Q4 2024 Revvity Inc Earnings Call
Speaker Change: Hello everyone and thank you for your patience. Today's call will begin shortly.
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Lydia: Hello everyone and welcome to Revity's fourth quarter 2024 earnings call. My name is Lydia and I'll be your operator today.
Speaker Change: After the prepared remarks there will be an opportunity to ask questions. If you'd like to participate in the Q&A you can do so by pressing star followed by 1 on your telephone keypad. I'll now hand you over to Steve Willoughby, Senior Vice President of Investor Relations to begin. Please go ahead when you're ready.
Steve Willoughby: Thank you, Operator. Good morning, everyone, and welcome to Revity's 4th Quarter 2024 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.
Steve Willoughby: I'd like to remind you of the safe harbor statements outlined in our press release issued earlier this morning and those in our SEC filings.
Steve Willoughby: Statements or comments made on this call may be forward-looking statements, which may include, but may not be limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions.
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.
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 today's 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 measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release.
Speaker Change: I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?
Thank you, Steve, and good morning, everyone.
Speaker Change: In 2024, we made substantial progress towards achieving Gravity's full potential.
Speaker Change: We expect this progress to be even more evident externally, once industry demand more fully normalizes.
Speaker Change: which I believe we are now on a solid path towards as we start 2025.
Speaker Change: We've made meaningful strides in the last year by more fully integrating our recent acquisitions, capitalizing on initial synergy opportunities, right-sizing our operations for the company we've now become, all while bringing significant new innovations to the market.
Speaker Change: We witness this progress every day within our organization and it is becoming increasingly apparent externally as well.
Speaker Change: In 2024, we again outperformed most of our peers in terms of top-line growth, margin expansion, and adjusted EPS growth as our earnings per share were up a solid mid-single digits year over year.
Speaker Change: This differentiated performance was on display in the fourth quarter as we generated 6% organic growth overall with over 30% adjusted operating margins.
Speaker Change: This led our adjusted EPS to be $1.42, which was solidly ahead of our expectations.
Speaker Change: I expect this outperformance will continue as we move forward due to Revity's significant operating leverage potential and differentiated growth prospects, which we believe will really start to shine through as pharma biotech spending continues to normalize.
Speaker Change: We are encouraged by the pharma biotech customer behavior we saw in the fourth quarter as our life science consumables continue to grow both sequentially and year over year.
Speaker Change: Given the fairly early cycle and quick turnover nature of our consumables due to their high degree of specificity,
Speaker Change: This was a promising sign that restructurings and other meaningful reductions from our pharma customers may now be behind us.
Speaker Change: However, we have yet to see a complete return to more normalized customer behavior, given our continued software trends during the latter part of 2024, particularly for our high-ticket life science instrumentation.
Speaker Change: Consequently, as Max will touch on more in a bit, we expect the stabilized demand environment we have seen from our pharma customers over the last two quarters.
to continue for the time being as we enter 2025.
particularly given the increased uncertainties which exist today.
Speaker Change: With the industry's rebalancing of demand over the last two years, we feel it is appropriate to assume the current environment continues until we actually begin to see more meaningful and concrete improvements in overall demand.
Speaker Change: With this backdrop, we are looking for our total company organic growth in 2025 to be in the 3-5% range, which would be an improvement compared to the past couple of years.
Speaker Change: But still not fully back to what we believe is our normalized growth rate.
Speaker Change: Should demand start to improve more quickly than we are currently contemplating in this guidance, we would look to update our outlook appropriately as the year progresses.
Speaker Change: Following the last two years in which we actively managed our levels of internal spending
Speaker Change: We are planning to step up our strategic internal investments in 2025 based on our expectation for organic growth to begin to improve this year.
from the 28.3 we generated in 2024.
Speaker Change: We anticipate this will result in the third consecutive year of differentiated growth and margin performance within our industry.
Speaker Change: To jointly commercialize and IBD workflow for neonatal sequencing.
Speaker Change: This initiative builds on our recently launched <unk> workflow for newborn sequencing.
Speaker Change: Which utilizes elements of it deep sequencing system.
Speaker Change: Once this cutting edge IBD solution is approved and commercialized it.
Speaker Change: It will highlight a continuation of our global leadership in newborn screening.
Speaker Change: While supporting elements entry into the clinical diagnostic market.
Speaker Change: Now that we are well into our second year of our transformation is gravity.
Speaker Change: We announced in mid November that beginning in 2025.
Speaker Change: We will be re segmenting the majority of what was our applied genomics business.
Speaker Change: And moving it from our diagnostics reporting segment into our life Sciences segment.
Speaker Change: We expect this change to benefit us both operationally and commercially.
Speaker Change: As part of this new segmentation, we are establishing a new life science solutions business unit within our life Sciences segment, which will consist of the former applied genomics businesses.
Speaker Change: And our existing life sciences instruments, consumables and technology and licensing businesses.
Speaker Change: The new life Sciences solutions unit will represent approximately 85% of our overall life Sciences segment.
Speaker Change: With the remainder accounted for by our signals software business.
Speaker Change: As we previously highlighted our financial reporting will reflect this change.
Speaker Change: Beginning with our first quarter 'twenty five quarterly results, which we will release next quarter.
Speaker Change: Overall, it appears we announced solidly on an upward trajectory heading into 2025 compared to what we and our industry have experienced over the past two years.
Speaker Change: However, we still have some uncertainty as to what the slope of this recovery will look like over the full year.
Speaker Change: So for the time being we are assuming that the current demand environment continues for the entirety of the year.
Speaker Change: However, it is a specialty company.
Speaker Change: One that is leveraging the impressive creativity.
Speaker Change: Passion and knowledge base of our employees.
Speaker Change: To allow us to be uniquely positioned to capitalize on where science and medicine are going in the future.
Speaker Change: We strongly believe that these efforts will result in both top tier financial performance for our investors.
Speaker Change: And dramatic advancements for patients around the world.
Speaker Change: With that.
Max Krakowiak: I will now turn the call over to Max.
Max Krakowiak: Thanks, <unk> and good morning, everyone as prolonged mentioned, we finished the year on a strong note as our fourth quarter results came in solidly above our expectations and guidance, while demand trends have not yet fully normalized amongst all of our pharma customers. It does appear that they have at least stabilized and things may be starting to move.
Max Krakowiak: In the right direction.
Max Krakowiak: As our markets continue to appear to be in a recovery phase we remain diligent on those initiatives, which are more fully in our control.
Max Krakowiak: This was evident in both our quarterly adjusted operating margin performance of 33% and our high levels of cash generation.
Max Krakowiak: We leveraged our strong financial performance and balance sheet position to remain aggressive with our share repurchase activity in the quarter as we were able to buy back another $185 million worth of our shares as.
Max Krakowiak: As we look ahead to 2025, we continue to be well positioned to deliver that differentiated financial performance. We have achieved over each of the last two years.
Max Krakowiak: In the fourth quarter the company generated total adjusted revenues of $730 million, resulting in 6% organic growth, which was above the high end of our expectations.
Max Krakowiak: The organic revenue growth outperformance was fairly broad based as both our life Sciences, and our diagnostics segment performed slightly above our expectations in the quarter or.
Max Krakowiak: Our life Science reagents and software businesses performed above expectations and we saw continued strength in our reproductive health business.
Max Krakowiak: This was offset by persisting challenges in our instrumentation business and greater than anticipated FX headwinds.
Max Krakowiak: FX was a 1% headwind, which was nearly 200 basis points worse than our expectations due to the stronger dollar over the last several months.
Max Krakowiak: We also again had no incremental contribution from acquisitions.
Max Krakowiak: For the full year, we generated $2 76 billion of total adjusted revenue, which was comprised of 1% organic growth modest FX headwinds and no impact from M&A.
Max Krakowiak: As it relates to our P&L, we generated 33% adjusted operating margins in the quarter, which were in line with our expectations as some increased investments offset the organic growth upside for.
Max Krakowiak: For the full year, our adjusted operating margins were 28, 3%.
Max Krakowiak: Which represented approximately 30 basis points of expansion year over year and demonstrates the margin power of our business given our only 1% organic growth for the year.
Max Krakowiak: Looking below the line, we had adjusted net interest and other expense of $17 million, which was in line with our expectations and brought the full year adjusted net interest and other expense to $43 million.
Max Krakowiak: Our adjusted tax rate was 15, 7% in the quarter as we continue to see benefits from our recent tax planning initiatives. This.
Max Krakowiak: This resulted in a full year adjusted tax rate of 18, 4%.
Max Krakowiak: With an average diluted share count of $121 6 million in the quarter. This resulted in adjusted EPS in the fourth quarter of $1 42.
Max Krakowiak: Which was four cents above the midpoint of our guidance and <unk> <unk> above the high end, despite approximately <unk> of pressure from the unanticipated FX headwinds.
Max Krakowiak: For the full year, our adjusted EPS was $4 90.
Max Krakowiak: Which was 25 above the midpoint of our initial guidance at the beginning of the year and represented 5% growth year over year.
Max Krakowiak: Moving beyond the P&L, we again had a strong quarter from a cash perspective generating free cash flow of $151 million in the quarter.
Max Krakowiak: This brought our full year free cash flow to $578 million equating to 96% conversion of our adjusted net income.
Max Krakowiak: Our focus on cash is clearly paying off and I am excited about the potential for additional improvements in this area as we enter 2025.
Max Krakowiak: As for deploying this capital we remained active in the fourth quarter by repurchasing another $185 million worth of our shares.
Max Krakowiak: This brought our full year 2020 for buyback activity to $370 million and nearly $750 million over the last two years combined.
Max Krakowiak: Between our fourth quarter repurchases and some additional activity. So far in January we now have approximately $800 million remaining on the new $1 billion repurchase authorization. We just received from our board in October.
Max Krakowiak: Despite this activity our balance sheet remains strong as we finished this year with a net debt to adjusted EBITDA leverage ratio of two three times.
Max Krakowiak: I will now provide some commentary on our fourth quarter and full year business trends.
Max Krakowiak: Which are also included in the quarterly slide presentation on our Investor Relations website.
Max Krakowiak: The 6% organic revenue growth in the quarter was comprised of 5% growth in our life Sciences segment and 6% growth in diagnostics.
Max Krakowiak: Geographically we grew in the mid single digits in the Americas grew in the low single digits in Europe and grew mid single digits in Asia with China up high single digits.
Max Krakowiak: For the full year, we achieved 1% organic growth with 4% growth in diagnostics and a 3% decline in life Sciences.
Speaker Change: The Americas grew low single digits Europe declined low single digits and Asia grew low single digits with China also declining low single digits for the full year.
Speaker Change: Within China in the quarter, we experienced low single digit growth in diagnostics with mid single digit growth in both immuno diagnostics and reproductive health.
Speaker Change: Offset by double digit declines in applied genomics.
Speaker Change: We saw mid teens growth in life Sciences with high single digit growth in our reagents and consumables and double digit growth for our instrumentation.
Speaker Change: For the full year, China decline in the low single digits organically with similar performance across both diagnostics and life sciences, including mid single digit growth in our immuno diagnostic and life science reagent businesses in the region.
Speaker Change: From a segment perspective, our life Sciences business generated total adjusted revenue of $336 million in the quarter.
Speaker Change: This was up 5% on both a reported and organic basis.
Speaker Change: For the full year, our life Sciences business was down low single digits organically.
Speaker Change: From a customer perspective sales into pharma biotech customers Roes in the mid single digits in the quarter and declined in the low single digits for the year.
Speaker Change: The mid single digit growth from pharma biotech in the fourth quarter with the first quarter of positive growth from this customer base since the first quarter of 2023.
Speaker Change: Sales into academic and government customers rose in the low single digits in the quarter and declined in the low single digits for the full year.
Speaker Change: Our life Sciences instrument revenue represented about 27% of total life Sciences revenue in 2024 and was down high single digits in the quarter and down low double digits for the full year.
Speaker Change: Our reagent licensing and specialty pharma services revenue represented about 57% of life Sciences revenue in 2024 and grew mid single digits in the quarter and declined in the low single digits for the year, which included an approximately 300 basis point headwind from lower technology and licensing revenue year over year.
Speaker Change: Sure.
Speaker Change: Finally, our signals software business, which represented the remaining 16% of life Sciences revenue in 2024 grew more than 30% in the quarter and was up in the low teens for the year.
Speaker Change: As it pertains to some of the software industry specific metrics, which we first highlighted at our recent Investor day, our signals business had over 30% growth in SaaS annual recurring revenue in 2024, with 106% net retention rate and its renewals.
Speaker Change: This resulted in another year of double digit growth and its annualized portfolio value.
Speaker Change: In our diagnostics segment, we generated $393 million of total adjusted revenue in the quarter, which was up 4% on a reported basis and 6% on an organic basis for.
Speaker Change: For the full year, our diagnostics business was up 4% organically.
Speaker Change: Our immuno diagnostics business represented 51% of our total diagnostic revenue in 2024.
Speaker Change: And grew organically in the mid single digits in the quarter and was up high single digits for the full year.
Speaker Change: Our reproductive health business, which represented about 35% of total diagnostics revenue in 2024 grew in the high single digits organically in the quarter and was up mid single digits for the full year.
Speaker Change: Finally, our applied genomics business, which represented the remaining roughly 14% of total diagnostics revenue in 2024 grew in the low single digits organically during the quarter, which was slightly better than we had anticipated and was down in a low double digits for the full year.
This business continues to be impacted by lower levels of pharma biotech spend and the significant capacity build out that occurred during the pandemic.
Speaker Change: However, it was encouraging to see it return to growth during the quarter, excluding COVID-19 for the first time since the third quarter of 2022.
Speaker Change: As a reminder, starting in 2025 most of our applied genomics business will be moving over to our life Sciences segment with the remainder being folded into immuno diagnostics within our diagnostics segment.
Speaker Change: Consequently, this will be the last quarter in which we specifically report on its quarterly performance as a business unit.
Speaker Change: Now looking ahead to our outlook for 2025.
Speaker Change: As discussed it does appear that demand trends from our life Sciences customers had at least stabilized over the last few months and may be starting to show some signs of eventual improvement.
Speaker Change: We expect this path towards more historically normal levels of demand to continue throughout this year.
Speaker Change: However for the time being given the current political and regulatory uncertainties that exists we are not assuming any significant improvement in our end markets. This year.
Speaker Change: If things start to more meaningfully improve it would represent upside to our current expectations.
Speaker Change: With this backdrop, we are looking for an improvement in our total company organic growth this year as compared to the more modest growth we've experienced each of the last two years. While we are not currently expecting that things will be back to more normalized levels of 6% to 8% growth, which we assume in our long range plan.
Speaker Change: Consequently, our total company outlook for this year is for organic growth to be in the 3% to 5% range with balanced levels of growth expected throughout the year, including 3% to 5% organic growth expected here in the first quarter of the year.
Speaker Change: The recent strength in the dollar assuming exchange rates as of the end of December FX is currently assumed to be a one 5% headwind to our overall revenue for the year and then an approximate 2% headwind here in the first quarter.
Speaker Change: This assumed FX headwind equates to an approximate <unk> <unk> headwind to EPS for the year.
Speaker Change: This results in our reported revenue growth for the full year 2025 expected to be in the one 5% to three 5% range given no assumed contribution from acquisitions.
Speaker Change: We expect this all to results and our 2025 total revenue to be in a range of $2 eight to $2 $85 billion overall.
Speaker Change: As provided mentioned after two years of restructurings and more restricted levels of investment spending we are planning to step up our strategic internal investments in 2025.
Speaker Change: Despite this planned step up in investments the power of our margin potential is still expected to be on display as we are assuming 20 to 40 basis points of operating margin expansion overall this year, resulting in our adjusted operating margins being in the $28 five to 28, 7% range overall.
Speaker Change: We had fantastic performance as it pertains to our cash generation in 2024, which I anticipate will continue this year.
Speaker Change: However.
Speaker Change: We will have a significantly lower level of interest income this year, given our lower cash balances after paying off over $700 million and low cost debt last year and lower overall returns on our cash following recent rate cuts.
Speaker Change: Consequently, we expect our net interest expense and other to be approximately $70 million. This year up from the $43 million net expense, we had last year, but consistent with the quarterly run rate shown here in the fourth quarter.
Speaker Change: As we had also previewed at our Investor Day in November we expect our recent global tax reform to have some modest upward pressure on our tax rate. This year, which we are actively working to offset through our planning initiatives.
Speaker Change: We currently expect the net impact of this to result in our full year adjusted tax rate to be approximately 20%.
Speaker Change: Up from the 18, 4% we had in 2024.
Speaker Change: Lastly, we are anticipating a full year average diluted share count of approximately $120 million, which assumes modest repurchase activity continues throughout the year.
Speaker Change: We expect all of this to result in our full year 2025 of adjusted earnings per share to be in a range of $4 90 to $5 with approximately 19% of our full year earnings to occur in the first quarter given a higher initial tax rate expected to start the year.
Speaker Change: Given our strong focus and continued progress on our cash generation initiatives. We expect this to result in free cash of approximately $500 million. This year, which does not include an additional approximate $50 million of anticipated proceeds we expect to receive from the Aes divestiture.
Speaker Change: Sure.
Speaker Change: Overall, we had a strong finish to 2024 and expect to see improving trends in 2025, which should position us well to move back to more normal levels of growth in the future.
Speaker Change: Despite our planned step up in investment spending we expect another solid year of margin expansion with even more opportunities in front of us once we return to more robust levels of topline growth.
Speaker Change: Overall remedy is starting to externally show, it's transformed and differentiated financial potential as a company, while continuing to deliver significant new innovations to the market, which are having a profound impact on patients' lives.
Speaker Change: With that operator, we would now like to open up the call for questions.
Speaker Change: Thank you. Please press star followed by the number one if you'd like to ask a question just in general your devices, Amit like Levi's shorts anticipate.
Speaker Change: Our first question today comes from Doug Schenkel with Wolfe Research. Please go ahead. Your line is open.
Doug Schenkel: Alright, good morning, everybody. Thank you for taking my questions.
Doug Schenkel: Two topics I'd like to address first.
Doug Schenkel: As noted you closed the year with better than peer growth.
Doug Schenkel: And better margin expansion than we've seen across the group.
Doug Schenkel: You also noted that the industry and a lot of your end markets and categories are continuing to normalize and you expect continued improvement as a specialty pharma and biotech normalized this year.
Doug Schenkel: At the same time your guidance prudently assumes a continuation of current market conditions.
Speaker Change: With all that in mind I'm wondering if you would be willing to talk about what you are seeing in a bit more detail and what I mean by that is as.
Speaker Change: You specifically look at your key end markets your key product categories and geographic exposure what are the major areas, where you would say things are back to normal where are the things, we're or areas, where you would say, we're getting close and what are the key areas that are lagging and recovery and I guess, what could happen to accelerate the recovery.
Speaker Change: For example, maybe things like a better funding environment for early stage Biopharma. So that's the first that I know thats a lot, but I think that will be helpful. As we kind of think about the arrow bars around guidance.
Speaker Change: Second topic is I'll, probably after the first of many questions on China, you had a notably strong end to the year with high single digit growth I believe.
Speaker Change: What does your guidance assume for core growth within the region. This year, how are you thinking about stimulus within the context of guidance and what about <unk>. How are you treating that in guidance. That's obviously a key area of focus coming out of currently earlier earnings reports last week. Thank you.
Speaker Change: Good morning to you Doug.
Speaker Change: A lot to unpack there I'll hopefully I won't forget the second half by the time I started addressing the first half of the question.
Speaker Change: It's a very good question and very important to investors.
Speaker Change: We lay out our assumptions on the guidance.
Speaker Change: Let me just start at a higher level, we clearly see that we have.
Speaker Change: Getting to a path to recovery.
Speaker Change: However, as we have continuously said the pace of return to what normal looks like.
Speaker Change: Still a little uncertain and given that uncertainty, it's only prudent for us to assume that the current environment continues.
Speaker Change: We're all of 2025 for now.
Speaker Change: Having said that to specifically address your question around what's normal and was close to normal and what still needs. Some work.
Speaker Change: I think as you.
Speaker Change: You saw this is the second quarter in a row on the life Sciences reagent side, but we've started seeing mid single digit growth in.
Speaker Change: In terms of what is closer to what is normal let's go back and look at the diagnostics business that is where we are in a lumpy that we see around 6% growth our software business. That's in what is normal it's in the low double digits growth I think the reagents as I said is the piece that is getting closer to normal.
Speaker Change: The life Sciences instruments, where a lot of the Capex spending comes from.
Not on parts to what.
Speaker Change: Normally normalcy.
Speaker Change: To recovery.
Speaker Change: On the China side, I think the way to assume is that we expect that we will return to growth for the life Sciences instruments in 2025 in China, we saw modest orders coming in from the stimulus impact in the <unk> expectation our expectation for China.
Speaker Change: Overall is to be in line with what our company growth is ending.
Max Krakowiak: The thing I'm missing from his question list Max No I think the only other piece I'd add is so the expectation again for China. Overall for 2025 is in line with the company average so call. It three years to 5% life Sciences is probably at the higher end of that expectation diagnostics at the at the lower end of that range and I think to address your question on bvd.
Max Krakowiak: As we've mentioned and been consistent our assumption and immuno diagnostics in China is for mid single digit growth Thats, what we have embedded in there for 2025 and that includes a mid single digit pricing headwind that we've been facing over the past couple of years.
Speaker Change: And when you look on the life Sciences side in terms of stimulus as Caroline mentioned, we did see some modest orders come through in the fourth quarter. We are assuming modest performance from stimulus in 2025, but it's not material to the overall company banks continue to work their way through the system, but until we see continued more traction there I think we have a modest.
Max Krakowiak: And our guidance for now.
Max Krakowiak: Yeah.
Max Krakowiak: Operator next question. Thank you.
Speaker Change: Our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Hey, guys good morning.
Vijay Kumar: Thanks for taking my question, maybe my first one is the.
Vijay Kumar: The guide of 2% to 5%.
Vijay Kumar: How do the segment outlooks compare relative to $3 5 million.
Vijay Kumar: No.
Vijay Kumar: Perhaps what drives the low end versus the high end what changes.
Vijay Kumar: So I think as we look at the guidance for the full year Vijay the breakdown for the segments would be.
Vijay Kumar: Diagnostics will be above the 3% to 5%.
Vijay Kumar: Average for the company so call it at the upper end of mid single digits, and then for life Sciences sort of in the middle of that low single digit range.
Vijay Kumar: In terms of your question in terms of the upsides and downsides I would point you back to some of our overall just assumptions in how we thought about the guidance and that is overall fairly balanced.
Vijay Kumar: And that we're not assuming any real change to the current market environment and that we've got some.
Vijay Kumar: It's a prudency baked in there just given some of the uncertainty right now from a regulatory and geopolitical standpoint. So I think our guide is fairly balanced there could be things that go one way or the other across both our life Sciences and diagnostics business, but we've taken sort of a prudent and balanced approach for our current guidance assumptions.
Vijay Kumar: Understood and prolonged my follow up for you.
Speaker Change: Reagents looks like it did quite well mid singles it feels like it's doing slightly better than that.
Vijay Kumar: Perhaps.
Vijay Kumar: Some of the numbers we've seen.
Vijay Kumar: Within the peer set.
Speaker Change: Are you gaining any market share here between regions.
Speaker Change: And how should we think of reagent growth in fiscal 'twenty five given you said pharma customers, who are acting a little bit better.
Speaker Change: Again, as we've talked about at our investors day the portfolio that we have around innovation around reagents that has somewhat of a lot of our innovation going in and I think we've been gaining share there over a period of time and I think you are seeing the impact of that we are also <unk>.
Speaker Change: They are reagent flow happens when we get on a program. It is there for several quarters and you'll see the impact of that quarter over quarter. So the portfolio continues to do very well the innovation that is starting to.
Speaker Change: Dividends to us so we feel really good about how our reagents business is performing.
Speaker Change: The fiscal 'twenty five is that mid singles for reagents.
Vijay Kumar: Yes, So I think if you look at our guidance for 2005, Vijay can I mentioned life sciences should be in the low single digits overall.
Vijay Kumar: Full year underneath that life Sciences solutions began as our new reporting segment.
Vijay Kumar: We have an assumption of low single digits and that our software business assumption for 'twenty five is low double digits.
And then when you look at the reagents and instruments mix underneath life Sciences solutions reagents should be growing faster than the overall life sciences solution and platforms will be slightly below it.
Speaker Change: Fantastic. Thank you guys.
Speaker Change: Our next question comes from Patrick Donnelly with Citi. Please go ahead.
Patrick Donnelly: Hey, guys great. Thanks for taking the questions Max maybe one for you Ive got a few questions on the <unk> guide being a little bit below expectations could you just talk about kind of be offset hitting that earnings number in <unk>.
Patrick Donnelly: And the visibility on the margin build as we go through the year to your point, they're reagents coming back a little bit that helps the margins I'm sure FX has an offset so it will be helpful. Just to talk about kind of the op margin in <unk> and then just.
Patrick Donnelly: The moving pieces as we work our way through the year.
Speaker Change: Yeah, sure Hey, Patrick So I think maybe I'll just start with a little bit of commentary just on the overall full year cadence I think it will help answer some of the questions, particularly around Q1 as we look at the cadence for the full year. We've mentioned at one organic growth should be relatively consistent as we go throughout the year two when you look at it from an.
Speaker Change: Waiting margin standpoint, I would point you to a similar cadence that happened in 2024, where Q1 is below the full year average the second and third quarters are roughly in line for the full year average in the fourth quarter is the strongest from an op margin perspective due to your volume leverage.
Speaker Change: I think that if you go look at below the line interest and other should be relatively consistent as we go throughout the year and then our assumption on tax rate timing, which does impact the first quarter should also be similar to what it was in 2024, where the tax trade is heavier here in the first quarter and sort of steps down in progress as we go throughout the year. So that's what I would.
Speaker Change: Say on the cadence.
Speaker Change: As once you sort of model those out for the first quarter, you should get a little bit better understanding of what's driving that.
Speaker Change: Which you called the softer EPS, but I think it's really kind of right in line with our normal cadence.
Speaker Change: Yes Charles.
Charles: Just looking at the Street agreed and have relocated its pretty normal and then maybe just on the Dx side can you just talk about the 2025 and it sounds like mid single digit growth for that piece come out <unk>. The moving pieces there it sounds like China, performing pretty well, but would love to just talk through your expectations on the Dx side. What you guys are seeing there.
Charles: Yeah, absolutely so.
Charles: Again, I'll start kind of with the overall full year assumptions diagnostics, you mentioned <unk> at the upper end of mid single digits for 2025. When you look at the splits between reproductive health and immuno diagnostics, we have immuno diagnostics assumed actually high single digits. I think you said mid single, but our assumption in guidance is high single digits and then we've got reproductive health and low single.
Charles: Digits I think when you look at immuno diagnostics overall, China is playing out as we anticipated.
Charles: Finished for 'twenty four but also in line with our MRP for 2025, and then if you look at the performance ex U S. It continues to be a low teens to mid teens grower.
Charles: From a performance perspective, which is really a testament against you that both the innovation as well as the continued geographic expansion through predominantly our autoimmune business.
Speaker Change: Got it thank you guys.
Michael Ruskin: Next in queue, we have Michael Ruskin with Bank of America.
Speaker Change: Your line is open.
Speaker Change: Great. Thanks for taking the question guys.
Speaker Change: First I wanted to ask on applied genomics and he said this is the last quarter youre going to be talking about it openly since it can be shuffled around so I figure I got a question on that.
Speaker Change: Call Don returned to growth that's been a little bit of a headwind for you for a couple of quarters.
Speaker Change: And that actually.
Speaker Change: And you can say about what youre seeing in that in terms of underlying end market positioning.
Speaker Change: Positioning just sort of how that's trended through the quarter and maybe any forward expectations for that business.
Speaker Change: Since the beginning of a recovery.
Speaker Change: That's progressing.
Speaker Change: Hey, Mike.
Speaker Change: Youre right.
Speaker Change: The applied genomics business is moving to life Sciences solutions portfolio, just given the alignment that we have that commercially and operationally with our customers on there. So it just makes a whole lot more sense to alignment there and I think thats a portfolio, which obviously had a lot of pressure given the impact that the COVID-19 had around buying patterns.
Speaker Change: And it has taken time to recover but we are really infused and optimistic that sort of you have seen the bottom there and we are starting to see the path to recovery.
Speaker Change: So overall I would say that both on the clinical side and on the pharma biotech side applied genomics will start seeing recovery as we go into 2025.
Speaker Change: Okay. Thanks, and then for my follow up.
Speaker Change: I think you talked about 20 to 40 bps.
Speaker Change:
Speaker Change: Operating margin expansion.
Speaker Change: First just real quick could you breakout how much of an FX headwind you have on margins.
Speaker Change: This will help us model underlying a bit better and also you talked about part of that part of the reason, it's 20 to 40 years, where sort of you emphasized stepping up investments.
Speaker Change: This year.
Speaker Change: Any additional color on that whether it's in technology commercial organization RMB and just sort of could you help frame in those investments.
Speaker Change: Just thinking it would take a step back and frame it in a multi year view of this a little bit of a catch up.
Speaker Change: Versus 2024 little bit of a pull forward.
Speaker Change: Just help us think through where and how that's going thanks.
Speaker Change: Yes.
Speaker Change: Absolutely.
Speaker Change: So I'd say first maybe just to clear the deck on one of your questions. Joe FX stress does not really have a material impact on our operating margins. So I guess just to clear that that is not a headwind that currently aside what's assumed within our guidance.
Speaker Change: In terms of the 20 to 40 basis points and really the step up we've mentioned on our strategic inventions that a couple of thoughts there.
Speaker Change: One I think we've consistently said that if our growth we're only in the mid single digits, we would be expanding operating margins roughly 50 basis points based off our guidance, we are slightly below that and youre seeing in operating margin expansion guidance that is slightly below that 50 basis points. I would also say that we're really encouraged by the progress that we've made on our <unk>.
Speaker Change: Productivity and transformation initiatives. If you look back at 2024, we just expanded 30 basis points operating margin, while only growing 1% and I think youre starting to see the benefits of the work that we've put in across the board.
Speaker Change: I think as you look at 2025 in terms of us stepping up some of the strategic investments.
Speaker Change: I'd say that its.
Speaker Change: Really us wanting to continue to invest ourselves as we look over the next three to five years and what we want to accomplish as a company I think we're you look at it in terms of the investments, particularly in 2025, there's probably a couple of areas. One is predominantly a step up in our digital investments across both e-commerce and AI capabilities.
Speaker Change: The second there is some I would say additional investments on expanding sales channels and adjacent high growth markets. For example, looking at markets outside of pharma biotech for software as well as continuing to expand our sort of downstream commercial capacity.
Speaker Change: <unk> to things like GMP, all mix et cetera, So I'd say, that's really sort of the.
Speaker Change: Composition of where we're investing in 2025.
Speaker Change: Great. Thank you appreciate it.
Speaker Change: Okay.
Speaker Change: Our next question comes from Puneet <unk> with Leerink partners.
Speaker Change: Please go ahead.
Speaker Change: Yes, hi, guys. Thanks for the questions here so.
Speaker Change: Just.
Speaker Change: First one on software I mean, obviously, some very strong growth, there, but easier comps too.
Speaker Change: I'm wondering if you can elaborate if there was any one timers in the quarter.
Speaker Change: Any upside from signals versus Ken Dorell licenses generally its been lumpy through the year, but just wondering what your expectations are for the first quarter. I think you said for the full year, it's low double digit, but correct me if I'm wrong on that.
Speaker Change: So maybe just to clear the decks from a numbers perspective. So it is a low double digits for the full year for software and it's a similar performance here in the first quarter.
Speaker Change: Overall as we've said on the software business Puneet, that's a very predictable pattern on the number of our licenses and contracts that come up for renewal. So we have a pretty good line of sight and that's what we had also indicated the November 4th call for what it would look like for <unk>. The pattern is pretty clear for us about <unk>.
Speaker Change: 4% of our business is SaaS and still has a good chunk of our business that is on Prem contract multiyear contract renewals. So we have a pretty good sense of what's coming down the pipe.
Speaker Change: So that tends to be lumpy from a quarter perspective, but overall I think when we look at the NPV for the.
Speaker Change: Net contract value for for the year that is what we sort of used more as a metric than than what it does from a quarterly performance perspective right in the ATV was low double digits in 2024, and it was strong in 2023 as well, even though the organic growth just due to the timing wasn't as strong in 2023, but as for Lard mentioned, that's really the more important metric.
Speaker Change: Our software business.
Speaker Change: Got it Thats helpful.
Speaker Change: And then I know you were expecting this question around NIH and the positive pauses and other noise that we're seeing there.
Speaker Change: <unk> is more about I think your exposure is small, but just indirect exposure that you have.
Speaker Change: And just given the sort of the funding talent challenges that might arise there just could you elaborate what youre baking in.
Speaker Change: For that in Q1 and for the full year and any additional thoughts on.
Speaker Change: Right.
Speaker Change: How would you expect to manage any sort of headwinds that might arise on the academic side. Thank you.
Speaker Change: Yeah, Puneet as you pointed out our exposure to direct exposure to NIH is pretty small in a close to 1%, but even if you look at our indirect exposure our estimate does not more than 5% and then I think the other very important aspect to keep in mind that given given the exposure most of what we sell.
Speaker Change: Agents in small ticket items. So it really does not have that much of a material impact from a budgetary perspective, because you still need the experimentation to bolt on the life Sciences side and reagents are the key driver there. So it does not really have a material impact for us.
Speaker Change: Got it okay helpful guys. Thank you.
Speaker Change: Our next question comes from Mac Sykes with Goldman Sachs.
Speaker Change: Your line is open.
Speaker Change: Hi, good morning, Thanks for taking my questions, maybe just to start out on an instrument expectations. I mean, I think we're all well aware of the capex constraints in the environment, but what are you looking for for in terms of leading indicators.
Speaker Change: In terms of seeing that turn and also what is the sort of conversations been with customers on the pharma side or even the academic side in terms of instrumentation and Capex plans over the course of this year do you get a sense that we could see a recovery in the back half of this year in instruments, It's just hard to call at this point.
Speaker Change: Based on some of the conversations you're having or do you feel like its still remains to be you remain prudent in terms of how youre looking at that potential recovery over the course of 'twenty five.
Speaker Change: Hey, good morning, Matt.
Speaker Change: As we've talked at the Investor day at length. On this are the instrument portfolio that we have tend not to be a commodity offering and then more specific in terms of what we bring to our customer base, whether it's in academia government or on the pharma side.
Speaker Change: So you have to break it down regionally right. So when we think of China, Obviously, we will see some modest stimulus impact as Max pointed out earlier, but that sort of also offset some of the weakness that continued weakness that we see on the pharma biotech in terms of the second part of your question the conversations are ongoing.
Speaker Change: Even from the pharma biotech perspective, there is an expectation that this will start coming back to normalcy as Ive said earlier, we are on a path to recovery, but I don't know we are not assuming any.
Speaker Change: Then shift or trend in our guidance in terms of recoveries snapping back to normal. So I mean, I think that's probably the best way I can give you an indicator as to what our expectation is and what we've assumed in our guidance.
Jim: Got it that's very helpful and then Jim.
Jim: In terms of.
Speaker Change: The exit rate you saw in Q4, which is pretty impressive and the recovery that you are nascent recovery youre seeing in terms of the Biopharma was there any element of budget flush or any one off impact in Q4 to drive that growth rate as to why youre not necessarily extrapolating that X rate into 25 should.
Jim: Should we just be aware of sort of any of those issues that you saw in Q4.
Jim: Absolutely none did not.
Jim: I would say the way I would answer that question is we did not see any budget flush in Q4 and that has any impact as to how we have factored our guidance our guidance as I said earlier.
Jim: Matt.
Jim: See the path to recovery, we see the signs and indicators of that you look at our diagnostics business. It continues to do really well you look at our software business. It continues to do ready route.
Jim: The life Sciences reagents business, we've seen two consecutive quarters of mid single digit growth. So there are enough signs even on the life Sciences side that we are getting on the path to recovery, but again, we are not assuming that normalcy comes back and then the timing around that we just.
Jim: Assuming that the current market that is there will continue in 2025.
Jim: If the market were to turn that will be upside to what we've guided today.
Jim: Great. Thank you very much.
Speaker Change: Our next question comes from Nick <unk> with Barclays.
Speaker Change: Please go ahead.
Speaker Change: Alright, Thanks, good morning, everybody.
Speaker Change: I just want to start off on the <unk>.
Speaker Change: You talked about the biotech customer and you might have answered this on one of doug's questions.
Speaker Change: But.
Speaker Change: You see this.
Speaker Change: The growth there for the first quarter since we will in Q <unk> three any kind of color on when you started to see that demand turn because you guys have a pretty short cycle business, but is it coming from more reagent side are you starting to see pickups, there unlike cell imaging.
Speaker Change: And animal imaging in vivo imaging et cetera, or like high content screening just like whats the durability of maybe that this is the beginning of that.
Speaker Change: Part of the recovery for that part of the market.
Speaker Change: Yeah, Hey, look I would say as you look at.
Speaker Change: The fourth quarter performance, you mentioned pharma biotech turning positive in the fourth quarter for the first time in several quarters.
Speaker Change: Two a lot of that was driven by I would say the software performance growing very strongly in the fourth quarter.
Speaker Change: Exclude that it was still a challenging environment from a pharma biotech standpoint, I think where we really started to see the turn though has been in our reagents portfolio and I think we had really started to see that over the summer.
Speaker Change: Once the restructuring had really sort of I would say gone back to a more normalized levels you start to see the lab activity pick back up and that was consistent in the third quarter, we saw against that pick up sequentially in the fourth quarter I think provided sort of outlines our assumption is that is the steady state that sort of continue and used here in.
Speaker Change: In 'twenty, five and what our guidance assumes but there are enough signs of there are some positive signs that things are starting to turn a corner here.
Speaker Change: Alright, great and then I guess kind of kind of like a follow up on that with regards to your guide I mean, you look at the.
Speaker Change: The rest of the reports and kind of what's the pre announcement this month.
Speaker Change: And about how those guys really have this kind of continued ramp and what you are talking about right now it sounds like that momentum is building and kind of supports that ramp but your guide seems.
Speaker Change: Really conservative and just kind of straight lining what youre seeing now out further so.
Speaker Change: From a from a downside perspective, or what do you think that could derail that momentum going forward.
Speaker Change: Is it policy or just kind of is this just altria like look we're just going to run rate. What we have from an order rate route right now than anything else is upside.
Speaker Change: Look I think it is.
Speaker Change: It's a good question I would say just in general when we mentioned a little bit in the prepared remarks, there is still a certain amount of uncertainty right now as you look at it from a geopolitical and regulatory landscape perspective, and I think just given that there still is that overhang of uncertainty. If you wanted to be prudent in our guidance approach here for 2025, so yes, there could be things that put Cree.
Speaker Change: A little bit of downward pressure, but then we're also prudent on the diagnostic side and I think it goes back to the punch the sign of US really wanted to put out here for 2025, a balanced guide that reflects the current market environment and so I'd say, that's probably the best way to answer your question.
Speaker Change: Okay.
Speaker Change: Great. Thanks.
Speaker Change: Thank you moving to our next question from Andrew Cooper with Raymond James.
Speaker Change: Your line is open.
Andrew Cooper: Hi, everybody thanks for the time.
Speaker Change: Maybe to ask <unk> question, a little bit different way, you talked about some positive signs and some noise as well in the previous in the guidance. What are you actually hearing from customers in terms of are they a little bit more on easy with some of the regulatory and administration changes that are playing out sort of as we speak.
Speaker Change: Are they talking about holding back budgets, maybe for later in the year to see where things fit or just what are you really.
Speaker Change: From your sales force out there kind of actually on the street talking to folks.
Speaker Change: Good morning, Andrew I think the thing is the way you've got to look at it is and perspective to our portfolio.
Speaker Change: Look on the diagnostic side it doesn't really have a big impact on diagnostics business and as I said earlier, we've assumed that that will continue to grow in line with our <unk> RP.
Speaker Change: Our software business, we do not expect to have much of an impact our reagents business as I said earlier, we've seen two consecutive quarters of mid single digit growth and that we assume will continue.
Speaker Change: The issue really comes around Capex spending.
Speaker Change: As you know that is now.
Speaker Change: Less than 20% of our portfolio, which is around instrumentation. So this is where you start seeing the power of the portfolio and the impact that it's having in regards to what we are hearing from customers on assumption really is based around the uncertainty in the market environment.
Speaker Change: Got.
Speaker Change: It will.
Speaker Change: Settle down hopefully in a quarter or two in terms of what a regular and a more stable market environment would look like.
Max Krakowiak: Our perspective as Max pointed out earlier.
Max Krakowiak: We are being prudent enough and assuming that the current market environment will continue and as we have said earlier if it starts to go.
Max Krakowiak: Better direction in terms of growth, obviously, we will come back and readdress this too towards the middle of the year.
Speaker Change: Okay. That's helpful.
And then maybe just shifting to the margin side of things I think Max you pointed out.
Speaker Change: You had talked about mid single digit and call. It 50 bps of expansion if that was the growth rate youre, a little bit lower on both but you do have this sort of step up in investments. So is it safe to say you do see this year is actually a little bit above that trend you talked about before absent those investments in kind of a true underlying manner.
Speaker Change: Maybe whats, allowing for that to be the case, if that takeaway is correct.
Speaker Change: Yes, I would say that I would say that's fair.
Speaker Change: A fair summary of an Android I'd also maybe just again point out the fact that I think that from an operating margin expansion standpoint, we're really encouraged by the progress we're making I think this year. There is again there is the one offs of some strategic investments that were intentionally making here, but on the flip side of it we've got some opportunities from a gross margin perspective that should provide a little.
Speaker Change: Bit of tailwind and help offset some of those investments that we're making this year.
Speaker Change: Perfect I'll leave it there thanks again.
Speaker Change: Thank you. Our next question comes from Catherine Schulte with Baird.
Speaker Change: Your line is open.
Speaker Change: Hey, guys. Thanks for the questions.
Speaker Change: Let me first just on guidance, starting the year with 3% to 5% organic growth in the first quarter seems a lot better than what we're seeing from some other peers.
Speaker Change: Assuming acceleration throughout the year. So just as we think about fourth quarter accident rate do you think we should at least be towards the high end of that 3% to 5% range and maybe just talk about how you think.
Speaker Change: I'll pass back to that 6% to 8% long term.
Speaker Change: Very good question Catherine I think.
Speaker Change: At this point, we are assuming 3% to 5% and we are assuming it to be a steady state.
Speaker Change: Throughout the year it.
Speaker Change: It might be a bit more unique generally we tend to have a much more flush.
Speaker Change: Fourth quarter <unk>.
Speaker Change: Fully that comes through and as I said earlier, if that comes through really address it.
Speaker Change: As the middle of the latter half of this year, but just given somewhat the uncertainty in the current market environment, both from a regulatory and from.
Speaker Change: Administration perspective, we thought it was prudent to be steady in terms of our forecasting.
Speaker Change: Okay, and then maybe on pharma in a nice to see a return to growth here in the corner and can you just talk to what you had.
Speaker Change: Acting for pharma and biotech in the first quarter and the full year.
Speaker Change: Yeah. So we generally don't give breakdowns between pharma biotech assumptions in academic and government assumptions Catherine I would say again as you look at the life Sciences cadence here I know, it's going to be.
Speaker Change: Relatively consistent as we go throughout the year.
Speaker Change: And so I would say pharma biotech is the largest part of our.
Speaker Change: Our life Sciences business, and so I would say that again, it's going to be the biggest driver of the performance.
Speaker Change: Alright, thank you.
Speaker Change: Thank you and the last question we have time for today comes from Dan Brennan with TD Cowen. Please go ahead.
Dan Brennan: Great. Thank you thanks for taking the questions.
Speaker Change: The first one just on reproductive health.
Speaker Change: Nice finish to the year.
Speaker Change: You are talking about low single digit growth next year, just can you give us some of the puts and takes on how the quarter ended up and kind of what goes into that outlook.
Speaker Change: Yes, So I think as you look at the fourth quarter, specifically again it was high single digit in the fourth quarter.
Speaker Change: As we've talked about newborn screening.
Speaker Change: <unk>.
The biggest part of our reproductive health portfolio.
Speaker Change: It's generally grown faster than reproductive health overall that can continue to be true here in the fourth quarter is a really strong finish to the year for our newborn screening business as you look at the assumptions for 2025. It is low single digits. That's in line with our <unk> I would say similarly to that tune newborn screening should be the fastest growing.
Speaker Change: Out of our reproductive health franchise again in 2025.
Speaker Change: Got it Okay, and then I know you talked about the <unk>.
Speaker Change: A lot of times on the call already but you're signaling.
Speaker Change: And an improvement.
Speaker Change: Geopolitical regulatory factor, you've kind of called out a few times.
Speaker Change: I'm just wondering are you seeing pharma pause are you seeing any shift in their spending or kind of when budgets get released right. Now in terms of this macro just trying to get some flavor for what youre hearing from customers.
Speaker Change: Is it more just youre looking at the kind of announcements that the Trump administration are making and youre, just assuming that that could cause some kind of pausing or some demand back. Thank you.
Dan Brennan: Yes, Dan I wouldn't say that we are hearing pausing or slowing down of spending from our customers. I think is just prudence on our part just given the uncertainty in the environment I think that's the best way I would.
Good.
Dan Brennan: Forecast this and look forward again.
Dan Brennan: Assuming things get stable and Sutton and we get back to what normal looks like it will obviously be an upside, but just given where we sit today.
Dan Brennan: We are being prudent in the way we guide for the.
Dan Brennan: For the year.
Dan Brennan: Great. Thank you.
Dan Brennan: Thank you we have no time for questions. So I'll turn the call back over to Steve for any closing comments.
Steve Willoughby: Thank you Lydia we look forward to touching base with all of you over the coming weeks and months and I hope everyone has a good weekend take care.
Speaker Change: This concludes our call today. Thank you very much for joining you may now disconnect your line.
Speaker Change: Yeah.
Speaker Change: [music].