Q2 2024 Bio-Rad Laboratories Inc Earnings Call
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Operator: Good day, everyone, and welcome to today's Bio Rad Second Quarter 2024 Earnings Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Head of Investor Relations, Edward Chung.
Speaker Change: Good day, everyone and welcome to today's bio Rad as second quarter 'twenty 'twenty four earnings results conference call and webcast. At this time all participants are in a listen only mode.
Speaker Change: You will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star and one on your telephone keypad you may withdraw yourself from the queue by pressing star and Jim. Please note. This call is being recorded I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to head of <unk>.
Edward Chunks: Buster relations Edward chunks.
Yeah.
Edward Chung: Thanks, Operator. Good afternoon, everyone, and thank you for joining us.
Edward chunks: Thanks, operator, good afternoon, everyone and thank you for joining US today, we will review the second quarter 2024 financial results and provide an update on key business trends for bio Rad.
Speaker Change: With me on the call today are Norman Schwartz, our Chief Executive Officer, Andy last Executive Vice President and Chief operating Officer, and room Block Rajiv Executive Vice President and Chief Financial Officer.
Edward Chung: Today, we will review the second quarter 2024 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, Andy Last, Executive Vice President and Chief Operating Officer, and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I'd like to remind everyone that we will be making forward-looking statements about management's goals, plans, and expectations, our future financial performance, and other matters.
Speaker Change: Before we begin our review I'd like to remind everyone that we will be making forward looking statements about managements goals plans and expectations, our future financial performance and other matters.
Edward Chung: These statements are based on assumptions and expectations of future events that are subject to risk and uncertainty. 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.
Edward Chunks: 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.
Edward Chunks: Factors in our business.
Company does not intend to update any forward looking statements made during the call today.
Edward Chung: Finally, our remarks today will include references to non-GAAP financial measures, 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 report. With that, I'll now turn the call over to our CEO, Norman Schwartz. Thanks, Ed.
Edward Chunks: Finally, our remarks today will include references to non-GAAP financial including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles.
Edward Chunks: Should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.
Edward Chunks: I'll now turn the call over to our CEO Norman Schwartz.
Norman Schwartz: Thanks, Ed. Again, we appreciate your joining us on the call today. I guess I would say overall, despite a challenging market environment, we did have a solid quarter with revenue in line with expectations and margins actually ahead of expectations, driven by product mix, productivity gains, and overall good cost management. You know, I would say that while we have seen some positive signs with the improved biotech funding, we are continuing to see constraints in biotech and biopharma spending globally.
Norman Schwartz: Thanks, Ed.
Norman Schwartz: Again, we appreciate your joining us on the call today.
Norman Schwartz: I guess I would say overall, despite a challenging market environment, we did have a solid quarter with revenue in line with expectations.
Speaker Change: And margins actually ahead of expectations, driven by product mix productivity gains and overall good cost management.
Edward Chunks: You know I would say that while we have seen some positive signs with improved biotech funding.
Edward Chunks: We are continuing to see constraints in biotech biopharma spending globally.
Norman Schwartz: As such, we do think it's prudent to revise our full year 2024 financial outlook to better reflect what I think of as a more modest pace of market recovery than originally predicted. Roop will cover this in greater detail as we review our updated 2024 financial guidance. During the quarter, we continue to make progress establishing the new leadership team. You've already met Roop, our new CFO, and have gotten a sense of his priorities as he comes up to speed. We have new heads of life science and clinical diagnostics. I would say they have also hit the ground running and are working closely with CEO Andy Last to align on key initiatives.
Edward Chunks: As such we do think it's prudent to revise our full year 'twenty 'twenty four financial outlook to better reflect a what I think of as a more modest pace of market recovery than originally predicted.
Norman Schwartz: I will cover this in greater detail as we review our updated 2024 financial guidance.
Edward Chunks: During the quarter.
Edward Chunks: We continue to make progress establishing the new leadership team.
Edward Chunks: Already mapped route for a new CFO and I've gotten a sense of its priorities.
Speaker Change: He comes up to speed.
Speaker Change: Our new heads of life science and clinical diagnostics.
Norman Schwartz: I would say if also hit the ground running and are working closely with our CEO, Andy last to align on our key initiatives.
Norman Schwartz: And lastly here.
Norman Schwartz: We have made good progress in our search for a new chief operating officer and have identified several finalist candidates. We do hope to share an update with you on this front in the coming weeks. We are continuing our corporate transformation path, more recently with efforts in supply chain and core process improvement, which are really starting to contribute to our margin expansion. We expect to build on this progress, and when our life science business recovers in future quarters, we anticipate we'll see further benefit here.
Speaker Change: We have made good progress on our search for a new Chief operating officer and have identified several finalist candidates.
Speaker Change: We do hope to share an update with you.
Speaker Change: On this front in the coming weeks.
Speaker Change: We are continuing our corporate transformation pass have more recently with efforts in supply chain and core process improvements, which are really starting to contribute to our margin expansion.
Speaker Change: We expect to build on this progress and what our life science business rebounds in future quarters.
Speaker Change: We anticipate we will see further benefit here.
Norman Schwartz: On the capital deployment front, we've continued to be successful with share repurchases, having bought back $100 million worth of Bio Rad stock during Q2, and an additional $96 million during the month of July. And just to continue on that, this week the board authorized an additional $500 million, which further positions us to make opportunistic repurchases going forward.
Speaker Change: On the capital deployment front.
Speaker Change: We've continued to be successful with share repurchases, having bought back a $100 million worth of bio Rad stock during Q2, and an additional 96 million during the month of July.
Speaker Change: And just to continue on that this week the board authorized an additional $500 million, which further positions us to make opportunistic repurchases going forward.
Speaker Change: Yeah.
Norman Schwartz: So, all in all, I guess I'd like to reiterate that we view our strategy and focus for the future growth of the company to be really very much intact. In clinical diagnostics, we have leading market positions globally for our core platforms, and we continue to invest in supporting their growth while building a position in new molecular diagnostics segments and Life Science. We both continue to maintain a focus on biopharma, especially for digital PCR and a process chromatography product and new products in development around cell biology.
Speaker Change: So all in all I guess I'd I'd like to reiterate that we view are our strategy and focus for the future. Both for the company to be really very much intact and clinical diagnostics, we have leading market positions globally for our core platforms continue to invest in supporting their growth while bill.
Speaker Change: Our position in new molecular diagnostics segments.
Speaker Change: And in life Science.
Speaker Change: We both continue to maintain our focus on biopharma, especially for digital PCR and a process chromatography products and new products in development around cell biology.
Norman Schwartz: But we also continue to invest to enhance our leadership in digital PCR and other positions in the academic market, a very important area for us. As such, we believe we're well-positioned to drive long-term growth in both the academic and biopharmaceutical markets in life sciences as we move through this dynamic period. So maybe now I'll turn the call over to Andy to provide an update on... Global Operations, Andy. Thank you, Norman.
Speaker Change: But we also continue to invest to enhance our leadership in digital PCR and other positions in the academic market a very important area for us.
Speaker Change: As such we believe we're well positioned to drive long term growth and in both the academic and Biopharma markets.
Speaker Change: In life Science as we move through this dynamic period.
Speaker Change: So maybe now I'll turn the call over to Andy provide an update on <unk>.
Andy: Global operations Andi.
Andrew Last: Thank you Norman, good afternoon, and thank you all for joining us. The second quarter of the year reflected a continuation of the same macroeconomic and market trends we have experienced for several quarters in the biotech and biopharma segments in China, alongside a generally improved market environment for our clinical diagnostic platform. Our clinical diagnostics business continued to show steady growth in the quarter, delivering solid gains both sequentially and year-over-year. Growth was broad-based across the portfolio in all regions, with solid performance in our immunohematology business when compared against the supply chain constraints we experienced in prior years.
Andy: Thank you gentlemen, good afternoon, and thank you all for joining us.
Andy: Second quarter of the year reflected a continuation of the same macroeconomic and market trends, we have experienced for several quarters in the biotech and biopharma segments in China.
Andy: Alongside a generally improved market environment for our clinical diagnostic platforms.
Andy: Our clinical diagnostics business continued to show steady growth in the quarter delivering solid gains both sequentially and year over year.
Andy: Growth was broad based across the portfolio in all regions with solid performance in our immuno hematology business when compared against the supply chain constraints, we experienced in prior year.
Andrew Last: As we look toward the second half of this year, we are anticipating a continuation of normalized growth within our clinical diagnostics. However, while it was in line with expectations, our life science group sales declined double digits year over year, reflecting ongoing low demand in biotech and biopharma and in China. However, sequentially, second quarter revenue for the Life Science Group improved mid-single digits. And when excluding process chromatography sales, core life science groups sequentially improved mid-single digits in both biopharma and academic markets. Similar to the prior year, our process chromatography residents posted a year-over-year decline, reflecting the ongoing dystopian trend across the industry.
Andy: As we look towards the second half of this year. We are we are anticipating a continuation of normalized growth, where they're not clinical diagnostics business.
Andy: While it was in line with expectations, our life Science group sales declined double digit year over year, reflecting ongoing low demand in biotech and biopharma and in China.
Speaker Change: However sequentially second quarter revenue for the life Science group improved mid single digits.
Andy: And when excluding process chromatography sales core life science grew sequentially mid single digits in both Biopharma and academic markets.
Andy: Similar to the prior year, a process chromatography resins posted a year over year decline, reflecting the ongoing destocking trend across the industry.
Andrew Last: More importantly for us, this is the result of several very large customers who stocked up heavily during the prior years due to the critical importance of our products for specific key therapeutics. Outside of these key customers, we are starting to see a return to a normalized ordering pattern, and are now looking to 2025 for a return to growth. We remain confident in the long-term outlook for this product area, excluding process chromatography.
Speaker Change: More importantly for US. This is a result of several very large customers, who stocked up heavily during the.
Andy: Prior years due to the critical importance of our products for specific key therapeutics.
Andy: Outside of these key customers, we are starting to see a return to a normalized ordering pattern and are now looking to 2025 for a return to growth.
Andy: We remain confident in the long term outlook for this product area.
Andy: Excluding process chromatography.
Andrew Last: Our core life science business continued to stabilize, declining low double-digit compared to the prior year and in line with our expectations. The declines were again concentrated in instrument sales, primarily reflecting constrained biopharma spending, whereas consumable and reagent sales were largely flat both sequentially and year over year. During the second quarter, we launched two new important life science platforms. The ChemE.gov imaging system, which is getting strong interest from customers, and our new cost-effective single-cell sample prep solution, which is in the early phase of product introduction.
Andy: Core life Science business continued to stabilize declining low double digit compared to prior year and in line with our expectations.
Andy: The declines were again concentrated in instrument sales.
Andy: Primarily reflecting constrained biopharma spending.
Andy: Whereas consumable and reagent sales were largely flat both sequentially and year over year.
Andy: During the second quarter, we launched two new important life science platforms. The <unk> imaging system, which is getting strong interest from customers and our new cost effective single cell sample prep solution that is in the early phase of product introduction.
Andrew Last: Our Droplet Digital PCR franchise was soft in Q2 against a tough prior year compare that included the receipt of a one-time technology license payment and reduction of backorders created due to supply chain challenges from prior periods, mainly for QX600. However, excluding the one-time impacts in the prior year, revenue for DDPCR declined a more modest mid-single digit.
Andy: Our droplet digital PCR franchise was soft in Q2 against a tough prior year compare that included the receipt of a onetime technology license payment and reduction of back orders created due to supply chain challenge from a prior period.
Andy: Mainly for <unk> 600.
Andy: However, excluding the one time impacts in the prior year revenue for DD PCR declined a more modest mid single digits.
Andrew Last: On a positive note, DDPCR reagents and consumables grew low single-digit year-over-year despite the constrained funding environment. We are seeing strong interest in our recently launched DD-PCR assay kits targeted at the oncology and cell and gene therapy markets. And we continue to maintain strong win-loss ratios for our digital PCR platform in our current market segment. Importantly, we continue to target a fourth quarter introduction of the QX Continuum, which will allow us to enter the low-end segment where others have been primarily focused.
Andy: On a positive.
Andy: D D PCR reagents and consumables grew low single digits year over year, despite the constrained funding environment.
Andy: We are seeing strong interest in our recently launched DD PCR assay kits target to that the oncology and cell and gene therapy market and we continue to mind struck maintains strong win loss ratios for our digital PCR platform and our current market segments.
Andy: Importantly, we continue to target a fourth quarter interaction of the culex continuum.
Andy: Which will allow us to win to the low end segment, where others have been primarily focused.
Andrew Last: In addition, we recently entered into a purchase agreement for a novel cutting-edge platform utilizing our core droplet technology that enables high-throughput discovery of novel antibodies and T-cell receptors, complementing Faith Display Library. This is a high-growth, high-value market segment, and assuming successful completion of development, we anticipate introducing this platform in the next two to three years. Reflecting on the current macroeconomic and market conditions, we were pleased to see the positive trend for capital raises for the biotech and biopharma markets continuing into the second quarter. However, as Norman alluded to earlier, we have yet to see this funding translate into improved orders as customers appear to remain conservative on capital deployment.
Andy: In addition, we recently entered into a purchase agreement for a novel cutting edge platform utilizing our core droplet technology.
Andy: That enables high throughput discovery of novel antibodies and T cell receptors.
Andy: Complements our phage display right library.
Andy: This is a high growth high value market segments, and assuming successful completion of development, we anticipate introducing this platform in the next two to three years.
Andrew Last: Likewise, market conditions in China remain soft for the life science business, although we remain hopeful of some improvement in the outlook toward the end of the year and into 2025. In the academic segment, we are seeing a slight softening of the global funding environment after a long period of strong research support. In addition to the slightly lower than anticipated NIH budget for the year, key European markets remain a mixed bag, with lower funding in Germany offset by more modest improvements in funding outlooks in the UK, France, and other EU countries. For Asia, the challenging research funding environment in China continues, and funding in Japan remains constrained, reflecting a shrinking economy, while Korean government spending on life science research remains soft as part of the deficit reduction.
Speaker Change: Reflecting on the current macroeconomic and market conditions, we were pleased to see the positive trend for capital raises for the biotech and biopharma market continuing into the second quarter.
Andy: Its normal alluded to earlier, we have yet to see this funding translates into improved orders as customers appear to remain conservative on capital deployment.
Andy: Likewise market conditions in China remains soft for the life science business.
Andy: Although we remain hopeful of some improvement in the outlook towards the end of the year and into 2025.
Andy: And the academic segment, we are seeing a slight softening of the global funding environment. After a long period of strong research support.
Andy: In addition to the slightly lower than anticipated NIH budget for the year key European markets remain mixed bag with lower funding and Germany offset by more modest improvements in funding outlooks in the U K, France and other countries.
Andy: For Asia, the challenging research funding environment in China continues and funding in Japan remains constrained, reflecting a strengthening economy, while Korean government spending on life Science research remains soft as part of the deficit reduction.
Andy: With these factors in mind, we Mike we remain cautious on the magnitude and timing of the recovery and life science markets and now expect a more measured improvements in the back half of the year.
Mike: We continue to expect steady normalized drug for our clinical diagnostics business in 2024.
Andy: Operationally, we continue our focus on cost and productivity initiatives that have provided offset so this off the top line.
Andy: We look toward eventual market recovery for our life Science business, we believe that by a rapid remains poised for further margin expansion.
Speaker Change: Thank you and I will now pass you to route to review the financial results.
Andrew Last: With these factors in mind, we remain cautious on the magnitude and timing of the recovery in life science markets and now expect a more measured improvement in the back half of the year. We continue to expect steady, normalized growth for our clinical diagnostics business in 2020. Operationally, we continue our focus on cost and productivity initiatives that have provided an offset to the software top line. As we look toward eventual market recovery for our life science business, we believe that Bio Rad remains poised for further margin expansion. Thank you, and I will now pass you to Roop to review the financial results. Thank you, Andy, and good afternoon, all. I'd like to start with a review of the second quarter 2024 results.
Route: Thank you Andy and good afternoon, all I'd like to start with a review of the second quarter 2024 results net sales were 638 million, which included approximately 1% currency headwind and represents a six 3% decline on a reportable basis versus $681 million in Q2 of 'twenty.
Roop Lakkaraju: Net sales were $638 million, which included approximately 1% of a currency headwind, and represents a 6.3% decline on a reportable basis versus $681 million in Q2 of 2023. On a currency-neutral basis, the year-over-year revenue decline was 5.4%.
Speaker Change: Three on.
Speaker Change: On a currency neutral basis, the year over year revenue decline was five 4% as Andy mentioned. This was the result of ongoing weakness in key life science end markets somewhat offset by continued growth with the clinical diagnostics group.
Roop Lakkaraju: As Andy mentioned, this was the result of ongoing weakness in key life science and markets, somewhat offset by continued growth in the clinical diagnostics group. Sales of the Life Science Group were approximately $251 million compared to $300 million in Q2 of 2023, which is a decrease of 16.5% on a reported basis and a decline of 15.9% on a currency-neutral basis. The year-over-year decline impacted most product and geographic areas.
Speaker Change: Sales of the life Science group were approximately $251 million compared to $300 million in Q2, 'twenty three which is a decrease of 16, 5% on a reported basis and a decline of 15, 9% on a currency neutral basis year over year decline impacted most product and geographic areas.
Speaker Change: <unk> process chromatography sales, which can fluctuate quarter to quarter core life Science group revenue decreased 11, 6% on a currency neutral basis.
Roop Lakkaraju: Excluding process chromatography sales, which can fluctuate quarter to quarter, core life science group revenue decreased 11.6% on a currency-neutral basis. Sales of the Clinical Diagnostics Group were $388 million compared to $380 million in Q2 of 2023, which is an increase of 2.1% on a reported basis and 3.2% on a currency-neutral basis. Growth of the Clinical Diagnostics Group was primarily driven by increased demand for quality controls and blood typing products.
Speaker Change: Sales of the clinical diagnostics group for 388 million compared to $380 million in Q2 of 'twenty, three which is an increase of two 1% on a reported basis and three 2% on a currency neutral basis.
Speaker Change: Growth of the clinical diagnostics group was primarily driven by increased demand for quality controls and blood typing products on a geographic basis currency neutral year over year revenue for the diagnostics group posted growth across all three regions.
Roop Lakkaraju: Geographic Basis, Currency Neutral Year-over-Year Revenue for the Diagnostics Group Post-Growth across all three regions. For the company, Q2 reported GAAP gross margin was 55.6 percent as compared to 53.2 percent in the second quarter of 23. The increase in gross margin was primarily driven by cost control initiatives, product mix, and lower logistics costs, partially offset by lower sales volume, and continued higher material prices for constrained or strategic materials. Note that 90% of the improvement was driven by cost controls, product mix, and logistics.
Speaker Change: For the company Q2 reported GAAP gross margin was 55, 6% as compared to 53, 2% in the second quarter of 'twenty three.
Speaker Change: The increase in gross margin was primarily driven by cost control initiatives product mix, lower and lower logistics costs, partially offset by lower sales volume and continued higher material prices for constrained our strategic materials.
Speaker Change: Note that 90% of the improvement was driven by cost controls product mix of logistics.
Roop Lakkaraju: SG&A expenses for Q2'24 were $195 million, or 30.5% of sales, compared to $208 million, or 30.5% in Q2'23. The decrease in dollars of SG&A expense was primarily due to lower employee-related expenses, restructuring costs, and discretionary spending. Research and development expense in the second quarter was $59 million, or 9.2% of sales compared to $65 million, or 9.5% of sales in Q2-23. The decrease in R&D expense was primarily due to cost control and lower restructuring costs.
Speaker Change: SG&A expenses for Q2, 'twenty, four or $195 million or 35% of sales compared to $208 million or 35% in Q2 of 'twenty three did.
Speaker Change: Decrease in dollars of SG&A expense was primarily due to lower employee related expenses restructuring costs and discretionary spending.
Speaker Change: Research and development expense in the second quarter was 59 million or nine 2% of sales compared to $65 million for nine 5% of sales in Q2 'twenty three the decrease in dollars of R&D expense was primarily due to cost control and lower restructuring costs.
Roop Lakkaraju: Q2 operating income was approximately $101 million, or 15.9% of sales, compared to $90 million, or 13.2% of sales, in Q2 of 2023. Higher operating income is primarily driven by our proactive expense management initiatives and product mix, partially offset by lower sales. During the quarter, interest and other income resulted in net other income of about $8 million compared to about $5 million in the prior year. The effective tax rate for the second quarter of 24 was 22.3 percent, largely consistent with the 22.5 percent rate in the year-ago period.
Speaker Change: Q2, operating income was approximately $101 million or 15, 9% of sales compared to $90 million or 13, 2% of sales in Q2 of 'twenty three higher operating income is primarily driven by our proactive expense management initiatives and product mix, partially offset by lower sales.
Speaker Change: During the quarter interest and other income resulted in net other income of about $8 million compared to about $5 million in the prior year.
Speaker Change: The effective tax rate for the second quarter of 24 was 22.3% largely consistent with the 22, 5% rate in the year ago period.
Roop Lakkaraju: The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares, resulted in a $2.9 billion loss and drove the reported net loss of $2.2 billion, or $76.26, diluted loss per share, compared to a net loss of $1.2 billion, or a diluted loss per share of $39.59 in Q2 of 2023. Moving to the non-GAAP results. Non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income, are detailed in the reconciliation table in our press release.
Speaker Change: The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares resulted in a $2 9 billion dollar loss and drove the reported net loss of $2 2 billion or $76 in 2000, <unk> diluted loss per share compared to net loss of $1 two bill.
Speaker Change: In or a diluted loss per share of $39 59 in Q2 of 'twenty three.
Speaker Change: Moving to the non-GAAP results.
Speaker Change: non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income are detailed in the reconciliation table in our press release.
Roop Lakkaraju: Second quarter non-GAAP gross margin was 56.4% compared to 54.4% in Q2 of 23, primarily reflecting various expense management initiatives we've implemented. Non-GAAP SG&A dollar spend was slightly lower on a year-over-year basis, but as a percentage of sales was higher due to lower revenue in Q2'24. Specifically, in the second quarter of 24, SG&A as a percent was 30.4% versus 29.2% in Q2 of 23.
Speaker Change: Second quarter non-GAAP gross margin was 56, 4% compared to 54, 4% Q2 'twenty three.
Speaker Change: Primarily reflecting various expense management initiatives we've implemented.
Speaker Change: non-GAAP SG&A dollar spend was slightly lower on a year over year basis, but as a percentage of sales was higher due to lower revenue in Q2 24, specifically in the second quarter of 'twenty for SG&A as a percent was 34% versus 29, 2% in Q2 of 'twenty three.
Roop Lakkaraju: Gap R&D as a percentage of sales in the second quarter of 24 was 9.3%, which is flat to Q2 of 2023. Second quarter non-gap operating margin was 16.8 percent. Our non-gap operating margin has expanded by 100 basis points from Q2 of 2023's reported non-gap gross margin of 15.8 percent, driven by the improvement in gross margin and the proactive operating expense cost management initiative. The non-GAAP effective tax rate for the second quarter of 2024 was 23.4 percent, compared to 22.5 percent for the same period in 2023. The higher rate, 24, was driven by a geographical mix of earnings.
Speaker Change: non-GAAP R&D as a percentage of sales in the second quarter.
Speaker Change: 24 was nine 3%, which is flat to Q2 of 2023 <unk>.
Speaker Change: Second quarter non-GAAP operating margin was 16, 8% our non-GAAP operating margin has expanded by 100 basis points from Q2 of 'twenty three as reported non-GAAP gross margin of 15, 8% driven by the improvement in gross margin and the proactive operating expense cost management initiatives.
Speaker Change: Our non-GAAP effective tax rate for the second quarter of 2024. It was 23, 4% compared to 22, 5% for the same period in 'twenty three.
Speaker Change: Higher rate 24 was driven by a geographical mix of earnings.
Roop Lakkaraju: Finally, non-GAAP net income for the second quarter of 2024 was $89 million, or $3.11 diluted earnings per share, compared to $89 million, or $3 diluted earnings per share, in Q2 of 2023. Moving on to the balance sheet, total cash and short-term investments at the end of Q2 2024 were $1.62 billion, compared to $1.65 billion at the end of Q1 2024. Inventory at the end of Q2 was $804 million, as compared to $783 million at the end of the first quarter. The increase is due to the strategic purchases of difficult-to-source raw materials that are critical to our supply chain.
Speaker Change: Finally, non-GAAP net income for the second quarter of 2024 was 89 million or $3 11 diluted earnings per share compared to $89 million or diluted earnings per share of $3 in Q2 of 'twenty three.
Speaker Change: Moving onto the balance sheet total cash and short term investments at the end of Q2 2024 was 162 billion compared to $1 65 billion at the end of Q1 2020 for inventory.
Speaker Change: Inventory at the end of Q2 was 100, I'm, sorry, $804 million as compared to $783 million at the end of the first quarter the.
Speaker Change: The increase is due to the strategic purchases of difficult to source raw materials that are critical to our supply chain.
Roop Lakkaraju: For the second quarter of 2024, net cash generated from operating activities was approximately $98 million, the same as Q2 of 2023. Net capital expenditures for the second quarter of 2024 were approximately $42 million, and depreciation and amortization was $36 million. In the second quarter of 2024, free cash flow was approximately 55 million, which compares to $63 million in Q2 of 2023. Adjusted EBITDA for the second quarter of 2024 was $138 million, or 21.6% of sales, and was approximately $138 million, or 20.2% of sales, in the second quarter of 2023.
Speaker Change: For the second quarter of 2024 net cash generated from operating activities was approximately $98 million. The same as Q2 of 'twenty three.
Speaker Change: Net capital expenditures for the second quarter of 2024, or approximately 42 million and depreciation and amortization was $36 million.
Speaker Change: Second quarter of 2024 of free cash flow was approximately $55 million.
Speaker Change: Which compares to $63 million in Q2 of 2023.
Speaker Change: Adjusted EBITDA for the second quarter of 2024, it was $138 million or 21, 6% of sales and was approximately 138 million or 22% of sales in the second quarter of 2023.
Roop Lakkaraju: During the second quarter, we repurchased 346,226 shares of our stock for about $100 million, at an average purchase price of about $289 per share. In July 2024, we repurchased an additional $96 million at an average purchase price of about $293 per share. We also announced today that the board authorized a $500 million increase to our existing share repurchase program, and in total, we now have approximately $578 million available for share repurchases as we continue to be opportunistic in our approach to buybacks.
Speaker Change: During the second quarter, we repurchased 346226 shares of our stock for about $100 million.
Speaker Change: At an average purchase price of about $289 per share during July 2024, we repurchased an additional $96 million at an average purchase price of about $293 per share.
Speaker Change: We also announced today that the board authorized a $500 million increase to our existing share repurchase program and in total we now have approximately $578 million available for share repurchases as we continue to be opportunistic in our approach with buybacks.
Roop Lakkaraju: Moving on to the non-GAAP guidance, as referenced in Andy's commentary, we have seen improved funding for the biotech and market sectors that is yet to fully translate into customer orders. Given the pace of customer bioprocessing DSTOC and the expectations of a much more moderated pace of biopharma recovery, we have tempered the outlook for our life science group in the back half of the year. However, we continue to expect healthy, normalized growth for the Clinical Diagnostics Group in 2024.
Speaker Change: Moving on to the non-GAAP guidance.
Speaker Change: As referenced in Andy's commentary, we have seen improved funding for the biotech end market that has yet to fully translate into customer orders.
Speaker Change: Given the pace of customer bio processing destock and the expectations of a much more moderated pace of Biopharma recovery, we have tempered the outlook for our life Science group in the back half of the year we continue.
Speaker Change: To expect healthy normalized growth for the clinical diagnostics group in 2024 taken together, we now estimate currency neutral year over year revenue to decline, 2.5% to 4% for 2024 versus growth of 1% to two 5% in our prior guidance.
Roop Lakkaraju: Taken together, we now estimate currency-neutral year-over-year revenue to decline 2.5 to 4% for 2024 versus growth of 1% to 2.5% in our prior guidance. The 500 basis points change in our revenue outlook is because of lower process chromatography demand and slower than expected biopharma recovery, offset by higher levels of clinical diagnostic sales. For the second half of the year, we expect about 2% year-over-year currency-neutral revenue growth versus a 7.5% year-over-year decline in the first half of 2024.
Speaker Change: 500 basis points change in our revenue outlook is because of lower process chromatography demand and slower than expected biopharma recovery offset by the higher levels of clinical diagnostic sales.
Speaker Change: For the second half of the year, we expect about 2% year over year currency neutral revenue growth versus a seven 5% year over year decline in the first half of 2024. This represents about 6% revenue growth in the second half of 2024 over the first half.
Roop Lakkaraju: This represents about 6% revenue growth in the second half of 2024 over the first half. For the Life Sciences Group, we expect between 10% and 12% currency-neutral revenue decline for 2024. The full-year Life Sciences Group year-over-year sales decline, excluding process chromatography-related sales, is expected to be about 4%.
Speaker Change: For the life Sciences group, we expect between 10 and 12% currency neutral revenue decline for 2020 for the full year of life Science group year over year sales decline excluding process chromatography related sales is expected to be about 4% in this business group, we expect low double digit revenue.
Roop Lakkaraju: In this business group, we expect low double-digit revenue growth for the second half of the year over the first half. For the Diagnostics Group, we are now guiding currency-neutral revenue growth to be between 3% and 3.5% for 2024. This represents revenue growth for the Diagnostics Group of about 2% for the second half of the year over the first half.
Speaker Change: For the second half of the year over the first half.
Speaker Change: For the diagnostics group, we are now guiding currency neutral revenue growth to be between three and three 5% for 2024. This represents revenue growth for the diagnostics group of about 2% for the second half of the year over the first half.
Roop Lakkaraju: Full year non-GAAP gross margins are now projected to be between 54.5% and 55% versus 54% and 54.5% previously, reflecting a combination of better product mix and cost improvements we've implemented. Our updated gross margin outlook is higher than our prior guidance, but below the 55.3 percent we achieved in the first half of the year because of the expected lower revenue in the second half of 2024, which will drive a higher level of fixed costs under absorption than previously forecast.
Speaker Change: Full year non-GAAP gross margins are projected to be between $54, five and 55% versus 54, and 54, 5% previously, reflecting a combination of better product mix and cost improvements we've implemented.
Speaker Change: Our updated gross margin outlook is higher than our prior guidance. However below the 55, 3% we achieved in the first half of the year because of the expected lower revenue in the second half of 2024, which will drive a higher level of fixed costs under absorption than previously forecasted.
Roop Lakkaraju: We now expect full-year non-GAAP operating margin to be between 12 and 13 percent versus 13.5 to 14 percent in our prior guidance, reflecting a lower level of cost leverage in the second half while we continue to carefully manage operating. Full year adjusted EBITDA margin is expected to be between 18% and 19% versus 19.5% to 20% in our prior guidance. Finally, we expect to close the acquisition of certain technology assets that Andy mentioned earlier in the call and are anticipating a one-time in-process R&D charge of approximately $30 million, likely in the third quarter or, at the latest, by the end of 2024. This will be incremental to the full-year operating margin profile we've laid out above. That concludes our prepared remarks. We'll now open the line to take your questions. Operator.
Speaker Change: We now expect full year non-GAAP operating margin to be between 12, and 13% versus 13.5% to 14% and our prior guidance, reflecting a lower level of cost leverage in the second half, while we continue to carefully manage operating expenses.
Speaker Change: Full year adjusted EBITDA margin is expected to be between 18, and 19% versus 19, 5% to 20% in our prior guidance.
Speaker Change: Finally, we expect to close the acquisition of certain technology assets that Andy mentioned earlier in the call and are anticipating a onetime in process R&D charge of approximately $30 million likely in the third quarter or at the latest by the end of 2024.
Speaker Change: This will be incremental to the full year operating margin profile, we've laid out above.
Speaker Change: That concludes our prepared remarks, we'll now open the line to take your questions operator.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: You may remember.
Speaker Change: Anytime.
Operator: And we will pause for a moment to allow questions to queue, and then we will take our first question from Patrick Donnelly.
Speaker Change: Okay.
Speaker Change: Pause for a moment to allow questions to queue.
Speaker Change: And we will take our first question from Patrick Donnelly with Citi.
Speaker Change: Yeah.
Patrick Donnelly: Hey guys, thank you for taking the questions. Maybe to start on the margin side, obviously, you know, pretty nice performance in 2Q. But then, Roop, you just touched on, obviously, the cut for the year.
Patrick Donnelly: Hey, guys. Thank you for taking the questions.
Patrick Donnelly: Maybe to start on the on the margin side, obviously pretty nice performance in <unk>, but then route you just touched on obviously the cut for the year can you just talk about I guess what.
Patrick Donnelly: Can you just talk about, I guess, what drove the strength in 2Q? And then obviously, again, just that second half expectation, you know, margin down quite a bit there. Maybe just talk through the moving pieces as we work our way through the year and out of 2Q here. Yeah, certainly, Patrick. Good to talk to you.
Speaker Change: What drove the strength in <unk> and then obviously again just that second half expectation.
Speaker Change: Margin down down quite a bit there maybe just talk through the moving pieces as we work our way through the year and out of <unk> here.
Roop Lakkaraju: So first of all, maybe just to start, I think just to remember, we are taking the overall gross margin up from a guide, from where we were on the guide perspective based on performance. And so even in the second half of the year, we expect a stronger gross margin than what we'd originally guided. Q2's, you know, kind of strength in gross margin specifically is associated with mix. But the other part of it is really sustained improvements based on our cost initiatives and efficiency improvements and things like logistics costs that we've been very proactively managing.
Speaker Change: Yeah, certainly Patrick good to talk to you.
Speaker Change: So first of all maybe just to start I think just to remember we are taking the overall gross margin up from our guide from where we were on the guide perspective based on the performance and so even in the second half of the year, we expect a.
Speaker Change: Stronger gross margin than what we had originally guided Q2s.
Speaker Change: Yeah, I'll kind of strength in the gross margin specifically is associated with mix, but the other part of it is really sustained improvements based on our cost initiatives and efficiency improvements and things like logistics costs that we've been very proactively managing so those are the things that really helped.
Roop Lakkaraju: So those are the things that really help Q2. And as we have seen with these initiatives, the magnitude and timing can be a bit variable. And so we saw that flow through in the second quarter. We do expect that to continue into the second half of the year and beyond. With that said, as we look at kind of the revenue and what we expect to flow through our factories, we anticipate more under-absorption in the factories, and so we've been a bit conservative in giving kind of what that margin outlook is in the second half while still taking up the overall range of the margin for the year. Yeah, and then just the operating margins as well, you know, just maybe talk through those with the SG&A line. Yeah,
Speaker Change: Q2, and as we looked at these initiatives the the magnitude and timing.
Speaker Change: Can be a bit variable.
Speaker Change: So we saw it flow through in the second quarter, we do expect that those that that to sustain into the second half of the year and beyond with that said as we look at kind of the revenue and what we expect to flow through our factories, we anticipate more under absorption in the factories and so we've been a bit conservative.
Speaker Change: Given kind of what that margin outlook is in the second half while still taking out the overall range at the margin for the year.
Speaker Change: Yes, and then and just the op margins as well can you just maybe talk through those with the SG&A line.
Roop Lakkaraju: Yeah, of course. Operational margins, you know, when I look at the actions we've taken on proactive cost management and just efficiencies and productivity that we're driving throughout the different areas of OPEX, that's taking hold as well. I think part of the headwind on the OPEX, which then affects the operating margin, is just the fact that sales are coming down from where we originally expected. And therefore, the cost leverage, cost structure leverage, isn't as strong yet, even though, you know, we've got the gross margins improving.
Speaker Change: Yeah of course op margins you know when I look at the actions we've taken on our proactive cost management.
Speaker Change: And just efficiencies productivity that we're driving throughout the different areas of Opex, that's taking hold as well I think part of the that the headwind on the Opex, which then affects the op margin is just the fact that sales are coming down from where we originally expected and therefore the cost leverage.
Speaker Change: <unk>, our cost structure leverage isn't that strong yet even though we've got the gross margins improving so thats simply flow through and yeah. We've been very proactive in terms of that head count management through the through the through the year I think one thing to keep in mind.
Roop Lakkaraju: So that's simply going to flow through, and, you know, we've been very proactive in terms of that headcount management through the year. I think one thing to keep in mind. From an operating expense standpoint, we've been very prudent in how we looked at headcount management and cost management. We'll see a little bit of an uptick in the second half of the year, just because of some of the projects and other things that we want to drive execution on in the second half.
Patrick Donnelly: Okay, that's helpful. Thanks.
Speaker Change: From an operating expense standpoint, we've been very prudent in how we looked at headcount management and cost management, we will see a little bit of uptick in the second half of the year.
Speaker Change: Just because of some of the projects and other things that we want to drive execution on it in the second half.
Patrick Donnelly: And then maybe just on Process Chrome, you know, it seems like obviously some of the stocking lingering here. And obviously, it seems like that's a big part of the life science decline for the year. Can you guys just talk about what you're seeing there? It seems like again, you're taking out any sort of recovery for this year, but just what you need to see to kind of believe in recovery there and visibility and just different geographies. I know it seems like it's concentrated in a few customers, but maybe just pull the card back a little bit.
Speaker Change: Okay. That's helpful. Thanks, and then maybe just on process chrome it seems like obviously some of the stocking.
Speaker Change: Linger lingering here and obviously it seems like that's a big part of the life Science declined for the year can you guys just talk about what youre seeing there. It seems like again youre, taking out any any sort of recovery for this year, but just what do you need to see to kind of believe in a recovery there in visibility and just the different gene.
Andre: Andre fees I know it seems like it's concentrated to a few customers, but maybe just pulled back a little bit on that piece.
Andrew Last: Hey, Patrick, Sandy. Yeah, I'll take that one. Yeah, I think, look, the story here is a mixed bag. There are some positives. You know, we're seeing a number of projects that we're engaged in improving in the first half and actually showing a low double-digit improvement. So that's a positive trend line, but those small projects in the early phase, you know, are not material revenue contributors in the first year. The kind of pullback on our overall guidance on process chromatography is very much the same story as Q1.
Sandy: Hey, Patrick Sandy, Yes, I'll take that one.
Sandy: Yes, I think look the story here is it's a mixed bag, they're awesome positives, we're seeing the number of projects that we're engaged in are improving.
Speaker Change: Improving in the first half actual actually a low double digit improvement. So that's a positive trend line, but that was the small projects in early phase.
Speaker Change: Material revenue contributors in the first year.
Speaker Change: They kind of pulled back on our overall guidance on.
Speaker Change: Process chromatography is is very much the same story as Q1, it's just more acute understanding of the magnitude of these.
Andrew Last: It's just a more acute understanding of the magnitude of destocking that a small handful of very large customers have to go through. And they've got multiple manufacturing facilities, and, you know, it's been that struggle of getting full line of sight to all their sources of inventory. And you know, so we're just being very prudent in our view on process crime for the rest of this year, and we expect to see recovery in 2025.
Speaker Change: Stocking that.
Speaker Change: Handful of very large customers have to go through.
Speaker Change: And that they've got multiple manufacturing facilities.
Speaker Change: It's been that struggled with getting full line of sight to OLED sources of inventory.
Speaker Change:
Speaker Change: And so we just being very prudent to not be a one process crying for the rest of this year and we expect to see recovery in 'twenty five.
Roop Lakkaraju: Patrick, this is Roop. Maybe just to build on one part is the geography piece, and based on the customers that Andy spoke of, it's in various geos, so it's not concentrated in any one geo.
Patrick Donnelly: Patrick This is roop, maybe just to build on what part is the G O piece and based on the customers that Andy spoke up.
Patrick Donnelly: It's in various geos, so it's not concentrated in any one geo sorry, yeah yeah.
Andrew Last: Yeah, no, it's...
Speaker Change: That's right.
Patrick Donnelly: Okay, and then maybe just one last quick one, just on the digital PCR side, obviously, always a focus for investors. If you're seeing anything different in that market, both competitively and just on the demand side, it would be helpful. Thank you, guys.
Speaker Change: Okay, and then maybe just one last quick one just on the digital PCR side, obviously, you're always a focus for investors.
Speaker Change: Are you seeing anything different in that market, both competitively and just on the demand side would be helpful. Thank you guys.
Andrew Last: I don't think we're seeing any real shift competitively that we have not already been seeing. You know, within the mix of life science overall, digital PCR instrumentation was the major factor again. Consumables actually held up pretty well, and sequentially, quarter-to-quarter, we saw improvement. In fact, we saw quarter-to-quarter improvement broadly. In the case of digital PCR, you know, it was a pretty tough compare in Q2 of last year. You know, the call-out and the script of the one-time licensing fee and some of the supply chain challenges that we actually managed to overcome in Q2 of last year. So, you know, and as for the competitive situation, look, we're, you know, maintaining our win rate in the segments we're focused on. We feel very positive about the long-term outlook for digital PCR still.
Speaker Change: I don't think we're seeing any real shift competitively that we have not already been seeing you know.
Speaker Change: Within the mix of life science overall.
Speaker Change: Digital PCR instrumentation was the major factor again.
Speaker Change: <unk> were actually held up pretty well and sequentially quarter to quarter, we saw improvement.
Speaker Change: So quarter to quarter improvement broadly.
Speaker Change: Really the.
Speaker Change: In the case of digital PCR.
Speaker Change: Pretty tough compare in Q2 of last year.
Speaker Change: And as the call outs and the script of.
Speaker Change: The one time licensing fee and and.
Speaker Change: And some of the kind of supply chain challenges that we actually managed to overcome.
Speaker Change: In Q2 of prior yeah. So.
Speaker Change: And as far as for the competitive situation look with.
Speaker Change: With maintaining our win rates.
Speaker Change: And the segments, we're focused in on.
Speaker Change: We felt very positive about the long term outlook for additional pizza out still.
Roop Lakkaraju: Yeah, and I think this is Roop, I would just add, you know, we are going to see second half strength in DDPCR over the first half. So, you know, when we think about that, we're pleased with kind of how it's coming back.
Roop Lakkaraju: And I think the, this is Roop, I would just.
Speaker Change: I think the this is roop I would just add.
Speaker Change: We are gonna see second half strength in DD PCR over the first half. So you know when we think about that.
Speaker Change: We're pleased with kind of as it's coming back.
Speaker Change: Okay, great. Thank you guys.
Patrick: Thanks, Patrick.
Patrick Donnelly: Thank you. And we will take our next question from Dan Leonard with UBS.
Speaker Change: Thank you and we will take our next question from Dan Leonard with UBS.
Speaker Change: Yeah.
Dan Leonard: Thank you and good evening. At a high level, with the current guidance, do you think you've framed the operating environment appropriately, or are there any areas where you're trying to be conservative, or any further areas where you're speculating on improvement that you don't yet have visibility on?
Dan Leonard: Thank you and good evening.
Dan Leonard: At a high level with the current guidance you do you think you've framed the operating environment appropriately or are there any areas, where you're trying to be conservative or any further areas, where you're you're speculating on improvement that you don't yet have visibility on.
Roop Lakkaraju: Yeah, hey Dan, this is Roop. Maybe I'll start.
Route: Yeah, Hey, Dan This is route maybe I'll start.
Route: In terms of expected I think we framed it well in terms of what we're seeing in <unk>.
Roop Lakkaraju: You know, in terms of spec, I think we framed it well in terms of what we're seeing and across the different areas, you know, obviously from a life science group. The process chrome is the area that, as Andy spoke of, we're seeing the greatest headwind, if you will, and that really, you know, our position with these customers is very strong in terms of the end therapeutics that they support. Those are market-leading therapeutics, and so we feel very good about that and can't be displaced.
Speaker Change: Across the different areas you know, obviously from our life Science group.
Speaker Change: The the process chrome is the area that.
Andy: As Andy spoke of how we're seeing the greatest headwind if you will and that really are.
Andy: Our position with these customers is very strong in terms of the in therapeutics that they support those are market, leading therapeutics and so we feel very good about that and can't be displaced its just a matter of that destocking that's occurring there.
Roop Lakkaraju: It's just a matter of that destocking that's occurring there. As we just talked about, DDPCR, you know, we're seeing positive signals and expect that to grow. Clinical diagnostics has been positive throughout the year, and we expect it to have some normalized growth rate as we continue. The margin is the one area that I framed, which is maybe a little bit more conservative, but And part of this is, you know, mix being a contributor to our positivity so far. It's hard to predict mix exactly, and so we're mindful of that.
Dan Leonard: As we just talked about DD PCR you know, we're seeing positive signals in and expect that to grow clinical diagnostics has been positive throughout the year and we expect it to have some normalized growth rate.
Speaker Change: As we continue the margin is the one area that I frames, which is maybe a little bit more conservative but.
Speaker Change: Part of this is as you know mix being a contributor to our positivity. So far you know, it's hard to predict mix exactly and so we're mindful of that and then as I mentioned the under absorption.
Roop Lakkaraju: And then, as I mentioned, the underabsorption. Beyond that, and I think, you know, we haven't touched on China, maybe, in the questions, but China's the one variable that's an open question, the new stimulus that's been introduced. You know, it's interesting, but, you know, not sure it'll have that much of an impact. So we're, again, mindful of that. So I think we're trying to be very prudent in our view of what to lay out for folks to expect in the second half, recognizing that the markets are still dynamic, and especially in a couple of the areas that we're playing in. And China's probably the one that's most volatile for maybe not just us, but others as well.
Speaker Change: Beyond that and I think we haven't touched on China, maybe in the questions, but China is the one variable that that's an open question the new stimulus that's been introduced.
Speaker Change: It is interesting, but not sure it will have that much of an impact. So we're again mindful of that so I think we're trying to be very prudent in our view.
Speaker Change: What to lay out for folks to expect in the second half.
Speaker Change: <unk> the markets are still dynamic and especially in a couple of the areas that we're playing in.
Speaker Change: China is probably the one that's most.
Speaker Change: Variable for for maybe not just us, but others as well.
Andrew Last: Understandable, and thank you for elaborating on all those assumptions. Just a quick follow-up. I know the single-cell product has been a very high-visibility R&D effort at Bio Rad for a couple of years now. You launched it in June. Hoping that you could give any color on your go-to-market strategy or how you think. We should think about framing that uptake. Yeah.
Speaker Change: Understood and thank you for elaborating on all those assumptions just a quick follow up I know the single cell product has been a very high visibility R&D efforts at <unk> for a couple of years now.
Speaker Change: You launched it in June hopeful that you could give any color on your go to market strategy or how to think we should think about framing that uptake.
Andrew Last: Yeah, thanks Andy, thanks for the question, and look I think we're consistent in where we think the value proposition for the product offering sits, which is, you know, equal performance to the market-leading solution, better value, and a better workflow. And we think the long-term growth opportunity for single sale is solid, it's a sizable market, we expect it to continue to grow. I think the obvious acquisition of Fluent by Lumin We believe we've got a very well-positioned product with probably the best workflow of all the platforms.
Speaker Change: Yeah.
Speaker Change: Vance and thanks for the question and look I think we're consistent and where we think the value proposition for the product offering sits switches equal.
Speaker Change: Equal performance to the market leading solution better value.
Speaker Change: And a better workflow.
Speaker Change: And we think the long term growth opportunity for single cell is solid it's a sizable market. It will we expect it to continue to grow I think.
Speaker Change: The obvious acquisition of fluent bye bye alumina. It just kind of testament to that one I think that's gone to kind of put more emphasis on value.
Speaker Change: For the and for the end market.
Speaker Change: We believe we've got a very well positioned product with us.
Speaker Change: Probably the best workflow of all the platforms.
Andrew Last: In terms of going to market, we've got a specialist focus in our early months of introduction to establish, you know, product performance and credibility out there with kind of key call-outs and sensors. So that's the way we're approaching it as a platform value and how we're kind of thinking about the work we'll do in the second half this year. Anticipate a material revenue contribution that would change our outlook this year. It's about building to next year.
Speaker Change: In terms of go to market, we've got a specialist focus and all early months of introduction to establish in our product performance and credibility out that with with.
Speaker Change: Key core lab's incentives.
Speaker Change: So.
Speaker Change: That's the way, we're approaching it as a platform value and how where kind.
Speaker Change: Thinking about what we'll do in the second half this year.
Speaker Change: Anticipate material revenue contribution that would change our outlook.
Speaker Change: Outlook this year.
Speaker Change: About building for Nexgen.
Speaker Change: Okay. Thank you Andy.
Dan Leonard: Thank you. And we will take our next question from Tycho Peterson with Jefferies.
Speaker Change: Thank you and we will take our next question from Tycho Peterson with Jefferies.
Tycho Peterson: Okay, good afternoon. Maybe you're looking at life sciences and backing out Chrome. You know, you're still down kind of 4% on the year, and most of your peers are flat. Can you maybe just talk a little bit about why that might be the case?
Tycho Peterson: Hey, good afternoon.
Speaker Change: Maybe you can look at life sciences and backing out chrome.
Tycho Peterson: They're still down kind of 4% in the year. Most of your peers are flat can you maybe just talk a little bit about why that might be the case.
Andrew Last: Yeah, I think we've got an element of mix that's playing into our disadvantage here, Tycho amongst others and with the biopharma and digital PCR component.
Speaker Change: Yeah, I think we've got an element of mix, that's playing into a disadvantage here.
Tycho Peterson: Tyco amongst others and with the Biopharma and digital PCR component.
Andrew Last: Maybe also a little bit with, you know, our QPCR business since it was the beneficiary of, you know, a massive uplift in the COVID period, and we're still seeing some relative softness on recovery and QPCR instrumentation. So, I think we've got that mix that's a little bit against us relative to others. And the other, you know, depending on... you know, other folks on the Reagent Instrumentation Mix where reagents are holding up better this year overall.
Speaker Change: So a little bit with.
Tycho Peterson: You know Q PCR business since it was the beneficiary of a massive uplift and the Covid period.
Tycho Peterson: And we're still seeing some some relative softness on recovery in Q Pcr instrumentation.
Speaker Change: So I think we've got that mix, that's that's a little.
Speaker Change: Bet against us relative to others.
Speaker Change: Depending on.
Speaker Change: You know other folks you know.
Speaker Change: On the reagent instrumentation mix, where our reagents are holding up better this year overall.
Andrew Last: And I'd say the last piece that I would call out, which we should not forget, is that Q2 was a pretty tough compare for us. We had the one-time license fee, and we actually, despite the market was starting to pull back, by really by the end of Q1 last year, we actually were doing a fair bit of supply chain recovery during, So our comparison was a bit elevated compared to perhaps other folks.
Speaker Change: And I'd say the last piece that I would call out, which we should not forget is Q2 was a pretty tough compare for us.
Speaker Change: We had the onetime license fee.
Speaker Change: Actually despite the market was starting to pull back.
Speaker Change: By really by the end of Q1 last year, we actually were doing a fair bit of.
Speaker Change: Supply chain recovery during Q2.
Speaker Change: So I'll compare was a bit elevated to surpass other folks as well.
Tycho Peterson: Okay, capital deployment question. Why not do a bigger buyback here? You've got peers buying, you know, five billion dollars at 30 times earnings. You guys are five times dextritorious. Why not do something more meaningful than the 500 million you just added to the repo?
Speaker Change: Okay capital deployment question.
Speaker Change: Why not do a bigger buyback here, you've got peers buying $5 billion at three times earnings you guys have five times. The extra curious why not wanted to do something more meaningful than the $500 million you just added to the repo.
Roop Lakkaraju: Well, that's just the incremental authorization, I guess, and we're just mindful. I mean, those balance sheets that you referenced, Tycho, are larger balance sheets, so that's one thing to keep in mind. With that said, you know, we did close to $200 million through the Q2 period and through the blackout period, which we hadn't done before. So I think our actions speak to our perspective that, you know, we're undervalued. The $500 million in incremental authorization is, I think, a strong message from the board and us. And when you consider where our balance sheet is, that's a pretty reasonable percentage of our cash.
Speaker Change: Well, that's just the that's the incremental authorization I guess and we're just mindful I mean, those balance sheets that you referenced Tycho our larger balance sheet. So that's one thing to keep in mind.
Speaker Change: With that said we did.
Speaker Change: Close to $200 million through the Q2 period and through the blackout period, which we hadn't done so I think our actions speak to our perspective that we're undervalued they that a $500 million in incremental authorization I think it's a strong message from it from the board and us.
Speaker Change: When you consider where our balance sheet is that that's a pretty reasonable percentage of our balance of our cash.
Roop Lakkaraju: And then are you committed to kind of prioritizing that over M&A? I mean, that's the other side of it, your peers are saying multiples are still too high.
Speaker Change: And then are you committed to kind of prioritizing that over M&A I mean thats. The other side of it you know your peers are saying multiples are still too high.
Roop Lakkaraju: Yeah, I guess I'll start, and maybe Norman, if you'd like to add, you know, prioritization, I think, listen, part of it is the technical aspect of the share repurchase and where, you know, intrinsic values are, and that's more of a technical answer. And so I wouldn't say we're necessarily prioritizing, but we're mindful. And at the same time, M&A, the right deals have to come, and as you mentioned, valuations have to be appropriate for the right technologies, and they have to contribute to our product roadmap and strategy. And so timing is an important part of that. So we look at both as opportunities to drive long-term shareholder value creation.
Speaker Change: Yeah, I guess I'll start and maybe normally if you'd like to add.
Speaker Change: Prioritization I think listen I.
Speaker Change: Part of it is the technical aspect of the share repurchase and where were you know intrinsic values are and thats more of a technical answer and so I wouldn't say, we're necessarily prioritizing, but we're mindful and at the same time the M&A. The right deals have to come in as you mentioned valuations has to be appropriate for the right technologies and they have to contribute to our our product.
Speaker Change: Roadmap and strategy and so.
Speaker Change: Timing is an important part of that so we look at both as opportunities to drive long term shareholder value creation.
Tycho Peterson: And then maybe the last one on digital PCR, just with the continuum launch coming, any risks ahead of the launch, freezing the market? It's been delayed a couple of times.
Speaker Change: And then maybe last one on digital PCR just with the continuum launch coming any risks ahead of the launch freezing the market.
Speaker Change: Been delayed a couple of times.
Andrew Last: Yeah, nothing outside of the normal risks that go with new product introduction and then all those final steps you go through. You know, we're still targeting an initial entry in Q4. Really, it's about staging for next year, Tycho. There's nothing more to add at this point, I don't think.
Speaker Change: Yes, nothing outside of the normal the risks the guy with new product introduction, and then I'll. Let his final steps you go through and I, We're still targeting an initial entry in Q4.
Speaker Change: Really it's about staging for Nexgen Tycho.
Speaker Change: <unk>.
Speaker Change: I have nothing more to add at this point I don't think.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you.
Tycho Peterson: Thank you. And once again, if you would like to ask a question, please press star and one on your telephone keypad now. And we will take our next question from Jack Meehan with Nephron Research.
Speaker Change: Thank you and once again, if you would like to ask a question. Please press star and one on your telephone keypad now.
Speaker Change: And we will take our next question from Jack Meehan with Nephron research.
Jack Meehan: Thank you. Good afternoon.
Jack Meehan: Thank you good afternoon.
Jack Meehan: Norman, I wanted to ask you about the COO search. It sounds like there's still a few folks in the mix there. As you look at the group, is CEO potential still a high criterion? And, I guess, how do you think about that relative to some internal candidates you might have in terms of succession planning?
Jack Meehan: Norman I wanted to ask you about the CFO search it sounds like Theres still a few folks in the mix. There as you look at the group is CEO potential still high criteria.
Speaker Change: How do you think about that relative to some internal candidates you might have in terms of.
Speaker Change: Succession planning.
Norman Schwartz: Yeah, I think as we said before, part of this part of evaluating the candidates has been CEO succession, and that's still a critical part of the mix.
Norman Schwartz: Yeah, I think as we said.
Norman Schwartz: Before it.
Norman Schwartz: Part of this.
Speaker Change: Part of evaluating candidates has been a CEO succession and that's that's still part of the.
Speaker Change: That's still a critical part of the mix.
Jack Meehan: Okay, and then also wanted to ask your latest thoughts on the Sartoria stake and, you know, thoughts around potentially monetizing that to fund a buyback or nearer term M&A, if something presented itself. Just what's your latest thinking on kind of the strategic role of that stake?
Speaker Change: Okay.
Speaker Change: And then also wanted to ask your latest thoughts on the sartorius stake and.
Speaker Change: Just thoughts around potentially monetizing that to fund buyback or nearer term M&A if something presented itself just what's your latest thinking on kind of the strategic role that state Yeah. I mean, it's we still do see it is to monetize the whole asset.
Norman Schwartz: Yeah, I mean, you know, we still do see it as a monetizable asset. I think that, you know, the question is, you know, what's the future with Joachim, not extending his contract.
Speaker Change: You know I think that that yeah. The question is what are what's the future with with your team.
Speaker Change: Not extending its contract.
Norman Schwartz: You know, certainly, his tenure has been really good for us, and it's been really good for the company. And, you know, our investment has done really well. And, you know, I think, candidly, it's given us a much more valuable monetizable asset. But, you know, I guess, at the end of the day, his stepping down doesn't really impact our kind of overall views.
Speaker Change: Certainly his tenure has been really good for us.
Speaker Change: And it's been really good for the company.
Speaker Change: And our investment has done really well.
Speaker Change:
Speaker Change: And.
Ken: I think Ken.
Ken: Candidly I thought of it.
Speaker Change: Given us so much more valuable monetize all asset, but Uh huh.
Ken: I guess at the end of the day is stepping down.
Speaker Change: It doesn't really impact our our kind of overall views.
Jack Meehan: Got it, okay. And then I did have one cash flow question, Roop. On the relative inventory levels, you know, I just kind of do some very basic benchmarking. It does look a bit bloated.
Speaker Change: Got it Okay, and then I did have one cash flow question.
Speaker Change: Group on the relative to inventory levels.
Speaker Change: I just kind of do some very basic benchmarking it does look a bit bloated.
Jack Meehan: Like if I look at inventory as a percentage of sales, maybe as one metric, back in 2019, before the pandemic, it was around 24 percent. You know, today, kind of annualized, it's over 30 percent. So maybe just, would be great to hear your thoughts on the ability to start drawing this down to generate some cash. Are there any hurdles to doing that? Thanks.
Speaker Change: If I look at inventory as a percentage of sales maybe as one metric back in 2019 before the pandemic it was around 24%.
Speaker Change: Today kind of annualized it's over 30%. So maybe just would be great to hear your thoughts like ability to start drawing this down to generate some cash are there any.
Speaker Change: Hurdles to doing that thanks, yeah, great great point on that you're spot on.
Roop Lakkaraju: Yeah, great, great point on that. You're spot on. Bloated? We haven't necessarily used that word, but we do think it's elevated. But you know, I guess you pick your pick your word.
Speaker Change: Bloated, we haven't necessarily use that word, but we do think it's elevated.
Speaker Change: But.
Speaker Change: I guess you pick you pick your word.
Roop Lakkaraju: With all that said, we've got inventory, and some of it, quite honestly, it's been purposeful because of the market, right? We needed to procure strategic materials to ensure continuity of supply. With that said, if I separate that out, we've got focused initiatives in terms of inventory reduction. Part of it is just operationally how we manage the sales and operations kind of alignment, and there are improvements that are being made there. And we expect over time that that inventory will come down.
Speaker Change: With all that said, we've got inventory and some of it quite honestly its been purposeful because of the market right. It's we needed to procure strategic materials to ensure continuity of supply with that said by separate that out.
Speaker Change: We've got focused initiatives in terms of.
Speaker Change: Inventory reduction part of it is just operationally how we manage.
Speaker Change: The sales and operations kind of alignment and there is improvements that are being made there.
Speaker Change: And we expect over time that that inventory will come down.
Speaker Change: And I'll say it more from an inventory turn standpoint, our inventory turns will improve obviously with revenue growth you may see additional inventory on the balance sheet, but from an overall turns perspective, where we are today is unacceptable and we're focused on improving that turns which obviously will then drive stronger operating and free.
Roop Lakkaraju: And I'll say it more from an inventory turn standpoint; our inventory turns will improve. Obviously, with revenue growth, you may see additional inventory on the balance sheet. But from an overall perspective, where we are today is unacceptable, and we're focused on improving that turns, which obviously will then drive stronger operating in free cash.
Speaker Change: Cash flow.
Jack Meehan: Great. Thank you, Roop.
Speaker Change: Great. Thank you.
Speaker Change: Yep.
Operator: Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.
Speaker Change: Thank you and it appears that we have no further questions. At this time I will now turn the program back to my presenters for any additional or closing remarks.
Norman Schwartz: Thank you for joining today's call. We will be at the Wells Fargo Healthcare Conference in Boston in early September, and hope to catch up with some of you in person. And, as always, we appreciate your interest, and we look forward to connecting soon.
Speaker Change: Thank you for joining today's call.
Speaker Change: We'll be at the Wells Fargo Healthcare conference in Boston in early September and hope to catch up with some of you in person and as always we appreciate your interest and we look forward to connecting soon take care.
Speaker Change: Yeah.
Operator: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.
Speaker Change: Thank you. This does conclude today's presentation. Thank you for your participation you may disconnect at any time.
Speaker Change: [music].