Q2 2023 Revvity Inc Earnings Call

Speaker 1: Hello and welcome to the Revity 2nd Quarter 2023 Earnings Conference Call. My name is Alex Albi-Cortaik, and I call today. If you'd like to ask a question at the end of the presentation, you can press star followed by 1 on your telephone keypad. If you'd like to remove your question, you may press star followed by 2.

Speaker 1: I'll now hand it over to your host, Steve Willoughby, Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, operator. Good morning, everyone, and welcome to Reviti's second quarter 2023 Earnings Conference call. On the call with me today are Prahlad Singh, our president and chief executive officer, and Max Grkowiak, our senior vice president and chief financial officer. To our tires, please order your call.

Speaker 2: Before we begin, I would like to remind everyone of the safe hardware statements that we have outlined in our press release issued earlier this morning and also those in our FCC filings.

Speaker 2: 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.

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 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.

Speaker 2: even if our estimates change. So you should not rely on any of today's forward-looking statements as represented in 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 this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release.

Speaker 2: To the extent we use non-GAAP measures during this call, which are not reconciled to GAAP, we will provide reconciliation properly.

Speaker 2: I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad? Prahlad Singh, President and Chief Executive Officer, Prahlad Singh

Speaker 3: Thank you Steve and good morning everyone.

Speaker 3: Revy has gone through a dramatic transformation over the last several years, which culminated with our rebranding midway through the second quarter.

Speaker 3: At the same time, the environment for some of the end markets we play in has also recently undergone significant changes.

Speaker 3: After multiple years of significant growth, a life sciences business is now facing new pressures due to softer demand from our pharma biotech customers globally.

Speaker 3: including in China.

Speaker 3: Our diagnostics business has been improving as the year is progressing, which we expect to continue into the second half of the year.

Speaker 3: Despite these more challenging end market conditions, we continued to perform well in the quarter and achieved our objectives.

Speaker 3: The 6% non-COVID organic growth was in line with our outlook and the $1.21 of adjusted EPS we generated was slightly above our expectations.

Speaker 3: However, given the significance of the cautiousness we are seeing from our pharma biotech customers,

Speaker 3: We are realigning our expectations for the full year and now expect organic growth in the 4-6% range overall.

Speaker 3: We believe this remains meaningfully above market growth rates.

Speaker 3: driven by the uniqueness of what gravity is.

Speaker 3: We are building the company for the long term and will continue to fully invest in core projects that will drive the business in the future.

Speaker 3: while being diligent and proactively managing our spend in some areas to align with the low volumes we are seeing.

Speaker 3: The incremental cost actions we are taking currently represent approximately $30 million of savings on an annualized basis.

Speaker 3: Bringing the impact from our total cost reduction efforts so far this year to be $60 million.

Speaker 3: We expect this to now result in approximately 29% operating margins and adjusted EPS in the range of $4.70 to $4.90 for the full year.

While there is clearly more uncertainty in some of our markets as compared to 90 days ago,

We have intended for this new outlook to account for this uncertainty and believe our actions will enable us to build from a position of strength in the years to come. While it's been only approximately four months since we successfully completed our significant divestiture.

I'm pleased to see that both our employees and our customers are strongly embracing the new company.

I am also proud to be reporting our first full quarter of financial results as Revity here for the second quarter.

which will hopefully continue to result in even greater simplicity and transparency for our investors.

enabling them to better comprehend the exciting and unique company we now are.

and the compelling financial profile we expect going forward.

The distinctive makeup of the company was on display during the second quarter.

as our diagnostics business performed well.

with particular strength in the immuno diagnostics globally.

We also continue to see strong performance from our newborn screening business.

We also continued to see strong performance from our newborn screening business, which again grew in the double digits.

Despite continued global growth rate pressures,

This is a testament to our R&D and commercial strategies.

which lead to broader screening menus overall.

and our ability to consistently bring new assets to the market for rare diseases and help them get adopted by governments around the world. While this is important to us as a business financially,

Even more importantly, it makes us proud that we help play a key role in identifying babies who can potentially benefit from medical intervention at a very early stage of their lives. I'm not sure there is a much greater purpose for an organization than this. One recent example of this…

Cushion Muscular Dystrophy for all babies born in this state.

With approximately 120,000 babies born in O'Hara every year, it's estimated that this screening will help identify approximately 12 babies with DMD annually.

These newborns can now be treated and hopefully cured.

with novel gene therapies that are becoming available from the pharmaceutical community. In our life sciences business, while the market environment is more challenging than we had envisioned at the start of the year, our differentiated and high-value portfolio of innovative preclinical reagents.

software and instrumentation is performing well and growing above broader market trends.

This is particularly evident in our Reagents and Specialty Pharma Services business.

which again grew double digits organically in the quarter.

This is being offset by the pharma biotech softness more heavily impacting customer decision-making on capex investments.

new software contracts, and the timing of finalizing new technology licenses and partnerships.

This solid performance

In light of the dynamic market environment we are all facing currently

is exactly what Reviti was built for and is all about.

While we are not immune to some of the macro pressures that exist,

Our unique portfolio and its leading positions in high growth markets allows us to continue to deliver above market performance through all micro environments. Over the past quarter the Reviti team around the world shared in the excitement, energy,

an inspiration from our global launch in May. Apart from the modern and vibrant visual rebranding of our new company,

We have taken on a spirit that is bold and courageous.

This new shared direction is one that we have collectively aspired to over the last few years.

And it is now a reality.

Following our visit to the New York Stock Exchange to commemorate the rebranding and ticker symbol change.

I have the opportunity to visit some of our sites around the world, including in the UK, Thailand, Korea and India.

to talk about our vision for the new company.

When I was in Mumbai, I also attended the Thought Leaders Confluence, an exciting event hosted by the Revity India team. I was able to share our brand's story and discuss emerging trends with other industry leaders.

drawing insights about the customers we serve in areas where we can further support their needs.

With innovation at the center of our purpose to expand the boundaries of human potential through science. This is my last talk.

We have also recently created new leadership roles that will help us better achieve our goals.

For example, we have appointed Arvind Sundararajan as our new Vice President of Digital and Technology

Responsible for advancing common capabilities across all markets and segments.

for advancing common capabilities across all markets and segments. From science to the cloud,

From sample to answer.

Moreover, we appointed Dr. Madhuri Hegde as Reviti's first Chief Scientific Officer.

We will focus on driving a scientific strategy to translate relevant customer pain points.

into actionable solutions

while enhancing our customer relationships with existing strategic partners. This focus on innovation was again evident this quarter as we announced our first non-exclusive license of our novel base editing technology.

pinpoint with AstraZeneca.

It is exciting to begin to see this unique technology being embraced by one of our most strategic partners.

I look forward to sharing even more with you on the commercial development of Pinpoint over the coming months.

including our new automated indirect immunofluorescence test system, the UNICO 160 from our Euroimmune business. This new system was recently launched in Europe and provides an all-in-one solution that reduces the amount of hands-on time.

necessary for our customers or our new SAS-based signals plus T-shirts with my password.

This consistent drumbeat of significant innovation across the company is one of the key things I expect to set Reviti apart in the marketplace with our customers.

These past seven months have been just an initial glimpse of the drive, passion, and commitment we have as a team at gravity.

And I simply could not be more confident in our future.

Finally, we've continued to make progress with our organic investments and our external capital deployments during the quarter.

While we continue to actively review attractive eminent opportunities, we did repurchase just over $200 million of shares in the court.

So overall, I think the uniqueness of Revity really shined through here in the second quarter as we were able to achieve our objectives.

despite increasing end-market pressures in some of our businesses.

While our updated outlook is reflective of the more challenging macro environment we are all facing currently.

I think the resiliency of Reviti is being proved and allowing us to

to stand out with our customers and our other stakeholders.

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

Thanks Prahlad, and good morning everyone. As Prahlad highlighted, we performed well in the quarter despite some greater than expected challenges which we expect will likely continue over the remainder of the year.

This is leading us to update our guidance for the full year to now expect mid-single-digit non-COVID growth overall. The cost actions we have begun to put in place are in an effort to preserve our margins, but still be able to strongly reinvest for the future.

While I'll touch more on the specifics of our new guidance in a moment, I would reiterate Pilar's comments that with this new outlook, we have intended to account for the increased uncertainty currently in the market and feel confident in our ability to achieve it.

Despite these near-term pressures, it is a special time for Revity, which I also got to see firsthand during the quarter as I was able to get out on the road to visit a number of our sites and customers around the world and share in the excitement as we launch our new company.

I continue to be amazed at the impact and future potential our company has helping expand the boundaries of human potential through science.

As I begin to walk through our financial results, I want to remind everyone one last time that with our divestiture having been fully completed at mid-March, our financial results here in the second quarter only consist of those businesses under-revity and completely exclude those that were divested.

Overall, the visits achieved our 6% non-COVID organic growth expectation despite the incremental pressures in our life sciences business.

Our total adjusted revenue was 709 million, which was down 21% due to the significant drop in COVID-related revenues.

FX was neutral to our second quarter revenue and we again had no incremental contribution from recent acquisitions.

COVID revenue was de minimis in the quarter and declined meaningfully compared to the 3 million we generated in the first quarter. Given the immateriality COVID now represents, this will be the last quarter we plan to comment on it going forward.

As it relates to our P&L, we generated 28.8% adjusted operating margins in the court overall, which was in line with our expectations.

Operating margins were up from the 28% in the first quarter driven by volume leverage with adjusted gross margin of 62.4% in line with the last quarter. We continue to see favorable net pricing of a little over 150 basis points, which is helping to offset the continued inflation we are seeing across parts of the business.

For the full year, we still expect at least 100 basis points of net pricing realization for the company overall. Looking below the line, we had net interest expense and other of $8 million, which was a few million favorable to our initial expectations.

This was driven by slightly more interest income than anticipated as we continue to reinvest the proceeds from our recent divestiture and benefit from rising rates. Our adjusted tax rate was 22.6% in the quarter, roughly in line with our expectations.

This all led to adjusted EPS in the second quarter of $1.21. Moving beyond the P&L, we generated adjusted free cashflow of negative 61 million in the quarter, which on a year-over-year basis continued to be pressured from the drop in COVID revenues, and roughly 127 million of outflows associated with one-time divester-related cost and rebranding activities. For capital deployment, we continued to remain active during the second quarter. We repurchased another 212 million of shares in the quarter, bringing our year-to-date buy-back to nearly 290 million in total.

Our updated outlook did not assume an up to go occur. We now expect that our non-COVID organic growth to be in the 4% to 6% range for the full year and expect affect at M&A to still have a neutral impact for the full year. This result in our 2023 total revenue now expected to be in the range of 2.8 to 2.85 billion. From a profitability perspective, as Pralad mentioned, we are taking some further cost actions to build on what we started to put in place earlier in the year while continuing to invest in strategic growth priorities.

and lower sequential volumes. We expect our operating margins this quarter to be approximately 28% down slightly from the 28.8% we generated in the second quarter.

Our net interest expense and other line will increase from Q2 levels that our cash balances will decline, following significant tax payments in the upcoming maturity of our 500 million bond in mid-September.

Our innovation has never been stronger and we are taking appropriate actions to preserve profitability while still strongly reinvesting back into strategic priorities for the future.

With that, operator, we would now like to open up the call for questions. Thank you. As a reminder, if you would like to ask a question, you can press start, followed

If you'd like to remove your question, you may press star followed by 2. Please ensure you're unmuted locally when asking your question.

Our first question for today comes from Patrick, Donald Lee of City. Patrick, your line is now open, please go ahead.

Great, thanks for taking the questions, guys. Maybe one on the margins there, Max, you talked a little bit about some new initiatives you guys are putting in place. You just expand a little bit on that. I know you guys have pretty significant opportunities on things like the supply chain side, maybe insourcing a bit more. It does take...

probably a little more time post some of the acquisitions we've done. So just curious what the near-term actions are and again how we should think about that implication into next year. You know it seemed like the margin story for next year was pretty compelling given stranded costs things like that. So just trying to get a handle on the moving pieces here as we work our way through 23.

Yeah, absolutely. Hey, Patrick. So from a margin standpoint, in terms of the near-term cost actions that we are taking, I would consider this more from the OPEX line as we look to, I would say more right-size our costs given the current market conditions while still protecting our strategic investments that we need to make around areas of e-commerce, GMP, et cetera.

But that near term is going to be more on the OPEX line, as to your point, the gross margin expansion is really longer term plays.

You know, as you look out to 2024, obviously we'll have to see how the market turns here over the next couple of months and what that means for 2024. But for right now, I would say the thesis still on our off margin expansion of the 75 to 100 basis points is what our target is for next year.

Understood. Okay. And then maybe one on the China side, obviously, that immuno diagnostics piece was a big focus for investors. Nice to see that come back. Not surprisingly offset a little bit by the life science piece. Can you just kind of pull the curtain back? You know, what are you expecting on the immuno diagnostic side?

Now, for the rest of the year, obviously, the comps pretty easy as you work your way through the back half. Seems like the trends are stable there. So, yeah, maybe just China expectations for the rest of the year. Immuno diagnostics life. I what you're seeing that would be helpful. Thank you. Yeah, absolutely. So I think Patrick, to your point, as we look at China, it's really a tale of two cities right now as you look into the second half. So let's start first in the diagnostic.

a China testing standpoint, which was in line with our expectation, and we expect that momentum to continue in the second half. And so as we look at the second half, particularly for the immunodiagnostic business, we expect that to be close to an upper teens growth rate in the second half. If you look though on the life sciences side.

Obviously, that has been more pressured. I think you heard some of the other commentary on the market environment there. It's obviously very challenging. As we look into the second half of the life sciences business, we're probably expecting that to be slightly down in the low to mid-single digit range versus the first half that was more in sort of a low teens growth rate in the first half. So we are expecting to see some pressure there.

However, if you look at life sciences, you know, on a multiple year CAGR since the start of the pandemic, even with the downturn in the second half, it's still growing at a mid-teens CAGR over that time period. So we continue to be excited there. It's just given the second half right now, it will be a little bit pressured through the market environment.

Just to add to that, in China, the immuno diagnostics continue to do very well globally.

So I think it was great to see China come back, but it also continues to do very well globally.

Yep, understood. Thanks for all our thanks, Max. Thank you. Our next question comes from a Dan at Leonard Upcredit Swiss. Your line is now open. Please go ahead.

Thank you and good morning.

My first question I wanted to clarify on China, what is your current view for China growth in aggregate in 2023 and how does that change from your prior view?

Yeah, so I think overall for China in the for the full year, we expect it to be low double digit. I would say that is slightly down from our previous assumption, just given the pressures. I just mentioned from a China life sciences standpoint, and we continue to be, I would say excited about the progress that we're making on the diagnostic side.

Thank you. And then for my follow-up, Max, you mentioned that in some areas of your instrument business, Applied Genomics specifically, there's a bit of a COVID digestion going on. How broad do you think that is across your instrument portfolio, and how long do you expect?

broadly across applied genomics, there's really two dynamics. One is we do sell applied genomics instrumentation to our pharma customers as well. So softness there is gonna have an impact on our applied genomics instrumentation business. The second to your point is the COVID overhang that I was referring to in the prepared remarks. Now, in terms of the duration, I think right now what we have good line of sight is to for the second half of the year. And I think our guidance is...

Thank you. Our next question comes from Matt Sykes of Golden Facts. Your line is now open. Please go ahead. Under.

Thanks, good morning, thanks for taking my question. Maybe just on sort of the pace of the slowdown that you saw towards the end of Q2 as you exited and then in particular sort of what you've seen this month now that we're in August , just trying to get a sense for the pace of sort of slowdown, particularly on the capital equipment side in China.

just giving you the confidence to sort of extrapolate that pace into the full year guide that you've changed. Hey, Matt. So I would say from a pacing perspective, you know, what's assumed in the midpoint of our guidance right now is the current market environment. So whether you want to call that the current July , the exit rate of Q2, that is what is embedded in the midpoint of our guidance.

You know, if you talk about it in terms of when we started to see some of the accelerated, I would say softening from our previous guidance, it was really more so in June and then in China specifically really end of June , early July where we started to see, I would say more of a stronger deceleration throughout the course of the quarter. And I think back overall.

Some of the weakness you're seeing there is due to the timing of multi-year renewals. But it sounds like you are also kind of tying it to some of the cat-backs type purchases that are going on in the weakness we're seeing there. Could you maybe sort of give us a little more granularity on what's going on with software? Is it more about the timing of multi-year renewals or is there some softness tied to other instruments or other types of purchases from form of biotech? Yeah, hey, Matt. When we were coming into this year, as we were talking about our signals, we were already flagging that there was going to be issues from a timing of the multi-year renewals.

mid single digits for the year. The swing you are seeing there is the impact of a software pharma biotech on the new orders as capex budgets impact both instruments and we are also seeing it on the software side. So this new guidance basically de-risked the new order go get of our signals business for the second sector. And the oldumpy of what is becoming new strategic yesterday's current....

single digits for the year. The swing you are seeing there is the impact of a software pharma biotech on the new orders, as CapEx budgets impact both instruments, and we are also seeing it on the software side. So this new guidance basically de-risked the new order go-get of our signals business for the second half. Thanks very much.

Thank you. Our next question comes from Vijay Kumar from Evercore. Your line is now open. Please go ahead. Hi, guys. Thanks for taking my question. Prahlad, maybe on guidance. I just want to make sure I heard this correctly.

organic was lowered by 200 basis points at the midpoint. That's roughly in line with what we've seen in the group so far.

I think maybe 50-60% of that cut is, was China, is it remaining all coming from global biopharma? And if that's true, you have some historical perspective on how long these cycles last.

Yeah, I think the way I would look at the guidance which I is that, you know, of a few 400 bits of headwind from Farmer Biotech overall, which is often by about 100 bits of stronger height even the diagnostics.

I think the way I would look at it, off to 300 bits, 100 bits is essentially China life times the softness.

I would say all of it is evenly split between instruments, reagents, and the software piece that Max just talked on, Max questioned. Hopefully that gives you a sense of how we are looking at it in terms of guidance for the second half. We have two components here, and for each has I said that we want to get a kind of!!

That's helpful, Prad. On any historical perspective, when you have buyer-form customers being cautious, how long these cycles last? The way I would say, if you look at the current portfolio, it's very different than what historically we have been used to.

I think if you were in the QA QC cycle, it would be a different perspective. But I would say probably a couple of waters to three quarters is what our expectation is. This will be, and again, in a let's keep in mind, 80% plus of our businesses now on the reagent's consumable side. So that down down is not going to impact it as long or as if it was a much more capital.

Are you not non-gapping out those, you know, cost actions or costs incurred for cost actions in third quarter? Maybe just walk us through why CQ is stepping down from 2Q. Yes, I think there's a couple things that play VJ. So, one, volume will actually be down quarter over quarter given the midpoint of our commentary.

from what we're taking from the beginning of the year. We do expect most of that benefit, I would say, to show up in the fourth quarter, Vijay, from a cost perspective. And then there are some actual strategic investments as well that we are making the third quarter. Again, that we do not want to delay, but we feel comfortable in our ability to hit our overall updated cost target for the full year.

And thanks, Dave. Thank you. Our next question comes from a Catherine Short of Bad. Catherine, your line is now open. Please go ahead.

Hey guys, thanks for the questions. Ask first, just how do you expect your genomics lab business to perform in the back half of the year? You know, any color on how new projects are shaping up there?

Yeah, hey, Catherine. So, I mentioned it a little bit on the software side, but it's similar story on the lab. So, what we wanted to do for updated guidance is to basically de-risk what we had assumed in terms of new orders both on the signal side as well as the genomic lab side.

to close, there's obviously the chance that they could push out to 2024, so we thought it'd be better to de-risk our second half guidance and assume essentially none of those new orders come in from a genomics lapse perspective, and so we would expect similar growth rates or growth declines that we had in the first half to persist in the second half as we de-risk the forecast.

Okay, got it. That's helpful. And then as we think about your 10% midterm organic growth target, you know, that assumed a stable macro environment, which we clearly are not in right now. But just given what we're seeing, you know, perhaps a return to trend line after a couple of years of outsized activity levels.

Do you still think that 10% target is the right number? I think in the medium term outlook assuming, and then Catherine I think you pointed it out, assuming a stable microenvironment, that is what our goal and target is. Yes, there is no change to that.

Again, assuming a stable market environment.

stable market environment. Alright, great, thank you.

Thank you. Our next question comes from Jack Meehan of Nefron Research. Your line is now open. Please go ahead. Good morning. So, I wanted to continue on the China topic.

Just love to get your thoughts on the dynamics you're seeing in life sciences right now. Just what do you attribute this to in that region? Do you think this is just demand or lack of stimulus or are you seeing any areas of increased local competition in that business?

I don't think it's competition, Jack. I just think that there is, as you heard last week from our peers and from us today, there is just a softness. I mean, there was a lot of noise and talk about the stimulus.

coming in. I mean there was some uptick from it but that funding has not fully materialized and I think you are seeing the impact of that because there was an assumption from all of us that that stimulus was for real and clearly that hasn't panned out yet and then I think we are all seeing the impact of that.

Got it. That makes sense. And then, you know, sticking with life sciences, the double digit growth you're seeing in academic and government, can you talk about some of the regional trends that you're seeing there and just how you feel about the durability of this business?

Yeah, hey, Jack. So, from an academic and government standpoint, it's actually been pretty balanced across all regions. So, I would say all regions are growing safely in the double digit range. So it's not one region versus another. You know, coming into this year, we had a hunch that academic and government was going to be stronger, especially if you look at what had happened in years past.

across the board from an academic and government perspective.

Thank you. Our next question comes from Josh Wardman of Cleveson Research. Your line is now open, please go ahead.

Hey guys, thanks for taking my questions. Two for you. First, Prahlad, a follow up on the immuno DX business outside of China. It sounds like it grew high teams. I heard Max right. How was that versus your expectations and any drivers you could point us to?

Just curious if it's more underlying growth in the in-market or is it share gain, maybe menu expansion, and then how sustainable do you think this could be throughout the remainder of 23? Hey, Josh. I think it's a combination of all of what you pointed out, right? You know, the business continues to do well.

There is still continued awareness around diagnostics in autoimmune testing, which has a lot more traction over the next few years.

the new NPIs that they keep coming out with the UNICO 160 that I had talked about in my prepared remarks that's getting a lot of traction. And I think the portfolio, the assays that they keep bringing to the market continues to have an impact. So I think that's all I have for today's show.

I would say that the growth that we saw in the immuno diagnostics business outside of China was expected and is sustainable over the future. So feel really good about that business.

Got it. Then the life science reagent business continues to hold in well despite the softer pharma biotech and market. I guess could you comment on the drivers here, maybe a comment on volume versus price mix? And then as we look forward, would you expect the softer instrument sales, maybe the softness in pharma biotech to eventually weigh on this business? Or is there enough kind of low hanging fruit to drive sustainability and recent growth rates? Yeah, so a couple of questions in there, just kind of unpacking here one by one. So the first one is, as you look at the performance of reagents, your point, it was low double digits in the first half.

you know, in terms of the combination of volume and price, you know, we did roughly a little bit more than 150 basis points of price overall in the first half.

Our strongest portfolio in terms of pricing power is our reagents business, so you could assume it's going to be slightly above that number. And so then that should help you give some perspective from a volume. So you're somewhere in the high single digit range from a volume perspective. Overall is probably a fair assumption. You know, then as you look in terms of the trends for the 2nd, half.

I do think that the reagent business will be slightly pressured versus the first half performance. So our current midpoint assumption has the business going from low double digits in the first half to more of a mid single digits performance in the second half. However, I will note though that if you were to look at this on a two year stack basis for

comparison on a year-over-year comp basis, it's just we have a tougher comp in the back half of the reagent.

I what.

Got it. Appreciate it guys.

Thank you. Our next question comes from Andrew Cooper of Raymond James. Your line is now open. Please go ahead.

Hey everybody, thanks for the questions. A lot has already been asked. Please just first if you could do.

A little bit more color, peel back the onion a little bit, on some of the CapEx tightening. Are there particular products or segments of products that are holding up better or worse, surprising versus expectations, whether it's higher end, higher dollar, lower? Any context there would be super helpful.

Yeah, Andrew, I don't know that I would say anything has been differing from our expectations, right? So, Instruments is obviously a group that has been hit hard by the Pharma Biotech CapEx. You've got the new software and genomics deals that I mentioned earlier that have been hit by I would say the more cautious spending level from the Pharma.

that drop down trending, you know, what that looks like in a little bit more normalized environment relative to your point, some of the spend that you plan for 3Q in the rest of this year that you don't wanna delay. Yes, Andrew, I'm not sure I completely follow your math there on the EBIT drop.

In terms of looking at the cost actions and how we think about that, again, I don't know that I have too much further color to add, other than the fact that we are continuing to be prudent in our cost management, given the market conditions and want to maintain our margin profile.

But what and yet we are still very much protecting our core strategic investments that we're gonna need for the next couple of years for our business. Okay, I'll stop there. Thank you.

Thank you. Our next question comes from Dan Brennan of TD Cohen. Your line is now open. Please go ahead. Great. Thanks. Thanks for the questions, guys. Maybe just back to biopharma. Could you just give us a little color between emerging biopharma and mid-large, kind of what you're seeing there.

And then, kind of what feedback are you hearing that's kind of what's driving the weakness, particularly for the mid-large customers? Obviously, macro's choppy here, but this group is viewed to be more of a stable customer. So I'm just wondering kind of what you're hearing off on the front line.

I think the way I would sort of color the large pharma biotech is the pause, the caution and the delay in terms of capex spending. That is what is basically driving the being influenced by the macro environment that we are all seeing. So I would say it is across the board but it is having an impact primarily on the capex investments that our customers are looking at making. And I think the delay in that is what we are accounting for in the second half of our forecast.

I agree, I think just further elaborate for some. Yeah, I was just going to elaborate on some numbers for you there. So, in terms of the pre revenue, as far as I mentioned, it is a small piece of our portfolio. It's 10% of our life science business. And so, if you look in the 1st quarter, it was down mid teens 2nd quarter was down closer to upper 20.

percent and then the large farmer or mid-sized farmer in the second quarter was growing low single digits And then if you unpack that further, you know, instruments for the large and mid-sized was probably down high single digits and Reagents was on the flipside off high single digits as they continue to

drive lab activity and so I would that's how I would break it down from a numbers perspective for you. Great thanks Max and maybe just a follow-up just on the guide you know the guidance reduction completely not surprising given what we seen so far it's actually more modest than what we've seen so far from the peers. Plaid I think I heard you discuss earlier that in terms of trends in the quarter it was really June where the weakness occurred and you guys are assuming kind of where we

kind of where we are today is stable and that's it. So things don't get worse. So, I'm just kind of wondering if you've kind of incorporated any, any kind of further weakening possibly in the back after your implied guidance. Thanks. If we take a step back and look at our guidance overall.

you know, we want it to be more cautious given the dynamic macro environment. So the 4 to 6% range is driven by really the uncertainty surrounding life sciences with the midpoint being aligned to today's current market and the low end providing cushion.

case things get worse. Conversely on the upside if things get better that you know it pushes closer to the the upper range of our new guidance.

I would say additionally, we did really want to de-risk the second half assumption on new software, genomics, and licensing deals with our pharma customers. Again, the commercial pipeline there looks strong, but I think there's some questions around the timing of when these might get signed, and given the chance that they might get pushed out to 2024, we wanted to again de-risk the second half assumption related to those business.

Great, thanks, Max. Thank you. Our next question comes from Derek deBram of Bank of America. Your line is now open. Please go ahead.

Hi, good morning. Thank you for taking my questions. Just the first one, what's your overall critical

Instrumentation as a percentage of the portfolio and how much was that just down in aggregate?

Yeah, so if we look at the total instrumentation for the portfolio, I would say it's roughly about 30%. Derek? Yeah, so if we look at the total instrumentation for the portfolio, I would say it's roughly

And if you look at it in terms of the overall performance, you know, I would say it was down, you know, what was the mid single digits here in the first half.

All right, second quarter. Excuse me. Got it.

Got it, got it. Okay, so just going back, sorry to repeat on this, but I'm just sort of trying to digest what everybody means by macro because I mean, our economists are certainly getting a little bit more.

you know, less likely on recession, you know, people's numbers to be picking up, yet the pharma industry seems to be sort of having some issues. So what I'm just curious on, what is, can you differentiate what is just, what was just excess spending during COVID?

Right, just extra spending because times are flush and everybody had money versus a new sense of concern, caution. And, I don't am allowed to be fragile or neither be they? In other terms, it's omitted now that no calls are pleasant to handle those that are only happening there?ree? Yeah,

because people worry about the regulatory environment, IRA or whatever it is. I'm just trying to give differentiate between what is like excess spend in that market with fair. And have you noticed any difference between U.S. and European pharma? So thanks.

Yeah, I mean, I think that's a broad question and I think I'll try to

sort of give a color on what our observation is.

I think in terms of the question around the excess spending, I think if there was

desire to get instrumentation or upgrade their lab in terms of automation or adding extra liquid handling capability or more imaging capabilities or more QAQC capabilities. That's where the flush funds were leveraged and utilized.

And I think that is what the normalization to some extent of that is going to happen more in the second half.

In terms of the question around Europe versus US, I would say that probably Europe has been a little bit more careful and cautious in its spending than the US.

Got it.

Got it.

Got it. Okay. Thank you. Appreciate it.

Thank you. Our next question comes from Dan Aries of Stevehall. Your lights now open, please go ahead.

Yeah, good morning, thanks for the questions here. For a lot of maybe just rounding out the commentary on the portfolio, can you just add some color to what's taking place in the farmer's services business? How would you compare the demand that you're seeing for? Yeah.

Genomics versus cell line development versus some of the other applications like viral vectors obviously anything that helps triangulate in bioforma Just helpful right now and then you know as an add-on I'm curious how one source is doing in this environment

So I can tell you on the first one, the second one unfortunately, you will have to go to the owners of one source so I won't be able to help you on that one. The first one I would say that we have a very active pipeline.

There is a strong, we have a very strong pipeline and there is a lot of discussions going on. And I think as Max has pointed out a couple of times, you know, what we have tried to do is assess the timing to the best of our ability in terms of when some of these will materialize.

I'm trying to be a Scott forecast for the second half to the best of our ability. Okay, totally sure, then, not ask you to comment on a business that you cannot own anymore.

forecast for the second half to the best of our ability. Okay, totally fair. I did not ask you to comment on a business that you do not own anymore. Max, on to cost reduction.

But I do want to point out that... Should we think about the split on... Sorry, I do want to point out since you did bring up one source that today is a one year anniversary of when we signed the deal exactly a year ago.

And I think as a company, we could not be proud of how we've executed in terms of closing on that deal and ensuring a smooth close and sort of, you know, switching over to what we are today in terms of revenue. So thank you for that.

Sure, absolutely. Congratulations on the milestone there.

If I could just sneak one more in, Max, how should we think about the split of what you're doing when it comes to the cost reductions, life sciences versus diagnostics? I don't know if you're interested in talking about segment margins, but it would just be helpful to know what kind of mix to assume there on spending changes. Thanks. Yeah, thanks Dan. You know, I would say that.

It's probably going to be in the areas where we are seeing the greatest amount of market pressures. You know, there's some, I would say, just general overhead, but for the most part, it is the line to maybe where we are seeing the pressures from a top line perspective. And so, as you look kind of in the segment margins in the second half.

I wouldn't expect too much volatility from sort of where they are directionally right now in the first half with life sciences being sort of in the, you know, upper 30% range and you've got the diagnostics business, which is going to be probably closer to a mid-20s here in the second half.

Okay, thank you. Thank you. Our next question comes from Rachel Fratt and Stole from JP Morgan. Your line is now open, please go ahead.

Hi, thanks for taking the questions you guys. There's been a lot of farmer biotech questions, so I thought maybe I'd shift over to M&A. You guys mentioned some of the share report just as this quarter in that M&A still remains the priority. So can you just talk about how you're thinking about the current M&A environment, valuations of common pretty meaningfully the last?

As we pointed out, my answer is going to be no different than what you heard us say before. We have an active pipeline. We continue to have discussions. I think at the right time, you know, we will move forward. You know, at the end of the day, the market environment is softer.

in terms of the external market. But as you know, we typically are focus areas that we do operate in, our founder owner companies. And generally they tend to remain immune and resilient to the marketplace. So, hopefully we are able to execute on something, but we will continue to be diligent in our.

You mentioned that reagents were weaker in China this quarter. Can you kind of clarify for us what did reagents grow in China and then what are your latest expectations for the year for reagents in China as well? Thank you.

Thank you. Our next question comes from Eliza Garcia from UBS. The line is now open, please go ahead.

Great. Thanks so much for speaking in, guys. Just sticking on the topic of China, I guess thinking a little bit more broadly on China, if you could just remind us kind of where we sit on the localization of manufacturing for your own union, you know, just giving kind of a….

you know, just cat tumultuous COVID has been in everything. You know, I guess any perspective just kind of where China fits on the kind of

localization and timeline there and if you guys have any perspective there and have a think about that, it's a little bit of a broad based question but I'll kind of leave it there.

I think as you know, and you probably heard on the reproductive health side, majority of our products have moved to China and are in China for China. On the human side, I would say probably 25% of our products are in China for China. You know, there has to be continued to move. And of course, you know, the NMP, the NMP approval processes, what becomes...

to China. It's not a capex issue. The building, the facilities and all are ready and already invested in. It's just more from a timing perspective to get the studies done there and submission of NMPA and getting the approvals from there.

Great, we just went out on this, squeezing one last one in if I can. Just thinking about

over the longer-term algorithm and kind of how to think about that. That's probably a max question, but I'll kind of leave it there. Yeah, so I, so maybe just to address the first one part of that question in terms of the operating margin expansion, yes, the 75 to 100 basis points is still what we are planning in terms of our midterm margin expansion targets. Obviously, we will have to see what happens from a market perspective, but as of today, that is still our assumption. You know, to your question on e-commerce, it continues to be an area we are very excited about. We continue to make great strides there. We will be having sort of the launch of our new e-commerce platform here in the first quarter of next year.

and then Europe will be shortly following on a six to nine month lag from an e-commerce platform perspective, but we do expect that to be a continued area of opportunity for us as a company. Thank you. At this time we currently have no further questions so I'll hand back to Steve Willoughby for any further remarks.

Thanks, Alex, and thanks everybody for all your great questions today. We look forward to catching up over the remainder of the week. Talk soon. Thank you for joining today's call. You may now disconnect your lines.