Q1 2020 Earnings Call
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Thank you for calling you have your conference I'd number please.
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James on Q1 2020 earnings.
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Do you have a conference I'd.
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Yeah, Threenine 339832 to eight.
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Thank you I'm joining you now your line will be on music hold until the.
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Ladies and gentlemen, thank you for standing by and welcome to the Q1 Twentytwenty Bio Rad Laboratories incorporated earnings conference call. At this time, all participants are in the listen only mode.
After the speakers presentation, there will be a question and answer session.
You asked the question. During this session you will need to press star one on your telephone.
If you require any forget assistance please press star zero.
Thank you I would now like to had to call over to your speaker today Mr. Ron Hutton. Please go ahead.
Thank you boiler good afternoon, and thank you all for joining US today, we will review the first quarter results for Twentytwenty.
With me on the phone or Norman Schwartz, our Chief Executive Officer.
The Lawn Das School Executive Vice President and Chief Financial Officer.
The last executive Vice President and Chief operating Officer.
Tupelo, President of the life Science group and Darren right President of the clinical diagnostics group.
Before we begin our review I would like to caution everyone that we will be making forward looking statements about management's goals plans and expectations.
Financial future performance and other matters.
These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties.
Included in these forward looking statements or statements regarding the impact of the covert 19 pandemic on buyer Reds result, an operations and steps by Red is taking in response to the pandemic.
Actual results may differ materially from these plans and expectations and the impact and duration of the coated 19 pandemic is unknown.
We cannot be certain that buyer edge responses to the Ben pandemic will be successful, but the demand for by Reds Cobot 19 related products is sustainable.
The buyer Red we'll be able to meet this demand.
You should not place undue reliance on these forward looking statements and I encourage you to review our filings with the FCC, where we discussed in detail the risk factors in our business.
The company does not intend to update any forward looks looking statements made during the cold today.
Our remarks today will also include references to non-GAAP net income and non-GAAP diluted income per share, which are financial measures that are not defined under generally accepted accounting principle accounting principles.
Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.
I'll now turn the call over to your Lawn does school executive Vice President and Chief Financial Officer.
Thank you Ron Good afternoon. Thank you also joining us and we hope that you and your families or well in staying healthy.
We would like to recognize im saying color employees around the globe, we'll continue to make extraordinary affords to serve our customers under the current stuff circumstances.
Before I begin to detailed quarterly discussion Andy lost our Chief operating officer will provide an update on by the rates operations in light of the current endemic related environment that we are experiencing globally Andy.
Thank you realign so I'd like to take a few minutes to update you on a current states of operations around the world.
To closely monitoring keep close to all about sites, we've established a cobi 19 oversight team to manage and respond to the pandemic situation.
As we manage through this challenging period, we're focused on three key areas the ongoing safety of our employees.
Continuing manufacturing operations to ensure product supply in support of our customers.
And making sure we continued to make progress on our core strategies.
In the area of employee safety, we have implemented work from home globally for all employees, who are not essential to maintaining ongoing production and safe use of our facilities.
Travel is limited only to essential customer visits raw steel price personnel.
For all employees, who are at work, we have implemented safety procedures in line with CDC recommendations and all local authorities when required.
In China, and other Asian region countries, where stay at home is being lifted we how about seems back in the office.
Where we are adopting shifts monitoring temperatures and still maintaining social distancing and cleaning routines in accordance with applicable local guidelines.
We'll continue to follow this phase return to work approach as other reasons begin lifting show through in place restrictions.
Overall, we're very pleased with a positive response of our employees.
Our manufacturing operations teams have responded extremely well to the situation and today's weve been overall able to maintain continuous production.
In most of all sites and it being working closely with our customers to ensure product supply continuity.
That's part of our response efforts, we've been able to kick mitigate many of the cup the changes in customer demand, both up and down.
Balancing production in recruiting resources across all sites and then a few instances where you have temporarily suspended production.
In particular, we saw in the first quarter high demand for our PCR and droplet digital PCR products and similar to other companies.
Have experienced some challenges in procurement and scaling production.
These challenges have generally been due to our supply is being impacted by shelter in place requirements as well as they inability to meet increased demand.
With the recent launch about SaaS cop two Sirona GE test were also now scaling manufacturing and both the U.S. and in Europe to meet expected demand.
As we look forward, we continue to monitor demand across our portfolio to optimally manage this situation adjust capacity in our supply chain and ensure continuity of high quality product to our customers.
And lastly, while much time and energy has been recently focused on managing through the impacts of the global pandemic.
We continue to work on our core initiatives and strategies.
Thank you and I'll pass it back to Atlanta, Thank you, Andy and now I'd like to review the results of the first quarter.
Net sales for the first quarter of 2020 were $571.6 million, which he is a 3.2% increase on a reported basis versus $554 million in Q1 off 2019.
On a currency neutral basis sales increased 4.3%.
Sales in all regions were impacted by the global spread of Cobiz 19 is the quarter progressed.
Lease was evident first in Asia in late in the quarter, we experienced a tapering in demand in the U.S. and in Europe.
As you recall, we estimated $5 million revenue carry over from Q4 due to the cyber attacks.
We now feel the first quarter, probably benefited by closer to $10 million.
[noise], it's Andy alluded to depend d'amico resulted in a significant change in the mix of product demand across our portfolio.
We saw strong orders for PCR based products related to cope with 19 testing in research and lower demand mainly within the clinical diagnostics portfolio, which was impacted by shelter in place guidelines.
Sales over the life Science group in the first quarter of 2020 worth $227.2 million compared to $215.7 million in Q1 off 2019, which he is a 5.3% increase on a reported basis and the six.
Percent increase on a currency neutral basis.
Much of the year over year growth in the first quarter was driven by double digit growth in gene expression droplet digital PCR antibody products and food safety.
Our core PCR and droplet digital PCR products revenue increases were driven by strong demand related to cope with 19 testing and related research.
Rose in the life Science segment was somewhat offset by softer academic research demand as well as the tough compare to 29 teen related to our process media product line.
Excluding process media sales the life science business grew 11.1% on a currency currency neutral basis versus Q1 of 29 team.
On a geographic basis life science currency neutral year over year sales grew in Asia and in Europe, as well as a nice growth in the Americas when excluding process media.
Sales of clinical diagnostics products in the first quarter was $340.3 million compared to $334.1 million into one off 2019, which he is a 1.9% growth on a reported leases into 3.2%.
Growth on a currency neutral basis.
During the first quarter, we posted solid growth in blood typing and quality controls.
This growth was somewhat offset by a year over year decline within our diabetes and immunology product line, which showed the earliest signs off reduced demand due to lower non critical hospitals and clinics visits.
Overall, a decrease in routinely testing and elective surgeries impacted the diagnostics group revenue.
On a geographic basis, the diagnostics group goes to growth in the Americas and in Europe.
As you May see any now recent press releases, we are the first company to receive FDA emergency use authorization for a total antibody soroti test for Cobiz 19, It test, which has also mad CE Mark requirements for Europe.
Clinical evaluation of this this is demonstrated that nostix specificity of more than 99% and diagnostics sensitivity of 98% eight days after the onset of symptoms.
We also received FDA emergency use authorization for our droplet digital PCR Cobiz 19 test kids.
Yes can detect the virus with high sensitivity, even when a low viral load these president.
The reported gross margin for the first quarter of 2020 was 55.5% on it gets basis and compares to 56.3% in Q1 off 2019.
In 2019 gross margin benefited from an escrow release of $7.4 million related to an acquisition from 2011.
Net of these the current quarter gross margin benefited mainly from better product mix and lower inventory reserves expense.
Amortization related to prior acquisitions recorded in cost of goods sold was $3.9 million compared to $3.7 million into one of 2019.
It's DNA expenses for Q1 off 2020 were $193.7 million or 33.9% of sales compared to two $207.6 million or 37.5% into one of 2019.
Reduction in DNA expenses were the result of ongoing cost savings initiatives as well as disciplined hiring in low lower discretionary spend driven by travel in marketing expenses due to the impact of co lead 19.
Total amortization expense related to acquisitions recorded in S. DNA for the quarter was $2 million versus $1.7 million into one of 2019.
Research and development expense in Q1 was $49.3 million or 8.6% of sales compared to $47.6 million or 8.6% in Q1 was 29 team.
Q1, operating income was $74.4 million or 13% of sales compared to 56.6% a million dollars, sorry, or 10.2 person in Q1 off 2019.
Looking below the operating line the change in fair market value equity Securities Holdings added $827.7 million of income to be reported results Andy substantially related to holdings of the shares of Sartorius AG.
Also during the quarter interest in other income resulted in net other expense of $3.3 million compared to $11.4 million of income last year.
Q1 off 2019 included $15.7 million of dividend from Sartori, yours, which was not to be clear into one of 2020.
The effective tax rates was 23.7% compared to 23.2% into one of 2019.
Reported net income for the first quarter was $685.9 million and diluted earnings per share worth $22.72.
He sees a decrease from last year and these substantially related to the valuation of the stock Torrijos holdings.
Moving on to the non-GAAP results.
Looking at the results on a non-GAAP basis, we have excluded certain RTP carlin unique items that impacted both the gross and operating margins as well as other income.
These items are detailed in the reconciliation tables in the press release.
Looking at the non-GAAP results for the first quarter in cost of goods sold we have excluded $3.9 million of amortization of purchased intangibles and $1.5 million off restructuring benefit.
These exclusions move the gross margin for the first quarter of 2022 in non good gross margin of 55.9% versus 55.6% in Q1 of 29 team.
Non-GAAP SGN named the first quarter of 2020 was 33.3% versus 36.4% in Q1 off 2019.
Yes, DNA on and on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2 million legal related expenses of $1.8 million and restructuring and acquisition related benefits of $600000.
In R&D, we have excluded $400000 hope restructuring benefit and the non-GAAP R&D expense in Q1 was consequently, 8.7%.
The cumulative some of these non-GAAP adjustments, resulting in moving the quarterly operating margin from 13% Wanna get basis to 13.9% on a non-GAAP basis.
These non-GAAP operating margin compares to a non-GAAP operating margin in Q1 off 2019 of 10.5%.
We have also exclude certain items below the operating line, which are the increasing value of the sartorial equity holdings of $827.7 million and $1.3 million of loss associated with venture investments.
The non-GAAP effective tax rate for the quarter was 25.7% versus 28.5% in Q1 off 2019.
The tax rate was impacted by changes in the geographic mix of earnings.
And finally non-GAAP net income for the first quarter of 2020 was $57.6 million or $1.91 cents diluted earnings per share.
Compared to $49.6 million and one dollar and 65 cents per share into one of 2019.
Moving onto the balance sheet.
The cash in short term investments at the end of Q1 were $1.042 billion compared to 1 billion in $120 million at the end of 2019.
During the first quarter, we purchased 291941 shares of our store for a total $100 million as an average price of approximately $342 per share.
For the first quarter of 2020 net cash generated from operations was $63 million, which compares to about $43 million into one of 2019.
This improvement mainly reflects the higher operating profits and improved working capital.
Following the end of the quota we completed the acquisition of cell C for $100 million in cash.
Sales season exciting early stage company.
With products focused on detection and analyses of single cells.
We plan to further investing new applications to enhance Celsius technology.
We also completed in early April divestiture of a small non core business that used to be part of our former analytical instruments group.
The proceeds from this transaction where about $12 million.
The adjusted EBITDA for the first quarter of 2020 was $107.4 million or 18.8% of sales.
The adjusted EBITDA in Q1 of 2019 was $101.7 million or 18.4% of sales, which included the 19th which included the 19 to 2019, sorry circle, you'll see that.
The adjusted EBITDA in Q1 of 2019, excluding this sort of Tories dividend was about 15.5%.
Net capital expenditures for the first quarter of 2020 were $21.6 million and depreciation and amortization for the first quarter was $33.6 million.
Moving on to the guidance.
Given the uncertainties regarding the duration and impact of the Cobiz 19 pandemic. We are we the growing our previously issued annual guidance for this year.
We currently believe the second quarter year over year sales may decline by 10% to 15%.
We continue to assess various demand and supply indicators as well as return towards protocols.
We believe did the Cobiz 19 impact will be transitory and we would expect some recovery in the second half of the year, but it currently it is difficult to predict the rate of recovery that we might experience.
That concludes our prepared remarks, and we will now open the line to take your questions operator [noise].
Yes, Sir.
The Q in nature.
One moment please.
As a reminder to ask the question you will lead to press Star one on your telephone.
To address your question, perhaps the Cathy thank.
Please standby well the compound look you any roster.
[noise] and your first question, it's from the line Brandon Couillard. Your line is now open.
[laughter] Thanks, good afternoon.
But actually like to start with our Oh, just on the Suralco G. Anybody test you face an entrenched market with many other high volume actually systems that have great test as well, although at a high level what is by Reds kind of right to win in the category.
Finally color you can share with us in terms of your manufacturing capacity, where it stands today in terms of number a test per month, where you expect that to be it a few months from now expected ASP.
And any color on the about was platform on in terms of installed base or kind of throughput metrics you can help us with.
Thanks. Thanks, Brandon This is just Tara.
So starting with your first question around positioning I mean as you as we said there are.
Other.
Players with with a variety of throughput capabilities, we're entering the market. We believe that a key differentiator for our platform that is an open system and incredibly well suited for medium sized lab.
Or as a complimentary we're not the high throughput system, which are typically close.
And so as routine testing starts to ramp up in a large laboratories, we also expect but there will be.
Competition for volume on those closed system, because we believe that our platform clockers are really really nice approach to either do batch processing alongside those that's and or we think the workflows really grateful for medium size lab.
The kit can be run on our easily platform, which is our automated plate readers referred to.
Which there are more than 3000 in Fargo agree.
Or it can be adopted to any place based system, which there are.
Tens of thousands of system globally.
Great to automate.
That's kind of a pack heading into place that's put handling so great flexibility bear.
From a capacity perspective.
This is an exceptionally scalable formats on manufacturing approach as well.
So we've got the capability to manufacture.
You millions of tests of.
If the demand is there.
And.
As you probably read the adoption extra Rajiv routine practice is still being established that we believe that the opportunity is is that it's meaningful.
And then lastly, you asked about a its appeal so that the pricing for CPT code.
And in North America, or something that was but you know we we think that's a p. will depend on on volume as well as other market entrants, but no likely.
In the.
Mid single digit range.
We've got all your question Brendan.
Yeah. Thanks, that's that's very helpful. Maybe just one more on the science you talked about.
Measuring anti body Anybodys eight days post infection. Many other some kind of oriented around a 21 day window and then secondly could you sort of speak to the value of total antibody approach rather than just measuring say I GE as many others have decided to sort of focus on.
Yeah, our product is designed to detect I G M I, GE, GE, and Ita and I'd and it's the first antibody type, but appears post symptom onset.
As early as six seven days post infection, so by virtue of having.
Designed keep attack.
All of these there are tight it enabled earlier detection, so upwards of about 100%, 99% sensitivity as early as eight days post symptom onset. So as the pets are being used to complement diagnostic workup, especially if a patient.
Has a negative PCR tests, we believe that earlier detection is really quite useful.
Thanks, and one follow up for a long just in terms of the Twoq directional.
Commentary being down 10 to 15, Oh actually one of the tied to strangers, reaching from from many other companies to beats apart because you get a sense of how that might break down between life Sciences.
Is the main wildcard just the pace elaborate openings and any chance you might be able to sort of quantify the positive called the tailwinds that might.
It would be contributor relative to the copart related sort of headwinds from let's say lap closures.
You know there. Thanks Brendan I. Appreciate the question you know there are several components to it you know obviously, we had to consider when we think about the.
Potential Q2 revenue.
Generally speaking you know.
The return to roll to work and if you think about Asia or China, you know, it's a gradual returned to work.
And you know we have to wait to see kind of how he people see knowing the other regions.
And and obviously, we do see continued.
You know demand for the core PCR instruments. So there will continue to be kind of.
Hey, driving a driver for the Q2 revenue and.
And then we have to continue to monitor.
In terms. So you know the elective surgeries and return to kind of the to the clinics and how does that kind of impacted that Nostix group. So.
So far you know.
We baked in different scenarios and that's how we came up we the range for Q2, and we'll have to wait and see how Q2 wheel he's going to evolve.
Thanks, I'll hop back in Q.
Your next question is from the line as Patrick Sunnily. Your line is now open.
Great. Thanks, guys.
I want to for you know certainly appreciate the guidance range.
Can you just talked about on the margin side. It's obviously been a big focus for you guys. When times are good and revenue, which was kind of growing nicely in the mid single digits. There can you talk about what levers do you guys are pulling here in the near term given the pressure on the revenue that obviously nobody saw tell me how nimble can you be with some of those initiatives that you have out there.
Yeah, if any do you want to Star then well I mean, you know this up this is Andy sorry. Your question was drill and I'm sure you'll add on yeah, yeah and.
From on the supply chain. So I clearly makes an overhead absorption a critical factors when looking at margin.
And we'll be watching that closely as we go because we go through the quarter some areas of mitigation for us are closely monitoring.
Demand versus supply so that we you know we can reduce.
Capacity quickly and also ran a positions respond the game so.
Yes, if demand picks up.
Ahead of pace and expectations. So so that's how we're looking at our supply chain situation and and its impact on margin, Yeah, and I would add to that you know pithreek also that overall, we continue to be very disciplined in from so you know that discretionary expenses whether its.
Travel, whether it's the sampling hiring.
And you know will react to any change in the marketplace.
Right.
Okay, and just to be clear the 20% has been also pulled correct.
The 20%.
Generally, yes, and we'll have to see you know how the second half of the year will shape up.
And this 20% he'd be though.
Okay.
Yes.
And then maybe one on blood typing and obviously, there's a great meet demand for that right now in this environment. It seems like people have been mostly unwilling to reluctant to go to donation centers, how should we thinking about the growth for that business in the near term here.
So I think there may be two ways to look at it one is.
Maybe I'll take that for a second.
One way to look at it is is things getting back to normal obviously with with elective surgeries down.
Hey, you know the blood typing has been a little weaker as that market as people kind of return to elective surgeries and in hospitals open up I think we'll come back to seeing that more normally.
You know it is overall its overall, it's a slow growing market.
And so you know we were expected to again come back to some degree of normalcy and then there and then continue at that pace.
Okay. That's helpful. Mark Thanks, and then last one you army for you on the share repo.
$100 million in the quarter really really encouraging to see I think it's the biggest number certainly I've seen you guys do was it just being opportunistic given the market pull back should we expect higher cadence going forward, maybe just dive into that a little bit. Thanks.
Yeah. Thanks, Patrick Yeah definitely you know he was part of the approach that we talk and we have been communicating you know this approach for awhile.
And currently we have about $70 million left in about $70 million lift in in the pool.
But with that said you know.
We'll have to see how the market evolves and what does it mean, you know and what type of clarity, we get and visibility we get to the rest of the year and generally speaking will continue to be opportunistic.
Yes.
Great. Thank you.
Your next question, it's from the line of Dan Leonard Your line is now okay.
Thank you. So first a question on your diagnostics business can you offer up like what proportion to that business, which would you say is sensitive to non critical testing volumes versus what might be more more insulated rakesh.
She when I take that one or would you like equal sure you can think that aren't yet yeah go ahead.
Oh sure. Thanks, Thanks for the question and Dan I mean, I think it Jennifer for any of the products that are being used routinely like our quality control.
And those are relatively protected.
Outdoor aspects of it immunohematology business that are not tied to elective surgeries seems like diabetes testing.
Obviously has been constrained as people have been staying away from from the rich.
That's a certain countries start to lift.
Shelter in place orders.
Correct.
I'm sorry.
Back to previous that previous levels.
Okay, and then on the PCR business on beauty I think you mentioned supply chain issues can you elaborate on when these issues might resolve and is it right to infer that PCR right now you're you're selling everything you can into in the only rate limiting factor is the supply constraints.
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So oh, okay. The the supply chain side, I think is increasingly becoming a more and more solvable.
When covered it hits you know there was this crazy rush for demand and it was such demand that the industry had an expected. So I think broadly everyone suffered the same the same problems.
And to a large degree I would say that at the moment, we've been able to sell pretty much everything we can produce ER and where we've been working hard to you know expand or.
Capacity.
A couple of sites.
We are manufactured by Corkage and droplet digital Pcr.
Platforms in the consumables and reagents.
You know that there was a little competition out there for some core components.
But largely we've been able to secure in our fresh Arafat.
And then my final question to just hoping somebody could elaborate on the cell C acquisition, what are the objectives, there or is it more of an IP play like Raindancer isn't something that you expect here you're going to develop in perhaps obsolescence the de de seek over time or complement the DTC any any.
Operational would be helpful. Thank you.
Yeah, I think I will invite the net on that one yeah, yeah, yeah, I'd be happy to take that I can say it certainly that the acquisition come with important intellectual property, but yeah technology is one that we think has broad.
Applications in the single cell partitioning and sorting markets and its flexible its cost effective scalable the high throughput cell analysis.
And it's really well suited to the kind of transcriptome, making genomic and multi I will make applications that that customers trying to interrogate single cells are so interested in doing so we're really excited and you know we have now the flexibility of choosing.
The Reits have to further write application and droplets are certainly a good test to for many other kinds of things we're trying to do but right now were first focus on expanding the selfie platform to the many applications in single cell that people are so interested in doing.
Okay I appreciate that color. Thank you.
Once again to ask a question he will lead to press star one on your telephone.
[noise], Okay, operator, if there are no more questions.
Can you put the line again.
My questions at the moment, Sir please continue.
Okay. Thank you everyone.
We appreciate you joining you call today.
Ladies and gentlemen, this concludes today's conference call and thank you for your participation you may now disconnect.
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