Q3 2023 Bio-Rad Laboratories Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by welcome to the bio Rad third quarter 'twenty 'twenty financial results conference call and webcast.

At this time all lines are in a listen only mode.

During the presentation, we will conduct a question and answer session.

If at any time during this call you acquired them you get assistance. Please press star zero for the operator.

Please be advised that today's call is being recorded on Thursday October 26 2023.

I would now like to turn the conference Oh victory Edward Chang head of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining US today, we will review the third quarter 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.

Ron Basso Executive Vice President and Chief Financial Officer, Andy last Executive Vice President and Chief Operating Officer Simon.

Simon May president of the life Science group and our Wright President of the 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. Our actual results may differ materially from these plans goals and expectations.

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. These reconciliations of the non-GAAP financial measures to comparable GAAP results contained in our.

Our earnings release.

With that I will now turn the call over to Andy last <unk>, Our executive Vice President and Chief operating officer to provide an update on bio rads global operations.

Hi, many thanks, Dave and good afternoon to everybody and thank you for joining us.

Well the third quarter of the year fell below our expectations the ongoing challenges within the Biopharma segment and economic constraints in China continued to drive lower life Sciences performance in the quarter.

Clinical diagnostic sales were weaker than we forecast it impacted mainly by the softer China market condition.

We still anticipate the strong year over year garage, the clinical diagnostics group in the fourth quarter.

We continue to successfully maintain focus on tight cost control and on the supply chain front, we experienced modest constraints in supply for our clinical business, which impacted Q3 sales.

Backlog remains on track to meet our year end expectations.

In Q3, we experienced further reduced demand from biopharma customers for our process chromatography resins.

And from <unk> Biopharma is smaller biotech customers for our life Science research projects products.

The continued tight spending environment in this segment constrained core DD PCR sales, which were roughly flat from the year ago period.

Academic and government sales for life Sciences was strong in the Americas.

It showed declines in APAC, driven down by China, economic and policy constraints.

EMEA academic sales were roughly flat, reflecting a soft funding environment in Germany offset by stronger performance in the other European countries.

While <unk> sales within the quarter was softer than expected as a result of biopharma spending.

We remain very positive on the long term growth outlook for the platform.

During the quarter, we were encouraged by several noteworthy announcements involving <unk>.

On the clinical testing fronts <unk> platform has been selected for SMA testing for all newborns in Hong Kong.

And here in the U S. G. Nasca P announced they have published the results of the pivotal CRC prevent clinical trial.

Putting the highest sensitivity for detecting colorectal cancer amongst similar tests.

<unk> Q <unk> Dx DD Pcr platform.

Additionally, in the U S rarely want a major multi national wastewater testing contract from the CDC based on our <unk> 600 platform.

We see these as contributors to future growth and a strong reinforcement of the versatility and impact of the technology.

Okay.

As highlighted earlier, China was a continued challenging Q3 for our life Sciences business and Unfortunately, the economic constraints have now also impacted our clinical diagnostics business, which in the first half of the year have been a positive for us in this region.

We have now further constrained our expectations for China for the year end and look to 2024 before we expect to see signs of recovery.

Yeah.

Our clinical business overall had a mixed quarter, we saw growth in demand in the U S and Europe as expected, which was partially offset by the softness in China.

In particular, we were pleased with the continued momentum for our immuno hematology and diabetes franchises in the quarter.

Despite the market challenges that this year, we view our strategy framework as being very solid and our platforms and market opportunities as providing sustainable long term growth.

We continue to focus on driving and improving our execution and with completion of a single Global instance of SAP.

Having now completed a major component of operational improvement.

Looking to the end of the year, we continue to expect the Biopharma and small biotech company to company turned down and ongoing strengths in China, and Russia to impact the overall growth through our life Sciences business.

Although we do expect to see sequentially improved sales in the final quarter of the year.

We remain positive on the momentum and continued growth in our clinical diagnostics business.

So that's somewhat moderated by the greater market constraints in China, as well as ongoing trade restrictions in Russia.

Thank you and at this point I will now pass you to a land to review the financial results.

And now I would like to review the results of the third quarter net sales for the third quarter of 2023 were $632 $1 million, which is a decline of seven point to 1% on a reported basis versus $688 million in Q3 of 2020.

Two and a 7.9% decline on a currency neutral basis.

The third quarter year over year revenue decline was primarily the result of ongoing weakness in the Biopharma end markets.

Impacting the sales of our life science tools and bio processing products.

In addition, we experienced weaker demand in China as a result of the macroeconomic environment as well as the local media in China initiatives.

Covid related sales in Q3 were $300000 versus about $17 $2 million in Q3 last year.

Core revenue, which excludes coffee related sales decreased five 5% on a currency neutral basis.

On a geographic basis currency neutral year over year core revenue decreased in Asia, and Europe, partially offset by increased sales in the Americas.

Sales of the life Science group in the third quarter of 2023, or $263 5 million compared to $317 9 million in Q3 of 2022, which is a decline of 17, 1% on a reported basis and a $17 eight.

Percent decline on a currency neutral basis.

Excluding COVID-19 related sales the life Science group year over year currency neutral core revenue decreased 13, 7% and was primarily driven by lower sales of <unk> PCR process chromatography, Western blotting products and about flat year over year <unk> revenue.

Excluding process chromatography sales the underlying life science business decreased 16, 7% on a currency neutral basis versus Q3 of 2022.

The life Science group revenue, excluding process chromatography, and Covid related sales decreased 11, 6% on a currency neutral basis.

On a geographic basis life science year over year core revenue decreased in Asia, and Europe, partially offset by modest increased sales in the Americas.

Sales of the clinical diagnostics group in the third quarter were $368 $1 million compared to $361 9 million in Q3 of 2022 or a growth of one 7% on a reported basis and a 1% growth.

On a currency neutral basis.

Core clinical diagnostics year over year revenue, which excludes coffee related sales increased one 4% on a currency neutral basis.

Growth of the clinical diagnostics group was primarily driven by blood typing and diabetes products as well as growth from our quality controls portfolio.

On a geographic basis, the diagnostics group posted currency neutral year over year core revenue growth in the Americas, and Europe, partially offset by the decline in Asia.

The reported gross margin for the third quarter of 2023 was 53, 1% on a GAAP basis and compares to 54, 7% in Q3 of 2022.

The year over year gross margin decline was mainly due to unfavorable product mix lower manufacturing volumes.

Our material costs and inventory reserves and was partially offset by improved logistics costs.

Amortization related to prior acquisitions recorded in cost of goods sold was $4 5 million compared to $4 4 million in Q3 of 2022.

Third quarter operating expenses benefited from our cost cutting initiatives as well as a contingent consideration benefit of $18 9 million from last year's acquisition of curiosity diagnostics.

SG&A expenses for Q3 of 2023 was $201 2 million or 31, 8% of sales compared to $211 1 million or 31% in Q3 of 2022.

The lower SG&A in the quarter included $4 $1 million in contingent consideration benefit as I mentioned earlier as well as lower employee related expenses.

Total amortization expense related to acquisition recorded in SG&A for the quarter was $1 6 million versus $1 $8 million in Q3 of 2022.

Research and development expense in the third quarter was $43 5 million.

Or six 9% of sales compared to $66 8 million or nine 8% of sales in Q3 of 2022.

The significantly lower R&D expenses recorded in the third quarter included $14 $8 million in contingent consideration benefit that I mentioned earlier as well as lower project and employee related expenses.

Q3, operating income was $99 million or 14, 4% of sales compared to $94 6 million or 13, 9% of sales in Q3 of 2022.

Looking below the operating line the change in fair market value of equity Securities Holdings, which are substantially related to BIOLASE canace of Sartorius AG shares.

At $36 4 million of income to the reported results.

During the quarter interest and other income resulted in net other income of $9 7 million compared to net other expense of $13 million last year, primarily driven by increased interest income from investments.

The effective tax rate for the third quarter of 2023 was 22, 5% compared to 21, 5% in Q3 of last year.

E. S. S. These tax rate this quarter was primarily affected by an unrealized gain in equity securities.

And the tax rates reported in Q3 of 2022 was primarily affected by an unrealized loss in equity securities.

Reported net income for the third quarter was $106 3 million or $3.64 diluted earnings per share compared to a loss of $162 8 million or $5.48 diluted loss per share in Q3 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.

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

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 $5 million of amortization of purchased intangibles and small restructuring expense.

These exclusions moved the gross margin from 53, 1% for the third quarter of 2023 to a non-GAAP gross margin of 53, 9% versus 55, 6% in Q3 of 2022.

non-GAAP SG&A in the third quarter of 2023 was 31, 7% versus 30% in Q3 of 2022.

In SG&A on a non-GAAP basis, we have excluded $4 $1 million of an acquisition.

<unk> related to the contingent consideration benefit mentioned earlier.

In in vitro diagnostic registration fee in Europe for previously approved products of $1 9 million.

Amortization of purchased intangibles of $1 $6 million.

And $1 3 million of restructuring related expenses.

non-GAAP R&D in the third quarter of 2023 was nine 2% versus nine 7% in Q3 of 2022.

In R&D on a non-GAAP basis, we have excluded $14 8 million self and acquisition related to the contingent consideration benefit mentioned earlier.

Smaller restructuring benefits.

The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 14, 4% on a GAAP basis to 12.9% on a non-GAAP basis.

These non-GAAP operating margin compares to a non-GAAP operating margin of 15, 8% in Q3 of 2022.

We have also excluded certain items below the operating line, which are the increasing value of the sartorius equity securities and loan receivable holdings of $36 $4 million.

$2 $5 million gain from the release of an escrow for an acquisition.

And about $700000 loss associated with venture investments.

The non-GAAP effective tax rate for the third quarter of 2023 was 23, 9% compared to 21, 7% for the same period in 2022.

The higher rate in 2023 was driven by geographical mix of earnings and reduced compensation related deductions.

We continue to estimate the full year non-GAAP tax rate to be between 22 and 23%.

And finally non-GAAP net income for the third quarter of 2023 was $68 1 million.

Or $2.33 diluted earnings per share compared to $79 $2 million or diluted earnings per share of $2.64 in Q3 of 2022.

Moving onto the balance sheet.

During the third quarter, we purchased 58000 and 478 shares of our stock at an average share price of $364.61 for a total cost of $21 3 million.

We still have nearly $480 million remaining in our board authorized share repurchase program.

And plan to continue with our opportunistic approach to buybacks as part of our capital allocation strategy.

Total cash and short term investments at the end of Q3 was $1 billion and $765 million.

Compares to $1 billion and $728 million at the end of Q2 of 2023.

The increase in cash and short term investments from the second quarter was primarily due to changes in working capital.

Inventory at the end of Q3 was $775 $8 million, which is slightly lower than the inventory in the prior quarter.

For the third quarter of 2023 net cash generated from operating activities was $97 $7 million, which compares to $11 million in Q3 of 2022.

This increase mainly reflects changes in working capital and income tax payments.

The adjusted EBITDA for the third quarter of 2023 was $112 $7 million or 17, 8% of sales.

The adjusted EBITDA in Q3 of 2022 was $135 7 million or 19.9% of sales.

Yeah.

Net capital expenditures for the third quarter of 2023 were $44 million and depreciation and amortization for the third quarter was $37 3 million.

Moving on to the non-GAAP guidance.

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

We now expect about a three 5% currency neutral year over year revenue decline in 2023 versus a growth of about 80 basis points previously.

For the full year, we estimate currency neutral year over year revenue growth, excluding COVID-19 related sales to be between zero and 50 basis points.

First is about four 5% in our prior guidance.

Of the 400 to 450 basis points core revenue guide down too.

250 basis points are related to the third quarter revenue shortfall.

Approximately 200 basis points is related to weakness in Biopharma and remaining 50 basis points related to lower clinical diagnostic sales.

The remaining 150 to 200 basis points reduction is attributed to reduce process chromatography and other biopharma demand as well as continued softness in China.

For the life Science group, we expect about a 12% currency neutral revenue decline for 2023.

And when excluding Covid related sales the life Science group currency neutral revenue decline is projected to be between four and 5%.

Excluding coffee and process chromatography related sales life Science group revenue is expected to decline between two and 3%.

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

Full year non-GAAP gross margin is now projected to be about 54%.

This is about 64, 5% previously, reflecting our updated expectation of shift in product mix and volume.

We now project full year non-GAAP operating margin to be about 14, 5%.

Approximately 16% in our prior guidance as we continue to carefully manage discretionary expenses.

And full year adjusted EBITDA margin is expected to be between 20 and 25%.

Versus about 21, 5% in our prior guidance.

Now I'll turn the call over to Norman for a few remarks Ana thank.

Thank you Elon.

So I.

I guess I just wanted to take a minute here to to really to recognize Elon and his contributions over the last several years.

As part of our transformation Elon has been a very valued member of the team kind of working to improve our financial planning and reporting processes.

As well as to enhance the company's external profile with the financial community.

And I think we all very much appreciate his guidance and contributions switch, which do position us well for our continuing transformation.

As you might imagine we have initiated a search for his successor and in the meantime, we have a strong capable team.

Who can manage very well in the interim.

So maybe while I have the floor, maybe a closing comment about this year certainly it's not unfolded the way, we or or many of our peers first envision that kind of coming out of the pandemic I think it has been challenging to predict.

The pace of recovery or market normalization.

Really all exacerbated by by inflation, we've not seen in 20 years geopolitical events and and of course, the biopharma disruption.

I think if I think about it a little bit I think what we can be contracted as I said our markets are buoyant.

And I.

I feel the outlook is positive.

Could always be a few more bumps in the road in the near term, but I do feel the company is.

It really is well positioned to navigate what might come our way.

And just maybe to reemphasize a point that Andy made you know longer term our strategy and vision for the future.

It really has not changed.

With that our.

Operator, I think we will open the lineup for questions.

Yeah.

Thank you and ladies and gentlemen, we will now begin the question and answer session.

So do you have a question. Please press the star how do they get number one on your telephone keypad.

You will hear three tongue problem acknowledging your request and your question to be bold in the order they are received.

Should you wish to decline from the calling process. Please press the star followed by Jim Mccann and if Youre using a speakerphone. Please keep your handset before pressing okay. One moment. Please for your first question.

Your first question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Hey, Thanks, good afternoon.

I'm not sure. If this is another question for Andy are alive.

But the magnitude of the guidance reset and Lifesciences relative to where you started the year.

It's the most dramatic of any of your peers by far.

What is you seem to be such a.

<unk> to accurately forecast the business and demand trends.

And how do we assess whether this is in fact, a market dynamic as opposed to potential share losses.

Operator: Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Bio Rad third quarter 2020 financial results, conference call and webcast. At this time, online terminal is in only mode.

Could you just say the very last piece again, Brandon didn't catch the very last few words.

Yeah, Okay, and how do we assess whether this is in fact, a market dynamic versus potential share losses and lifestyle.

Operator: Following the presentation, we welcome back a question in answer session. If at any time during this call, you require immediate assistance, these passes star zero or the operator.

Okay.

Oh look I think that we came out to 2022 with really good trajectory and.

Operator: And please be advised that the call is being reported on Thursday, October 26, 2023.

Edward Schoen: I would now like to send a conference over to Edward Schoen. Head of investor relations, please go ahead.

The effects that some companies have seen particularly in bio processing.

Edward Schoen: Good afternoon everyone, thank you for joining us.

We're not showing up for us and that's I think that's something that we communicated at the end of.

Edward Schoen: Today, we will review third quarter 2023 financial results and provide an update on key business trends for Bio Rad.

The first quarter, but that was a surprise.

Edward Schoen: With me on the call today, our 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 our right president of the clinical diagnostics group. Before we begin our review, I'd 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.

And Fitbit took a wild within 2023 for those effects to really rollouts into into our funnel and start to experience the preferred.

Orders being pushed out.

The other fact that no one anticipated and which was meaningful for us.

Edward Schoen: These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results made different materially from these plans, goals and expectations. You should not place undue lines on these forward-looking statements and I encourage you to review our filings with the MBC 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.

Was the Silicon Valley Bank.

And a collapse and the knock on effects of fat, which really.

It really impacted the spending profile of the smaller biotech companies and we've had significant trajectory in the smaller biotechs.

For in particular, our droplet digital PCR platform, which also has some halo effect around it so.

And you know I think it took a couple of quarters for those effects to really materialize for us.

Because our profile is a little different to some of the other players.

Edward Schoen: Finally, our remarks today will include references to non-gap financials, including net income and deluded earnings per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review these reconciliation of the non-gap financial measures to comparable gap results contained in our earnings release.

So that's how I view it and then of course since then.

Spending has not improved.

I want to push outs of continued and it's very difficult to to gauge you know.

The true inflection point right now and I think that's probably it.

Probably a message that's coming across broadly from other players in the category as well.

Andrew Last: With that, I will now turn the call over to Annie Last, our Executive Vice President and Chief Operating Officer to provide an update on BioRads Global Operations. How many thanks, and good afternoon to everybody, and thank you for joining us.

This is Simon maybe I'll just answer it off as well because as we look at our funnels and we look at our win loss ratios across the portfolio, whether you're talking about western blot or gene expression or digital Pcr or our bioprocess business, we really don't see any significant.

Andrew Last: Well, the third quarter of the year fell below our expectations. The ongoing challenges within the biopharmate segments and economic constraints in China continue to drive lower life sciences performance in the quarter. Clinical diagnostic sales were weaker than we forecast. It impacted mainly by the software China market conditions. We still anticipate the strong year-over-year growth for clinical diagnostics group in the fourth quarter. We continue to successfully maintain folks on tight cost control, and on the supply chain front we experience modest constraints in supply for our clinical business, which impacted Q3 sales. Backlog remained on track to meet our year end expectations.

Shifts I mean, obviously, the conditions and shine or a biopharma have really deteriorated the feedback we consistently get from the field is that there's still a high level of interest in the products. The products that we've launched it being really well received and again the funnel dynamics in terms of win loss ratios are not see any significant.

So we really do believe that this is a bunch of transfusion in fact stomach compounding and just making for a very difficult year, but I don't think there are any macro shifts and our competitive positioning in life Sciences.

Okay.

I think the.

Revised guide implied for Q revenue.

Andrew Last: In Q3, we experienced further reduced demand from biopharmacustomers for our process chromatography resins, and from both biopharmants, we will provide tech customers for our life science research projects product. The continued tight spending environment in this segment constrained core DDPCR sales, which were roughly flat from the year ago period. Academic and government sales for life sciences were strong in the Americas, but showed declines in APAC driven down by China economic and policy constraints.

That's up to about 700 million I believe.

Q is usually seasonally.

Very strong for by repetition, a normal environment either so.

Risk is that revenue outlook.

The variables that could swing that target for Gallagher.

We are keeping in mind.

So badly.

And the variables that my swim that I think they are the same that we're you know the variables would really be you know the same that we're experiencing just a little bit more acute if.

Andrew Last: Emea, academic sales were roughly flat, reflecting a soft funding environment in Germany, offset by stronger performance in the other European countries. While DDPCR sales within the quarter were softer than expected as a result of bi-former spending, we remained very positive on the long-term growth outlook for the platform. During the quarter, we were encouraged by several no-worthy announcements involving DDPCR.

China guess definitively worse and the trajectory itself for example.

That that voice, whereby academia really pulled back from spending a lot of.

That could have an effect.

You know, we're not expecting a Q4 budget flush this year, that's not in our thinking.

You know if that materializes that is good news, but we're not we're not planning on that.

I think other than that I've done.

Andrew Last: On the clinical testing front, our QX1 platform has been selected for SMA testing for all newborns in Hong Kong, and here in the US, Genoscopy announced they have published the results of their pivotal CRC prevent clinical trial, reporting the highest sensitivity for detecting colorectal cancer among similar tests powered by our QXDX DDPCR platform. Additionally in the US, rarely won a major multi-year national waste water testing contract from the CDC based on our QX600 platform. We see these as contributors to future growth and a strong reinforcement of the versatility and impact of the technology.

I think we see anything that maybe you can I.

Meaningful that we could predict yeah, hey, Brendan I would add to the inputs that Andy just mentioned generally speaking we have not deviated from our approach of.

Coming up with or at least take what we see in front of us in terms of the forecast and the guidance.

So I don't know that we are underestimating or over estimating our projections.

And.

Definitely the fourth quarter. This time around is an unusual circumstance in addition to the <unk>.

Macro economic kind of environment.

To add to Andy's kind of inputs with maybe the China environment today, I mean, I think it's going to continue well into the end of the year.

Andrew Last: As highlighted earlier, China was a continued challenging Q3 for our life sciences business, and unfortunately the economic constraints have now also impacted our clinical diagnostics business, which in the first half of the year have been a positive for us in this region. We have now further constrained our expectations for China for the year end, and looked to 2024 before we expect some signs of recovery.

So the smaller biotechnology companies environment in terms of the funding environment are not expected to.

Improve in <unk>.

Our mind you know through the end of this year.

So I agree with you you know historically traditionally the fourth quarter used to be a stronger seasonality kind of quarter for us that is not the case this time around.

Yes.

Okay last one and I'll jump back in the queue Andy.

Andrew Last: Our clinical business overall had a mixed quarter. We saw growth in demand in the US and Europe as expected, which was partially offset by the softness in China. In particular, we were pleased with a continued momentum for our immunochematology and diabetes franchises in the quarter. Despite the market challenges of this year, we view our strategy framework as being very solid, and our platforms and market opportunities as providing sustainable long-term growth. We continued to focus on driving and improving our execution, and with completion of a single global instance of SAP, had now completed a major component of operational improvement.

Giving you an alon started buyer at around the same time, we've worked very closely together.

Instrumental to buyer rates transformation.

Last four years or so.

<unk> his departure I think investors would like to know.

Are you happy with the operational direction of the company are you adequately incentivize to stay the course or do you have.

To retire any time soon.

Yeah, Brian and thanks first can I, just say I'm really sad to see Atlanta very born in Europe, you're right. We have worked extremely closely.

And I really each other's offices virtually every day. So it's been a really good journey I want to thank the landfill that no.

With that please.

Andrew Last: Looking to the end of the year, we continue to expect the bi-former and small biotech company turned down and ongoing constraints in China and Russia to impact the overall growth through our life sciences business, although we do expect to see sequentially improve sales in the final quarter of the year. We remain positive on the momentum and continued growth in the clinical diagnostics business, although somewhat moderated by the greater market constraints in China, as well as ongoing trade restriction in Russia.

But my point of view right now as we started that transition.

Yes.

It's not finished yet.

And the focus is really is on the transformation of the company and executing against the strategy framework, which I firmly believe.

Has the potential to increase operating performance for the company moving forward.

Thank you.

Thanks Brendan.

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

Ilan Daskal: Thank you, and at this point, I will now pass you to a land to review the financial results. Thank you, Andy. Now I would like to review the results of the third quarter.

Hey, guys. Thanks for taking the questions.

Maybe another one on the <unk> ramp, but on the margin side.

Ilan Daskal: Net scales for the third quarter of 2023 were $632.1 million, which is a decline of 7.1% on a reported basis versus $680.8 million in Q3 of 2022. And a 7.9% decline on a currency neutral basis. The third quarter, European revenue decline, was primarily the result of ongoing weakness in the biopharma end markets, impacting the sales of our life science tools and bioprocessing products. In addition, we experienced weaker demand in China as a result of the macroeconomic environment, as well as the local maiden China initiatives.

Pretty meaningful step up from whether its sequential or the rest of the.

Prior part of the year.

Sure Hey, Patrick this is Alan I'll start and Andy can chime in.

But obviously you know on the top line.

We baked in kind of the updated mix.

The softer life science.

And overall I mean.

On the operating expenses.

We plan to continue some of those initiatives that we have been working on an aura.

Ilan Daskal: COVID-related sales in Q3 were $300,000 versus about $17.2 million in Q3 last year. Co-revenue, which excludes COVID-related sales, decreased 5.5% on a currency neutral basis. On a geographic basis, currency neutral, Eurovere Co-revenue, decreased in Asia and Europe, partially offset by increased sales in the Americas.

Already in the third quarter, you can see that the operating expenses came in.

Lower on a dollar basis.

So so we continue to work on on additional initiatives going into the fourth quarter.

And.

And again overall for the bottom line I mean, we feel it is realistic.

Projection here.

Yeah my own yet.

We are still focused on keeping our operating cost structure is tied to as tight as possible. So the volume and mix and I will have a decent flow through.

Ilan Daskal: Sales of the life science group in the third quarter of 2023 were $263.5 million, compared to $317.9 million in Q3 of 2022, which is a decline of 17.1% on a reported basis and a 17.8% decline on a currency neutral basis. Excluding COVID-related sales, the life science group, year-over-year currency neutral, Co-revenue, decreased 13.7% and was primarily driven by lower sales of QPCR, processed chromatography, western-blooding products, and about fled year-over-year DDPCR revenue. Excluding processed chromatography sales, the underlying life science business, decreased 16.7% on a currency neutral basis, versus Q3 of 2022.

Fourth quarter.

Operating margin.

Okay.

And then maybe on China, if you could just talk about that market a little bit surprising to see the diagnostics piece softer as well can you just talk about what youre seeing is that various policies over there that's impacting things it would be helpful. Just to get a little more discussion there.

Oh, okay. So so the policies.

Clearly impacting about lifestyle.

Diagnostics side of the business.

And then they have the made in China for China.

The anti corruption.

Volume based pricing.

Then you layer on top of that recession.

And the government I think that in general is struggling to find the right way to to stimuli.

Ilan Daskal: The life science group revenue, excluding processed chromatography and COVID-related sales, decreased 11.6% on a currency neutral basis. On a geographic basis, life science, Eurovere Co-revenue, decreased in Asia and Europe, partially offset by modest increased sales in the Americas.

Stimulate the market.

Add in an extra effect of.

The capital markets are soft for Biopharma, which was a focus for us.

For for expansion and growth.

Yeah, those pieces of our portfolio.

They all have varying impacts to both sides of the business.

Ilan Daskal: Sales of the clinical diagnostics group in the third quarter were $368.1 million, compared to $361.9 million in Q3 of 2022. Or growth of 1.7% on a reported basis and a 1% growth on a currency neutral basis. Co-re clinical diagnostics year-over-year revenue, which excludes COVID-related sales, increased 1.4% on a currency neutral basis. Growth of the Clinical Diagnostics Group was primarily driven by blood typing and diabetes products as well as growth from our quality control portfolio. On a geographic basis, the Diagnostics Group posted currency neutral year-of-year co-revenue growth in the Americas and Europe, partially upset by the decline in Asia.

Yeah.

Just been a really tough ride through China, and there's just no.

Current clear reason to think that it's gone direct effort in Q4.

And on the clinical side it just created a soft pull for our products in China.

A quarter.

And.

And she and I, we still have had a little bit of backlog on our clinical businesses as we called out.

Which by the end of this year, we should be roughly where we expect to be at my goodness, where they're very slightly elevated backlog on clinical products at the end of the year.

We're pretty much on track relatively speaking.

Ilan Daskal: The reported growth margin for the third quarter of 2023 was 53.1% on a gap basis and compares to 54.7% in Q3 of 2022. The year-of-year growth margin decline was mainly due to unfavorable product mix, lower manufacturing volumes, higher material cost and inventory reserves, and was partially upset by improved logistics costs. Amortization related to prior acquisitions recorded in cost of goods sold was $4.5 million compared to $4.4 million in Q3 of 2022.

Okay on the diagnostics side more of the instrumentation, obviously, the GBP stuff comes up quite often with all diagnostic players are you guys seeing anything on that front yet.

Uh huh.

First a question on the volume based pricing sorry, Yeah, we were just having difficulty.

Area.

<unk> you want to comment on PPP sure.

Starting to impact how we navigate tender requirements. So I think well how that's translating to reality as you know things are a little bit slower as far navigating you know how best to position for.

For new units for new deal considerations, but value based pricing now than it has historically been applied to other sectors, but in a couple of provinces. We're starting to see it reach into diabetes. So I think right now to sort of impacting our forward looking right.

Ilan Daskal: Third quarter operating expenses benefited from our cost-cutting initiatives as well as a contingent consideration benefit of $18.9 million from last year's acquisition of Curiosity Diagnostics. SCNA expenses for Q3 of 2023 were $201.2 million or 31.8% of sales compared to $211.1 million or 31% in Q3 of 2022. The lower SGNA in the quarter included $4.1 million in contingent consideration benefit that I mentioned earlier as well as lower employee-related expenses. Total amortization expense related to acquisition recorded in SGNA for the quarter was $1.6 million versus $1.8 million in Q3 of 2022.

Yes.

Then as Andy said, you know, we're still working through some.

Supply chain fulfilled.

Fulfillment challenges in backlog, which which were you know.

Waste of it towards that region as well and we're working through that and have the top line of sight for a really solid Q4 landing.

Okay, and maybe last one just on the PCR side, you guys called out I think Q PCR weakness it seemed like DD PCR stepped down as well can you just talk about what youre seeing in that market is it just a broader slowdown is it specific.

Pockets there would be would be helpful.

I think again, it's a compounding the issue start we've already touched on here. So we've obviously got a fairly significant Q PCR digital PCR footprint in Biopharma and again the slow down.

Ilan Daskal: Research and development expense in the third quarter was $43.5 million or 6.9% of sales compared to $66.8 million or 9.8% of sales in Q3 of 2022. The significantly lower R&D expenses recorded in the third quarter included $14.8 million in contingent consideration benefit that I mentioned earlier as well as lower project and employee-related expenses.

The biotechs, we've seen a continuation of layoffs and project deferrals that some parts of the business. We felt the Kobe compound. We've got all the challenges in China that we've already talked about and I think on top of everything else, there's kind of a glut of systems out there in the market that were placed in the pond on making those have been a freak.

Passive Seattle.

So you roll all of these things together again, we refreshed our Q PCR platform over the last couple of years and again the feedback that we get from AOI in the field just really positive in terms of how these products are being received in the market, but this compounding of market conditions right now he is adding up.

Ilan Daskal: Q3 of rating income was $9.9 million or 14.4% of sales compared to $94.6 million or 13.9% of sales in Q3 of 2022. Looking below the operating line, the change in fair market value of equity security holdings, which are substantially related to the bio-reads ownership of Sartorius H.E, shares, added $36.4 million of income to the reported results. During the quarter, interest and other income resulted in net other income of $9.7 million compared to net other expense of $13 million last year, primarily driven by increased interest The FHP's tax rate for the third quarter of 2023 was 22.5% compared to 21.5% in Q3 of last year. The FHP's tax rate, this quarter, was primarily affected by an unrealized gain in equity securities, and the tax rate reported in Q3 of 2022 was primarily affected by an unrealized loss in equity securities.

So it's sort of environment.

Alright.

One extra comment.

You look for a silver lining on occasion and the custom.

Customer demand in that.

Small biotech biopharma the desire to take in digital PCR in particular remains very strong what were what were actually experiencing.

And when they got to make the purchase.

Cause that constrained at all.

It's kind of a cash expenditure and some other changes going on structurally on the comp program focus.

So the demand side remains very encouraging.

Okay. Thanks, guys.

Thanks, Patrick.

Thank you. Your next question comes from the line of Jack Meehan from <unk>. Your line is open.

Thanks, Good afternoon.

So just wanted to talk about how the quarter played out here. So revenue was about 8% below the street can you just talk about kind of the pacing of the quarter was most of the pressure you saw in September and is it possible there or any orders that slipped into <unk> for any reason.

Ilan Daskal: Reported net income for the third quarter was $106.3 million or $3.64 diluted earnings per share compared to a loss of $162.8 million or $5.48 diluted loss per share in Q3 of 2022. This change from last year is largely related to changes in the valuation of the sector's earnings.

I think Jed <unk> Zealand.

Way to think about it I think we saw it throughout the quarter, but it accelerated towards the end of the quarter. So the pace was kind of decline was stronger towards the end of the quarter.

But what throughout the quarter, it started to get weaker and weaker but definitely it's accelerated.

Ilan Daskal: Moving on to the non-gap results. Looking at the results on a non-gap 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-gap results for the third quarter in cost of goods sold, we have excluded $4.5 million of amortization of purchased intangibles and a small restructuring expense.

Towards the end.

Okay.

And you know Norman I know you mentioned in your comments.

There is potential for maybe a couple more bumps in the road along the way I think there is a debate amongst tools investors around are we further through the cutting cycle or could there be kind of new risks ahead because of some of the changes in the funding environment for customers just curious like you know.

Maybe like what Youre seeing through October.

Ilan Daskal: These exclusions moved the gross margin from 53.1% for the third quarter of 2023 to a non-gap gross margin of 53.9%. Versus 55.6% in Q3 of 2022. Non-gap SDA in the third quarter of 2023 was 31.7% versus 30% in Q3 of 2022. In SDA on a non-gap basis, we have excluded $4.1 million of an acquisition related to the contingent consideration that I mentioned earlier. In vitro diagnostic registration fee in Europe for previously approved products of $1.9 million, amortization of purchased intangibles of $1.6 million and $1.3 million of restructuring related expenses.

I guess like kind of what was the thinking that went behind the fourth quarter guide that you've built here.

Well I think certainly on the in terms of the fourth quarter guide, we looked very carefully at kind of the order book and the funnel the sales funnel kind of accumulating as much data as we can to get the best assessment of where we think we'll land for the year.

You know what I think about it bumps in the road I think about it.

I think there were a lot of people that are there.

They kind of talked to pandemic, because over and everything will be back to normal next week.

And I think we're seeing a continuation of that with the with some of this kept biopharma meltdown in our Reinvestments that are being made in some of these programs.

You know it just.

Ilan Daskal: Non-gap R&D in the third quarter of 2023 was 9.2% versus 9.7% in Q3 of 2022. In R&D on a non-gap basis, we have excluded $14.8 million of an acquisition related to the contingent consideration benefit mentioned earlier and a small restructuring benefit. The cumulative sum of these non-gap adjustments result in moving the quarterly operating margin from 14.4% on a non-gap basis to 12.9% on a non-gap basis. This non-gap operating margin compares to a non-gap operating margin of 15.8% in Q3 of 2022.

I think we just have to be careful about you know.

About calling the end and saying you know theres always possible that there's something else that that might a bubble up.

Understood. Okay, and then on the income statement you previously talked about kind of Opex reductions.

Looking at the SG&A line kind of on a non-GAAP basis, it actually increased a little bit sequentially and that was despite revenue declining sequentially.

So I was just wondering if you could talk about what happened in SG&A in the quarter and like is there room to like pull more cost out given the lower top line.

So.

Usually you know well, where you see it was a minor kind of step up check usually one on the fourth quarter, we see a much higher kind of step up in SG&A, which this time around actually more of the initiatives that we have been working on will kick in on the first of all in the fourth quarter.

Ilan Daskal: We have also excluded certain items below the operating line, which are the increasing value of the Sartorius equity securities and long receivable holdings of $36.4 million. 2.5 million dollars gain from the release of an escrow for an acquisition and about a $700,000 loss associated with venture investments.

So we.

We don't anticipate the traditional step up in the fourth quarter.

For the third quarter it wasn't that material.

Okay. Thank you guys.

Ilan Daskal: The non-get effective tax rate for the third quarter of 2023 was 23.9% compared to 21.7% for the same period in 2022. The higher rate in 2023 was driven by geographic mix of earnings and reduced compensation related deductions. We continue to estimate the full year non-get tax rate to be between 22 and 23%.

<unk>.

Your next question comes from the line of Tim <unk> from Wells Fargo. Your line is open.

Great. Thank you.

No.

First on the process chromatography business so.

I think you were previously expecting down mid single to high single declined.

What's the update today Im getting.

13% down or so for the year, but but even with that that implies a pretty significant step up in the fourth quarter, because it's almost like 80% sequential dollar or dollar increase in <unk>. So first off are these numbers, but I'm kind of getting to in the right ballpark.

Ilan Daskal: And finally non-get net income for the third quarter of 2023 was $68.1 million or $2.33 diluted earnings per share compared to $79.2 million or diluted earnings per share of $2.64 in Q3 of 2022.

And then secondly can you help us understand the visibility confidence.

Yes.

To kind of get that big sequential step up, especially given the commentary around slower lower than typical seasonality for.

Ilan Daskal: Moving on to the balance sheet. During the third quarter we purchased 58,478 shares of our stock at an average share price of $364.61 for a total cost of $21.3 million. We still have nearly $480 million remaining in our board authorized share repurchase program and plan to continue with our opportunistic approach to buy back a spark of our capital allocation strategy. Total cash and short term investments at the end of Q3 was $1.765 million compared to $1.728 million at the end of Q2 of 2023.

For this year end.

Yeah, Hi, this is Andy so so yeah, I think maybe there is kind of some of the math might be a little off there.

Thank the process crime overall.

It's going to.

It's going to wind up at a lower number.

The guidance simplification there.

And.

It's kind of like mid mid teens.

And so I don't think we're seeing a meaningful step hopkins process from in Q4.

But.

Yeah, I think that's really probably is just a bit of math there is slightly higher.

Alright got it thats helpful.

And then and then Andy can you the supply chain impacts.

Ilan Daskal: The increase in cash and short term investments from the second quarter was primarily due to changes in working capital. Inventory at the end of Q3 was $775.8 million, which is slightly lower than the inventory in the prior quarter.

Weighing on the third quarter diagnostics revenues can you just provide some details on like what is that how big the impact was in the quarter and you expect those delayed revenues to be fully recuperated in fourth quarter.

Yeah.

So essentially we've obviously, we've been communicating our supply chain challenges on the clinical side.

Ilan Daskal: For the third quarter of 2023, net cash generated from operating activities was $97.7 million, which compares to $11 million in Q3 of 2022. This increase mainly reflects changes in working capital and income tax payments.

Oh, you know various effects of covered cluster move dot plot from from France to Singapore.

We're catching up quickly, but it's sometimes difficult to get the pacing of that right. So cute. So if you've got a bit of July you also get a bit of pull through consumable pull through July as well.

Ilan Daskal: The adjusted EBDA for the third quarter of 2023 was $112.7 million or 17.8% of sales. The adjusted EBDA in Q3 of 2022 was $135.7 million or 19.9% of sales.

And so that's back to that a bit in to our Q3, but we are looking at a.

Pretty strong Q4, and we have good line of sight now.

Singapore is really cranking, we've got a lot of work.

Adding out west.

Ilan Daskal: Net capital expenditures for the third quarter of 2023 were $44 million and depreciation and amortization for the third quarter was $37.3 million.

<unk>.

And so we're going to get the benefit of that in Q4 and also get some pull through effect. So Q3, just ended up being softer as a result overall.

Alright, Thank you and then final one here for Norman.

Ilan Daskal: Moving on to the non-gift guidance. Even the current market environment. We are revising our 2023 financial outlook. We now expect about a 3.5% currency neutral year-of-a-year revenue decline in 2023 versus a growth of about 80 basis points previously. For the full year, we estimate currency neutral year-of-a-year revenue growth, excluding COVID-related sales to be between 0 and 50 basis points versus about 4.5% in our prior guidance. Of the 400 to 450 basis points core revenue guide down, 250 basis points are related to the third quarter revenue shortfall of which approximately 200 basis points is related to weakness in biopharma and remaining 50 basis points related to lower clinical diagnostic sales.

With the 23 guidance now 400 basis points lower.

Mid term CAGR for 2020 fives the guidance updated at Bay now has an incremental 100 basis points or so steeper.

I guess headwinds in front of it so given the current environment. How are you evaluating the 2025 target.

Or is this something that maybe you will.

Wait until a new CFO in the seat to put their own.

Fingerprints are on every well.

So Tim this is Sheila timing and then you know.

Norland slowly will have some additional color but.

And already in the prior quarter, we communicated that the 2020 targets from our perspective is kind of in a holding pattern.

We would like to get more insight and visibility going into 2024 in order to shape, our thinking about the 2025 targets so probably.

Ilan Daskal: The remaining 150 to 200 basis points reduction is attributed to reduced process chromatography and other biopharma demand as well as continued softness in China. For the life science group, we expect about a 12% currency neutral revenue decline for 2023 and when excluding COVID-related sales, the life science group currency neutral revenue decline is projected to be between 4 and 5%. Excluding COVID and process chromatography related sales, life science group revenue is expected to decline between 2 and 3%.

In the next kind of earnings call early next year.

When we have the 2024 panel done guidance in front of us.

2025 numbers.

We will know how to think about it in and to see what is the reason impact and what magnitude et cetera.

I don't know.

I think that covers it pretty well.

Okay, great well along great working with you Hope you all the best in the next endeavor and thanks, everybody for the time.

Thanks, Tim Likewise.

Thank you. Your next question comes from the line of Conor Mcnamara from RBC capital. Your line is open.

Ilan Daskal: For the diagnostics group, while we remain encouraged with the overall demand, we are now guiding whole revenue growth to be about 4.5% versus 5.5% previously. Full-year non-gap growth margin is now projected to be about 54% versus about 64.5% previously reflecting our updated expectation of shifts in product mix and volume. We now project full-year non-gap operating margin to be about 14.5% versus approximately 16% in our prior guidance as we continue to carefully manage discretionary expenses. And full-year adjusted EB-DAM margin is expected between 20 and 20.5% versus about 21.5% in our prior guidance.

Hi, guys. Thanks for taking the questions.

Just.

Without getting into 2020 guidance.

How should we think about 2024 in general and just which headwinds that you've called out in this quarter are likely to persist in 2024, and which are likely.

Likely to.

And by the end of this year okay.

Hey, Conor this is Sheila so I can start you know what obviously.

Various aspects that are associated with the macroeconomic.

I am not sure personally that China will recover like in a few weeks. So this may take a little bit longer.

The funding environment, which is obviously indirectly linked to the treasury yield.

He is here to stay the inflationary environment is here to stay for awhile.

So that does and probably will continue for a while to have some impact on the smaller biotechnology companies funding and the way they think about the pace of their spend and also so these are definitely areas that.

Norman Schwartz: And now I'll turn the call over to Norman for a few remarks. Thank you, Elon. So I guess I just wanted to take a minute here to really to recognize Elon and his contributions over the last several years. As part of our transformation, Elon has been a very valued member of the team, working to improve financial planning and reporting processes as well as to enhance the company's external profile with the financial community. And I think we all very much appreciate his guidance and contributions which do position us well for our continuing transformation.

We want to kind of think about it to think about and then.

Not to mention the geopolitical everywhere now.

He is getting kind of.

In total probably a new lesson the level that we have not experienced before so there are multiple fronts, there that and when you think about Europe I mean overall for US Europe generally speaking you know he's doing okay for us, but when you think about the macroeconomic Germany's probably already in a recession. So.

So it's going to be interesting come in and specifically the domestically, we're going into an election year domestically. So.

Norman Schwartz: As you might imagine, we have initiated a search for his successor. And in the meantime, we have a strong, capable team who can manage very well in the interim.

We'll have to wait and see how everything would shape up but it doesn't.

It doesn't have to do anything with our own kind of organic initiatives.

New products you know the.

And markets that.

Norman Schwartz: So maybe while I have the floor or maybe a closing comment about this year, certainly it's not unfolded the way we or many of our peers first envisioned it. Kind of coming out of the pandemic, I think it has been challenging to predict the pace of recovery or market normalization really all exacerbated by inflation. We've not seen in 20 years geopolitical events and of course the biopharma disruption. I think if I think about it a little bit, I think what we can be confident of is that our markets are buoyant and I feel the outlook is positive. There could always be a few more bumps in the road in the near term, but I do feel the company is really as well positioned and navigate what might come our way.

And all these opinions and not going anywhere so autonomy from from my perspective, only a timing issue.

Okay great.

And just following up to Patricks question about PCR can you just talk about DD PCR, specifically because that slowdown was worse than.

Any of your other business units. So how do we can you give investors some.

Hey, Mark to think about how how that how we can get comfort that that's definitely a market environment and not competitive pressures because there have been some competitors out there, making some noise. So just want to make sure that.

Do you still feel still feel good about your market position, there and DD Pcr.

I still think we feel good about our position I mean, we've made no secret of the thought.

The competitive landscape is essentially volume and as we reflect on Q3, I think because we called out in the script. We had a couple of really notable wins that we think are going to help continue to position us well for the future I think what we really saw in Q3 again as an exacerbation.

Norman Schwartz: And just maybe to re-emphasize a point that Andy made longer term or strategy and vision for the future really has not changed.

The spot pharma written pox, we have particular strength.

Operator: With that operator, I think we'll open the line up to questions. Thank you and ladies and gentlemen, we will begin the question and answer session. Should you have a question, please press the star, followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline the form of the calling process, please press the star followed by the number two. And if you're using a speaker phone, please speed the handset before pressing any keys. One moment please for your first question.

The early buyouts at sites and I'll see what we saw in Q3 was the cumulative impacts of these deferred projects and layoffs in the continuing extremely solid.

Once again, we're seeing a lot of interesting approach, but the money is just not flowing we continue to see healthy adoption of really strong acceptance of our <unk> 600 plot pool. So as we look to the future. If we all believe that these impacts seen bought Palmer at <unk> and when we emerge from it we think we're going to be in a really strong position.

And then of course, we've got competitors, who are playing more in the lower end segments and we plan to enter with the Qs continuum platform.

Brandon Couillard: Your first question comes from the line of Brandon Collard from Jeffries. Your line is open. Thanks for that afternoon. I'm sure this is another question for Andy or a lot. But the magnitude of the guidance reset in life sciences relative to where you started the year is the most dramatic of any of your peers by far. What does this seem to be such an inability to accurately forecast the business and the advance trends?

2024, so for sure the competitive pressures essentially calling for I think we've got compelling responses.

Where we've got leading positions in these segments will continue to do well awesome when these markets recover.

Great. Thanks for that Simon just a quick follow up on pricing and I guess this is across everything in life Sciences.

What's the pricing environment like and how should we think about that going forward.

Brandon Couillard: And how do we assess whether this is in fact a market dynamic as opposed to central stair losses? Could you just say the very last piece of game, Brandon didn't catch your very last few words? How do we assess whether this is in fact a market dynamic versus potential stair losses in life sciences? Okay. Look, I think that we came out of 2022 with really good trajectory and the effects that some companies had seen particularly in bioprocessing were not showing up for us.

Yeah, I think that.

The environment is still inflationary as appropriate appreciated on their on the clinical side tender driven business.

You cannot just take very modest periodic price increases and we do that when we get when we get that opportunity actually on life science.

And are there.

Is there is still an inflationary effect.

And we will still look to try and take modest price increases as we move forward.

So you have to offset it.

Inflationary pressures that we're receiving and we expect to do we've done that this year, we expect to do that next year and I think in the quarter, we probably got just over a point of price points in the half with price on a net basis.

Brandon Couillard: And I think that's something that we communicated at the end of the first quarter that was a surprise. And it took a while within 2023 for those effects to really roll out into our final and start to experience the deferred, orders being pushed out, and in the other factor that no one anticipated and which was meaningful for us was the Silicon Valley Bank collapse and the knock-on effects of that which really impacted the spending profile of the smaller biotech companies and we'd had significant trajectory in the smaller biotechs for, in particular, a drop of digital PCR, platform which also had some halo effects around it.

And I think that that should at least be a floor.

We've seen a mix impact that we process correct as well yeah.

Yes.

Okay. Thanks, and then just.

Final question for norm.

Just given the recent sell off in the space and specifically in your stock how does that how does that change your acquisition strategy. If at all and would you still considering would you still consider issuing equity to pursue.

When acquisition target in this environment.

So I think that kind of in light of the recent stock.

Location I think.

Yes.

We would very much consider continuing our share repurchases.

Part of our capital allocation strategy end to end.

Brandon Couillard: So, you know, I think it took a couple of quarters for those effects to really materialize for us because our profiles are a little different to some of the other players. So that's how I view it, and then of course since then, spending is not improved or what a pushouts have continued and it's very difficult to gauge, you know, the true inflection point right now, and I think that's probably a message that's coming across broadly from other players in the category as well.

Obviously at this point not such a good at currency.

For for M&A.

I think in fact.

Well, where while we do continue to kind of look at opportunities I think it's probably fair to say that more of our focus over the next several quarters will be centered around.

Kind of navigating our markets.

And our continued operational transformation.

Great. Thanks.

Thanks for the time, thanks for the questions you guys a lot and we wish you the best of luck and it's been a pleasure working with you.

Brandon Couillard: This is Simon, maybe I'll just add to that as well because as we look at our funnels and we look at our wind loss ratios across the portfolio, whether you're talking about Western Blot or gene expression or digital PCR or our bioprocess business, we really don't see any significant shifts there. I mean obviously the conditions in China and Bioparma have really deteriorated, but the feedback that we consistently get from the field is that there's still a high level of interest in the products, the products that we've launched have been really well received.

Thank you <unk> appreciate it likewise.

There are no further questions at this time I would like to turn it back to <unk> for further remarks.

Thank you for joining today's call as always we appreciate your interest and we look forward to connecting soon thanks operator.

Thank you and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Brandon Couillard: And again, the funnel dynamics in terms of wind loss ratios are not seeing any significant shifts. So we really do believe that this is a bunch of transient effects that are compounding and it's making for a very difficult year, but I don't think there are any macro shifts in our competitive positioning in life sciences. Okay, Alon, I think the revised guide implies 4Q revenue steps up to about 700 million, I believe.

Brandon Couillard: Q is usually very strong for biorepid, this is a normal environment either. So how do you risk is that revenue outlook? What are some of the variables that can swing that target up or down? Is your keeping in mind? So Sandy, the variables that might swing that, I think they're the same that the variables would really be the same that we're experiencing just a little bit more acute if China gets definitively worse than the trajectories on, for example.

Brandon Couillard: That was, you know, we're back at the EMIA really pull back from spending, that could have an effect. You know, we're not expecting a Q4 budget flush this year, that's not enough thinking. You know, if that's materialized, that's good news, but we're not planning on that. I think other than that, I don't think we see anything that may be, you know, meaningful that we could predict. And Brandon, I will add to, you know, the inputs that Andy just mentioned.

Brandon Couillard: Generally speaking, you know, we have not deviated from our approach of kind of coming up with the realistic, what we see in front of us in terms of the forecast and the guidance. Yes, so I don't know that we are underestimating or overestimating our projections and definitely the fourth quarter of this time around is an unusual circumstance in addition to the marker economic kind of environment to end this kind of input, maybe the China environment today.

Brandon Couillard: I think it's going to continue well into the end of the year. So the smaller biotechnology companies environment in terms of the funding environment and not expected to improve in our mind through the end of this year. So I agree with you, historically, traditionally the fourth quarter used to be a stronger seasonality kind of quarter for us. That is not the case this time around. Last one, I'll jump back in the queue.

Brandon Couillard: Andy, given you and Alon started a biorad around the same time, you've worked very closely together, you've both been instrumental to biorad transformation last four years or so. So in light of his departure, I think investors would like to know, are you happy with the operational direction of the company? Are you adequately incentivized to say the course or do you have an eye to retirement? Yes, thank you very much. And the focus is really is on the transformation of the company and executing against the strategy framework, which I firmly believe has potential to increase operating performance for the company moving forward. Thank you. Thanks, Brandon.

Brandon Couillard: Your next question comes from the line of Patrick Donnelly from city your line is open. Hey guys, thanks for taking the questions. Maybe another one on the four queue ramp, but on the margins side, you know, pretty meaningful step up from whether it's sequential or the rest of the prior part of the year. Can you just talk about the moving pieces to get to that implied margin? I think it's 60 and a half, 70% type margin and four queue.

Brandon Couillard: Yeah, just a path to get there and get people comfortable that that's a realistic number. Sure, Patrick, this is Elam, I'll start and you can chime in, but obviously, you know, on the top line, you know, we baked in kind of the updated mix with, you know, the software, life science and overall, I mean, you know, on the operating expenses. You know, we plan to continue some of those, you know, initiatives that we have been working on and already in the third quarter, you can see that, you know, the operating expenses came in, you know, lower on a dollar basis.

Brandon Couillard: So we continue to work on additional initiatives going into the fourth quarter. And again, overall, for the bottom line, I mean, we feel it is a realistic, you know, to get you in here. Yeah, Mayani, you know, we're still focused on keeping our operating cost structure as tight as possible. So volume and mix, you know, we'll have a decent flow through all the quarter operating margins. Okay, and then maybe on China, you know, if you could just talk about that market, you know, a little bit surprising to see the diagnosis piece softer as well.

Brandon Couillard: Can you just talk about what you're seeing? Is it various policies over there that's impacting things? It would be helpful just to get a little more discussion there. Okay, so the policies, I mean, are clearly impacting both life science and the diagnostics side of the business. And they have, you know, they're made in China for China. There's the anti-corruption, there's volume based pricing, and then you layer on top of that recession.

Brandon Couillard: And the government, I think that is generally struggling to find the right way to stimulate the market. You can add in an extra effect of capital markets, soft for bioparma, which was a focus for us for expansion and growth of those pieces of our portfolio. You know, they all have varying impacts to do both sides of the business. You know, it's just been a really tough ride through China. And there's just no current clear reason to think that it's going to improve in Q4.

Brandon Couillard: And on the clinical side, it just created a soft up pool for our products in China and in the quarter. And, you know, we still have had a little bit of backlog on our clinical business as we called out, which, you know, by the end of this year we should be roughly where we expect to be. We may finish with a very slightly elevated backlog on clinical products at the end of the year, but we're pretty much on track relatively speaking for that.

Brandon Couillard: Okay. And the diagnosis says it's more of the instrumentation, obviously the VBP stuff comes up quite often with all diagnostic players. Do you see anything on that front yet? What was the question? Oh, the volume-based pricing. Sorry, yeah, we were just having difficulty hearing. The doctor wants to comment on VBP? Sure. You know, it's starting to impact, you know, how we navigate tender requirements. So I think we have that translating to reality is, you know, things are a little bit slower as we're navigating, you know, how best to position for new deal consideration.

Brandon Couillard: But value-based pricing, you know, it has historically been applied to other sectors, but in a couple of provinces, we're starting to see it, you know, reach into IBD. So I think right now it's just sort of impacting sort of forward-looking risk. And then as Andy said, you know, we're still.., working through some supply chain fulfillment challenges and backlog which were waved a bit towards that region as well. More working through that and have one site for a really solid queue for landing.

Brandon Couillard: Okay, and maybe last one, just on the PCR side, you guys called out a QPCR weakness. It seemed like DDPCR stepped on as well. If you just talk about what you're seeing in that market, is it just a broader slowdown as its specific pockets there would be. It would be helpful. I think again, it's a compounding of issues that we've already touched on here. So we've obviously got a fairly significant QPCR digital PCR footprint in biofarmer and again the slowdown in early biotechs.

Brandon Couillard: We've seen a continuation of layoffs and project referrals. That's impact of the business. We've got the COVID compare. We've got all the challenges in China that we've already talked about. And I think on top of that, on top of everything else, there's kind of a glut of systems out there in the market that were placed in the pandemic and there's a bit of free capacity out there. See a roll all of these things together.

Brandon Couillard: Again, we refreshed our QPCR platform over the last couple of years. And again, the feedback that we get from out in the field is really positive in terms of how these products are being received in the market. But this compounding of market conditions right now is what's adding up to its own environment. May I just add one extra comment? You look for the silver lining on occasion and the customer demand in that small biotech platformer, the desire to take in digital PCR in particular remains very strong.

Brandon Couillard: What we're actually experiencing is just the deferral of when they're going to make the purchase. You know, because they can strain on cash expenditure and some other changes going on structurally on the comp program focus. So the demand side remains very encouraging. Okay. Thanks, guys. Thanks.

Jack Meehan: Thank you. Your next question comes from the line of Japanese hand from that print. Your line is open. Thanks. Good afternoon. So just wanted to talk about how the quarter played out here. So revenue was about eight percent below the street. Can you just talk about kind of the pacing of the quarter was most of the pressure. You saw in September. And is it possible there are any orders that's flipped into 4Q for any reason?

Jack Meehan: I think Jack Hi, this is Elon. The way, you know, to think about it, I think we saw it throughout the quarter, but it accelerated towards the end of the quarter. So the pace was kind of of decline was stronger towards the end of the quarter. But what throughout the quarter, it started to get weaker and weaker, but definitely accelerated, you know, towards the end. Okay. And, you know, Norman, I know you mentioned, you know, in your comments, there's potential for maybe a couple more bumps in the road along the way.

Jack Meehan: I think there's a debate, you know, amongst tools and investors around, you know, we further through the cutting cycle or, you know, could there be kind of new risks ahead because of some of the changes in the funding environment for customers. Just curious like, you know, maybe like what you're seeing through October, you know, I guess like kind of what was the thinking that went behind the fourth quarter guy that you've built here.

Jack Meehan: Well, you know, I think, you know, certainly in terms of the fourth quarter-guide, we, you know, we looked very carefully at kind of the order book and the funnel, the sales funnel kind of accumulating as much data as we can to get the best assessment of where we think we'll land for the year. You know, when I think about bumps in the road, you know, I think about, you know, I think there were a lot of people that kind of thought the pandemic is over and everything will be back to normal next week.

Jack Meehan: And, you know, I think we're seeing a continuation of that with some of this kind of biopharma meltdown and the re-injustments that are being made in some of these programs. You know, it just, I think we just have to be careful about, you know, about calling the end and saying, you know, there's always possible that there's something else that might bubble up. Understood, okay, and then on the income statement, you know, you previously talked about kind of op-x reductions, I was looking at the S-GNA line kind of on non-gap basis actually increased a little bit sequentially and that was despite kind of revenue declining sequentially.

Jack Meehan: So, just wondering if you could talk about what happened in S-GNA in the quarter and like the room to like pull more cost out even the lower top line. So usually, you know, what you see, it was a minor kind of step up, Jack, you know, usually on the fourth quarter, we see a much higher kind of step up in S-GNA, which you know, this time around, actually more of the initiatives that we have been working on will kick in on the fourth quarter. So, we don't anticipate, you know, the traditional step up in the fourth quarter. For the third quarter, it wasn't, you know, the material. Okay, thank you guys. Thank you.

Andy Last: Your next question comes from the line of team daily from Wells Fargo, your line is open. Great, thank you. So, first on the process chromatography business. So, I think you're previously expecting down mid single to high single decline with the update today, I'm getting 13% down or so for the year, but even with that, that implies a pretty significant step up in the fourth quarter. I think almost like 80% sequential dollar or dollar increase from 3 to 4Q. So, first off, are these numbers that I'm kind of getting to in the right ballpark.

Andy Last: And then secondly, can you help us understand the visibility confidence that you have to kind of get that big sequential step up, especially given the commentary around, you know, slower or lower than typical seasonality for this year end. Yeah, hi, this is Andy. So, yeah, I think maybe it's kind of some of the math might be a little off there. I think the process chrom overall is going to, it's going to end up at a lower number.

Andy Last: It kind of is the guidance implication there. And it's kind of like mid-teen, and so I don't think we're seeing a meaningful step up in process crumming Q4 but yeah I think that's really probably just a bit of math there. It's slightly higher. All right, you got it. That's helpful.

Andy Last: And then Andy, can you, you know, display chain impacts weighing on the third quarter diagnostics revenues? Can you just provide some detail then like what is that, how big the impact was in the quarter? And if you expect those delayed revenues to be fully recuperated in fourth quarter? Yeah, so so essentially, you know, we've obviously we've been communicating supply chain challenge on the clinical side because it's a, you know, various impacts of COVID plus removed our plants from France, the Singapore.

Andy Last: We're catching up quickly but it's you know, sometimes difficult to get the pacing of that right. So you know, if you get a bit of delay, you also get a bit of pull through, consumable pull through delay as well. And so that's back to the bit in to our Q3, but we are looking at a pretty strong Q4 and we have good line of size now. Our plant and Singapore is really cranking.

Andy Last: We've done a lot of work leading out the workflows there. And so we're going to get the benefit of that in Q4 and also get some pull through effects. So Q3 just ended up being softer as a result overall. All right. Thank you.

Ilan Daskal: And then you know, final one here for Norman. With the 23 guidance now, 400 basis points lower, you know, that midterm cager for 2025. The guidance updated in May now has an incremental 100 basis points or so. I guess headwind in front of it. So given the current environment, how are you evaluating the 2025 target? Or is this something that maybe we'll wait until a new CFO is in the seat to put their own fingerprints on?

Ilan Daskal: If you will. So team, this is a little chime in and then, you know, Norman probably will have some additional color, but you know, already in the prior quarter, we communicated that the 2025 target from our perspective is kind of in a holding pattern. We would like to get more insight and visibility going into 2024 in order to shape, you know, our thinking about the 2025 targets. So probably, you know, in the next kind of earnings call early next year, when we have the 2024 kind of guidance in front of us, the 2025 numbers, you know, we know how to think about it and and to see whether the reason impact and was negative, etc. I don't know. I think that covers it pretty well.

Brandon Couillard: Okay, great. Well, along great working with you. Hope you all the best for my next endeavor. And thanks everybody for the time. Thanks, team. Likewise.

Connor McNamara: Thank you. Your next question comes from the line of Connor and Maximara from our BC capital. Your line is open. Hi, guys. Thanks for taking the questions.

Connor McNamara: Just without getting into 2024 guidance, just how should we think about 2024 in general and just which headwinds that you called out in this quarter likely to persist in 2024 and which are likely to end by the end of this year, if any? Hey, Conor, this is Ilan. So I can start, you know, with obviously various aspects that are associated with the macroeconomic, you know, I'm not sure personally that, you know, China will recover like in a few weeks, so that may take a little bit longer.

Connor McNamara: The funding environment, which is obviously indirectly linked, you know, to the Treasury yield is here to stay, the inflationary environment is here to stay for a while, so that does and probably will continue for a while to have some impact on the smaller biotechnology companies funding and the way they think about the pace of their spend, you know, so these are definitely, you know, areas that we want to kind of think about it, to think about and then, you know, not to mention, you know, the geopolitical everywhere now that he's getting kind of, you know, in two to probably a new level that we have not experienced before. So there are multiple fronts there that, and you know, when you think about Europe, I mean, overall for us, Europe, generally speaking, you know, is doing okay for us, but when you think about the macroeconomic, you know, Germany is probably already in a recession, so it's going to be interesting.

Connor McNamara: I mean, specifically that domestically we're going into, you know, an election year domestically, so we'll have to wait and see how everything, you know, will shape up, but there doesn't, you know, that doesn't have to do anything with our own kind of organic initiatives, products, new products, you know, the end markets that, you know, I know these opinions are not going anywhere, so it's only, from my perspective, only a timing issue.

Ilan Daskal: Okay, great.

Simon May: And just following up to Patrick's question about PCR, can you just talk about DDPCR specifically, because that slowdown was worse than any of your other business units. So, you know, how do we, can you give investors some, you know, framework to think about how, how that, how we can get comfort that's definitely a market environment and not competitive pressure, because there are, have been some competitors out there making some noise, we just want to make sure that you still feel, still feel good about your market position there in DDPCR.

Simon May: I still think we feel good about the position. I mean, we might find no secret of the fact that the competitive landscape is intensified. And as we reflect on Q3, I think as we call out in the scripts, we've had a couple of really notable wins there, that we think are going to help continue to position as well for the future. I think what we really saw in Q3, again, is an exacerbation of the use by a farmer impacts.

Simon May: We have particular strength in the early biotech sector. And I think what we saw in Q3 was a cumulative impact of these deferred projects and layoffs in the continuing extremely tight budget environment. Once again, we're seeing a lot of interest in the products, but the money is just not flowing. We continue to see healthy adoption and really strong acceptance of our QH600 platform. So, as we look to the future, if we all believe that these impacts in biopharmament are transient, then when we emerge from it, we think we're going to be in a really strong position.

Simon May: And then of course, we've got competitors who are playing more in the lower end segments. And we plan to enter there with the QH's continuing platform in 2020, for. So, for sure, the competitive pressure is intensifying, but I think we've got compelling responses and where we've got leading positions in these segments will continue to do well as when these markets recover.

Simon May: Great, thanks for that, Simon.

Simon May: And just a quick follow up on pricing and I guess this is across everything in life sciences. You know, what's the pricing environment like and how should we think about that going forward? Yeah, I think that, you know, the environment is still inflationary as you probably appreciate Conor on the clinical side, you know, tender driven business. You can only take very modest and periodic price increases and we do that when we get that opportunity.

Simon May: Unlike science, there is still inflationary effect and, you know, we will still look to try and take modest price increases as we move forward to help offset our inflationary pressures that we're receiving. And, you know, we expect to do, we've done that this year, we expect to do that next year and I think in the court, we probably got, you know, I've just over a point of price, point in a half of price on a net basis. And I think that that should at least be a flaw. We've seen a mixing pot that we process Chrome as well.

Norman Schwartz: Thanks.

Norman Schwartz: And just final question, this for norm. Just given the recent fell off in the space and specifically in your stock, you know, how does that, how does that change your acquisition strategy, if at all? And would you still considering, would you still consider issuing equity to pursue an acquisition target in this environment? So I think that, you know, kind of in light of the recent stock dislocation, I think, you know, we will very much consider continuing our share repurchases as part of our capital allocation strategy and, and obviously at this point, not such a good currency for, for M and A. I think in fact, you know, what we do continue to kind of look at opportunities, I think it's probably fair to say that more of our focus over the next several quarters will be centered around, you know, kind of navigating our markets and, and, and our continued operational transformation.

Brandon Couillard: Great. Thanks for the time and thanks for the questions you guys and along we wish you the best of luck and it's been a pleasure working with you. Thank you for appreciating likewise.

Edward Schoen: There are no further questions at this time. I would like to turn it back to Edward June for further remarks. Thank you for joining today's call. As always, we appreciate your interest and we look forward to connecting soon.

Operator: Thanks operator. Thank you, and ladies and gentlemen, this concludes today's conference call.

Operator: Thank you for participating in me now, this corner.