Q1 2023 PerkinElmer Inc Earnings Call
Speaker 2: I'll now hand over to your host, Steve Philippi, SVP of Investive Relations. Please go ahead. Thank you, operator. Good morning, everyone, and welcome to Revides' first quarter, 2023 earnings conference call. On the call with me today, our Prolod Singh, our President and Chief Executive Officer, and Max Crocoiac, our Senior Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone of the State Parvast statement that we have outlined in our press release issued earlier this morning and also those in our SEC violence.
Speaker 2: The statements are made on this call maybe 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.
Speaker 2: 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 violence. Any forward looking statement made today represent our views as of today. We display any obligation to update these forward looking statements in the future, even if our estimates change.
Speaker 2: So you should not rely on any of today's forward-looking statements as representing our views as of any date after today.
Speaker 2: During this call, we will be referring to certain non-GAB financial measures. A reconciliation of the non-GAB financial measures we plan to use during the call to the most directly comparable GAB measures is available as an attachment to our earnings press release. To the extent we use non-GAB measures during this call which are not reconciled to GAB,
Speaker 2: we will provide reconciliation promptly. I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad.
Speaker 3: Thanks, Philip, and good morning, everyone. It is great to be speaking to all of you for the first time as Dr. Devadee.
Speaker 3: 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 three 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 Revedi as a new brand after receiving shareholder approvals to change and company's name in BladeApril.
Speaker 3: To change the name and brand identity for a public company with roughly $3 billion in revenue and over 11,000 employees, they say significant undertaking.
Speaker 3: But one that I am confident in our ability to execute well and I couldn't be more excited for what the future of Raggedy holds.
Speaker 3: which was also quite the undertaking in and of itself. To give you some quick perspective of the process it entails, we have to successfully transfer 96 separate facilities create approximately 40 new legal entities. Sign, convey or separate roughly 2000 different contracts and change the employer for over 5,500 people. Needless to say it required substantial effort by many.
Speaker 3: And I am proud that we completed this successfully and on time.
Speaker 3: At its core, the vision for revenue is founded on the belief that what is believed to be impossible can instead serve as our inspiration to help customers make new.
Speaker 3: breakthrough scientific discoveries. Revealing is about being a leader in helping revolutionize science at an accelerated speed to improve people's lives everywhere.
Speaker 3: As you know, challenging limits and reimagining the impossible are key to advancing science.
Speaker 3: But being able to do so rapidly?
Speaker 3: 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 light sciences and our diagnostics businesses.
Speaker 3: We are increasingly seeing how the interplay across the health spectrum is shaping our customers approaches to solving their greatest challenges.
Speaker 3: 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.
Speaker 3: While also being a leading innovator of difficult to develop clinical assays and systems.
Speaker 3: And if we look at our life sciences business today, we not only help our customers invent the next groundbreaking therapeutics.
Speaker 3: But also support their development to the point they can enter human clinical trials.
Speaker 3: In the not-too-distant future, we will aim to walk with our customers as they work to bring these new offerings all the way to commercialization.
Speaker 3: On top of that, we can combine some of the same innovative science with the robust know-how of developing novel diagnostic tools and assays, providing vital information to help specifically identify those patients.
Speaker 3: who stand to benefit the most from these new therapies and cures.
Speaker 3: the impossible to improve lives everywhere.
Speaker 3: While revenue was born from a significant portfolio transformation over the last few years,
Speaker 3: I think what is less known and more difficult to see externally.
Speaker 3: is how much the company has also transformed internally at the same time.
Speaker 3: We have made meaningful progress in operating efficiency R&D productivity.
Speaker 3: talent diversity and development and company culture.
Speaker 3: Despite the impressive performance so far,
Speaker 3: We are still just scratching the surface of our potential. In terms of how the business is performing today,
Speaker 3: We generated 6% organic growth in 1923, excluding COVID, which was against a strong 13% comparison from a year ago.
Speaker 3: As we look ahead to the remainder of the year,
Speaker 3: while there are always moving pieces.
Speaker 3: We remain optimistic the companies now extremely well positioned to outperform our underlying market growth and peer set in all types of microenvironments.
Speaker 3: The 6% organic growth in the quarter, which was at the high end of our implied guidance, was despite our amino diagnostics business in China.
Speaker 3: which represents 5 to 6% of our total company revenue being softer than what we saw during 4Q.
Speaker 3: And softer than our expectations coming into the quarter.
Speaker 3: This piece of our business has been significantly impacted by both the lockdowns.
Speaker 3: 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.
Speaker 3: We continue to expect it to take until the second half of the year to more fully return to normal.
Speaker 3: which is consistent with our previous commentary and expectations.
Speaker 3: With that being said, we are expecting sequential improvements in absolute demand in Turkey in a diagnostics business in China. Even more than able to offset this continued pressure on a diagnostics business in China.
Speaker 3: As the rest of the company performed stronger than anticipated.
Speaker 3: A life sciences business grew in the high single digits overall with low double digit growth in reagents.
Speaker 3: And as expected, mid-single digit decline in a infomeric business due to the previously mentioned timing of renewals this year.
Speaker 3: are diagnostics business grew in low single digits overall despite the pressures in China as a immunodagnostics business outside of China which is 3 to 4 times the size of the business in China.
Speaker 3: Our diagnostics business grew in low single digits overall despite the pressures in China. As our immunodagnostics business outside of China, which is three to four times the size of the business in China grew in the mid teams in the quarter.
Speaker 3: 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. Reveady is a company that will be leading with innovation and that was again apparent here in one queue. At the SLAS conference in February , we launched the Envision Nexus which is the next generation version of our most sophisticated.
Speaker 3: Multi-mode Plate Reader, which has dedicated and optimized reagents and software.
Speaker 3: Providing a complete solution for our customers right from launch.
Speaker 3: Additionally, we are making good progress on our technology partnership and licensing opportunities.
Speaker 3: and expect to be able to share more details later this year.
Speaker 3: Finally, we have a robust near term pipeline of additional new product introductions.
Speaker 3: slated for over the remainder of the year across our businesses.
Speaker 3: which we are excited about and look forward to getting in customers hands soon.
Speaker 3: 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 gravity and was reflected in a recent noteworthy improvement on our ESG rating with movies.
Speaker 3: which put us well above our tear growth overall.
Speaker 3: And now that we've officially launched Revity, we will look to get our current emission reduction targets certified by the science-based targets initiated in the coming months. With the direct feature now complete, we have been busy preparing for...
Speaker 3: and starting to take steps to redeploy the proceeds from the deal.
Speaker 3: While Max will share more details, we are appropriately aligning a balance sheet to maximize returns, while also planning for upcoming debt maturities over the next 16 months.
Speaker 3: We have also recently increased our flexibility to opportunistically repurchase shares should we choose. With a new $600 million dollar, authorization from our board to replace what was left on our prior authorization. However, however, we have also recently increased our flexibility to opportunistically repurchase shares should we choose.
Speaker 3: Our primary focus for capital deployment continues to be towards an organic investment.
Speaker 3: 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.
Speaker 3: … Employing…
Speaker 3: Revereys future is extremely bright. We look forward to continuing to serve as a visionary partner to help solve the greatest health challenges.
Speaker 3: while also delivering market leading financial performance at scale. With strong organic revenue growth.
Speaker 2: and mid-teens adjusted EPS growth expected over the medium term, Revity is forced 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 for a lot. Good morning, everyone. As for a lot highlighted, it was a significant and transformational accomplishment to successfully complete the divestiture of our analytical and enterprise solution spaces during the first quarter.
Speaker 2: This was followed by officially launching the new brand's revenue just two days ago.
Speaker 2: There's been a tremendous amount of work in 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 am excited about how the name ReVity links to our company's purpose. ReV comes from the concept of revolutionizing.
Speaker 2: while VITI stems from the Latin word beta, 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.
Speaker 2: 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 diagnostic businesses which now make up Revity.
Speaker 2: 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 gain of growth was 6%.
Speaker 2: which was at the upper end of our expectation to spite a slower than expected recovery so far in our China Diagnostic's business. FX was a 3% headwind, which was a point worse than we had expected, and we had no contribution from recent acquisitions.
Speaker 2: 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.
Speaker 2: I've seen in the first quarter we expect our COVID revenues going forward to be committed towards climate change in the future.
Speaker 2: which is why 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.
Speaker 2: This was driven by adjusted gross margins of 62.4% as we continue to see progress on our supply chain productivity and pricing initiatives.
Speaker 2: This was partially offset by product mix given the aforementioned headwinds in our diagnostics business in China were greater than we had planned.
Speaker 2: As for pricing, we generated around 200 basis points of net price realization in the quarter. As we started to laugh some of the more significant pricing efforts we implemented a year ago. For the full year, we continued to expect at least 100 basis points of net pricing realization for the company overall.
Speaker 2: 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%.
Speaker 2: This all resulted in the adjusted EPS in the first quarter of $1 and 1 cent, which is at the upper end of our expectations.
Speaker 2: Moving beyond the P&L, we generated adjusted free cashflow 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 cashflow performance is off to a strong start so far this year.
Speaker 2: With regard to capital deployment, we've been much more active so far this year as we've deployed over $800 million a year today, 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.
Speaker 2: We continue to expect to arrange additional investments to align with these upcoming maturities over the coming weeks.
Speaker 2: This locked us with a net debt to adjust the 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.
Speaker 2: 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.
Speaker 2: I'd now like to provide some commentary pertaining to our first quarter business trends.
Speaker 2: You'll see on our investor website a new quarterly earnings related slide deck that has been revamped for Revity to provide some additional information on the financial performance of the company.
Speaker 2: The 6% non-COVID organic growth generated in the quarter was comprised of 9% growth in our life sciences segment and 3% in diagnostics.
Speaker 2: Geographically, we grew in the low single digits in the Americas, low double digits in Europe , and mid single digits in Asia-Pac was flat performance in China overall.
Speaker 2: 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.
Speaker 2: Overall, our diagnostic segment in China declined in the low-double digits with amino-diagnostic 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 think there is such shipping phase supply here?,
Speaker 2: We still do not expect volume trends to begin to fully normalize until the second half of the year consistent with our previous expectations This was up 7% year over year on a reported basis and up 9% on an organic basis against a strong 19% year ago
Speaker 2: approximately 75 to 80% of our revenue and the life sciences segment. Our business today is predominantly focused on pre-clinical R&D workflows, such as content development.
Speaker 2: discovery and target identification, target verification, and preclinical QA-QC.
Speaker 2: 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 and mid-sized customers that make up the vast majority of our revenue.
Speaker 2: We did start to see some softening and trend from our smaller pre-revenue customers who we estimate represent approximately 5% of total company revenue. From a product perspective, our research reagents and specialty farmer services continued their strong performance and again grew in the low double digits organically in the quarter.
Speaker 2: 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 multi-year contract renewals.
Speaker 2: Despite this modest decline, our informatics business is still up in the teens on both a two- and three-year average basis.
Speaker 2: Moving to our diagnostic 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 revenue disperses a year ago.
Speaker 2: As previously mentioned, on a non-COVID basis, the Diagnostic's Business grew 3% versus a year ago. Excluding the low-double-digit non-COVID-organic decline, our overall Diagnostic's Business and China experience in the quarter, our remaining Diagnostic's franchise outside of China would have grown 6% year over year.
Speaker 2: From a business perspective, our reproductive health business was flat overall organically in the quarter. A slight improvement from the modest year-over-year to clients we saw last quarter.
Speaker 2: We saw a strong growth in our neonatal business which offset declines in our genomic lab businesses.
Speaker 2: Well, 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.
Speaker 2: and getting them on approved testing menus continues to be our playbook to help offset these continued demographic pressures. On an on-covid basis, our immunodagnastic business grew in the mid-single digits overall and was up mid-teens when excluding China.
Speaker 2: Our immunodagnastics business in China, which represents around 20 to 25% of our overall immunodagnastics 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.
Speaker 2: Given the non-acute nature of our immunodagnostic testing business as we previously cautioned, it appears our 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
Speaker 2: In the 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.
Speaker 2: 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, and China. We also successfully navigated the completion of the divestiture of our analytical enterprise solutions businesses and began our initial capital redeployment activities.
Speaker 2: As we look ahead to the remainder of the year, we continue to expect it to be a very strong year overall, but our 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.
Speaker 2: 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 increase uncertainty among some in the pharma biotech and the genomic lab industries.
Speaker 2: 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.
Speaker 2: 2.9 to 2.94 billion.
Speaker 2: From a profitability perspective, we continue to expect 30% operating margins this year on change from our previous guidance.
Speaker 2: 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 it's likely to take at least through the end of the year to be...
Speaker 2: 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 in other to be approximately $80 million this year, down from our prior $90 million expectation.
Speaker 2: 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.
Speaker 2: With our year-to-date share repurchases, we now expect our average shares outstanding for the year to be approximately $126 million, down half a million shares from our previous outlook.
Speaker 2: At this point, we are not assuming any future repurchases or reductions in our share count and 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.
Speaker 2: of $4.85 to $5.05 for the full year and is detailed on the second to last page of our earnings presentation.
Speaker 2: 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 diagnostic 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.
Speaker 2: We continue to expect our non-COVID organic growth to improve in the back half given an anticipated return to normal and our Diagnostic business in China and a return to growth in our software business. As we expect in the second quarter to be up sequentially from the 28% we generated in the first quarter and slightly below our full year outlook. Please all the line we expect.
Speaker 2: Second quarter to represent the lowest quarter of the year for our net interest income, given we'll 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.
Speaker 2: result in adjusted EPS in the second quarter to represent approximately 24% of our updated full-year outlook.
Speaker 2: With that operator, we would now like to open up the call for questions.
Speaker 2: operator we would now like to open up the call for questions. Thank you.
Speaker 4: As a reminder, if you like to ask a question, you can press star one on your telephone keypad. If you like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Patrick Donnelly of City. Patrick, your line is now open. Please go ahead.
Speaker 5: Hey there, you got Jason on for Patrick. Maybe first just on China, you noted a little bit worse than you had initially anticipated there and diagnostics. 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. Hey, good morning. You know.
Speaker 2: to the second half of the year.
Speaker 5: Thank you, Ed Guided, one, two to be similar to that of 4Q. So just what are we expecting there for the remainder of the year?
Speaker 2: The first quarter did play out similar to the fourth quarter 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.
Speaker 2: 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.
Speaker 2: 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. Great. Thank you.
Speaker 4: Thank you. Our next question comes from Katherine Schult from Baird. Katherine, your line is now open. Please go ahead. Hey guys, thanks for the questions and congrats on becoming Revity. I guess first, you saw 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
Speaker 2: 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.
Speaker 2: And then if you look at the reagents business, you know, the reagents continued 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.
Speaker 2: So your second question on sort of the pre-revenue customers. If you remember, you know, 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 face-and-face went here in the first quarter. It was down about mid-teens. We expect that to probably continue here, at least for the next-
Speaker 4: making to rebrand the company. How does a 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, Katz. And I'm an Archie's commercial officer, medium victors on the call with us.
Speaker 3: So I'll let her answer the question. Hi Catherine. So maybe let me start off how we came up with the name. We've listened to our employees, our customers around the globe through a number of focus groups, creation workshops, and there are three main themes that came through.
Speaker 6: And that was consistent across the globe. They wanted something that is unconventional, precise and united.
Speaker 6: So we want to ename read that it's uncompetition for the company we would be representing us as a category of what. And we want it to show the world our quality of work and the precision of our breakthrough innovation.
Speaker 6: And to be united with all the capabilities we have, I edit through the acquisitions over the last five years. So gravity in itself was created from two words, rap as in revolutionizing human science, as an accelerated speed, and vita, which means life in Latin. So as it's core, the name itself means revolutionizing life. Now in terms of the implementation moving forward, we've got a very robust plan.
from Michael Riskin of Bank of America. Michael, your line is now open, please go ahead.
Great. Thanks for taking the question. This is Mike on the third round.
Going back to pharma and biotech, anything you can comment in terms of stocking levels or inventory levels on any of your consumables in the lab? It's been a focal point, not just the product, 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. Alright, I think we formallyhetically selected the following four maps.
Hey Mike, this is Prahlad. Again, as you know, majority of our revenue stream now comes from reagents and consumables which have 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 you know and as I have shared earlier most of our products and if you take BioLegend as an example is shipped overnight to customers. So there is not really a whole lot of scope to see stocking in the product profile that we have. So, what am I going to do with_____?
Got it. Thanks. And a follow-up question on some of your capital of the foreign economists as well. You sort of indicated, you know, you've got some owners 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 you also, on your capacity to do that, given you're going through a lot of the
Like you said rebranding a lot of operational things to get you know, Revity up and running so what's the capacity to to be taken on M&A and potential integration on top of that? Great question Mike. I think you know, let me just sort of take it a little at the macro level right. We've been good about our first quarter performance.
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, you know, at such a significant undertaking. And the brand launch is more an excitement, you know, 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 we continue to be. I think the focus that we have...
is around developing the relationships, building their right pipeline. So at the right time, we would make the acquisition. So there is no hurry, no rush for us. You know, when the right opportunity strikes, we will be there to take advantage of them. Great. Thanks.
Thank you. Our next question comes from Jack Mehan of Neffron Research. Jack, you'll line it. So open, please go ahead.
Thank you. Our next question comes from Jack Mehan of Neffron Research. Jack, you're lying, it's now open, please go ahead. Thank you. Good morning.
First question one to ask about immunodagomastics 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 is guidance assume in terms of the ramp of the business throughout the year? Well, you should be able to confirm as you automatically Construct your post vaccination, and you should be able to confirm as you automatically Construct your post vaccination,
Yeah, sure. Hey, Jack. So, from an immunodiagnostic 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. Maybe zoom in on that, right, and talk specifically about immunodiagnostics within China.
into the year and we are still confident that we are seeing that sort of volumes and expectations for the second half. Right and then two 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?
Thanks. Yeah, I mean, you know, 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, you know, US is I would say flat to slightly negative and, you know, 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. You know, 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, you know, the way to measure the success of Vanadis is to look at our reproductive health growth profile over the next few years. You know, and California is a good example of how.
that has started taking traction and we see a good momentum coming out of it. Thank you. Our next question comes from Vijay Kumar of Evercore. Vijay, your line is now open. Please go ahead.
Hey guys, thanks for taking my question. Pralad, baby, first one for you. Q1 came in at the high end of guidance. Q2 looks like perhaps in line to 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 about first half. With your comments on China immuno DX improving, I think that's 100, 150 basis points 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, or supposed half, to hit the midpoint of the guidance. Is that just in easier comp or are we assuming certain end markets to improve in the back half?
Yeah, hey Vijay, good morning. I think you know again, re-treating what you said. You really, you know, I, we thought of one queue performance was pretty strong, but I think you know, 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 e...
to further elaborate on that point. So I think coming into this year, we said that we were gonna 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's really changed about our second half assumptions versus the initial point in the year. What we basically now factored 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 immuno-diagnostic 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 US 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. Max, one for you. It looks like the cash and marketable securities balance are close to two and a half billion. What do you assume for us, Sherip? I think you mentioned $130 million the other day.
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 you 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 teen drain and we are confident our ability to get there.
on the tax rate planning, as you 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 tax rate to be in the high teen grade, and we are confident in our ability to get there. Thanks, guys.
Thank you. Thank you. Our next question comes from Dan Arias of Stiefel. Dan, your line is now open. Please go ahead. Morning, guys. Thanks for the questions here. 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 map 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, headcount, investment, etc. How many variables do you think are still in the mix for you? Hey Dan. Yeah, 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...
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 are 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, have you acquired just a bunch of assets that play into that drug development arena that this focus segment that focuses on?
Can you just maybe help us with where things are softer, stable, better when it comes to Syrian, Filcom, Horizon, Biolege, and visibility there is a little bit of a problem. 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. Thanks a bunch.
Yes, we did quite a bunch of acquisitions as you said on the life sciences side of the segment but again those were all sought out and strategic in nature. Despite all of that as Max has pointed out, only 5% of nearly total company revenue is in free 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.
So, you know, we feel again, as Max said, we feel really confident and, you know, just taking the example of BioLegend, you know, and the life sciences reagent business. Overall, it continues to do well.
I will take that comment to mean all of these acquired assets are performing the way you thought they would at the time of acquisition. There is nothing you would call out that a quarter or so down the road we might be thinking about as a quarter or so down the road.
Underperforming or outperforming such that the outlook is now different. I mean, I guess what I'm saying is, you know, you did this, you did it for a reason. There isn't a lot of visibility on it again. So are you are you saying that everything that's been acquired. And defending the way that you thought it would be.
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 diagnostic side you know there was the Oxford acquisition that we've talked about that is taking a long time to come back and you know 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 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. The diagnostic side, no, we didn't have all of them go exactly as planned. OK, I appreciate the call.
Thanks, Dan. Thank you. Our next question comes from Josh Waldman of Cleveland. Josh, your line is now open. Please go ahead. Hey, thanks for taking my questions. It's 2 for you. First, Max, wanted to follow up on the moving pieces to the lower non-COVID-organic guide.
I guess could you quantify how much of the software 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? Yeah, hey, Josh. So, okay, so maybe to, again, further elaborate, and 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 expectation.
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 I wondered 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. Yeah, I mean, Josh, as we've said earlier, the team is the same. On the commercial side was the first one as we went into markets and areas where the acquisitions did not have a lot of direct presence. We've been able to leverage our feet on the ground. We've been able to leverage our feet on the ground.
out and then the insourcing of oligos, antibodies from horizon and from bioregion by the teams on both the diagnostics and life sciences side of the business are as I have said earlier better than the expectation that we have from a synergy perspective.
Our next question comes from Luke Serjot of Barclays. Luke, your line is now open, please go ahead.
So I think as we 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 here in the first quarter, and we expect that trend to continue for the rest of the year. And you know, if I could just add to that look, by the way, thanks for the...
Comment on the on the brand look you know you'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 you know, on a viral legend, there's nearly 50% of that revenue. So that should be a good indicator for you as to how the business is doing. So, I'm really about to go. Awesome, thanks. And then, specifically again, on, I know it's a visit in another business, but with the...
to come back to normal.
It's very similar to what is with the diagnostics business look. You know, acute diagnostic takes things needs to come back and late in PB testing is categorized as acute non-acute. I'm sorry, I'm saying acute, but non-acute diagnostic testing. Guy, yeah. Guy, okay. That's a just clear vacation there. Thanks again. Yeah. Thanks, Luke. Thank you. Thank you.
Our next question comes from Matt Sykes of Goldman Sachs. Matt, your line is now open, please go ahead. Hi, good morning and congrats on the transition to Rivety. My first question is just on the academic end market and 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?
So from an academic and government perspective, I think it's about 10% of, you know, high single digits, 10% of the overall company revenue. And so from that perspective, you know, 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 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 you know kind of any additional color on how that transformation of the commercial team is going. Yeah, Hey Matt, Miriam is on the call as you know as I've said you know the transition has gone really well. I will say that you know on her behalf that you know 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 as an example.
So really now with the integration of the commercial forces in the three regions, there is a 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 to 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 continue this opportunities around synergies for the reagent side of the business, or for the overall consumer side. Thank you. Thank you. Our next question comes from Dan Brennan of TD Cohen. Dan, your line is now open. Please go ahead.
Great, thanks. Thanks for thinking the questions. Maybe if I could just on the minute DX and China again, sorry, I know there's been a few questions, but it'd be really helpful just to get a bit more granularity if you could. So I know in the first quarter you were looking for download double and it was down high teen. So just in terms of the full year, I know you were expecting not to see like
The initial assumption coming into the year was low double digits for the immuter diagnostics business in China. And now we are expecting high single digits. And the reason for that drop is just to slow our first hand grant 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 our turn to normal for the second half.
Great, thanks for that. 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've baked something in just given the change, but can you just help us kind of do that same walk on the pre-commercial biotech? Thank you.
Yeah, so Dan, to your point, we did not. Given it took 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 characterizeized.
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. Dan, to that point, I think what we wanted to do coming into the guidance was to give a realistic range on just giving 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 505. And yes, there is a case that if the macro environment continues to trend downwards, we might see a little bit, you know.
softer results, but I think overall we are confident in the position that we are sitting in today and confident our team's ability to execute against our pipeline. Terrific, thanks Max. Thank you. Our next question comes from Rachel Vattenstall from JP Morgan. Rachel, your line is now open. Please go ahead. Great, thank you for squeezing in and 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. Yeah, so Rachel, I don't think we're gonna 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 the operating margins you raised.
And I think it just goes to 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 mixed 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. Thank you. Our next question comes from Brandon from Jefferies. Brandon, your line is now open. Please go ahead.
Yeah, hey Brandon. 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 is about $50 million. That did include about $80 million of AES and pension related cash outflows.
probably sub-two as we exit the year here. And so that's what our current model is.
Thanks. Thank you. 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. We'll be right back.
Thank you for joining today's call. You may now disconnect your line.