Luke Sergott

Luke Sergott inquired about the pharma side, specifically the weakness in academia, government (A&G), and biotech, asking when funding might return and where in the cycle the company would see a pickup. He also asked about the dynamics affecting gross margins, including tariff mitigation efforts, supplier pressure, and the timing mismatch for passing costs to customers, and if the company is currently absorbing costs.

Answer

CEO Patrick Kaltenbach expressed excitement about biopharma processing activities, including GLP-1s, as a growth driver. He noted that A&G and biotech represent a smaller exposure, mainly in liquid handling (pipettes), which was slightly declining in Q4. He indicated that a pickup would first be seen in the pipette business, dependent on funding return. CFO Shawn Vadala clarified that the company is managing input costs well through the SternDrive program. He attributed gross margin pressure to significant currency headwinds (70 basis points in Q4) and unfavorable mix from recent acquisitions (largely service/distribution businesses). He stated that organic gross margin was down only 20 basis points for Q4 and the full year, despite a 190 basis point gross tariff headwind in Q4, noting that the benefit from the reduced Swiss tariff rate (from 39% to 15%) will primarily impact 2026.

Luke Sergott asked about the pharma market, specifically biotech weakness and academic funding, and when Mettler-Toledo might see a pickup. He also questioned the gross margin trends, tariff mitigation efforts, and potential absorption of costs.

Answer

CEO Patrick Kaltenbach expressed excitement about biopharma processing (e.g., GLP-1s) as a growth driver, noting Mettler-Toledo's small exposure to academia/biotech (mainly pipettes), which saw slight Q4 declines. CFO Shawn Vadala clarified that gross margins are well-managed through the Stern Drive program, but were impacted by a 70 basis point FX headwind in Q4 and acquisition mix. Organic gross margin was down only 20 basis points despite a 190 basis point tariff headwind, with Swiss tariff benefits expected in 2026.

Luke Sergott asked for a breakdown of Mettler-Toledo's 2026 guidance by segment, specifically for the industrial side, including Product Inspection (PID) and core industrial. He also inquired about the impact of the overall consumer market on consumer-facing segments like PID, and how pacing has been through Q3 and into 2024.

Answer

Shawn Vadala, Chief Financial Officer, outlined 2026 growth estimates: low to mid-single digits for Laboratory (with better performance in process analytics, softer in early research/liquid handling), low to mid-single digits for core Industrial and Product Inspection (both with modest acquisition benefits), and flat for Food Retail. Geographically, Americas is projected at mid-single digits, with low single-digit growth in Europe and China. Regarding PID, Mr. Vadala expressed satisfaction with results despite challenging food manufacturing markets, attributing success to innovation, portfolio expansion targeting the middle market, and strong team execution.

Luke Sergott asked for a breakdown of Mettler-Toledo's 2026 guidance by segment, specifically inquiring about the industrial side, including Product Inspection (PID) and core industrial. He also asked about the impact of a weakening consumer market on consumer-facing segments like Product Inspection, considering the pacing through Q3 and into 2024.

Answer

Shawn Vadala, Chief Financial Officer, provided 2026 growth estimates: low to mid-single digit for laboratory (with process analytics outperforming, liquid handling softer), low to mid-single digit for core industrial and product inspection (modest acquisition benefit), and flat for food retail. Geographically, Americas at mid-single digit, Europe and China at low single digit. Regarding consumer-facing segments, Mr. Vadala noted challenging end markets (70% food manufacturing for Product Inspection) but highlighted strong execution, innovation, and portfolio expansion, particularly targeting the middle market, as key drivers of performance.

Luke Sergott from Barclays asked for a framework on the pent-up demand from the deferred equipment replacement cycle and how a recovery might materialize. He also requested insight into the drivers of the Q4 margin profile.

Answer

CFO Shawn Vadala noted that while replacement was 80-90% of Western business pre-COVID, this has been delayed. He believes a recovery will be gradual and tied to market certainty rather than a sudden snapback, a view CEO Patrick Kaltenbach echoed. For Q4 margins, Vadala explained that while optically similar to Q3, the fourth quarter will see higher volumes but also significantly higher tariff costs, leading to an expected year-over-year margin decline of approximately 170-180 basis points.

Luke Sergott followed up on Revvity's prudent outlook for China Immunodiagnostics, asking if it relates to potential DRG or VBP plans for cancer/oncology testing, and also inquired about the backlog and demand pacing for life science instruments, which are assumed to be flat for 2026.

Answer

Max Grykowiak, SVP and CFO, clarified that China Immunodiagnostics will be less than 5% of total revenue in 2026, stating no fundamental market changes in the past 90 days, and that theoretical new policies or oncology-related changes do not impact their business; the prudence is a conservative assumption. For instruments, he noted 4-5 month lead times and good funnel visibility, with the flattish 2026 assumption mirroring the 2025 CapEx environment, despite some indicators of improvement.

Luke Sergott asked if the prudent outlook for China Immunodiagnostics (IDX) was influenced by potential increasing DRG or VBP plans for cancer/oncology testing, and what Revvity is hearing regarding these policies. He also inquired about the outlook for life science instruments, which are assumed flat for 2026, asking about the current backlog, demand trends, and any anticipated pacing or pickup throughout the year.

Answer

Max Krakowiak, SVP and CFO, clarified that China IDX will represent less than 5% of total company revenue in 2026. He stated that nothing fundamentally changed in the market in the past 90 days, and theoretical new policies or oncology-related changes do not impact Revvity's business. The prudence reflects a conservative assumption. For instruments, Max Krakowiak noted no particular callout, with most projects having 4-5 months lead time and good funnel visibility. The flattish assumption for 2026 implies a similar CapEx environment to 2025, despite some indicators of potential improvement.

Luke Sergott asked for a breakdown of the puts and takes on Life Sciences margins given the mix of strong software and weak instruments. He also questioned if the new cost actions were pulled forward or incremental.

Answer

CFO Max Krakowiak attributed the Life Sciences margin pressure to tariffs, FX, and a specific reagent product mix in Q2, but affirmed the long-term margin profile is unchanged. He described the new cost actions as a combination of pulling forward future plans, re-evaluating the manufacturing footprint, and targeted actions in China.

Luke Sergott of Barclays asked if the current manufacturing shifts and investments to mitigate tariffs could pressure long-term operating margin targets. He also inquired about the dynamics in the reproductive health business, questioning the low-single-digit growth in Q1 after a strong second half.

Answer

CFO Maxwell Krakowiak stated that long-term operating margin targets remain unchanged, as the primary drivers are SG&A leverage, which is unaffected by the tariff situation. For reproductive health, Krakowiak attributed the positive outlook to commercial partnership expansions, like with Genomics England, and the newborn screening business consistently outpacing global birth rates through geographic and menu expansion.

Luke Sergott asked for more color on the recovery in the biotech customer segment, questioning when the demand turned, what products are driving it, and its potential durability. He also characterized the 2025 guidance as conservative and asked what potential downside risks could derail the building momentum.

Answer

CFO Max Krakowiak clarified that while pharma/biotech turned positive in Q4, this was heavily driven by strong software performance. The more fundamental turn, he noted, has been in the reagents portfolio, which began stabilizing over the summer and picked up sequentially. He attributed the conservative 2025 guidance to prudence amid geopolitical and regulatory uncertainty, stating the goal was to provide a balanced guide that reflects the current environment.

Luke Sergott asked for Revvity's perspective on the drug discovery market amid mixed industry signals and the drivers for the strong reagents performance. He also sought clarification on why China's stimulus delay impacted the guide if it wasn't a major prior assumption.

Answer

CFO Maxwell Krakowiak confirmed reagents returned to mid-single-digit growth, in line with expectations. CEO Prahlad Singh clarified the China stimulus issue: performance was worse than expected because even customers not reliant on stimulus paused capital spending in anticipation of potential funding, creating an unexpected headwind.

Luke Sergott asked about Agilent's R&D deployment strategy, specifically where the company is looking to invest in new high-growth areas and if the focus is on updating underinvested parts of the portfolio, following recent significant product launches.

Answer

President and CEO Padraig McDonnell highlighted a key innovation focus with the new CTO, August, and a simplified company structure that allows for clearer and faster allocation of innovation dollars. He indicated upcoming platform launches and accelerated investment in areas like oligos, GLP-1s, and related workflows. McDonnell also emphasized software as a key area for asymmetrical investment across the company, ensuring the right software for particular workflows, describing it as a refocused and agile R&D strategy.

Luke Sergott inquired about Agilent's R&D deployment strategy, specifically where the company is looking to invest, new high-growth areas, and if investments are focused on updating previously underinvested parts of the portfolio.

Answer

President and CEO Padraig McDonnell stated that Agilent has a key innovation focus with its new CTO, August, and has simplified its company structure to better allocate R&D dollars. He indicated that this will lead to platform launches over the next few years and accelerated investment in areas like oligos, GLP-1s, and related workflows. Mr. McDonnell also highlighted software as a key area for asymmetric investment across the company, ensuring the right software for particular workflows, describing it as a refocused and agile R&D approach.

Luke Sergott inquired about the drivers behind the margin step-down in the DGG and LSAG segments and the expected path to recovery. He also asked for the embedded segment guidance for the second quarter.

Answer

CFO Robert McMahon explained that the margin pressure was primarily due to lower volumes, with some mix impact in LSAG. He expects margins to improve as volumes recover and the full impact of cost-saving actions is realized. For Q2, McMahon guided for pharma to be down double-digits, chem/advanced materials down high-singles, and diagnostics/clinical down mid-singles, among other end markets.

Luke Sergott asked about the worsening performance of the expert advisory business, linking it to FDA funding and government shutdown impacts, and sought clarification on the implied Q4 EBITDA margin step-down.

Answer

Chairman and CEO Michael Petras confirmed the expert advisory services were impacted by FDA inactivity, noting it was worse than expected but core lab testing was improving. CFO Jon Lyons explained that Q4 margins would see Nelson Labs step back from Q3's peak due to low expenses, and Sterigenics might see a slight step back but remain stable for the year.

Luke Sergott from Barclays Capital questioned the remaining runway for margin expansion at Nelson Labs, given it is approaching its target range, and asked if Sotera is seeing increased demand for gamma and X-ray sterilization in line with a peer's strong growth.

Answer

Chairman and CEO Michael Petras stated that the current low-to-mid 30s margin range for Nelson Labs is the sustainable, expected level going forward, not the 40s seen during the pandemic. He expressed pride in Sterigenics' 10.5% growth, noting strength across modalities like EO and e-beam, and mentioned a new X-ray facility is coming online by year-end.

Luke Sergott asked for clarity on the Q2 margin outlook, given the pull-forward of Nordion revenue into Q1. He also questioned if the expected volume step-up in Sterigenics implies a new, higher baseline for volumes going forward.

Answer

CEO Michael Petras clarified that the Nordion revenue was a timing shift from Q2 to Q1 and that full-year margin improvement is expected to be driven primarily by Nelson Labs, with other segments remaining consistent. For Sterigenics, he pointed to the company's long-range guidance of mid-to-high single-digit growth, which implies a sustained recovery and growth in volumes over the long term.

Luke Sergott of Barclays questioned if a recent lab closure at Nelson Labs indicated a structurally lower demand environment and whether capacity would be sufficient for a rebound. He also requested a segment-level breakdown of the 2025 guidance.

Answer

CEO Michael Petras clarified that the company has sufficient capacity at Nelson Labs and the lab consolidation was an efficiency measure to improve operating leverage, not a reaction to lower long-term demand. He then provided a 2025 segment outlook: Sterigenics at mid-single-digit growth, Nordion at mid-single-digit growth, and Nelson Labs at low-to-mid-single-digit growth, with Nelson's performance being back-half weighted.

Luke Sergott asked about Avantor's outlook for the 2026 market rate and its growth potential, considering underlying demand and peer comments. He also inquired about bioprocessing plant downtime, whether it was planned maintenance, and efforts to build redundancy for reliability.

Answer

President and CEO Emmanuel Ligner clarified that Avantor's bioprocessing portfolio is primarily chemicals, with high single-digit order intake year-to-date. He stated a need to re-evaluate 2026 numbers and the impact of the Avantor Revival plan. He explained that some chemical plants require upgrades due to older equipment causing unreliability, necessitating strategic investment, process improvements (S&OP), and new talent like a Chief Operating Officer.

Luke Sergott asked about Avantor's overall market outlook for 2026 and how the company plans to achieve growth relative to market rates, considering underlying demand and peer comments. He also sought clarification on the bioprocessing plant downtime, specifically if it was planned maintenance, and the company's efforts to build redundancy to ensure quality and reliability.

Answer

Emmanuelle Ligner, President and CEO, emphasized the unique chemical-focused bioprocessing portfolio with high single-digit order intake, but stated he needs a fresh look at 2026 numbers and the impact of the 'Avantor Revival' plan. He explained that some plants require upgrades due to older equipment causing unreliability, necessitating strategic investment, improved processes (S&OP, planning), and new talent, including a Chief Operating Officer with a lean mindset.

Luke Sergott requested a breakdown of the bioprocessing headwinds, asking to size the impact from the extended site maintenance versus the customer-specific issues. He also inquired about the level of integration between the Lab Solutions and Bioscience Production segments, particularly in manufacturing and channels.

Answer

President & CEO Michael Stubblefield attributed 1-2 points of the Q2 bioprocessing headwind to the maintenance outage and 2-3 points to discrete customer issues. He noted the second-half outlook reflects these customer headwinds persisting. Regarding integration, Stubblefield confirmed significant synergies exist, including fully integrated proprietary manufacturing, which allows customers to scale from research to GMP grades seamlessly, and a common commercial channel.

Luke Sergott inquired about the Lab Solutions transformation, asking how much of the required change is due to a suboptimal portfolio versus other factors. He also asked how the company plans to front-load the incremental $100 million in cost savings without disrupting business momentum.

Answer

CFO R. Jones explained that the Lab transformation is a comprehensive effort focused on strategy, execution, service levels, and technology like an AI-enabled e-commerce platform, not just a portfolio issue. Regarding cost savings, he emphasized the program has been non-disruptive and that front-loading will be achieved by leveraging insights from the new segment structure and implementing technology enhancements in manufacturing and commercial operations, while carefully balancing speed and stability.

Luke Sergott asked for more visibility on the drivers of the implied sequential ramp through 2025, particularly what is expected to improve in the lab business given factors like U.S. semiconductor weakness and government funding.

Answer

CEO Michael Stubblefield clarified that the guidance does not imply a significant ramp, but rather a typical 49% first-half, 51% second-half revenue split. He stated the lab business is expected to have stable end-market conditions, with growth supported by the phasing-in of normal price contributions through Q1 and Q2.

Luke Sergott sought clarification on why the strong Q4 bioprocessing exit rate shouldn't be extrapolated as the growth rate for 2025. He also asked for more detail on the margin drag from the equipment and instrumentation (E&I) business and its outlook.

Answer

President and CEO Michael Stubblefield described the Q4 bioprocessing forecast as a constructive data point showing recovery momentum but cautioned against direct extrapolation for full-year 2025. He noted the E&I business improved sequentially but remained a headwind, down mid-single digits year-over-year, with strong pipelines but longer conversion cycles.

Luke Sergott asked about the order dynamics between new modalities and monoclonal antibodies (mAbs), particularly looking ahead to next year. His second question concerned the margin expansion opportunity for the upcoming year, considering a 13% core growth rate and various factors like investments, M&A, FX, and tariffs, specifically whether it would be in the range of 100-150 basis points or higher in a more normalized environment.

Answer

President and CEO Olivier Loeillot stated that new modalities performed as expected in Q3, with muted demand. He confirmed a significant headwind in the second half of the year due to a gene therapy program, but noted good performance outside of that specific program. Year-to-date, new modality sales are growing mid-single digits and represent about 17% of the total portfolio, slightly down from last year. CFO Jason Garland indicated that more detailed margin guidance for next year would be provided during the Q4 call. He expects gross margin to continue expanding at the previously discussed rate and aims for additional operating leverage at the EBIT level, balancing margin expansion with investments for future growth.

Luke Sergott inquired about order trends between new modalities and mAbs for the upcoming year. He also asked for an outlook on margin expansion for next year, considering 13% core growth and various influencing factors like investments, M&A, FX, and tariffs.

Answer

Olivier Loeillot, President and CEO, reiterated that new modality demand was muted in Q3, playing out as expected, with significant headwinds from a gene therapy program in H2 2025. He noted year-to-date new modality sales grew mid-single digits, representing 17% of the total portfolio. Jason Garland, CFO, stated that 2026 guidance would be provided in the Q4 call, but expects gross margin to continue expanding at the current rate, with additional operating leverage at the EBIT level, balancing margin expansion with investments for future growth.

Luke Sergott inquired about the stability of the burn rate, which has been around 8-8.2%, and sought visibility on whether these rates will persist for 2026 modeling, considering recent bookings and backlog dynamics.

Answer

CEO Barry Balfe attributed the stable burn rate to cancellations skewing towards unstarted studies (0% burn rate) and recent gross bookings initially acting as a drag as studies ramp up. CFO Nigel Clerkin confirmed the burn rate was stable around 8% year-to-date and will be a function of cancellations, gross wins, and initiatives to enhance the burn rate in 2026.

Luke Sergott inquired about ICON plc's burn rate, noting its stability and the Q4 midpoint implying a slight step down. He asked about the impact of recent bookings and backlog on burn rates and visibility for maintaining 8-8.2% levels into 2026.

Answer

CEO Barry Balfe explained that Q3 cancellations skewed towards studies not yet started (0% burn rate), while increased gross bookings initially act as a drag on burn rate as studies ramp up. CFO Nigel Clerkin confirmed that the burn rate has been stable around 8% year-to-date and will be a function of cancellations, gross wins, and initiatives to enhance it, with more color to be provided with 2026 guidance.

Luke Sergott of Barclays Capital questioned the sustainability of the recent step-up in bookings, asking if there was a risk of a future 'air pocket' due to faster-burning metabolic trials and the disconnect between biotech awards and funding data.

Answer

CEO Steve Cutler and COO Barry Balfe pushed back on the 'air pocket' theory, viewing the metabolic and obesity trend as a long-term growth driver. While acknowledging the biotech funding disconnect, they pointed to a potential lag and qualitatively strong opportunities. Balfe summarized their view as 'conservatively optimistic,' noting that while not a straight line, the signs are encouraging.

Luke Sergott from Barclays asked about the margin profile of the backlog, considering pricing pressures and FSP mix, and whether the revenue growth required to maintain margins has changed.

Answer

CFO Nigel Clerkin stated that the fundamental margin opportunity has not changed. He sees no radical shifts in the pricing environment or FSP mix in the near term. He reiterated the company's history of creating operating leverage and expects margin expansion to resume when revenue returns to growth.

Luke Sergott requested details on the strong Q4 bookings, asking about the mix between FSP and full-service business, the weighting between small and large pharma, and how this performance sets up the company for Q1.

Answer

CEO Dr. Steve Cutler clarified that the Q4 bookings strength was primarily driven by the biotech segment, with significant full-service awards. He noted that large pharma was more muted in the quarter. While pleased with the biotech wins, he mentioned that elevated cancellations offset some of the gross bookings growth and that the new awards will take time to ramp up and contribute to revenue.

Luke Sergott questioned the 2025 outlook, asking if growing at the high end of the market's low-single-digit rate is a safe assumption and inquired about margin implications and the strategy for rightsizing resources.

Answer

CEO Dr. Steve Cutler deferred specific 2025 guidance to January but indicated an expectation of low to mid-single-digit revenue growth. He refrained from projecting margins due to a shifting business mix, including vaccine work and the balance between functional and full-service contracts. He emphasized that while revenue growth is expected, the company is not providing specifics at this time.

Luke Sergott from Barclays asked for an update on West Pharmaceutical Services' capital allocation priorities, specifically favoring share repurchases versus bolt-on M&A, given its strong balance sheet, cash flow, and improving margins.

Answer

CFO Bob McMahon acknowledged the opportunity to better define and establish a capital allocation policy, noting that with a strong balance sheet and cash flows, the company can be more active in using those cash flows to drive the business. He stated that this is a high priority and to "stay tuned" for further details.

Luke Sergott inquired about West's capital allocation priorities, given its strong balance sheet, increasing cash flow, and improving margins, specifically regarding a preference for share repurchases versus bolt-on M&A.

Answer

CFO Bob McMahon acknowledged the strong balance sheet and cash flow, stating that defining and establishing a clear capital allocation policy is a key priority for him and the team, and advised to 'stay tuned' for more details on future plans.

Luke Sergott asked for more details on the consumer health momentum, specifically regarding new partnerships with Whoop and Oura, the types of tests marketed, and their expected contribution to requisition volume.

Answer

CEO Jim Davis explained that Whoop, with 1.5-2 million U.S. users, has seen 350,000 sign-ups for advanced labs, offering a limited panel of 65 biomarkers. Oura, with 5.5 million global users (60-65% U.S.), is in final technical integration for a more limited $99 panel of 50 biomarkers. He noted that the direct channel has grown 30-40% year-to-date, and partnerships like Function Health are also contributing significantly to consumer health growth.

Luke Sergott asked for more insight into the consumer health momentum, particularly regarding new partnerships with Whoop and Oura, the types of tests being marketed, and the potential impact on requisition volume.

Answer

CEO Jim Davis detailed the Whoop partnership, noting 350,000 sign-ups for advanced labs and a $199 panel of 65 biomarkers, while the Oura integration is ongoing, targeting 5.5 million global users with a $99 panel of 50 biomarkers. He emphasized the impressive 30-40% year-to-date growth of Quest's direct consumer channel and the contribution from Function Health, all pointing to significant growth in the consumer segment as individuals take more control of their health.

Luke Sergott inquired about the underlying organic volume trends, asking for clarification on the daily test pacing for the remainder of the year after accounting for weather and calendar day impacts.

Answer

James Davis, Chairman, CEO and President, clarified that after adjusting for weather and one less day, organic volume would have been up nearly 1%, consistent with Q3 and Q4 of the prior year. He noted that while January and February were soft, March saw a strong rebound which has continued into April, keeping utilization trends in line with expectations.

On behalf of Luke Sergott of Barclays, an analyst asked for the expected revenue contribution from the University Hospitals outreach acquisition and for details on the typical rates and trends of value-based contracts with payers.

Answer

CFO Sam Samad stated that while specific revenue for the University Hospitals deal isn't disclosed, it is included in the 2025 acquired revenue growth guidance. CEO Jim Davis explained that value-based incentive payments are periodic and hard to predict, but noted that pricing on outreach acquisitions migrates down to Quest's rates over 2-3 years.

Jake, on behalf of Luke Sergott, asked for an update on the Spark reagent backorders from the end of Q1, whether manufacturing capacity constraints have been addressed, and if there was a material revenue push from Q1 into Q2 as a result.

Answer

President and CEO Christian Henry confirmed that the Q1 backorder for Spark reagents was largely resolved during Q2 after the company increased production batch sizes. He stated that the supply issues are now mostly solved and there is no material backorder being pushed into Q3.

Luke Sergott explored the dynamics behind the muted 2026 growth forecast, asking why Bruker isn't seeing the China stimulus that peers have mentioned. He also sought an update on the long-term 'democratization' of US academic funding away from traditional coastal powerhouses.

Answer

Chairman, CEO & President Frank Laukien clarified that a 'muted growth scenario' for 2026 would still be an improvement over the current decline. He stated that stimulus for high-end research instruments in China has not yet been released, though customers remain optimistic. On US funding, he reiterated his belief in a long-term trend toward a more level playing field for universities and noted that while there are some encouraging signs, the situation lacks full clarity.

Luke Sergott of Barclays requested a breakdown of the Q2 guidance by segment and asked how much of the announced mitigation savings would be realized in the quarter. He also sought historical context on the potential impact of stimulus programs in Germany and South Korea.

Answer

CFO Gerald Herman explained that most mitigation actions will impact the second half of the year, leading to a sharper EPS improvement in Q3 and Q4. CEO Frank Laukien added that while some measures are being implemented quickly, their financial effect will be more visible later in the year. Regarding stimulus, Laukien noted that programs in Europe and Korea are more likely to be sustained trends benefiting 2026 and beyond, rather than a short-term bolus.

Luke Sergott's associate asked about the expected number of UHF NMR placements for 2025, the geographic mix of the BSI backlog, the drivers for the 140 bps operating margin expansion target, and any contingency for potential tariffs on European manufacturing.

Answer

CEO Frank Laukien anticipates placing three ultra-high field (UHF) NMR systems in 2025, down from four in the previous two years. Management confirmed the BSI backlog's geographic mix is consistent with overall revenue. Laukien explained the 140 bps margin expansion is an all-in number, accounting for organic headwinds and FX. He also noted Bruker's manufacturing flexibility across the U.S., Europe, and Malaysia mitigates potential tariff risks.

Luke Sergott asked if the China stimulus funds might be insufficient for the building demand, potentially keeping the backlog elevated. He also inquired about which specific areas within the upstream pharma market saw the most weakness.

Answer

CEO Frank Laukien expressed confidence that the China stimulus will materialize into revenue, with the main uncertainty being timing. He believes it will add at least 100 bps to growth. Regarding pharma weakness, he identified CROs as being hit the hardest, followed by broad-based cost-cutting at large pharma companies that freezes CapEx budgets, and continued difficulty in the funding environment for emerging biotech, all of which delay instrument purchases.

Luke Sergott requested clarification on the timing of the $5 million NGS customer revenue normalization expected in Q4 and its potential carry-over into fiscal 2026. He also asked about the mix of NGS strength between clinical and academic markets.

Answer

CFO Adam Laponis confirmed a $5 million revenue air pocket in Q4 from one transitioning customer, with some additional impact expected in Q1 2026, but reiterated confidence in overall sequential growth. CEO Dr. Emily Leproust added that while clinical adoption remains the key NGS growth engine, the company is investing in products like FlexPrep to penetrate non-clinical markets like AgBio.

Luke Sergott inquired about the assumptions for tariffs within Twist's financial guidance, whether the company is observing a demand shift from competitors manufacturing in China, and if the tariff situation could act as a catalyst for the BioSecure Act.

Answer

CFO Adam Laponis stated that the current guidance, which projects 20% growth at the midpoint, already incorporates known tariff impacts and potential uncertainty. He emphasized that Twist views market disruptions as an opportunity to gain market share, referencing the 20% year-over-year growth from academic customers as evidence of their ability to thrive in challenging macro environments.

Luke Sergott of Barclays asked about Twist's exposure to potential tariffs related to goods from Canada and Mexico, particularly concerning the removal of the sub-$800 de minimis exemption.

Answer

CEO Emily Leproust stated that since Twist manufactures 100% of its products in the U.S., the tariffs are not a direct headwind. Instead, she positioned it as a competitive advantage, as competitors importing from China will now face increased costs. She noted that Twist's exposure to Canada is minimal and that DNA is not currently subject to Canadian retaliatory tariffs.

Luke Sergott asked for an update on the DNA data storage program, specifically regarding the commercialization timeline for the Century archive solution, potential milestones, and any early access customers.

Answer

CEO Dr. Emily Leproust explained that the program's primary focus is on developing the terabyte-scale chip to ensure competitiveness with existing technologies like tape and hard drives. She noted the team has fully transitioned to an enzymatic synthesis approach for cost and sustainability reasons. Given this intense technology development focus, she stated it is too early to discuss specific customers or commercialization timelines.

Luke Sergott from Barclays Capital asked for more detail on the drivers of the BLS segment's strength, specifically by therapeutic indication, like metabolic disease, and by customer type, such as mid-sized versus pre-revenue biotech.

Answer

President, CEO, and Chairman Adam Schechter explained that the Central Lab Services (CLS) business is driven by its large pharma clients, with demand following their pipelines, particularly in major areas like oncology, neurology, and metabolic disease. In contrast, the Early Development business primarily serves smaller companies, often focusing on esoteric areas like cell and gene therapies for rare diseases.

Luke Sergott from Barclays Capital asked for more detail on the strength in the Biopharma Laboratory Services (BLS) segment, specifically regarding therapeutic indications like metabolic disease and the source of demand from different biotech segments.

Answer

President, CEO, and Chairman Adam Schechter clarified the two parts of the business. The Central Lab Services (CLS) business is primarily driven by large pharma clients, with demand following their pipelines in major areas like oncology and metabolic diseases. In contrast, the Early Development business serves mostly smaller companies, often focusing on niche areas like cell and gene therapies for rare diseases.

Luke Sergott requested a breakdown of the drivers for the full-year Diagnostic operating margin expansion and asked about customer sentiment in the Biopharma segment amid potential tariff-related restructuring.

Answer

Chairman and CEO Adam Schechter attributed the expected full-year Diagnostics margin expansion to Invitae becoming accretive, ongoing LaunchPad savings, and a favorable testing mix. For the Biopharma segment, he noted that the Central Labs business (Phase II/III trials) is resilient as it's critical to pharma pipelines. While the early development space requires monitoring, he expressed confidence in the overall business strength.

Luke Sergott of Barclays Capital asked for the core driver behind the quarter's various moving parts, including burn rates and DSOs, inquired about the declining long-term backlog, and asked about hiring needs for the second half of the year.

Answer

CEO August Troendle identified a sharp drop in cancellations as the primary driver for the quarter's performance. He noted the shift to faster-burning metabolic studies explains the changing backlog dynamics. President Jesse Geiger stated they expect accelerated hiring in the second half, targeting a mid-to-upper single-digit headcount growth rate for the full year.

Luke Sergott asked about the backlog burn rate assumptions for the year and sought clarification on why biotech studies burn faster than large pharma studies, given the prevalence of slower-burning oncology trials in both segments.

Answer

CFO Jill McConnell reiterated the full-year burn rate forecast of 8% to 8.5%. She explained that oncology studies, which constitute nearly 50% of the late-stage portfolio, burn about 20% slower due to complexity. While new biotech studies in the backlog tend to start more slowly, she noted that once underway, they burn revenue more quickly than large pharma projects. The current mix is affected by these slower-starting projects.

Luke Sergott asked what catalyst prompted the deep analysis of the backlog and whether SG&A cuts could create resource constraints that hinder the ramp-up of newly won business.

Answer

CEO Tom Pike explained that potential revenue shortfalls identified during the 2025 budgeting process triggered the deeper analysis. He acknowledged the risk of under-resourcing and detailed that the operations team is now engaged in a highly granular, month-by-month resource optimization process to ensure they can deliver on new work while executing cost-saving initiatives.

Luke Sergott questioned the pricing dynamics behind recent wins, asking if Fortrea is competing on cost, and sought to understand how the company is avoiding the biotech booking volatility seen by peers.

Answer

CEO Tom Pike asserted that Fortrea prices at market and wins based on capabilities and experience, not solely on price, though he acknowledged FSP is competitive. He attributed biotech stability to intensified commercial efforts, improved forecasting processes, and direct involvement from the leadership team to manage customer decision-making.

An analyst on behalf of Luke Sergott asked a long-term question about whether the FDA's push away from animal testing toward alternative methods like organoids could be a significant upside driver for single-cell technologies.

Answer

CEO Serge Saxonov called it a "perceptive question" and confirmed it is a consistent topic with biopharma customers. He described single-cell and spatial technologies as the best tools for assessing these models and analyzing drug effects, viewing it as a "very promising and pretty fundamental area of growth" for the company, although it is still an early-stage opportunity.

Luke Sergott asked for a breakdown of Visium versus Xenium consumables revenue in the quarter and inquired about the timeline and equipment requirements for the 1 billion cell project with the Chan Zuckerberg Initiative.

Answer

CEO Serge Saxonov did not provide a specific revenue split between Visium and Xenium consumables. Regarding the CZI project, he stated that it is a very large-scale endeavor that is getting started quickly but will take a significant amount of time to complete, suggesting it is a multi-year effort.

Luke Sergott asked for an update on the SERENA-6 trial with AstraZeneca, specifically regarding its ramp-up and how to think about the potential volume impact for Guardant.

Answer

Co-CEO Helmy Eltoukhy clarified that trial enrollment is complete and data may be presented by their pharma partner later in the year. He expressed excitement for the trial's paradigm of using liquid biopsy to monitor for molecular progression before switching therapies, noting it could provide a 'nice upside' for Guardant360 testing volume in the future.

Speaking on behalf of Luke Sergott, an analyst asked about the VBP headwinds during the quarter, the expected cadence for the rest of the year, and the magnitude of any tailwind from China's stimulus programs.

Answer

EVP and CFO Matt McGrew confirmed the Q1 VBP impact was in line with expectations and the previously guided full-year cadence remains unchanged. President and CEO Rainer Blair characterized the China stimulus as 'measured,' noting it primarily benefited life science instruments and helped offset demand contractions in other areas rather than providing a major net tailwind.

An analyst on behalf of Luke Sergott of Barclays asked for confirmation that the combined growth contribution from rescreening and care gap programs remains around 10%, as previously discussed.

Answer

CFO Aaron Bloomer confirmed that the combined contribution is "still very much intact" and could be "slightly north of 10% growth." He reiterated that rescreens are the largest component, growing over 30% annually and contributing mid-to-high single digits to overall growth.

An analyst on behalf of Luke Sergott asked for confirmation that the previously discussed 10% growth contribution from rescreening and care gap programs remains intact for the 2025 outlook.

Answer

CFO Aaron Bloomer confirmed this assumption is "still very much intact." He elaborated that the combined contribution from these two drivers is expected to be "slightly north of 10% growth." He specified that rescreens are the largest component, growing at over 30% annually and contributing mid-to-high single digits to the overall growth rate.

Luke Sergott requested a breakdown of M&A contributions to revenue and bookings, questioned the rationale for the guidance cut despite strong bookings, and asked about the timing of the strategic review for the regulatory services business.

Answer

Executive John Gallagher provided the organic vs. reported growth figures, noting organic software bookings grew a strong 25%. He clarified the guidance revision was not due to bookings burn rate but to the removal of typical Q4 services seasonality from the forecast, driven by weakness in regulatory services. Executive William Feehery explained that recent biosimulation-focused acquisitions created more critical mass in that area, highlighting a strategic divergence and prompting the review of the regulatory business.

Luke Sergott from Barclays questioned what materially improved between the pessimistic Q2 guidance cut and the strong Q3 beat, asking if the prior outlook was overly conservative. He also asked about the CDMO relationship with Vertex following their new agreement with Lonza.

Answer

Chairman, President and CEO James Foster responded that nothing materially changed and the situation is 'on the margin,' with some positive but not yet trending signs. He stated the company provides guidance it is confident in achieving. Regarding Vertex, he explained it's a necessary and smart move for them to have multiple suppliers for a major drug, and it has no negative impact on Charles River's relationship or demand from them.

Luke Sergott from Barclays requested details on the quarter's M&A activity, including its financial profile, segment allocation, and implications for future growth.

Answer

CEO Ari Bousbib and CFO Ron Bruehlman explained that while most acquisition contribution is in the TAS segment, TAS also saw strong organic growth. They noted that of the $649 million spent on M&A year-to-date, nearly half was for a single R&DS acquisition (Micra), a specialized CRO purchased at a high revenue multiple, resulting in minimal near-term revenue contribution.

Inquired about the size and drivers of the gene therapy franchise outside of the main Sarepta drug and asked for an update on the proportion of Biologics business coming from pass-through sourcing for products like GLP-1s and Sarepta, as well as the associated margins.

Answer

The gene therapy pipeline is considered healthy and balanced, with multiple programs beyond the main Sarepta drug. The separate drug substance business also has good momentum. For pass-throughs, Sarepta revenue is about 50% pass-through at a low margin, while the rest of the Biologics business has 15-20% pass-through content with mid-single to mid-teen margins.