Revvity, Inc.

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Revvity, Inc., formerly known as PerkinElmer, is a life sciences and diagnostics company that provides instruments, reagents, software, and services to customers in the pharmaceutical, biotech, academic, and government sectors.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

  • Revenue Distribution: Revvity operates through two segments:
    • Life Sciences: Focuses on providing solutions for research, development, and manufacturing of biopharmaceuticals. This includes:
      • Drug discovery and development solutions
      • Cell biology research
      • Genomics and proteomics tools
      • Analytical instrumentation and reagents
      • Laboratory and scientific research services
      • Revenues for the three months ended September 2024 were $672 million compared to $721 million for the three months ended October 1, 2023.
    • Diagnostics: Offers a range of diagnostic testing solutions, including:
      • Newborn screening
      • Infectious disease and immunodiagnostic testing
      • Applied genomics
      • Reproductive health testing
      • Revenues for the three months ended September 2024 were $303 million compared to $324 million for the three months ended October 1, 2023.
  • Industry Trends:
    • Strong and continuous growth in life sciences and diagnostics driven by:
    • Increased R&D spending in pharmaceuticals and biotech industries
    • Aging populations and increased healthcare awareness
    • Technological advancements in genetic testing, drug discovery, and diagnostics
    • Growing demand for personalized medicine and precision healthcare.
    • The industry faces competitive pressures, pricing power limitations in segments dominated by commodity products or generic drugs, which impact revenue growth and profit margins.
    • Increased adoption of cloud computing and data analysis are influencing new opportunities and threats.
  • Margins: Profit margins vary across business segments, with higher-margin products related to pharmaceuticals and drug discovery and lower margins in less-differentiated, lower-value testing.
    • Gross margin for the first quarter ended in September 2024 was 45%, which was lower than the 49.1% for the same quarter last year.
    • Operating margin fell to 11.7% in Q3 2024 from 17.4% YoY.
  • Competitive Landscape:
    • Diverse landscape with large established players and niche competitors.
    • Competition is intense, especially on price in the laboratory services, and commodity products sectors.
    • Innovation and regulatory approvals play a critical role in market positioning.

What Makes Revvity Different:

  • Diverse Portfolio: It’s diversified and has a long-term orientation toward higher growth areas.
  • Integrated Solutions: They offer a combination of products and services across both life sciences and diagnostics.
  • Global Reach: They operate in over 40 countries which allows them to capitalize on the increasing global demand of the industry.
  • Proprietary Technologies: They utilize intellectual properties and patented solutions in their products and services.
  • Established Customer Base: They have long standing relationships with prominent institutions.

Financials (In-depth): Income Statement

  • Revenue Decline: Total revenue in their last quarterly filing has declined from $1.044 Billion for the same period YoY to $975 million, a decrease of 6.6%. This decline was driven both by the Life Sciences (-6.7%) and the Diagnostics (-6.2%) segments.

It’s important to consider that this year’s revenues are being affected by the economic slowdown and a general slowing of demand from biopharma customers. It is noted by the company that this decline in revenues is not fully offset by the decrease in expenses.

  • Gross Profit Decline: YoY gross profit decreased by around 14% because of lower revenues and reduced margins.
  • Operating Expenses: Operating expenses were lower by 7% as the company decreased expenses in all segments.
  • Net income: Net income fell from $132.5 million to a net income of $34.6 million YoY. Net income from continuing operations was $45.6 million.

Balance Sheet

  • Assets: Total assets decreased from $14.1 billion to $13.8 billion primarily due to reduction in inventories and intangible assets.
  • Liabilities: Total liabilities are $6.7 billion, with most of it coming from long term debt.
  • Equity: Total equity is $7.1 billion, which is in line with total assets.

Cash Flow Statement

  • Net cash from operating activities shows a cash inflow of $91.5 million ( a decrease from $158.2 million year on year), while investing activities have outflow of $91 million due to increase in capital expenditure. In total net cash flow for the period was positive with a total of $4 million.

Overall, the company’s revenues and profitability have declined, but this is coupled with a large decrease in costs. It can be said that their financials are stable but they need to improve sales to boost profits.

Moat Assessment

  • Intangible Assets: They have a strong base of intellectual property related to specific scientific technologies which creates a barrier. They also have a strong brand value among scientific institutions. This contributes to a narrow moat.
  • Switching Costs: High for segments that use instruments, software, and research services. These are deeply integrated into the customers workflows. But for pure diagnostic solutions, this does not apply very much. This contributes to a narrow moat.
  • Network Effect: There are some areas of their business where scale matters and provides benefits in that way, especially among certain pharmaceutical companies. This contributes to a narrow moat.
  • Cost Advantages: They do not have any strong cost advantages because the business operates in the life science and diagnostic markets that are usually innovation driven rather than scale driven. This does not contribute to a moat. Given these factors, Revvity’s moat is rated 3/5 (Narrow Moat).

Risks to the Moat & Business Resilience

  • Technological Disruption: New testing technologies or scientific breakthroughs may threaten existing products. As new cheaper options come into the market, the company will have to compete on price as a result. The risk of obsolescence is ever-present and might even be accelerated by advances in AI, ML or other fields.
  • Competition from Larger Players: Companies like Thermo Fisher, Danaher, and Agilent offer similar products and may leverage their larger size for price-cutting.
  • Regulatory Changes: Changes in the regulatory landscape, especially in the diagnostic sector, may affect their sales and margins. A stricter regulation regime will increase their operational costs.
  • Economic Fluctuations: Demand in R&D and Diagnostics can be impacted by economic downturns or changes in government spending. This is evident by this quarter’s performance, which was highly impacted by slowing economic activity.
  • Pricing Pressures: They may be pressured to offer discounts in certain sectors because of large volume sales or higher demand for more affordable testing.
  • Integration Risks: Integrating acquisitions could disrupt operations or fail to deliver synergies. Revvity’s business resilience is moderate due to the cyclical nature of some of its businesses (particularly capital equipment), and because technological disruptions are highly possible in their industry which may cause massive losses very quickly if management is not prepared to adapt or if the company fails to deliver. A high percentage of recurring revenue and long standing contracts help mitigate this risk.

Understandability:

  • The business is fairly complex, covering a wide variety of products and services.
  • There are two distinct operating segments which makes analyzing it slightly harder.
  • The impact of various metrics like free cash flow or ROIC is less direct.
  • There are a lot of complex accounting items, especially concerning acquisitions and goodwill. Given the nuances, the understandability rating is 3/5.

Balance Sheet Health:

  • The company has a slightly high amount of debt but their interest coverage is acceptable and also their debt is manageable over the long-term.
  • Current ratio is good, assets are more than the liabilities.
  • They have good liquidity. The balance sheet health of Revvity is 4/5