Q4 2020 Bio Rad Laboratories Inc Earnings Call

February 11, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q4 and full year 2020, Bio Rad Laboratories, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to.

To ask the question during the session you will need to press star one on your telephone.

Please be advised that today's conference maybe recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Ron Hutton Sir. Please go ahead.

Thank you Latif and good afternoon, and thank you all for joining US today, we will review the fourth quarter and full year results of 2020.

With me on the phone today are Norman Schwartz, our Chief Executive Officer, Ilan, Daskal Executive Vice President and Chief Financial Officer, Andy last Executive Vice President and Chief Operating Officer, Annette Tumolo President of the life Science Group and Dara Wright 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 managements goals plans and expectations, our future financial 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 are statements regarding the impact of the COVID-19 pandemic on bio Rad results and operations and steps bio Rad is taking in response to the pandemic.

Actual results may differ materially from these plans and expectations and the impact of duration of the COVID-19 pandemic is unknown.

We cannot be certain the bio rad responses to the pandemic will be successful that the demand for bio Rad as COVID-19 related products is sustainable or the bio Rad will 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 SEC, where we discuss in detail of the risk factors in our business.

The company does not intend to update any forward looking statements made during the call today.

Our remarks today will also include references to non-GAAP net income and non-GAAP diluted income per share which are of financial measures that are not defined under generally accepted accounting principles investors should review of the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.

I will now turn the call over to Ilan Daskal, our executive Vice President and Chief Financial Officer.

Thank you Ron good afternoon, and thank you all for joining us and we hope that you and your families are well and staying healthy during these challenging times.

Now before I begin the detailed fourth quarter and full year of discussion I would like the loss can be lost our chief operating officer to provide an update on bio bio Rad operations in light of the current endemic related environment that we are experiencing globally Andy.

Alright. Thank you rely on I'd, just like to take a few minutes.

The current state of operations around the world.

As in the opening comments I would like to recognize the tremendous contributions and flexibility of our employees around the world during 2020.

The response to the shifting needs of our pricing and of pandemic have been truly exemplary.

So at the onset of the pandemic, we set ourselves three key areas of focus to manage through this challenging period, which we continue with into 2021.

As a quick reminder of these are the ongoing safety of our employees.

<unk> manufacturing operations to ensure product supply and support of our customers and making sure. We continue to make progress on our core strategies.

As we closed out 2020 and entered into 'twenty 'twenty one.

We've now achieved the steady state for operating in the pandemic, reflecting employee safety work from home and adoption of company and local policy and practices.

Overall, we have experienced minimal internal transmission of COVID-19 across the company.

And where do we have suspected cases have found the internal testing of employees in the U S. Using our droplet digital PCR platform to be very valuable in maximizing productivity.

As we enter 2021 way of well positioned to meet marketing cost of demand driven by the pandemic and our manufacturing sites and R&D is operating effectively.

In addition, our commercial organization that has deployed digital tools, where appropriate to minimize on site visits to only the essentials required to keep customers up and running on our platform.

So with that brief overview I will pass it back to a lot of thank you. Thank you Andy and now I would like to review the fourth quarter and full year results for 2020.

Net sales for the fourth quarter of 2020 were $789 $8 million, which is at 26, 5% increase on a reported basis versus $624 4 million in Q4 of 2019.

On a currency neutral basis sales increased 24, 4%.

The fourth quarter sales included $32 million of damages award related to intellectual property litigation with Tenex genomics covering the period between 2015 and 2018.

Excluding the $32 million the fourth quarter year over year of currency neutral revenue growth was 19, 4%.

The fourth quarter year over year revenue growth.

<unk> benefited from an easy compare of about $10 million revenue of carryover to Q1 of 2020 related to the December 2019 cyber attacks.

On a geographic basis, we experienced the currency neutral growth across all three regions.

We saw strong demand for products associated with COVID-19 testing and related research.

Generally we are seeing most academic diagnostics labs now running between 70, and 90% capacity, which is similar to what we saw in Q3.

We estimate that the COVID-19 related sales were about $132 million in the quarter.

Sales of life Science group in the fourth quarter of 2020 were $428 5 million compared to $242 million in Q4 of 2019, which is cash 77, 1% increase on a reported basis and the 70.

Three 9% increase on a currency neutral basis, and it was driven by our PCR product lines as well as strong performance in the Biopharma segment.

The fourth quarter revenue also included a $32 million of damages award related to intellectual property litigation.

Excluding the $32 million damages award the currency neutral revenue growth was 69%.

The year over year growth in the fourth quarter was across all of the life science key product areas.

Process media, which can fluctuate on a quarterly basis, so strong double digits year over year of growth in the quarter over the same quarter last year.

Excluding process media sales and the $32 million damages award the underlying life Science business grew 64, 6% on a currency neutral basis versus Q4 of 2019.

Growth in the overall life Science segment was offset by continued softness in academic research demand as these lives around the globe are still operating below capacity. However, we believe that some of the demand was associated with larger the normal end of year budget release.

Yes.

On a geographic basis life science currency neutral year over year of sales grew across all regions.

Last month, the FDA granted an EUA for our Covid Q, PCR assay, which runs on bio Rad existing CSS PCR platforms as well as Q PCR systems for other from other providers.

The ease of multiplex test the targets two separate regions in the viral genome to ensure greater sensitivity and tolerance to potential of mutations.

In addition earlier today, we received an EUA approval from the FDA for Covid flu and.

<unk> <unk> PCR Syndromic multiplex test.

These test, which allows discrimination between each of the three different viruses also Ross on bio rates CFS PCR platforms as well as QVC RMC stems from other providers.

Sales of clinical diagnostics products in the fourth quarter.

The $359 6 million compared to $379 million in Q4 of 2019, which is at five 1% decline on a reported basis and of six 6% decline on a currency neutral basis.

During the fourth quarter strength, and our quality controls products was offset by weakness across the rest of the diagnostics portfolio.

Resurgence of Covid cases during the fourth quarter, the impact of the recovery of routine testing trends and elective surgeries.

On a geographic basis, the diagnostics group was relatively flat in the Americas, but posted declines in the other regions.

The reported gross margin for the fourth quarter of 2020 was 58, 3% on a GAAP basis and compares to 52, 9% in Q4 of 2019.

The current quarter gross margin benefited mainly from better product mix lower service costs higher manufacturing utilization as well as $23 million gross margin benefit associated with the 10 X genomics damages Award.

The amortization related to prior acquisitions recorded in cost of goods sold was $4 6 million compared.

Compared to $4 5 million in Q4 of 2019.

SG&A expenses for Q4 of 2020 were $219 1 million or 27, 7% of sales compared to $214 2 million or 34, 3% in Q4 of 2019.

The year over year, SG&A expenses benefited from ongoing cost savings initiatives and lower discretionary expenses and was offset somewhat by higher employee related expenses.

Total amortization expense related to acquisitions recorded in SG&A for the quarter was $2 4 million versus $2 1 million in Q4 of 2019.

Research and development expense in Q4 was $65 $8 million or eight 3% of sales compared to $57 1 million or nine 1% of sales in Q4 of 2019.

Q4, operating income was $175 2 million or 22, 2% of sales compared to $59 2 million or nine 5% of sales in Q4 of 2019.

Looking below the operating line the change in fair market value of equity Securities Holdings.

The $904 million of income to the reported results and is substantially related to holdings of the shares of Sartorius AG.

During the quarter interest and other income resulted in the net expense of $1 million.

Compared to $5 8 million of expense last year.

Our GAAP effective tax rate for the fourth quarter of 2020 was 22, 2%.

Impaired to 29% for the same periods in Q in 2019.

Our GAAP tax rate in 2020 in 2019, whereas the affected by the large unrealized gains.

In equity Securities. In addition, the 2019 tax rate included a discrete benefit which allowed us to apply higher foreign tax credits.

Reported net income for the fourth quarter was $839 1 million and diluted earnings per share were $27 81.

The sees an increase from last year and is again substantially related to changes in the valuation of the Sartorius holdings.

Moving on to the fourth quarter non-GAAP results.

Looking at the results on a non-GAAP basis, we have excluded certain atypical and 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 fourth quarter in sales, we have excluded the $32 million damages Award.

In cost of goods sold we have excluded $8 7 million IP license costs associated with the damages Award.

$4 6 million of amortization of purchased intangibles and the small restructuring benefits.

These exclusions moved the gross margin for the fourth quarter of 2022 of non-GAAP gross margin of 58, 2% versus 54, 1% in Q4 of 2019.

Non-GAAP SG&A in the fourth quarter of 2020 was 28, 2% versus 31, 7% in Q4 of 2019.

In SG&A on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2 4 million.

Legal related expenses of $6 3 million and restructuring and acquisition related benefits of $3 $1 million.

Non-GAAP R&D expense in the fourth quarter of 2020 was eight 7% versus the eight 2% in Q4 of 2019.

In R&D on a non-GAAP basis, we have excluded a small restructuring benefits.

The cumulative sum of these non-GAAP adjustments result in moving the the quarterly operating margin from 22, 2% on a GAAP basis to 21, 4% on a non-GAAP basis. These non-GAAP operating margin compares to a non-GAAP operating margin in Q4 of <unk>.

2019 of 14, 3%.

We have also excluded certain items below the operating line, which are the increasing value of the sartorius equity holdings of $904 3 million.

$2 $1 million associated with venture investments and $3 million of interest income associated with the Tenex damages Award.

Our non-GAAP effective tax rate for the fourth quarter of 2020 was 24, 3% compared to 17, 7% in 2019.

The non-GAAP tax rate for the fourth quarter of 2019 was lower compared to 2020 due to a discreet benefit which enabled us to apply higher foreign tax credits.

And finally non-GAAP net income for the fourth quarter of 2020 was $121 million or $4 <unk> diluted earnings per share.

<unk> to $70 million.

And $2 32 per share in Q4 of 2019.

Moving on to the full year results.

Net sales for the full year of 2020 were $2 billion and $546 million.

On a reported basis, excluding the Tenex damages award of $32 million sales were $2 billion and $514 million, which is eight 9% growth on a currency neutral basis.

We estimate the COVID-19 related sales were about $313 million.

Sales of life Science group for 2020, we're $1 billion and $231 8 million.

Excluding the Tenex damages award of $32 million the year over year growth was 35% organic currency neutral basis.

The majority of the year over year growth was driven by our core PCR products droplet digital PCR and process media.

On a geographic basis life science currency neutral full year over year sales grew across all three regions.

Sales of clinical diagnostics products for 2000, 21 billion and $305 million.

Which is down seven 1% on a currency neutral basis.

On a full year basis clinical labs hip scene of significant negative impact of the pandemic, which was slightly offset by growth with the and quality controls.

On a geographic basis clinical diagnostics full year over year sales saw declines across all regions.

The full year non-GAAP gross margin was 56, 9% compared to 55% in 2019.

The year over year margin increase was driven mainly by product mix and the manufacturing efficiencies.

Somewhat offset by higher logistics cost.

Full year, GAAP SG&A sort of a full year non-GAAP SG&A was 39%.

Compared to 34, 4% in 2019.

The lower SG&A was driven by our ongoing cost savings initiatives and lower discretionary expenses offset somewhat by higher employee related expenses.

Full year non-GAAP R&D was nine 1% versus eight 5% in 2019 and.

Full year non-GAAP operating income was 17% compared to 12% in 'twenty in 2019.

Lastly, the non-GAAP effective tax rate for the full year of 2020 was 24% compared to 24, 1% in 2019.

The non-GAAP effective tax rate for 2020 was consistent with our guidance of 24%.

Moving on to the balance sheet.

Total cash and short term investments at the end of 2020 was $997 million compared.

Compared to 1 billion in $120 million at the end of 2019, and $1 billion and $160 million at the end of the third quarter of 2020.

In December we repaid the $425 million of outstanding senior notes.

Year end inventory decreased by about $18 million from the third quarter of 2020 the.

The decrease in inventory was driven by higher demand for COVID-19 related products.

During the fourth quarter, we did not purchase any shares of our stock.

We had a total of $273 million available for potential share buybacks.

Full year share buybacks was about 292000 shares for $100 million.

In 2019, we purchased about 88000 shares of our stock for $28 million.

For the fourth quarter of 2020 net cash generated from operating activities was $284 7 million, which compares to $159 8 million in Q4 of 2019.

For the full year of 2020 net cash generated from operations was $575 $3 million versus $457 $9 million in 2019.

The adjusted EBITDA for the fourth quarter of 2020 was 25, 2% of sales day.

Adjusted EBITDA in Q4 of 2019 was 18, 7%.

Full year, adjusted EBITDA, including the Sartorius dividend.

It was $546 4 million or about 21, 7% compared to 17, 5%.

In 2019.

Net capital expenditures for the fourth quarter of 2020 was $39 2 million and full year Capex spend was $98 $9 million.

Depreciation and amortization for the fourth quarter was $36 $2 million and $138 1 million for the full year.

In December we communicated our long range plan.

We project revenues to grow to an overall range of $2 75, and $2 $85 billion by the end of 2023.

This growth will be driven by droplet digital PCR single cell applications clinical diagnostics bio production and increasing growth in biopharma customers.

We expect non-GAAP gross margin in 2023 to land in a range of 57 to 57, 5%.

We expect these positive increase to come from footprint from footprint optimization and better capacity utilization.

Adjusted EBITDA margin should be in the range of 23% and 24% based on the topline growth productivity improvements and the SG&A leverage.

Last week, we initiated the strategy strategy driven restructuring plan to improve operating performance as part of our 2023 goals.

The restructuring plan, primarily impact our operations in Europe and includes the elimination of certain positions the consolidation of certain functions and the relocation of certain manufacturing operations from Europe to Asia.

The restructuring plan is expected to eliminate the total of approximately 530 positions.

Ultimately 200 positions and the manufacturing and 330 positions across our SG&A and R&D functions.

And subsequently creation of a total of about 325, new positions approximately 100, new positions in manufacturing and 225, new positions across SG&A and R&D functions.

The restructuring plan will be implemented in phases over the next two years.

The out of this restructuring plan, we expect to incur between approximately 125 and $130 million in total cost, which we anticipate will consist of approximately $86 million cash expenditures in the form of one time termination benefits to the effects of employees.

We anticipate about $80 million to $90 million of restructuring charges related to this restructuring plan will be recorded in the first quarter of 2021 with the balance recorded by the end of 2022 of them.

Moving on to the non-GAAP guidance for 2021.

While we are pleased with the overall performance in 2020, we continue to be uncertain about the duration and impact of the COVID-19 pandemic, although we assume a gradual return to pre pandemic activity levels and normalized business mix.

We are guiding of currency neutral revenue growth in 2021 to be between four five and 5%.

We estimate about 10% to 11% revenue growth for the diagnostics group.

The life Science group year over year revenue is expected to be about flat as we project. The COVID-19 related sales in 2021 to be about half versus 2020.

We continue to assume debt, we will experience quarterly revenue fluctuations for process media, although we estimate an overall double digit growth for the full year.

Full year non-GAAP gross margin is projected between 56, 2% and 56, 5% and.

Full year non-GAAP operating margin to be between 16% and 16, 5%.

We estimate the non-GAAP full year tax rate to be between 24 and 25%.

Capex is projected between 120 and $130 million in.

Full year, adjusted EBITDA margin of about 21%.

And now I'll turn the call to Norman for a few comments.

Okay, great. Thanks, Ilan I don't really have a lot to add.

I do think companies would say that 2020 is certainly one for the history books.

I think as I think back on the year and I think as Andy alluded to in the beginning it was certainly an all out effort. This last year to manage a myriad of challenges.

And not to lose sight of where we're headed in the longer term.

Yeah, I think as well as <unk> pointed out.

The Covid related revenues are expected to moderate in 'twenty, one from 2021, but.

I do feel that there is still the big question of when the pandemic will come under control.

So in the meantime, we will continue to work on our core initiatives to allow us to make progress.

Over the next few years.

Certainly we continue your continued interest.

We appreciate your continued interest in the in bio Rad. So thank you.

Thank you Norman operating we will now open the line to take your questions.

Yes, Sir as a reminder to ask the question you will need to press star one on your telephone again Thats Star one on you touched on the telephone to ask a question to withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Dan Leonard of Wells Fargo. Your question. Please.

Great. So my first question can you help us frame frame the restructuring announcement, what's the annual savings target you hope to achieve when the dust settles in and how would you characterize the efforts is it the part of an ongoing journey or is this the big Bang on the path to 2023 with the balance of the margin lift is coming from.

The fixed cost leverage.

I'll start and Andy probably will chime in and Dan. Thanks for the question.

Generally speaking then it's part of our three year trajectory that we had communicated back in December.

This restructuring will go through the end of next year. So it's the two years the initiative to completed and basically.

Everything is kind of baked in in all of the three years kind of projections that we provided in order to achieve all of 2023 goes it's not necessarily of one big Bank of me and there are different phases to these plan and and again the piece will take throughout the next two years.

In the Illinois, Yeah, I don't have anything material threat to that I mean, we're working on all the things as well of course continue to wait but it is of major and material.

The restructuring.

Okay, and then just my follow up I mean could you elaborate on performance in your clinical segment. It does seem like the quarter on quarter weakening in the organic growth rate. It seems a bit this gordon with what some of the markets are saying some of your customers are saying so could you elaborate further on what you think the drivers of that were either from.

A product mix standpoint, or a regional standpoint, and any color would be helpful. And then of course, what would what would improve that.

Sure Dara do you want to take that one.

Sure.

So really it is a story of a product mix and region. So at a macro level, we're about 80% to 90%.

Pre COVID-19 levels and in North America, we're very close to pre Covid performance.

The real material dynamic is related to your <unk>.

The the step up in in restrictions and Lockdowns that we saw in Q4 had a pretty.

No big impact on elective surgeries, so I would say blood typing is the real story there in Europe as an area that still is kind of getting back to pre COVID-19 kind of routine level and then in China as well, we saw shifts a little bit of a shift from typical wellness program.

The COVID-19 related.

Infectious disease programs that moderated a bit the diabetes.

So it kind of puts and takes regionally puts and takes within different product lines.

But certainly things continue the move in the right direction with North America being kind of the bright spot there.

Okay. Thanks for the color.

Thank you Dan.

Thank you. Our next question comes from the line of Brandon Couillard of Jefferies. Your line is open.

Hey, Thanks, good afternoon.

A lot in terms of the 'twenty, one topline outlook.

Pretty encouraging given some of the comps youre lapping kind of the roll off of these COVID-19 tailwind.

Can you help us understand some of the upside and downside variables.

The two youre thinking about as far as the recovery in diagnostics.

Should we anticipate debt to mostly come in the back half of the year any color you can help us with in terms of the phasing of organic growth overall sort of moving through the year.

Yeah, Brian I'll try and put a bit more color around that so.

Obviously, a big step back on the carpet sales anticipated.

As we indicated Bob clinic of core clinical diagnostics.

Continuing the recovery trend the Dara talked about but not until second half do we get back to.

Full normal consumption in our view.

The first half of Starbucks, some COVID-19 effect the guidance of roughly half of last year the COVID-19 sales.

And we expect the majority of that to be in the first half of the year.

But the lot of that.

The recovery in the call.

The research life Science research products and a good recovery in the clinical diagnostics franchises.

The grasses.

Okay in terms of your new Covid PCR test.

To what extent if at all have you baked in any incremental contribution from those tests.

Could you talk about your manufacturing capacity on the auto.

The basis.

And remind us approximately how big is your.

Global PCR installed base.

So I'm kind of asking the answers she'd like to comment and then I might add on that.

Sure.

We spent.

A lot of the year scaling manufacturer to meet demand both for our platforms and other reagents and consumables and I think we're in a pretty good place right now to meet customer demand across all of our PCR products.

So that's good.

Good news for us and our customers.

We are we have been telling the <unk>.

<unk> PCR product for.

Yeah, well over a decade, and there are thousands and thousands and thousands of products out there and the certainly sold an awful lot this year Brandon so.

We're going to be as you might imagine, making sure we approach those customers.

With.

Our new test options.

They may need the scale or have need for reliable second sources.

Thanks for that and I'd say, Brian thinking about the numbers.

Back to the modest contribution within all covered related sales since we were light.

Our strategy is.

The second source.

To the installed base.

So so it's a modest contribution as we look at all yet.

Got you and maybe a follow up for you on net on.

On the DD Pcr business.

Can you give us a sense of just how fast overall.

Overall of that business is growing maybe including our.

Ex Covid and are you pushing hard enough into diagnostics specifically.

No you've got one FDA approved test on the platform or any other kits in development that could help accelerate uptake.

In that setting.

That's a great question. So you probably know that we talked about strong double digit growth.

Pretty much of every earnings release from that.

Net product area, and we continue to anticipate that in the future the <unk>.

Market in.

The research market is still growing strongly the.

Biopharma discovery and production markets are growing strongly and we certainly.

You can imagine that.

We are investing quite significantly.

Significantly I think in moving into diagnostics with our partitioning platforms.

I think stay tuned for what's to come there.

Okay.

Maybe one more.

For Norman.

The sartorius stake is worth of about 12 billion now give or take thats about 65% of your equity value implied valuation on your stock stripping that out still pretty low.

Is there any sense of urgency at the board level to monetize the stake is the board considering any strategic alternatives such as the tax free spin.

Why not end.

Any update to share in terms of.

What you referred to in the third quarter call as far as potentially being deemed an investment entity.

And your.

Planning strategies as opposed to address that thank you.

So we certainly havent at the board level talked about a tax free spin.

As we've said in the past we continue to see that as a.

As of long term investment.

And the.

I think we've got seven or eight years to go on the trust.

The.

Obviously, they continue to do very well and.

Yeah.

So.

That's kind of where we are today.

As you know we.

Always considered to be of strategic investment, but you know.

Obviously, if something more strategic comes along.

There is the possibility to liquidate debt position.

And Brandon regarding the question about the investment.

We continue to work to resolve it and as we mentioned in the last quarter, its probably would take.

A few more quarters for us to true.

Resolve this these items.

Great I'll hop back in the queue. Thank you thanks Brandon.

Thank you. Our next question comes from the line of Patrick Donnelly of Citi. Your line is open.

Hey, thanks for taking the questions guys.

Nor maybe where we got you all staying on that topic, there with sartorius from the past quarters in the past meetings, we've had with you yes.

There has been some willingness to kind of address larger deals and then you felt like maybe you were kind of wanting to do something larger.

Sounds like now.

And correct me, if I'm wrong, maybe softening a little bit on that and I'm kind of happy with where sartorius is can you just talk about I guess the M&A landscape.

How are you guys of feeling on the capital deployment side.

Yes, it would just be curious to hear your perspective on the opportunities out there, yes. So I think like many of our peers. We do continue to look for those products and technologies to add to our portfolio.

I think as you know and we've said more recently.

We are especially interested in the idea of doing something larger and maybe even transformational.

But of course as you know these these larger transformational opportunities are few and far between.

But we we continue to pursue the opportunities that.

They come our way.

Understood Okay.

And then a lot of maybe for you to some of the Covid expectations for 'twenty. One certainly appreciate the call at the half of what it was in 'twenty.

At the same time norm kind of touched on at the end of the prepared remarks, there. It's very uncertain. How the this whole thing will play out the pandemic doesn't seem to be going anywhere. Unfortunately.

So can you just talk about I guess the conservatism layered in here, obviously <unk> came in well above what you guys are expecting on Covid.

So maybe just talk through I guess, how you guys planned out that number and then the pacing throughout the year of your kind of projecting a big tail off in the back half of the pandemic hopefully subsides just wanted to get the full understanding that sure. Thank you Patrick.

Generally speaking you are right I mean, we we took into account or what we project and what we believe that.

The second half of the year will kind of normalize.

And we will see the gradual improvement in diagnostics and the tailwind from the Covid related sales will start to tail off so.

The way that you could think about kind of the calendar rising the.

First half in our projection we would benefit.

The way more from the Covid related from the relative to the second half of it that's the way we think about it and we'll have to see how everything would shape up but.

Hopefully with the vaccines et cetera, the second half will normalize.

Yes sure.

And then one for Matt just one the wastewater opportunity certainly is getting a little more attention. It feels like momentum is picking up there do you have any better sense of how big this market could be for you guys in the near term and then maybe just talk about the uptake you saw of <unk>, and then kind of expectations here in the near term.

Sure.

This is this is brand new market, obviously and kind of rapidly.

Eloping and emerging.

I think that our best estimates are probably somewhere up to $200 million over the next several years they reported.

The four to five years.

We're looking closely at it right now most of the demand is.

North America and U S based but we are certainly.

Working outside the U S to try and get attention to the utility of that kind of surveillance.

We are about the launch.

And application kit that will support.

The surveillance and will add variance to that.

As we can so.

We're taking a good good run it making sure that we can supply the market with products that will help.

Okay, Great and then just a quick housekeeping one for you Andy I. Appreciate you, saying the PCR test is a modest benefit of just got a couple of a couple of investor questions in terms of what modest means we should we think about 10 to 20 million or just any ballpark would really help in terms of the dollar.

I think I think it should be roughly in that range.

The.

As I said.

<unk> five was driven predominantly by the instrument placements and so we recognize we want in the molecular diagnostics segment.

This is this is coming right in sort of where to go work on the market I think well reasoned aspirations on that all of those products.

Products.

Understood I appreciate all the color guys. Thank you. Thank you Patrick.

Thank you once again to ask the question. Please press star one on your Touchtone telephone again star one on your Touchtone telephone to ask the question. Our next question comes from the line of Jack Meehan of Nephron.

From research your question please.

Thanks, Good afternoon.

Hoping you could give a little bit more color on the bio processing business then the year sounds like from the commentary you ended on a pretty strong note.

Bob.

Was there anything you could call out in terms of demand and maybe did any of the COVID-19 vaccines help contribute to that.

And the answer you want to take this one sure.

Well certainly we all of the the vaccine developers or are already our customers in this area.

But we this is the business that whilst there are some fluctuations quarter over quarter overall has been delivering strong double digit growth and primarily it's because of the markets that we address with with these products the biologic drug development and now vaccine development.

<unk> production so.

I can't say that debt. The result was primarily because of uptake from from a vaccine manufacturers, although we're there.

All of those accounts.

The business is strong and growing.

Great and then on the Litigation award that you recognized in the quarter that covered the period 2015 through 2018.

What about 2019 through 2020, and how are you going to accounts for this kind of on a go forward basis.

Yes.

But at the Montana.

I was just going to say you know we really.

We still have open litigation and we don't really.

<unk> discussed that in advance, but perhaps you know Elon has something to add about how we're going to treat it.

The youre absolutely right so.

We don't anticipate to book anything additional.

So lot of the litigation the steel.

Got it.

I know when you laid out the new targets.

Of the growth drivers you talked about of single cell.

Andy or net I was wondering if you could just give us an update on some of the work Youre doing there and.

Any updates we can maybe expect in terms of products from Chelsea This year.

Sure.

We it is still early we haven't even had a year yet post the acquisition.

Certainly it was an unusual time to acquire the startup.

We are.

Investing.

I think significantly in in that area are healthy acquisition and.

Our goal is to put compelling tools for single cell analysis that really provide best in class biological insights.

And.

We think towards the latter part of this year youre going to start seeing some of those products roll out the door.

Great.

Maybe just one clean up can you just confirm.

In terms of the Covid testing tailwind are you going to be booking that entirely on the life science side or will any of the test kits be reported in diagnostics from 'twenty one.

I mean as per ton predominantly still of life science right.

If there's any pick up on an hour.

We've got the.

The serology test on the.

Diagnostics part of it is very very small.

We've got some some antigen price sales.

They'll get reported in clinical assets.

If the you know the commentary real contributors.

Thank you.

Thank you Jim.

Yeah.

Thank you. Our next question is a follow up from Brandon Couillard of Jefferies. Your line is open.

Great. Thanks.

In terms of the maybe along or are of that in terms of the COVID-19.

The benefit in the fourth quarter.

Was all of that PCR instrumentation, and was DD PCR of big part of the sequential uptick.

Yeah.

Brandon most of it was associated with our Q PCR products certainly there was some upside from wastewater.

In Q4, but mostly.

We were getting kind of organic.

Gross out of the droplet digital Pcr business.

And by the in the fourth quarter, we had really.

Completed scale up of all of our.

Manufacturing for the for the platform so.

That helped the line.

Okay, and then on the FX rates of.

Obviously moved.

More favorably recently do you have a general sense of.

What currency should add to the topline in 'twenty, one and then maybe a sense of how accretive that might be to the year over year margin expansion.

It's a great question Brendan it was probably about 2% for 2020, so when you think about 2021.

The projection that the dollar will continue to weaken so obviously you know it does contribute to the to the top line.

The.

The reason, obviously some negative impact from the operating expenses.

As well as on.

The manufacturing right I mean.

Net net.

There is still some force rule, but.

I don't have here kind of specific number to call out.

For sure you know on the top line.

It is a contributor.

Got you and then the last one from me or are you still planning to host type of analyst day event in the first half of the year.

We do have we do plan to hosted sometime later this year, we have two of kind of find the right timing coming in hopefully again.

With vaccines.

Everything will normalize so that would be of great opportunity.

Very good thank you. Thanks.

Thank you at this time I would like to turn the call back over to Ilan Daskal for closing remarks, Sir.

Thank you okay.

So we appreciate you joining the call today and your interest in bio Rad and we look forward to connecting soon thank you everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

[music].

After the speaker presentation, there will be a question and answer session to ask the question. During the session you will need to press star one on your telephone please.

Please be advised that today's conference maybe recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Ron Hutton Sir. Please go ahead.

Thank you Latif and good afternoon, and thank you all for joining US today, we will review the fourth quarter and full year results of 2020 with me on the phone today are Norman Schwartz, our Chief Executive Officer, Ilan, Daskal Executive Vice President and Chief Financial Officer, Andy last executive.

Vice President and Chief operating Officer, Annette Tumolo President of the life Science Group and Dara Wright President of the clinical diagnostics group.

Included in these forward looking statements are statements regarding the impact of the COVID-19 pandemic on bio Rad results and operations and steps bio Rad is taking in response to the pandemic.

Our actual results may differ materially from these plans and expectations and the impact and duration of the COVID-19 pandemic is unknown.

We cannot be certain that bio rad responses to the pandemic will be successful that the demand for bio Rad as COVID-19 related products is sustainable or the bio Rad will 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 SEC, where we discuss in detail the risk factors in our business.

The company does not intend to update any forward looking statements made during the call today.

I will now turn the call over to the Landowska coal, our executive Vice President and Chief Financial Officer.

Thank you Rong conduct the non thank you all for joining us and we hope that you and your families are well.

Well and staying healthy during these challenging times.

Now before I begin the details of fourth quarter and full year of discussion I would like to ask Andy last our chief operating officer to provide an update on bio bio Rad operations in light of the current pandemic related environment.

Our experiencing globally Andy.

Alright, thank you align our interest.

Like to take a few minutes to review our current state of operations around the world.

As an opening comment so I would like to recognize the tremendous contributions and flexibility of our employees around the world during 2020.

The their response to the shifting needs of operating in a pandemic have been truly exemplary.

So at the onset of the pandemic, we set ourselves three key areas of focus to manage through this challenging period, which we continue with into 2021.

As a quick reminder of these are the ongoing safety of our employees.

Continuing manufacturing operations to ensure product supply and support of our customers and making sure. We continue to make progress on our core strategies.

[laughter].

As we closed out 2020 and entered into 2021.

We have now achieved a steady state for operating in the pandemic, reflecting employee safety work from home and adoption of the company and local policy and practices.

Overall, we have experienced minimal internal transmission of COVID-19 across the company.

And where we have suspected cases have found the internal testing of employees in the U S. Using our droplet digital PCR platform to be very valuable in maximizing productivity.

As we enter 2021 way of well positions to meet market and customer demand driven by the pandemic and our manufacturing sites and R&D is operating effectively.

So with that brief overview I will pass it back to our lab. Thank you. Thank you.

<unk>, Andy and now I would like to review the fourth quarter and full year results for 'twenty and 'twenty one.

Net sales for the fourth quarter of 2024 of $789 $8 million, which is at 26, 5% increase on a reported basis versus $624 $4 million in Q4 of 2019.

On a currency neutral basis sales increased 24, 4%.

The fourth quarter sales included $32 million of damages award related to intellectual property litigation with Tenex genomics covering the period between 2015 and 2018.

Excluding the $32 million the fourth quarter year over year of currency neutral revenue growth was 19, 4%.

The fourth quarter year over year revenue growth also benefited from an easy compare of about $10 million revenue carryover to Q1 of 2020 related to the December 2019 cyber attacks.

Yes.

On a geographic basis, we experienced the currency neutral growth across all three regions.

We saw strong demand for products associated with COVID-19 testing and related research.

Generally we are seeing most academic and diagnostics labs now running between 70% and 90% capacity, which is similar to what we saw in Q3.

We estimate that the COVID-19 related sales were about $132 million in the quarter.

Sales of life Science group in the fourth quarter of 2020 were $428 $5 million.

Compared to $242 million in Q4 of 2019, which is at 77, 1% increase on a reported basis and the 73, 9% increase on a currency neutral basis and it was driven by our PCR product clients as well as strong performance.

In the Biopharma segment.

The fourth quarter revenue also included a $32 million of damages award related to intellectual property litigation.

Excluding the $32 million damages award the currency neutral revenue growth was 69%.

The year over year growth in the fourth quarter was across all of the life science key product areas.

Process media, which can fluctuate on a quarterly basis, so strong double digits year over year of growth in the quarter over the same quarter last year.

Excluding process media sales and the $32 million damages award the underlying life Science business grew 64, 6% on a currency neutral basis versus Q4 of 2019.

Growth in the overall life Science segment was offset by continued softness in academic research demand as these labs around the globe are still operating below capacity. However, we believe that some of the demand was associated with larger the normal end of year of budget release.

Yes.

On a geographic basis life science currency neutral year over year sales grew across all regions.

Last month, the FDA granted an EUA for our Covid Q PCR assay kit, which runs on bio Rad existing CSS PCR platforms as well as Q PCR systems for other from other providers.

The ease of multiplex test the targets two separate regions in the viral genome to ensure greater sensitivity and tolerance to potential mutations.

In addition earlier today, we received an EUA approval from the FDA for Covid flu and.

<unk> PCR Syndromic multiplex test.

These test, which allows discrimination between each of the three different viruses also Ross <unk> CFO of <unk> PCR platforms as well as QVC RFC stems from other providers.

Sales of clinical diagnostics products in the fourth quarter were $359 $6 million.

Compared to $379 million in Q4 of 2019, which is at five 1% decline on a reported basis and the six 6% decline on a currency neutral basis.

During the fourth quarter strength, and our quality controls products was offset by weakness across the rest of the diagnostics portfolio.

Resurgence of Covid cases during the fourth quarter, the impact of the recovery of routine testing trends and elective surgeries.

On the geographic basis, the diagnostics group was relatively flat in the Americas, but posted declines in the other regions.

The reported gross margin for the fourth quarter of 2020 was 58, 3% on a GAAP basis and compares to 52, 9% in Q4 of 2019.

Amortization related to prior acquisitions recorded in cost of goods sold was $4 6 million compared to $4 5 million in Q4 of 2019.

SG&A expenses for Q4 of 2020 were $219 1 million or 27, 7% of sales.

<unk> $214 2 million.

The <unk> 34, 3% in Q4 of 2019.

The year over year, SG&A expenses benefited from ongoing cost savings initiatives and lower discretionary expenses and was offset somewhat by higher employee related expenses.

Total amortization expense related to acquisitions recorded in SG&A for the quarter was $2 4 million versus $2 1 million in Q4 of 2019.

Research and development expense in Q4 was $65 $8 million or eight 3% of sales compared to $57 1 million or nine 1% of sales in Q4 of 2019.

Q4, operating income was $175 2 million or.

Four of 22, 2% of sales compared to $59 2 million or nine 5% of sales in Q4 of 2019.

Looking below the operating line the change in fair market value of equity Securities Holdings added $904 million of income to the reported results and is substantially related to holdings of the shares of Sartorius AG.

During the quarter interest and other income resulted in the net expense of $1 million compared to $5 8 million of expense last year.

Our GAAP effective tax rate for the fourth quarter of 2020 was 22, 2% compared to 29% for the same period in Q in 2019.

Our GAAP tax rate in 2020 in 2019 were affected by the large unrealized gains in equity Securities. In addition, the 2019 tax rate included a discrete benefit which allowed us to apply higher foreign tax credits.

Reported net income for the fourth quarter was $839 1 million.

And diluted earnings per share were <unk> 27 and 81.

This is an increase from last year and these again substantially related to changes in the valuation of the Sartorius holdings.

Moving on to the fourth quarter non-GAAP results.

Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins as well as other income.

These items are detailed in the reconciliation table in the press release.

Looking at the non-GAAP results for the fourth quarter in sales, we have excluded the $32 million damages Award.

In cost of goods sold we have excluded $8 7 million IP license cost associated with the damages Award.

$4 6 million of amortization of purchased intangibles and the small restructuring benefits.

These exclusions moved the gross margin for the fourth quarter of 2022 of non-GAAP gross margin of 58, 2% versus 54, 1% in Q4 of 2019.

Non-GAAP SG&A in the fourth quarter of 2020 was 28, 2% versus 31, 7% in Q4 of 2019.

In SG&A on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2 $4 million.

Legal related expenses of $6 $3 million.

And restructuring and acquisition related benefits of $3 1 million.

Non-GAAP R&D expense in the fourth quarter of 2020 was eight 7% versus the eight 2% in Q4 of 2019.

In R&D on a non-GAAP basis, we have excluded a small restructuring benefit.

2019 of 14, 3%.

We have also excluded certain items below the operating line, which are the increase in value of the sartorius equity holdings of $904 3 million.

$2 $1 million associated with the venture investments and $3 million of interest income associated with the Tenex damages Award.

Our non-GAAP effective tax rate for the fourth quarter of 2020 was 24, 3% compared to 17, 7% in 2019.

The non-GAAP tax rate for the fourth quarter of 2019 was lower compared to 2020 due to a discreet benefit which enabled us to apply higher foreign tax credits.

And finally non-GAAP net income for the fourth quarter of 2020 was $121 million.

Our $4.01.

Diluted earnings per share compared to $70 million and $2 32 per share in Q4 of 2019.

Moving on to the full year results net.

Net sales for the full year of 2020 were $2 billion and $546 million index.

On a reported basis, excluding the Tenex damages award of $32 million sales were $2 billion and $514 million, which is eight 9% growth organic currency neutral basis.

We estimate the COVID-19 related sales were about $313 million.

Sales of life Science group for 2020, we're $1 billion and $231 $8 million.

Excluding the Tenex damages award of $32 million the year over year growth was 35% on a currency neutral basis.

The majority of the year over year growth was driven by our core of PCR products droplet digital PCR and process media.

On a geographic basis life science currency neutral full year over year sales grew across all three regions.

Sales of clinical diagnostics products for 2000, $21 billion and $305 million, which is down seven 1% on the currency neutral basis.

On a full year basis clinical labs have seen of significant negative impact of the pandemic, which was slightly offset by growth with the and quality controls.

On a geographic basis clinical diagnostics full year over year sales saw declines across all regions.

The full year non-GAAP gross margin was 56, 9% compared to 55% in 2019.

The year over year margin increase was driven mainly by product mix in the manufacturing efficiencies, which was somewhat offset by higher logistics cost.

Full year, GAAP SG&A sort of a full year non-GAAP SG&A was 39% compared to 34, 4% in 2019.

The lower SG&A was driven by our ongoing cost savings initiatives and lower discretionary expenses offset somewhat by higher employee related expenses.

Full year non-GAAP R&D was nine 1% versus eight 5% in 2019.

Full year non-GAAP operating income was 17% compared to 12% in 'twenty in 2019.

Lastly, the non-GAAP effective tax rate for the full year of 2020 was 24% compared to 24, 1% in 2019.

The non-GAAP effective tax rate for 2020 was consistent with our guidance of 24%.

Moving on to the balance sheet.

Total cash and short term investments at the end of 2020 was $997 million compared to 1 billion in $120 million at the end of 2019 and $1 billion and $160 million at the end of the third quarter of 2020.