ticket life science instrumentation. Consequently, as Max will touch on more in a bit, we expect the stabilized demand environment we have seen from our pharma customers over the last two quarters to continue for the time being as we enter 2025, particularly given the increased uncertainties which exist today. With the industry's rebalancing of demand over the last two years, we feel it is appropriate to assume the current environment continues until we actually begin to see more meaningful and concrete improvements in overall demand. With this backdrop, we are looking for our total company organic growth in 2025 to be in the 3% to 5% range, which would be an improvement compared to the past couple of years, but still not fully back to what we believe is our normalized growth rate. Should demand start to improve more quickly than we are currently contemplating in this guidance, we would look to update our outlook appropriately as the year progresses. Following the last two years in which we actively manage our levels of internal spending, we are planning to step up our strategic internal investments in 2025 based on our expectation for organic growth to begin to improve this year. Despite this planned step-up in spending, we still expect adjusted operating margin expansion this year of approximately 20 to 40 basis points from the 28.3% we generated in 2024. We anticipate this will result in the third consecutive year of differentiated growth and margin performance within our industry. It was great to see many of you in person out in San Diego recently at our Investor Day, with many others joining us online. As we showed during this event, Revvity is having a meaningful impact on the advancement of science and medicine, which is directly impacting and improving patients' lives. We also provided a more in-depth look into our business and explain what makes us so unique and why we are so confident about our future potential. You also had the opportunity to hear more about our innovation pipeline and how we are working collaboratively across the company and with our strategic customer partners to bring new and differentiated advancements to market. For those who joined us in person, you also had the opportunity to see our beautiful and impressive BioLegend campus which is now our reagent center of excellence for the company and gain a greater understanding of what makes us so unique and well-positioned to continue to capitalize on opportunities in the future. We finished off the year with another strong quarter of innovation with the introduction of several new key capabilities such as a unique sample processing offering for cell and gene therapy customers which leverages our existing capabilities and allows us to enter completely new and emerging opportunities and exciting areas of science. We also are seeing good initial traction with some of our other recently introduced software offerings such as our Phenologic.AI software. This new offering, which I first told you about last quarter, is being rapidly adopted by important partners in the preclinical CRO space, allowing them to both become more efficient and unlock new insights, which were not possible in the past. We have also seen good initial traction with our newly introduced offerings in our Signals Software business such as Signals Clinical and Signals Synergy, with even more expected uptake of both of them this year. We also made good progress on continuing to execute on important strategic partnerships and joint new product introductions. In November, we announced an expansion of our long-running relationship with the U.K. government by broadening our relationship with Genomics England and its Generation Study, which aims to screen up to 100,000 newborns for approximately 200 rare genetic conditions. Utilizing a lab in Manchester, U.K., we were chosen to provide all the DNA extraction services for this study using our high-performance chemagic 360 instruments and related consumables. This is an exciting project which is aimed to advance genetic understanding in a broad population with the ultimate goal of eventually providing earlier diagnosis and interventions for rare genetic conditions in newborns. Revvity is honored to partner with Genomics England and contribute to this significant study, recognizing the profound potential it holds to positively impact the lives of future generations. Earlier this month, we also announced a strategic partnership with Element Biosciences to jointly commercialize an IVD workflow for neonatal sequencing. This initiative builds on our recently launched NGS workflow for newborn sequencing, which utilizes Element-Revvity sequencing system. Once this cutting edge IVD solution is approved and commercialized, it will highlight a continuation of our global leadership in newborn screening, while supporting Element's entry into the clinical diagnostic market. Now that we are well into our second year of our transformation as Revvity, we announced in mid-November that beginning in 2025, we will be re-segmenting the majority of what was our Applied Genomics business and moving it from our Diagnostics Reporting segment into our Life Sciences segment. We expect this change to benefit us both operationally and commercially. As part of this new segmentation, we are establishing a new Life Science Solutions business unit within our Life Sciences segment, which will consist of the former Applied Genomics businesses and our existing life sciences instruments, consumables, and technology and licensing businesses. The new Life Sciences Solutions unit will represent approximately 85% of our overall Life Sciences segment, with the remainder accounted for by our Signals Software business. As we previously highlighted, our financial reporting will reflect this change beginning with our first quarter 2025 quarterly results, which we will release next quarter. Overall, it appears we are now solidly on an upward trajectory heading into 2025 compared to what we and our industry have experienced over the past two years. However, we still have some uncertainty as to what the slope of this recovery will look like over the full year. So for the time being, we are assuming that the current demand environment continues for the entirety of the year. Revvity is a special company, one that is leveraging the impressive creativity, passion and knowledge base of our employees to allow us to be uniquely positioned to capitalize on where science and medicine are going in the future. We strongly believe that these efforts will result in both top-tier financial performance for our investors and dramatic advancements for patients around the world. With that, I will now turn the call over to Max.

Thanks, Prahlad, and good morning, everyone. As Prahlad mentioned, we finished the year on a strong note as our fourth quarter results came in solidly above our expectations and guidance. While demand trends have not yet fully normalized amongst all our pharma customers, it does appear that they have at least stabilized and things may be starting to move in the right direction. As our markets continue to appear to be in a recovery phase, we remain diligent on those initiatives, which are more fully in our control. This was evident in both our quarterly adjusted operating margin performance of 30.3% and our high levels of cash generation. We leveraged our strong financial performance and balance sheet position to remain aggressive with our share repurchase activity in the quarter as we were able to buy back another $185 million worth of our shares. As we look ahead to 2025, we continue to be well positioned to deliver the differentiated financial performance we have achieved over each of the last two years. In the fourth quarter, the company generated total adjusted revenues of $730 million, resulting in 6% organic growth, which was above the high end of our expectations. The organic revenue growth outperformance fairly broad-based as both our Life Sciences and our Diagnostics segments performed slightly above our expectations in the quarter. Our life science reagents and software businesses performed above expectations, and we saw continued strength in our reproductive health business. This was offset by persisting challenges in our instrumentation business and greater-than-anticipated FX headwinds. FX was a 1% headwind, which was nearly 200 basis points worse than our expectations due to the stronger dollar over the last several months. We also again had no incremental contribution from acquisitions. For the full year, we generated $2.76 billion of total adjusted revenue, which was comprised of 1% organic growth modest FX headwinds and no impact from M&A. As it relates to our P&L, we generated 30.3% adjusted operating margins in the quarter which were in line with our expectations as some increased investments offset the organic growth upside. For full year, our adjusted operating margins were 28.3%, which represented approximately 30 basis points of expansion year-over-year and demonstrates the margin power of our business, given our only 1% organic growth for the year. Looking below the line, we had adjusted net interest and other expense of $17 million, which was in line with our expectations and brought the full year adjusted net interest and other expense to $43 million. Our adjusted tax rate was 15.7% in the quarter, as we continue to see benefits from our recent tax planning initiatives. This resulted in a full year adjusted tax rate of 18.4%. With an average diluted share count of $121.6 million in the quarter, this resulted in adjusted EPS in the fourth quarter of $1.42, which was $0.04 above the midpoint of our guidance and $0.02 above the high end, despite approximately $0.03 of pressure from the unanticipated FX headwinds. For the full year, our adjusted EPS was $4.90, which was $0.25 above the midpoint of our initial guidance at the beginning of the year and represented 5% growth year-over-year. Moving beyond the P&L. We again had a strong quarter from a cash perspective, generating free cash flow of $151 million in the quarter. This brought our full year free cash flow to $578 million equating to 96% conversion of our adjusted net income. Our focus on cash is clearly paying off, and I am excited about the potential for additional improvements in this area as we enter 2025. As for deploying this capital, we remained active in the fourth quarter by repurchasing another $185 million worth of our shares. This brought our full year 2024 buyback activity to $370 million and nearly $750 million over the last two years combined. Between our fourth quarter repurchases and some additional activities so far in January, we now have approximately $800 million remaining on the new $1 billion repurchase authorization we just received from our Board in October. Despite this activity, our balance sheet remains strong as we finish this year with a net debt to adjusted EBITDA leverage ratio of 2.3 times. I will now provide some commentary on our fourth quarter and full year business trends, which are also included in the quarterly slide presentation on our Investor Relations website. The 6% organic revenue growth in the quarter was comprised of 5% growth in our Life Sciences segment and 6% growth in Diagnostics. Geographically, we grew in the mid-single digits in the Americas, grew in the low-single digits in Europe and grew mid-single digits in Asia, with China up high single digits. For the full year, we achieved 1% organic growth with 4% growth in Diagnostics and a 3% decline in Life Sciences. The Americas grew low-single digits, Europe declined low-single digits, and Asia grew low-single digits, with China also declining low-single digits for the full year. Within China in the quarter, we experienced low-single-digit growth in Diagnostics with mid-single digit growth in both immunodiagnostics and reproductive health, offset by double-digit declines in applied genomics. We saw mid-teens growth in Life Sciences with high single-digit growth in our reagents and consumables and double-digit growth for our instrumentation. For the full year, China declined in the low-single digits organically with similar performance across both Diagnostics and Life Sciences, including mid-single digit growth in our immunodiagnostics and life science reagent businesses in the region. From a segment perspective, our Life Sciences business generated total adjusted revenue of $336 million in the quarter; this was up 5% on both a reported and organic basis. For the full year, our Life Sciences business was down low single digits organically. From a customer perspective, sales into pharma biotech customers rose in the in the mid-single digits quarter and declined in the low single digits for the year. The mid-single digit growth from pharma biotech in the fourth quarter was the first quarter of positive growth from this customer base since the first quarter of 2023. Sales into academic and government customers rose in the low single digits in the quarter and declined in the low single digits for the full year. Our Life Sciences instrument revenue represented about 27% of total Life Sciences revenue in 2024 and was down high digits in the quarter and down low double digits for the full year. Our reagent licensing and specialty pharma services revenue represented about 57% of Life Sciences revenue in 2024 and grew mid-single digits in the quarter and declined in the low single digits for the year, which included an approximately 300 basis point headwind from lower technology and licensing revenue year-over-year. Finally, our Signals Software business, which represented the remaining 16% of Life Sciences revenue in 2024, grew more than 30% in quarter and was up in the low teens for the year. As it pertains to some of software industry specific metrics, which we first highlighted at our recent Investor Day, our Signals business had over 30% growth in its SaaS annual recurring revenue 2024 with 106% net retention rate in its renewals. This resulted in another year of double-digit growth in its annualized portfolio value. In our Diagnostics segment, we generated $393 million of total adjusted revenue in the quarter, which was up 4% on a reported basis and 6% on an organic basis. For the full year, our Diagnostics business was up 4% organically. Our immunodiagnostics business represented 51% of our total diagnostic revenue in 2024, and grew organically in the mid-single digits quarter and was up high single digits for the full year. Our reproductive health business, which represented about 35% of total Diagnostics revenue in 2024, grew in the high single digits organically in the quarter and was up mid-single digits for the full year. Finally, our applied genomics business, which represented the remaining roughly 14% of total Diagnostics revenue in 2024, grew in the low single digits organically during the quarter, which was slightly better than we had anticipated and was down in the low double digits for the full year. This business continues to be impacted by lower levels of pharma biotech spend and the significant capacity build-out that occurred during the pandemic. However, it was encouraging to see a return to growth during the quarter, excluding COVID, for the first time since the third quarter of 2022. As a reminder, starting in 2025, most of our applied genomics business will be moving over to our Life Sciences segment with the remainder being folded into immunodiagnostics within our Diagnostics segment. Consequently, this will be the last quarter in which we specifically report on its quarterly performance as a business unit. Now, looking ahead to our outlook for 2025. As discussed, it does appear that demand trends from our Life Sciences customers have at least stabilized over the last few months and may be starting to show some signs of eventual improvement. We expect this path towards more historically normal levels of demand to continue throughout this year. However, for the time being, given the current political and regulatory uncertainties that exist, we are not assuming any significant improvement in our end markets this year. If things start to more meaningfully improve, it would represent upside to our current expectations. With this backdrop, we are looking for an improvement in our total company organic growth this year as compared to the more modest growth we've experienced each of last two years, but we are not currently expecting that things will be back to the more normalized levels of 6% to 8% growth, which we assume in our long-range plan. Consequently, our total company outlook for this year is for organic growth to be in the 3% to 5% range with balanced levels of growth expected throughout the year, including 3% to 5% organic growth expected here in the first quarter of the year. With the recent strength in the dollar, assuming exchange rates as of the end of December, FX is currently assumed to be a 1.5% headwind to our overall revenue for the year and an approximate 2% headwind here in the first quarter. This assumed FX headwind equates to an approximate $0.10 headwind to EPS for the year. This results in our reported revenue growth for the full year 2025 expected to be in the 1.5% to 3.5% range given no assumed contribution from acquisitions. We expect this all to result in our 2025 total revenue to be in a range of $2.8 billion to $2.85 billion overall. As Prahlad mentioned, after two years of restructuring and more restricted levels of investment spending, we are planning to step up our strategic internal investments in 2025. Despite this planned step-up in investments, the power of our margin potential is still expected to be on display as we are assuming 20 basis points to 40 basis points of operating margin expansion overall this year, resulting in our adjusted operating margins being in the 28.5% to 28.7% range overall. We had fantastic performance as it pertains to our cash generation in 2024, which I anticipate will continue this year. However, we will have a significantly lower level of interest income this year given our lower cash balances after paying off over $700 million in low-cost debt last year and lower overall returns on our cash following recent rate cuts. Consequently, we expect our net interest expense and other to be approximately $70 million this year, up from the $43 million net expense we had last year, but consistent with the quarterly run rate shown here in the fourth quarter. As we had also previewed at our Investor Day in November, we expect recent global tax reform to have some modest upward pressure on our tax rate this year, which we are actively working to offset through our planning initiatives. We currently expect the net impact of this to result in our full year adjusted tax rate to be approximately 20%, up from the 18.4% we had in 2024. Lastly, we are anticipating a full year average diluted share count of approximately $120 million, which assumes modest repurchase activity continues throughout the year. We expect all of this to result in our full year 2025 adjusted earnings per share to be in a range of $4.90 to $5, with approximately 19% our full year earnings to occur in the first quarter given a higher initial tax rate expected to start the year. Given our strong focus and continued progress on our cash generation initiatives, we expect this to result in free cash flow of approximately $500 million this year, which does not include an additional approximate $50 million of anticipated proceed we expect to receive from AES divesture. Overall, we had a strong finish to 2024 and expect to see improving trends in 2025, which should position us well to move back to more normal levels of growth in the future. Despite our planned step-up in investment spending, we expect another solid year of margin expansion with even more opportunities in front of us once we return to more robust levels of top-line growth. Overall, Revvity is starting to externally show its transformed and differentiated financial potential as a company while continuing to deliver significant new innovations to the market, which are having a profound impact on patients' lives. With that, operator, we would now like to open up the call for questions. Question-and-Answer Session

Thank you. [Operator Instructions] Our first question today comes from Doug Schenkel with Wolfe Research. Please go ahead. Your line is open.

All right. Good morning, everybody. Thank you for taking my questions. There's two topics I'd like to address. First, as you noted, you closed the year with better than peer growth and better margin expansion than we've seen across the group. You also noted that the industry and a lot of your end markets and categories are continuing to normalize, and you expect continued improvement as especially pharma and biotech normalized this year. At the same time, your guidance prudently assumes a continuation of current market conditions. With all that in mind, I'm wondering if you would be willing to talk about what you are seeing in a bit more detail? And what I mean by that is, as you specifically look at your key your key end markets, product categories and geographic exposure, what are the major areas where you would say things are back to normal, where are the things were -- or areas where you would say we're getting close? And what are the key areas that are lagging in recovery? And I guess, what could happen to accelerate the recovery, for example, maybe things like a better funding environment for early-stage biopharma? So that's the first, and I know that's a lot, but I think that will be helpful as we kind of think about the error bars around guidance. The second topic is, I'll probably ask the first of many questions on China. You had a notably strong end to the year with high single-digit growth, I believe. What does your guidance assume for core growth within the region this year? How are you thinking about stimulus within the context of guidance? And what about VBP? How are you treating that in guidance? That's obviously a key area of focus coming out of earlier earnings reports this week. Thank you.

Good morning to you, Doug. There's a lot to unpack there. Hopefully, I won't forget the second half by the time I start addressing the first half of the question. Look, it's a very good question and very pertinent as to the way we lay out our assumptions on the guidance. Let me just start at the higher level. We clearly see that we are getting to a path to recovery. However, as we've continuously said, the pace of return to what normal looks like is still a little uncertain. And given that uncertainty, it's only prudent for us to assume that the current environment continues over all of 2025 for now. Having said that, to specifically address your question around what's normal and what's close to normal and what still needs some work, I think as you saw, this is the second quarter in a row on the Life Sciences reagent side that we've started seeing mid-single digit growth. In terms of what is closer to what is normal, let's go back and look at our Diagnostics business. That is where we are in our LRP, where we see around 6% growth. Our software business, that's in what is normal. It's in the low-double digits growth. I think the reagents, as I said, is the piece that is getting closer to normal and the Life Sciences instruments where a lot of the CapEx spending comes from is still not on path to what we assume normalcy or path to recovery. On the China side, and I think the way to assume is that we expect that we will return to growth for the Life Sciences instruments in 2025 in China. We saw modest orders coming in from the stimulus impact in the 4Q expectation. Our expectation for China overall is to be in line with what our company growth is. Anything I'm missing from his question list, Max?

No, I think the only other piece I'd add is, so the expectation again for China overall for 2025 is in line with the company average. So call it 3% to 5%. Life Sciences is probably at the higher end of that expectation, diagnostics at the lower end of that range. I think to address your question on BBD, as we've mentioned and been consistent, our assumption in immunodiagnostics in China is for mid-single-digit growth. That's what we've embedded in there for 2025, and that includes a mid-single-digit pricing headwind that we've been facing over the past couple of years. And when you look on the Life Sciences side, in terms of stimulus, as Prahlad mentioned, we did see some modest orders come through in the fourth quarter. We are assuming modest performance from stimulus in 2025, but it's not material to the overall company. Things continue to work their way through the system. But until we see continued more traction there. I think we have a modest assumption in our guidance for now. Operator, next question.

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Hi, guys. Good morning, Prahlad. Thanks for taking my question. Maybe my first one is, the guide of 2% to 5%, how did the segment outlooks compare relative to 3% to 5% and perhaps what drives the low-end versus the high-end? What changes?

Yes. I think as we look at the guidance for the full year, Vijay, the breakdown for the segments would be, Diagnostics, would be above the 3% to 5% average for the company, so call it at the upper end of mid-single digits. And then for Life Sciences, sort of in the middle of that low single-digit range. I think in terms of your question, in terms of the upsides and downsides, I would point you back to some of our overall just assumptions and how we thought about the guidance and that it's overall fairly balanced and that we're not assuming any real change to the current market environment and that we've got some, I would say, prudency baked in there, just given some of the uncertainty right now from a regulatory and geopolitical standpoint. So I think our guide is fairly balanced. There could be things that go one way or the other across both our Life Sciences and Diagnostics business, but we've taken sort of a prudent and balanced approach for our current guidance assumptions.

Understood. And Prahlad, a follow-up for you. Reagents looks like it did quite well, mid-singles. It feels like it's doing slightly better than perhaps some of the numbers we've seen within the peer set. I'm curious, are you gaining any market share here within reagents? And how should we think of reagents growth in fiscal 2025, given you said pharma customers were acting a little bit better?

Again, Vijay, as we talked about, our Investors Day, the portfolio that we have around reagents that has some -- a lot of our innovation going in. I think we've been gaining share there over a period of time. And I think you are seeing the impact of that. We are also -- the way our reagent flow happens, when we get on a program, it is there for several quarters and you see the impact of that quarter-over-quarter. So the portfolio continues to do very well. The innovation there is starting to yield dividends us. So we feel really good about how our reagents business is performing.

Sorry, the fiscal 2025, is that mid-singles for reagents?

Yes. So I think if you look at our guidance for 2025, Vijay, again, I mentioned Life Sciences should be in the low single digits overall for the full year. And underneath that, Life Sciences Solutions, began as our new reporting segment, we have an assumption of low single digits and then our software business assumption for 2025 is low double digits. And then when you look at the reagents and instruments mix underneath Life Sciences Solutions, reagents should be growing faster than the overall Life Sciences Solution and platforms will be slightly below it.

Fantastic. Thank you guys.

Our next question comes from Patrick Donnelly with Citi. Please go ahead.

Hi, guys. Great. Thanks for taking the questions. Max, maybe one for you. I got a few questions on the 1Q guide being a little bit below expectations. Can you just talk about kind of the offset hitting that earnings number in 1Q and visibility on the margin build as we go through the year, to your point there, reagents seem to be coming back a little bit. That helps with the margins. I'm sure FX is an offset. So it would be helpful just to talk about kind of the op margins in 1Q and then just the moving pieces as we work our way through the year?

Yes, sure. Hi, Patrick. So I think maybe I'll just start with a little bit of commentary just on the overall full year cadence. I think it will help answer some of the questions, particularly around Q1. As we look at the cadence for the full year, we've mentioned that one, organic growth should be relatively consistent as we go throughout the year. Two, when you look at it from an operating margin standpoint, I would point you to a similar cadence that happened in 2024, where Q1 is below the full year average. The second and third quarters are roughly in line to the full year average and the fourth quarter is the strongest from an op margin perspective due to your volume leverage. I think then, if you go look at below the line, interest and others should be relatively consistent as we go throughout the year. And then our assumption on tax rate timing, which does impact the first quarter should also be similar to what it was in 2024, where the tax rate is heaviest here in the first quarter and sort of steps down and progress as we go throughout year. So that's what I would say on the cadence. And I think as once you sort of model those out for the first quarter, you should get a little better understanding of what's driving the what you call the softer EPS, but I think it's really kind of right in line with our normal cadence.

Yes, its fair. I was just looking at the street, but I agree the cadence is pretty normal. And then maybe just on the ImmunoDX side. Can you just talk about the 2025? It sounds like mid single-digit growth for that piece coming off 4Q, the moving pieces there. It sounds like China performing pretty well, but would love to just talk through the expectations on ImmunoDx side and what you guys are seeing there?

Yeah, absolutely. So again, I'll start kind of with the overall full year assumptions. Diagnostics, you mentioned we get the upper end of mid-single digits for 2025. When you look at the split between reproductive health and immunodiagnostics, we have immunodiagnostics assumed actually high single digits. I think you said mid-single, but our assumption in guidance is high single digits. And then we've got reproductive health and low single digits. I think when you look at immunodiagnostics overall, China is playing out as we anticipated, both -- finished for 2024, but also in line with our LRP for 2025. And then if you look at the performance ex-US, it continues to be a low-teens to mid-teens grower from a performance perspective, which is really a testament again to both the innovation as well as the continued geographic expansion through predominantly our autoimmune business.

Got it. Thank you, guys.

Next in queue we have Michael Ryskin with Bank of America. Your line is open.

Great. Thanks for taking questions, guys. First, I want to ask on applied genomics. I think you said, this is the last quarter you're going to be talking about it openly since something being shuffled around. So I figured I'd get a question in on that. You called on return to growth. That's been a little bit a little bit of a headwind for you for a couple of quarters, longer than that actually. Anything you can say about what you're seeing in that terms of underlying end market maybe positioning, just sort of how that's trended through the quarter and maybe any forward expectations for that? Is it the beginning of a recovery, just how that's progressing?

Hey, Mike, I mean, you're right. The applied genomics business is moving to the Life Sciences Solutions portfolio, just given the alignment that we have there commercially and operationally with our customers on there. So it just makes a whole lot more sense to align it there. I think that's a portfolio which obviously had a lot of pressure given the impact that the COVID had around buying patterns and it has taken time to recover. But we are really enthused and optimistic that sort of we've seen the bottom there and we are starting to see the path to recovery. So overall, I would say that both on the clinical side and on the pharma/biotech side, applied genomics will start seeing recovery as we go into 2025.

Okay. Thanks. And then for my follow-up, I think you talked about 20 to 40 bps operating margin expansion. First, just real quick, could you pick out how much of the FX headwind you have on margins? Just will help us model underline a little bit better. And also, you talked about part of that -- part of the reason it's 20 to 40 is you emphasize stepping up investments this year. Any additional color on that, whether it's in technology, commercial organization, R&D? And just sort of could you help frame those investments in -- just take a step back and frame it in a multiyear view? Is this a little bit of a catch-up versus 2024? Is this a little bit of a pull forward? Just help us think through where and how that's going? Thanks.

Yeah, absolutely. Hey, Mike. So I'd say, first, maybe just to clear the deck on one of your questions. FX for us does not really have a material impact on our operating margins. So I guess just to clear that, that is not a headwind that currently assumed within our guidance. In terms of the 20 to 40 basis points and really the step-up we've mentioned on our strategic inventions a couple of thoughts there. One, I think we've consistently said that if our growth were only in the mid single digits, we would be expanding operating margins roughly 50 basis points. Based off our guidance, we are slightly below that and you're seeing an operating margin expansion guidance that is slightly below that 50 basis points. I would also say that we're really encouraged by the progress that we've made on our productivity and transformation initiatives. You know, if you look back at 2024, we just expanded 30 basis points operating margin, while only growing 1%. And I think you're starting to see – the benefits of the work that that we put in across the board. I think as you look at 2025, in terms of us stepping up some of the strategic investments, I would say that it's, – really us wanting to continue to invest ourselves as we look over the next three to five years and what we want to accomplish as a company. I think when you look at it in terms of the investments, particularly in 2025, there's probably a couple areas. One is predominantly a step up in our digital investments across both e-commerce and AI capabilities. I think the second, there is some, I would say additional investments on expanding sales channels and adjacent high growth markets. For example, looking at markets outside of pharma, biotech for software, as well as continuing to expand our sort of downstream commercial capacity, related to things like GMP, Omics, et cetera. But I'd say that's really sort of the composition of where we're investing in 2025.

Great. Thank you. Appreciate it.

Our next question comes from Puneet Souda with Leerink Partners. Please go ahead.

Hi, guys. Thanks for the questions here. So just first one on software. I mean obviously, some very strong growth there, but easier comps too. Wondering, if you can elaborate if there was any one-timers in the quarter. Any upside from Signals versus ChemDraw licenses? Generally, it's been lumpy through the year, but just wondering what your expectations are for the first quarter? I think you said for the full year, it's low-double digit, but correct me if I'm wrong on that?

Yes, maybe just to clear the deck from a numbers perspective. So it is low-double digits for the full year for software. And it’s a similar performance here in the first quarter.

I mean overall, as we've said on the software business, Puneet, that's a very predictable pattern on the number of our licenses and contracts that come up for renewal. So we have a pretty good line of sight, and that's what we have also indicated on the November 4 call for what it would look like for 4Q. So pattern is pretty clear. For us, about 34% of our business is SaaS and still is a good chunk of our business that is on-prem contract -- multiyear contract renewals. So we have a pretty good sense of what's coming down the pipe. So that tends to be lumpy from a quarter perspective. But overall, I think when we look at the NPV for the net contract value for the year. That is what we sort of use more as a metric than what it does from a quarterly performance perspective.

The ATV was low-double digits in 2024, and it was strong in 2023 as well even though the organic growth just due to the timing wasn't as strong in 2023. But as Prahlad mentioned, that's really the more important metric for our software business.

Got it. That's helpful. And then I know you were expecting this question around NIH and the pauses and unpauses and other noise that we're seeing there. I mean the question is more about -- I think your exposure is small, but just indirect exposure that you have and just given the sort of funding challenge that might arise there, just could you elaborate what you're baking in for that in Q1 and for the full year? And any additional thoughts on how you expect to manage any sort of headwinds that might arise on the academic side? Thank you.

Yes, Puneet, as you pointed out, our exposure to direct exposure to NIH is pretty small, close to 1%. But even if you look at our indirect exposure, our estimate it is not more than 5%. And then I think the other very important aspect to keep in mind that given the exposure, most of what we sell are reagents and small ticket items. So it really does not have that much of a material impact from a budgetary perspective, because you still need the experimentation to go on the Life Sciences side and reagents are the key driver there. So it does not really have a material impact for us.

Got it. Okay. Helpful guys. Thank you.

Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hi, good morning. Thanks for taking my questions. Maybe just to start out on instrument expectations. I mean, I think we're all well aware of the CapEx constraints in the environment. But what are you looking for in terms of leading indicators in terms of seeing that turn? And also, what is the sort of conversations been with customers on the pharma side or on the academic side in terms of instrumentation and CapEx plans over the course of this year? Do you get a sense that we could see a recovery in the back half of this year in instruments? It's just hard to call at this point based on some of the conversations you're having? Or do you feel like it still remains to be -- you remain prudent in terms of how you're looking at that potential recovery over the course of 2025?

Hi, good morning, Matt. As we've talked at the Investor Day at length on this, are the instrument portfolio that we have tend not to be a commodity offering and tends more specific in terms of what we bring to our customer base, whether it's in academia, government or on the pharma side. So you have to break it down regionally, right? So when we think of China, obviously, we will see some modest stimulus impact, as Max pointed out earlier. But that will sort of also offset some of the weakness -- continued weakness that we see on the pharma/biotech. In terms of the second part of your question, the conversations are ongoing. Because even from the pharma biotech perspective, there is an expectation that this will start coming back to normal or as we've said earlier, we are on a path to recovery. But I don't -- we are not assuming any sudden shift or a trend in our guidance in terms of its recovery snapping back to normal. So I mean, I think that's probably the best way I can give you an indicator as to what our expectation is and what we've assumed in our guidance.

Got it. That's very helpful. And then just in terms of the exit rate you saw in Q4, which is pretty impressive and the recovery that your -- nascent recovery you're seeing in sort of the biopharma, was there any element of budget flush or any one-off impact in Q4 to drive that growth rate as to why you're not necessarily extrapolating that x-rate into 2025? Should we just be aware of sort of any of those issues that you saw in Q4?

Absolutely none. We did not -- I would say -- I would answer that question is we did not see any budget flush in Q4 and that has any impact as to how we have factored our guidance. Our guidance, as I said earlier, Matt, we see the path to recovery. We see the signs and indicators of that. You look at our Diagnostics business, it continues to do very well. You look at our software business, it continues to do very well. The Life Sciences reagents business, we've seen two consecutive quarters of mid single-digit growth. So there are enough signs even on the Life Sciences side that we are getting on the path to recovery. But again, we are not assuming that normalcy comes back and the timing around that. We just are assuming that the current market that is there will continue in 2025. And if the market were to turn, that will be upside to what we've guided today.

Great. Thank you very much.

Our next question comes from Luke Sergott with Barclays. Please go ahead.

Great. Thanks. Good morning, everybody. I just want to start off on the -- you talked about the biotech customer, and you might have answered this in one of Doug's the questions. But you see growth there for the first quarter since 1Q 2023? Any kind of color on when you started to see that demand turn because you guys have a pretty short-cycle business? But is it coming from more reagent side? Are you starting to see pickups there like cell imaging and animal imaging, in vivo imaging, et cetera, or like high content screening? Just like what's the durability of maybe that this is the beginning of that part of the recovery for that part of the market?

Yeah. Hey, Luke. I would say, as you look at sort of the fourth quarter performance, you mentioned pharma/biotech turning positive in the fourth quarter for the first time in several quarters. You guys remember too, a lot of that was driven by, I would say, the software performance growing very strongly in the fourth quarter. If you sort of exclude that, it was still a challenging environment from a pharma/biotech standpoint. I think where we really started to see the turn though has been in our reagents portfolio. And I think we at least started to see that over the summer once the restructurings had really sort of, I would say, going back to more normalized levels, you start to see the lab activity pick back up and that was consistent in the third quarter. We saw again that pick up sequentially in the fourth quarter. And I think Prahlad has sort of outlined, our assumption is that is the steady state that sort of continues here in 2025 and what our guidance assumes. But there are enough signs in the or some positive signs that things are starting to turn a corner here.

All right. Great. And then, I guess, kind of like a follow-up on that with regards to your guide. I mean, you look at the rest of the reports and kind of what's the preannouncements this month and about how all those guides really have this kind of continued ramp? And what you're talking about right now sounds like that momentum is building and kind of supports that ramp. But your guide seems really conservative and just kind of straight lining what you're seeing now out further. So from a downside perspective or what do you think that could derail that momentum going forward? Is it a policy? Or just kind of -- is this just ultra like, look, we're just going to run rate what we have from an order rate route right now and anything else is upside?

Look, I think it's a good question. I would say, just in general, we mentioned a little bit in the prepared remarks, there is still certain amount of uncertainty right now as you look at it from a geopolitical and regulatory landscape perspective. And I think just given that, there still is that overhang of uncertainty, we wanted to be prudent in our guidance approach here for 2025. So yeah, there could be things that create a little bit of downward pressure, but then we are also prudent on the Diagnostics side. And I think it goes back to the punch sign of us really wanting to put out here for 2025, a balanced guide that reflects the current market environment. And so I would say, that's probably the best way to answer your question, Luke.

Great. Thanks.

Thank you. Moving to our next question from Andrew Cooper with Raymond James. Your line is open.

Hi, everybody. Thanks for the time. Maybe to ask a question in a little bit different way. As you talk about some positive signs and some noise as well in the prudence in the guidance, what are you actually hearing from customers in terms of are they a little bit more uneasy with some of the regulatory and administration changes that are playing out sort of as we speak? Are they talking about holding back budgets maybe for later in the year to see where things sit? Or just what are you really hearing from your sales force out there kind of actually on the street talking to folks?

Good morning, Andrew, I think the thing is the way you've got to look at it is in perspective to our portfolio. Look, on the Diagnostic side, it doesn't really have a big impact. Our Diagnostics business, and as I said earlier, we've assumed that, that will continue to grow what is in line with our LRP. Our software business, we do not expect to have much of an impact. Our Reagents business, as I said earlier, we've seen two consecutive quarters of mid-single-digit growth and that we assume will continue. The issue really comes around CapEx spending. And as you know, that is now less than 20% of our portfolio, which is around instrumentation. So this is where you start seeing the power of the portfolio and impact that it is having. In regards to what we are hearing from customers, our assumption really is based around the uncertainty in the market environment. It will settled down, hopefully, in a quarter or two, in terms of what a regular and more stable market environment will look like. And from our perspective, as Max pointed out earlier, we are being prudent enough and assuming that the current market environment will continue. And as we’ve said earlier, if it starts to go in a better direction in terms of growth. Obviously, we will come back and readdress this towards the middle of the year.

Okay. That's helpful. Then maybe just shifting to the margin side of things. I think, Max, you pointed out, you had talked about mid-single digit and call it, 50 bps of expansion if that was the growth rate, you're a little bit lower on both but you do have this sort step-up in investment. So is it safe to say you do see this year is actually a little bit above that trend you talked about before, absent those investments in kind of a true underlying manner? And maybe what's allowing for that to be the case if that takeaway is correct?

Yes. I would say that's fair. A fair summary but Andrew, but I'd also maybe just again point out the fact, too, that I think that from an operating margin expansion standpoint, we're really encouraged by the progress we're making. I think this year, there's, again, the one-offs of some strategic investments that we're intentionally making here. But on the flip side of it, we've got some opportunities from a gross margin perspective that should provide a little bit of tailwind to help offset some of those investments we're making this year.

Perfect. I’ll leave it there. Thanks, again.

Thank you. Our next question comes from Catherine Schulte with Baird. Your line is open.

Hey, guys. Thanks for the question. Maybe first just on guidance. Starting the year with 3% to 5% organic growth in the first quarter seems a lot better than what we're seeing from some other peers, but not assuming acceleration throughout the year. So just as we think about fourth quarter exit rate, do you think we should at least be towards the high end of that 3% to 5% range? And maybe just talk about how you think about the path back to that 6% to 8% long-term outlook?

Very good question, Catherine. I think at this point, we are assuming 3% to 5%, and we are assuming it to be a steady state throughout the year. It might be a bit more unique. Generally, we tend have a much more flush in the fourth quarter, and hopefully, that comes through. And as I said earlier, if that comes through, we'll readdress it towards the middle -- the latter half of this year. But just given somewhat the uncertainty in the current market environment, both from a regulatory and from an administration perspective, we thought it was prudent to be steady in terms of our forecasting.

Okay. And then maybe on pharma, nice to see a return to growth here in the quarter. Can you just talk to what you're expecting for pharma and biotech in the first quarter and the full year?

Yes. So we generally don't give breakdowns between pharma/biotech assumptions and academic and government assumptions, Catherine. I would say, again, if you look at the Life Sciences cadence here, I know it's going to be relatively consistent throughout the year. And so I would say pharma/biotech is the largest part of our Life Sciences business. And so I would say that's again, it's going to be the biggest driver of the performance.

Thank you.

Thank you. And question we have time for today comes from Dan Brennan with TD Cowen. Please go ahead.

Great. Thank you. Thanks for taking the questions. Maybe the first one just on reproductive health, nice finish to the year. I think you're talking about low single-digit growth next year. Just can you give us some of the puts and takes on how the quarter ended up and kind of what goes into that outlook?

Yes. So I think as you look at the fourth quarter specifically, again, it was high single digits in the fourth quarter. As we've talked about newborn screening is the biggest part of our reproductive health portfolio. It's generally grown faster than reproductive health overall. That can continue to be true here in the fourth quarter. There's a really strong finish to the year for our newborn screening business. As you look at the assumptions for 2025, it is low single digits. That's in line with our LRP. And I would say similar to that tune, newborn screening should be the fastest-growing part of our reproductive health franchise, again in 2025.

Got it. Okay. And then I know Prahlad you talked about a handful of times on the call already, but you're signaling [indiscernible] an improvement that geopolitical regulatory factors, you kind of called out a few times. Just wondering, are you seeing pharma pause? Are you seeing any shift in there kind of spending or kind of when budgets get released right now in terms of this macro? Just trying to get some flavor from what you're hearing from customers? Or is it more just you're looking at the kind of announcements that the Trump administration are making and you're just assuming that, that could cause some kind of pausing or demand in back? Thank you.

Yes, Dan, I wouldn't say that we are hearing pausing or slowing down of spending from our customers. I think it's just prudent on our part just given the uncertainty in environment. I think that's the best way I would forecast this and look forward. Again, assuming things get stable and certain and we get back to what normal looks like, it will obviously be an upside. But just given where we sit today, we need to -- we are being prudent in the way we guide for the year.

Great. Thank you.

Thank you. We have no time for the questions. So I'll turn back over to Steve for any closing comments.

Thank you, Lydia. We look forward to touching base with all of you over the coming weeks and months, and I hope everyone has a good weekend. Take care.