RVTY - NYSE

Welcome everyone to Q1 2025 Revvity Earnings Conference Call. My name is Sammy, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Steve Willoughby to begin. Please go ahead, Steve.

Thank you, operator. Good morning, everyone, and welcome to Revvity's first quarter 2025 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 our 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 will now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good morning, everyone. The first quarter ended up being one of the more dynamic macroeconomic periods in recent history to navigate through, which has clearly continued during April. Our ability to continue to generate strong organic growth and better-than-expected earnings in this environment is a testament to the resilience of our business and the tremendous efforts of our people. While we expected uncertainties were likely to occur when we first provided our appropriately prudent guidance in January [indiscernible]. The materiality and frequency of the changes that have transpired over the last 90 days in the global economy would have been difficult to fully contemplate in advance. Despite these new challenges, we remain very optimistic about Revvity's differentiated financial profile and our ability to continue to drive new innovations for our customers to help further the advancement of science. The current environment is clearly challenging for most companies, but our unique offerings and ability to quickly adjust are allowing us to continue to deliver for both our customers and our shareholders, as we demonstrated both throughout the pandemic and over the last two years, when our industry has faced softer spending from pharma customers, Revvity is a nimble company, which is well-positioned to quickly respond to both challenges and opportunities, enabling us to continue to deliver strong relative performance. We have demonstrated that we are a team that thrives at taking on challenges while continuing to execute at a very high level. I'm confident this adaptability and agility will continue, enabling us to sustain our strong performance throughout varying macroeconomic environments, including the remainder of this year. Despite the volatility, we were able to generate solid 4% organic growth in the first quarter, which was right in line with our expectations. This performance shows the impressive balance of our company as areas of strength, such as diagnostics and software, were able to offset those areas facing unanticipated pressures from the dynamic environment we are experiencing in some of our end-markets. In particular, our organic growth in the quarter was negatively impacted by unforeseen choppiness in demand from US academic customers throughout much of the quarter, primarily impacting our life science instruments. If it wasn't for this change in demand, our organic growth this quarter would have likely been at or above the upper end of our expectations. This solid top-line performance was again combined with appropriate operational management, which led to adjusted EPS in the quarter of $1.01, solidly above our $0.93 to $0.95 expectations. In addition to strong income statement performance, we yet again had great results with our cash flow and balance sheet management. In the quarter, we delivered 97% free cash flow conversion of our adjusted net income and were again able to aggressively deploy this cash by repurchasing our shares. We bought back 154 million of our shares in the quarter, resulting in an outstanding share count exiting the quarter of 119.4 million. As we entered 2Q, we remained opportunistic and have been able to continue our repurchase efforts. I would highlight that we have now repurchased more than 7 million shares over the last two years, which represents a 6% decline in our total shares outstanding since we became Revvity in mid-2023. From an end-market perspective, we have continued to see stabilized lab activity from our pharma and biotech customers as their headcount reductions and restructurings have plateaued over the past several quarters. While instrumentation continues to remain pressured, in part because of the recent academic uncertainties, we did see continued year-over-year growth in our reagents again this quarter. We also continued to see strong demand for our resilient Diagnostics franchise, which grew 5% organically in the quarter. As highlighted in the past calls, our specialty diagnostic businesses have strong and durable underlying market growth drivers that are more immune to changes in the macroeconomic environment. Consequently, we continue to believe this segment of our company is already largely back to normal following the swings in demand during and following the pandemic. A great example of our unique diagnostic businesses being at the forefront of scientific innovation is our recent announcement of our expanded alliance with Genomics England to further drive research into Newborn Genomic Sequencing in England. Under the new agreement, Revvity will now provide DNA sequencing services to screen newborns for rare genetic conditions, building upon our existing collaboration for DNA extraction services. This integrated end-to-end solution, supported by our localized lab facility, will accelerate the screening process and advance newborn health as part of the generation study. Genomics England's landmark initiative, which aims to screen up to 100,000 newborns for over 200 rare genetics disorders. This collaboration strengthens our position as a leader in Newborn Genomic Sequencing and sets a standard for future programs. We are proud to contribute to this critical program by delivering timely and reliable sequencing data to support newborn health in England over the next several years. I'm also proud that earlier this month, we secured FDA approval for a more automated platform that is integrated with our T-SPOT latent TB test. This combination, which was initially launched outside the US late last year, allows laboratories to enhance productivity, while maintaining superior clinical performance in latent tuberculosis detection. This milestone marks a significant advancement in the fight against TB, providing a faster high-throughput solution that delivers accurate diagnostic results to support timely treatment and containment, both in the US and globally. By automating T-SPOT TB testing, we equipped laboratories with increased throughput and reliability, ultimately leading to better patient outcomes. Considering the US market represents slightly more than half of all latent TB tests performed globally, this is an important launch in the most important market in the world for latent TB testing. I'm excited to see this new offering in the US ramp up over the coming months and quarters. I now want to take a minute and shine a spotlight on our fantastic Signals Software business, which I think does not garner the appreciation from the investor community that it should. This business, which represents approximately 8% of our total revenue, grew slightly more than 20% organically in the first quarter and we expect even stronger growth for it in the second quarter. This performance positions Signals to deliver another year of strong double-digit growth overall. In addition to the commercial execution, it was also exciting to see the launch of our new Signals One offering earlier this month. Signals One is our newly reimagined version of the core Signals data platform. An all-in-one solution designed to manage data across our customers' scientific workflows with new and expanded AI capabilities. This offering builds on our new product launches last year of Signals Clinical and Signals Synergy, which are off to strong starts in their first year on the market. Looking ahead, Signals continues to have a very promising new product pipeline with the upcoming launches of [logistics] (ph) and additional biologic-related offerings, which we expect to bring to the market in the coming quarters. It was also great to secure a recent court ruling in our favor to ensure uninterrupted access and business as usual for our Spotfire customers for many years into the next decade. Finally, it was encouraging to see a recent sale transaction announced for one of our key competitors in this space, which reflects the tremendous value and capabilities our offerings provide to our customers. Signals has an even stronger growth rate and a more ingrained enterprise footprint than anyone else in our industry and benefits from the intense customer relationships of our broader life sciences franchise. By leveraging our internal R&D capabilities to provide unique and responsive assistance for new product development and capitalizing on our broader pharma and customer relationships, along with favorable market trends, Signals is in a great position to continue to generate very strong results for a very long time in the future. Overall, we had an eventful, but successful start to the year. The power of Revvity's specialized offerings and importance of delivering significant innovation to our customers was clearly on display. As we have shown during periods of disruption over the last few years, we have a unique capability to navigate these unforeseen challenges and continue to execute. While no company is completely immune from broader end market trends and geopolitical developments, I'm confident that Revvity will continue to be able to show differentiated performance amongst our peers and with our customers. I also want to provide you some thoughts and comments as it pertains to the current tariff situation and its potential impact on Revvity. First, this is clearly a very dynamic situation, which seems to be changing on a nearly daily basis. So it is a bit of a constantly moving target. Second, we have had a cross-functional task force evaluating a variety of scenarios since shortly after the election. So we have been contingency planning for many different potential outcomes well before the first week of April. Third, as soon as the initial round of tariffs was announced, our teams immediately started taking a number of actions in an effort to mitigate potential impacts. These efforts include proactive inventory positioning, geographical manufacturing adjustments, engaging alternative suppliers and selective pricing actions. In addition to these efforts, we have also implemented some additional temporary cost actions to offset the impact from the remaining unmitigated tariff-related pressures in the second half of the year. Based on our actions to date, which will largely be implemented by the end of this quarter, we expect to be able to mitigate most of the currently contemplated tariff impact by the end of June. Consequently, while we foresee a headwind from the current tariffs here in the second quarter, we expect we will have largely offset their impact on our 2025 results by the time we enter the second half of the year and will work to minimize any lingering effects in the future years. While Max will provide more details in a bit, based on the current tariff situation, if we would not have taken any actions, we would expect to see a gross impact of approximately $135 million this year to our adjusted operating income. However, based on what we know today, with the aggressive actions we are taking, we expect to be able to mitigate the vast majority of this potential impact. We currently expect the net impact from the current tariff situation will negatively impact our adjusted operating margins by approximately 60 basis points this year. As mentioned, we anticipate the vast majority of the headwind to occur here in the second quarter as our tariff-related initiatives fully ramp up by the time we enter the second half. We are able to offset this near-term pressure with favorable below-the-operating-line execution and a less severe headwind from FX. Consequently, we are reaffirming our full-year adjusted EPS outlook of $4.90 to $5. In a sign to the uniqueness and durability of our business, we are also reaffirming our full year organic growth outlook of 3% to 5% as the academic and instrumentation headwinds we are now factoring in for the remainder of the year are offset by even stronger expected performance from our Software business and increased growth in reproductive health due to recent commercial partnership successes. Overall, we are keeping a close eye on the dynamic macroenvironment and will continue to pivot as necessary to execute at a high level in all market conditions. Revvity was built to thrive during periods such as this, which will only make us even stronger once the current macro uncertainty subsides. With that, I will now turn the call over to Max.

Thanks, Prahlad, and good morning, everyone. As Prahlad mentioned, while we have been navigating an evolving and dynamic macroenvironment so far this year, we were still able to deliver very solid first-quarter results because of our strong execution on those items, which are more fully within our control and our unique mix of businesses. Our industry has faced a multitude of headwinds over the last 2.5 years, which have continued so far in 2025. During this time, we have still been able to grow our top-line organically, increase our margins through synergy realization and optimizations and drive below the line improvements, which have helped support our earnings per share performance during this period. As you are likely well aware, our industry has also faced new challenges over the last few months, which were unanticipated when we first provided our intentionally prudent guidance in late January. First, given the changing landscape as it pertains to academic funding in the US, we have seen customers pull back with their spending for both instrumentation and consumables, given the increased uncertainty over the future of their funding. While the executive order to reduce indirect funding levels is currently held up in the courts and funding currently remains intact, we have seen it have an impact on buying behavior over the last few months. For the time being, we expect this more cautious level of spending from our US academic customers to persist until there is more clarity and stability regarding their future funding levels. As a reminder, revenue from our academic customers in the US represents a little over 5% of our total company revenue overall. As it pertains to the ever-evolving tariff situation, Revvity is well-positioned overall. Based on the situation as it currently exists today, I see three main focus areas that we are appropriately navigating. First, for those products, which we historically have manufactured in the US and sold into China, which represent the majority of the $135 million gross tariff impact estimated this year. And then secondly, those products which are manufactured in Europe and sold in the US. Lastly, we are focused on how we leverage our operational agility to capitalize on potential opportunities that arise from the changing macro landscape. As it pertains to those products currently made in the US and sold in China, through a number of initiatives, many of which were already underway before the new administration took office, we expect to almost fully neutralize this impact operationally within the next two months. For the impact stemming from those products made in Europe and the UK, which are sold in the US, we are aggressively taking a number of different actions to offset the impact, including adjusting our manufacturing, working with suppliers, implementing selective pricing actions and taking incremental temporary cost actions across the entire business so long as these headwinds remain this year. So, as Prahlad mentioned, we do expect to incur some impact from the current tariffs here in the second quarter, but we will have our initiatives fully in place over the next two months to counter their impact as we enter the second half of the year. We are also able to offset the associated approximate $0.12 adjusted EPS impact from the tariffs through our continued successful tax planning initiatives and more favorable FX, allowing us to reiterate our adjusted EPS outlook for the year of $4.90 to $5. Now turning to the specifics of our first quarter performance. Overall, the company generated revenue of $665 million in the quarter, resulting in 4% organic growth. FX was a 1% headwind to growth and we again had no incremental contribution from acquisitions. As it relates to our P&L, we generated 25.6% adjusted operating margins in the quarter, which was up modestly year-over-year and above our expectations. This was driven by strong expense management and favorable mix. We will continue to closely monitor our expense structure given the current macroenvironment in an effort to maintain our strong profitability levels, while still continuing to invest internally in areas with high return potential. Looking below the line, our adjusted net interest and other expense was $18 million in the quarter, which was slightly impacted by higher-than-expected FX volatility. Our adjusted tax rate was 19.5% in the quarter, which was lower than our expectations due to the favorable impact of recent tax planning initiatives. We also continue to remain active with our share repurchase program and averaged 120.2 million diluted shares in the quarter, which was down nearly 1.5 million shares sequentially. This all resulted in our adjusted EPS in the first quarter being $1.01, which was $0.07 above our expectations. Moving beyond the P&L, we had another strong quarter from a cash perspective as we generated free cash flow of $118 million in the quarter, resulting in 97% conversion of our adjusted net income. Cash remains a bright spot as we continue to diligently manage our working capital and we expect to receive additional divestiture-related inflows in the second half of the year. As I mentioned regarding capital deployment, we have stayed active so far this year with our buyback program as we repurchased $154 million worth of shares in the first quarter and have continued to remain opportunistic during these periods of increased uncertainty, given our confidence in our long-term potential. As it relates to our balance sheet, we finished the quarter with a net debt to adjusted EBITDA leverage ratio of 2.4 times, with 100% of our debt being fixed rate, with a weighted average interest rate of 2.6% and maturity out another seven years. As we evaluate capital deployment, we will continue to remain flexible in order to capitalize on the highest return opportunities while maintaining our investment-grade credit rating. I will now provide some commentary on our first quarter business trends, which is also included in the quarterly slide presentation on our Investor Relations website. The 4% growth in organic revenue in the quarter was comprised of 2% growth in our Life Sciences segment and 5% growth in Diagnostics. Geographically, we grew in the mid-single-digits in both the Americas and Europe, while Asia grew in the low-single-digits, with China also growing low-single-digits. From a segment perspective, our Life Sciences business generated revenue of $340 million in the quarter. This was up 1% on a reported basis and 2% on an organic basis. From a customer perspective, sales to pharma biotech customers grew in the low-single-digits whereas sales into academic and government customers declined in the low-single-digits in the quarter. Our Life Science Solutions business declined in the low-single-digits in the quarter, with continued declines in instrumentation offset by solid growth in reagents. Our Signals Software business was again a highlight in the quarter as it was up a little over 20% year-over-year organically. The business continued to perform well from an ARR, ATV and net retention rate perspective as well, with all metrics at or slightly above full-year levels from last year. In our Diagnostics segment, we generated $324 million of revenue in the quarter, which was up 3% on a reported basis and 5% on an organic basis. From a business perspective, our immunodiagnostics business grew high-single-digits organically during the quarter, which was in line with expectations. The business continues to perform well as its strong growth this quarter was driven by continued strength in the Americas and solid uptake of recent menu expansions. Our reproductive health business grew low-single-digits organically in the quarter. Newborn screening continued to perform well and grew high-single-digits globally, which was driven by outstanding operational and commercial execution, given continued headwinds from global birth rates. In regards to China specifically, we had low-single-digit organic growth overall in the first quarter, which consisted of a decline in Life Sciences offset by high-single-digit growth in Diagnostics. Stimulus was not a significant factor on our business to start the year as instrumentation in the region remained pressured. Looking ahead, we are only assuming a modest amount of stimulus over the rest of the year coming from programs which have already been announced and are currently being dispersed. I now want to provide some additional color as it pertains to our updated outlook for the full year. As mentioned, we are reaffirming our organic growth outlook for the year of 3% to 5% growth, but with a slightly different composition than we had previously assumed. First, we are now factoring in slower demand from our academic customers, particularly in the US, which is largely impacting our instrumentation, but is also having some impact on the demand for our reagents as well. This slightly slower assumed growth for the full year in our Life Science Solutions unit is resulting in a 100 basis point headwind to total company organic growth for the year. However, this headwind is being fully offset by even more robust expected growth in our Software business and stronger performance in reproductive health, given the recent success of a number of commercial partnerships coming to fruition. This resiliency speaks to the uniqueness of our company and our ability to continue to generate differentiated financial results throughout varying macroenvironments as well as our appropriately prudent initial outlook to start the year. With the weaker dollar impacting FX, we now anticipate our revenue this year to be in the range of $2.83 billion to $2.87 billion. Moving down the P&L, we now expect our adjusted operating margins to be in the range of 27.9% to 28.1%, which is down 60 basis points from our prior outlook due to the tariff-related pressures we expect to incur predominantly in the second quarter. This impact equates to an approximate $0.12 headwind to our full-year adjusted EPS. If the tariffs were to subside in the coming months, we would likely look to maintain most of our new manufacturing footprint flexibility while rolling back the majority of the temporary belt-tightening actions we are currently taking. Consequently, we would not expect to meaningfully change the operating margin or full year earnings outlook that we have provided here today. As mentioned, due to our continued successful tax planning initiatives, along with less of a headwind from FX, we expect to be able to fully offset this impact to our earnings. We now forecast our adjusted tax rate this year to be 19%, our net interest and other to be approximately $75 million and an average diluted share count of approximately 119 million. This all results in our adjusted earnings per share for the year expected to continue to be in the range of $4.90 to $5. Regarding our outlook for the second quarter, we anticipate organic growth to be in the positive 2% to 4% range, resulting in total expected revenue in the range of $700 million to $715 million. We anticipate our below-the-line items in the second quarter to be fairly similar to those we just reported for the first quarter, with an approximate 119 million average diluted share count. We expect this to result in our adjusted EPS in the second quarter to be in the range of $1.13 to $1.15. Overall, we had a strong start to the year as we were able to overcome a number of unforeseen challenges. The macroenvironment is currently in a period of elevated volatility and uncertainty, which is limiting what would have likely been an even stronger year than we had contemplated 90 days ago. As we look ahead, we will remain diligent and execute on those items which are more fully within our control by quickly pivoting to capitalize on commercial opportunities that present themselves, while also responding operationally to mitigate new challenges that arise. Revvity has a strong team and a differentiated business, which allows us to continue to perform at a high level through evolving macroenvironments, while remaining well-positioned to benefit when market trends become more favorable. With that, operator, we would now like to open up the call for questions.

Thank you very much. [Operator Instructions] Our first question comes from Patrick Donnelly from Citi. Your line is open. Please go ahead.

Hey, guys, thanks for taking the questions. Maybe one, not surprisingly, start off on the tariff side. Can you guys talk about that piece, the US into China? It sounds like $135 million gross impact. You're going to neutralize that. I think you said it was in two months. Can you talk about first what those products are? What you guys are doing to shift around and offset that? And just how you're able to do it so quickly? I mean, other companies are talking about a far longer timeline to shift around to manufacturing footprint or get around some of that US to China. So we'd love to just talk through what you're doing, what those products are and the confidence level you can contain that into 2Q.

Hey, Patrick, good morning. Let me start and then Max will chime in. As we mentioned in our prepared remarks, we didn't start this in April, right? We started this just right after the election and the process of moving products, building redundancy in our supply chain and ensuring product availability into China specifically has been an ongoing exercise for us over the last few months. And then that's why sort of we have built that resiliency in our supply chain. Max?

Yes. I think the other piece I'd add too is, I think we continue to prove that we are an agile and nimble company and that we are able to sort of quickly navigate what is a very dynamic macroenvironment. I think the other piece, just to answer your question in terms of what products, Patrick. If you remember, most of our Diagnostics business is in China, for China. And so, you -- really you're talking about the Life Science products that are being sold into China.

Okay. Got it. That's helpful. And then maybe the Life Science Solutions guide, Max, I know you talked a little bit about the moving pieces there. I think overall, that segment is low single previously. It sounds like instruments moved lower, software maybe a little higher. I think software was double before. Can you just talk through the moving pieces there? And then the reagents, you mentioned the academic piece is maybe a little bit affected. I believe that was kind of 3% or 4% growth guide before. Can you talk about that piece, what you're seeing academic versus biopharma? Would love to just break down that segment a little bit. Thank you, guys.

Yes, sure. So I think when you look at the Life Sciences guide overall for the full year, it does remain unchanged mostly from what we had said 90 days ago, maybe a little bit slightly lower. Remember, in Life Science Solutions, now we have two components. You have the Life Sciences Solutions business and then you have our Software business. I think, as we mentioned in our prepared remarks, on the Life Science Solutions side, instrumentation is more pressured versus our assumption 90 days ago. I would say on the reagent side, we still are expecting solid growth for the year, albeit maybe a little bit slower on the pressure from academic and government, but still solid growth for the year. And then I think on the Software side, that's where you're really seeing the majority of the offset, where we are now expecting stronger growth versus the low-double-digits we had assumed 90 days ago.

Appreciate it, guys.

Our next question comes from Patrick Donnelly from Citi.

Sammy, Patrick just asked his question [Multiple Speakers] Thank you.

Apologies. Our next question comes from Dan Brennan from TD Cowen. Please go ahead.

Thank you. Thanks for taking the questions. Great. Thanks for the questions. Maybe the first one just on China. I think you said low-single digits in the quarter. Just kind of wondering if you can unpack how you expect 2Q rest of year to play out for China. And are you seeing any impact from the government towards Revvity and/or other Western vendors just given the heightened political tensions that have been introduced here under the Trump administration?

Yes, Dan, I mean, I wouldn't classify it as any heightened pressure or attention or specific to Revvity. Overall, there is obviously a sense of awareness as to what's happening in the marketplace. If you recall, for our diagnostics business, all our reproductive health in China is in China for China. We've done that over the past decade. And on the Immunodiagnostics side, most of our -- all of our products goes from Europe into China. So we pretty much have had that in place for a period of time. And on the Life Sciences side, to Patrick's question, as Max mentioned earlier, that's the one where we have been working over the last few months to ensure that there is supply chain redundancy in market to ensure that we have a smooth supply of products into China on the Life Sciences side of the business.

Yes. Then just to add from a numbers perspective, Dan. I think as we look at China for the rest of the year, our expectation for the full-year is positive low-single-digit growth in China. Life Sciences, we expect to have a slight decline year-over-year. And then on the Diagnostics side, we are anticipating roughly mid-single digit growth. So not too much change from our previous assumptions.

Got it. And then maybe just a follow-up to the first question, just maybe unpacking a little bit more of the changes. So just kind of doing the math, so for US academic and government, you guys said 5% of revenues. What's kind of baked in now for the year from that front? And on the flip side, you talked about a positive offset being reproductive health and these new partnerships. Just wondering if you can unpack that a little bit and kind of what's changed on the outlook on that front? Thanks.

Yes. So I guess first on the academic and government expectations, we don't guide by end market, Dan, but we are factoring in now the slower expectations from academic and governments, particularly in the US. I think is, again, as you look at the full-year overall, right, we've baked in about 100 basis point headwind from the academic and government customers and that's being offset half by our software business and then half by our reproductive health business. I think on reproductive health, in particular, we've mentioned the extension or expansion of the contract in partnership with Genomics England. And then as you saw from the first quarter results, newborn screening continues to perform well globally.

Operator, next question.

Our next question comes from Matt Sykes from Goldman Sachs. Your line is open. Please go ahead.

Thank you, and good morning. Thanks for taking my questions. Maybe just for my first question to focus on the Signals business, software business, just given it's now becoming -- even though it's 8% of total revenues, it's now becoming a pretty important offset this year, just given all the macro headwinds. Could you maybe kind of give us a refresh on the competitive landscape, how you're winning business? And what is sort of the margin impact as that business scales to the group and what -- how you can drive margin expansion just from that business or is it too small currently to be able to be a big driver this year.

Hey, Matt, good morning. Our software business continues to benefit from favorable market dynamics given the growing adoption. But more importantly, if you look at the drivers across the board, we continue to have strong new business wins, opportunity to upsell and expand with a very strong retention rate. The new NPIs, Signal synergy and Signals, clinical that we've talked about have had good initial success and we also are looking at the opportunity to expand into the material science markets. But if we look at the portfolio, this is really a crown jewel in our portfolio that I hope it gets the attention that it deserves because what it also provides for us as a company strong synergies and benefit that we have by having Signals as part of our portfolio along with Life Sciences Solution franchise, because both from a new product development perspective, the Signals business leverages the capability of what our Life Sciences portfolio brings to fore. So overall, I think we benefit in the marketplace. We have a strong competitive position and we look for the disruption that is right now going through in that marketplace.

Got it. Thank you very much. And then just maybe just drilling down on ImmunoDx, a pretty decent result in the quarter. Could we just kind of get -- maybe get some regional color, wondering if the US had any kind of tariff pull forward just given the acceleration of high-single-digits or was it a comp effect or just sort of the market getting back to normal? And given your comments of sort of return to normalization overall for Diagnostics is sort of that mid-single-digit growth kind of what we should assume is what you would classify as normal given market conditions? Thanks.

I think from a Immunodiagnostics standpoint, the business continues to perform well globally. I think when you look in the US, it continue to be a strong quarter of growth. And I think once that you'll continue to see that trend persist as we go throughout the year here. I wouldn't say that there's anything unique to call out in terms of a pull forward or anything of that nature in regards to our first quarter results.

Yes. And specifically, Matt, as I pointed out earlier, more on the diagnostics side, everything is either in China or China going from Europe into China. So there was no pull forward from a tariff's perspective.

Got it. Thank you.

Our next question comes from Vijay Kumar from Evercore. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my question. Good morning, Prahlad, and congrats on a nice execution here. The -- I guess my first question going back to tariffs, the $135 million, that's a 400 -- north of 450 basis points of gross headwinds to gross margins. That seems slightly higher versus what we've heard from some of your peers so far. So maybe just talk about what is the updated gross margin assumption and how are we offsetting north of 450 basis points of GP headwinds? Is there some new cost actions that's being planned?

Let me just start and then Max will join in. Vijay, the $135 million number was assuming we would have not done anything. So just to provide a level of clarity, it would assume that we would just be on an as-is basis beginning of the year and we would continue to do business as usual and not make any changes. So I just want to make sure you guys don't get hung up on a number. The idea was to give what the frame of reference would have been had we not done anything. Obviously, as we said over the past four months, we've taken a significant number of actions to ensure that there is a redundancy in our supply chain and we have mitigated a vast majority of that.

And then I think in terms of the financials, Vijay, obviously, this will provide a headwind from a gross margin perspective. I would expect our 2Q gross margin to be closer to 60% versus what it's been historically running at over the past couple of quarters of 61.5% to 62.5%. So I think from that perspective, you would see that sort of pop up here in the second quarter. But as Prahlad mentioned, we've been taking sort of quick proactive measurements to counteract the tariff impact. We are taking some additional belt tightening here in the second half for any unmitigated tariff impact that there might be exiting the second quarter. And I think we're really sort of proud of the way we as a team here have really reacted and put ourselves in an extremely competitive position to take advantage of the potential disruption here with tariffs.

Yes, that's helpful, Max. Maybe, Prahlad, one on pharma. I know you don't guide by the end markets, but we've been getting some questions on the potential perhaps R&D to slow down here. What is -- can you just remind us what is pharma as a percentage of total company revenues and where is this exposure? Is this R&D versus clinical? And what trends you're seeing from your customers? What are customers telling you right now?

Yes, Vijay. Just let me give you a sense of the broad trends. Again, most of what we sell and our captive audience continues to be on the preclinical side still, right? And as we pointed out in our prepared remarks, we continue to see stabilization, I would say, on the reagents side of the business and the impact of what we've seen quarter-over-quarter has continued to be sustained. The question, Max, highlight on the -- on the numbers.

Yes. In terms of the overall exposure for pharma biotech, it's roughly 35% of total company revenue, Vijay.

Fantastic. Thank you, guys.

Our next question comes from Catherine Schulte from Baird. Your line is open. Please go ahead.

Hey, guys. Thanks for the questions and thank you for the very clear messaging around tariffs. It's been very helpful. Maybe just on that topic, as we think about the mitigation actions you guys are taking, any way to kind of quantify what's coming from changing manufacturing versus cost actions versus pricing or just kind of a general thought around those pieces? Thank you.

Yes. I would say as you look at the sort of the mitigation of again the gross $135 million tariff headwind. The majority of the offset there, I would say, is actually on the supply chain side and changing a little bit how we do our manufacturing, Catherine. I would say that takes care of roughly 75%, 80% of the number. I would say the remaining portion of it is a combination of either changing out suppliers or passing on selective pricing actions. And then as we've mentioned, there is a little bit of additional belt tightening here on overall expenses in the second half of the year. But again, the vast majority is really around the supply chain manufacturing.

Great. Thank you. And then you mentioned latent TB in your prepared remarks. How much of that business is tied to migrants and immigrants? And any concerns just given some of the action taken by this administration?

Yes. Great question, Catherine. I think as you look at the latent TB market, again, if you remember where we play from a TB perspective, we are more heavily indexed to outside the US. It is a strategic initiative for us to become more focused in the US, which with the recent announcement around the automated workflow, we expect to start to gain more traction in the US. So from that standpoint, if there is any noise around the immigration in the US in particular, it's not something that would have a material impact on us as a company overall.

Okay. Thank you.

Our next question comes from Dan Arias from Stifel. Your line is open. Please go ahead.

Hi, good morning, guys. Thank you. Prahlad or Max, on the Signals business, which sounds like it's doing pretty well right now. What kind of step down should we assume in the back half of the year? It seems like you're north of 20% for the first half of the year. So you could move down to a mid-single-digit level and you'd still be in the mid-teens range by just some rough math. So, how should we think about the full year for Signals? And I guess longer-term, just given the trajectory of the business and how confident you sound in it, is there a potential upside to, I think, the 9% to 11% that you laid out at the Analyst Day for the LRP there? Thanks.

Yes. Hey, Dan. So I think, as we mentioned in the prepared remarks, we are incredibly excited about the performance of our Signals business. It's an incredibly strong first quarter. We expect the rest of the year to be strong. When you look at it from a financial perspective, I would say the second half is still going to be strong sort of double-digit growth here. I think for the full year, it's probably closer to upper-teens level from an organic growth standpoint. In terms of your question on the LRP, I think we've been appropriate in our expectation over the long term of how we expect this business to perform. I think, as we've mentioned, there can be some ebbs and flows within a given year. But again, in the metrics that we really look at from a software perspective around our ARR, the net retention rate, what the APV growth is, the business that continues to perform extremely well, and we believe that this portfolio is a real differentiator for us as a company.

Okay. Helpful. Prahlad, maybe just strategically on M&A, can you just touch on where you see your appetite for deals? We've gotten questions, I'm sure much like others on just some of the assets that are in the market, some on the larger side. Do you see yourself as being potentially acquisitive and particularly on something larger than maybe a bolt-on over the next 12 months to 18 months?

Yes. Dan, as a practice, we don't comment on any particular deal, whether we have an interest on it or not. But as a company, as we've -- as you've seen and observed, we continue to evaluate areas of investment both organically and inorganically. I mean, over the past 3.5 years since the BioLegend acquisition in 2021, we've been mostly organic in nature in terms of our investment, but we have a very active and a fertile pipeline. But I think the more important part is, post the transport -- full year transformation, we really don't need M&A to be financially successful. We have a strong organic profile now, which may not have been the case pre-transformation. So we feel really good with what we have today.

Okay. Thank you.

Our next question comes from Dan Leonard from UBS. Your line is open. Please go ahead.

Thank you very much. First question on China. I appreciate that you've been planning countermeasures since the election on the tariff front. But can you help me better understand how you're managing the reagent exposure specifically? Having just toured BioLegend, it doesn't seem like that -- that's something you could spin up locally in a short period of time.

Well, Dan, I'm glad you asked that question. But that demonstrates the agility of our company. I can tell you with a high degree of confidence that we have been able to do that and we have mitigated that by having availability of product into China, not from the US for all our reagents and instrumentations. That speaks volumes to the redundancy in our supply chain that we have put in place and the agility that this company has been able to do, and hopefully, the execution around that that you guys have observed since the portfolio transformation.

Understood. Thank you. And then a quick follow-up on the Signals business. Can you give us an update on your conversion to a SaaS model? And is it safe to assume that the progression towards SaaS has reverted a bit given the magnitude of the growth you just reported and expect for the full-year?

Yes. Hey, Dan. In terms of the overall SaaS journey, I think it continues to be going as planned and we continue to make good traction in the conversion. Roughly probably at about a third of the portfolio now has been converted to SaaS. In terms of the dynamics within specifically 2025, there is still a piece of the portfolio that is still on-prem. And so that is some part of the revenue performance here in 2025. But again, as I mentioned, organic growth is just one of the metrics that we really look at in terms of the overall Signals business. I think the metrics again around the ARR growth, the net retention rate and the annual portfolio value growth are really the metrics that focus on the underlying performance of the business and those continue to perform well. And so, from that regard, I wouldn't say anything in terms of a change in our customer behavior. It's really been as planned for the Signals business and continues to outperform.

Appreciate that. Thank you.

Our next question comes from Luke Sergott from Barclays. Your line is open. Please go ahead.

Great. Thanks, guys. Actually wanted to ask a little bit longer-term question here. So I appreciate the moving manufacturing around for the tariffs here in 2Q and avoiding that. But as you think about your operating margin potential here longer-term, this is one of the better selling points of the story. So are the investments that you're taking now, does that kind of in the shifting the manufacturing, is that potential, put any pressure or inability to hit those longer-term margin targets? Or maybe even kind of accelerate that, make it better? Just kind of walk through the puts and takes on that?

Yes. Hey, Luke. In terms of the LRP and our operating margin expectations, I would say those are largely remain unchanged. I think when you go and look at the 75 bps of operating margin expansion that we're calling out as a company long-term, the breakdown of it is 25 bps from the gross margin line and 50 bps from the operating margin line. That 50 bps from the operating margin line is really around the SG&A volume leverage as our growth does not really need a significant amount of investments from an SG&A perspective. And so nothing about the tariff situation really changes that algorithm. I think, in terms of the additional redundancy costs, I don't think it's meaningful enough for us long-term, where that's going to create a headwind to our operating margin targets. As you mentioned in your sort of opening comments there, we think our operating margins over the long term will continue to be a bright spot and differentiator for us as a company.

Awesome. And then last on the repro side, it was up low-singles, off of a high-single second half growth and then you have the Year of the Dragon. You had strong prenatal in that second half. You think a little bit more coming into the neonatal. Just talk about the various dynamics that you're seeing there and kind of the outlook for repro for the year?

Yes. I think as you look at reproductive health for the full year, Luke, I would say there's really two things. One is that we do have the expansion of the commercial partnerships, particularly with Genomics England, that we mentioned in our prepared remarks. The second dynamic and the largest piece of our reproductive health business is our Newborn Screening business. And I think it's been a consistent strong performer over the past really 10 quarters or so in terms of really being able to outpace the global birth rates. And that's a testament to one, the geographic expansion; and two, the menu expansion, whether that's us coming out with new NPIs or getting additional states or government, to expand their additional testing capabilities -- or additional menu that they're testing for. So in that regard, that business just continues to perform incredibly well. And so I wouldn't say anything has really sort of fundamentally changed there. It's just continued strong performance on Newborn Screening and then you've got the expansion of the commercial partnerships.

Great. Thanks.

Our next question comes from Tycho Peterson from Jefferies. Your line is open. Please go ahead.

Hey, thanks. I want to go back and visit the pharma instruments question. Just curious what you're assuming for the full year. Obviously, there's some concerns around pharma R&D cuts in response to tariffs? And then there's obviously FDA plans to phase out animal testing. That's a long phase in period. But you do have in vivo imaging. I think that's 25% of the Life Science business. You also have organoid offering cell imaging. So, how much -- how do you think your portfolio is positioned longer-term for that trend as well?

Yes. Hey, I -- good morning, Tycho. I think from our perspective, the way we look at specifically as you called out the in vivo offerings, it's usually -- I mean, as you know, it's used in its early research stage, not late-stage safety studies, which this policy may eventually impact. From our perspective, the roadmap calls out actually a number of areas which plays to our strength. If you look at high throughput cell-based screening, looking at refined in vivo methods for transition, micro-dosing capabilities are looking at ex vivo human tissues. So actually, if you think of it, our focus, which is more around small rodents and not in the monkey business, it's really helps refine and reduce the larger animal experiments that takes place. And the cell analysis portfolio is also well-positioned to drive the FDA 3.0 agenda. So, to -- from our part -- the way we look at this is actually it's more of a tailwind to us than a headwind.

Okay. And then concerns around R&D cuts for pharma and the outlook for the year?

Again, if it will impact, it will continue to be on the CapEx side of the funding. Our reagents business, especially on the pipeline that we have had, has done well over the last several quarters and it continues to show improvement quarter-over-quarter.

Okay. And then a follow-up on consumables. You were up. A lot of your peers were down. I guess, can you say whether that was price capture? Is it share gains? If so, where do you think you're pulling share on the consumables side?

Yes. I think it's always tough to speculate in terms of whether it's share gain and others results. And I think as we look at our portfolio and things that are more within our control, we continue to focus on our product differentiation. From a reagents perspective, we continue to focus on how we engage with our customers. And I think we continue to be pleased with the results of that business and our commercial execution.