Q3 2022 Bio Rad Laboratories Inc Earnings Call
Good evening and thank you for attending today's bio Rad Laboratories 2022 earnings results Conference call. My name is Danielle and I will be your moderator for today's call.
All lines will be muted during the presentation portions of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star followed by one of your telephone keypad I would now like to pass the conference over to our host Edward Chang head of Investor Relations of Bio Rad Edwards. Please proceed.
Thanks Danielle.
And thank you all for joining US today, we will review the third quarter 2022 financial results and provide an update on key business trends for bio Rad on.
On the call with me today are Norman Schwartz, our Chief Executive Officer.
Basketball Executive Vice President and Chief Financial Officer, Andy last Executive Vice President and Chief Operating Officer, Simon May President of Life Science Group and Dara Wright President another clinical diagnostics group.
Before we begin our review I'd 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 commentary 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.
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.
Finally.
Our remarks today will include references to non-GAAP net income and diluted earnings per share. What's your financial measures that are not defined under generally accepted accounting principles investor.
Investors should review 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 <unk>, our executive Vice President and Chief Financial Officer.
Thank you Liz good afternoon, and thank you all for joining us before.
Before I begin the detailed third quarter discussion I would like to ask Andy last our chief operating officer to provide an update on <unk> global operations Andy.
Thank you very much lat, so extra well continued its modest recovery from the pandemic.
We experienced strong demand for both life science and clinical diagnostic products and our organization is broadly back to normal operations.
We also had modestly higher unexpected demand for COVID-19 related products, particularly in Asia Pacific.
However, an improvement in product supply on the quarter was slower to materialize than we expected.
Negatively impacted sales across several product lines, particularly early in the quarter.
And we continue to carry a significant order backlog.
As previously mentioned in the areas of challenge have been primarily electronics components for instruments.
We did experience some improved product supply as the quarter progressed, and we now see a positive improvement trend for product supply as we enter the fourth quarter.
In addition, during the quarter, we experienced significantly elevated logistics costs and ongoing higher cost in raw materials.
Inventory levels increased quarter to quarter, reflecting strengthening demand and the order backlog as we focused on procuring the remaining key components.
During the quarter, we launched our next generation droplet digital PCR system <unk> 600.
Which brings advanced six chalybite multiplexing and application flexibility, especially in oncology and reproductive health to our customers.
We are extremely pleased with the market response and has quickly built a strong order book.
Also in Q3, we completed the acquisition of curiosity diagnostics and the PCA PCI one system.
This system provides a sample to answer high multiplex and rapid diagnostic Pcr system.
To facilitate our entry into the molecular disease testing market with a differentiated platform.
Integration of this also Poland based company is progressing very smoothly.
While relatively small our business operations in Russia continued to be challenging as a result of increased sanctions on employee concerns over the military draft mandates.
We expect sanctioned to continue to impact operations for the near to medium term.
Overall, we are very pleased with our performance in China, Although the protracted zero target policy have some extended effect on our clinical and lifestyle businesses in Q3, and we see the recovery to normal taking a little longer.
In closing as we enter Q4, our organization continues to focus on resolving the supply chain challenges, which importantly have already begun two weeks, reducing our backlog and meeting the high levels of demand we are experiencing from our customers.
Thank you and I'll now pass you back to Atlanta.
Andy.
I would like to review the results of the third quarter.
Net sales for the third quarter of 2022 were $688 million.
Which is an eight 9% decline on a reported basis versus $747 million in Q3 of 2021.
The third quarter decline in revenue was mainly a result of lower COVID-19 related sales this year as well as the receipt of a onetime $32 million settlement for BEC loyalties from <unk> in the year ago period.
On a currency neutral basis revenue declined four 1%.
We estimate that Covid related sales were $17 million in the quarter and continued to reflect an elevated level in demand, particularly in Asia as a result of the ongoing outbreaks in China.
Year over year core revenue, which excludes COVID-19 related sales and the Tenex $32 million settlement in the third quarter of 2021 increased six 1% on a currency neutral basis.
On a geographic basis, we experienced currency neutral year over year core revenue growth in Europe and Asia.
Core revenue in the Americas was largely flat as a result of the supply chain constraints that we have been experiencing in the past year.
As Andy mentioned earlier, we continue to carry an elevated ora order backlog as a result of supply chain constraints and continued strong customer demand.
We are now seeing higher production volumes and anticipate reductions of other bet low through the.
<unk> of this year.
Sales of the life Science group in the third quarter of 2022, 3300, $17 9 million compared.
Compared to $373 5 million in Q3 of 2021, which is a 14, 9% decline on a reported basis and an 11% decline on a currency neutral basis.
Excluding last year's <unk> settlement, the life Science group sales declined six 9% on a reported basis.
Two 3% decline on a currency neutral basis.
Despite supply chain constraints, the underlying life sciences year over year currency neutral quarter revenue growth was nine 4%.
The year over year growth was primarily driven by western blotting, Q PCR process media and our antibody products.
We continue to see a strong order backlog for the PCR instruments.
As we continue to work through the supply chain challenges.
I will highlight the DD PCR consumables continued to post strong double digit growth.
During the third quarter, we launched the helix 600, DD PCR system as previously communicated.
While not material to the third quarter results. The initial market reception for the <unk> 600 has been encouraging and we are seeing a strong order pipeline building.
Process media, which can fluctuate on a quarterly basis.
<unk> experienced solid year over year growth and we continue to expect strong double digit growth for the franchise for the full year of 2022.
Excluding process media sales and last year's tenants settlement, the underlying life science business declined four 2% on a currency neutral basis versus Q3 of 2021 due to lower COVID-19 related sales.
When also excluding Covid related sales revenue growth was nine 6% on a currency neutral basis.
On a geographic basis life science experienced currency neutral year over year core revenue growth in Europe , and Asia and was relatively flat in the Americas.
Sales of the clinical diagnostics group in the third quarter were $361 9 million compared.
Compared to $372 2 million in Q3 of 2021, which is a two 8% decline on a reported basis and growth of 3% on a currency neutral basis.
Core clinical diagnostics year over year growth, which excludes COVID-19 related sales increased three 7% on a currency neutral basis, despite headwinds from sporadic lockdowns in China.
The diagnostics group currency neutral year over year increase was primarily driven by quality control blood typing and infectious disease products and as I mentioned earlier supply chain constraints had an impact on instrument placements.
Despite the supply chain constraints impacting the instrument placements, we experienced increased consumables volume for diagnostics driven by strong recovery in routine testing markets.
Yes.
As such we believe that we are positioned to benefit from the strong underlying market dynamics in the coming quarters.
On a geographic basis, the diagnostics group year over year currency neutral core revenue grew in the Americas, and Asia and declines in Europe .
The reported gross margin for the third quarter of 2022 was 54, 9% on a GAAP basis and compares to 58, 6% in Q3 of 2021.
Recall that the third quarter of 2021 included $32 million from a legal settlement that benefited gross margin in the year ago period.
The year over year gross margin decline was also impacted by significantly higher logistics and material cost.
Lower Colby sales as well as overall product mix.
These headwinds were partially offset by a positive currency impact due to the strong dollar and continued operational efficiencies achieved through the restructuring efforts.
While we have implemented price increases to address inflationary costs.
The realized price capture has only been a partial offset due to our instrument backlog situation.
Amortization related to prior acquisitions recorded in cost of goods sold was $4 4 million as compared to $4 7 million in Q3 of 2021.
SG&A expenses for Q3 of 2022 were $211 million or 31% of sales compared to $216 2 million.
Or 28, 9% in Q3 of 2021.
The year over year SG&A expenses decreased mainly due to the stronger dollar and normalized employee related benefits, but was partially offset by higher discretionary spend.
Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1 8 million.
Versus $2 4 million in Q3 of 2021.
Research and development expense in the third quarter was $69 9 million.
Or 10, 3% of sales compared to $64 5 million or eight 6% of sales in Q3 of 2021.
The year over year R&D expenses increased mainly due to project spend.
Q3, operating income was $92 8 million or 13, 6% of sales compared to $156 8 million or 21% in Q3 of 2021.
Looking below the operating line the change in fair market value of equity Securities Holdings, which are substantially related to BIOLASE ownership of Sartorius AG shares.
Negatively impacted the reported results by $289 million.
During the quarter interest and other income resulted in net other expense of $13 million.
Compared to net other expense of $3 2 million last year.
Q3 of 2022 included about $8 million of interest and foreign currency expense and $5 million of expense related to an investment impairment.
The effective tax rate for the third quarter of 2022 was 21, 5% compared to 21, 8% for the same period in 2021.
The effective tax rate reported in Q3 of 2022 was primarily affected by the unrealized loss in equity securities and the tax rate reported in Q3 of 2021 was primarily affected by an unrealized gain in equity securities.
Reported net loss for the third quarter was $164 2 million.
And the diluted loss per share was $5 52.
Compared to $3 billion $928 million of net income and $129 96 per share in Q3 of 2021.
This decrease from last year is largely related to changes in the valuation of the Sartorius holdings.
Moving on to the non-GAAP results looks.
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.
Other income.
These items are detailed in the reconciliation table in the press release.
Looking at the non-GAAP results for the third quarter in cost of goods sold we have excluded $4 4 million of amortization of purchased intangibles and.
And $1 3 million of restructuring cost.
These exclusions moved the gross margin for the third quarter of 2022 to our non-GAAP gross margin of 55, 7% versus 57, 9% in Q3 of 2021.
non-GAAP SG&A in the third quarter of 2022 was 30% versus 29, 6% in Q3 of 2021.
In SG&A on a non-GAAP basis, we have excluded restructuring expense of $2 8 million and in vitro.
For diagnostic registration fee in Europe for previously approved products of $2 2 million.
Monetization of purchased intangibles of $1 $8 million and the smallest legal related benefit.
non-GAAP R&D expense in the third quarter of 2022 was 10, 2% versus 9% in Q3 of 2021.
In R&D on a non-GAAP basis, we have excluded $500000 of restructuring costs.
The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 13, 6% on a GAAP basis to 15, 5% on a non-GAAP basis.
These non-GAAP operating margin compares to a non-GAAP operating margin of 19, 4% in Q3 of 2021.
We have also excluded certain items below the operating line, which are the decrease in value of <unk> equity securities and loan receivable holdings of $289 million and a $6 6 million loss associated with venture investments.
The non-GAAP effective tax rate for the third quarter of 2022 was 21, 6% compares to 18% for the same period in 2021.
The higher rate in 2022 was driven by geographical mix of earnings as well as a decrease in compensation related tax deductions.
And finally non-GAAP net income for the third quarter of 2022 was $77 9 million.
Or $2 60 per diluted earnings per share compared to $112 2 million and $3 71 per share in Q3 of 2021.
Moving on to the balance sheet.
Total cash and short term investments at the end of Q3 were $1 billion and $856 million.
Compared to $1 billion and $973 million at the <unk>.
End of Q2 of 2022.
Inventory at the end of Q3 reached $685 $9 million from $657 1 million in the prior quarter.
The increase was the result of the ongoing supply chain constraints.
Okay.
For the third quarter of 2022 net cash generated from operating activities was $7 5 million.
Which compares to $234 million in Q3 of 2021.
This lower quarterly operating cash flow, mainly reflects the changes in the operating results and in working capital.
During the third quarter, we completed the acquisition of curiosity diagnostics for a total consideration of up to $170 million consisting.
Consisting of approximately $100 million in cash and up to $70 million in future milestones.
During the third quarter, we did not purchase any shares of our stock.
The adjusted EBITDA for the third quarter of 2022 was $132 3 million or 19, 4% of sales.
The adjusted EBITDA in Q3 of 2021 was $165 1 million or 23, 1% of sales.
Net capital expenditures for the third quarter of 2022 were $24 1 million and depreciation and amortization was $32 $7 million.
Moving on to the non-GAAP guidance.
Taking into account the strong customer demand, we maintain that full year currency neutral revenue growth outlook to be at the high end of our guidance range of 1% to 2%.
Based on the stronger than anticipated Colgate sales contribution year to date, we now assume full year COVID-19 related sales of about $105 million.
Core revenue growth, which excludes corporate related sales in the prior year legal settlement for bank royalties is now expected to be about 8%.
We anticipate full year core growth for the life science group to be about 15%.
And does agnostic group to be approximately 3%.
As a result of the ongoing supply chain constraints, we now anticipate that full year gross margin projections to be about 57% versus our prior guidance of 57, 5%.
Operating income margin guidance remains at about 19% as we manage our operating expense plan for the remainder of this year.
We now project adjusted EBITDA at the low end of our prior guidance range of 24% and 24, 3%.
We continue to execute on our overall capital allocation model, which includes tuck in acquisitions, such as curiosity and we will continue to be opportunistic with share buybacks.
I'll now turn over the call to normal to make a few comments regarding our capital allocation strategy.
Ron.
Thanks Ilan.
I thought it'd be useful to take a few minutes to address the recent rumors of a potential transaction.
With one of our peers.
So while I'm not going to comment on the speculation.
I think it would be helpful to reinforce our thinking around capital deployment in general.
Yeah.
Our primary focus.
We've stated a number of time.
<unk> in the organic growth strategy.
Most recently communicated our Investor day in the first quarter of this year.
In this regard we have solid R&D investment levels in the 9% to 10% range and.
And we are also investing to improve our channel reach and capabilities to allow us to grow in our key targeted markets.
Additionally, we have multiple initiatives in process focused on building our systems and operational capabilities to support this growth.
The next area of investment for US is of course inorganic opportunities acquiring new products or technologies that further our strategy.
And at the end of the day make us more valuable to our customers.
Over the last several years.
We have been smaller or medium sized acquisitions, which overtime contributed to about one third of our growth. If you look back.
In all cases.
We've given careful consideration the strategic.
Financial.
And operational fit.
It's clear to.
Yes.
We've made a lot of operational progress in recent years.
And we now feel we could acquire and absorb a larger and more transformational opportunity.
If it met our strategic and financial metrics.
And the third cat.
Capital deployment Avenue for Us.
Is buying back our own shares.
Even though we did not buy anything back in this last quarter, we have been active here over the last few years.
And today, we have about $300 million.
Authorized by the board for this purpose.
I think the point is that we see all three of the important elements of an overall capital allocation strategy.
So that really concludes our prepared remarks today and we'll now open up the line to take your questions Danielle.
Certainly if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one as a reminder, if you are using a speaker phone. Please remember to pick up.
Your handset before asking your question, we will pause here briefly as questions are registered.
The first question comes from Patrick Donnelly with Citi.
Please proceed.
Hey, guys. Thank you for taking the questions.
Maybe I can just follow up on the capital allocation commentary there.
Helpful perspective, I appreciate that.
Maybe just given kind of that three pronged approach, we can dive in a little bit in terms of.
The larger deals I guess, you've always kind of frame those as opportunistic few and far between I guess, how do you see the pipeline currently and then would you how do you think about the sartorius stake in terms of.
Using that for a deal versus the strategic value of holding it.
As we kind of look look at the landscape here.
Yes, so I don't think the.
Landscape has changed markedly.
In.
In the last several months, it's still about the same as.
We've always said there are few.
A few and far between and.
But we do consider we do continue to have a look at it.
What might be possible.
Certainly when we think of all of that we still see Sartorius says is very strategic.
And as you know there is still.
Five or six years left on that trust.
So we've got we've got a little bit of time to wait on that.
And then I guess when you think about a deal.
In terms of if you didn't use our toward if you went after a large acquisition I know you've said in the past you'd be willing to use some equity I guess here kind of below $400.
They are more of a.
Lack of interest in kind of issuing a lot of equity with shares at this valuation how do you think about that piece.
Well I think I think it certainly depends on what the opportunity is.
I think we have to look at it Holistically we've got.
We've got obviously three elements that we can think about we've got cash on the balance sheet.
We've got debt capacity and then I would say we are comfortable with some economic dilution.
Yeah.
Using equity.
But obviously, we're going to be careful and prudent with all of that.
Okay. That's helpful.
Moving on from the capital allocation side.
Maybe on the kind of near term here just looking at the gross margin piece can you just talk about I guess the.
The headwinds you saw there it seems like logistics and raw materials.
Can you just talk about I guess the the.
The visibility into the improvement. Therefore, obviously you adjusted the guidance a little bit, but just maybe the moving pieces there and how we should think about that as we get into <unk> and then even into 'twenty three.
Sure. Thank you Patrick I appreciate the question.
Yes, so when we look at the third quarter definitely logistics.
<unk> was a headwind.
We're above a normalized kind of level of spend but it was kind of internal interrelated somewhat also to the <unk>.
Supply chain constraints.
So the Westfield.
Sure.
Constrains in terms of specifically electronic components as Andy mentioned in the prepared remarks.
And there was also some <unk>.
Mix within kind of the the revenue itself on a positive note.
Our manufacturing.
Cost in terms of the FX was a little bit of a tailwind.
In terms of the overall cost there.
As Andy mentioned earlier.
Sure.
We see an improvement and we.
Our guidance also bakes in 19.
Nice improvement in terms of the overall supply chain.
And we do see an increased volume that is being manufactured constantly and incrementally.
So that also.
Will benefit the logistics cost overall.
And.
We are very encouraged because the overall order book is still nicely going down but customers are still.
Holding up.
Logistics cost part of it for example was expedited.
Achievements because customers do come first for us.
So obviously.
When it comes to the fourth quarter, we can see that the order backlog is still.
Nice excited although its going down with the higher volume that we are able to manufacture.
Okay. That's helpful. And then just one last one just on the on the <unk> Guide.
Even with you guys kind of bringing the non core or non COVID-19, we're down slightly.
It's still implying a pretty healthy uptick there in <unk> I think into the teens, even in terms of that growth.
That just all supply chain easing and kind of working through that backlog can you just frame I guess the visibility into the supply chain easing if it's something you're already seeing and then how much of that backlog can you kind of work down convert in <unk> to kind of hit some of those numbers.
Yes, Patrick it's Sandeep. So I think we mentioned in the script that we're already seeing it easing.
We were more constrained at the beginning of the quarter then as we came out with the quarter and now entering into Q4, we see.
Production, improving so so I think that's our expectation right now is we will meaningfully worked down.
A significant piece of our backlog.
As we get to the end of the year.
We'll expect to have some backlog as we move into the first quarter of next year, but we do expect improvement.
Do have the visibility on the production at this point in time.
Helpful. Thank you guys.
Thank you.
Thank you. Our next question comes from Patrick Donnelly.
Alright, My apologies, but the next question comes from Brendan cleared.
Freeze.
Please proceed.
Hey, Thanks, good afternoon.
Maybe a question for Simon.
You had mentioned <unk> is one of the standout growth drivers.
The press release I was curious if you see any deceleration of growth in <unk>.
That category was there, perhaps some customers waiting for the <unk> 600 March and you just talked.
Talk about the.
The types of customers or markets.
That platform will open up.
It would be helpful.
Yes, thanks for the question Brandon.
Definitely.
So as soon as I say waiting for the launch of <unk> 600 <unk>.
Sorry, the quarter overall was a bit of a mixed bag for the franchise.
<unk> already on the call that the supply chain challenges.
What was the headwind in the third quarter.
I am, particularly with instrument platforms and I think in PDP, we felt that a little more prominently.
Some of the other product lines.
At the same time as we said already demand remained strong across multiple applications segments, and we're very happy with the launch of the <unk> 600.
The initial pipeline that we're building and saying for that so I think in the quarter as all of the posts on sites.
Now.
Across multiple market segments.
As we enter Q4 with sensitively confidence of a rebound.
Got you and then.
Just back on the gross margins in the third quarter.
Quantify the logistics.
Great.
Other items in terms of year over year impact on margins in the quarter.
Sure.
Logistics was by far the highest kind of headwind.
And.
The offset was somewhat.
In exchange benefit throughout the global manufacturing footprint cost.
And mix was probably the first kind of impact but in terms of order of magnitude logistics flows was towards one.
Okay.
Got you.
And could you share with that pricing realization was in the third quarter and you mentioned.
Ben.
The capture is not quite what you've put through to lift prices should we expect that to step up materially in the fourth quarter.
Magnitude.
Hi, Yes. This is Anthony.
We had modest price realization through through yesterday, but clearly not sufficient to overcome all of the inflationary costs here.
Especially since we have quite a backlog and that backlog has been carried for a while now so that kind of pre <unk>.
Price increases.
So as our backlog unwind, we do expect to capture more of what we put into the.
And to our price increases.
And so we're hopeful hopeful that Q4 will see some improvement as we roll in through the quarter.
Okay.
Lastly, just on the curiosity diagnostic act.
Acquisition in the quarter is there any revenue.
Associated with that business.
I can talk about the commercial time lines and maybe if you could.
Competitive differentiation multiplex platform versus others.
Peter on the market.
Sure. Thanks, Brett.
Our asset platform is pre commercial set of technology acquisition.
Theres still quite a bit of work to do with you complete the assay development pipeline and clinical trials will be going in to regulated market. So we don't anticipate any contribution material contribution.
Next year I think it will be sort of beyond the 2023 timeline as we've rolled through that development investment.
The high level is the rapid multi plat sample to answer PCR platform and we'll be targeting initially.
Mick infectious disease applications.
There are quite a number of features inherent in their approach that our differentiated versus other offerings and we also think it will help us extend into additional market segments. Not currently served by existing Syndromic test that platforms today, Seth look forward about looking forward to sharing more about that.
As time marches on in 2023.
Okay. Good thank you.
Thank you Brenda.
Thank you the.
Our next question comes from Dan Leonard.
Credit Suisse.
Please proceed.
Hello. Thank you for taking the question I have a couple the first one on the supply chain challenges.
Are they influence and get all your win rate and digital PCR or any other market categories, but do you feel like you're still winning your.
Your entitlement and just.
Serving the products in backlog.
I think we would see.
Sorry, there were modestly absorbing backlog.
But talk to client, but not.
Accrued losses here and there I think that Rob and Eric.
Quickly, especially on the more commoditized product areas.
The size of our backlog.
Kind of build through the year and that we're working on that so we've been very.
Supported by but basically the customer loyalty to our product offerings.
So that contributed.
<unk> contributed a little bit to our elevated logistics costs in Q3, because we were really expedited shipments to them.
So a lot more accurate.
In Q3, if that product did come off the production lines.
Yes, that's essentially and I think I would say it right now.
Understood.
And then just a couple of follow up on capital deployment.
Does that uncertainty that bio rad might be deemed an investment company under the investment Company Act I guess two questions has that been resolved and then secondly, if it hasn't does that have any impact on your ability to finance an acquisition.
Then thanks for the question so.
We have never perceive ourselves as an investment company so.
This is still the case.
This is not any.
A showstopper for any potential acquisition or any target or any any aspect of the capital allocation, whether it's debt or issuance of capital or equity.
Is blocking us from pursuing any opportunity.
Thanks for that clarification, and possibly you can comment on why you didn't repurchase any shares in the quarter.
We are trying to be as much as we can opportunistically coupled way.
The overall capital allocation thinking.
And as you can see the market.
Yes.
Not going maybe underwrite direction, but.
Definitely we have 300 about $300 million desk on the plan and with.
We'll continue to pursue the same kind of approach and historically if you recall, we had similar situations that market was down and we were not in the market and usually when we step pain, we sticking with large larger chunks.
And in specific quarters or so.
<unk>.
We will just continue to pursue the same opportunistic approach that we have since we adopted in the past.
<unk>.
Understood. Thank you.
Thank you.
And the next question comes from Jack Meehan of Nephron research.
Please proceed.
Thank you good afternoon.
I wanted to start on capital allocation Norman just given the talk of a large deal one of the top questions I've gone for investors is succession planning if Iraq I personally really enjoyed working with you just sorry I hope it's not soon but is there any color you can just share with the investment community on long term leadership plan.
With Iran, and if you were to do a deal that led to a much larger organization just how would you structure it.
Our ship team to manage that.
Yeah, well, okay. So so first I think I still got a few more years than me so.
So that's number one.
We do work on succession planning internally.
And it.
I think some good ideas around that.
I think I think that in terms of structuring something I think it really depends largely on what it is and.
We have to kind of evaluate how it fits.
So it needs to be managed over.
Over the last several years of course, we've evolved into this.
Yeah.
It kind of more.
What would I call it.
More functional organization.
And that's allowed us to do a number of things and make a lot of progress.
And again I think it is.
Yes.
Time and situation dependent.
Would we stay with that organization would we move to another kind of organization.
Again, I think it's really all facts and circumstances.
Got it.
And then on the business.
Ron or Andy can you talk about like when you look at the backlog just median time to deliver versus a normal period.
Is there a way to quantify how much larger sales would've been in the quarter, if the supply chain issues persist I just look at the inventory and we're talking about.
Tens of millions of dollars of Bill just any level of context would be helpful.
Yes.
Yes, it's a tough one to.
<unk>.
No.
It's predominantly instrument platforms as we've indicated electronic components.
In some cases.
Average is really meaningless.
With regard because there is a very broad range.
Time associated with it.
Some of those backlogs.
After a particular customers.
It can be six weeks it can be.
Several months.
And as the year progressed that that has built and rebuilt inventory answer you can see reflected demand waiting.
Anything on those final components, which rich procurement is spending a lot of time on Jason.
And I don't think it is probably appropriate.
For Q3 might have been because.
That's probably not the right kind of metric to be far stronger.
We're rolling into Q4 at this point in time, yes.
Yes, and Jacob what I can.
I can confirm that it was definitely much higher than the order backlog that rolled over from last year. So this year. So at the end of last year.
Okay.
Such indications that you can look at is the higher inventory level now we carry in the balance sheet.
The Incrementals a.
A lot of it is in raw materials. So when it translates into revenue. So you get kind of an order of magnitude thereof.
The.
Kind of the opportunity of component.
Got it.
And then just the last one ilan.
Your line you mentioned, Russia business I forget if it was your Andy can you just remind us the size of the business, where bio Rad and how how that's performed this year.
Is there a risk that you might be barred from selling into the country. Just how do you manage that.
Yes, I mean, we haven't been focused on.
<unk> and executing against the myriad of sanctions that come about.
More of the business and.
Russia for us its clinical and life science.
And our.
Between one 3% of sales it fluctuates a bit.
On a typical year.
And it is down a bit this year as you might expect.
On the lifestyle side than on the clinical side.
And we literally literally half our team that's focused on.
I cannot just interpreting every single sanction that whether it impacts us our northern Camry largest truck.
As expected or not.
And.
Not getting better and it's difficult to know kind of what it really will look like.
By the end of this year moving into next year.
Thank you guys.
Thank you Joe.
Thank you.
There are currently no additional questions registered at this time.
So as a reminder, it is star one on your telephone keypad to ask a question.
We have a follow up question from Brandon Couillard.
Jefferies.
Please proceed.
Hey, Thanks for squeezing me in.
You said you'd quantify the interest income in the third quarter and then as we go.
Kind of $2 billion of cash on the balance sheet and move up in rates.
Can you just talk about your cash and capital allocation and what will be.
A reasonable interest income right.
We assume on that you can flush position through the gap into next year.
Sure. Thank you Brandon.
Obviously, when we raise the the last.
The bond.
It's probably a great timing today, the 10 year treasuries is above the coupon that we pay.
It takes time to catch up specifically, if you think about the bonds.
It was about $11 million of an expense for the quarter in this specific quarter was about $8 million of.
Of interest income, but it continues to catch up is as we continue to enroll in those investments.
So it should get to know within the next one to two quarters.
Assuming that these interest rates will continue to be out there.
At least into kind of parity.
The tool.
Could also be kind of.
Moving into into our game there.
Thanks.
Thank you.
Thank you we have another follow up question from Jack Meehan of Nephron research.
Please proceed.
Thanks, some back so a couple of more business questions process media.
Not sure if I missed in the script, but just.
Can you give a magnitude of growth in the quarter and one topic of discussion. This earnings season has been stocking dynamics with customers.
Just are you seeing any of that.
Any color on inventory trends of customers would be helpful.
Yes. This is Simon we saw high single digit growth in process chromatography in the quarter.
We've been very conscious of the Coventry elsewhere on stocking patterns.
Our franchise, we haven't really been subject to supply chain challenges and we've been able to assure our customers that will be delivering it across fashion. So we really haven't seen any noticeable change in ordering patterns or stocking from our customers, but we'll continue to watch it very closely.
Of course.
Great and then on the diagnostic side, the two businesses that werent called out diabetes autoimmune.
Can you just talk about how they performed in the quarter may decline.
What might have been contributing to that.
Yes, the main sort of headwinds there, where just supply chain related to instrument placements. That's our first close closed systems.
Considerable it's across the board continue to post good growth really in our access and ability to fulfill instrument.
Got it and then last one is on the China region in diagnostics.
I know it sounds like in the past you've managed through the lockdown.
Decently, but just talk about how the regions performed any impact.
Sure very similar to sort of the conversation that we had last quarter in that.
There are two dynamics.
Material one is the larger supply constraint dynamic Kevin.
The inability to cross sell instrumentation into China, and then in a second with the periodic lockdowns, which have an impact on routine testing as well as an impact on logistics flow just getting material into that into the region.
At a high level, though demand remains strong and if we look at sort of the core.
Clinical testing growth. It is the demand very much in line with pre pandemic level.
<unk> level at the challenges really are these.
Circuit breaker events that just makes the flow less and less and smooth.
Over the last few quarters as well as that supply constraint headwinds that we're working through.
Great. Thank you.
Thank you Sir.
There are currently no additional questions registered at this time, so I'll pass the conference back over to the management team for closing remarks.
Yes. Thank you for joining today's call we will be participating at the upcoming credit Suisse 30, <unk> annual healthcare conference in Rancho Palos Verdes, California in November and hope to see some of you there and as always we appreciate your interest and we look forward to connecting soon.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
Okay.
Sure.