Revvity's Q3 2025 Earnings Call: Contradictions Emerge in China Diagnostics, Embedded Software Growth, Instrumentation Recovery, and Software Outlook

Date of Call: October 27, 2025

Financials Results

• Revenue: $699M in Q3, 1% organic growth; FX ~1% tailwind vs prior assumptions; full-year revenue now expected $2.83B–$2.88B
• EPS: $1.18 adjusted EPS in Q3, $0.05 above midpoint of guidance; full-year adjusted EPS guidance raised to $4.90–$5.00
• Operating Margin: 26.1% adjusted operating margin in Q3, down 220 bps YOY; full-year outlook 27.1%–27.3%; Q4 typically ~30%; 2026 baseline target 28% adjusted operating margin

Guidance:

• Full-year organic revenue growth reiterated at 2%–4% (midpoint implies ~2%–3% for Q4).
• Full-year revenue expected $2.83B–$2.88B; FX tailwind slightly under 1%.
• Full-year adjusted operating margin expected 27.1%–27.3%; Q4 seasonally strongest (~30%).
• Full-year adjusted EPS raised to $4.90–$5.00; net interest & other ≈ $83M; tax rate ≈ 17%; diluted shares a little under 117M.
• 2026 preliminary: assume 2%–3% organic growth with 28% operating-margin baseline; tax baseline ~18%; implies high-single-digit EPS growth (pre-additional buybacks).

Business Commentary:

* Organic Growth and Demand Environment: - Revvity reported a 1% organic growth in Q3, slightly offset by unfavorable currency fluctuations. - The company's performance was driven by strong demand in its Signals software business, which grew 20% organically, and stable customer confidence amid larger industry overhangs.

• Cash Flow and Share Repurchase:
• Revvity generated free cash flow of $120 million in Q3, representing approximately 90% of adjusted net income.

• The company actively redeployed this cash by repurchasing approximately 2.3 million shares, reflecting a disciplined capital deployment strategy and strong balance sheet position.

• Diagnostics Segment and China Impact:

• The Diagnostics segment grew 2% organically, with a decline in China due to DRG-related volume reductions, impacting \">20% in Q3.

• Excluding China, the business grew at a mid-single-digit rate, driven by strong growth in the Americas and reproductive health segment.

• AI Integration and Product Innovation:

• Revvity launched new AI-based software offerings and collaborations, such as New Living Image Synergy AI, enhancing scientific productivity.
• These developments are part of a broader strategy to transform how scientific research is conducted, driving future growth opportunities.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated they are "increasingly optimistic" as industry overhangs gain clarity; highlighted Signals software growth of 20% and $120M free cash flow in Q3; reiterated disciplined capital returns with $205M buybacks and new $1B repurchase authorization, and raised FY EPS guidance to $4.90–$5.00.

Q&A:

• Question from Patrick Donnelly (Citigroup Inc.): Can you talk about the moving pieces into 2026 (China Diagnostics, software comps) and confidence in holding a 28% margin?
  Response: Management expects a prudent 2%–3% organic for 2026, sees China normalizing ex-DRG, and is confident 28% operating-margin baseline is achievable via actions underway.

• Question from Patrick Donnelly (Citigroup Inc.): Within Life Sciences this quarter, how did reagents perform versus instruments and what are expectations moving forward?
  Response: Reagents were modestly lighter in Q3; instruments show pockets of recovering demand; Q4 assumes similar market environment plus a modest government-shutdown impact.

• Question from Vijay Kumar (Evercore ISI): You noted October customer activity picking up—where is that showing up (pharma vs academia, reagents vs instruments)?
  Response: Pickup concentrated in pharma/biotech and primarily in instruments; not broad-based across academia/government.

• Question from Vijay Kumar (Evercore ISI): Should 2%–3% organic with 28% margin translate to high-single-digit EPS growth for 2026 and what about FX/below-the-line assumptions?
  Response: Yes—at 2%–3% organic and 28% margin management expects high-single-digit EPS growth for 2026 (pre-additional buybacks); tax baseline ~18%, interest roughly flat.

• Question from Michael Ryskin (BofA Securities): Please walk through confidence in the 3Q→4Q ramp in revenue and margins given reagent softness and DRG headwinds.
  Response: Q4 ramp driven by usual instrument seasonality, higher nominal software dollars and IDX comps; margins supported by higher Q4 volumes (target ~30%).

• Question from Michael Ryskin (BofA Securities): How should we think about China DRG going into 2026—magnitude and duration of headwind?
  Response: DRG impact played out as expected (mid-20s decline in Q3); headwind persists until the Q2 2026 anniversary, after which returns to muted growth are expected.

• Question from Daniel Leonard (UBS): What software growth outlook is embedded in the 2026 framework given difficult comps and upcoming NPIs?
  Response: Software expected to slow to mid-single-digit organic growth in 2026 (after ~20% in 2025); NPIs will contribute but ramp gradually.

• Question from Daniel Leonard (UBS): How are you thinking about M&A given large share repurchases?
  Response: Share buybacks are currently the highest-return use of capital; M&A pipeline remains active but will be pursued prudently.

• Question from Tycho Peterson (Jefferies LLC): Did reagents actually decline in Q3 and what are the incremental margins going forward given pricing/inflation?
  Response: Reagents were down very slightly in Q3; incremental margins remain intact and pricing held sufficiently to preserve upside as lab activity increases.

• Question from Tycho Peterson (Jefferies LLC): Is year-end budget flush for instruments baked into guidance?
  Response: Guidance includes a modest seasonal Q3→Q4 instrument step-up; not a full return to historical budget-flush levels.

• Question from Tycho Peterson (Jefferies LLC): Is the 18% tax baseline sustainable or is further leverage possible?
  Response: Tax baseline has been reset to ~18% for planning; one-time discrete benefits are not assumed in guidance.

• Question from Douglas Schenkel (Wolfe Research): Can you confirm China Diagnostics as a percent of sales, the expected DRG decline, and return-to-growth assumptions?
  Response: China is roughly ~6% of revenue exiting Q3; DRG caused mid-20s decline in Q3 with headwinds through Q2 2026, then expected return to low-single-digit growth; IDX ex-China grew high single digits.

• Question from Puneet Souda (Leerink Partners): Is the instrumentation improvement this quarter tariff-related or genuine customer demand?
  Response: It is genuine broader pharma/biotech demand—not a tariff normalization effect.

• Question from Puneet Souda (Leerink Partners): How much of China manufacturing is localized for your products?
  Response: All reproductive health and newborn screening for China is manufactured in China; >50% of IDX is localized; capacity exists to localize more if needed.

• Question from Puneet Souda (Leerink Partners): How should we think about reagent growth into 2026 given grant/funding dynamics?
  Response: Reagents outlook is embedded in the 2%–3% organic guidance for 2026; no large market ramp assumed.

• Question from Daniel Arias (Stifel): Regarding gel contributions (~$10M), how should we model sequentially and into 2026?
  Response: ~$10M contribution was for H2 initial run; modest Q4 pickup expected, then a stable quarterly contribution into 2026.

• Question from Daniel Arias (Stifel): Is the instrument demand pickup driven more by large/mid biotechs or smaller companies?
  Response: Incremental enthusiasm is primarily from large and mid-sized biotech customers; less from smaller emerging companies.

• Question from Catherine Ramsey (Robert W. Baird): For the 2%–4% organic full-year range, should we anchor to the lower end and how do segments look in Q4?
  Response: Midpoint implies Q4 organic growth of ~2%–3%; both Life Sciences and Diagnostics expected to grow low single digits for the full year.

• Question from Catherine Ramsey (Robert W. Baird): How did U.S. academic & government perform and how large is the government-shutdown impact baked into guidance?
  Response: U.S. academic & government were down mid-single digits in Q3; guidance includes a modest reagent-related headwind from the government-shutdown risk in Q4.

• Question from Subhalaxmi Nambi (Guggenheim): Does customer AI adoption reduce or increase demand for your products?
  Response: AI is viewed as a net opportunity—driving reagent/instrument demand short–midterm and enhancing long-term value of Signals software.

• Question from Subhalaxmi Nambi (Guggenheim): Which instruments would lead a recovery and will you provide book-to-bill data?
  Response: Cellular imaging and high-content screening instruments likely lead recovery; the company does not disclose book-to-bill.

Contradiction Point 1

China Diagnostics Performance and Expectations

It involves differing expectations and performance trends for the China Diagnostics segment, which is crucial for understanding Revvity's regional business strategy and financial outlook.

What drives the 2% to 3% organic growth outlook for 2026, particularly in China Diagnostics and software growth? - Patrick Donnelly (Citigroup Inc., Research Division)

2025Q3: China Diagnostics remains a challenge with low teens decline, but the rest of the Diagnostics business outside China is strong. - Prahlad Singh(CEO)

How does the Chinese macro environment affect Revvity's operations? Are there effects from Trump-era political tensions? - Dan Brennan (TD Cowen)

2025Q1: Full-year growth expected to be positive low single digits, with Life Sciences having slight decline and Diagnostics mid-single-digit growth. - Maxwell Krakowiak(CFO)

Contradiction Point 2

Embedded Software Growth

It involves differing expectations for the growth trajectory of Revvity's embedded software segment, which impacts overall revenue projections and market positioning.

What is the 2026 embedded software growth outlook, considering challenging comparisons and new product launches? - Daniel Leonard (UBS Investment Bank, Research Division)

2025Q3: 2026 software expected to grow mid-single digits, influenced by tough comps. NPI impact will kick in over time. - Maxwell Krakowiak(CFO)

What decline in Signals business growth should we expect in the second half of the year, and what are its long-term prospects? - Dan Arias (Stifel)

2025Q1: The Signals business remains strong with double-digit growth expected in the second half. Full-year growth is anticipating upper teens levels. - Maxwell Krakowiak(CFO)

Contradiction Point 3

Instrumentation Recovery

It highlights differing perspectives on the drivers behind the instrumentation recovery, which is crucial for understanding Revvity's product strategy and market position.

What factors influence instrument recovery in pharmaceutical and biotech sectors versus government and academic activities? - Puneet Souda (Leerink Partners LLC, Research Division)

2025Q3: Recovery driven by pharma/biotech activity, not specific to China tariffs. Increased discussions and orders, particularly in cellular imaging capabilities. - Prahlad Singh(CEO)

Can you detail the U.S.-China tariff impact and mitigation efforts, and clarify the components of the Life Science Solutions segment? - Patrick Donnelly (Citi)

2025Q1: Instrumentation sales were $231 million, down 6% year-over-year, as expected. The pressure is primarily due to China tariffs. - Maxwell Krakowiak(CFO)

Contradiction Point 4

Software Growth Outlook

It involves differing expectations for software growth, which is a key driver of the company's revenue and market position.

What is the 2026 embedded software growth outlook with difficult comps and new product launches? - Daniel Leonard (UBS Investment Bank, Research Division)

2025Q3: 2026 software expected to grow mid-single digits, influenced by tough comps. NPI impact will kick in over time. - Maxwell Krakowiak(CFO)

What portion of software growth came from new contracts, and what are expectations for H2? - Puneet Souda (Leerink Partners)

2025Q2: Signals Software grew 32% organically, with record quarters for orders. Strong SaaS bookings lead to confidence in continued growth with new product launches. - Prahlad R. Singh(CEO)

Contradiction Point 5

China Diagnostics Performance and Expectations

It involves differing expectations for the performance of the China Diagnostics segment, which is a significant part of the company's business, affecting overall revenue projections.

Can you explain the key drivers behind the 2% to 3% organic growth outlook for 2026, particularly in China Diagnostics and software growth? - Patrick Donnelly (Citigroup Inc., Research Division)

2025Q3: China Diagnostics remains a challenge with low teens decline, but the rest of the Diagnostics business outside China is strong. - Prahlad Singh(CEO)

What is the current state of your key end markets, product categories, and geographic exposure, and what factors could accelerate recovery, such as better funding for early-stage biopharma? - Doug Schenkel (Wolfe Research)

2024Q4: China growth inline with company average, mid-single in diagnostics, low in Life Sciences - Maxwell Krakowiak(SVP & CFO)