Hello, and welcome to the Q1 2023 Revvity, Inc. Earnings Conference Call. My name is Alex, and I'll be today for the call today. [Operator Instructions].

I'll now hand over to your host, Steve Willoughby, SVP of Investor Relations. Please go ahead. .

Thank you, operator. Good morning, everyone, and welcome to Revvity's First Quarter 2023 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. .

Before we begin, I'd like to remind everyone of the safe harbor statements that we have outlined in our press release issued earlier this morning and also those in our SEC filings.

Statements or comments made on this call may be forward-looking statements which may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties.

The company's actual results may differ significantly from those projected or suggested by any forward-looking statements 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 forward-looking 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 non-GAAP financial measures we plan to use during the call to the most directly comparable GAAP measures is available as an attachment to our earnings press release.

To the extent we use non-GAAP measures during this call, which are not reconciled to GAAP, we will provide reconciliations promptly. .

I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh.

Prahlad?.

Thanks, Steve, and good morning, everyone. It is great to be speaking to all of you for the first time as Revvity. We are here in Dallas today as we are hosting a global gathering of employees to officially launch the new company and brand this week.

Our objective is to not only familiarize and engage our employees with the new brand but also to organize and collaborate in person for the first time as a collective group since before the pandemic. .

The past 3 months have been incredibly busy as we have officially closed the latest chapter of our transformation. As you likely saw earlier this week, we launched Revvity as our new brand after receiving shareholder approval to change our company's name in late April. .

To change the name and brand identity for a public company with a roughly $3 billion in revenue and over 11,000 employees is a significant undertaking but one that I'm confident in our ability to execute well, and I couldn't be more excited for what the future of Revvity holds.

This follows the successful completion of the divestiture of our Analytical and Enterprise Solutions business in mid-March, which was also quite the undertaking in and of itself. .

To give you some quick perspective of the process it entailed, we have to successfully transfer 96 separate facilities; create approximately 40 new legal entities; sign, convey or separate roughly 2,000 different contracts; and change the employer for over 5,500 people.

Needless to say, it required substantial effort by many, and I'm proud that we completed this successfully and on time. .

At its core, the vision for Revvity is founded on a belief that what is believed to be impossible can instead serve as our inspiration to help customers make new breakthrough scientific discoveries. Revvity is about being a leader in helping revolutionize science at an accelerated speed to improve people's lives everywhere..

As you know, challenging limits and reimagining the impossible are key to advancing science, but being able to do so rapidly, whether in the R&D lab or in the clinic, can have a profound impact on the development of a new drug or the next treatment for a patient.

Not only will these elements be key to our success, but we will also further build solutions and technologies that cross over between our Life Sciences and our Diagnostics businesses. .

We are increasingly seeing how the interplay across the health spectrum is shaping our customers' approaches to solving their greatest challenges.

For example, as genomics and multiomics become even more established in pharmaceutical and academic research and development, we are focused on providing specific high-value tools that help bring this new science to life, while also being a leading innovator of difficult-to-develop clinical assays and systems..

And if we look at our Life Sciences business today, we not only help our customers invent the next groundbreaking therapeutics, but also support their development to the point, they can enter human clinical trials.

In the not-too-distant future, we will aim to work with our customers as they work to bring these new offerings all the way to commercialization.

On top of that, we can combine some of the same innovative science with our robust know-how of developing novel diagnostic tools and assays, providing vital information to help specifically identify those patients who stand to benefit the most from these new therapies and cures. .

This is what's so exciting about Revvity. We are in a unique position to embrace the impossible to improve lives everywhere. .

While Revvity was borne from a significant portfolio transformation over the last few years, I think what is less known and more difficult to see externally is how much the company has also transformed internally at the same time.

We have made meaningful progress in operating efficiency, R&D productivity, talent, diversity and development and company culture. Despite the impressive performance so far, we are still just scratching the surface of our potential..

In terms of how the business is performing today, we generated 6% organic growth in 1Q '23, excluding COVID, which was against a strong 13% comparison from a year ago.

As we look ahead to the remainder of the year, while there are always moving pieces, we remain optimistic that the company is now extremely well positioned to outperform our underlying market growth and peer set in all types of macro environments. .

The 6% organic growth in the quarter, which was at the high end of our implied guidance, was despite our immunodiagnostics business in China, which represents 5% to 6% of our total company revenue, being softer than what we saw during 4Q and softer than our expectations coming into the quarter.

This piece of our business has been significantly impacted by both the lockdowns and the subsequent infection wave following the reopening. .

While daily life appears to have returned to normal in the country, the non-acute diagnostic testing that we support still has not fully recovered. We continue to expect it to take until the second half of the year to more fully return to normal, which is consistent with our previous commentary and expectations. .

With that being said, we are expecting sequential improvements in absolute demand in 2Q in our Diagnostics business in China. We were more than able to offset this continued pressure on our Diagnostics business in China as the rest of the company performed stronger than anticipated..

Our Life Sciences business grew in the high single digits overall, with low double-digit growth in reagents and an as-expected mid-single-digit decline in our Informatics business due to the previously mentioned timing of renewals this year. .

Our Diagnostics business grew in low single digits overall despite the pressures in China as our immunodiagnostics business outside of China, which is 3 to 4x the size of the business in China, grew in the mid-teens in the quarter.

I think this shows the underlying strength and potential of this franchise once we get through the patient accessibility issues we faced over the last year or so. .

Revvity is a company that will be leading with innovation, and that was again apparent here in 1Q.

At the SLAS conference in February, we launched the EnVision Nexus, which is the next-generation version of our most sophisticated multimode plate reader, which has dedicated and optimized reagents and software, providing a complete solution for our customers right from launch.

Additionally, we are making good progress on our technology partnership and licensing opportunities and expect to be able to share more details later this year. .

Finally, we have a robust near-term pipeline of additional new product introductions slated for over the remainder of the year across our businesses, which we are excited about and look forward to getting in customers' hands soon. .

As it pertains to our impact on the world overall, we are continuing to make good progress on our ESG journey, which is an integral part of Revvity and was reflected in a recent noteworthy improvement on our ESG rating with Moody's, which put us well above our peer group overall.

And now that we've officially launched Revvity, we will look to get our current emission reduction targets certified by the Science-based Targets Initiative in the coming months. .

With the divestiture now complete, we have been busy preparing for, and starting to take steps, to redeploy the proceeds from the deal. While Max will share more details, we are appropriately aligning our balance sheet to maximize returns while also planning for upcoming debt maturities over the next 16 months.

We have also recently increased our flexibility to opportunistically repurchase shares should we choose with a new $600 million authorization from our Board to replace what was left on our prior authorization. .

However, our primary focus for capital deployment continues to be towards inorganic investment while also taking into account some of the incremental organic investments we are beginning to undertake, such as a new e-commerce platform and planning for additional GMP capacity. .

In closing, Revvity's future is extremely bright. We look forward to continuing to serve as a visionary partner to help solve the greatest health challenges, while also delivering market-leading financial performance at scale.

With strong organic revenue growth and mid-teens adjusted EPS growth expected over the medium term, Revvity is poised to make a lasting and unique impact on the world in many ways going forward. .

With that, I'll now turn the call over to Max. .

Thanks, Prahlad, and good morning, everyone. As Prahlad highlighted, it was a significant and transformational accomplishment to successfully complete the divestiture of our Analytical and Enterprise Solutions businesses during the first quarter. This was followed by officially launching the new brand as Revvity revenue just 2 days ago.

There has been a tremendous amount of work and effort by so many over the last few years to complete this transformation of the business. But at the same time, it also feels like we are now just getting started and beginning to scratch the surface of our full potential. .

It is a unique opportunity to name an existing business, and I'm excited about how the name Revvity links to our company's purpose. Rev comes from the concept of revolutionizing, while vity stems from the Latin word vita, which translates to life.

This ability to help our customers revolutionize human life through science is both a humbling and energizing experience not only for me personally but for our entire company. .

As I begin to walk through our financial results, I wanted to remind you that all of my following commentary completely excludes the business that we divested and only includes our Life Sciences and Diagnostics businesses, which now make up Revvity. .

Overall, the business performed well in the first quarter. Our adjusted revenues were $675 million, which was down 30% due to the significant drop in COVID-related revenues compared to a year ago.

On a non-COVID basis, our organic growth was 6%, which was at the upper end of our expectations despite a slower-than-expected recovery so far in our China Diagnostics business. FX was a 3% headwind, which was a point worse than we had expected, and we had no contribution from recent acquisitions. .

As previously mentioned, while we are now excluding all COVID revenue from our expectations and guidance, we did generate $3 million of COVID-related revenue in the first quarter, which is obviously a dramatic reduction from the $310 million of COVID-related revenue we had in the first quarter a year ago.

As seen in the first quarter, we expect our COVID revenues going forward to be de minimis, which is why we are -- they are no longer included in our guidance. .

As it relates to the P&L, we generated 28% adjusted operating margins in the quarter overall. This was driven by adjusted gross margins of 62.4% as we continue to see progress on our supply chain productivity and pricing initiatives.

This was partially offset by product mix given that aforementioned headwinds in our Diagnostics business in China were greater than we had planned. As for pricing, we generated around 200 basis points of net price realization in the quarter as we started to lap some of the more significant pricing efforts we implemented a year ago.

For the full year, we continue to expect at least 100 basis points of net pricing realization for the company overall. .

Looking below the operating line, we had net interest expense and other of $27 million in the quarter, and our adjusted tax rate was 21.5%. This all resulted in adjusted EPS in the first quarter of $1.01, which is at the upper end of our expectations. .

Moving beyond the P&L, we generated adjusted free cash flow of $51 million in the quarter which, on a year-over-year basis, was pressured significantly from the meaningful drop in COVID-related revenues. Additionally, we had approximately $80 million of cash outflows related to our divestiture, rebranding and pension-related expenses.

So on a normalized basis, our cash flow performance is off to a strong start so far this year. .

With regard to capital deployment, we've been much more active so far this year as we've deployed over $800 million year-to-date, which includes $130 million of share repurchases and approximately $700 million towards preparing for our $1.2 billion of remaining short-term debt maturities over the next 16 months.

We continue to expect to arrange additional investments to align with these upcoming maturities over the coming weeks. .

This left us with a net debt to adjusted EBITDA leverage ratio of 1.9x at the end of the quarter which is down from 2.7x at the end of the year and down from 2.3x a year ago.

We are very well positioned from a capital structure standpoint and have ample flexibility to pursue those investments we believe are in the best long-term interest for our shareholders. .

I'd now like to provide some commentary pertaining to our first quarter business trends. You'll see on our investor website a new quarterly earnings related slide deck that has been revamped for Revvity to provide some additional information on the financial performance of the company. .

The 6% non-COVID organic growth generated in the quarter was comprised of 9% growth in our Life Sciences segment and 3% in Diagnostics. Geographically, we grew in the low single digits in the Americas, low double digits in Europe and mid-single digits in Asia Pac, with flat performance in China overall. .

Within China, we continue to see greater than 20% year-over-year organic growth in our Life Sciences business, which was offset by the larger than anticipated headwinds from the reopening-related infection wave on our diagnostics business.

Overall, our Diagnostics segment in China declined in the low double digits, with immunodiagnostics declining in the high teens, which was worse than our low double-digit decline expectation.

While we expect trends to improve sequentially in the second quarter for this pressure part of our Diagnostics business in China, we still do not expect volume trends to begin to fully normalize until the second half of the year, consistent with our previous expectations..

From a segment perspective, our Life Sciences business generated adjusted total revenue of $328 million in the quarter. This was up 7% year-over-year on a reported basis and up 9% on an organic basis against a strong 19% year ago comparison, and represented 49% of total company revenue overall. .

From a customer perspective, our sales in the pharma/biotech grew in the mid-single digits, while sales to academic and government grew in the strong double digits organically year-over-year. .

As it pertains to pharma/biotech, which makes up approximately 75% to 80% of our revenue in the Life Sciences segment, our business today is predominantly focused on preclinical R&D workflows, such as content development, discovery and target identification, target verification and preclinical QA/QC.

Consequently, we are not overly impacted by changes or reductions in the number or scope of clinical trials but rather the amount of activity actually being performed in our customers' R&D labs. .

In the first quarter, we saw continued strength in this earlier-stage R&D across our large midsized customers that make up the vast majority of our revenue. We did start to see some softening in trend from our smaller pre-revenue customers we estimate represent approximately 5% of total company revenue. .

From a product perspective, our research reagents and specialty pharma services continued their strong performance and again grew in the low double digits organically in the quarter.

Instrumentation and related services exceeded expectations by growing in the low double digits, while informatics declined in the mid-single digits in line with our expectations due to pressure from the timing of multiyear contract renewals.

Despite this modest decline, our informatics business is still up in the teens on both a 2- and 3-year average basis..

Moving to our Diagnostics segment. We generated $347 million of total revenue in the quarter. This was down 47% year-over-year and down 44% organically due to the significant drop in COVID-related revenues versus a year ago. As previously mentioned, on a non-COVID basis, the Diagnostics business grew 3% versus a year ago.

Excluding the low double-digit non-COVID organic decline, our overall Diagnostics business in China experienced in the quarter, our remaining diagnostics franchise outside of China would have grown 6% year-over-year. .

From a business perspective, our reproductive health business was flat overall organically in the quarter, a slight improvement from the modest year-over-year declines we saw last quarter. We saw strong growth in our neonatal business, which offset declines in our genomic lab businesses.

While we had seen a small positive inflection in birth rate trends this time a year ago, over the last several quarters, including here in the first quarter, we've seen the number of babies being born unfortunately begin to slow again.

Our continued success with bringing novel new products to market and getting them on approved testing menus continues to be our playbook to help offset these continued demographic pressures. .

On a non-COVID basis, our immunodiagnostics business grew in the mid-single digits overall and was up mid-teens when excluding China.

Our immunodiagnostics business in China, which represents around 20% to 25% of our overall immunodiagnostics business and 5% to 6% of total company revenue, declined in the high teens organically when excluding COVID which, as mentioned, was worse than our low double-digit expectation..

Given the non-acute nature of our immunodiagnostics testing business, as we had previously cautioned, it appears a rebound in this type of care is likely to come as a lag to other more acute medical needs that needs to be addressed more immediately.

While we are expecting a meaningful sequential improvement in the second quarter, we still do not expect a full normalization in demand to be realized until the second half of the year. .

Finally, our applied genomics business slightly declined year-over-year on a non-COVID basis in the quarter, similar to its performance in the fourth quarter. Despite this slight year-over-year decline, this still resulted in double-digit average growth on both the 2- and 3-year average basis.

Similar to last quarter, we continue to see double-digit organic growth in consumables, while instrumentation declined in the low double digits year-over-year, as it continues to go through an adjustment period, which could last all of 2023. .

Now moving on to guidance. we performed at the upper end of our expectations during the quarter despite some greater-than-expected headwinds in our Diagnostics business in China. We also successfully navigated the completion of the divestiture of our Analytical and Enterprise Solutions businesses, and began our initial capital redeployment activities.

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As we look ahead to the remainder of the year, we continue to expect it to be a very strong year overall but are adjusting our non-COVID organic growth outlook to now be in the high single-digit range year-over-year to account for the dynamic market environment we are now all clearly facing.

While there remains a path to the 9% organic growth we initially expected at the beginning of the year, we felt it would be prudent to take a slightly more conservative approach to our outlook given the slower-than-expected ramp in our Diagnostics business in China so far this year, and what appears to be some increased uncertainty among some in pharma/biotech and the Genomic lab industries.

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We are still expecting FX to have a neutral impact to the full year and no impact from M&A. We are only taking into account in our guidance the modest $3 million of COVID revenue we did in the first quarter, which all results in our 2023 total revenue now expected to be in the range of $2.9 billion to $2.94 billion.

From a profitability perspective, we continue to expect 30% operating margins this year, unchanged from our previous guidance. .

Below the line, we have a few moving pieces which largely offset each other. First, now that we have received the proceeds from our recent divestiture, we are actively working on repatriating those funds to the most appropriate geographic jurisdictions to be effectively redeployed in the future.

This process is already underway and is likely to take at least through the end of the year to be fully complete. In the meantime, we have already begun to reinvest some of the proceeds as we have repurchased approximately $130 million of shares year-to-date.

We have also been appropriately aligning and investing our excess cash to fund our upcoming debt maturities over the next 16 months. .

Given the more favorable interest rate environment as of late and the fixed nature of all of our debt, we now expect net interest expense and other to be approximately $80 million this year, down from our prior $90 million expectation.

However, this is being largely offset by a slightly higher expected tax rate of 21% compared to our previous 20% outlook, as the impact from our strategic tax planning initiatives that are already underway will largely fall outside of 2023..

With our year-to-date share repurchases, we now expect our average shares outstanding for the year to be approximately 126 million, down 0.5 million shares from our previous outlook.

At this point, we are not assuming any future repurchases or reductions in our share count in our guidance but do plan to remain flexible with our capital deployment activities to ensure our actions maximize long-term shareholder value creation. .

All of this guidance now results in an expected EPS range of $4.85 to $5.05 for the full year and is detailed on the second to last page of our earnings presentation. .

For pacing throughout the year, we now expect non-COVID organic growth in the second quarter to be fairly similar to the first quarter as Diagnostics volumes are still working to fully recover and to account for some of the increased market uncertainties that have recently been highlighted in certain areas.

We continue to expect our non-COVID organic growth to improve in the back half given an anticipated return to normal in our Diagnostics business in China, and a return to growth in our software business.

As for margins, we expect in the second quarter to be up sequentially from the 28% we generated in the first quarter and slightly and below our full year outlook. .

Below the line, we expect second quarter to represent the lowest quarter of the year for our net interest income given will have an entire quarter of our cash being reinvested, resulting in about half of the net interest expense as compared to $27 million we incurred here in the first quarter.

We expect our net interest expense to increase sequentially in the third and further increase again in the fourth quarter. .

As for tax, we expect the second quarter to represent the high point for our adjusted tax rate for the year and likely to come in approximately 100 basis points or so above our updated 21% full year outlook. We expect this to result in adjusted EPS in the second quarter to represent approximately 24% of our updated full year outlook. .

With that, operator, we would now like to open up the call for questions. .

[Operator Instructions] Our first question for today comes from Patrick Donnelly of Citi. .

You got Jason on for Patrick. Maybe first, just on China, you noted a little bit worse than you had initially anticipated there in immunodiagnostics. I guess maybe just talk to what you're seeing there on the ground and kind of what the expectation is for the second quarter. .

Again, as Max said in his prepared remarks, China was coming into the quarter slightly worse than what our expectations were. But we've started seeing signs of improvement there, and as we've said, we expect the full normalization to come back into the second half of the year. .

Got it. Okay. And then maybe just on the applied genomics business. Just thinking about that ramp throughout the year, I think you had guided 1Q to be similar to that of 4Q.

So just what are we expecting there for the remainder of the year?.

Yes. That's correct, Jason. So the first quarter did play out similar to the fourth quarter of last year. And I think as we look out for the rest of the year, we're probably anticipating that to be in sort of the low single digits.

Obviously, we're sort of -- there is a little bit of instrumentation challenges and headwinds that we had coming into this year, and that is playing out as expected. .

Our next question comes from Catherine Schulte from Baird. .

Congrats on becoming Revvity. I guess, first, you saw a deceleration in pharma and biotech after several quarters of double-digit growth there.

Can you just talk to what kind of trends you're seeing? How much were the pre-revenue customers down? And how do you expect that market to play out for the rest of the year? And I guess maybe just given the investments you've made on the cell and gene therapy side specifically, any comments on that market category?.

Yes. So from a pharma/biotech perspective, I'd say maybe a couple of dynamics to call out. So I'd say first is that from an instrumentation standpoint, we actually exceeded expectations here in the first quarter, growing in the low double digits.

Now I do expect that those spending levels, we're expecting to be a little bit more cautionary in the second quarter, and that is factored into our current guidance. And then if you look at the reagents business, the reagents continue to perform very well in the first quarter, and we expect that to continue for the rest of the year.

So it did low double digits here in the first quarter, and we're pleased by the performance of that group. .

To your second question on sort of the pre-revenue customers, if you remember, that's only about 10% of our overall Life Sciences revenue. And so for us, it is a relatively smaller piece of the pie. We do think that, that faced some headwinds here in the first quarter. It was down about mid-teens.

We expect that to probably continue here at least for the next couple of quarters. But then overall, if you look at our large pharma, that group continued to perform well. And we expect that trend, specifically on the reagent side to continue throughout the rest of the year. .

Okay. Great. And then, Prahlad, as you mentioned, it's a significant undertaking to rebrand the company.

How did the new revenue brand come about? What do you want your new identity to stand for? And how do you make sure that this rebrand transition goes smoothly with customers?.

Great question, Catherine. Our Chief Commercial Officer, Miriame Victor, is on the call with us. So I'll let her answer the question. .

So maybe let me start off how we came up with the name. We have listened to our employees, our customers around the globe, through a number of focus groups, creation workshops. And there are 3 main themes that came through, and that was consistent across the globe. They wanted something that is unconventional, precise and united.

So we wanted a name really that is unconventional for the company we would be, representing us as a category of one. And we wanted to show the world our quality of work and the precision of our breakthrough innovation and to be united with all the capabilities we have added through the acquisitions over the last 5 years..

So Revvity in itself was created from 2 words. Rev as in revolutionizing human science at an accelerated speed and vita, which means life in Latin. So at its core, the name itself means revolutionizing life. Now in terms of the implementation moving forward, we've got a very robust plan. I think our unregulated Life Sciences products will go faster.

And then we are working through the registration of some of the regulated products that will come probably by the end of the year. .

Our next question comes from Michael Ryskin of Bank of America. .

This is Mike on for Derik. Going back to pharma/biotech, anything you can comment in terms of stocking levels or inventory levels on any of your consumables in the lab? It's just -- it's been a focal point not just [ for reagent ] products, obviously, but just broader lab consumables.

So I'm just wondering what you're seeing there in terms of inventory levels, orders versus activity levels? Any color you can provide there?.

Mike, this is Prahlad. Again, as you know, majority of our revenue stream now comes from reagents and consumables, which have a very short shelf life and customers generally don't have a lot of space to keep our products in that sense. So really, there is not a whole lot of inventory building that we have seen.

And as I've shared earlier, most of our products, and if you take BioLegend as an example, it's shipped overnight to customers. So there is not really a whole lot of scope to see stocking in the product profile that we have. .

Got it. And a follow-up question on some of your capital deployment comments as well. You sort of indicated, you've got some onus to deploy some of the capital you're bringing in. I'm just wondering, one, is if you could give us a little bit more color on some of the areas that you're interested in and what you're seeing out there.

But two also, on your comments you've given, you're going through, like you said, a rebranding, a lot of operational things to get Revvity up and running.

So what's the capacity to be taking on M&A and potential integration on top of that?.

It's a great question, Mike. I think let me just sort of take it a little at the macro level, right? We feel really good about our first quarter performance, which was strong and at the high end of our expectations despite evolving macro conditions and what we talked about China DX.

As you pointed out, we have completed 2 successful undertakings, the divestiture and the brand launch. Just to be clear, the divestiture is done. We are closed. There are a few TSAs in place, but that's as part of any norm that would be at such a significant undertaking..

And the brand launch is more an excitement. The teams are more energized, inspired and excited by it rather than it being a distraction. So we actually see it more as an accelerator for the company looking forward.

And I think to the question that you asked around the inorganic aspect of it, look, we are an acquisitive company, we have been and will continue to be. I think the focus that we have is around developing the relationships, building the right pipeline. So at the right time, we would make the acquisition. So there is no hurry. No rush for us.

And when the right opportunity strikes, we will be there to take advantage of them. .

Our next question comes from Jack Meehan of Nephron Research. .

First question I wanted to ask about immunodiagnostics on a core basis. So the first quarter in the mid-single digits, you should have easy comps in the second half of the year.

Can you just talk about what does guidance assume in terms of the ramp of the business throughout the year?.

Yes. Sure, Jeff. So from an immunodiagnostics standpoint, maybe the best place to start is just the overall business. So you're correct, first quarter was about mid-single digits. As we look out to the rest of the year, we expect to be in the low double digits to sort of low teens from an organic growth rate perspective. ..

To maybe zoom in on that, right, talk specifically about immunodiagnostics within China, so as I mentioned in my prepared remarks, we do expect the second quarter to be a sequential increase in terms of volume dollars versus the first quarter. But it is still not, I would say, at a normalized volume in terms of testing.

That we do not expect to happen until the second half, which was our original assumption coming into the year, and we are still confident that we are seeing that sort of volumes and expectations for the second half. .

Great. And then 2 questions on reproductive health. First, you called out slower birth trends.

Can you just talk about the regional dynamics you're seeing? And then second, can you give an update on Vanadis and customer uptake?.

Yes. I mean the birth trends have been not any dissimilar than what we have seen across the globe. And as we've talked about earlier, Jack, I mean I think U.S. is, I would say, flat to slightly negative, and China has been where it is.

But that's what is already in our assumptions, so there is no change to that and the growth that we expect is from the geographic expansion and menu expansion with the new NPIs that we have coming out..

Vanadis, again continues to do very well, and we see that traction coming through. And that's also the reason that, as we look forward -- the way to measure the success of Vanadis is to look at our reproductive health growth profile over the next few years.

And California is a good example of how that has started taking traction, and we see a good momentum coming out of it. .

Our next question comes from Vijay Kumar of Evercore. .

Prahlad, maybe first one for you. Q1 came in at the high end of your guidance, Q2 looks like perhaps in line or even better than Q1. I think the midpoint of your annual guidance implies the back half needs to be about 350 to 400 basis points above first half.

With your comments on China ImmunoDX improving, I think that's a 100, 150 basis point step-up versus first half. Where is the remaining acceleration coming from? If we're doing the math correctly, the second half needs to be low doubles versus first half to hit the midpoint of the guidance.

Is that just an easier comp? Or are we assuming certain end markets to improve in the back half?.

Yes. I think, again, reiterating what you said, we really -- we thought our 1Q performance was pretty strong. But I think the intent really is to align our full year guidance to account for the evolving market dynamics that we are seeing. Our intent really here is to maintain consistency of performance by either meeting or exceeding our guidance.

You are right, that one of the aspects really is we are seeing our China Diagnostics improve, but the recovery is still not expected until the second half of the year. .

Max, anything to add?.

Yes. So to further elaborate on that point, right, so I think coming into this year, we said that we were going to do 9% for the full year. We've obviously expanded that range now to account for some of the different end market trends that we are seeing.

But if you look at it, nothing has really changed about our second half assumptions versus the initial point in the year. What we basically now factor into the guidance is a little bit more cautionary spending levels here in the second quarter. .

And when you look to the ramp of the second half, it's going to come in, one, immunodiagnostics China, as you mentioned. The second area is that we are expecting our informatics business to do better in the second half because it has easier comps. And then the third dynamic is that we are expecting for our U.S. genomics labs business.

The second quarter will also be the lowest point of the year, and we are excited about the pipeline that we have there in the second half and are confident in our ability to execute against it. .

Understood. And Max, one for you on -- it looks like the cash and marketable securities balance here are close to $2.5 billion. What are you assuming for share repo? I think you mentioned 130 million year-to-date, what's the pacing of share repo here? And I think you mentioned strategic tax planning.

How truly think of tax rates going forward in the out-year?.

Yes. So maybe to address the first question on share repurchases for the remainder of the year. Right now, our guidance assumes no further repurchases. Obviously, we have authorization from the Board that we've received to up to $600 million.

Right now, that is more of an optionality for us, and we'll continue to evaluate all of our capital deployment opportunities. But right now, in our guidance, we are assuming no further share repurchases. To your question on the tax rate planning, as we mentioned in my prepared remarks, those are probably, I would say, not delayed.

It's just taking a little bit longer to get done. We still expect our midterm sort of tax rate to be in the high teens rate, and we are confident in our ability to get there. .

Our next question comes from Dan Arias of Stifel. .

Congrats on the new identity. Maybe just to that point, a high-level question for Max. Max, a lot of moving parts for you as you walked in the door there as CFO.

Do you feel like the heavy lifting on the math around the divestiture and just sort of the complex elements of the overall business transition are behind you at this point? Or are there still some things that need to be worked through just when it comes to cost allocation, head count investment, et cetera? How many variables are still in the mix for you?.

Yes. I mean, look, it's been a fun, I would say, first 9 or 10 months here on the job. There's definitely a lot of moving pieces. But I'd say we're extremely confident in the position that we are in today.

Obviously, the first step was to get the divestiture done and get the new company brand launch done on time and executed well, and I think we've done that. .

Now in terms of the trail on activities, obviously, there is some still work to do. But if you remember back to some of our previous conversations, there isn't a lot of, I would say, heavy entanglement or trailing activities that we need to get done. It was a relatively clean split at the time of the divestiture.

Obviously, there's some cost reduction actions that we are taking. But I wouldn't say it's something that's requiring an extreme amount of effort and energy from this team at this point in time. We're now focused on the new company and where we need to go going forward. .

Okay. Great. And then maybe just on pharma and the small biotech dynamic, the stretch of M&A that you guys went on coming out of COVID had you acquiring just a bunch of assets that play into that drug development arena that this focus segment focuses on.

Can you just maybe help us with where things are softer, stable, better when it comes to SIRION, Nexcelom, Horizon, BioLegend? Visibility there is just a little tough to come by, so it just feels like it would be helpful if we could get a little bit of a refreshed update on some of those acquired assets. .

Yes. Dan, I mean, yes, we did quite a bunch of acquisitions, as you said, on the Life Sciences side of the segment. But again, those were all thought-out and strategic in nature. Despite all of that, as Max has pointed out, only 5% of nearly total company revenue is in pre-pharma/biotech, and that is inclusive of all the acquisitions.

So if you look at our total Life Sciences business, including the acquisitions that have been made, only 10% of the revenue comes from pre-pharma and biotech in the Life Sciences. So we are very well protected from that perspective..

And even from SIRION, if you take the example of SIRION, most of those are licensing opportunities, it's a licensing model, and the companies that they go for, there is a milestone payment based revenue model, and they have been doing well. So we feel -- again, as Max said, we feel really confident.

And just taking the example of BioLegend and the Life Sciences reagent business, for us, overall, it continues to do well. .

Okay. So Prahlad, I'm going to take that comment to mean that all of these acquired assets are performing the way that you thought they would at the time of acquisition. There's nothing that you would call out that, a quarter or so down the road, we might be thinking about as underperforming or outperforming, such that the outlook is now different.

I mean I guess what I'm saying is you did this M&A, you did it for a reason, there isn't a lot of visibility on it again.

So are you saying that everything that's been acquired is trending the way that you thought it would be? And coming out of COVID, things are not really different than they were when you acquired them?.

On the Life Sciences side, absolutely, Dan. I would say on the Diagnostics side, there was the Oxford acquisition that we've talked about that is taking a long time to come back.

And especially as you look at latent TB testing in China and now that it has started picking up in Japan, that's the one -- as we've talked about earlier, that's the one that did not go to expectations at the beginning.

And now we hope that as the market opens up in China and as latent TB testing gets going there and in Japan, we will start that turnaround to be seen. So yes, on the Life Sciences side, I would agree. On the Diagnostics side, no, we didn't have all of them go exactly as planned. .

Our next question comes from Josh Waldman of Cleveland. .

Just 2 for you. First, Max, I wanted to follow up on the moving pieces to the lower non-COVID organic guide.

I guess could you quantify how much of the softer outlook is attributed to China ImmunoDx? Then I think you said you're being more prudent given the macro environment, but are there areas where you're starting to see softer purchasing here, maybe in March or April? Or is this you being more prudent at this time?.

So okay, so maybe to again further elaborate, I think you called out the key pieces there. So there's basically two reasons why we are being more prudent in expanding the range of outcomes, and it does come down to really the second quarter. Again, our second half expectations have not really changed.

So for the second quarter, I'd say there's a couple of drivers. One is that, although the immunodiagnostics business in China is improving sequentially versus the first quarter, it is a little bit lighter than what we had initially anticipated coming into the year.

The second is that we are seeing more cautionary spending levels, particularly on our instrumentation business in the pharma/biotech space. And the third, as I had previously mentioned, is that the second quarter will be the trough for both our informatics and U.S. genomic lab business. .

But for both of those businesses, on informatics and the U.S. genomic labs, if you look at it on a 3-year sort of average growth basis, both of them are in the mid-teens. We're excited about the pipeline that we have for those businesses in the second half, and we're confident in our ability to execute against it. .

Got it. Then Prahlad, I guess, wondering if you could give us an update on how synergies between the two segments are evolving. Maybe talk through any recent examples of synergies that teams have been able to identify, either on the cost front or revenue synergy side. .

Yes. I mean, Josh, as we've said earlier, right, the team is the same, right? On the commercial side was the first one as we went in 2 markets and areas where the acquisitions did not have a lot of direct presence, we've been able to leverage our foot -- feet on the ground.

And on the technology side is where we've seen the biggest uplift, right? The launch of Celleca from the Nexcelom and the Revvity and BioLegend team was one example that came out. And hopefully, there will be a few more other examples coming out.

And then the insourcing of oligos antibodies from Horizon and from BioLegend by the teams on both the Diagnostics and Life Sciences side of the business are, as I've said earlier, better than the expectation that we have from a synergy perspective. .

Our next question comes from Luke Sergott of Barclays. .

I love the new look by the way.

So can you give us an update on BioLegend and how that was in the quarter? And then any update you guys have for that business throughout the year, given your commentary on the macro and everything?.

Yes. So I think as we've previously mentioned, we're not going to specifically talk about individual business growth rates, but BioLegend is a major part of our overall reagents business, which continued to grow in the low double digits during the first quarter, and we expect that trend to continue for the rest of the year. .

And if I could just add to that -- Luke, by the way, thanks for the comment on the brand look. We're really happy and proud with it. As Max mentioned, if you look at our reagents business, it grew double digits in the first quarter, and BioLegend is nearly 50% of that revenue. So that should be a good indicator for you as to how the business is doing.

It's doing very well. .

Awesome.

And then specifically again on -- I know it's another business, but with the latent TB testing in China, is this more -- for that to come on, does there need to be regulatory approval there from China? Or like what's the gating factor for that coming back?.

No it's just for acute diagnostic testing to come back to normal. It's very similar to what is with the Diagnostics business look, acute diagnostic testing needs to come back. And latent TB testing is categorized as acute -- non-acute. I'm sorry. I'm saying acute, but non-acute diagnostic testing. .

Our next question comes from Matt Sykes of Goldman Sachs. .

Congrats on the transition to Revvity. My first question is just on the academic end market. We've been hearing similar data points from others in terms of the strength there.

Could you maybe just remind us in terms of the academic exposure within Life Sciences? And then just any comments on the durability of that growth as it factors into your outlook for '23?.

Matt, so from an academic and government perspective, I think it's a 10% of -- high single digits, 10% of the overall company revenue. And so from that perspective, a big component of it is the reagents business, with BioLegend being a major part of that.

And so as we continue to see strength in our reagents business, a big proponent of that is through the academic and government end markets. .

Got it. And then maybe a higher-level question. Just on the commercial transformation. You've obviously transformed the business pretty dramatically and reduced sort of the heavy capital equipment instruments that you're selling.

But just would love to find out about sort of the transition from a commercial side, kind of the integration of the different companies and the commercial teams that came with that, plus also the transition to a higher recurring revenue model and what that entails.

And kind of any additional color on how that transformation of the commercial team is going. .

Yes. Matt, Miriame is on the call, as you know, as I've said, the transition has gone really well. I will take -- I will say that on her behalf that the team took its own time to ensure that we have the right planning in place. Because we were actually -- as we were continuing with the divestment process, that was an integral part.

We were going from an instrument-heavy focused business to a more reagent-based model. And right now, to give you an example, it's now much more akin to what the reproductive health business does for -- as an example. .

So really now with the integration of the commercial forces in the 3 regions, there is 80% of our revenue plus is coming from the reagent side. The biggest driver for us is as we are going to continue to make the investment into the digital side, e-commerce is going to be a big driver for us.

And that's why, if you recall, we've talked about the capital investment around e-commerce because that's going to be a key driver as we can use these opportunities around the synergies for the reagent side of the business or for the overall consumer side. .

Our next question comes from Dan Brennan of TD Cowen. .

Great. Maybe if I could, just on ImmunoDX in China again. Sorry, I know there's been a few questions, but it would be really helpful just to get a bit more granularity, if you could. So I know in the first quarter, you were looking for down low double, and it was down high teens.

So just in terms of the full year, I know you were expecting not to see like a significant overage in the back half, even though you're up against easy comps.

So what was the original guide for the year? Was it like low double and now you're assuming high single? Just trying to quantify just how much of that change is a headwind to the overall organic, and then I have a follow-up. .

Dan, yes, your math is correct. The initial assumption coming into the year was low double digits for the immunodiagnostics business in China, and now we are expecting high single digits. And the reason for that drop is just a slower first half ramp recovery.

Again, we are seeing positive signs from a volume perspective, and it's going to step up here in 2Q, and we still expect to return to normal for the second half. .

Great. And then, sorry, just back to also like pre-commercial. So it sounds like even though that's a small part of the business, that's really been the biggest headwind, I guess, to the guide, correct, because that was down you said mid-teens.

So what were you expecting there? I mean I don't know if you really had an expectation for pre-commercial originally, maybe now you baked something in just given the change.

But can you just help us kind of do that same walk on the pre-commercial biotech?.

Yes. So Dan, to your point, we did not. Given it to a small part of our overall business, we didn't have a specific number in mind. I think the down mid-teens was a little bit larger than what I think we would have been expecting. And so that is now factored into what we're considering more of a cautionary spending level for the rest of the year. .

Got It.

And then maybe one final one just given -- how would you characterize the new guide in terms of allowing room for things maybe to change still? Just any commentary on kind of what you baked in and where you could see some cushion if things don't come back as fast as planned?.

Yes. Look, Dan, to that point, I think what we wanted to do coming into the guidance was to give a realistic range given the macro environment. And we still have a path to what we think we can achieve to our original guidance of the 9% and the $5.05.

And yes, there is the case that as the macro environment continues to trend downward, we must see a little bit softer results. But I think overall, we are confident in the position that we are sitting in today and confident in our team's ability to execute against our pipeline. .

Our next question comes from Rachel Vatnsdal from JPMorgan. .

Congrats on the new name. So I wanted to follow up on Dan's question there around some of these pre-revenue customers. You said those customers declined mid-teens in Life Sciences during 1Q.

So can you walk us through how that customer segment trended by month throughout the quarter? And then have you started to see any recovery here in April at all? And then I have a follow-up as well. .

Yes. So Rachel, I don't think we're going to discuss by-month trends for such a small portion of our overall business. And then I think as we started looking here in Q2, again, I think it's factored into our guidance that we're being cautious based on the trends of what we saw in the first quarter. .

Noted. And then on operating margins, you were able to reiterate that 30% OPM for the year despite some of these puts and takes on the top line.

So can you just remind us of margin profile of ImmunoDX, especially in China, and then of some of these emerging biotech pre-revenue customers within Life Sciences? And how should those kind of offset throughout the P&L to be able to reiterate that 30% OPM guide?.

Yes. So from an overall margin perspective, to your point, we are holding the 30% for the year. We're obviously going to manage our costs appropriately based on what we do from a revenue perspective. We're also going to protect our long-term investments.

And I think it just goes through our ability to execute that we're able to hold the 30% for the year despite the new range from an organic growth standpoint..

To your question on sub-business unit profitability, we're not going to get into those specifics. I would say, overall, we are a high reoccurring mix business and the reagents are a higher-margin product for us.

And so as those volumes wane, yes, there is, I would say, either decremental or incremental margins that are above the company average, but we are managing those appropriately. .

Our next question comes from Brandon Couillard from Jefferies. .

Just one quick one for you, Max.

How are we thinking about free cash flow conversion for the year? And where do you expect that leverage of land exiting '23?.

So from a free cash flow perspective, I would say we're actually off to a strong start for the year. And so if you look at our first quarter performance, our adjusted free cash flow was about $50 million. That did include about $80 million of AES and pension-related cash outflows.

So if you sort of normalize for those, our free cash flow conversion in the first quarter would have been greater than 100%. And so we are pleased by that execution. I think as we look for the full year, we do expect the business on a normalized basis to be above 85%, and we expect that we're now, I would say, on track to do so.

So we're encouraged by the cash flow performance here in the first quarter. And in terms of your question on leverage, I think that we expect to be probably sub-2 as we exit the year here. And so that's where our current model is. .

I will now turn the call back over to Steve Willoughby for any further remarks. .

Thanks, Alex. Thanks, everyone, for your time today and your questions this morning, and we look forward to speaking with you over the coming weeks and months and, again, next quarter. Have a good day. .

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