Q2 2023 Bio-Rad Laboratories Inc Earnings Call

August 3, 2023

[music].

Edward Chung: Good afternoon, ladies and gentlemen, and welcome to the Bio-Rad Q2 2023 Earnings Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, 3 August 2023. I would now like to turn the conference over to Edward Chung, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to the bio Rad second quarter 2023 earnings results Conference call. At this time all lines are in a listen only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require idiot.

Assistance. Please press star zero for the operator, this call's being recorded on Thursday August 3rd 2023, I would now like to turn the conference over to Edward Chang head of Investor Relations. Please go ahead.

Edward Chung: Good afternoon, everyone, and thank you for joining us. Today, we will review the Q2 2023 financial results and provide an update on key business trends for Bio-Rad. With me on the call 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, Simon May, 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 management's 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. Our actual results may differ materially from these plans, goals, and expectations.

Good afternoon, everyone and thank you for joining US today, we will review the second quarter of 2023 financial results and provide an update on key business trends for bio Rad.

With me on the call today are Norman Schwartz, our Chief Executive Officer.

<unk> Executive Vice President and Chief Financial Officer, Andy.

And the last executive Vice President and Chief Operating Officer, Simon May President of the life Science group, and our Rice, President and other 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.

<unk> results may differ materially from these plans goals and expectations.

Edward Chung: 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 financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I will now turn the call over to Ilan Daskal, our Chief Financial Officer.

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 financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles investors should review. The reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release with that.

I will now turn the call over to a law in basketball.

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Ilan Daskal: Thank you, Ed. Good afternoon, everyone, and thank you all for joining us. Before I begin the detailed second quarter discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's global operations. Andy?

Thank you and good afternoon, everyone and thank you all for joining us.

Before I begin the detailed second quarter discussion I would like to ask Andy last our chief operating officer to provide an update on <unk> global operations Andy.

Andy Last: Thank you, Ilan. Good afternoon, everybody. So the second quarter of the year proved to be a continuation of trends from the first quarter of the year. We experienced ongoing strong demand for our clinical diagnostic products, contrasted by further softening of demand in the biopharma segment of our life science business. The net result was a more modest growth of our overall core business than expected. On the operational front, we made meaningful progress in order backlog reduction. In Q2, we experienced a further decline in demand from our biopharma customers, particularly for our process chromatography media, but also extending to other product lines. This resulted from a continuation of slow sales into emerging biotech companies, plus we also experienced headwinds from larger biopharma.

Thank you Bill and good afternoon everybody.

So the second quarter of the year proved to be a continuation of trends from the first quarter of the year.

We experienced ongoing strong demand for our clinical diagnostic products contrasted by further softening of demand in the Biopharma segment of our life Science business.

The net result was a more modest growth of our overall core business than expected.

On the operational front, we made meaningful progress in order backlog reduction.

In Q2, we experienced a further decline in demand from our biopharma customers, particularly for our process chromatography media.

But also extending to other product lines.

This resulted from a continuation of soft sales into emerging biotech companies plus we also experienced headwinds from lot larger biopharma.

Andy Last: While some of this was already forecasted for the remainder of the year, Q2 revealed a significant delivery extension of existing orders for our process chromatography media beyond 2023. The softness is a result of customers reducing their inventory levels in bioprocessing and a tighter funding environment across biopharma, as indicated in Q1. Overall, we now anticipate a larger impact to our biopharma business from the downturn than previously communicated. We do view the softness in process chromatography as transient, but do not anticipate broad-based recovery in 2023. In contrast, we remain positive on continued demand for life science products in academic markets. We saw strong and consistent demand from academia in all regions across the life science portfolio, and experienced strong double-digit growth for ddPCR, despite the negative biopharma macro trends.

While some of this was already forecasted for the remainder of the year.

Q2 revealed a significant delivery extension of existing orders for our process chromatography media beyond 2023.

The softness is a result of customers, reducing their inventory levels and by processing and the types of funding environment across Biopharma as indicated in Q1.

Overall, we now anticipate a larger impact to our biopharma business from the downside in the previously communicated.

We do view the softness in process chromatography is transient.

But do not anticipate broad base recovery in 2023.

In contrast, we remain positive on continued demand for lifetime products and academic markets. We saw a strong and consistent demand from academia in all regions across the life science portfolio and.

An experienced strong double digit growth for DD PCR, despite the negative biopharma macro trends.

Andy Last: In particular, we are very pleased with the ongoing demand for our new QX600 Droplet Digital PCR System. During the quarter, we held our Droplet Digital PCR World event, which received excellent attendance and engagement, reinforcing the long-term growth potential of our platform in this product area. We also know that demand broadly from the China life science segment continued to be weak... and the expected second half recovery is now in question against the backdrop of a slow economic recovery. During the quarter, we also completed a cross-licensing and royalty agreement with QIAGEN related to digital PCR intellectual property. Overall, despite the biopharma downturn, our core life science business grew mid-single digit. During the quarter, we achieved our life science backlog reduction targets, and do not foresee product supply being a major constraint for the second half of the year.

In particular, we are very pleased with the ongoing demand for our new <unk> 600, droplet digital Pcr system.

During the quarter, we held our droplet digital PCR World event, which received excellent attendance and engagement reinforcing the long term growth potential of our platform in this product area.

We also know that demand broadly from the China life Science segment continued to be weak.

And the expected second half recovery is narrowing question against the backdrop of a slow economic recovery.

During the quarter. We also completed a cross licensing and royalty agreement with Qiagen related to digital PCR intellectual property.

Overall, despite the biopharm a downturn our core life science business grew mid single digits.

During the quarter, we achieved our life science backlog reduction targets and do not foresee product supply being a major constraint for the second half of the year.

Andy Last: We were pleased to see continued demand recovery for our clinical diagnostics business, in particular across Asia Pacific, led by solid performance in China, although we continue to monitor the China macro environment. We saw strong growth in our diabetes franchise and solid growth in our immunohematology, and quality controls businesses. During the quarter, we launched the iH-500 Next instrument, which includes updated software, enhancing the functionality of the system, along with increased security from potential cyber attacks. This platform update increases the competitiveness of our transfusion medicine portfolio. Overall, product supply increased through the quarter as our new Singapore facility continued to ramp up. We now have improved line of sight to reducing our backlog for the diagnostics business group by year-end, and continue to focus on expanding capacity.

We were pleased to see continued demand recovery for our clinical diagnostics business in particular across Asia Pacific led by solid performance in China, Although we continue to monitor the China macro environment.

We saw strong growth in our diabetes franchise and solid growth in our immuno hematology and quality controls businesses.

During the quarter, we launched the IH 500 next instrument, which includes updated software enhancing the functionality of the system along with increased security from potential cyber attacks.

This platform update increases the competitiveness of our transfusion medicine portfolio.

Yeah.

Overall product supply increased through the quarter as our new Singapore facility continue to ramp up we now have improved line of sight to reducing our backlog for the diagnostics business group by yearend and continue to focus on expanding capacity.

Andy Last: In closing, we continue to be encouraged with the demand of our clinical diagnostics business, with the increased placement of diagnostic systems supporting future growth and reagent pull-through. In addition, we continue to focus on the solid progress we have made in reducing our back orders. The diagnostics business performance, however, is not offsetting the continued negative trends for Life Science Group this year, specifically for biopharma accounts. Building on our environmental, social, and governance priorities, we recently published our 2022 Corporate Sustainability Report, which highlights the progress we've made in multiple areas, and reflects our commitment to society and to our stakeholders. So at this point, I'd like to close and pass you back to Ilan.

In closing we continue to be encouraged with the demand of our clinic clinical diagnostics business with increased placements of diagnostic systems supporting future growth in reagent pull through.

In addition, we continue to focus on the solid progress we have made in reducing our back orders.

The diagnostics business performance. However is not offsetting the continued negative trends for life Science group this year, specifically for Biopharma accounts.

Building on our environmental social and governance priorities. We recently published our 2022 corporate sustainability report, which highlights the progress we've made in multiple areas and reflects our commitment to society and to our stakeholders.

So at this point I'd like to close and pass you back to Alaska.

Ilan Daskal: Great. Thank you, Andy. Now I would like to review the results of the second quarter. Net sales for the second quarter of 2023 were $681.1 million, which is a decline of 1.4% on a reported basis, versus $691.1 million in Q2 of 2022, and a 0.3% decline on a currency neutral basis. The second quarter year-over-year revenue decline was mainly the result of significantly lower COVID-related sales of about $0.4 million, versus approximately $33 million in the same period last year. Core revenue, which excludes COVID-related sales, increased 4.6% on a currency neutral basis.

Great. Thank you Andy now I would like to review the results of the second quarter.

Net sales for the second quarter of 2023 or $681 $1 million, which is a decline of one 4% on a reported basis.

$691 1 million in Q2 of 2022, and a 0.3% decline on a currency neutral basis.

The second quarter year over year revenue decline was mainly the result of significantly lower COVID-19 related sales of about zero point $4 million.

It was approximately $33 million in the same period last year.

Core revenue, which excludes corporate related sales increased four 6% on a cost neutral basis.

Ilan Daskal: The second quarter revenue included $6 million of revenue from a one-time licensing fee, as well as royalties of $500,000, both associated with a cross-license agreement related to digital PCR intellectual property. We currently estimate receiving ongoing royalties from this arrangement of about $500,000 per quarter. We incurred a one-time $2.3 million R&D expense related to this cross-license agreement, and we do not anticipate any royalty obligations on our end for the foreseeable future. On a geographic basis, we experienced currency neutral year-over-year core revenue growth in all three regions.

The second quarter revenue included $6 million of revenue from a one time licensing fee as well as royalties of $500000. Both associated with the cross license agreement related to digital PCR intellectual property.

We currently estimate receiving ongoing royalties from these arrangements off about $500000 per quarter.

We incurred a one time $2 3 million R&D expense related to these cross license agreement and we do not anticipate any royalty obligations on our end for the foreseeable future.

On a geographic basis, we experienced currency neutral year over year core revenue growth in all three regions.

Ilan Daskal: Sales of the Life Science Group in Q2 of 2023 were $300.2 million, compared to $322.4 million in Q2 of 2022, which is a decline of 6.9% on a reported basis and a 5.8% decline on a currency-neutral basis. Excluding COVID-related sales, the Life Science Group year-over-year currency-neutral core revenue growth was 4.5%, and was primarily supported by strong growth in droplet digital PCR and qPCR products. As Andy alluded to earlier, our Q2 results were impacted by the previously highlighted soft demand within early-stage biotech companies, as well as increased headwinds from larger biopharma companies, who are delaying capital investments and reducing bioprocessing inventory. In addition, we experienced weaker demand from government accounts in China due to softening macroeconomic conditions.

Sales of the life Science group in the second quarter of 2023 were 300 points 2 million compared.

Compared to $322 $4 million in Q2 of 2022, which is a decline of six 1% to 9% on a reported basis and a five 8% decline on a currency neutral basis.

Excluding COVID-19 related sales the life Science group year over year currency neutral core revenue growth was four 5% and it was primarily supported by strong growth in droplet digital PCR <unk> Pcr products.

As Andy alluded to earlier, our Q2 results were impacted by the previously highlighted soft demand within early stage biotech companies as well as increased headwinds from larger biopharma companies, who are delaying capital investments and reducing bio processing inventory.

In addition, we experienced weaker demand from government accounts in China due to softening macro economic conditions.

Ilan Daskal: Process chromatography posted a mid-teens year-over-year revenue decline, and we now anticipate a mid to high single digit decline for the full year, versus our prior expectation of double-digit growth. Excluding process chromatography sales, the underlying life science business decreased 4.2% on a currency neutral basis versus Q2 of 2022, and was a result of lower COVID-related sales. The life science group revenue, excluding process chromatography and COVID-related sales, grew 8.5% on a currency neutral basis. On a geographic basis, life science experienced currency neutral year-over-year core revenue growth in the Americas and Europe, while Q2 core revenue posted a decline in Asia.

Process chromatography posted a mid teens year over year revenue decline and we now anticipate and mid to high single digit decline for the full year versus our prior expectation of double digit growth.

Excluding process chromatography sales the underlying life science business decreased four 2% on a currency neutral basis versus Q2 of 2022 and was a result of lower COVID-19 related sales.

Yes.

The life Science group revenue, excluding process chromatography, and Covid related sales grew eight 5% on a currency neutral basis.

On a geographic basis life science experienced currency neutral year over year core revenue growth in the Americas and Europe .

Q2 core revenue posted a decline in Asia.

Sales of the clinical diagnostics group in the second quarter was $381 million compared to $367 $8 million in Q2 of 2022 or three 3% growth on a reported basis and a four 6% growth.

Ilan Daskal: Sales of the Clinical Diagnostics Group in the second quarter were $380.1 million, compared to $367.8 million in Q2 of 2022, or 3.3% growth on a reported basis, and a 4.6% growth on a currency neutral basis. Core clinical diagnostics year-over-year revenue, which excludes COVID-related sales, increased 4.8% on a currency neutral basis, as routine testing continues to normalize to pre-pandemic levels. Growth of the Clinical Diagnostics Group was driven by strong demand for diagnostic testing systems, primarily within diabetes and blood typing, as well as nice growth from our quality controls portfolio. On a geographic basis, the diagnostics group posted strong double-digit currency neutral year-over-year core revenue growth in Asia, and was largely flat in the Americas and in Europe.

On a constant news releases.

Core clinical diagnostics year over year revenue, which excludes corporate related sales increased four 8% on a currency neutral basis as routine testing continues to normalize to pre pandemic levels.

Growth of the clinical diagnostics group was driven by strong demand for diagnostic testing systems, primarily within diabetes and blood typing, it's well at nice growth from our quality controls portfolio.

On a geographic basis, the diagnostics group posted strong double digit currency neutral year over year core revenue growth in Asia.

And was largely flat in the Americas and in Europe .

Ilan Daskal: The reported gross margin for the second quarter of 2023 was 53.2% on a GAAP basis, and compares to 57.2% in Q2 of 2022. The year-over-year gross margin decline was mainly due to unfavorable product mix, with a higher than anticipated percentage of instrument sales versus reagents, as well as lower than forecasted revenue in the Life Science Group. The year-over-year gross margin was further impacted by higher material and logistics costs, as well as inventory reserves. Amortization related to prior acquisitions recorded in cost of goods sold was $4.3 million, compared to $4.5 million in Q2 of 2022.

The reported gross margin for the second quarter of 2023 was 53, 2% on a GAAP basis and compares to 57, 2% in Q2 of 2022.

The year over year gross margin decline was mainly due to a favorable product mix with a higher than anticipated percentage of instrument sales versus reagents as well as lower than forecasted revenue in the life Science group.

The year over year gross margin was further impacted by higher material and logistics costs as well as inventory reserves.

Amortization related to prior acquisitions recorded in cost of goods sold was $4 3 million compared to $4 5 million in Q2 of 2022.

Ilan Daskal: SG&A expenses for Q2 of 2023 were $207.8 million, or 30.5% of sales, compared to $207.8 million, or 30.1% in Q2 of 2022. We were able to maintain SG&A spend flat from the year ago level through tight expense management. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.6 million, versus $1.8 million in Q2 of 2022. Research and development expense in the second quarter was $65 million, or 9.5% of sales, compared to 64.3 million, or 9.3% of sales in Q2 of 2022.

SG&A expenses for Q2 of 2023, or 207 $8 million or 35% of sales compared to $207 8 million or 31% in Q2 of 2022.

We were able to maintain SG&A spend flat from the year ago level through tight expense management.

Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1 6 million versus $1 8 million in Q2 of 2022.

Research and development expense in the second quarter was $65 million or nine 5% of sales compared to $64 3 million or nine 3% of sales in Q2 of 2022.

Ilan Daskal: Q2 operating income was $89.6 million, or 13.2% of sales, compared to $122.9 million, or 17.8% of sales in Q2 of 2022, as a result of the softer top line and gross margin fall through. Looking below the operating line, the change in fair market value of equity security holdings, which are substantially related to Bio-Rad's ownership of Sartorius AG shares, negatively impact the reported result by $1.595 billion. During the quarter, interest and other income resulted in net other income of $5.4 million, compared to net other expense of $4.9 million last year, primarily driven by increased interest income from investments.

Q2, operating income was $89 6 million.

Or 13, 2% of sales compared to $122 9 million or 17, 8% of sales in Q2 of 2022 as a result of the softer top line and gross margin fall through.

Looking below the operating line the change in fair market value of equity security holdings, which are substantially related to buy rates Garner chief of Sartorius AG shares negatively impacted our reported results by $1 billion and $595 million.

During the quarter interest and other income resulted in net other income of $5 4 million compared to net other expense of $4 $9 million last year, primarily driven by increased interest income from investments.

Ilan Daskal: The effective tax rate for Q2 of 2023 was 22.5%, compared to 24.2% for the same period in 2022. The tax rate for both periods were driven by the large unrealized loss in equity securities. Reported net loss for the second quarter was $1.162 billion, or $39.59 diluted loss per share, compared to a loss of $925 million, or $31.05 diluted loss per share in Q2 of 2022. This change from last year is largely related to changes in the valuation of the Sartorius holdings. Moving on to the non-GAAP results.

The effective tax rate for the second quarter of 2023 was 22, 5% compared to 24, 2% for the same period in 2022.

The tax rate for both periods was driven by the large unrealized loss in equity securities.

Reported net loss for the second quarter was $1 billion and $162 million or $39.59 diluted loss per share compared to a loss of loss of $925 million or $31.05 diluted loss per share in Q2 of 2022.

These changed from last year is largely related to changes in the valuation of the Sartorius holdings.

Moving on to the non-GAAP results.

Ilan Daskal: 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 second quarter, in cost of goods sold, we have excluded $4.3 million of amortization of purchased intangibles and $3.4 million of restructuring expense. These exclusions moved the gross margin from 53.2% for the second quarter of 2023, to a non-GAAP gross margin of 54.4% versus 57.8% in Q2 of 2022. Non-GAAP SG&A in the second quarter of 2023 was 29.2% versus 29.3% in Q2 of 2022.

Looking to the results on a non-GAAP basis, we have excluded certain RTP call 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 second quarter in cost of goods sold we have excluded $4 3 million of amortization of purchased intangibles.

$3 4 million of restructuring expense.

These exclusions moved the gross margin from 53, 2% for the second quarter of 2023 to our non-GAAP gross margin of 54, 4% versus 57, 8% in Q2 of 2022.

non-GAAP SG&A in the second quarter of 2023 was 29, 2% versus 29, 3% in Q2 of 2022.

Ilan Daskal: In SG&A, on a non-GAAP basis, we have excluded $6.3 million of restructuring related expenses, amortization of purchased intangibles of $1.6 million, an in vitro diagnostic registration fee in Europe for previously approved products of $2 million, and an acquisition-related benefit of $800,000. Non-GAAP R&D in Q2 of 2023 was 9.3%, which is the same as in Q2 of 2022. In R&D on a non-GAAP basis, we have excluded $1.1 million of restructuring expenses and $400,000 of acquisition-related costs. The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 13.2% on a GAAP basis to 15.8% on a non-GAAP basis.

In SG&A on a non-GAAP basis, we have excluded $6 3 million of restructuring related expenses.

Amortization of purchased intangibles of $1 6 million.

In in vitro diagnostic registration fee in Europe for a previously approved products of $2 million.

And an acquisition related benefit of $800000.

non-GAAP R&D in the second quarter of 2023 was nine 3%, which is the same as in Q2 of 2022.

In R&D on a non-GAAP basis, we have excluded $1 $1 million of restructuring expenses and $400000 of acquisition related costs.

The cumulative sum of these non-GAAP adjustments.

In moving the quarterly operating margin from 13, 2% on a GAAP basis to 15, 8% on a non-GAAP basis.

Ilan Daskal: This non-GAAP operating margin compares to a non-GAAP operating margin of 19.2% in Q2 of 2022. We have also excluded certain items below the operating line, which are the decrease in value of the Sartorius equity securities and loan receivable holdings of $1,595 million, and about a $900,000 loss associated with venture investments. The non-GAAP effective tax rate for the second quarter of 2023 was 22.5%, compared to 19% for the same period in 2022. The higher rate in 2023 was driven by geographical mix of earnings.

These non-GAAP operating margin compares to a non-GAAP operating margin of 19, 2% in Q2 of 2022.

We have also excluded certain items below the operating line, which are the decreasing value of the sartorius equity securities and loan receivable holdings of $1.595 billion and about $900000 loss associated with venture investments.

The non-GAAP effective tax rate for the second quarter of 2023 was 22, 5% compared to 19% for the same period in 2022.

The higher rate in 2023 and was driven by geographical mix of earnings.

Ilan Daskal: Finally, non-GAAP net income for the second quarter of 2023 was $88.5 million, or $3 diluted earnings per share, compared to $103.4 million, or diluted earnings per share of $3.44 in Q2 of 2022. Moving on to the balance sheet. During the second quarter, we purchased 549,863 shares of our stock at an average share price of $377.20, for a total cost of $207.4 million. Having completed the previous share repurchase program, the board has authorized a new share repurchase program of up to $500 million of our stock. We plan to continue with our disciplined approach as part of our capital allocation strategy.

And finally non-GAAP net income for the second quarter of 2023 was $88 5 million or $3 diluted earnings per share compared to $103 4 million or diluted earnings per share of $3.44 in Q2 of 2022.

Moving on to the balance sheets.

During the second quarter, we purchased 549863 shares of our stock at an average share price of $377 in 'twenty.

For a total cost of 207 4 million.

Having completed the previous share repurchase program. The board has authorized a new share repurchase program of up to $500 million of our stock.

We plan to continue with our disciplined approach has put up as part of our capital allocation strategy.

Ilan Daskal: Total cash and short-term investments at the end of Q2 was $1.728 billion, compared to $1.857 billion at the end of Q1 of 2023. The decline in cash and short-term investments from the first quarter was primarily due to share repurchases during the quarter. Inventory at the end of Q2 reached $776.6 million from $752.9 million in the prior quarter. The higher inventory level was driven mainly by higher finished goods inventory within the Life Science Group as a result of the softer demand, as well as higher raw material and work-in-process inventory within the Diagnostics Group, as we continue to manage the elevated backorder.

Total cash and short term investments at the end of Q2 was $1 billion and $728 million compared to $1 billion and $857 million at the end of Q1 of 2023.

The decline in cash and short term investments from the first quarter was primarily due to share repurchases during the quarter.

Inventory at the end of Q2 reached 776 $1 million to $6 million from $752 9 million in the prior quarter.

The higher inventory level was driven mainly by higher finished goods inventory within the life Science group as a result of the softer demand as well as higher raw materials and working process inventory within the diagnostics group as we continue to manage the elevated therefore there.

Ilan Daskal: For Q2 2023, net cash generated from operating activities was $98.1 million, which compares to $53.3 million in Q2 2022. This increase mainly reflects timing of tax payments. The Adjusted EBITDA for Q2 2023 was $137.9 million, or 20.2% of sales. The Adjusted EBITDA in Q2 2022 was $160.4 million, or 23.2% of sales. Net capital expenditures for Q2 2023 were $34.6 million, and depreciation and amortization for Q2 was $35.9 million. Moving on to the Non-GAAP guidance. For the balance of the year, we expect much softer sales for the Life Science Group and continued instrument demand within Diagnostics.

For the second quarter of 2023 net cash generated from operating activities was $98 1 million, which compares to $53 $3 million in Q2 of 2022.

This increase mainly reflects timing of tax payments.

The adjusted EBITDA for the second quarter of 2023 was $137 $9 million or 22% of sales DHS.

The adjusted EBITDA in Q2 of 2022 was $164 million or 23, 2% of sales.

Net capital expenditures for the second quarter of 2023 were $34 $6 million.

And depreciation and amortization for the second quarter was 35 bonds to $9 million.

Yeah.

Moving on to the non-GAAP guidance.

For the balance of the year, we expect much softer sales for the life Science group and continued instrument demand within diagnostics.

Ilan Daskal: While we ramped up production for the QX600 and have worked through our backorders for the Life Science Group, an elevated order backlog remains for our Diagnostics Group. We continue to anticipate working through these backorders during the remainder of this year. As we indicated during our Q1 call, we continue to anticipate about $5 million in reduction of our elevated order backlog for each of the two remaining quarters of this year. Given the current market outlook, we are revising our 2023 financial outlook as follows: We now guide currency neutral revenue growth in 2023 to be approximately 80 basis points versus about 4.5% previously. For the full year, we estimate, excuse me, we estimate currency neutral revenue growth, excluding COVID-related sales, to be about 4.5%, versus about 8.5% in our prior guidance.

While we ramped up production for the <unk> 600, and have worked through our back orders for the life Science group and elevated order backlog remains four hour that Gnostics group.

We continue to anticipate working through these back orders during the remainder of this year.

As we indicated during our Q1 call. We continue to anticipate about $5 million in reduction of our elevated order backlog for each of the tool remaining quarters of this year.

Given the current market outlook, we are revising our 2023 financial outlook as follows.

We know the currency neutral revenue growth in 2023 to be approximately 80 basis points versus about four 5% previously.

For the full year, we have seen me excuse me, we estimate currency neutral revenue growth, excluding COVID-19 related sales to be about four 5% versus about eight 5% in our prior guidance.

Ilan Daskal: Of the 400 basis points core revenue guide down, 90 basis points are related to the Q2 revenue shortfall, driven by weakness in biopharma and software demand in China, somewhat offset by 20 basis points from the one-time license fees. The remaining 330 basis points reduction is attributed to approximately 150 basis points related to process chromatography demand, and 140 basis points due to continued softness in other biopharma and in China, and 40 basis points for the diagnostics group, reflecting a more cautious view around the macro environment in China. For the second half of the year, we expect about 4% year-over-year core revenue growth versus 5.4% year-over-year growth in the first half of 2023.

Of the 400 basis points core revenue guidance down 90 basis points are related to the second quarter revenue shortfall driven by weakness in biopharma and softer demand in China somewhat offset by 20 basis points from the one time license fees.

The remaining 330 basis points reduction is attributed to approximately 150 basis points related to process chromatography demand.

And 140 basis points due to continued softness in other biopharma and in China, and 40 basis points for the diagnostics group, reflecting a more cautious view around the macro environment in China.

For the second half of the year, we expect about 4% year over year core revenue growth.

Is five 4% year over year growth in the first half of 2023.

Ilan Daskal: This represents about 7.5% core revenue growth in the second half of 2023 over the first half of 2023. For the Life Science Group, we expect about 4% currency-neutral revenue decline for 2023, and when excluding COVID-related sales, the Life Science Group full-year growth is now projected to be approximately 4%. This represents core revenue growth to be about 7% for the second half of the year over the first half of 2023. The Life Science Group year-over-year sales growth, excluding COVID, and process chromatography-related sales, is expected to be about 6%. For the Diagnostics Group, while we remain encouraged with the overall demand, we are now guiding core revenue growth to be about 5.5%.

This represents about seven 5% core revenue growth in the second half of 2023 over the first half of 2023.

For the life Science group, we expect about 4% currency neutral revenue decline for 2023 and.

And when excluding Covid related sales the life Science group full year growth is now projected to be approximately 4%.

This represents core revenue growth to be about 7% for the second half of the year over the first half of 2023.

The life Science group year over year sales growth, excluding COVID-19 and process chromatography related sales is expected to be about 6%.

For the diagnostics group, while we remain encouraged with the overall demand. We are now guiding core revenue growth to be about five 5%.

Ilan Daskal: This represents core revenue growth for the diagnostics group of about 8% for the second half of the year over the first half of 2023. Full-year non-GAAP gross margin is now projected to be about 54.5% versus 55% to 55.5% previously, reflecting our updated expectation of shifting product mix, and volumes. For the second half of the year, we now anticipate gross margin to be about 54.5%. We now project full-year non-GAAP operating margin to be about 16% versus approximately 17.5% in our prior guidance, as we continue with our disciplined approach with operating expenses. For the second half of the year, we expect operating margin to be about 18% versus our prior guide of 21%.

This represents core revenue growth for the diagnostics group of about 8% for the second half of the year over the first half of 2023.

Full year non-GAAP gross margin is now projected to be about 54, 5% versus 55% to 55, 5% previously, reflecting our updated expectation of shift protocols shifting product mix and volumes.

For the second half of the year, we now anticipate gross margin to be about 54, 5%.

We now project full year non-GAAP operating margin to be about 16% versus approximately 17, 5% in our prior guidance as we continue with our disciplined approach with operating expenses.

For the second half of the year, we expect operating margin to be about 18% versus our prior guidance of 21%.

Ilan Daskal: Full-year Adjusted EBITDA margin is expected to be about 21.5% versus about 23% in our prior guidance. For the second half of the year, we expect adjusted EBITDA margin to be approximately 22% versus our prior guide of 25%. Over the next several months, we expect to gain better visibility of the market dynamics, specifically around the longevity of the softness in biopharma and its impact, if any, on our previously communicated 2025 targets. That concludes our prepared remarks, and we will now open the line to take your questions.

And full year adjusted EBITDA margin is expected to be about 21, 5% versus about 23% in our prior guidance.

For the second half of the year, we expected adjusted EBITDA margin to be approximately 22% versus our prior guidance of 25%.

Over the next several months, we expect to gain better visibility of the market dynamics, specifically around the longevity of the softness in Biopharma.

What impact if any on our previously communicated 2025 targets.

This concludes our prepared remarks, and we will now open the line to take your questions.

Edward Chung: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If at any time you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. One moment for your first question. Okay, and your first question... One moment. And your first question comes from Patrick Donnelly from Citi. Patrick, please go ahead.

Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If at any time you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. One moment for your first question. Okay, and your first question... One moment. And your first question comes from Patrick Donnelly from Citi. Patrick, please go ahead.

Thank you ladies and gentlemen, we will now begin the question and answer session. If at any time you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw your question. Please press star.

Goodbye to one moment for your first question.

Yes.

Okay and your first question.

One moment.

And your first question comes from Patrick Donnelly from Citi. Patrick. Please go ahead.

Patrick Donnelly: Hey, guys. Thank you for taking the questions. Ilan, maybe to start on the process chromatography piece, can you just talk about, I guess, the softness you're seeing? Is that just, you know, the purchasing is getting pushed out, just soft budgets on the biopharma side? Maybe just kind of give a little more color as to what you're seeing. And then it appears you're not assuming any improvement in the back half. Just wanna confirm that. So yeah, maybe just a bit more color on the process chromatography side.

Hey, guys. Thank you for taking the questions.

Maybe to start on the process Chrome piece can you just talk about I guess.

Softness you're seeing is that just you know the purchasing is getting pushed out just soft budgets on the biopharma side, maybe just just kind of give a little more color as to what Youre seeing and then it appears you're not assuming any improvement in the back half just want to confirm that.

So, yes, maybe just a bit more color on the process chrome side.

Simon May: Hey, Patrick, this is Simon May speaking. Yeah, I think in the second half of the year, we're seeing some shifts in purchasing patterns. There are some orders that we've already secured, which are getting pushed out. That's the main aspect, and we're seeing a general softness in demand that's spilling through into the second half of the year here. You know, we're detecting some potential signals of improvement, but from our side, it's really too early to call, and we're not seeing that reflected in the opportunity funnels at this time. But as we've said earlier, we remain pretty optimistic that this is transient, and we're gonna see pickup hopefully at some stage in 2024.

Hey, Patrick this is showing a nice speaking yeah I think in the second half of the year, we're seeing some shifts in purchasing patterns. There is similar just thought we've already secured which you're getting pushed out that's tonight aspect and were seeing a general softness in demand not spilling through into the second half of the year.

We're here.

You know what was detecting some puts and show signals of improvement from our side, it's really too early to call, but we're not saying not reflected in the opportunity funnels at the site.

But as Bruce said earlier, we remain pretty optimistic about this is trying to see and soon we're going to see pick up hopefully at some stage in 2024.

Patrick Donnelly: Okay, that's helpful. And then maybe in China, you know, you're certainly not alone seeing some headwinds over there. I mean, it sounds like it's hitting both the life science side and then the macro, maybe some cautiousness on the diagnostics. Can you just talk about, I guess, are you seeing it hit both now? Is the diagnostics a little more kind of forward caution, just because what you're seeing on the economic side, the life science side? And then, yeah, maybe just expectations in the back half. I know there's a part of the cut, but what is China gonna look like in 2H?

Okay. That's helpful.

And then maybe in China.

You're certainly not alone in seeing some headwinds over there I mean, it sounds like it's hitting both the life science side and then the macro maybe some cautiousness on the diagnostics can you just talk about I guess are you seeing it hit both now as the diagnostics a little more kind of forward caution just because what you're seeing on the economic side the life science side.

And then maybe just expectations in the back half I know there was a part of the cut.

But what is China going to look like in two weeks.

Edward Chung: Yeah. Hey, Patrick, Andy here. So, I think for H1-

Andy Last: Yeah. Hey, Patrick, Andy here. So, I think for H1-

Yes, Hi, Patrick Handy here, so I think for each one.

I think our story is fairly consistent and softness in life Science research Biopharma.

Simon May: ...consistent and, you know, a lot of softness in life science, which includes the biopharma component segment of that piece of the business. Diagnostics is relatively good for us in the first half, but we are certainly cautious about the second half, given the macroeconomic situation in China, and that's true for both life science and the diagnostic side from our point of view right now.

Andy Last: ...consistent and, you know, a lot of softness in life science, which includes the biopharma component segment of that piece of the business. Diagnostics is relatively good for us in the first half, but we are certainly cautious about the second half, given the macroeconomic situation in China, and that's true for both life science and the diagnostic side from our point of view right now.

Components segment of that piece of the business diagnose.

Diagnostics is relatively good for us in the first half, but we are certainly cautious about the second half given the macro economic situation in China and that that's true for both life science and diagnostics side from our point of view right now.

Patrick Donnelly: Okay, that's, that's fair. And then maybe last one, just on the margin side. Can you just talk about, you know, it sounds like the gross margins are getting a little bit impacted by some inventory and material costs, and what you guys can do to maybe insulate the bottom line a little bit? I'm sure you're taking some cost actions. Maybe just, you know, give us a bit of color on what you guys are doing and, you know, how projectable that is into next year in terms of, you know, just how we should think about the base case on the margins. Thank you.

Okay. That's fair and then maybe last one just on the margin side can you just talk about.

It sounds like the gross margins are getting a little bit impacted by some inventory material costs. What you guys can do to maybe insulate the bottom line a little bit I'm sure you're taking some cost actions maybe just okay.

Give us a bit of color on what you guys are good one.

How projected what that is next year in terms of just how we should think about the base case on margins. Thank you.

Ilan Daskal: Yeah, thank you, Patrick. This is Alon. So there are a few aspects to call out. First, on the margin, some aspects are transitory, some are related to the inflationary environment overall. For example, material is still kind of elevated in terms of the overall cost, and it's higher than last year. You know, the product mix was definitely, you know, a headwind in terms of the mix between our life science group and the diagnostics, as well as within our diagnostics group with more instruments, which should be a benefit, you know, thinking, you know, more into 2024. And there are other kind of more of elevated one time as, as the reserve, et cetera. On the other hand, you know, we continue with a very, very disciplined approach in terms of the overall operating expenses.

Ilan Daskal: Yeah, thank you, Patrick. This is Ilan. So there are a few aspects to call out. First, on the margin, some aspects are transitory, some are related to the inflationary environment overall. For example, material is still kind of elevated in terms of the overall cost, and it's higher than last year. You know, the product mix was definitely, you know, a headwind in terms of the mix between our life science group and the diagnostics, as well as within our diagnostics group with more instruments, which should be a benefit, you know, thinking, you know, more into 2024. And there are other kind of more of elevated one time as, as the reserve, et cetera. On the other hand, you know, we continue with a very, very disciplined approach in terms of the overall operating expenses.

Yes. Thank you Patrick this is elon.

So there are a few aspects to call out first on the margin.

Some aspects are transitory some are related to the inflationary environment. Overall for example materially still kind of elevated in terms of the overall cost any tighter than last year.

You know the product mix it was definitely a headwind in terms of the mix between our life Science group ended diagnostics as well as within our diagnostics growth with more instruments, which should be a benefit.

Thinking more into 2024.

And there are other kind of more of elevated one time is the reserve et cetera on the other hand, you know we continue with a very very disciplined approach in terms of the overall operating expenses. So you can see that the fall through to the operating income is much smaller than the impact on the gross margin and <unk>.

Ilan Daskal: So you can see that the flow-through to the operating income is much smaller than the impact on the Gross Margin, and that will continue to be the approach. But again, as I said, it's kind of a mixed bag of kind of aspects that do impact, you know, and did impact this time around. Some are more transitory, some, you know, we'll have to wait to see how the inflationary environment will continue to shape up.

We'll continue to be the approach.

But again as I said, it's kind of.

It's a mixed bag of panels are expected to impact indeed, the impact this time around.

Some are much more transitory some.

The way to see how the inflationary environment will continue to shape up.

Patrick Donnelly: Understood. Thanks, Ilan.

Understood. Thank you Mark.

Ilan Daskal: Sure.

Sure.

Edward Chung: Your next question comes from Brandon Couillard from Jefferies. Brandon, please go ahead.

Your next question comes from Brandon <unk> from Jefferies. Brandon. Please go ahead.

Rachel Smith: Thanks. Good afternoon. Alon, if I just look at, you know, your pie chart, I mean, biopharma is only 17% of your mix. Would you give us the outlook for that group as in, in total, what you expect that biopharma to do in 2023, and how it compares to your prior view? And Simon, question for you. Is any of that weakness spilling over to ddPCR at all, or do you see pretty consistent demand, budgets are there for those instruments, given, you know, how differentiated it is?

Brandon Couillard: Thanks. Good afternoon. Ilan, if I just look at, you know, your pie chart, I mean, biopharma is only 17% of your mix. Would you give us the outlook for that group as in, in total, what you expect that biopharma to do in 2023, and how it compares to your prior view? And Simon, question for you. Is any of that weakness spilling over to ddPCR at all, or do you see pretty consistent demand, budgets are there for those instruments, given, you know, how differentiated it is?

Thanks, Good afternoon.

A lot of that is that just look at your Pie chart in the Biopharm is only 17% of your mix.

Did you give us the outlook for that.

Group is in total where do you expect that.

Biopharm and to do it in 'twenty, three and how it compares to your prior view.

And then a question for you.

Any of that weakness spilling over to DD PCR at all or do you see pretty consistent demand budgets are there those instruments given how differentiated it is.

Simon May: Yeah, Brandon, this is Simon. I think in our biopharma business, we've obviously got a chunk that's process chromatography, and I think we've already provided commentary there. I think where 2023 is concerned, it's certainly too soon to call any signs of recovery, and again, we'll see what 2024 brings. Definitely spills over into our digital PCR business. You know, we've got a strong footprint and presence in emerging biopharma and digital PCR. We had a very strong quarter notwithstanding that in the second quarter, with robust double-digit growth, and with the introduction of QX600 and the way that our customers are responding very positively to the advanced multiplexing capabilities there. That's kind of offsetting the softness that we're seeing in biopharma.

Yeah, Brandon this is Simon.

I think can help all of our pharma business. We've obviously got a chunk that's process chromatography nothing we've already provided commentary that I ever think what 2023.

Is concerned its certainly too soon to call any signs of recovery and again, we'll see what 2024 brings definitely spills over into our digital PCR business. You know, we called a strong footprint and presence in emerging Biopharma and digital PCR, we had a very strong quarter notwithstanding that in the second quarter.

Water with robust double digit growth and with the introduction of <unk> 600.

Customers are responding very positively to the outbound multiplexing capabilities.

That's kind of offsetting the softness that we're seeing in biopharma, but we're definitely seeing that impacts outside of process crown, but it tends to be a different kind of in part which is more related to VC funding with smaller emerging biotechs.

Simon May: But we're definitely seeing that impact outside of process chromatography, but it tends to be a different kind of impact, which is more related to VC, PE funding with smaller emerging biotechs.

Rachel Smith: Okay, and then I guess, Alon, any color you can share with us in terms of the phasing for revenue growth and margins between Q3 and Q4? You got a tougher comp in the fourth quarter. And then just in terms of the margins, I know that's always kind of the, the peak margin quarter of the year, given the higher volumes. Any more color you can share with us how we should think about the phasing Q3 and Q4?

Brandon Couillard: Okay, and then I guess, Ilan, any color you can share with us in terms of the phasing for revenue growth and margins between Q3 and Q4? You got a tougher comp in the fourth quarter. And then just in terms of the margins, I know that's always kind of the, the peak margin quarter of the year, given the higher volumes. Any more color you can share with us how we should think about the phasing Q3 and Q4?

Okay.

And then I guess, along any color you can share with us in terms of the phasing for revenue growth and margins between <unk> and <unk> got a tougher comp in the fourth quarter and then just in terms of the margins I know, that's always kind of at the peak margin quarter of the year given the higher volumes.

Any more colleague Cherilyn I'll speak about it.

<unk>.

Ilan Daskal: Sure. You know, generally, Brandon, as you know, Q4 tends to be a stronger, stronger quarter for us. I mean, generally, you know, we think, you know, about Q3 and Q4 to be stronger, but definitely Q4, you know, as usual, seasonality is stronger there than even Q3. In terms of the gross margin, you know, it's more again benefiting Q4 from the forex. So it's a slight benefit, but, but it's not a huge difference since we did guide for about 54.5 for the second half. So, you know, and when it comes to the operating expenses, we will continue, as I mentioned earlier, with a very disciplined approach in terms of the expenses.

Sure you know generally Brandon as you know the fourth quarter it tends to be historically stronger quarter for us I mean.

Generally you know, we think about the third and fourth quarter to be stronger, but definitely the fourth quarter as usual seasonality you see stronger there than even the third quarter.

In terms of the gross margin you know I'd say its more again a benefit in the fourth quarter from the flow through so.

It's a slight benefit but but it's it's it's not a huge difference since we did guide for about 54 and a half for the second half so.

And when it comes to the operating expenses, we will continue as I mentioned earlier, we've been very disciplined approach in terms of the expenses.

Ilan Daskal: You know, we expect it to be lower on a percent basis of sales, on a dollar basis, potentially slightly higher, but it's a very, very disciplined approach.

We expect it to be lower on a percent basis of sales.

On a dollar basis potentially slightly higher but it's a very very disciplined approach.

Rachel Smith: Okay, and then just in terms of inventory levels, I mean, I'm just surprised they continue to climb to this degree. I mean, is this the peak level in Q2, and we should expect them to come down sequentially from here? And just help us understand, like, when that expected to top out, I suppose.

Brandon Couillard: Okay, and then just in terms of inventory levels, I mean, I'm just surprised they continue to climb to this degree. I mean, is this the peak level in Q2, and we should expect them to come down sequentially from here? And just help us understand, like, when that expected to top out, I suppose.

Okay, and then just in terms of inventory levels. Let me then just surprised that continued decline to this degree I mean is this the peak level in <unk> and we should expect them to come down sequentially from here.

Got it understand.

With that.

Yes.

Simon May: Yeah.

Andy Last: Yeah.

Patrick Donnelly: Oh, I'm sorry, Brandon, this is Andy here. Yeah, I mean, I think we're near the top of this inventory build that's been going on, which-

Andy Last: Oh, I'm sorry, Brandon, this is Andy here. Yeah, I mean, I think we're near the top of this inventory build that's been going on, which-

Oh, sorry, Brian This is Andy here.

I mean, I think we're near the top of this inventory favorable thats been going home rich rich.

Andy Last: ... you know, as we've reported before, as a result of the diagnostics manufacturing moving from France to Singapore, and then, you know, the lead time required on purchase of raw material through to finished product. And then with the Lifeline downturn that, you know, clearly was not expected anywhere close to this level of magnitude, I kind of we've got to catch up with that. So I think that we're largely ahead of this at this point in time, and we'll be looking toward normalization of inventory as we move forward.

And I've heard reported before as a results of diagnostics.

Matter of fact in Maryland from France to Singapore and that.

No.

The lead time required Hum purchase.

Raw material or finished product.

And then with the lifetime bounce.

That clearly was not expected anywhere close to this level of magnitude that.

Kind of.

To catch up with that so so I think that were largely ahead of us.

At this point in time, and we'll be looking toward normalization of inventory as you move forward.

Ilan Daskal: Okay, thank you. Thank you, Brandon.

Brandon Couillard: Okay, thank you.

Okay.

Ilan Daskal: Thank you, Brandon.

Thank you Brendan.

Edward Chung: Your next question comes from Tim Daley from Wells Fargo. Tim, please go ahead.

Operator: Your next question comes from Tim Daley from Wells Fargo. Tim, please go ahead.

Your next question comes from Tim Daley from Wells Fargo. Tim. Please go ahead.

Tim Daley: Thanks, everybody. I think everybody said transient at least once on today's call, describing the biopharma headwinds, but then also said not recovering till 2024. Descriptions around the process chromatography cut seem to be a lot timing rather than demand destruction or loss. Just curious about, you know, as we progress forward and, you know, thinking about the contribution in 2024 process chromatography, maybe above normal growth levels or above the kind of expected levels. Then, you know, just additional comments on the long targets here, given, you know, lower base, I guess, growth losses.

Thanks, everybody so thank.

Thank everybody said transient at least one some today's call describing the biopharma headwinds.

But then also said not recover until 2024.

So no descriptions around the process chromatography cuts seem to be a lot of timing rather than demand destruction or loss just.

Curious about you know as we progress forward and then thinking about the contribution in 'twenty four process chromatography, maybe above normal growth levels or perhaps kind of ex Tac expected levels and then you know just additional comments on that.

Targets here.

Even.

Lower base to grow office.

Ilan Daskal: Yeah, Tim, this is Ilan. I'll start, and then maybe Andy and Simon can chime in. You know, generally speaking, first of all, you know, we're not yet guiding for 2024. We generally are not necessarily expecting a pent-up demand in process chromatography in 2024. We see it more as transitory and push outs of orders, and these are kind of, think about it like a permanent kind of push out. It's not that 2024, we expect process chromatography to be elevated due to a pent-up demand. I don't know, Andy, if you had-

Yes, Tim This is Alan I'll start and then maybe Andy and Simon can chime in but.

Generally speaking first of all you know.

We're not yet guiding for 'twenty four.

We generally not necessarily expecting a pent up demand in process chromatography in 2024.

We see it more as transitory and push outs of orders and these are kind of think about it like a permanent kind of flu shots. So so it's not a 2024, we expect process chromatography to be elevated due to a pent up demand I don't know Andy if you well.

Andy Last: Well, and I think there's an element in the question there about funnel, and I think this really is... This isn't a change in the shape of our market share or in our expectations over the long term. This is, this is, you know, orders that we're expecting that have been pushed out. So in that regard, this is a transitory shift. Timing, I think, is the word you used, Tim. That's the way we look at it. What we are unclear on, and so on, taking a position on right now, is when that timing fully resolves.

And I think there's an element in that.

Question, there about fought a lot and I think this really is this isn't a change in the shape.

Our market share.

Our expectations over the long term.

This is <unk>.

Orders that we were expecting that have been pushed out so in that regard. This as a transitory shift timing I think that's the way to use 10.

That's the way we look at it what we are.

Unclear on some are taking a prudent position on right now is yes.

When that time is fully resolved.

Tim Daley: All right, got it. And then, second one, I know we've touched on China a bit, but, you know, China Diagnostics was a nice tailwind this quarter. I know you took some of that out of the guide, but, just could you help us understand, you know, how much of that was maybe reopening tailwinds versus underlying growth and, you know, what the full China growth expectations are for the year within diagnostics?

Alright got it and then second one I know it was touched on China, but China diagnostics.

Tailwind this quarter I know you took some of that out of the guide but.

Just could you help us understand how much of that was maybe reopening tailwind versus underlying growth.

Now with the full China expectations are for the year.

Within diagnostics.

Ilan Daskal: I think it has to do more with, you know, the current macro environment that we, we are, we continue to monitor for the remainder of the year. I don't know that it's necessarily a leg of, you know, the reopening necessarily, as it is more kind of being more cautious that, you know, the environment will not change drastically. I mean, overall, you know, diagnostics, you know, is expected to, to achieve, you know, 5.5% year-over-year growth, which is a really nice growth for them. And, you know, China performed so far really well for us. Again, with everything that we hear, it will be, we have to continue to monitor the second half, specifically.

I think it has to do more we like.

Current macro environment that we are.

We are we continue to monitor for the remainder of the year I don't know that its necessarily a leg of the reopening necessarily.

As it is more kind of.

Being more cautious that you know the.

<unk> will not change drastically I mean overall, you know that gnostics is expected to achieve five 5% year over year growth, which is a really nice growth for them in China.

China performed so far really well for us.

But again with everything that we hear it would be we have to continue to monitor over the second half specifically.

Tim Daley: All right. Perfect. Thank you. Appreciate the time.

Alright, perfect. Thank you, Chris and thank you Tim.

Ilan Daskal: Thank you, Tim.

Edward Chung: Your next question comes from Jack Meehan, from Nephron Research. Jack, please go ahead.

Operator: Your next question comes from Jack Meehan, from Nephron Research. Jack, please go ahead.

Your next question comes from Jack Meehan from Nephron Research Jack. Please go ahead.

Jack Meehan: Thank you. Good afternoon. Andy, I was wondering, and or maybe for Ilan as well, just the transition to the new manufacturing site in Singapore, just operationally, how did that go during the quarter? And can you talk about, how that might contribute to your thinking around margins in the second half of the year?

Thank you good afternoon.

Andy I was wondering where maybe for Elon as well.

The transition to the new manufacturing site in Singapore.

Just operationally how did that go during the quarter and can you talk about.

How that might contribute to your thinking around margins in the second half of the year.

Andy Last: Yeah, so I'll answer the first half, Jack. It went well, and, you know, both plants, we're now past all the global shutdowns in France. 100% focused now on the ramping of production in Singapore. It is going well. We did make progress in the quarter on the diagnostics backlog, but as we've indicated before, you know, it, it's gonna take the full year. We feel good about achieving that right now. And I think we communicated here some further inventory backlog burndown in the coming quarters. So, you know, after the early difficulties, I believe we're on track now. So as it relates to gross margin, do you want to comment on that?

Yeah, So I'll answer the first half.

Jack.

Well and.

Last week, we're now past the four o'clock shutdowns in there.

And troughs.

100% focus now on the ramping of production in Singapore. This guy well, we did make progress in the quarter.

On the diagnostics.

Backlog.

As we've indicated before in hours, it's going to take before yeah.

We feel good about achieving that right now embraer I think we communicated has some some further inventory backlog.

Alright got bogged down in the coming quarters.

So after the difficulties I believe we're on track now.

So as it relates to gross margin you want to comment on sure. So Jack obviously, the heavy lifting as Andy mentioned.

Ilan Daskal: Sure. So, Jack, obviously the heavy lifting, as Andy mentioned, you know, is behind us. We continue to ramp. I mean, a lot of it, you know, has been achieved, you know, and so we continue to realize kind of more benefit. The two European sites are closed, and we will have slightly additional kind of benefit also going probably into next year, once it will be fully ramped up. That's where we are right now.

He is behind US we continue to ramp I mean, a lot of it you know.

He has been achieved and so we continue to realize kind of more benefit the two European sites are closed.

And it will be it could we believe we will have a slightly additional kind of benefit also going probably into next year.

Once we increase it would be fully ramped up.

That's where we are at right now.

Jack Meehan: Great. Okay. You know, there's been a lot discussed about kind of some of the issues you're seeing in biopharma at the moment. I was just curious, like, this might be a difficult question to answer here in early August, but what you think is the likelihood of some of these, you know, issues extending, you know, through to the first half of 2024? What are you hearing from customers?

Great. Okay, and then you know theres been a lot discussed about kind of some of the issues you're seeing in biopharma at the moment I was just curious like is it.

This might be a difficult.

Question to answer here in early August , but what you think is the likelihood of some of these issues extending through the first half of 2020 for them. What are you hearing from customers.

Simon May: This is Simon. I think the simple answer is, it's too soon to say. I think we've kind of covered this, two or three times already. We're not seeing signs of material recovery in our funnels in the second half of the year. There's some commentary around some shifts in the funding environment, but that's very early. It's gonna take time for that to trickle through to the cold face. And quite simply, we just think it's too soon to call 2024.

This is Simon I think the simple answer is it's too soon to say.

I think we've kind of covered this two or three times already we're not seeing signs of material recovery in our funnels in the second half of the year.

There's some commentary around some shifts in the funding environment, thus far usually it's going to take time for that to trickle through to the coal face.

Quite simply we just think it's too soon to call 2024.

Jack Meehan: That's fair. Last question for Norman. You know, the new repurchase authorization, that's a nice kind of endorsement of, you know, maybe the value you see in Bio-Rad shares now. I was curious what your latest thinking is on the Sartorius stake. You know, just given where Bio-Rad stock is trading, I'm curious, would you ever consider monetizing a piece of this just to buy more of your own shares? Talk about kind of the commitment to that. Thanks.

That's fair.

Last question for Norman.

The new repurchase authorization, that's a nice kind of.

Endorsement of maybe the value you see in bio Rad shares now I was curious what your latest thinking is on the search where your stake.

Given where bio Rad stock is trading I'm curious would you ever consider monetizing a piece of that is just to buy more of your own shares.

Talk about kind of a commitment to that thanks.

Operator: Well, certainly we've got we've got plenty of cash on our balance sheet at the moment. You know, that, that shouldn't be an issue, certainly in the near term. You know, obviously, we continue to see Sartorius as a strategic for us. So, you know, and, you know, with respect to repurchase, you know, we, you know, we certainly continue to view that our valuation is, is low relative to peers. And, so, you know, as we go forward, kind of looking at, at, you know, kind of when we repurchase, kind of balance between obviously different uses of cash, and, yeah, different priorities. But, but it's nice to have that, that, that new authorization in place and give us, the opportunity to, to opportunistically, buy back, from time to time.

Norman Schwartz: Well, certainly we've got we've got plenty of cash on our balance sheet at the moment. You know, that, that shouldn't be an issue, certainly in the near term. You know, obviously, we continue to see Sartorius as a strategic for us. So, you know, and, you know, with respect to repurchase, you know, we, you know, we certainly continue to view that our valuation is, is low relative to peers. And, so, you know, as we go forward, kind of looking at, at, you know, kind of when we repurchase, kind of balance between obviously different uses of cash, and, yeah, different priorities. But, but it's nice to have that, that, that new authorization in place and give us, the opportunity to, to opportunistically, buy back, from time to time.

Well certainly we've got we've got plenty of cash on our balance sheet at the moment.

You know that that shouldn't be an issue certainly in the near term.

You know obviously, we continue to see sartorius.

Strategic for us.

So.

And with respect to repurchase.

We certainly continue to view that our valuation is low relative to peers.

And.

So as we go forward kind of looking at it.

Kind of when we repurchase kind of balanced between.

Obviously different uses of cash.

Yeah.

Yes different priorities, but it's nice to have that.

That.

That new authorization in place and give us the opportunity to.

Two are two distinctly a buyback.

From time to time.

Jack Meehan: Agreed. Okay, thank you.

Okay, great. Okay. Thank you.

Ilan Daskal: Thank you, Jay.

P J.

Edward Chung: Your next question comes from Conor McNamara, from RBC Capital. Conor, please go ahead.

Operator: Your next question comes from Conor McNamara, from RBC Capital. Conor, please go ahead.

Your next question comes from Conor Mcnamara from RBC capital Conor. Please go ahead.

Conor McNamara: Hi, and, good afternoon. Thanks for taking the questions, guys. Can you talk more about the ddPCR, the strong double-digit growth you saw? Is there any more competitive pressure in the market there? And, and is there any pent-up demand or manufacturing issues on ddPCRs at all on the diagnostics side?

Hi, good afternoon, thanks for taking the questions guys.

Just.

Can you talk more about the DD PCR the strong double digit growth you saw.

Is there any more competitive pressure in the market there and is there any.

Pent up demand or our manufacturing issues on the DD PCR is along the diagnostics right.

Right.

Andy Last: Hey, Conor, Andy here. So yeah, we were very pleased with the performance in the quarter, despite the challenges of softness in the biopharma segment. The new instruments is going very, very well for us. We cleared out all our production challenges in the quarter. No constraints moving forward. You know, we've grown that franchise quite meaningfully in that segment over the last few years. So our strategy for growing there has been very successful. And we feel very positive about the forward-looking potential, and biopharma is a point of weakness in the middle of it. Competitively, I don't think anything has really changed, certainly not within the last quarter, and that's all baked into our thinking at this point in time.

Hey, Carter.

And as yet.

So yeah, we were very pleased with the performance in the quarter. Despite the challenges.

Softness in the Biopharma segment, the new instrument is.

Going very very well for us.

We cleared out all our production challenges in the quarter on our constraints moving forward.

We've grown.

That franchise quiet.

<unk> fleet in that segment over the last few years.

Our attitude for growing there it's been very successful.

We.

We feel we feel very positive about the forward looking potential in <unk>.

Palmer as a point of weakness in the middle of it.

Competitively I don't think anything has really changed certainly not within the last quarter and that's all baked into our thinking at this point in time.

Okay, great. Thanks for that Andy I'm just.

Conor McNamara: Great. Thanks for that, Andy. And just, just as a follow-up, if you look at the success of that product, how much of that, those sales are going into either new markets or new customers versus upgrading current PCR customers? I don't know if you have that data available.

Just as a follow up if you look at.

The success of that product how much of the sales are going into either new markets or new customers versus.

Upgrading current PCR customers I don't know if you have that data available.

Speaker 1: this time and I can talk to that. I think it's a bit of a spread. We've seen a good number of customers who were upgrading from existing systems. I'd say we've actually been pleasantly surprised that the update that we're seeing in BiFarm, the way that multiplates in Cape of...

Simon May: This is Simon. I can talk to that. I think it's a bit of a spread. We've seen a good number of customers who were upgrading from existing systems. I'd say we've actually been pleasantly surprised at the uptake that we're seeing in biopharma, where that multiplexing capability gives those customers a significant productivity advantage. And then the third area where we're seeing uptake is in oncology research and clinical development, where, again, the multiplexing and the sensitivity of the system really serves that need very well. So it's kind of broad-based.

This is Simon I'll consult Saddam. Thank you so a bit of a spread we're seeing a good number of customers who are upgrading from existing systems I'd say, we've actually been pleasantly surprised.

That we're seeing and bought a farm and the way that multiplexing capability gives those customers a significant productivity advantage and then the third area, where we're seeing uptake is in oncology research and clinical development, where again the multiplexing in the center.

Speaker 1: gives those customers a significant productivity advantage.

Speaker 1: And then the third area where we're seeing uptake is in oncology research and clinical development, where again the multiplexing and the sensitive system really serves that need very well. So it's kind of broad-based.

<unk> really serves that need very well so it was kind of broad based.

Conor McNamara: Got it. Thanks. Just finally, on ddPCR, can you remind us the consumable pull-through, you know, with these placements, are you still kind of at that 50/50 equipment versus consumables on ddPCR? How-- what's the tail there, as far as when that should accelerate on the consumable side?

Speaker 2: Got it, thanks. And just find my MDD PCR. Can you remind us the consumable poll through these placements? Are you still kind of at that 5050 equipment versus consumables on the MDD PCR? And how, what's the tail there as far as when that should accelerate on the consumable?

Got it thanks, and just finally on DD PCR can you remind us the consumable pull through with these placements are you still kind of at that 50 50 equipment versus consumables on delinquency on how what's the tail there as far as when that should accelerate on the consumables.

Simon May: In very approximate terms, we're still there, and I think over time, we still expect that to weight increasingly towards consumables, and I think we're seeing that trend play out.

Speaker 1: In very approximate terms we're still there and I think over time we still expect that to wait Increasingly towards consumables nothing was

In Fabry approximate terms, we're still down I think over time, we still expect that to white increasingly towards consumables, nothing we're seeing not trends play out.

Conor McNamara: Great. Thank you for that. And last question for me is on the OpEx side. If, you know, you were down sequentially on total operating expenses, how should we think about that cadence for the rest of the year and then going into next year? Is this a good run rate from Q2, or is there anything that's abnormal in Q2?

Alright, thank you for that.

Speaker 2: Great, thank you for that. And last question for me is on the op-x side, you were down sequentially on total operating expenses. How should we think about that cadence for the rest of the year and then going into next year? Is this a good run rate from Q2 or is there anything that's?

Last question for me is on the.

The Opex side, you were down sequentially on total operating expenses, how should we think about that cadence for the rest of the year then going to the.

Going into next year is this a good run rate from Q2 or is there anything thats.

Speaker 3: I'm not going to. Yeah, this is Elon. So, you know, as a percent of sales, we expect the second half at least to be slightly lower than that. On a dollar basis, maybe slightly higher, but we try to continue to be very disciplined in terms of the expenses overall.

Our normal.

Ilan Daskal: Sure. Yeah, this is Ilan. So, you know, as a percent of sales, we expect the second half at least to be slightly lower than that. On a dollar basis, maybe slightly higher, but we, we try to continue to be very disciplined in terms of the expenses overall.

Yeah. This is around so you know.

As a percent of sales we expect the second half at least to be slightly lower than that on a dollar basis.

Maybe slightly higher but we try to continue to be very disciplined in terms of the expenses overall.

Okay.

Conor McNamara: Got it. Thanks, guys. Appreciate it.

Got it thanks, guys appreciate it.

Ilan Daskal: Thank you.

Thank you.

Speaker 4: We have a follow up question from Brandon Colliard from Jeffries, Brandon, please go ahead.

Edward Chung: We have a follow-up question from Brandon Couillard from Jefferies. Brandon, please go ahead.

Operator: We have a follow-up question from Brandon Couillard from Jefferies. Brandon, please go ahead.

We have a follow up question from Brandon <unk> from Jefferies. Brandon. Please go ahead.

Brandon Couillard: Sorry, Ilan, just to clarify, are you saying OpEx in the second half, up or down compared to the first half?

Sorry, just to clarify are you can't opex in the second half up or down compared to personnel.

Speaker 5: Sorry, a lot just to clarify, you can't object from the second half up or down compared to.

Ilan Daskal: So as a percent of sales, it's going to be slightly lower. On a dollar basis, potentially slightly higher, but not meaningfully higher.

Speaker 3: So as a percent of sales, it's going to be slightly lower on a doora basis, potentially slightly higher, but not meaning.

So as a percent of sales.

It's going to be slightly lower on a dollar basis potentially slightly higher but not meaningfully higher.

Speaker 5: Follow the question for assignment. I'm just curious, the, the Tygent Digital PCR process in Tundale, what do you get out of it?

Brandon Couillard: Okay, that makes sense. A follow-up question for Simon. I'm just curious, the QIAGEN digital PCR cross-licensing deal, what do you get out of it? You know, why, I guess, strike that deal with them?

Okay that makes sense.

Follow up question for Simon I'm just curious.

The tightened digital PCR cross licensing deal, where do you get out of it.

Why I guess strike that.

Simon May: Can't really answer that, Brandon. The terms of the deal are confidential. I think we've already said what we're gonna say about it in the script here. I think we're pretty happy with the terms, and that's about where we have to leave it because of the confidentiality provisions we've got around it.

Don't really have stopped rather in the terms of the deal are confidential I think we have.

Speaker 1: I've really answered that, Brandon, the terms of the deal are confidential. I think we've already said what we're going to say about it in the script here. I think we're pretty happy with the terms and that's about where we have to leave it because of the confidentiality provisions we've got around it.

<unk> already said well, we're going to say about it in the script here I think we're pretty happy with the terms and that's about what we have to leave it because of the confidentiality provisions we build around it.

Brandon Couillard: Okay. Leave it there. Thank you.

Okay.

Thank you.

Speaker 4: Okay, there are no further questions at this time. I'll now turn it back to Edward Chunk for closing remarks.

Edward Chung: Okay, there are no further questions at this time. I'll now turn it back to Edward Chung for closing remarks.

Operator: Okay, there are no further questions at this time. I'll now turn it back to Edward Chung for closing remarks.

Okay. There are no further questions at this time I'll now turn it back to Edward chunk for closing remarks.

Ilan Daskal: Thank you for joining our call today. We will be participating at the Wells Fargo Healthcare Conference in Boston next month. As always, we appreciate your interest, and we look forward to connecting soon. Thanks.

Edward Chung: Thank you for joining our call today. We will be participating at the Wells Fargo Healthcare Conference in Boston next month. As always, we appreciate your interest, and we look forward to connecting soon. Thanks.

Thank you for joining our call today, we will be participating at the Wells Fargo Healthcare conference in Boston next month.

Speaker 6: Thank you for joining our call today. We will be participating at the Wells Fargo Health Care Conference in Boston next month. As always, we appreciate your interest and we look forward to connecting soon. Thanks.

As always we appreciate your interest and we look forward to connecting soon thanks.

Speaker 4: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Edward Chung: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Okay.

Q2 2023 Bio-Rad Laboratories Inc Earnings Call

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