Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revvity Inc (RVTY, Financial) exceeded financial expectations for Q2 2024 despite market uncertainties.
- Adjusted operating margins increased to 29%, significantly up from the first quarter.
- Adjusted EPS of $1.22 was meaningfully above expectations.
- Free cash flow conversion exceeded 100% of adjusted net income for the third consecutive quarter.
- Revvity Inc (RVTY) plans to aggressively repurchase shares, seeing it as a long-term value creation opportunity.
Negative Points
- Organic revenue declined by 1%, primarily due to cyclical pressures in preclinical spending.
- Life sciences segment saw a 6% decline in organic revenue.
- China's revenue declined in the low double digits year-over-year, with significant drops in life sciences and applied genomics instrumentation.
- Reagents performance was below expectations due to pharma headcount reductions and site consolidations.
- Applied genomics business declined in the low double digits, facing ongoing headwinds.
Q & A Highlights
Q: Prahlad, can you talk about the trends you're seeing in the reagent business, particularly with BioLegend and other segments?
A: Prahlad Singh, President, Chief Executive Officer, Director: We saw some sporadic volatility and additional site consolidations around the middle of the quarter. However, the headcount reductions and site consolidations are mostly behind us. We have seen nine months of stability, which gives us confidence that the worst is behind us. We assume a similar level of absolute dollars in the third quarter versus the second quarter, with normal seasonal improvements in Q4.
Q: Max, can you discuss the factors driving the strong margin performance and how you see this evolving into next year?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: The strong margin performance is driven by continued progress on integrations and synergies from recent acquisitions, as well as restructuring actions taken at the end of last year. For the long term, we aim for 75 basis points of operating margin expansion per year, assuming a normal market growth rate environment.
Q: What are your expectations for China diagnostics in the second half of the year, and how are the go-to-market changes playing out?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: We anticipate positive mid-single-digit growth in China diagnostics in the second half of the year. The go-to-market change for an older legacy product line in China has been a headwind for revenue but a tailwind for profitability, and it has played out as anticipated.
Q: Can you provide more color on the recovery within the biopharma segment, particularly early-stage discovery versus academic?
A: Prahlad Singh, President, Chief Executive Officer, Director: The headcount reductions and site consolidations have happened, but we are not getting any indication that programs are shutting down. Transitioning programs between sites takes time, which gives us visibility into when they will come back up and running. Innovation will continue as pharma biotech invests in early discovery programs or buys compounds.
Q: Can you discuss the cadence and timing of the $330 million share repurchase authorization?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: The $330 million is the remaining authorization on our share repurchase program. The timing is TBD, but we plan to be more opportunistically aggressive on share repurchasing.
Q: What are your expectations for life sciences instrumentation in China for the second half of the year?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: We expect life sciences instrumentation in China to be down mid-single digits for the second half of the year. This assumption is based on the current market environment and normal seasonality.
Q: Can you provide more details on the applied genomics business and its recovery?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: The applied genomics business has faced headwinds from pharma biotech and the build-out of the installed base on the clinical side during COVID. We expect similar market dynamics in the second half of the year, with normal seasonality in Q4.
Q: How should we think about growth by segment for the third quarter and the full year?
A: Maxwell Krakowiak, Chief Financial Officer, Senior Vice President: For Q3, we anticipate life sciences to be roughly flat and diagnostics to grow in the low to mid-single digits. For the full year, life sciences should be flat to slightly down, and diagnostics should be in the low to mid-single-digit range.
Q: Can you discuss the impact of the Inflation Reduction Act (IRA) on your business?
A: Prahlad Singh, President, Chief Executive Officer, Director: The impact of the IRA has already been planned out by pharma biotech in their strategic plans for 2025 and beyond. This planning exercise took place in the fourth quarter of last year and the first quarter of this year.
Q: Can you provide more details on the technology licensing comps that impacted the reagent business?
A: Prahlad Singh, President, Chief Executive Officer, Director: The technology licensing comps were primarily impacted by the licensing of the pinpoint base editing technology to AstraZeneca in Q2 of last year. Other licensing technologies include AAV vectors, viral vectors, and lentiviruses from our Sillian biotech acquisition.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
