Q4 2023 Revvity Inc Earnings Call

Hello, all and thank you for your patience Today's <unk>, Inc. Q4, 2023 earnings conference call will begin in just a few moments time.

Today's call will be hosted by Steve Willoughby Senior Vice President of Investor Relations.

Speaker Change: I said today's call will begin in just a few moments time, if you would like to ask a question on today's call. Please do press star followed by one on your telephone keypad.

Speaker Change: Sure.

Speaker Change: [music].

Bailey: Hello, and welcome to today's <unk>, Inc. Q4, 2023 earnings Conference call. My name is Bailey and that'll be the motivator for today's call.

Bailey: Lines will be muted during the presentation portion with an opportunity for questions and answers at the end.

Bailey: You would like to ask a question. Please press star followed by the number one on your telephone keypad.

Operator: Hello all, and thank you for your patience. Today's Revity Inc. Q4 2023 earnings conference call will begin in just a few moments. Today's call will be hosted by Steve Willoughby, Senior Vice President of Investor Relations. And as I said, today's call will begin in just a few moments. If you would like to ask a question during today's call, please do press Start followed by 1 on your telephone keypad.

Bailey: I'd now like to pass the call over to our host today, Steve whether it be senior Vice President of Investor Relations. Please go ahead.

Steve Willoughby: Thank you operator, good morning, everyone and welcome to <unk> fourth quarter 2023 earnings conference call on the call with me today are prolonged Zhang our president and Chief Executive Officer, and Max Krakowiak, Our senior Vice President and Chief Financial Officer.

Steve Willoughby: Before we begin I'd like to remind everyone of the safe Harbor statements that we've outlined in our press release issued earlier. This morning and also those in our SEC filings stay.

Steve Willoughby: 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 intention.

Steve Willoughby: These matters involve certain risks and uncertainties.

Steve Willoughby: The company's actual results may differ significantly from those projected or suggested due to a variety of factors, which are discussed in detail in our SEC filings.

Operator: Thank you. Hello and welcome to today's Revity Inc. Q4 2023 Earnings Conference call. My name is Bailey, and I will be the moderator for today's call.

Steve Willoughby: Any forward looking statements made today represent our views as of today, we disclaim any obligation to update these forward looking statements in the future even if our estimates change. So you should not rely on any of todays statements as representing our views as of any date after today.

Steve Willoughby: 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.

Steve Willoughby: Now I'll turn it over to our President and Chief Executive Officer, Claude thing a lot.

Claude: Thank you, Steve and good morning, everyone.

Claude: As we highlighted in our pre announcement a few weeks ago Wilen.

Claude: While industry headwinds continued throughout the end of the year.

Operator: All lines will be muted during the presentation portion, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. I'd now like to pass the conference over to our host today, Steve Willoughby, Senior Vice President of Investor Relations. Please go ahead.

Claude: We were able to perform slightly better than we had anticipated.

Speaker Change: <unk> finished the fourth quarter with a 3% decline in non Covid organic revenue.

Speaker Change: While Max will provide more details on the quarter and a bit I would say that our stronger than anticipated results were broad based.

Speaker Change: Both our life Sciences, and diagnostics segments performed better than expected.

Speaker Change: I would also highlight that outperformance was well balanced geographically.

Steve Willoughby: Thank you, Operator. Good morning, everyone, and welcome to Revity's fourth quarter 2023 earnings conference call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer, and Max Krakowiak, our Senior Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone of the safe harbor statements that we have outlined in our press release issued earlier this morning, and also those in our SEC filing. Statements or comments made on this call may be forward-looking statements, which may include but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested due to a variety of factors which are discussed in detail in our SEC filing. Any forward-looking statements made today represent our views as of today, and we disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any date after today.

Speaker Change: Each major region performed in line to slightly above what we had assumed.

Speaker Change: We also did a good job continuing to tightly control our expenses in light of the challenging environment that persisted through year end.

Speaker Change: And along with some favorable one time tax benefits.

Speaker Change: The lower Additionally, EPS upside in the fourth quarter.

Speaker Change: We also had a very strong cash flow in the quarter with nearly $200 million of free cash flow, while continuing to execute on our capital deployment initiatives.

Speaker Change: For the full year of 2023, we generated 2% non COVID-19 organic growth.

Speaker Change: While not what we hoped for at the start of the year I.

Speaker Change: I think you will see that our performance was differentiated versus the broader industry.

Speaker Change: And likely will be near the high end of the peer set for the year once the best fully set those.

Speaker Change: We expect this differentiated financial performance to continue going forward.

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

As demonstrated in the new financial framework, we recently provided for our expected performance over the coming years.

Speaker Change: As part of this new long range outlook.

Speaker Change: Now expect remedies organic revenue growth to be 200 basis points above the broader industry.

Prahlad Ramadhar Singh: Thank you, Steve, and good morning, everyone. As we highlighted in our pre-announcement a few weeks ago, while industry headwinds continued throughout the end of the year, we were able to perform slightly better than we had anticipated and finish the fourth quarter with a 3% decline in non-COVID organic revenue. While Max will provide more details on the quarter in a bit, I would say that our stronger-than-anticipated results were broad-based, as both our life sciences and diagnostic segments performed better than expected. I would also highlight that our performance was well-balanced geographically, as each major region performed in line with or slightly above what we had expected.

Speaker Change: Regardless of the macro environment.

Speaker Change: In a normal year, we would expect this to result in 6% to 8% organic growth and 75 basis points of operating margin expansion annually.

Speaker Change: In the post Covid World, We all know operate and we anticipate this level of growth will result in performance that continues to be at the high end of our industry overall.

Speaker Change: As we highlighted during our recent Investor Conference.

Speaker Change: We expect approximately 60% of our business that is comprised of immuno diagnostics life Sciences reagents, and I signaled software business to grow in the 9% to 11% range over the coming years.

Speaker Change: Generating mid single digit growth on their own for the total company.

Prahlad Ramadhar Singh: We also did a good job continuing to tightly control our expenses in light of the challenging environment that persisted through year-end and, along with some favorable one-time tax benefits, helped deliver additional EPS upside in the fourth quarter. We also had a very strong cash flow in the quarter with nearly $200 million of free cash flow while continuing to execute on our capital deployment initiative. For the full year 2023, we generated 2% non-COVID organic growth, while not what we hoped for at the start of the year. However, I think you will see that our performance was differentiated versus the broader industry and likely will be near the high end of the peer set for the year once the dust fully sets. We expect this differentiated financial performance to continue going forward, as demonstrated in the new financial framework we recently provided for our expected performance over the coming year.

Speaker Change: Given the stronger profitability of these segments.

Speaker Change: They continued to grow faster than the remainder of the business.

Speaker Change: We expect it to result in natural margin expansion.

Speaker Change: As they become an increasingly larger piece of the overall company over time.

Speaker Change: But everybody is extremely well positioned to capitalize on some of the most exciting areas of pharmaceutical research and development.

Speaker Change: Such as cell and gene therapy, multi omics and precision medicine.

Speaker Change: We also are involved in some of the most beautiful higher growth areas within clinical diagnostics.

Speaker Change: Auto immunity.

Speaker Change: <unk> losses.

Speaker Change: Emerging infectious diseases.

Speaker Change: Good what our company has become over the last several years.

Speaker Change: And third we are planning on going into the future.

Speaker Change: I think you will see that revenue will continue to stand out as a very unique company.

Speaker Change: We have a differentiated approach with our customers.

Speaker Change: Competitive and novel product portfolio with continuous innovation.

Prahlad Ramadhar Singh: As part of this new long-range outlook, we now expect Revity's organic revenue growth to be 200 basis points above the broader industry, regardless of the macro environment. In a normal year, we would expect this to result in 6 to 8 percent organic growth and 75 basis points of operating margin expansion annually. In the post-COVID world we all now operate in, we anticipate this level of growth will result in performance that continues to be at the high end of our industry overall. As we highlighted during a recent investor conference, we expect approximately 60% of our business, which is comprised of immunodiagnostics, life sciences reagents, and our signal software business, to grow in the 9 to 11% range over the coming years, generating mid-single-digit growth on their own for the total company.

Speaker Change: In a unique position within the attractive life sciences, and diagnostic categories in which we compete.

Speaker Change: A good example of this in the fourth quarter was the launch of our Iona SKU system in our newborn screening business.

Speaker Change: The ion excuse system is a first of its kind workflow, which streamlines molecular testing for both spinal muscular atrophy and skip in newborns.

Speaker Change: It is a new and complete <unk> solution, which consists of PCR equipment with dedicated software and it.

Speaker Change: Specialized diagnostics kit.

Speaker Change: With no more steps being needed in the new workflow. It results in a significantly faster turnaround time and less hands on involvement from sample to answer that in existing codes.

Prahlad Ramadhar Singh: Given the stronger profitability of these segments as they continue to grow faster than the remainder of the business, we expect it to result in natural margin expansion as they become an increasingly larger piece of the overall company over time. Gravity is extremely well positioned to capitalize on some of the most exciting areas of pharmaceutical research and development, such as cell and gene therapy, multiomics, and precision medicine, and to be involved in some of the most durable higher growth areas within clinical diagnostics, such as autoimmunity, tuberculosis, and other emerging infectious diseases, with what our company has become over the last several years and where we are planning on going in the future.

Speaker Change: This allows for lower operating costs and greater sustainability.

Speaker Change: Fewer consumables and plastic where are required.

Speaker Change: The introduction of this innovative solution is also offered lead time from a commercial perspective.

Speaker Change: I think you would open the lines for newborn screening in spinal muscular atrophy mandates that by 2025.

Speaker Change: All newborns in Europe should be screened for estimate going forward.

Speaker Change: Our new <unk> system is just one example of how we are continuing to bring cutting edge and innovative solutions to market from across the company.

Speaker Change: Benefiting both our customers and ultimately the patients they serve.

Prahlad Ramadhar Singh: I think you will see that Revity will continue to stand out as a very unique company. We have a differentiated approach with our customers. A competitive and novel product portfolio with continuous innovation and a unique position within the attractive life sciences and diagnostic categories in which we compete. A good example of this in the fourth quarter was the launch of our IonisQ system in our newborn screening business. The IonisQ system is the first of its kind workflow that streamlines molecular testing for both spinal muscular atrophy and SCID in newborns.

Speaker Change: We have also been making good progress on our operational initiatives.

Speaker Change: A good example of this is the launch of our New E Commerce platform, which went live in the U S. In mid December.

Speaker Change: Approximately five to six months earlier than we anticipated.

Speaker Change: The platforms integrated design was built specifically for the needs of what our business has become.

Speaker Change: It is expected to be extremely consumer friendly.

Speaker Change: While also over time, delivering both revenue and operating synergies.

Prahlad Ramadhar Singh: It is a new and complete CIDD solution that consists of a new PCR equipment with dedicated software and a specialized diagnostics kit. With no more steps being needed in the new workflow, it results in a significantly faster turnaround time and less hands-on involvement from sample to answer than existing methods. This allows for lower operating costs and greater sustainability. A few consumables and plastic ware are required.

Speaker Change: We expect this new system to go lives outside the U S and early <unk>.

Speaker Change: Another thing I am extremely proud to see the strong collaboration that is occurring amongst our teams across the company.

Speaker Change: A great example of this was how last year, we had a sole source antibody supplier.

Speaker Change: I wonder if on diagnostics assays.

Prahlad Ramadhar Singh: The introduction of this innovative solution is also perfectly timed from a commercial perspective, as the European Alliance for Newborn Screening and Spinal Muscular Atrophy mandates that by 2025, all new bonds in Europe should be screened for SMA going forward. Our new IonisQ system is just one example of how we are continuing to bring cutting-edge and innovative solutions to market from across the company, benefiting both our customers and, ultimately, the patients they serve. We have also been making good progress on our operational initiatives. A good example of this is the launch of our new e-commerce platform, which went live in the U.S. in mid-December, approximately five to six months earlier than we anticipated. The platform's integrated design was built specifically for the needs of what our business has become. It is expected to be extremely consumer-friendly while also, over time, delivering both revenue and operating synergy. We expect this new system to go live outside the U.S. in early 2Q.

Speaker Change: We're going to have quality and consistency in the batches.

Speaker Change: The rapid collaboration amongst scientists from euro immune biology and horizon.

Speaker Change: Within <unk>, we have developed our own replacement antibody.

Speaker Change: Validated it and why.

Speaker Change: Able to manufacture it had been sufficient scale for commercial use.

Speaker Change: The ability and agility would never have been possible in the company of the past.

Speaker Change: And I'm not sure it would be possible at most companies today other than revenue.

Speaker Change: As we look ahead to this year, we expect the ongoing headwinds from our pharma and biotech customers to continue.

Speaker Change: Particularly in the first half of the year.

Speaker Change: As they still are working through the impact from the elevated spending levels during the COVID-19 years.

Speaker Change: We are assuming this pressure will begin to stabilize in the back half of the year when we anticipating returning to growth for the company overall.

Prahlad Ramadhar Singh: Another thing I'm extremely proud of is the strong collaboration that is occurring amongst our teams across the company. A great example of this was how last year we had a sole antibody supplier for one of our diagnostics assays began to have quality inconsistencies in their batch. Through the rapid collaboration amongst scientists from Euroimmune, BioLegend, and Horizon, within nine weeks, we had developed our own replacement antibody, validated it, and were able to manufacture it at a sufficient scale for commercial use. Such ability and agility would never have been possible in the company of the past.

Speaker Change: In light of the dynamic end market challenges continuing into 2024.

Speaker Change: As well as the return of some of the variable costs that we reduced in 2020 feet.

Speaker Change: We have recently implemented additional structural cost actions to protect our strong profitability.

Through this temporary period.

Speaker Change: We anticipate these actions will allow for operating margins to remain approximately flat year over year at 28% this year.

Speaker Change: Despite the low single digit organic growth, we expect to repeat into 2024.

Speaker Change: We expect this to result in a <unk> 24 adjusted EPS.

Prahlad Ramadhar Singh: And I'm not sure it would be possible at most companies today, other than Revit. As we look ahead to this year, we expect the ongoing headwinds from our pharma and biotech customers to continue, particularly in the first half of the year, as they still are working through the impact from their elevated spending levels during the COVID year. We are assuming this pressure will begin to stabilize in the back half of the year when we anticipate returning to growth for the company overall. In light of the dynamic and market challenges continuing into 2024, as well as the return of some of the variable costs that we reduced in 2023. We have recently implemented additional structural cost actions to protect our strong profitability through this temporary period. We anticipate these actions will allow for our operating margins to remain approximately flat year over year at 28% this year.

Speaker Change: To be in the range of $4 55.

Speaker Change: The $4 75.

Speaker Change: With a significant number of acquisitions over the past several years.

Speaker Change: Coupled with the large divestiture, we completed in early 2023.

Speaker Change: We still have many adcs to further optimize in order to reach our full potential as a company.

Speaker Change: The significant actions we took in 2023.

Speaker Change: Combined with the additional measures being implemented as we begin 2024.

Speaker Change: I have put us on a good trajectory to further streamline and adjust our operations for the business we have now become.

Speaker Change: It also strongly positions us to capitalize on the leverage potential that exists in our company once industry growth normalizes.

Prahlad Ramadhar Singh: Despite the low single-digit organic growth, we expect this to repeat into 2024. We expect this to result in a 2024 adjusted EPS of $4.55 for $4.75. There have been a significant number of acquisitions over the past several years.

Speaker Change: Overall, when looking back on 2023.

I'd say its certainly ended up playing out quite differently than we had anticipated when sitting here a year ago.

Speaker Change: However, I am so proud of the transformation that we have undergone over the past few years.

Speaker Change: Victory ultimately completed last year.

Prahlad Ramadhar Singh: Combined with the large divestiture we completed in early 2023, we still have many areas to further optimize in order to reach our full potential as a company. The significant actions we took in 2023, combined with the additional measures being implemented as we begin 2024, have put us on a good trajectory to further streamline and adjust our operations for the business we have now become. It also strongly positions us to capitalize on the leverage potential that exists in our company once industry growth normalizes. Overall, when looking back on 2023, I'd say it certainly ended up playing out quite differently than we had anticipated when sitting here a year ago.

Speaker Change: While we are continuing to face external challenges.

Speaker Change: I'm extremely grateful for what JBT has become and the significant efforts of so many who have made it come to fruition.

Speaker Change: Without everyones efforts.

Speaker Change: And the report of the company.

Speaker Change: Our differentiated performance in 2023 would not have been possible.

Speaker Change: We remain confident that we will emerge from this temporary period of industry headwinds as a unique and stronger company that remains well positioned to help expand the boundaries of human potential through science.

Speaker Change: With that.

Speaker Change: I'll now turn the call over to Max.

Max Krakowiak: Thank you <unk> and good morning, everyone.

Max Krakowiak: Company demonstrated its perseverance in the fourth quarter during a period in which underlying industry demand continued to remain dynamic.

I'm proud of our team's performance. Despite these challenges continuing through year end, allowing our results to exceed our expectations for the quarter.

Prahlad Ramadhar Singh: However, I'm so proud of the transformation that we have undergone over the past few years, which we ultimately completed last year. While we are continuing to face external challenges, I'm extremely grateful for what Revity has become and the significant efforts of so many who have made it come to fruition. Without everyone's effort, and the support of the company.

Max Krakowiak: As I'll comment on more in a bit we are now assuming the current market environment remains largely in place through at least the first half of this year, which will continue to put pressure on our results and cause our full year expectations to look fairly similar to what we achieved in 2023.

Prahlad Ramadhar Singh: A differentiated performance in 2023 would not have been possible. We remain confident that we will emerge from this temporary period of industry headwinds as a unique and stronger company that remains well positioned to help expand the boundaries of human potential through science.

Max Krakowiak: However, we would expect our performance to be somewhat of the inverse of what we saw last year with the first half of 2024 remaining challenge and facing organic revenue declines before returning to growth in the second half.

Max Krakowiak: While we work through this dynamic period, we have continued to remain extremely focused on those items and actions that are more fully within our control.

Max Krakowiak: I'll now turn the call over to Matt. Thanks, Prahlad, and good morning, everyone. The company demonstrated its perseverance in the fourth quarter during a period in which underlying industry demand continued to remain dynamic. I am proud of our team's performance despite these challenges continuing through year-end, allowing our results to exceed our expectations for the quarter. As I'll comment on more in a bit, we are now assuming the current market environment remains largely in place through at least the first half of this year, which will continue to put pressure on our results and cause our full-year expectations to look fairly similar to what we achieved in 2023. However, we would expect our performance to be somewhat of the inverse of what we saw last year, with the first half of 2024 remaining challenged and facing organic revenue declines While we work through this dynamic period, we have continued to remain extremely focused on those items and actions that are more fully within our control. We progressively tightened our expense management efforts throughout last year.

Max Krakowiak: We progressively tightened our expense management efforts throughout last year and as previously mentioned, we have already implemented significant additional structural cost measures. So far this year, which we anticipate will allow our operating margins to remain flat at 28%. This year, despite our low single digit growth outlook.

Max Krakowiak: The way for greater operating leverage in the future when growth normalizes.

Max Krakowiak: We also made good progress with our balance sheet and cash flow in 2023.

Max Krakowiak: In the fourth quarter, we generated $196 million of free cash flow as we made meaningful progress on collections and inventory management.

Max Krakowiak: Excluding the divestiture related outflows, we incurred during the year much of which will be coming back to us in 2024, we generated over $400 million of free cash flow in 2023 overall.

Max Krakowiak: Given the amount of change that has occurred at the company over the past year I view. This as very strong performance and we are well positioned to continue executing on our capital deployment initiatives. This year.

Max Krakowiak: Now moving to our specific fourth quarter and full year results.

Max Krakowiak: Overall, the company generated total adjusted revenues of $696 million in the quarter, resulting in a 3% decline in non COVID-19 organic revenue, which was above the high end of our guidance.

Max Krakowiak: And, as previously mentioned, we have already implemented significant additional structural cost measures so far this year, which we anticipate will allow our operating margins to remain flat at 28% this year, despite our low single-digit growth outlook, paving the way for greater operating leverage in the future when growth normalizes. We also made good progress with our balance sheet and cash flow in 2023. In the fourth quarter, we generated $196 million of free cash flow as we made meaningful progress on collections and inventory management.

Max Krakowiak: The outperformance was fairly broad based as both our life Sciences, and our diagnostics segments performed slightly above our expectations for the quarter.

Max Krakowiak: FX was a 1% tailwind and we again had no incremental contribution from acquisitions.

Max Krakowiak: For the full year, we generated $2 75 billion of total adjusted revenue, which was comprised of 2% non COVID-19 organic growth no impact from FX or M&A at a modest $3 million contribution early in the year from Covid.

Max Krakowiak: Excluding the divestiture-related outflows we incurred during the year, much of which will be coming back to us in 2024, we generated over $400 million of free cash flow in 2023 overall. Given the amount of change that has occurred at the company over the past year, I view this as very strong performance, and we are well positioned to continue executing on our capital deployment initiatives this year. Now moving to our specific fourth quarter and full year results. Overall, the company generated total adjusted revenues of $696 million in the quarter, resulting in a 3% decline in non-COVID organic revenue, which was above the high end of our guidance. The outperformance was fairly broad-based, as both our life sciences and our diagnostic segments performed slightly above our expectations for the quarter. FX was a 1% tailwind, and we again had no incremental contribution from acquisition.

Max Krakowiak: As it relates to our P&L, we generated 27, 5% adjusted operating margins in the quarter, which were in line with our expectations.

Max Krakowiak: For the full year, our op margins were 28%, which represented approximately 100 basis points of expansion, excluding the removal of COVID-19 related revenues.

Max Krakowiak: We incurred a favorable pricing impact of approximately 130 basis points in the quarter.

Max Krakowiak: Which brought the full year impact from pricing to approximately 150 basis points.

Max Krakowiak: We continue to expect at least 100 basis points of favorable pricing annually going forward.

Max Krakowiak: Looking below the line, we had adjusted net interest and other expense of $16 million, which was largely in line with our expectations for.

For the full year, our adjusted net interest and other expense was $58 million.

Max Krakowiak: Our adjusted tax rate was 12% in the quarter, which was favorable by a few hundred basis points to our expectations due to a couple of one time tax items.

Max Krakowiak: For the full year, we generated $2.75 billion of total adjusted revenue, which was comprised of 2% non-COVID organic growth, no impact from FX or M&A, and a modest $3 million contribution early in the year from COVID. As it relates to our P&L, we generated 27.5% adjusted operating margins in the quarter, which were in line with our expectations. For the full year, our operating margins were 28%, which represented approximately 100 basis points of expansion, excluding the removal of COVID-related revenue. We incurred a favorable pricing impact of approximately 130 basis points in the quarter, which brought the full-year impact from pricing to approximately 150 basis points.

Max Krakowiak: These favorable discrete tax items contributed approximately <unk> <unk> to our EPS in the quarter.

Max Krakowiak: For the full year, our adjusted tax rate was 18, 6%.

Max Krakowiak: But would have been approximately 20% and in line with our expectations. Excluding the favorability we incurred here in the fourth quarter, which we do not expect to repeat in the future.

Max Krakowiak: We averaged $123 4 million shares outstanding in the quarter and $124 8 million for the full year.

Max Krakowiak: This all led to adjusted EPS in the fourth quarter of $1 25, which was <unk> <unk> above the midpoint and <unk> <unk> above the high end of our expectations.

Max Krakowiak: Our full year 2023, adjusted EPS was $4 65.

Max Krakowiak: We continue to expect at least 100 basis points of favorable pricing annually going forward. Looking below the line, we had adjusted net interest and other expense of $16 million, which was largely in line with our expectations. For the full year, our adjusted net interest and other expense was $58 million.

Max Krakowiak: Moving beyond the P&L as I mentioned, we generated free cash flow of $196 million in the quarter.

Max Krakowiak: While on a full year basis, our free cash flow was $198 million, which includes a headwind of slightly over $200 million from one time divestiture and rebranding related activities.

Max Krakowiak: Our adjusted tax rate was 12% in the quarter, which was favorable by a few hundred basis points to our expectations due to a couple of one-time tax items. These favorable district tax items contributed approximately $0.05 to our EPS in the quarter. For the full year, our adjusted tax rate was 18.6%, but it would have been approximately 20% and in line with our expectations excluding the favorability we incurred here in the fourth quarter, which we do not expect to repeat in the future. We averaged 123.4 million shares outstanding in the quarter and 124.8 million for the full year.

Max Krakowiak: Also.

Max Krakowiak: I previously mentioned, we expect a large portion of these outflows to reverse in 2024 and positively impact our investing cash flows when they come back to us.

Max Krakowiak: As for capital deployment, we continue to remain active in the fourth quarter we.

Max Krakowiak: We purchased an additional $400 million of U S treasuries with maturity aligned to the remainder of the 800 million bond we have coming due in September.

Max Krakowiak: We now have over $700 million of treasuries at our balance sheet, which will mature shortly before bond comes due this September that we will use to extinguish this debt.

Max Krakowiak: We finished the quarter with a net debt to adjusted EBITDA leverage ratio of two eight times.

Max Krakowiak: This all led to adjusted EPS in the fourth quarter of $1.25, which was $0.09 above the midpoint and $0.07 above the high end of our expectations. Our full-year 2023 adjusted EPS was $4.65. Moving beyond the P&L, as I mentioned, we generated free cash flow of $196 million in the quarter, while on a full-year basis, our free cash flow was $198 million, which includes a headwind of slightly over $200 million from one-time divestiture and rebranding-related activities.

Speaker Change: I will now provide some commentary on our fourth quarter and full year business trends.

Speaker Change: Which is also included in the quarterly slide presentation on our Investor Relations website.

Speaker Change: The 3% decline in non covered organic revenue in the quarter was comprised of a 9% decline in our life Sciences segment and 3% growth in diagnostics.

Speaker Change: Geographically, we declined in the high single digits in the Americas.

Speaker Change: <unk> declined in the low single digits in Europe, and grew low single digits and Asia with China flat overall.

Speaker Change: For the full year, we achieved 2% non COVID-19 organic growth with 5% growth in diagnostics and flat performance in life Sciences.

Max Krakowiak: Also, as I previously mentioned, we expect a large portion of these outflows to reverse in 2024 and positively impact our investing cash flows when they come back to us. As for capital deployment, we continue to remain active in the fourth quarter. We purchased an additional $400 million of U.S. Treasuries with maturity aligned to the remainder of the $800 million bond we have coming due in September.

Speaker Change: The Americas declined low single digits Europe grew mid single digits in both Asia and China grew mid single digits for the full year.

Speaker Change: Within China in the quarter, we experienced mid single digit growth in diagnostics with high single digit growth and immuno diagnostics offset by a high single digit decline in life Sciences.

Speaker Change: For the full year, China grew in the mid single digits organically with high single digit growth in diagnostics overall.

Max Krakowiak: We now have over $700 million of treasuries on our balance sheet, which will mature shortly before our bond comes due this September, which we will use to extinguish this debt. We finished the quarter with a net debt to adjusted EBITDA leverage ratio of 2.8 times. I will now provide some commentary on our fourth quarter and full year business trends, which is also included in the quarterly slide presentation on our investor relations website. The 3% decline in non-COVID organic revenue in the quarter was comprised of a 9% decline in our life sciences segment and 3% growth in diagnostics.

Speaker Change: Low double digit growth in immuno diagnostics and mid single digit growth in life Sciences.

Speaker Change: From a segment perspective, our life science business generated total adjusted revenue of $320 million in the quarter.

Speaker Change: This was down 8% on a reported basis and 9% on an organic basis.

Speaker Change: For the full year, our life Sciences business was flat organically.

Speaker Change: From a customer perspective sales into pharma biotech customers declined in the mid teens in the quarter and in the mid single digits for the year, which was offset by high single digit growth from academic and government customers in the quarter and mid teens growth for the year.

Speaker Change: Our life Sciences instrument revenue represented about 30% of total life science revenue in 2023 and was down high teens in the quarter and down in the mid single digits for the year.

Max Krakowiak: Geographically, we declined in the high single digits in the Americas, declined in the low single digits in Europe, and grew low single digits in Asia, with China flat overall. For the full year, we achieved 2% non-COVID organic growth with 5% growth in diagnostics and flat performance in life sciences.

Speaker Change: Our reagent licensing and specialty pharma services revenue represented about 57% of life Sciences revenue in 2023.

Speaker Change: And grew low single digits in the quarter and in the mid single digits for the year.

Speaker Change: Finally, our signal software business, which represented the remaining 13% of life science revenue in 2023 declined double digits in the quarter and in the high single digits for the year.

Speaker Change: The decline in both the quarter and the full year was in line with expectations and was driven by fewer multiyear contracts renewing which we anticipate to normalize in 2024.

Max Krakowiak: Europe grew mid-single digits, and both Asia and China grew mid-single digits for the full year. Within China in the quarter, we experienced mid-single-digit growth in diagnostics, with high single-digit growth in immunodiagnostics offset by a high single-digit decline in life sciences. For the full year, China grew in the mid-single digits organically, with high single-digit growth in diagnostics overall. Low Double-Digit Growth in Immunodiagnostics and Mid Single-Digit Growth in Lifetime.

Speaker Change: In our diagnostics segment, we generated $376 million of total adjusted revenue in the quarter, which was down 4% on a reported basis and 6% on an organic basis on.

Speaker Change: On a non COVID-19 basis, the segment grew 3% versus a year ago in the quarter and 5% for the year.

Speaker Change: Our immuno diagnostics business represented about 50% of our total diagnostics revenue in 2023 and grew in the mid teens organically, excluding COVID-19 during both the quarter and the full year.

Max Krakowiak: From a segment perspective, our life science business generated total adjusted revenue of $320 million in the quarter. This was down 8% on a reported basis and 9% on an organic basis. For the full year, our life science business was flat organically.

Speaker Change: Our immuno diagnostics business was strong globally as it continued to grow in the high teens outside of China, both in the quarter and the full year.

Speaker Change: Our reproductive health business, which represented about 34% of total diagnostics revenue in 2023 decline in the low single digits organically in the quarter and the full year.

Max Krakowiak: From a customer perspective, sales into pharma biotech customers declined in the mid-teens in the quarter and in the mid-single digits for the year, which was offset by high single-digit growth from academic and government customers in the quarter and mid-teens growth for the year. Our life sciences instrument revenue represented about 30% of total life science revenue in 2023 and was down in the high teens in the quarter and down in the mid-single digits for the year. Our reagent, licensing, and specialty pharmaceutical services revenue represented about 57% of life sciences revenue in 2023 and grew low single digits in the quarter and mid-single digits for the year. Finally, our Signal Software business, which represented the remaining 13% of Life Science revenue in 2023, declined double digits in the quarter and in the high single digits for the year. The decline in both the quarter and the full year was in line with expectations and was driven by fewer multi-year contracts renewing, which we anticipate to normalize in 2024. In our diagnostic segment, we generated $376 million of total adjusted revenue in the quarter, which was down 4% on a reported basis and 6% on an organic basis.

Speaker Change: This business was again pressured by a significant mid 20% decline in our revenue mix lab business in the quarter and nearly 35% decline for the full year.

Speaker Change: As we transition to 2024, we will have now lapped the contract completions, which pressured growth last year and do not anticipate such major year over year declines to continue.

Speaker Change: These pressures were partially offset by strong performance in 2023 from a newborn franchise, which grew in the high single digits overall for the year.

Speaker Change: Finally, our applied genomics business, which represented the remaining roughly 16% of total diagnostics revenue in 2023.

Speaker Change: To see pressure from the slowdown in pharma biotech spending.

Speaker Change: The hangover effect from elevated clinical lab COVID-19 spending.

Speaker Change: Non COVID-19 organic revenue for our applied genomics business was down in the mid teens during the quarter and was down in the high single digits for the full year.

Now as it pertains to our outlook for 2024, we expect current industry headwinds to remain over at least the next couple of quarters before we begin to face easier comparisons as the year progresses.

Speaker Change: Our initial guidance for organic growth is similar to what we experienced in 2023, and the 1% to 3% range.

From a quarterly pacing perspective, we expect revenue in the first quarter to be down mid single digits with sequential improvement in the second quarter, resulting in the first half still being down year over year overall.

Max Krakowiak: On a non-COVID basis, the segment grew 3% versus a year ago in the quarter and 5% for the year. Our immunodiagnostics business represented about 50% of our total diagnostics revenue in 2023 and grew in the mid-teens organically excluding COVID during both the quarter and the full year. Our immunodiagnostics business was strong globally as it continued to grow in the high double digits outside of China, both in the quarter and the full year. Our reproductive health business, which represented about 34% of total diagnostics revenue in 2023, declined in the low single digits organically in the quarter and the full year.

Speaker Change: We expect to return to positive growth starting in the third quarter. This year.

Speaker Change: We also expect FX to contribute approximately 1% to total revenue based on the rates at the end of December.

Speaker Change: Moving down the P&L, we expect to hold our operating margins flat at 28% as our recent structural cost actions will help to offset both some variable cost returning and the lower than normal organic growth. We expect for this year.

Speaker Change: We expect total revenue in the first quarter to be the lowest of the year, which when combined with the only partial quarter impact from our recent cost actions. We expect will result in our operating margins being several hundred basis points below our full year guidance here in the first quarter.

Max Krakowiak: This business was again pressured by a significant mid-20% decline in our revenue omics lab business in the quarter and a nearly 35% decline for the full year. As we transition to 2024, we will have now lapped the contract completions which pressured growth last year and do not anticipate such major year-over-year declines to continue. These pressures were partially offset by strong performance in 2023 from our newborn franchise, which grew in the high single digits overall for the year. Finally, our Applied Genomics business, which represented the remaining roughly 16% of total diagnostics revenue in 2023, continued to see pressure from the slowdown in pharma biotech spending and the hangover effect from elevated clinical lab COVID spending. Non-COVID organic revenue for our applied genomics business was down in the mid-teens during the quarter and was down in the high single digits for the full year.

Speaker Change: We currently expect our margins to be fairly similar to each other in the second and third quarters at around our overall full year average with the fourth quarter being the strongest quarter of the year.

Speaker Change: We expect adjusted net interest and other expense in 2024 to be approximately $70 million, representing a 20% increase versus last year.

This increase is attributed to less interest income on lower cash balances as we pay out $1 3 billion in debt in 2023 and 2024.

Speaker Change: We expect our tax rate to be 20% and our average share count to be $123 5 million similar to what it was in the fourth quarter.

Speaker Change: This all results in our initial 2024 adjusted EPS guidance to be in the range of $4 55 to $4 75.

Speaker Change: With the midpoint being flat to what we generated in 2023.

Speaker Change: We expect approximately 20% of our full year earnings to come here in the first quarter as our tax rate will be about 200 basis points above our full year average and net interest expense will be down about $5 million sequentially from the fourth quarter before increasing over the remainder of the year.

Max Krakowiak: Now, as it pertains to our outlook for 2024, we expect current industry headwinds to remain for at least the next couple of quarters before we begin to face easier comparisons as the year progresses. Our initial guidance for organic growth is similar to what we experienced in 2023 in the 1 to 3% range. From a quarterly pacing perspective, we expect revenue in the first quarter to be down mid-single digits with sequential improvement in the second quarter, resulting in the first half still being down year-over-year overall. We expect to return to positive growth starting in the third quarter this year. We also expect FX to contribute approximately 1% to total revenue based on exchange rates at the end of December.

Speaker Change: As we enter 2024, we will ensure we closely manage those items that are fully within our control such as delivering on our innovation pipelines, reducing our working capital and remaining active with capital deployment, while continuing to take appropriate actions to further streamline and optimize the company following its.

Speaker Change: <unk>.

With current industry headwinds subside revenue will be in an even stronger position to capitalize on this recovery.

Max Krakowiak: Moving down the P&L, we expect to hold our operating margins flat at 28% as our recent structural cost actions will help offset both some variable cost returning and the lower than normal organic growth we expect for this year. We expect total revenue in the first quarter to be the lowest of the year, which, when combined with the only partial quarter impact from our recent cost action, we expect it will result in our operating margins being several hundred basis points below our full year guidance in the first quarter. We currently expect our margins to be fairly similar to each other in the second and third quarters at around our overall full-year average, with the fourth quarter being the strongest quarter of the year. We expect adjusted net interest and other expense in 2024 to be approximately $70 million, representing a 20% increase versus last year. This increase is attributed to lower interest income on lower cash balances as we pay off $1.3 billion in debt in 2023 and 2024.

Speaker Change: To highlight our differentiation and realize the full potential of what we have become.

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

Speaker Change: Thank you.

Speaker Change: So I'll ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to meet that question. Please press star followed by two once again to ask a question. Please press star followed by one.

Speaker Change: As a reminder, if you are using a speakerphone. Please remember to tap your handset before asking your question and please ensure that you have you sit luckily.

Speaker Change: Our first question today comes from the line of Jack Meehan from Nephron Research. Please go ahead. Your line is the only thing.

Jack Meehan: Thank you good morning.

Jack Meehan: Wanted to just starting to get your thoughts how you're feeling about visibility into the business now the macros still pretty volatile just would be great to hear what you're hearing from customers and the things that builds your confidence for 2020 per outlook is in the right spot.

Max Krakowiak: We expect our tax rate to be 20% and our average share count to be $123.5 million, similar to what it was in the fourth quarter. This all results in our initial 2024 adjusted EPS guidance being in the range of $4.55 to $4.75, with the midpoint being flat to what we generated in 2023. We expect approximately 20% of our full-year earnings to come here in the first quarter, as our tax rate will be about 200 basis points above our full-year average, and net interest expense will be down about $5 million sequentially from the fourth quarter before increasing over the remainder of the year. As we enter 2024, we will ensure we closely manage those items that are fully within our control, such as delivering on our innovation pipelines, reducing our working capital, and remaining active with capital deployment, while continuing to take appropriate actions to further streamline and optimize the company following its transformation.

Speaker Change: Good morning, Jack.

Speaker Change: 23 suddenly did not play out as.

Speaker Change: That has had envisioned it.

Speaker Change: I think it was good to see that in the fourth quarter.

Speaker Change: The environment remains challenging.

Speaker Change: For the first time in 22, it did not deteriorate more than what we had anticipated.

Speaker Change: I mean, I would say as we look forward into 'twenty four including here in the first quarter.

Speaker Change: Anticipating any sort of meaningful or significant improvement, but I would say the other more of a continuation of current trends.

Speaker Change: Things do start to pick up I would say that you know I would expect that to provide more upside to the current outlook.

Speaker Change: So somewhat where we are there is more of a temporary holding pattern before demands comes backs, but im optimistic that we are perhaps what youre experiencing currently is more of a growth.

Speaker Change: As far as we go I think one of the things that do help US is the portfolio transformation journey that we have gone through.

Max Krakowiak: When the current industry headwinds subside, Revity will be in an even stronger position to capitalize on this recovery, continue to highlight our differentiation, and realize the full potential of what we have become. With that, Operator, we would now like to open up the call to questions. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press the star followed by.

Speaker Change: If you look at our portfolio now we have more diagnostics than our peers you know you've got less of a capital intensive business now than our peers.

Speaker Change: Got a meaningful software business and this differentiation.

Speaker Change: Laos us to have the confidence that we are.

In a pretty decent spot.

Speaker Change: Okay, Great and then follow up for Max just as you I appreciate the color on the pacing you provided if you look at sales.

Operator: Once again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you have unmuted locally. Our first question today comes from the line of Jack Meehan from Nephron Research. Please go ahead; your line is now open. Thank you. Good morning. Prahlad, I wanted to just start and get your thoughts on visibility into the business now, the macro's still pretty volatile; it would be great to hear what you're hearing from customers and the things that build your confidence that this 2024 outlook is in the right spot. Morning, Jack.

Max Krakowiak: Core down mid singles in the first quarter.

Max Krakowiak: Just to get to the ramp Youre talking about just wanted to confirm are you kind of assuming this is just comp dynamic some or is there anything else like noteworthy you're assuming in terms of the assumptions behind that thanks.

Max Krakowiak: Yes, Hey, Jack So comps is definitely driving the majority of it. So we mentioned a little bit in the prepared remarks as you pointed out that we'd be down mid single digits for Q1, a slight improvement in Q2, but still negative with the return to growth in the third quarter I wouldn't say that we are expecting a material change in the market environment in the <unk>.

Max Krakowiak: Second half Theres always a little bit of quarterly knows, but it's mostly comp driven and another way to think about it is if you look at our two year stack between the first half and second half both are at a low single digit with those sort of annual cadence that I previously mentioned.

Prahlad Ramadhar Singh: You know, 23 certainly did not play out as we or others had envisioned it, but I think it was good to see that in the fourth quarter, you know, while the environment remained challenging. For the first time in 23, it did not deteriorate more than we had anticipated. I mean, I would say as we look forward into 24, including here in the first quarter, we are not anticipating any sort of meaningful or significant improvement. But I would say it is rather more of a continuation of current trends, so things do start to pick up. I would say that, you know, I would expect that to provide more upside to the current outlook. So, you know, somewhat where we are is more of a temporary holding pattern before demands come back. But I'm optimistic that, you know, we are perhaps experiencing more of a throwaway society.

Max Krakowiak: Thank you operator next question today comes from the line of Sykes from Goldman Sachs. Please go ahead. Your line is now open.

Sykes: Thanks for taking my questions. Good morning, maybe a prolonged wanted to start for us.

Sykes: Look at the life Sciences segment, and the number of acquisitions, you've made in that business.

Sykes: How do you feel the synergies are playing out in terms of covering the needs of researchers in both academic and Biopharma are there portions of their workflow and spend where you see gaps in your offering.

Prahlad Ramadhar Singh: As far as we go, I think, you know, one of the things that do help us is the portfolio transformation journey that we have gone through. You know, if you look at our portfolio now, we have more diagnostics than our peers, we've got less of a capital-intensive business now than our peers, we've got a meaningful software business. And this differentiation allows us to have the confidence that, you know, we are in a pretty decent spot.

Sykes: And do you think you might lose the customer touch points, along the way because of those gaps or do you think youre capturing the customers through the majority of their early R&D workflow and if there are gaps is that an organic solution inorganic solution just would love to get your thoughts on that.

Speaker Change: Yeah, Good morning, Matt.

Speaker Change: Great question I think the whole journey that we have gone through on a portfolio transformation was indeed to fill the gaps that we had in our portfolio and if you have it.

Speaker Change: Two years ago. It was primarily a small molecule portfolio in preclinical research and differentiation.

Max Krakowiak: And then follow up for Max, just like you, I appreciate the color on the pacing you provided. If you look at sales, you know, core down, mid-singles in the first quarter, just to get, you know, to the ramp you're talking about, just wanted to confirm, are you kind of assuming this is just comp dynamics, or is there anything else noteworthy you're assuming in terms of the assumptions behind that? Yeah, hey, Jack.

Speaker Change: Preclinical research and development I mean, the whole concept of what we went through our acquisition journey was to fill the gaps in our portfolio around large molecule by molecule cell and gene therapy.

Speaker Change: I think the synergies that we have started seeing from the horizon CDN Bio legend, an excellent acquisition is on the bio molecules side of that.

Max Krakowiak: So comps are definitely driving the majority of it. So we mentioned a little bit in the prepared remarks, as you pointed out, that we'd be down mid single digits for Q1, a slight improvement in Q2, but still negative with the return to growth in the third quarter. I wouldn't say that we are expecting a material change in the market environment in the second half. There's always a little bit of quarterly volatility, but it's mostly comp driven. And another way to think about it is, if you look at our two-year stack between the first half and second half, both are at a low single digit with the sort of annual cadence that I previously mentioned. Thank you. The next question today comes from the line of Matt Sykes from Goldman Sachs. Please go ahead. Your line is now open. Thanks for taking my questions. Good morning.

Speaker Change: Dave So I think we feel very good.

Speaker Change: And if you add the software component.

Speaker Change: Allows us more differentiation, we feel very.

Speaker Change: Very good but the portfolio that we have.

Dave: Well they are there.

Dave: Are there other additions that we will continue to make absolutely, but I think we feel very good with the portfolio that we have.

Speaker Change: Great. Thanks for that and then Max just on phasing for diagnostics specifically.

Max Krakowiak: How are you thinking about.

Max Krakowiak: Progress through the year in terms of diagnostics growth and recover there's some different types of comps that business has relative to maybe life Sciences, and then specifically on China.

Max Krakowiak: Dx how are you thinking about that phasing of growth within your 2024 guidance framework. Thanks.

Prahlad Ramadhar Singh: Maybe, Prahlad, I wanted to start for you. As you look at the life sciences segment and the number of acquisitions you've made in that business, how do you feel the synergies are playing out in terms of meeting the needs of researchers in both academic and biopharma? Are there portions of their workflow and spend where you see gaps in your offering? And do you think you might lose customer touchpoints along the way? Because of those gaps, do you think you're capturing customers through the majority of their early R&D workflow? And if there are gaps, is that an organic or inorganic solution?

Speaker Change: Yeah, Hey, Matt So I would say from the diagnostics ramps perspective, the first half will be I think roughly flat from a from a diagnostic standpoint. So if you remember we have the big <unk>.

Speaker Change: [laughter] headwinds will have an applied genomics throughout the year as we still are going through the additional.

Speaker Change: Covid purchases in the life sciences weakness and so to be about flattish for the first half and then second half we're anticipating a return to mid single digit growth for the diagnostics business in terms of your question on immuno diagnostics China.

Prahlad Ramadhar Singh: Just would love to get your thoughts on that. Yeah, good morning, Matt. You know, great question.

Speaker Change: Our assumption there for the full year is mid single digit growth. However, if you exclude the impact of a change in go to market strategy. We had for one of our legacy infectious disease businesses in China. The growth. There is still similar to what it was in 2023 in terms of the high single to low double.

Prahlad Ramadhar Singh: I think the whole journey that we have gone through in our portfolio transformation was indeed to fill the gaps that we had in our portfolio. And if you recall two years ago, it was primarily a small molecule portfolio in preclinical research and differentiation, and preclinical research and development. I mean, the whole concept of what we went through on our acquisition journey was to fill the gaps in our portfolio around large molecules, biomolecules, cell, and gene therapy. And I think, you know, the synergies that we have started seeing from the Horizon, Sirian, BioLegend, and Nexelom acquisitions are on the biomolecule side of the table.

Speaker Change: Digit range.

Speaker Change: And the reason why we made that change in the legacy business was actually to improve the profitability of us overall, though will come with a little bit of a hit from a revenue perspective.

Speaker Change: Great. Thank you.

Speaker Change: The next question today comes from the line of Josh Bolton from Cleveland Research. Please go ahead. Your line is now open.

Prahlad Ramadhar Singh: So I think, you know, we feel very good where we are. And if you add the software component that, you know, allows us more differentiation, we feel very, you know, very good about the portfolio that we have. Bill, are there other, you know, are there other changes that we will continue to make? Absolutely. But I think, you know, we feel very good with the portfolio that we have built. Great, thanks for that. And then, Max, just on phasing for diagnostics, specifically, how are you thinking about, as we progress through the year, in terms of diagnostics, growth, and recovery? There are some different types of competition that businesses have relative to maybe life sciences, and then specifically, on China immunodex, how are you thinking about that phasing of growth within your 2024 guidance framework? Thanks. Yeah, hey, Matt.

Josh Bolton: Hey, Thanks for taking my questions two for you first either for la.

Josh Bolton: <unk> I'm wondering if you could provide more context on what youre seeing in the life science instrument business I guess, the instrument business broadly both life science and applied genomics I mean, it looks like both of those came in a bit better than you were thinking when you guided Q4, I'm curious if maybe you didnt see quite the pullback from pharma.

Speaker Change: Were expecting or maybe did you see some budget Flushing in November and December come through and then.

Speaker Change: What's what's assumed for those businesses in 'twenty four.

Yeah, Hey, Josh So I would say if you look at the fourth quarter results to your point instrumentation on both the life Sciences, and applied genomics standpoint fare a bit better than our expectations.

Josh Bolton: I think coming into the quarter. We had mentioned that we were wanting to be a little bit more conservative on our instrumentation assumptions and so those did prove out to be conservative and they were slightly better. Although we wouldn't really call that there was a budget flush activity in the fourth quarter.

Max Krakowiak: So I would say from the diagnostics ramps perspective, the first half will be, I think, roughly flat from a diagnostics standpoint. So if you remember, we have the big, continued headwinds we'll have in applied genomics. Through the years, we still are going through the additional, you know, COVID purchases and the life sciences weakness. And so it'll be about flat ish for the first half, and then in the second half, we're anticipating a return to mid-single-digit growth for the diagnostics business. In terms of your question on immunodiagnostics in China, our assumption there for the full year is mid-single-digit growth. However, if you exclude the impact of a change in the go-to-market strategy we had for one of our legacy infectious disease businesses in China, the growth there is still similar to what it was in 2023 in terms of the high single to low double-digit range. And the reason why we made that change in the legacy business was actually to improve our profitability overall, though it will come with a little bit of a hit from a revenue perspective. Great, thank you. The next question today comes from the line of Josh Waldman from Cleveland Research. Please go ahead. Your line is now open.

Josh Bolton: As we look out to 2024, we do still believe our instruments will be pressured for this year and I think if you look at the overall assumptions both the life Sciences instruments and applied genomics will be down in the high single digit range for 2024 and that will put them closer in line to what their <unk> is when you look over the at that.

Josh Bolton: For a five year period.

Speaker Change: Got it Okay, and then <unk> can you talk about any momentum youre seeing in key accounts as it relates to revenue <unk> ability to cross sell or realize commercial synergies following the divesture.

Speaker Change: A divestiture and rebranding I guess are there any specific examples you can point to of how revenue is making progress towards that.

Speaker Change: Being a more effective and strategic partners specifically within pharma.

Speaker Change: Yes, Josh I think.

Speaker Change: I mentioned during one of the conferences earlier in January.

Speaker Change: Our example, with one of our most important customers that we've talked about.

Speaker Change: In the pharma side is how we are able to leverage our relationship both on the diagnostic and the life sciences side of the portfolio.

Prahlad Ramadhar Singh: Hey, thanks for taking my questions; two for you. First, either Prahlad or Max, wondering if you could provide more context on what you're seeing in the life science instrument business. I guess the instrument business broadly, both life science and applied genomics.

Speaker Change: Not only license technology to them, but also provide the tools and capabilities and our service offering from the Dx side that allows for.

Max Krakowiak: I mean, it looks like both of those came in a bit better than you were thinking when you guided Q4. Curious if maybe you didn't see quite the pullback from pharma you were expecting, or maybe, you know, did you see some budget flushing in November and December come through, and then what's assumed for those businesses in 24? Yeah, hey Josh.

Speaker Change: Part of the journey of drug development for our important customers all the way from preclinical research and licensing them the technology, providing them the tools and capabilities that allows them to use and leverage that technology towards drug development, and then being part of the journey.

Them through their development process as they take it through the regulatory approval processes and then further on leveraging our global lab infrastructure from the <unk> side of the business to be able to follow up those patients both for efficacy of the drug and for follow ups. So.

Max Krakowiak: So I would say if you look at the fourth quarter results, to your point, instrumentation, on both the life sciences and applied genomics standpoint, fared a bit better than our expectations. You know, I think coming into the quarter, we had mentioned that we were wanting to be a little bit more conservative on our instrumentation assumptions. And so those did prove out to be conservative, and they were slightly better.

That sort of allows us initially when we were on the small molecule side in life Sciences, our focus was on providing them, the reagents and tools and instruments and in vivo imaging.

Max Krakowiak: Although I would, you know, we wouldn't really call it a budget flush activity in the fourth quarter. You know, so as we look out to 2024, we do still believe our instruments will be pressured this year. And I think if you look at the overall assumptions, both the life sciences instruments and applied genomics will be down in the high single-digit range for 2024. And that'll put them closer in line to what their LRP is when you look at that over a, you know, four or five year period. I got it.

Speaker Change: Components.

Speaker Change: So just do the IV such now that the full expansion of our portfolio. It allows us to be.

Speaker Change: Then from the start to or when it gets to commercialization.

Speaker Change: Makes sense thanks, guys.

Speaker Change: The next question today comes from the line of Patrick Donnelly from Citi. Please go ahead. Your line is now open.

Prahlad Ramadhar Singh: Okay. And then, Prahlad, can you talk about any momentum you're seeing in key accounts as it relates to Revity's ability to cross-sell or realize commercial synergies following, I guess, are there any specific examples you can point to of how Revity is making progress towards? being a more effective strategic partner specifically within pharma. Yeah, Josh, I think, you know, and I mentioned that during one of the healthcare conferences earlier in January, you know, our example with one of our most important customers that we talked about in the pharma side is how we are able to leverage our relationship both on the diagnostic and the life sciences side of the portfolio to not only license technology to them, but also provide the tools and capabilities and our service offering from the DX side that allows for, you know, being part of the journey of drug development for our important customers, all the way from preclinical research and licensing them the technology, providing them the tools and capabilities that allows them to use and leverage that technology towards drug development, and then being part of the journey with them through their development process as they take it through the regulatory approval processes and then further on, leveraging our global lab infrastructure from the omics side of the business to be able to follow up those patients, both for efficacy of the drug and for follow ups. So, you know, that that sort of allows us, you know, initially, when we were on the small molecule side in lifetime, which is our focus was on providing them with reagents and tools and instruments and pre in vivo imaging components, who just do their research.

Patrick Donnelly: Hey, good morning, guys. Thanks for taking my questions, probably one for Max on the margin side understand this year more flattish given the revenue outlook. It sounds like you guys are continuing to implement some cost plans. There can you just talk about the confidence in that 75 bps expansion algorithm that you guys talked about a J P M and just this week.

Patrick Donnelly: Coming that 30 plus percent margin business in the relative near term what are the key levers you see and maybe just the process that went into revisiting that algorithm did you guys want to set up more as a floor, where you saw a clear path to executing on it even the China piece sounds like you're chasing more profitability. There. So maybe just kind of pull the current back a little on the margins and again that algorithm.

Yes.

Speaker Change: Yeah, sure Hey, Patrick so.

Speaker Change: As we step back and look at it from a margin perspective.

Speaker Change: I think that 75 basis points. It was taken down from the previous MRP of 75 to 100 basis points and that was mostly just attribute I think to the change in the top line assumptions.

Patrick Donnelly: Look at the assumption of the market on average is growing 4% to six where a couple of hundred basis points better than that that's going to drive natural operating leverage just from a pure growth perspective, and so even in addition to that I think where we have confidence in sort of the margin expansion is really still the fact that we're still in the early innings of what.

Patrick Donnelly: The actual overall structure of this company should be given all the transformation right in terms of the number of acquisitions and integrating them into our core business and processes as well as sort of working our way through all the stranded costs related to the divestiture. So I think we have a lot of Stokes irons in the fire from an op margin expansion standpoint outside of just.

Patrick Donnelly: The natural volume leverage you would get I think there is a high degree of confidence in in terms of your question in terms of the <unk>.

Prahlad Ramadhar Singh: Now, with the full expansion of our portfolio, it allows us to be, you know, with them from the start to when it gets to commercialization. That makes sense. The next question today comes from the line of Patrick Donnelly from City. Please go ahead; your line is now open.

Patrick Donnelly: The amount of conservatism or whether it's a floor I think we thought it was a fair number that we can consistently deliver on with that expected growth algorithm.

Patrick Donnelly: Okay. That's helpful and maybe just on China. It sounds like you guys talked a little about the Dx on an earlier question, but just in terms of this year. What you are seeing their confidence both on the diagnostics and in the life Science side, which is obviously a little more variable again. It sounds like you guys are making some changes in terms of going after it.

Max Krakowiak: Hey, good morning, guys. Thanks for taking the time to answer the question. Probably one for Max on the margin side. You know, understand this year will be more flattish given the revenue outlook. You know, it sounds like you guys are continuing to implement some cost plans there. Can you just talk about the confidence in that 75 BPS expansion algorithm that you guys talked about at JPM? And just this becoming, you know, that 30 plus percent margin business in the relatively near term. What are the key levers you see and maybe just the process that went into revisiting that algorithm?

Patrick Donnelly: More profitable business, but just the outlook in China confidence in that region and what you're seeing here near term. Thank you.

Speaker Change: Yes, Patrick I think.

Speaker Change: Nothing's changed in our view regarding China and that level of confidence is because of the portfolio differentiation. I mean, this is where I think it really comes down to a good understanding of the markets and the segments that we play in that market.

Max Krakowiak: Did you guys want to set it more as a floor where you saw a clear path to executing on it? You know, even the China piece sounds like you're chasing more profitability there. So maybe just kind of pull the current back a little on the margins. And again, that algorithm you guys. Yeah, sure. Hey, Patrick.

Speaker Change: If you just look at the portfolio that we have built out over there in terms of life Sciences side I think on the instrumentation side, we will continue to see some pressure, which is not very different from <unk>.

Speaker Change: The other global markets, but I think on the reagent side.

Max Krakowiak: So, you know, as we step back and look at it from a margin perspective, you know, I think that 75 basis points was taken down from the previous MRP of 75 to 100 basis points. And that was mostly just attributed, I think, to the change in the top line assumptions. You know, if you look at the assumption that the market on average is growing four to six, we're a couple hundred basis points better than that. That's going to drive natural operating leverage just from a pure growth perspective. And so even in addition to that, I think where we have confidence in sort of the margin expansion is really still the fact that we're still in the early innings of what the actual overall structure of this company should be given all the transformation, right, in terms of the number of acquisitions and integrating them into our core business and processes, as well as sort of working our way through all the stranded costs related to the divestiture.

Speaker Change: Continue to see.

Speaker Change: It's coming back on the immuno diagnostics side I think excluding the impact of what Mike's talked about for a small legacy business, but helps us improve profitability. It is going to be on a continued growth trajectory.

Speaker Change: Newborn screening is going to get impacted but we've got quite a few of our regions that are awaiting an NPA approval and hopefully they will compensate for the pressure that we will see from the birth rate decline. So overall I think again comes back to the differentiation of our portfolio in <unk>.

Speaker Change: China and outside of China.

Speaker Change: The lower.

Speaker Change: Risk mitigate some portfolio both the exposure to the diagnostics life sciences in the software market, which sort of in the longer run is going to be the competitive advantage that we will have.

Max Krakowiak: So I think we have a lot of spokes or irons in the fire from an operating margin expansion standpoint outside of just, you know, the natural volume leverage you would get. So I think there is a high degree of confidence. And in terms of your question, in terms of the amount of conservative or whether it's a floor, I think we thought it was a fair number that we could consistently deliver on with that expected growth algorithm. Okay, that's helpful.

Speaker Change: The next question today comes from the line of Andrew Cooper Raymond James. Please go ahead. Your line is now open.

Andrew Cooper: Hey, everyone. Thanks for the questions.

Prahlad Ramadhar Singh: Prahlad, maybe just on China, it sounds like you guys talked a little about the Meehan ODX on an earlier question, but just in terms of this year, what you're seeing there, confidence, both on the diagnostics side and then the life science side, which is obviously a little more variable. Again, it sounds like you guys are making some changes in terms of going after a little more profitable business, but just the outlook in China, confidence in that region, and what you're seeing here in the near term. Thank you.

Andrew Cooper: Maybe first I wanted to talk about margins a little bit more just for this year you have modest topline organic growth you've got 100 bps coming from price some cost actions. So I guess.

What what are some of the counterpoints to prevent being maybe a little bit of expansion year over year, and 23 or maybe asking it a different way what's the threshold of revenue growth you need to see to actually see that margin expansion.

Prahlad Ramadhar Singh: Yeah, Patrick, I think, you know, nothing's changed in our view regarding China and that that level of confidence is because of the portfolio differentiation. I mean, this is where I think it really comes down to a good understanding of the markets and the segments where we play in that market. You know, if you just look at the portfolio that we have built out over there, in terms of the life sciences side, I think on the instrumentation side, we will continue to see some pressure, which is not very different from, you know, the other global markets. But I think on the reagent side, we will, you know, continue to see it coming back. On the immunodiagnostic side, I think, excluding the impact of what Max talked about, for a small legacy business that helps us improve profitability, it is going to be on a continued growth trajectory. Newborn screening is going to be impacted, but we've got quite a few of our reagents that are awaiting MPA approval, and hopefully, they will compensate for the pressure that we will see from the birth rate decline.

Speaker Change: Yeah, Hey, Andrew I think as we've previously mentioned the one dynamic you Didnt mentioned for 2024 that we have already previously discussed is the fact that we will have variable costs that are returning in 2024 and I do not believe we are alone and that dynamic is.

Speaker Change: As you've heard some of the others in the industry mentioned it. So I think from that perspective, that's really what's offsetting to your point the price and the structural cost actions that we have been taking.

Speaker Change: As you look out more longer term I would say in a normal environment, where you don't have that snapback of the variable cost even with I would say a lower growth then.

Speaker Change: The MRP model assumes I would anticipate us still being able to drive margin expansion given some of my earlier points, but again volume is a heavy driver when you when you think about it from a margin expansion standpoint.

Speaker Change: Okay helpful and then.

Speaker Change: Maybe just one on the e-commerce rollout any early feedback there are metrics you can share in terms of what the rollout is really looked like and whether it's more on the cost side, how we think about customer retention and sort of what the benefits are as we think about that moving beyond just just a U S rollout and globally are longer term.

Prahlad Ramadhar Singh: So overall, I think it again comes back to the differentiation of our portfolio in China and outside of China. You know, the lower it sort of mitigates our portfolio, both the exposure to the diagnostics, life sciences, and the software market, which, in the longer run, is going to be the competitive advantage that we will have. The next question today comes from the line of Andrew Cooper from Raymond James. Please go ahead; your line is now open.

Speaker Change: Yes, Andrew.

Andrew Cooper: As we mentioned that we just rolled it out in mid December. So it's early days on <unk> seen good traction on it.

A customer flow perspective.

U S launches expected to be out in the early part of the second quarter. So wireless I would say, it's four to five months ahead of schedule.

Andrew Cooper: It is still early days.

Andrew Cooper: It looks promising I think over the longer term the benefit that we get out of it is not just synergies of being able to offer our comprehensive portfolio to our customers on a common platform, but obviously the synergistic opportunities that <unk> got from.

Max Krakowiak: Hey, everyone, thanks for the questions. Maybe first, I want to talk about margins a little bit more just for this year. You have modest top-line organic growth, you've got 100 bps coming from price, and some cost action. So I guess, you know, what are some of the counterpoints to prevent seeing maybe a little bit of expansion year over year in 23? Or maybe asking it a different way.

Andrew Cooper: Our cost perspective on an opex perspective.

Andrew Cooper: So.

Max Krakowiak: What's the threshold of revenue growth you need to see to actually see that margin expansion? Yeah, hey, Andrew. You know, I think, as we previously mentioned, the one dynamic you didn't mention for 2024 that we have already discussed is the fact that we will have variable costs that are returning in 2024. And I do not believe we are alone in that dynamic, as you've heard some of the others in the industry mention it. So I think from that perspective, that's really what's offsetting, to your point, the price and the structural cost actions that we have been taking. You know, as you look out more longer term, I would say in a normal environment where you don't have that snapback of the variable cost, even with, you know, I would say a lower growth than the LRP model assumes, I would anticipate us still being able to drive margin expansion But again, you know, volume is a heavy driver when you think about it from the margin expansion perspective. Okay, helpful.

Andrew Cooper: We are very excited about what you're hearing and seeing but early days is the best way I would frame it for now.

Great I appreciate it I'll stop there thanks.

Andrew Cooper: The next question today comes from the line of Catherine Schulte from Baird. Please go ahead. Your line is now open.

Catherine Schulte: Hey, guys. Thanks for the question.

Catherine Schulte: First your software and genomics lab business currency headwinds over time over the last year due to some contract renewal and project timing dynamics you mentioned the normalizing in 'twenty four but can you just walk us through the timing there and what kind of performance you expect from those businesses both for the first quarter and the full year.

Speaker Change: Yeah, sure Hey, Catherine.

Speaker Change: So as we look at maybe if we take a step back and just think about our guidance more holistically.

Speaker Change: The way to think about it is we're assuming sort of a market down low single digits. Here in 2024 revenue grows couple of hundred basis points above the market so call that flat overall and in the way we get to 2% is sort of that normalization of the software and all mix business. So it's about a 200 basis points specific <unk>.

Prahlad Ramadhar Singh: And then, maybe just one on the e-commerce rollout, any early feedback there or metrics you can share in terms of what the rollout has really looked like and whether it's more on the cost side, how we think about customer retention, sort of what the benefits are as we think about that, you know, moving beyond just the US rollout and globally in the longer term. Yeah, I mean, as we mentioned, we just rolled it out in mid-December. So it's the early days of the MVP, and we are seeing good traction on it from a customer flow perspective. The OUS launch is expected to be out in the early part of the second quarter. So I would say it's four to five months ahead of schedule. It is still early days.

And for this year.

Speaker Change: In terms of the individual assumptions for those businesses for the software business declined high single digits. In 2023, we expect it to return to high single digits growth in 2024 and for the <unk> business that was down a little bit more than 30% in 2023, and we're expecting that to be flat in 2024. So.

Speaker Change: Assuming none of those new contracts get signed.

Speaker Change: Continue to remain encouraged by the pipeline, we have for that business and if we're able to close on some of those deals that would be upside to what is assumed in the guidance case here.

Prahlad Ramadhar Singh: It looks promising. I think over the longer term, the benefit that we get out of it is not just synergies of being able to offer our comprehensive portfolio to our customers on a common platform but obviously the synergistic opportunities that you get from, you know, a cost perspective or an OPEX perspective. So, you know, we are very excited about what we are hearing and seeing, but early days is the best way I would frame it for now. I appreciate it. I'll stop there.

Speaker Change: Okay, Great and then how should we think about free cash flow in 2024, just particularly.

Speaker Change: Coming back to you.

Speaker Change: Yes, so from a from a cash flow perspective again, we're encouraged by the results that we had here in the fourth quarter.

Speaker Change: Overall year that would've meant about roughly more than $400 million. Once you normalize for those aes outflows as we look to 2024.

Our anticipation of free cash flow generation is about $450 million. The aes outflows will actually come back to us as inflows in investing cash flow.

Max Krakowiak: Thanks. The next question today comes from the line of Catherine Schulte from Baird. Please go ahead. Your line is now open.

Speaker Change: If you add that to the $450 million, we are targeting to have about $600 million of overall cash generation in 2024.

Max Krakowiak: Hey guys, thanks for the questions. Maybe first, your software and genomics lab businesses have faced headwinds over the last year due to some contract renewal and project timing dynamics. You mentioned those normalizing in 24, but can you just walk us through the timing there and what kind of performance do you expect from those businesses, both for the first quarter and the full year? Sure. Hey Catherine.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Speaker Change: Question today comes from the line of Vijay Kumar from Evercore ISI. Please go ahead. Your line is now only thing.

Vijay Muniyappa Kumar: Hi, guys. Thanks for taking my question and good morning to you maybe my first one for you on.

Vijay Muniyappa Kumar: With Q1.

Max Krakowiak: You know, so as we look at, you know, maybe if we take a step back and just think about our guidance more holistically, you know, I think the way to think about it is, you know, we're assuming sort of a market down low single digits here in 2024, and Revity grows a couple hundred basis points above the market, so call that flat overall. And then the way we get to 2% is sort of that normalization of the software and omics business. So it's about a 200 basis points specific Revity tailwind for this year.

Vijay Muniyappa Kumar: Organic guidance assumption of down mid singles is it colored comps.

Vijay Muniyappa Kumar: When you look at Q4 down low singles.

Vijay Muniyappa Kumar: Most of your peers are assuming first half to be similar to Q4 jump off so maybe just talk a sequentially.

Perhaps what's driving that.

Vijay Muniyappa Kumar: Changed from down low singles or down mid singles.

Speaker Change: Yes, I think as we've talked about.

Speaker Change: From a Q4 to a Q1 perspective and a lot of it is obviously the comps that we had.

Max Krakowiak: You know, in terms of the individual assumptions for those businesses, for the software business, it declined in high single digits in 2023, and we expect it to return to high single digit growth in 2024. And for the omics business, that was down a little bit more than 30% in 2023, and we are expecting that to be flat in 2024. So, essentially, assuming none of those new contracts get signed, we continue to remain encouraged by the pipeline we have for that business. And if we're able to close on some of those deals, that would be upside to what's assumed in the guidance case here. Okay, great.

Speaker Change: From last year. So it is more of an impact of that than anything else and I think as <unk> laid out the cadence of the calendar for the year, but there's nothing outside of that that I would say, we do have some pressure from reproductive health, especially in China.

Speaker Change: The instrument side.

Speaker Change: You will see some impact of that but more than anything else. It is just timing is where I would.

Speaker Change: <unk> allocated to the the impact that we see on <unk> anything else, yes, I mean, the only thing I'd add to that BJ you mentioned it yourself right. Most are saying that the first half will be similar to what they had in Q4 and Thats. What I just mentioned previously right that our first half assumption is down low single digits, which is in line with what we just printed for the fourth quarter.

Speaker Change: Understood and Max maybe one for you gross margins in Q4.

Max Krakowiak: And then how should we think about free cash flow in 2024, particularly with those AES outflows coming back? Yeah, so from a cash flow perspective, again, we were encouraged by the results that we had here in the fourth quarter. You know, for the overall year, that would have meant about roughly more than $400 million once you normalize for those AES outflows. As we look to 2024, you know, our anticipation of free cash flow generation is about $450 million. The AES outflows will actually come back to us as inflows in investing cash flow. If you add that to the $450 million, we are targeting to have about $600 million of overall cash generation in 2024. Great, thank you. Thank you. The next question today comes from the line of Vijay Kumar from Evercore ISI. Please go ahead; your line is now open. Hi guys, thanks for taking my question. A good morning to you, Prahlad. Maybe my first one for you on the Q1, the organic guidance assumption of downlet signals.

Speaker Change: Down sequentially, so what happened in Q4 and not when you think about fiscal 'twenty.

Max Krakowiak: <unk> thousand four guide is the guide assumes gross margins to be flattish up or down versus fiscal 'twenty three.

Max Krakowiak: Yes, sorry, Vijay I might've missed the first part of your question. I think you were you were mentioned on just asking the question on gross margin for this year. So in the fourth quarter. The gross margin was about 60% it was down quarter over quarter as we had some mix dynamics play out in the fourth quarter as we look to full year.

Max Krakowiak: 2024, we expect gross margin to be roughly flat year over year, and we expected to build as the year goes on as we get increased volume leverage throughout the year.

Vijay Muniyappa Kumar: And so essentially the mix improves Max is that the assumption like what's driving the step up from Q4.

Speaker Change: Yes, I think from Q4 to Q1, its relatively similar we're expecting kind of a similar mix dynamic from Q4 to Q1 as the rest of the year progresses. It is a mostly a volume leverage story as opposed to a massive change in mix dynamics.

Speaker Change: Fantastic Thanks, guys.

Speaker Change: The next question today comes from the line of Dan Brennan from TD Cowen. Please go ahead. Your line is now open.

Prahlad Ramadhar Singh: You did call out com. You know, you look at Q4 down-low signals, most of your peers are assuming the first half to be similar to a Q4 jump-off, so maybe just talk sequentially about, perhaps, what's driving that change from down-low signals to down-mid signals. Yeah, I think you know, as we talked about, we are from a Q4 to a Q1 perspective, and a lot of it is obviously the comps that we had from last year. So it is more the impact of that than anything else. And I think, as Max laid out the cadence of the calendar for the year, there is nothing, you know, outside of that, that I would say, you know, we do have some pressure from reproductive health, especially in China, you know, and on the instrument side, we will see some impact of that. But more than anything else, it is just timing. I would, you know, allocate it to the impact that we see on one Q versus anything else Yeah, I mean, the only point I'd add to that, Vijay, you mentioned it yourself, right?

Dan Brennan: Great. Thanks, Thanks for the questions guys.

Dan Brennan: So <unk> another solid quarter in the year could you just give us a sense of kind of what's driving the strong growth in like what's the range of outcomes. We can expect for 'twenty four.

Dan Brennan: And then I think again.

Dan Brennan: Talked about earlier it is the differentiated portfolio of the high end Euro immune test that we have in China that allows us.

Dan Brennan: To be in the face of.

Dan Brennan: Limited competition that we see in that marketplace and that has.

Dan Brennan: Our innovation pipeline has worked for US and then we expect that to continue as we look forward.

Okay.

Speaker Change: Got it okay.

Speaker Change: Maybe on pharma I know you kind of talk about it throw out a little bit but it was a key drag in Q3.

Speaker Change: You guys talked about instruments still under pressure here, maybe from a post Covid hi, just can you speak to some of your discussions with pharma.

Speaker Change: What do we expect this year, just kind of any more color on kind of what you're hearing there. Thank you.

Max Krakowiak: Most are saying that the first half will be similar to what they had in Q4. And that's what I just mentioned previously, right, that our first half assumption is down low single digits, which is in line with what we just printed for the fourth quarter. Okay. Max, maybe one for you.

Speaker Change: Yes, I think on the instrument side or on the capital side I think we will continue to see some pressure or at least the current trend we expected to continue in the first half of the year.

Speaker Change: The benefit again that allows us is that the agent side of the portfolio once that starts stabilizing and coming up in the second half of the year, that's what that's about.

Max Krakowiak: If you have gross margins in Q4, down sequentially, so what happened in Q4? And when you think about Fiscal 24's guidance, is the guide assuming gross margins to be flattish, up or down versus Fiscal 23? Yeah, sorry, Vijay, I might have missed the first part of your question.

Speaker Change: The assumption that we have in our current forecast allow.

Allows us to have confidence that we would move forward.

Speaker Change: Overall, as we see farmer.

Speaker Change: I continue to believe that this is a temporary drove in the marketplace and I think it will continue it will come back to what we have seen is normal pattern of mid single digit growth in the market over the past several years.

Max Krakowiak: I think you were mentioned when just asking the question on gross margin for this year. So in the fourth quarter, the gross margin was about 60%. It was down quarter over quarter as we had mix dynamics play out in the fourth quarter.

Max Krakowiak: You know, as we look to full year 2024, we expect gross margin to be roughly flat year over year, and we expect it to build as the year goes on as we get increased volume leverage throughout the year. And so, essentially, the mix improves.

Speaker Change: Got it thank you.

Speaker Change: Okay.

Speaker Change: The next question today comes from the line of <unk> from Bernstein Research. Please go ahead. Your line is now open.

Bernstein Research: Good morning, Thanks, a lot for the question.

Bernstein Research: First one you talked about you've already taken structural cost necessary to satisfy the tier ones are small cost actions in 2008.

Max Krakowiak: Max is at the assumption, like what's driving the step up from Q4. Yeah, I think from Q4 to Q1, it's relatively similar. We're expecting kind of a similar mixed dynamic from Q4 to Q1. As the rest of the year progresses, it is mostly a volume leverage story as opposed to a massive change in mixed dynamics. Fantastic, thanks guys. The next question today comes from the line of Dan Brennan from TD Cowan. Please go ahead. Your line is now open.

Bernstein Research: Can you just give us some more color on what for vaccines are and what's giving you confidence in the ability to achieve that.

Bernstein Research: Timeframe.

Bernstein Research: Yes.

Bernstein Research: So from a structural cost action perspective, the easiest way to think about it is really just right sizing the company given all of the transformation whether that the integration of the acquisitions, which I mentioned, we are still what we would consider in the early to mid innings.

Bernstein Research: From a process standpoint, and then it's working our way through the stranded costs from the divestiture. So thats really whats driving the structural cost actions in terms of the confidence those actions have already been taken placing communicated theres a little bit of timing in terms of when the actual cost comes out throughout the course of the year, but those actions have more or less.

Prahlad Ramadhar Singh: Great, thanks. Thanks for the questions, guys. So, Amino DX, another solid quartering year.

Prahlad Ramadhar Singh: Can you give us a sense of kind of what's driving the strong growth and, like, what's the range of outcomes we can expect for 24? And I think, again, as I've talked about earlier, it is the differentiated portfolio of the high-end neuroimmune tests that we have in China that allows us to be in the face of, you know. Limited competition that we see in that marketplace and that has an innovation pipeline has worked for us, and we expect that to continue as we look forward. Okay, maybe on pharma.

Bernstein Research: That's already been executed and it's just a matter of timing at this point. So we have I would say a high degree of confidence in those for this year.

Speaker Change: Great. Thank you.

Speaker Change: And then.

Speaker Change: You just talked about.

Speaker Change: Integration of your acquisitions is that it's still early to mid innings and thank you all for Sharon.

Speaker Change: An example of how you brought.

Speaker Change: Biogen together with other parts of your business today is something really cool.

Prahlad Ramadhar Singh: I know you kind of talked about it throughout a little bit, but it was a key drag in Q3. You guys talked about instruments still under pressure here, maybe from a post-COVID high. Can you speak to some of your discussions with pharma? You know, what do we expect this year? Just kind of any more color on kind of what you're hearing there.

Speaker Change: Where are you really so it's been exit target of $100 million.

Speaker Change: In order to assess at the year two first of all the way through.

Speaker Change: Yeah.

Speaker Change: Where would you put yourself on that scale.

Prahlad Ramadhar Singh: Thank you. Yeah, Dan, I think on the instrument side or on the capital side, I think we will continue to see some pressure, or at least the current trend we expect it to continue in the first half of the year. You know, the benefit, again, that allows us is that the agent side of the portfolio, once that starts stabilizing and coming up in the second half of the year, is that. The assumption that we have in our current forecast allows us the confidence that we would look at. Overall, as we see pharma, I continue to believe that this is a temporary blip in the marketplace, and I think it will continue. It will come back to what we have seen is I got it.

Speaker Change: Yes.

Speaker Change: Good morning, Hugh I don't think I'm going to quantify as to what's the dollar amount of how much synergies we are seeing.

The intent of what we provided as an example is how how we are starting to see not just commercial synergies from the full portfolio, but also operational and technological synergies and I think as Mac said I would say we are still in the early to mid innings of.

Speaker Change: The opportunities that we see from integration of the acquisitions and then keep in mind duals are acquisitions by legendary neuro immune at two of our strongest and fastest growing businesses and then and I think the opportunities that they provide our crown jewels in our portfolio and we expect them to continue to perform.

Speaker Change: Wrote our intent is how do we support those businesses and how do we leverage the opportunities that we see across the portfolio of wisdom.

Prahlad Ramadhar Singh: Thank you. The next question today comes from the line of Yves Bernstein from Bernstein Research. Please go ahead; your line is now open.

Speaker Change: Great. Thank you.

Our final question today comes from the line of <unk> <unk> from Barclays. Please go ahead. Your line is now open.

Max Krakowiak: Good morning. Thanks a lot for the questions. Um, first one, you said that you've already taken structural cost measures so far this year, and you'll be taking additional cost actions in 24. Can you just give us some more color on what those actions are and what's giving you confidence and the ability to achieve those benefits in this timeframe? Yeah, hey, so from a structural cost action perspective, the easiest way to think about it is really just right sizing the company given all the transformation, whether that's the integration of the acquisitions, which I mentioned were still what we would consider in the early to mid-innings from a process standpoint, and then it's working our way through the stranded costs from the divestiture.

Barclays: Awesome. Thanks for squeezing me in.

Barclays: So real quick on the <unk>.

Barclays: Margin target you said like a few hundred basis points lower than you are four years. So I assume that's around like 25% can you talk about.

Speaker Change: Even though the growth and everything looks a little bit like.

Speaker Change: <unk> can you just talk about what's really driving that that T cell and then kind of where youre going to get the the margin uplift throughout the year and then on that steep ramp.

Speaker Change: Yeah, Hey, look so I think maybe just to tackle the margin question first as you kind of led with that so look I don't think your math is that far off from Q1, I think we've given you the pieces below the line in Q1 that youre going to get to the roughly that number.

Max Krakowiak: So that's really what's driving the structural cost actions. In terms of confidence, those actions have already been taken place and communicated. There's a little bit of timing in terms of when the actual costs come out throughout the course of the year, but those actions have more or less already been executed, and it's just a matter of timing at this point. So we have, I would say, a high degree of confidence in them for this year. Great. Thank you.

Speaker Change: As you look at comparisons comparing that to Q4 I would say the.

Speaker Change: Two main I really the main driver of that is just a volume step down from a from a topline perspective. If you look at the actual overall gross margin percentage roughly flat quarter over quarter Opex costs are similarly in line quarter over quarter, and so from that standpoint, I don't think really much change again.

You then look at the volume ramp over the remainder of the year as we mentioned one youre going at the timing of the structural cost actions coming into play and the second piece is you're going to have volume leverage as the year builds. So that's how I would think about it from a margin perspective in terms of the slowdown from an organic growth perspective between Q4 to Q1 I think we mentioned.

Prahlad Ramadhar Singh: And then you just talked about integration of your acquisitions. You said it's still early to mid innings, but you also shared an example of how you brought BioLegend together with other parts of your business to do something really cool. Where are you really against your synergy target of $100 million in year five? You're, you know, two-fifths of the year away. Two-fifths of the way through. Where would you put yourself on that?

Speaker Change: Part of that is definitely comp driven and the biggest piece of that is going to be on the immuno diagnostics business outside of China outside of China in the first half last year immuno diagnostics grew in the high teens.

Prahlad Ramadhar Singh: Yeah, I'm not, you know, good morning. I don't think I'm going to quantify as to the dollar amount of how much synergies we are saying. The intent of what we provided as an example is that we are starting to see not just commercial synergies from the full portfolio but also operational and technological synergies. You know, as Max said, I would say we are still in the early to mid innings of the opportunities that we see from integration of the acquisitions. You know, keep in mind, two of our acquisitions, BioLegend and Euroimmune, are two of our strongest and fastest growing businesses. And I think the opportunities that they provide are crown jewels in our portfolio, and we expect them to continue to perform well. Our intent is how do we support those businesses, and how do we leverage the opportunities that we see across the portfolio with them. Great, thank you. Our final question today comes from the line of Luke Sirgott from Barclays. Please go ahead, Luke. Your line is now open. Awesome. Thanks for squeezing me in.

Speaker Change: Always said it should be sort of a low double digit and so there is just some normalization there on a two year stack for.

Speaker Change: For our immuno diagnostics business outside of China.

Speaker Change: Great. Thanks, I was just referring to the <unk> kind of just the similar.

Were pretty steep decline there in the margin I got the the core commentary.

Speaker Change: And then I guess on the software piece you guys have talked about converting a lot of these customers more of a SaaS base and thats kind of reduce aiming to reduce the lumpiness in the orders and talk about the progress that youre seeing there.

Speaker Change: And then on the non SaaS piece can you talk about what the orders look like and if they are inflicting because as you talked gave that 2% framework prior who were talking about just the software is.

Speaker Change: Not a headwind next year or the way that the contract coming that will just be at least 100 basis points of lift.

Speaker Change: Yes.

Speaker Change: So and.

Speaker Change: And then I'll maybe start with your second question first look so as I mentioned software business was down high single digits in 'twenty three it should be moving to up high single digits. That's what's assumed in our guidance here for 24 that is roughly 125 basis points of the overall company from an organic growth perspective.

Max Krakowiak: So real quick on the 1Q margin target, you said it was a few hundred basis points lower than your four year. So I assume that's around like 25%. Can you talk about, you know, even though it's growth and everything looks a little bit like the 4Q, can you just talk about what's really driving that decel and then kind of where you're going to get the margin uplift throughout the year on that steep ramp? Yeah, hey, Luke.

Speaker Change: So as you look at that dynamic, it's really driven by this contract renewals again thats a business that has.

Speaker Change: Upper 90% renewal rate and so most of the contracts, we know they're coming due and I would say have a high degree of confidence in our ability to deliver on our R 24 expectations.

Speaker Change: And then to your first question on sort of the SaaS transition I think we continue to make really good progress we view the transition to SaaS is actually a differentiator for us versus our peers. We believe we are.

Max Krakowiak: So I think maybe just to tackle the margin question first, you kind of led with that. So look, I don't think your math is that far off from Q1. I think we've given you the pieces below the line in Q1 that you're going to get to roughly that number.

Speaker Change: Of them in terms of that transition and so although that might create a little bit of noise from a revenue recognition standpoint. It is the right thing to do for the business that we think are SaaS products are going to help us actually take share from our competition and.

Max Krakowiak: You know, as you compare that to Q4, I would say the two main, really the main driver of that is just the volume step down from a top line perspective. If you look at the actual overall gross margin percentage, it's roughly flat quarter over quarter. Opex costs are similarly in line quarter over quarter.

Speaker Change: Look in the longer term it definitely help us to increase revenue and reduce our volatility for that business, which I think is another one.

Speaker Change: Opportunities that.

Speaker Change: Software business provides us from a differentiation perspective.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Max Krakowiak: And so from that standpoint, I don't think really much has changed. You know, again, as you then look at the volume ramp over the remainder of the year, as we mentioned, one, you're going to have the timing of the structural cost actions coming into play. And the second piece is, you know, you're going to have volume leverage as the year builds. So that's how I would think about it from a margin perspective. In terms of the slowdown from an organic growth perspective between Q4 and Q1, I think we've mentioned part of that is definitely comp driven, and the biggest piece of that is going to be the immunodiagnostics business outside of China. You know, outside of China in the first half of last year, immunodiagnostics grew in the high teens.

Speaker Change: This concludes today's question answer session. Okay, it's possible back over to Steve Willoughby for any closing remarks.

Steve Willoughby: Thank you. Thanks for your interesting questions today, and we look forward to further discussions over the coming weeks have a good day bye bye.

Steve Willoughby: Yes.

Speaker Change: This concludes today's conference call. Thank you will feel participation you may now disconnect your lines.

Speaker Change: [music].

Max Krakowiak: You know, we've always said it should be, you know, sort of a low double digit. And so there is just some normalization there on a two-year stack for the immunodiagnostics business outside of China. Yeah, great. Thanks.

Max Krakowiak: I was just referring to the 4Q to 1Q kind of just the similar you have ever, I guess on the software piece, you guys have talked about, converting a lot of these customers more to SaaS-based ones and that's kind of aiming to reduce the lumpiness in the orders and talk about the progress that you're seeing there. And then, you know, on the non-SaaS piece, can you talk about what the orders look like and if they're inflecting? Because as you talked, gave that 2% framework prior, we were talking about just if software's not a headwind next year or the way that the contracts come in, that would just be at least 100 basis points of lift. Yes, So, Matt, I'll maybe start with your second question first, Luke. So, as I mentioned, the software business was down high single digits in 2023. It should be moving to the high single digits.

Max Krakowiak: That's what's assumed in our guidance here for 2024. That is, you know, roughly 125 basis points to the overall company from an organic growth perspective. And so, as you look at that dynamic, it's really driven by this contract renewal. Again, that's a business that has, you know, an upper 90% renewal rate.

Max Krakowiak: And so, most of the contracts, we know what they're coming to, and I would say I have a high degree of confidence in our ability to deliver on our 24 expectations. And then, to your first question on sort of the SaaS transition, I think we continue to make really good progress. We view the transition to SaaS as actually a differentiator for us versus our peers. We believe we are ahead of them in terms of that transition. And so although that might create a little bit of noise from a revenue recognition standpoint, it is the right thing to do for the business. And we think our SaaS products are going to help us actually take share from our competition. Yeah. And Luke, in the longer term, it definitely helps us increase revenue and reduce our volatility for that business, which I think is another one of the opportunities that the software business provides us from a differentiation perspective.

Max Krakowiak: Great, thank you. This concludes today's question and answer session. I'd like to pass the call back over to Steve Willoughby for any closing remarks. Thank you. Thanks for your interesting questions today, and we look forward to further discussions over the coming weeks. Have a good day. Bye bye. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.