Hello, and welcome to today’s Revvity Inc. Q4 2023 Earnings Conference Call. My name is Delly I’ll be the moderator for today’s call. [Operator Instructions] I’d now like to pass conference over to your host today, Steve Willoughby, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Revvity’s Fourth Quarter 2023 Earnings Conference Call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer; and Max Krakowiak, our Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone of the safe harbor statements that we have outlined in our press release issued earlier this morning and also those in our SEC filings. Statements or comments made on this call may be forward-looking statements, which may include, but are not necessarily limited to financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company’s actual results may differ significantly from those projected or suggested due to a variety of factors, which are discussed in detail in our SEC filings. 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. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I’ll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad?

Thank you, Steve, and good morning, everyone. As we highlighted in our pre-announcement a few weeks ago, while industry had been continued throughout the end of the year, we were able to perform slightly better than we had anticipated and finish the fourth quarter with a 3% decline in non-COVID organic revenue. While Max will provide more details on the quarter in a bit, I would say that our stronger than anticipated results were broad-based as both our Life Sciences and Diagnostic segments performed better than expected. I would also highlight that our performance was well-balanced geographically as each major region performed in line to slightly above what we had assumed. We also did a good job continuing to tightly control our expenses in light of the challenging environment that persisted through year end, and along with some favorable one-time tax benefits, helped deliver additional EPS upside in the fourth quarter. We also had a very strong cash flow in the quarter with nearly $200 million of free cash flow while continuing to execute on our capital deployment initiatives. For the full year 2023, we generated 2% non-COVID organic growth. While not what we hoped for at the start of the year, I think you will see that our performance was differentiated versus the broader industry and likely will be near the high end of the peer set for the year once the dust fully settles. We expect this differentiated financial performance to continue going forward. As demonstrated in the new financial framework, we recently provided for our expected performance over the coming years. As part of this new long range outlook, we now expect revenues, organic revenue growth to be 200 basis points above the broader industry, regardless of the macroenvironment. In a normal year, we would expect this…

Thanks, Prahlad, and good morning, everyone. The company demonstrated its perseverance in the fourth quarter during a period in which underlying industry demand continued to remain dynamic. I am proud of our team's performance despite these challenges continuing through yearend, allowing our results to exceed our expectations for the quarter. As I'll comment on more in a bit, we are now assuming the current market environment remains largely in place through at least the first half of this year, which will continue to put pressure on our results and cause our full year expectations to look fairly similar to what we achieved in 2023. However, we would expect our performance to be somewhat of the inverse of what we saw last year with the first half of 2024 remaining challenge and facing organic revenue declines before returning to growth in the second half. While we work through this dynamic period, we have continued to remain extremely focused on those items and actions that are more fully within our control. We progressively tightened our expense management efforts throughout last year, and as previously mentioned, we have already implemented significant additional structural cost measures so far this year, which we anticipate will allow our operating margins to remain flat at 28% this year, despite our low single digit growth outlook paving the way for greater operating leverage in the future when growth normalizes. We also made good progress with our balance sheet and cash flow in 2023. In the fourth quarter, we generated $196 million of free cash flow as we made meaningful progress on collections and inventory management. Excluding the divestiture related outflows we incurred during the year, much of which will be coming back to us in 2024, we generated over $400 million of free cash flow in 2023 overall.…

[Operator Instructions] Our first question today comes from the line of Jack Meehan from Nephron Research.

Thank you. Good morning. Prahlad, I wanted to just start and get your thoughts on how you're feeling about visibility in the business now. The macro is still pretty volatile. It would be great to hear what you're hearing from customers and the things that build your confidence this 2024 outlook is in the right spot.

Good morning, Jack. ‘23 certainly did not play out as we or others had envisioned it. But I think it was good to see that in the fourth quarter, while the environment remained challenging, for the first time in ‘23, it did not deteriorate more than what we had anticipated. I mean I’d say as we look forward into ‘24, including here in the first quarter, we are not anticipating any sort of meaningful or significant improvement. But I would say rather more of a continuation of current trends. So things do start to pick up. I would say that, I would expect that to provide more upside to the current outlook. So, somewhat where we are is more of a temporary holding pattern before demands comes back. But I'm optimistic that, we are perhaps what we are experiencing currently is more of a drove. As far as we go, I think, one of the things that do help us is the portfolio transformation journey that we have gone through. If you look at our portfolio now, we have more Diagnostic than our peers, we've got less of a capital intensive business now than our peers, we've got a meaningful software business. And this differentiation allows us to have the confidence that we are in a pretty decent spot.

Great. And then follow up for Max, just as you, I appreciate the color on the pacing you provided, if you look at sales, so core down mid-single in the first quarter, just to get to the ramp you're talking about, just wanted to confirm, are you kind of assuming this is just comp dynamics or is there anything else like noteworthy you're assuming in terms of the assumptions behind that? Thanks.

Yes, hey, Jack. So comp is definitely driving the majority of it. So we mentioned a little bit in the prepared remarks as you pointed out that we'd be down mid-single digits for Q1, a slight improvement in Q2 but still negative with the return of growth in the third quarter. I wouldn't say that we are expecting material change in the market environment in second half. There's always a little bit of quarterly noise, but it's mostly comp driven. And another way to think about it is if you look at our two year stack between the first half and second half, both are at a low single digit with those sorts of annual cadence that I previously mentioned.

The next question today comes from the line of Matthew Sykes from Goldman Sachs.

Thanks for taking my questions. Good morning. Maybe a Prahlad, wanted to start for you. As you look at the Life Sciences segment and the number of acquisitions you've made in that business, how do you feel the synergies are playing out in terms of covering the needs of researchers in both academic and biopharma? Are there portions of workflow and spend where you see gaps in your offering? And do you think you might lose the customer touch points along the way because of those gaps? Do you think you're capturing the customers through the majority of their early R&D workflow? And if there are gaps, is that an organic solution, inorganic solution? Just would love to get your thoughts on that.

Yes, good morning, Matt. Great question. I think the whole journey that we have gone through on our portfolio transformation was indeed to fill the gaps that we had in our portfolio. And if you recall two years ago, it was primarily a small molecule portfolio in preclinical research and differentiation -- preclinical research and development. I mean, the whole concept of what we went through our acquisition journey was to fill the gaps in our portfolio around large molecules, biomolecules, cell and gene therapy. And I think, the synergies that we have started seeing from the Horizon, Sirion, Biolegend and Nexcelom acquisition is on the biomolecule side of the table. So I think we feel very good where we are. And if you add the software component that allows us more differentiation, we feel very good with the portfolio that we have. Will the other additions that we will continue to make? Absolutely. But I think we feel very good with the portfolio that we have built.

Great. Thanks for that. And then Max, just on phasing for Diagnostics specifically, how are you thinking about as we progress through the year in terms of Diagnostics growth and recovery, there are some different types of comps that business has relative to maybe Life Sciences. And then specifically on China, ImmunoDX, how are you thinking about that phasing of growth within your 2024 guidance framework? Thanks.

Yes. Hey, Matt. So, I would say from the Diagnostic ramps perspective, the first half will be, I think, roughly flat from a Diagnostics standpoint. So if you remember, we have the big, the continued headwinds we'll have in applied genomics throughout the year as we still are going through the additional COVID purchases and the Life Sciences’ weakness. And so it'll be about, flattish for the first half and then second half, we're anticipating a return to mid-single digit growth for the Diagnostics business. In terms of your question on Immunodiagnostics China, our assumption there for the full year is mid-single digit growth. However, if you exclude the impact of a change and go-to-market strategy we had for one of our legacy infectious disease businesses in China, the growth there is still similar to what it was in 2023 in terms of the high single to low double digit range. And the reason why we made that change in the legacy business was actually to improve the profitability of us overall, though we'll come with a little bit of heck from a revenue perspective.

The next question today comes from the line of Joshua Waldman from Cleveland Research.

Hey, thanks for taking my questions. Two for you. First, either for Prahlad or Max. Wondered, if you could provide more context on what you're seeing in the Life Sciences instrument business. I guess the instrument business broadly both life science and applied genomics. I mean it looks like both of those came in a bit better than you were thinking when you guided Q4. Curious if maybe you didn't see quite the pullback from pharma you were expecting or maybe did you see some budget flushing in December come through. And then what's assumed for those businesses in ‘24?

Yes, hey, Josh. So I would say if you look at the fourth quarter results, to your point instrumentation on both the Life Sciences and applied genomics standpoint, they're a bit better than our expectations. I think coming into the quarter, we had mention that we were wanting to be a little bit more conservative on our instrumentation assumptions. And so those did prove out to be conservative and they were slightly better. Although, I would -- we would have really call it there was a budget flush activity in the fourth quarter. So as we look out to 2024, we do still believe our instruments will be pressured for this year. And I think if you look at the overall assumptions, both the Life Sciences instruments and applied genomics will be down in the high single digit range for 2024. And that'll put them closer in line to what their LRP is when you look over -- at that over a four or five year period.

Got it. Okay. And then Prahlad, can you talk about any momentum you're seeing in key accounts as it relates to Revvity’s ability to cross-sell or realize commercial synergies following the divesture and rebranding? I guess are there any specific examples you can point to of how Revvity is making progress towards being a more effective strategic partner specifically within pharma?

Yes, Josh, I think and I mentioned that during one of the healthcare conferences earlier in January our example with one of our most important customers that we talked about in the pharma side is how we are able to leverage our relationship both in the Diagnostic and the Life Sciences side of the portfolio to not only license technology to them, but also provide the tools and capabilities and our service offering from the DX side that allows for being part of the journey of drug development for our important customers all the way from preclinical research and licensing them the technology, providing them the tools and capabilities that allows them to use and leverage that technology towards drug development and then being part of the journey with them through their development process as they take it through the regulatory approval processes and then further on leveraging our global lab infrastructure from the Omic side of the business to be able to follow up those patients both for efficacy of the drug and for follow ups. So that sort of allows us initially when we were on the small molecule side in Life Sciences, our focus was on providing them the reagents and tools and instruments and pre in vivo imaging components to just do their research. Now, with the full expansion of our portfolio, it allows us to be with them from the start to when it gets to commercialization.

The next question today comes from the line of Patrick Donnelly from Citi.

Hey, good morning, guys. Thanks for taking the questions. Probably one for Max on the margin side. Understand this year more flattish given the revenue outlook. It sounds like you guys are continuing to implement some cross plan there. Can you just talk about the confidence in that 75 bps expansion algorithm that you guys talked about at JPM and just this becoming that 30-plus percent margin business in the relative near term? What are the key levers you see? And maybe just the process that went into revisiting that algorithm. Did you guys want to set it more as a floor where you saw a clear path to executing on it? Even the China piece sounds like you're chasing more profitability there. So maybe just kind of pull the current back a little on the margins and again that algorithm you guys set.

Yes, sure. Hey, Patrick. So as we step back and look at it from a margin perspective, I think that 75 basis points, it was taken down from the previous MRP of 75 to 100 basis points. And that was mostly just attributed, I think, to the change in the top line assumptions. If you look at the assumption of the market on average is growing four to six were a couple hundred basis points better than that. That's going to drive natural operating leverage just from a pure growth perspective and so even in addition to that I think where we have confidence in sort of the margin expansion is really still the fact that we're still in the early innings of what the actual overall structure of this company should be given all the transformation, right? In terms of the number of acquisitions and integrating them into our core business and processes as well as sort of working our way through all the standard costs related to the divestiture. So I think we have a lot of spokes irons in the fire from an op margin expansion standpoint outside of just the natural volume leverage you would get. I think there is a high degree of confidence and in terms of your question in terms of the amount of conservative or whether it's a floor. I think we thought it was a fair number that we can consistently deliver on with that expected growth algorithm.

Okay, that's helpful and Prahlad, maybe just on China, something you guys talked a little about the ImmunoDX on an earlier question but just in terms of this year what you're seeing their confidence both on the Diagnostic and then the Life Sciences side which is obviously a little more variable, again it sounds like you guys are making some changes in terms of going after a little more profitable business which is the outlook in China confidence in that region and what you're seeing here near term? Thank you.

Yes, Patrick, I think nothing's changed in our view regarding China and that level of confidence is because of the portfolio differentiation. I mean this is where I think it really comes down to a good understanding of the markets and the segments where we play in that market And if you just look at the portfolio that we have built out over there. In terms of Life Sciences side, I think on the instrumentation side, we will continue to see some pressure which is not very different from the other global markets. But I think on the reagents side, we will continue to see it coming back. On the immunodiagnostic side, I think excluding the impact of what Max talked about for a small legacy business that helps us improve profitability, it is going to be on a continued growth trajectory. Newborn screening is going to get impacted, but we've got quite a few of our reagents that are awaiting an MPA approval, and hopefully they will compensate for the pressure that we will see from the birth rate decline. So overall, I think it again comes back to the differentiation of our portfolio in China and outside of China. The lower, it sort of risk mitigates our portfolio, both the exposure to the Diagnostics, Life Sciences and the Software market, which sort of in the longer run is going to be the competitive advantage that we will have.

The next question today comes from the line of Andrew Cooper from Raymond James.

Hey, everyone. Thanks for the questions. Maybe first want to talk about margins a little bit more just for this year. You have modest top line organic growth. You've got a 100 bps coming from price and cost action. So I guess what are some of the counter points to prevent being maybe a little bit of expansion year-over-year in ‘23 or maybe asking me the different way, what's the threshold of revenue growth you need to see to actually see that margin expansion?

Yes. Hey, Andrew. I think as we previously mentioned, the one dynamic you didn't mention for 2024 that we have already previously discussed is the fact that we will have variable costs that are returning in 2024. And I do not believe we are alone. And that dynamic is, as you've heard, some of the others in the industry mentioned it. So I think from that perspective, that's really what's off setting to your point, the price and the structural cost actions that we have been taking. As you look out more longer term, I would say in a normal environment where you don't have that snapback of the variable costs, even with I would say a lower growth than the LRP model assumes. I would anticipate us still being able to drive margin expansion, given some of my earlier points. But again volume is a heavy driver when you think about it from a margin expansion standpoint.

Okay. Helpful. And then maybe just one the E-Commerce rollout, any early feedback there or metrics you can share in terms of what the rollout has really looked like and whether it's more on the cost side, how we think about customer retention, sort of what the benefits are as we think about that moving beyond just the U.S. rollout and globally longer term?

Yes. Andrew, I mean, as we mentioned, it we just rolled it out in mid-December. So it's early days of the MVP and we are seeing good traction on it from a customer flow perspective. The OUS launch is expected to be out in the early part of the second quarter. So I would say it's four to five months ahead of schedule. It is still early days, and looks promising. I think over the longer term, the benefit that we get out of it is not just synergies of being able to offer a comprehensive portfolio to our customers on a common platform, but obviously the synergistic opportunities that you get from a cost perspective or an OpEx perspective. So we are very excited about what we are hearing and seeing, but early days is the best way I would frame it for now.

The next question today comes from the line of Catherine Schulte from Baird.

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

Yes, sure. Hey, Catherine. As we look at, maybe if we take a step back and just think about our guidance more holistically, I think the way to think about it is we're assuming sort of a market down low single digit here in 2024. Revvity grows a couple hundred basis points above the market, so call that flat overall. And then the way we get to 2% is sort of that normalization of the software and omics business. So it's about a 200 basis points specific Revvity tailwind for this year. In terms of the individual assumptions for those businesses for the software business at the client high single digits in 2023, we expected to return to high single digits growth in 2024 and for the omics business that was down a little bit more than 30% in 2023 and we are expecting that to be flat in 2024 so essentially assuming none of those new contracts get signed. We continue to remain encouraged by the pipeline we have for that business and if we're able to close on some of those deals that would be upside to what's assumed in the guidance case here.

Okay, great. And then how should we think about free cashflow in 2024 particularly with those AES outflows coming back to you?

Yes, so from a cash flow perspective, again, we were encouraged by the results that we had here in the fourth quarter. For the overall year that would have meant about roughly more than $400 million once you normalize for those AES outflows. As we look to 2024, our anticipation of free cash flow generation is about $450 million, the AES outflows will actually come back to us as inflows in investing cash flow, if you add that to the $450 million, we are targeting to have about $600 million of overall cash generation in 2024.

The next question today comes from the line of Vijay Kumar from Evercore ISI.

Hi, guys. Thanks for taking my question and good morning to you Prahlad. Maybe my first one for you on Q1 organic guidance assumption of down mid-singles. You did color comps. You look at Q4 down low singles. Most of your peer to resuming first half to be similar to Q4 jump offs so maybe just talk a sequential why perhaps what's driving the chain from down low singles to down mid singles?

Yes, I think as we talked about, from a Q4 to a Q1 perspective, a lot of it is obviously the comps that we had from last year. So it is more an impact of that than anything else. And I think as Max laid out the cadence of the calendar for the year, there is nothing outside of that, that I would say. We do have some pressure from reproductive health, especially in China. And on the instrument side, we will see some impact of that. But more than anything else, it is just timing, is where I would allocate it to the impact that we see on Q1 versus anything else.

Yes, I mean, I'd only put out to add to that, Vijay, you mentioned it yourself, right? Most are saying that the first half will be similar to what they had in Q4. And that's what I just mentioned previously, right, that our first half assumption is down low single digits, which is in line with what we just printed for the fourth quarter.

Understood. Max, maybe one for you. If you have gross margins in Q4 down sequentially. So what happened in Q4? And when you think about fiscal ‘24 guide, is the guide assuming gross margins be flattish up or down versus fiscal ‘23?

Yes, sorry, Vijay, I might have missed the first part of your question, right? I think you were mentioned on just asking the question on gross margin for this year. So in the fourth quarter, the gross margin was about 60%. It was down quarter-over-quarter. We had some mixed dynamics play out in the fourth quarter. As we look to full year 2024, we expect gross margin to be roughly flat year-over-year. And we expect it to build as the year goes on, as we get increased volume leverage throughout the year.

And so essentially the mix improves? Max, is that the assumption? Like what's driving the step up from Q4?

Yes, I think from Q4 to Q1, it's relatively similar. We're expecting kind of a similar mixed dynamic from Q4 to Q1. As the rest of the year progresses, it is a mostly a volume leverage story as opposed to a massive change in mixed dynamics.

The next question today comes from the line of Daniel Brennan from TD Cowen.

Great. Thanks. Thanks for the questions, guys. So ImmunoDX, another solid quarter in the year. Can you just give us a sense of kind of what's driving the strong growth and like what's the range of outcomes we can expect for 2024?

Dan, I think, again, as I talked about earlier, it is the differentiate portfolio of the high end Euroimmun test that we have in China that allows us to be in the face of limited competition that we see in that marketplace. And that has innovation pipeline has worked for us and we expect that to continue as we look forward.

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

Yes, Dan. I think on the instrument side or on the capital side, I think we will continue to see some pressure or at least the current trend we expected to continue in the first half of the year. The benefit again that allows us is that the reagent side of the portfolio, once that starts stabilizing and coming up in the second half of the year, at least that's what the assumption that we have in our current forecast allows us the confidence that we would look. Overall, as we see pharma, I continue to believe that this is a temporary drove in the marketplace and I think it will continue, it will come back to what we have seen is normal pattern of mid-single digit growth in the market over the past several years.

The next question today comes from the line of Eve Burstein from Bernstein Research.

Good morning, thanks a lot for the questions. And first one, you said that you've already taken structural cost measures so far this year and you'll be taking additional cost actions in ‘24. Can you just give us some more color on what those actions are and what's giving you confidence and the ability to achieve those benefits in this timeframe?

Yes, hey, Eve. So from a structural cost action perspective, the easiest way to think about it is really just right sizing the company given all of the transformation, whether that's the integration of the acquisitions, which I mentioned we're still, but we would consider in the early to mid-innings from a process standpoint and then it's working our way through the stranded costs from the divestiture. So that's really what's driving the structural cost actions. In terms of the confidence, those actions have already been taken place and communicated. There's a little bit of timing in terms of when the actual cost comes out throughout the course of the year, but those actions have more or less already been executed and it's just a matter of timing at this point. So we have, I would say, a high degree of confidence in those for this year.

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

Yes, I'm not. Good morning, Eve. I don't think I'm going to quantify as to what's the dollar amount of how much synergies we are saying. The intent of what we provided as an example is how we are starting to see not just commercial synergies from the full portfolio, but also operational and technological synergies. I think as Max said, I would say we are still in the early to mid-innings of the opportunities that we see from integration of the acquisitions. Keep in mind, two of our acquisitions, BioLegend and Euroimmun are two of our strongest and fastest growing businesses. And then I think the opportunities that they provide are crown jewels in our portfolio and we expect them to continue to perform well. Our intent is how do we support those businesses and how do we leverage the opportunities that we see across the portfolio with them.

Our final question today coming from the line of Luke Sergott from Barclays.

Awesome, thanks for squeezing me in. So real quick on the 1Q margin target, you said like a few 100 basis points lower than your full year, so I assume that's around like 25%. Can you talk about even though it's, the growth and everything looks a little bit like 4Q, can you just talk about what's really driving that de sale and then kind of where you're going to get the margin uplift throughout the year and then on that steep ramp?

Yes. Hey, Luke. So, I think maybe just to tackle the margin question first, you kind of led with that. So, look, I don't think your math is that far off from Q1. I think we've given you the pieces below the line in Q1 that you're going to get to roughly that number. As you look at comparing that to Q4, I would say the two mains, really the main driver of that is just a volume step down from a top line perspective. If you look at the actual overall gross margin percentage, it's roughly flat quarter-over-quarter, OpEx costs are similarly in line quarter-over-quarter. And so from that standpoint, I don't think really much has changed. Again, as you then look at the volume ramp over the remainder of the year, as we mentioned, one, you're going to have the timing of the structural cost actions coming into play and the second piece is you're going to have volume leverage as the year builds. So that's how I would think about it from a margin perspective. In terms of the slowdown from an organic growth perspective between Q4 to Q1, I think we've mentioned part of that is definitely comp driven. And the biggest piece of that is going to be on the immunodiagnostics business outside of China. Outside of China in the first half last year, immunodiagnostics grew in the high teens. We've always said it should be a sort of a low double digit. And so, there is just some normalization there on a two year stack for immunodiagnostics business outside of China.

Yes, great. Thanks. I was just referring to the 4Q to 1Q kind of just the similar, you have a pretty steep decline there on the margin. I got the core commentary. And then I guess on the software piece, you guys have talked about converting a lot of these customers more to SaaS-based and that's kind of aiming to reduce the lumpiness in the orders. And talk about the progress that you're seeing there. And then on the non-SaaS piece, can you talk about what the orders look like and if they're inflecting? Because as you talked, gave that 2% framework prior, we were talking about just if software's not a headwind next year or the way that the contracts come in, that would just be at least 100 basis points of lift.

Yes, so then I'll maybe start with your second question first, Luke. So as I mentioned, software business was down high single digits in ‘23. It should be moving to up high single digits. That's what's assumed in our guidance here for ‘24. That is roughly 125 basis points to the overall company from an organic growth perspective. And so as you look at that dynamic, it's really driven by this contract renewals. Again, that's a business that has upper 90% renewal rate. And so most of the contracts we know and they're coming due and I would say have a high degree of confidence in our ability to deliver on our ‘24 expectations. And then to your first question on sort of the SaaS transition, I think we continue to make really good progress. We view the transition to SaaS as actually a differentiator for us versus our peers. We believe we are ahead of them in terms of that transition. And so although that might create a little bit of noise from a revenue recognition standpoint, it is the right thing to do for the business. And if we think our SaaS products are going to help us actually take share from our competition.

Yes, and Luke, in the longer term, it definitely helps us increase revenue and reduce our volatility for that business, which I think is another one of the opportunities that the software business provides us from a differentiation perspective.

This concludes today's question and answer session. I'd like to pass the call back over to Steve Willoughby for any closing remarks.

Thank you. Thanks for your interesting question today. And we look forward to further discussions over the coming weeks. Have a good day, bye-bye.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.