Q4 2024 Bio-Rad Laboratories Inc Earnings Call
Thank you for standing by my name is for La and I'll be your conference operator today at this time I would like to welcome everyone to the bio Rad fourth quarter and full year 'twenty 'twenty four results conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.
Sure.
If you'd like to ask a question. During this time can be press star followed by the number one on your telephone keypad and if he would like to draw. Your question. Each freshest star. One again. Thank you I would now like to turn the conference over to Edward Chang head of Investor Relations you may begin.
Edward Chang: Thanks, operator.
Edward Chang: Good afternoon, everyone and thank you for joining US today, we will review the fourth quarter and full year 2024 financial results and provide an update on key business trends for bio Rad.
Edward Chang: With me on the call today are Norman Schwartz, our Chief Executive Officer, John <unk>, President and Chief Operating Officer, Andrew Blocker, Rajeev Executive Vice President and Chief Financial Officer before we begin our review I would like to remind everyone that we will be making forward looking statements about management's goals.
Edward Chang: 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 actual results may differ materially from these plans goals and expectations.
Edward Chang: 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 Chang: 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.
Edward Chang: You should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release with that I will now turn the call over to our Chief operating Officer, Jon <unk>.
Jon: Hello, and thank you everyone for joining today's call.
Speaker Change: Since joining bio Rad five months ago I am excited to share the progress we've made in aligning our strategic priorities focusing on execution and achieving key milestones in our transformation.
Speaker Change: First I'm pleased to report that we successfully met our revised 2024 guidance for both revenue and operating margin as presented last August.
Speaker Change: Our clinical diagnostic business performed slightly better than forecasted while our life Science segment was affected by continued softness in the Biopharma market.
Speaker Change: Despite some revenue challenges, we achieved gross margin expansion in 2024 through our productivity improvements.
Speaker Change: Driven by our lean initiatives in our manufacturing sites and supply chain execution of our global footprint rationalization and effective cost management.
Speaker Change: These will be sustained improvements in our P&L in 2025.
Speaker Change: I'm also excited to announce that we've entered into a binding offer to acquire <unk> technologies.
Speaker Change: We believe will significantly complement our digital Pcr portfolio.
Speaker Change: Going forward still as platform would enhance our product strategy and applied research and clinical diagnostics, allowing us to expand our offerings in digital Pcr.
Speaker Change: We expect the transaction to close by the end of Q3 2025 subject to consultation with relatively employee representatives regulatory approvals and customary closing conditions.
Speaker Change: Additionally, we've taken further steps to streamline our cost structure.
Speaker Change: These actions are designed to better position bio Rad for success as we move toward our strategic and financial goals for 2025 and beyond.
Looking across our markets. We saw the continued trends we've experienced over the past year.
Speaker Change: Diagnostic performed as expected with broad based global demand. However, the Asia Pacific region saw a decline due to the earlier than expected adoption of a reimbursement change for diabetes testing in China during the fourth quarter.
Speaker Change: This suggests that just been not related to volume based procurement standardizes rates for certain clinical diagnostic tests nationwide.
Speaker Change: We don't currently anticipate further reimbursement changes for diagnostics in 2025.
Speaker Change: Keep in mind that China represents high single digit percentage of <unk> total revenue.
Speaker Change: In life Science, we are seeing a modest recovery, though demand in biopharma in China remained soft.
Speaker Change: We did see a seasonal uptick from academic customers and Biopharma research accounts.
Speaker Change: And our process chromatography sales improved in the second half of 2024, and we expect growth in this area in 2025.
Speaker Change: We were also encouraged with the increased activity and new programs, using our media, which bodes well for the future outlook for our process chromatography business.
Speaker Change: For our droplet digital PCR portfolio, we saw continued strong demand for reagents and consumables with low double digit growth year over year <unk>.
Speaker Change: Interest in our assays for oncology and cell and gene therapy applications remains high.
Speaker Change: And we're maintaining strong win loss ratios for our platform.
Speaker Change: Entering 2025, we expect a gradual recovery, particularly in the biopharma sector, while demand for instruments remains soft we are having more conversations with biopharma customers and building a healthy order funnel.
Speaker Change: However, this gradual pace of recovery is likely to impact the uptake of life science instrumentation in the short term.
Speaker Change: And the academic segment research funding globally has been soft throughout 2024, and we have not factored in any change in dynamics for 2025.
Speaker Change: However, we need more information to understand the impact if any of last week's announcement on the cap for U S. NIH indirect funding.
Speaker Change: And in Europe funding remains mixed with modest increases in Germany, and the UK, while France continues to be soft and in Asia. We're seeing some early signs of improvement in research funding in China due to its stimulus programs.
Speaker Change: So in 2025, our focus remains on operational and commercial excellence, we aimed to increase consumables attachment and prioritize e-commerce as part of our growth strategy and as I've discussed with many of you innovation remains at the heart of bio Rad has long term growth strategy.
Speaker Change: Our anticipated acquisition of Stella, we're excited about key updates to our portfolio, including a refreshed NGC chromatography platform.
Speaker Change: The <unk> pro imaging system, and a new version of our <unk> 600, digital PCR system for the diagnostic market.
Speaker Change: We're also expanding our process chromatography portfolio with the launch of a larger 45 centimeter pretax column and additional new via residence that enhanced purification capabilities.
Speaker Change: Our <unk> continuing program is making significant progress and we continue to see it as an important part of our digital PCR portfolio in 2025 and beyond.
Speaker Change: So given the moderated revenue growth outlook, we view 2025, as a stepping stone towards stronger profitable growth.
Speaker Change: We will continue driving innovation, enhancing our supply chain and implementing cost and productivity initiatives to support margin improvement.
Speaker Change: As a lifestyle life science market normalizes, we believe bio Rad is well positioned to leverage top line growth.
Speaker Change: So thank you for your continued support I will now pass you to route to review the financial results.
Speaker Change: Thank you John and good afternoon, I'd like to start with a review of the fourth quarter and full year 2024 results.
Speaker Change: Net sales for the fourth quarter of 2024, or approximately 668 million, which represents a 2% decline on a reported basis versus $681 million in Q4 of 2023.
Speaker Change: Currency neutral basis. This represents a two 3% year over year decrease and was due to lower sales in our life Science segment.
Speaker Change: Sales of the.
Speaker Change: Life Science group in the fourth quarter of 2024 or $275 million compared to $291 million in Q4 of 2023, which is a decline of five 5% on a reported basis and approximately 6% on a currency neutral basis currency neutral sales decreased across all regions excluding process chromatography.
Speaker Change: <unk> sales core life Science group revenue increased two 5% year over year, and 2% on a currency neutral basis or life Sciences growth was driven by consumables sales and improved low single digit sequentially and a mid single digit year over year.
Speaker Change: Sales of the clinical diagnostics group in the fourth quarter of 2024 or approximately $393 million compared to $389 million in Q4 of 2023, which is an increase of <unk>, 9% on a reported basis.
Speaker Change: 7% on a currency neutral basis.
Speaker Change: Growth of diagnostics was primarily driven by increased demand for our quality control blood typing products.
Speaker Change: Offsetting the higher demand our diabetes portfolio experienced a revenue decline due to the intra quarter, China reimbursement change that reduced sales by an estimated mid single digit million.
Speaker Change: Approximately 75 basis points and affected Q4 gross margin by the same amount.
Speaker Change: On a geographic basis currency neutral sales increased in EMEA and Americas.
Q4 reported GAAP gross margin was 51, 2% as compared to 53, 8% in the fourth quarter of 2023. The decrease in gross margin was driven by our restructuring expense.
Speaker Change: Other rightsize, our footprint and the impact of the reimbursement reduction for diabetes test in China.
Speaker Change: As John alluded to earlier, we are continuing to proactively manage our cost structure, including the recent implementation of a 5% workforce reduction to further align head count for our global organization.
Speaker Change: The impact of these actions is contemplated in our guidance and should yield savings of $50 million to $55 million in 2025 with fully annualized savings of approximately 60% to $65 million in 2026.
SG&A expenses for fourth quarter of 2020 for approximately $204 million or 36% of sales compared to $207 million or 34% in Q4 of 2023.
Speaker Change: Research and development expense in the fourth quarter was approximately $80 million or 11, 9% of sales compared to $64 million or nine 4% of sales in Q4 of 2023.
Speaker Change: Q4, operating income was approximately $58 million or eight 7% of sales compared to $95 million or 14% of sales in Q4 of 2023.
Speaker Change: During the quarter interest and other income resulted in net other income of $9 million, which is unchanged versus the prior year.
Speaker Change: The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares led.
Speaker Change: Led to a $977 million loss, which resulted in a reported net loss of $716 million or $25 57.
Speaker Change: Diluted loss per share.
Speaker Change: The effective tax rate for the fourth quarter of 2024 was 21, 2% compared to 18, 4% for the same period in 2023.
Speaker Change: The effective tax rate reported in these periods was primarily affected by the accounting treatment of our equity securities.
Speaker Change: 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: Fourth quarter non-GAAP gross margin was 53, 9% compared to 54, 4% in Q4 of 2023 fourth quarter non-GAAP operating margin was 13, 8% compared to 15, 5% in 2023.
Speaker Change: non-GAAP effective tax rate for the fourth quarter of 2024 was 29% compared to 22, 3% for the same period in 2023.
Speaker Change: Finally, non-GAAP net income for the fourth quarter of 2024 was $81 million or $2 90.
Speaker Change: Diluted earnings per share.
Speaker Change: And now for the full year results.
Speaker Change: Net sales for the full year of 2024 were $2 567 million, which represents a three 9% decline on a reported basis versus $2 $671 million in 2023 on.
Speaker Change: On a currency neutral basis. This represents a three 6% decrease and was driven primarily by lower sales of our life Science segment.
Speaker Change: <unk> of the life Science group for 2024 were approximately $1 $28 million compared to $1 $178 million in 2023, which is a decline of 12, 8% on a reported basis and 12, 6% on a currency neutral basis.
Speaker Change: <unk> sales decreased across all regions.
Speaker Change: Sales of clinical diagnostics group for 2024, $1 billion to $538 million compared to $1 $489 million in.
Speaker Change: In 2023, which represents a three 3% increase on a reported basis and three 7% growth on a currency neutral basis.
Speaker Change: Both of diagnostics was primarily driven by increased demand for a quality control blood typing products on a geographic basis currency neutral revenue grew across all three regions.
Speaker Change: As we had targeted overall full year non-GAAP gross margin reached 55% compared to 54, 2% in 2023 the year over year margin increase was driven mainly by the impact of operational improvements made throughout the year and a favorable product mix.
Speaker Change: Full year, non-GAAP SG&A expense was $799 million or 31, 1% of sales compared to $815 million or 35% in 2023.
Speaker Change: The decrease in dollars of SG&A expense was primarily due to a reduction in discretionary spending and lower employee related costs.
Speaker Change: Full year, non-GAAP, R&D was $282 million or 11% of sales versus $255 million or nine 5% in 2023. The increase in non-GAAP R&D was primarily due to a onetime acquired in process research and development expense of $30 million.
Speaker Change: To the Sabre bio acquisition.
Speaker Change: non-GAAP operating margin was 12, 9% compared to 14, 2% in 2023, which reflects the effects of revenue decline and the aforementioned in process R&D expense offset by a favorable product mix and the impact of operational improvements.
Speaker Change: Lastly, the non-GAAP effective tax rate for the full year of 2024 was 23, 6%.
Speaker Change: Moving to the balance sheet total cash and short term investments at the end of Q4, 2024 $1.665 billion compared to $1 $628 million at the end of Q3 2024.
Speaker Change: Inventory at the end of Q4 was $760 million down from $804 million in the prior quarter.
Speaker Change: As we continue to make progress on reducing inventory for.
Speaker Change: For the fourth quarter of 2024 net cash generated from operating activities was approximately half of our $24 million compared to 81 million for Q4 of 2023 for the full year of 2024 net cash generated from operations improved to $455 million versus $375 million in 2023 and was driven.
Speaker Change: By the focused efforts and improving working capital efficiency.
Speaker Change: Net capital expenditures for the fourth quarter of 2024 or approximately $43 million on full year net capital expenditures were $166 million depreciation and amortization for the fourth quarter was $39 million and 100.
Speaker Change: Third $52 million for the full year.
Speaker Change: Yes.
Speaker Change: Fourth quarter of 2020 for free cash flow was approximately 81 million, which compares to $39 million in Q4 23 for the full year of 24 free cash flow was approximately $290 million, which compares to $218 million for the full year 2023.
Speaker Change: Full year 2020 for buybacks totaled 691000 shares for approximately $2 million over the past few years, we've deployed over $630 million for share repurchases.
Speaker Change: Considering the current dynamic environment, we expect to further share repurchases and have approximately $577 million available for buybacks under the current board authorized program.
Speaker Change: Moving on to the non-GAAP guidance for 2025.
Speaker Change: We are guiding a currency neutral revenue growth for the full year to be between one 5% and three 5%, which excludes any revenue from acquisitions.
Speaker Change: On an as reported basis Q1 is expected to be approximately 575% to 7% lower on a year over year basis, and then sequentially improving each quarter.
Speaker Change: Our life Science group year over year currency neutral revenue growth is expected to be between one five and three 5% with our process chromatography business poised to increase high single digits note that this outlook contemplates a soft dynamic, but soft academic environment, but does not consider last weeks for <unk>.
Speaker Change: <unk> NIH indirect spending actions.
Speaker Change: Overall NIH funding is not a significant component of our total sales.
Speaker Change: Critically we estimate that the U S academic and government segment represents approximately a high single digit percent of bio Rad revenue.
Speaker Change: A subset of our U S academic and government segment is federally funded research, including the NIH.
Speaker Change: We estimate our total federally funded research exposure as approximately 4% of our revenue.
Speaker Change: Okay.
Speaker Change: For the diagnostics group, we estimate currency neutral revenue growth to be between 2% and 3% as a reminder, our growth outlook for clinical.
Speaker Change: Diagnostics includes approximately 100 basis point impact in 2025 due to the partner's exit from the donor screening business and approximately a 60 basis impact from the reimbursement reduction for diabetes testing in China.
Speaker Change: Full year non-GAAP gross margin is projected to be between 55, and 55, 5% and includes the approximately 60 basis points incremental gross margin headwind related to the reimbursement reduction for our diabetes business.
Speaker Change: On a quarterly basis, we expect Q1 gross margin to be like Q4 2024.
Speaker Change: Subsequent to Q1.
Speaker Change: We expect steady sequential improvement because of the continued productivity and efficiency benefits from our operational initiatives and an improved sales volume, we look to target exiting the year in the high 55% gross margin range.
Full year non-GAAP operating margin is projected to be between 13 and 13, 5%. This includes the 60 basis point effect from the reimbursement changes mentioned earlier as well as the headwinds from the strengthening of the U S dollar representing approximately $70 million for 250 basis point headwind through 2000.
Speaker Change: 25 revenue.
Speaker Change: And an approximate 40 basis point drag on operating margin. In addition, we're making nice progress with favorite bio, which we purchased last summer and plan to achieve a key development milestones in 2025.
Speaker Change: The result is a potential $10 million R&D expense or a 40 basis point impact, which would impact both GAAP and non-GAAP results and that's been considered in our guidance range.
Speaker Change: We estimate the non-GAAP full year tax rate to be approximately 23% capex.
Speaker Change: Capex is projected to be approximately $160 million to $180 million as we continue to invest in our infrastructure to support our multi year transformation.
We anticipate full year cash free cash flow of approximately $310 million to $330 million for 2025 as compared to $290 million for 2024.
Norman Schwartz: With that I'll now turn the call over to Norman for his remarks.
Norman Schwartz: Thanks Roop.
Speaker Change: Just maybe take a minute and build on China and routes comment. So I think that 2024 was with certainly a productive year.
Norman Schwartz: First we assembled a new leadership team.
Norman Schwartz: This has been tasked with driving performance at bio Rad. Thanks.
Norman Schwartz: Certainly hit the ground running kind of focused on improving topline growth.
Norman Schwartz: And driving margin expansion.
Norman Schwartz: Despite the headwinds in several of our key end markets.
Norman Schwartz: As for the innovation and building on our core portfolio.
Norman Schwartz: I think we've advanced our DD PCR platform with expanded applications.
Norman Schwartz: <unk> introduced new key portfolio refresh products like the <unk> imaging system.
Norman Schwartz: And grown our cell biology product offerings.
Norman Schwartz: Sure.
Important that we also made investments in companies with potentially best in class diagnostics, using our DD PCR technology like <unk> and <unk> side.
Norman Schwartz: Okay.
Norman Schwartz: To support our growth initiatives.
Norman Schwartz: Have a look to M&A to complement what we're doing internally I think a good example is our anticipated acquisition of Stella, which should broaden and accelerate our ability to provide enabling tools in.
Norman Schwartz: Digital Pcr space.
Norman Schwartz: As mentioned, we also recently acquired <unk> bio.
Norman Schwartz: And entirely new platform utilizing our core droplet technology.
Norman Schwartz: Really enabling high throughput discovery of novel antibodies and T cell receptors print.
Norman Schwartz: Principally for the Biopharma market.
Norman Schwartz: So all in all I guess I'd like to reiterate that we view our strategy and.
Norman Schwartz: And our focus for the future growth of the company to be very much intact.
Norman Schwartz: Clinical diagnostics business has returned to its normalized growth rate post pandemic.
Norman Schwartz: We have leading market positions here globally for our core platforms and are investing to support their growth while building a position in a new molecular diagnostics segment.
Norman Schwartz: Similarly in life Science, we continue to focus on the Biopharma area.
Norman Schwartz: Especially for our digital PCR and process chromatography products.
Norman Schwartz: As well as new development around cell biology and of course, we can.
Norman Schwartz: Continue to invest to broaden our offerings in digital PCR and other focus areas.
Norman Schwartz: Our academic markets.
Norman Schwartz: I guess in summary, overall I believe we are well aligned and well positioned to drive long term growth in our markets.
Norman Schwartz: As we move through this current dynamic period.
Norman Schwartz: And thank you all for your support and interest in bio Rad.
Ed: So with that maybe I'll turn it back over to Ed.
Ed: And that concludes our prepared remarks today, we will now open the line to take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session. If you have no Dan I would like to ask a question. Please press star one on your telephone keypad. Please go ahead and join the queue.
Ed: I would like to thank you for your question you May Press Star one again.
Speaker Change: Please for your first question.
Speaker Change: Okay.
Speaker Change: Your first question comes from the line of Patrick Donnelly with Citi. Please go ahead.
Speaker Change: Hi.
Speaker Change: On for Patrick.
Speaker Change: For taking my questions.
Speaker Change: Yes, just on the life science and Scott what does that imply I guess for EDI PCR gross at one point in time to three 5% I know you said process Columbus high single digit, but just wondering with GDP.
Speaker Change: Baird.
Speaker Change: Yes.
Speaker Change: So from a DD PCR overall, we gave an overlooked.
Speaker Change: It's more towards kind of the one 2% from a BD PCR with process grown in the high single digit range.
Speaker Change: Got it.
Speaker Change: Just to reinforce and as a reminder, the <unk>.
Speaker Change: Acquisition that we just announced our proposed acquisition that we just announced isn't included in that range.
Speaker Change: So we would see that as potentially being additive depending upon where that closes this year.
Speaker Change: Got it and then just on the margin guide the gross margin guide for this year.
Speaker Change: Hi, This is $55 five I guess can you walk through the different scenarios and look at look at Super High end well get to the low end and just be curious there, but that's it for me. Thank you, yes of course, so obviously the midpoint being about.
Speaker Change: At $13 two 5%.
Speaker Change: The ability to March up is really end market dependent primarily and so.
Speaker Change: EMEA is soft as we come into the year.
Speaker Change: Biotech biopharma, although there are some signals of improvement still remains relatively soft.
Speaker Change: And I think as we think about how China continues to evolve.
Speaker Change: Stimulus actually provide any uplift these sort of things so.
Speaker Change: Those are things that can take us to the to the higher end and I guess I would say depending upon how those end markets react.
Speaker Change: If they were on the negative side.
Speaker Change: Or a little bit more negative than what we've assumed that might lead us towards the lower end of that range.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Question comes from the line of Doug.
Speaker Change: Dan Leonard with UBS. Please go ahead.
Speaker Change: Alright, Thank you I have a couple.
Speaker Change: First one on process chromatography, just wanted to confirm my math here.
Speaker Change: That product line declined more than 50% in the fourth quarter and ended declining about 50% for the full year is that correct, yes, that's about right Dan.
Speaker Change: And then route that's been a very wide variable what's your conviction in that high single digit growth forecast for 2025.
Speaker Change: Yes, we feel pretty strong about that.
Speaker Change: With kind of a destocking that we've talked about continuing with our customers obviously.
Speaker Change: Our part of our conviction is around the direct customer conversations that we've been having so we feel good about that high single digit number.
Speaker Change: Okay.
Speaker Change: And then as a follow up I just wanted to better understand the operating margin bridge for 2025.
Speaker Change: It looks like it's about 100 basis points year on year decline. If you correct 2024 for the IP R&D charge and it sounds like that decline is entirely due to the China diagnostics and foreign currency.
Speaker Change: One can you confirm that too it sounds then like if that math is right operating margins would have otherwise been flat, but how would that reconcile a flat operating margin picture with that 5% head count reduction. So I know thats kind of a multi parter there, but just any help you could.
Speaker Change: Offer yes of course, so let me, let me try and take it piece by a bit there in terms of March the first part is the China reimbursements.
Speaker Change: 60 basis points right. So so that's one.
Speaker Change: The best part of that is the FX effect, which is 40 basis points headwind. So that gets you to about 100 basis points. The other piece that I mentioned, which is also a 40 basis points that we've factored into the guide that we provided which will likely be a Q3 event is an additional $10 million one time.
Speaker Change: R&D in process R&D expense that will incur for the Sabre bio acquisition that we just completed last summer the development of the products there are.
Speaker Change: Moving along pretty well and as such there is some earn outs would be achieved as a result of that and therefore that charge would be there. So the total of that is about 140 basis points overall.
Speaker Change: Dan and so if you mark that up from the guide I would say it from our guide perspective of 13, 5% midpoint that kind of gives you a sense of where we would be in kind of the mid to high 14% stands those those sort of headwinds as it relates to the to the 5% workforce.
Speaker Change: <unk>, obviously that was a difficult thing for us to do.
Speaker Change: However, what it does provide us is to offset otherwise some of the expenditures.
Speaker Change: <unk> wood rollover on a year over year basis, whether thats merits and other aspects of that.
Speaker Change: Okay. Thank you.
Speaker Change: And your next question comes from the line of Brandon Couillard with Wells Fargo. Please go ahead.
Brandon Couillard: Hey, Thanks, good afternoon.
Speaker Change: There's still acquisition I mean, it's been around a while and why now.
Brandon Couillard: It is complementary balance.
Speaker Change: Your portfolio Didnt already have and can you share any financials about the asset revenue base installed base.
Speaker Change: I imagine would the business be diluted because I guess, you've been losing money would it be dilutive to margins and keep any numbers around that.
Speaker Change: This is John <unk> I'll take the first part I mean, it is true that the company has been around for a while very solid team developing our portfolio, but they launched a new platform last year, it's kind of all in one solution based on their proprietary chip technology.
Speaker Change: <unk> workflow.
Speaker Change: And essentially they saw themselves with a great product without a real global reach so that's why we're excited about bringing that into our portfolio with our <unk>.
Speaker Change: All of the content that we have to put on and our expertise.
Speaker Change: Being able to get.
Speaker Change: To support more researchers around the world. So I think that's the key point.
Speaker Change: Pretty good tracking to it today, yes, Brendan let me, let me add to John's comments. The other part in terms of I think application here with the still a potential silver products. It allows us to address not just the entry level of the digital PCR market, but also allows us to address the high end of the Q PCR market, where we.
Speaker Change: Don't today as to the cannibalization, we don't think its actually cannibalizing anything we actually think it expands market opportunities for us and allows us to compete very effectively with other players in the marketplace.
Speaker Change: Way, we think about it does have revenue today and I think that's the other thing we promised.
Speaker Change: In terms of as we think about our M&A strategy moving towards companies with products that are on market that have revenue.
Speaker Change: And I think once we get them integrated and we think it should be accretive within 18 to 24 months.
Speaker Change: For clothes and.
Speaker Change: And obviously, we will work to try and get that accretive even faster, but we think it'll be a value add.
Speaker Change: So hopefully that's helpful.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Clarification Group I think you said first quarter reported revenue down 5% to 7% I guess that implies organic.
Speaker Change: Down maybe low to mid singles then do you expect.
Speaker Change: <unk> returned to positive growth starting in the second quarter over the balance of the year that we think about that.
Speaker Change: Phasing.
Speaker Change: Yes, I think thats, a reasonable way to think about the phasing.
Speaker Change: Okay, and then last one just on the on the risks and cost structure streamlining.
Speaker Change: Can you give me more color around kind of what areas are targeted what parts of the P&L, we will see that manifest in and why now and is this part of the larger.
Speaker Change: Valuation of the portfolio or strategy of the company.
Speaker Change: Yes.
The why now I think as we continue to evaluate our business business structure, and where we stand from a performance standpoint.
Speaker Change: And just from an overall market perspective, with the softness across different areas, we thought it's something.
Speaker Change: It was the appropriate time to take such action with that said, it's broad based.
Speaker Change: The majority of the actions are in the Opex area.
Speaker Change: There is a little bit up in the <unk>.
Speaker Change: Infrastructure area within Cogs.
Speaker Change: Our supply chain organization, but the predominance of it sits within our opex areas R&D plus some SG&A areas.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan: Thank you good afternoon.
Jack Meehan: Wanted to start with the first quarter forecast, if I heard it right youre, assuming down 5% to 7% on sales can you talk about what youre assuming by segment within that.
Speaker Change: I guess, just why the trend would be so different than kind of what we saw in the fourth quarter.
Speaker Change: Yes, thanks, Jack so so.
Maybe just a clarification to make sure everyone's got it right. The five 5% to 7% is on a year over year basis.
Speaker Change: To give that comparative there. So so that's that obviously from a sequential standpoint. It also would be down from Q4 of 2024 to your point so as to the why there is a few different dimensions there number one.
Speaker Change: <unk> softness within the academic market.
Speaker Change: <unk> Biopharma. The other thing is we've now factored into the full effect of both the <unk>.
Speaker Change: Stoner screening business as well as the China reimbursement piece, there and then you've got FX headwinds that are all factoring into there.
Speaker Change: Then over as we get through the year sequentially.
Speaker Change: We expect to see some level of recovery both on in the diagnostic space for us as well as the life Sciences space for us.
Got it.
Speaker Change: Clarify that down 5% to 7% year over year.
Speaker Change: As an all in number inclusive of FX headwinds that's right.
Speaker Change: Okay.
Speaker Change: And it sounds like based on the commentary you said, it's probably roughly even across both segments in the first quarter.
Speaker Change: Just in terms of the downtick.
Speaker Change: Correct Yep.
Speaker Change: Reasonable Jack.
Speaker Change: Okay.
Speaker Change: And then wanted to turn to China. So you said the.
Speaker Change: <unk>.
Speaker Change: High single digit percentage of revenue.
Speaker Change: These.
Speaker Change: These reimbursement pressures concentrate in the diagnostics business.
Speaker Change: And diabetes today.
Speaker Change: If it's a $20 million kind of annualized cut youre talking about it seems like.
Speaker Change: Pretty meaningful relative to probably what the exposure is.
Speaker Change: So I was just wondering if you could confirm that and then second is.
Speaker Change: Just any thoughts around that spreading to other areas of the testing portfolio.
Speaker Change: Yeah, maybe I'll start with the latter because that's obviously was one of our concerns that especially as China.
Speaker Change: Did the the reimbursement rate change for <unk> earlier than originally it was supposed to kick in in 2025, and they brought it into fourth quarter mid fourth quarter and so we learned.
Speaker Change: Mid to late November timeframe.
Speaker Change: So we related to that we don't think we don't expect at this time, and obviously things seem to be subject to change, but we don't have any expectations that it should affect us in other areas that we support in the marketplace.
Speaker Change: So I think thats one aspect of it in terms of the <unk>.
Speaker Change: Fact of it.
Speaker Change: The.
Speaker Change: I guess I think the way we said it in the script is not $20 million I think that Jack Thats. The number you use there.
Speaker Change: More in the <unk>.
Speaker Change: Mid teens kind of levels.
Speaker Change: Is what you ought to take out of that.
Speaker Change: Okay, Yes, I think I was talking on the $5 million or so in the fourth quarter.
Speaker Change: Thank you yeah, that's what I was thinking and then the last one do you have a cash flow target for the year. It seemed like you made some progress on the working capital.
Speaker Change: Just be curious how youre thinking about that for 'twenty, yes, free cash flow I gave a range of $3 10 to 330 ish kind of range.
Speaker Change: Okay.
Speaker Change: And we finished at <unk> 90, so incremental amount and obviously we're working towards.
Speaker Change: Further improved working capital efficiencies across the board.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Jeff.
Speaker Change: And once again, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Your next question comes from the line of Conor Mcnamara with RBC capital markets. Please go ahead.
Hey, guys. Thanks for the question first off on the NIH exposure I. Appreciate we appreciate that the color on the numbers you gave around that but.
Speaker Change: And I recognize it's only been a week, but have you had conversations with customers and how are they changing their buying patterns are there.
Speaker Change: This puts us.
Speaker Change: That name on it.
Speaker Change: A halt of spend or was it already some slowdown that they were anticipating from NIH.
Speaker Change: How should we think about that.
Speaker Change: If that's the case, how that's rebounding, yes, I think it has come as a little bit of a shock to you.
Speaker Change: Two researchers and I think there are.
Speaker Change: They're in kind of a little bit of a wait and see mode.
Speaker Change: What really happened.
Speaker Change: So yes.
Speaker Change: I would imagine, especially for capital equipment.
Speaker Change: That'll probably that would probably be.
Speaker Change: More affected than anything else.
Speaker Change: In the near term.
Speaker Change: Okay, great. Thanks for that and then.
Speaker Change: Just on the overall end markets in life Sciences, what kind of assumptions are you making for the.
Speaker Change: A rebound in the back half of the year are you assuming a gradual.
Improvement with the things, we're trying to kind of a normal at the end of the year or how should we how are you thinking about the end markets.
Conor Mcnamara: Yes, I guess Conor.
Conor Mcnamara: Sorry to say, we're going to say that it's going to get back to normal because I think that's an open question as to what is the new normal with that said we are.
Conor Mcnamara: Expecting to see improvement as we go through the year.
Conor Mcnamara: With.
Conor Mcnamara: We would anticipate Q4 being kind of the highest quarter, but sequential improvement from Q1 to Q2 and through the rest of the year.
Speaker Change: Got it and then last one for me is just on the DD PCR franchise could you talk about.
Speaker Change: How that market is progressing for both from a competitive standpoint and just.
Speaker Change: From the acquisition and then from continuum.
Speaker Change: How should we think about the market growth and your ability to maintain share and the beauty of PCR market.
Speaker Change: I mean, it's certainly a competitive market.
Speaker Change: Eric.
Speaker Change: We've got a number of players.
Speaker Change: In the market.
Speaker Change: And of course, we continue to invest in the technology.
Speaker Change: Both internally and through acquisition.
Speaker Change: We are.
Speaker Change: As we as we look forward, we look to the segmentation of our of our product line of our of our platforms within that product line.
Speaker Change: And of course, continuing to build on the on.
Speaker Change: Kind of our assay portfolio is an important.
Speaker Change: Consideration as well so I don't know.
Speaker Change: I think there continues to be lots of opportunities there and of course, where we have yet to really scratched the surface on the diagnostic side.
Speaker Change: Yes so.
Speaker Change: The platform actually allows us to the price point to compete where we don't participate today, which is a robust part of the marketplace and I think that thats part of the excitement it kind of bridges is kind of where we are with continue elements that will launch later this year.
Speaker Change: Two really the.
Speaker Change: Pete with the high end <unk> marketplace and kind of more.
Speaker Change: Lower end segments of the CDP CRM platform. So from a competitive standpoint allows us to participate in a market we don't really compete in today.
Speaker Change: Great. Thanks, guys I appreciate the questions.
Connor McNamara: Thanks Connor.
Tycho Peterson: And your next question comes from the line of Tycho Peterson with Jefferies. Please go ahead.
Speaker Change: Hey, thanks.
Speaker Change: So on digital PCR guidance up one to two for the year.
Speaker Change: Does that assume equipment is down again this year and maybe can you put a finer point on the decline.
Yes, Tycho it does.
Speaker Change: That doesn't presume that it's down but it's it's relevant instruments is still relatively soft consumables continued to be strong.
Speaker Change: Yes.
Speaker Change: We're strong through Q4, we're expecting that to continue into 'twenty five and so thats kind of the major assumption there is that instruments and that's really tied to biopharma biotech continue to be soft as well as academia.
Speaker Change: Okay and then.
Speaker Change: This year you laid out a handful of new product introductions, I guess any way to think about contributions from from those in aggregate.
Speaker Change: Yeah.
Speaker Change: Theyre not theyre not overly significant.
Speaker Change: They're not significant in terms of the introductions that will build.
Speaker Change: 2026, and beyond which is the most critical piece of getting them up to the market.
Speaker Change: Okay.
Speaker Change: Two other quick ones I guess, the messaging on capital allocation I think you've kind of been messaging you could do bigger deals you've obviously invested in geography and Alco site.
Speaker Change: You did the deal today so.
Are you still focused on I guess smaller scale are you considering larger assets. How do you think about balancing that with with the buyback.
Speaker Change: I think that.
Speaker Change: There are a couple of factors there.
Speaker Change: As you know we've done a lot of kind of earlier stage things in the last couple of years and I think.
Speaker Change: We certainly have pivoted now it still is a great example to things that come with.
Speaker Change: Yeah.
Speaker Change: Our revenue generating.
Speaker Change: And as I think.
Speaker Change: John said.
Speaker Change: They fit in our portfolio and.
Speaker Change: And.
Speaker Change: I think we can accelerate that through our.
Speaker Change: Global distribution.
Speaker Change: And then.
Speaker Change: Yes, so so mid sized or larger deals would be would.
Speaker Change: Would be on our radar screen.
Speaker Change: Okay, and then last one just on pricing what are you kind of assuming exited China diagnostic dynamics.
Speaker Change: Yes, I guess I guess, if I net net the China effect were somewhere around 1%.
We're kind of one and a half ish thereabouts without it's in that ballpark.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks Tycho.
And I'm showing no further questions at this time I would like to turn it back to Edward <unk> for closing remarks.
Speaker Change: Alright. Thank you for joining today's call, we hope to catch up with you in person in the coming months. We're also finalizing plans for an investor day that we're targeting for mid November we will look to get out a save the date notices details become more concrete and as always we appreciate your interest and we look forward to connecting soon.
Speaker Change: Thank you.
Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.