Q1 2025 Bio-Rad Laboratories Inc Earnings Call
Speaker Change: [music].
Ladies and gentlemen, and thank you for standing by my name is desert, Maine, I will be your conference operator today at this time I would like to welcome everyone to the bio Rad first quarter 'twenty 25 earnings results conference call and webcast all lines, having things on mute to prevent any background noise. After the speakers' remarks, there will be a question and.
Operator: Ladies and gentlemen, thank you for standing by.
Desiree: My name is Desiree, and I will be your conference operator today.
Desiree: At this time, I would like to welcome everyone to the Bio Rad First Quarter 2025 Earnings Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise.
Desiree: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one.
Answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one I would now like to turn the conference over to Edward Chang head of Investor Relations you may begin.
Edward Chong: I would now like to turn the conference over to Edward Chong, Head of Investor Relations. You may begin. Thanks, Desiree. Good afternoon, everyone, and thank you for joining us. Today we will review the first quarter 2025 financial results and provide an update on key business trends for Bio Rad.
Speaker Change: Thanks good.
Edward Chang: Good afternoon, everyone and thank you for joining us.
Edward Chang: Today, We will review the first quarter 2025 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, John D bench, Enzo President and Chief operating Officer and.
Edward Chong: With me on the call today are Norman Schwartz, our Chief Executive Officer, John DiVincenzo, President and Chief Operating Officer, and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we'll be making forward-looking statements about management's goals, plans, and expectations, our future financial performance, and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals, and expectations.
Edward Chang: Luke.
Edward Chang: Michael Rajiv Executive Vice President and Chief Financial Officer before we begin our review I would like to remind everyone that we'll be making forward looking statements about managements goals plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainty.
Edward Chang: Our actual results.
Edward Chang: <unk> 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 Chong: For more information visit www.bio-rad.com 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.
Edward Chong: The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.
Edward Chang: Finally, our remarks today will include references to non-GAAP financials, including net income.
Speaker Change: And diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles investors should review. The reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release with that I'll now turn the call over to our Chief operating Officer, John Stephens Kenzo.
John DiVincenzo: With that, I'll now turn the call over to our Chief Operating Officer, John DiVincenzo. Hello, and thank you for joining today's call. Despite a challenging macroenvironment with academic market headwinds due to government funding and global trade disruptions from tariffs, we delivered solid Q1 results, exceeding consensus for both revenue and operating costs. Our clinical diagnostics business performed slightly better than forecast, while our life science segment experienced softness in academia and biopharma research. Notably, our bioproduction business saw positive momentum with year-over-year growth returning to our process chromatography. We continue to prioritize bringing innovative products to our customers.
Speaker Change: Hello, Thank you for joining today's call.
Speaker Change: Despite a challenging macro environment with academic headwinds due to government funding and global trade disruptions from tariffs, we delivered solid Q1 results exceeding consensus for both revenue and operating margin.
Speaker Change: Our clinical diagnostics business performed slightly better than forecast, while our life science segment experienced softness in academia and Biopharma research, notably our bio production business saw positive momentum with year over year growth returning to our process chromatography business.
Speaker Change: We continue to prioritize bringing innovative products to our customers in Q1, we launched several key menu expansion for our core life science portfolio, including our new PCR based Salmonella tests for food safety.
John DiVincenzo: In Q1, we launched several key menu expansions for our core life science portfolio, including a new PCR-based Salmonella test for food safety and advancements to our portfolio of ddPCR VariCheck assays for cell and gene therapy. We are also strategically advancing Droplet Digital PCR as a valuable tool for oncology diagnosis and management through high-valued assays and key partner. Recent compelling clinical trial data published in Clinical Cancer Research, utilizing Bio Rad's DDPCR technology, demonstrated a strong correlation between circulating tumor DNA changes and treatment outcomes in lung cancer patients. This highlights the significant impact of our GDPCR platform on clinical decision-making and patient outcomes.
Speaker Change: <unk> to our portfolio of <unk>, Barry check assays for cell and gene therapy.
Speaker Change: We are also strategically advancing droplet digital PCR is a valuable tool for oncology diagnosis and management through high valued assays and key partnerships.
Speaker Change: Recent compelling clinical trial data published in clinical cancer research.
Speaker Change: Utilizing bio Rad DD PCR technology demonstrated a strong correlation between circulating tumor DNA changes in treatment outcomes in lung cancer.
Speaker Change: This highlights the significant impact of our <unk> platform on clinical decision, making and patient outcomes.
Speaker Change: Our team also demonstrated exceptional execution and driving productivity improvements and effective cost management building on our lean initiatives, we proactively evaluated and are implementing mitigation strategies for tariff impacts and response to escalating geopolitical and trade tensions.
John DiVincenzo: Our team also demonstrated exceptional execution in driving productivity improvements and effective cost management, building on our lean We proactively evaluated and are implementing mitigation strategies for tariff impacts in response to escalating geopolitical and trade tensions. in Diagnostics. Continues to show solid demand, offsetting reimbursement reductions in China with nearly 3% growth in the rest of the world. In Life Science, we navigated academic and biopharma research funding headwinds, particularly in the U.S., while maintaining strong demand for consumables. Process chromatography returned to growth, as I stated, and our DDPCR portfolio maintained its momentum and strong reagent and consumables growth.
Speaker Change: And diagnostics.
Speaker Change: We continued to show solid demand.
Speaker Change: Offsetting reimbursement reductions in China, with nearly 3% growth in the rest of the world.
Speaker Change: Life Science, we navigated academic and Biopharma research funding headwinds, particularly in the U S. While maintaining strong demand for consumables.
Speaker Change: Process chromatography, returning to growth as I stated in our GDP you see our portfolio maintained its momentum and strong reagents and consumables growth.
Speaker Change: Our acquisition of <unk> technology remains on track for closing by the end of the third quarter. We are excited about the silver platform as it expands our offering in the digital PCR segment from gene expression to targeted rare mutation detection.
John DiVincenzo: Our acquisition of Stila Technology remained on track for closing by the end of the third quarter. We are excited about the Stila platform as it expands our offering in the digital PCR segment from gene expression to targeted rare mutations. We're planning a webinar following the close of the STILA transaction to outline our strategy in digital PCR with the addition of the STILA and Continuum platform.
Speaker Change: We're planning a webinar following the close of the stellar transaction to outline our strategy and digital PCR with the addition of the still it and continue on platforms.
Speaker Change: During the quarter I visited several of our global teams across three continents, including nine manufacturing sites and customer visits for both our life Sciences diagnostics segments.
John DiVincenzo: During the quarter, I visited several of our global teams across three continents, including nine manufacturing sites.
John DiVincenzo: and Natalie Cronkite. These visits reinforce my confidence in our team's commitment, strength of our global organization, and fantastic relationships with our customers. Our investments in efficiency and productivity within our manufacturing sites and distribution centers are yielding tangible results.
Speaker Change: These visits reinforce my confidence in our team's commitment and strength of our global organization and fantastic relationships with our customers.
Speaker Change: Our investments in efficiency and productivity within our manufacturing sites and distribution centers are yielding tangible results.
My travels, including a meeting with the leaders of the German Red Cross blood donation service, where we were recently awarded a multiyear contract renewal for our immuno hematology platform, a testament to the quality and reliability of our solutions.
John DiVincenzo: My travel is including a meeting with the leaders of the German Red Cross Blood Donation where we were recently awarded a multi-year contract renewal for our immunohematology platform, a testament to the quality and reliability of our. At Bio Rad, we continue to advance in our abilities to develop innovative products, drive operational excellence, and build upon our relationships with customers in over 133 countries. as we are laser focused on delivering sustainable, profitable growth.
Speaker Change: At <unk>, we continue to advance on our abilities to develop innovative products drive operational excellence and build upon our relationships with customers in over 133 countries.
Speaker Change: As we are laser focused on delivering sustainable profitable growth.
Roop Lakkaraju: Thank you for your ongoing support and I will now turn the call over to Roop for a review of our financial performance. Thank you, John, and good afternoon. I'd like to start with a review of the first quarter 2025 results. Overall, we executed well during the quarter, which allowed us to deliver revenue and operating profit and margin ahead of consensus estimates for Q1. Net sales for the first quarter of 2025 were approximately $585 million, which represents a 4.2% decline on a reported basis versus $611 million in Q1 of 2024. On a currency neutral basis, this represents a 1.5% year-over-year decrease and was primarily driven by lower sales in our life science group.
Speaker Change: We thank you for your ongoing support and I will now turn the call over to Ruth for a review of our financial performance.
Ruth: Thank you John and good afternoon, I'd like to start with a review of the first quarter 2025 results overall, we executed well during the quarter, which allowed us to deliver revenue and operating profit and margin ahead of consensus estimates for Q1 net sales for the first quarter of 2025 were approximately 585 million, which represents a four.
Ruth: 2% decline on a reported basis versus $611 million in Q1 of 2024 on a currency neutral basis. This represents a one 5% year over year decrease was primarily driven by lower sales in our life Science group.
Roop Lakkaraju: Sales of Life Science Group in the first quarter of 2025 were $229 million compared to $242 million in Q1 of 2024, which is a decline of 5.4% on a reported basis and 3.5% on a currency neutral basis, primarily reflecting ongoing softness in the biotech and academic research market, particularly in the Americas. Currency neutral sales decreased in the Americas and Asia Pacific partially offset by increased sales in the Americas and Asia Pacific. Our process chromatography business experienced mid-teens growth on a year-over-year basis. The strength in Q1 was due to the timing of customers' orders, and we continue to expect high single-digit growth for this area in 2025.
Sales of life Science group in the first quarter of 2025 or $229 million compared to 242 million in Q1 of 2024, which is a decline of five 4% on a reported basis and three 5% on a currency neutral basis, primarily reflecting ongoing softness in the biotech and.
Ruth: <unk> research market, particularly in the Americas currency neutral sales decrease in the Americas, and Asia Pacific, partially offset by increased sales in EMEA.
Ruth: Our process chromatography business experienced mid teens growth on a year over year basis. The strength in Q1 was due to the timing of customers orders and we continue to expect high single digit growth for this area in 2025.
Ruth: Excluding process chromatography sales core life Science group revenue decreased seven 5% year over year, and five 5% on a currency neutral basis due to the softness across the markets for instrument demand.
Roop Lakkaraju: Excluding process chromatography sales, core life science group revenue decreased seven and a half percent year over year and five and a half percent on a currency neutral basis due to the softness across the markets for instrument demand. Sales of the Clinical Diagnostics Group in the first quarter of 2025 were approximately $357 million compared to $369 million in Q1 of 2024, which is a decrease of 3.2% on a reported basis and effectively flat on a currency neutral basis. Increased demand for our quality control products was offset by the expected lower diabetes testing revenue, and we currently do not expect further reimbursement changes in China this year.
Ruth: Sales of the clinical diagnostics group in the first quarter of 2025 were approximately $357 million compared to $369 million in Q1 of 2024, which is a decrease of three 2% on a reported basis and effectively flat on a currency neutral basis.
Ruth: Increased demand for our quality control products was offset by the expected lower diabetes testing revenue.
Ruth: We currently do not.
Ruth: <unk> further reimbursement changes in China. This year on a geographic basis currency neutral sales decrease in Asia Pacific, partially offset by increased sales in EMEA.
Roop Lakkaraju: On a geographic basis, currency neutral sales decreased in Asia Pacific, partially offset by increased sales in EMEA and the Americas. Q1 reported GAAP gross margin was 52.3% as compared to 53.4% in the first quarter of 2024. The decrease in gross margin was primarily driven by restructuring expenses related to the workforce reduction announced during the first quarter of 2025. SG&A expense for the first quarter of 2025 was $209 million, or 35.7% of sales compared to $215 million, or 35.2% in Q1 of 2024. The decrease in SG&A expense was primarily due to lower discretionary spending and employee-related costs, partially offset by restructuring costs.
Ruth: And the Americas.
Ruth: Q1 reported GAAP gross margin was 52, 3% as compared to 53, 4% in the first quarter of 2020 for the decrease in gross margin was primarily driven by restructuring expenses related to the workforce reduction announced during the first quarter of 2025.
Ruth: SG&A expense for the first quarter of 2025 was 209 million or 35, 7% of sales compared to $215 million or 35, 2% in Q1 of 2020 for.
Ruth: The decrease in SG&A expense was primarily due to lower discretionary spending and employee related costs, partially offset by restructuring costs.
Roop Lakkaraju: Research and development expense in the first quarter was 74 million or 12.6% of sales, compared to 66 million or 10.9% of sales in Q1 of 2024. The higher year-over-year R&D was primarily due to restructuring costs, partially offset by lower employee-related expenses. Q1 operating income was approximately $24 million or 4% of sales compared to $45 million or 7.3% of sales in Q1 of 2024. Lower operating income is driven by higher restructuring costs, partially upset by the revenue mix, continued proactive expense management initiatives. During the quarter, interest and other income resulted in net other income of $28 million compared to net other income of $24 million last year.
Ruth: Research and development expense in the first quarter was $74 million or 12, 6% of sales compared to $66 million or 10, 9% of sales in Q1 of 2024.
Ruth: Higher year over year, R&D was primarily due to restructuring costs, partially offset by lower employee related expenses.
Ruth: Q1, operating income was approximately $24 million or 4% of sales compared to $45 million or seven 3% of sales in Q1 of 'twenty for lower operating income is driven by higher restructuring costs, partially offset by the revenue mix continued proactive expense management initiatives.
Ruth: During the quarter interest and other income resulted in net other income of 28 million compare to the net other income of $24 million last year.
Roop Lakkaraju: The change in fair market value of equity security holdings, primarily related to the ownership of Sartorius AG shares, contributed to our reported net income of $64 million, or $2.29 per diluted share. The effective tax rate for the first quarter of 2025 was 23.3% compared to 21.8% for the same period in 2024. The higher rate in 2025 was driven by a geographical mix of earnings.
Ruth: The change in fair market value of equity security holdings, primarily related to the ownership or Sartorius AG shares cream attributed to our reported net income of $64 million or $2 29 per diluted share.
Ruth: The effective tax rate for the first quarter of 2025 was 23, 3% compared to 21, 8% for the same period in 2020 for the higher rate in 2025 was driven by our geographical mix of earnings.
Roop Lakkaraju: 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. First quarter non-GAAP gross margin was 53.8% in line with consensus, but lower than Q1 2024's results of 54.2%. First quarter non-GAAP operating margin was 10.8% compared to 9.7% Q1 of 2024. The non-GAAP effective tax rate for the first quarter of 2024 was 20.6%, compared to 22.4% for the same period in 2024.
Ruth: 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.
Ruth: First quarter non-GAAP gross margin was 53, 8% in line with consensus, but lower than Q1 2024 as results of 54, 2%.
Ruth: First quarter non-GAAP operating margin was 10, 8% compared to nine 7% in Q1 of 2024.
Ruth: The non-GAAP effective tax rate for the first quarter of 2024 was 26% compared to 22, 4% for the same period in 2024.
Roop Lakkaraju: The lower rate in 2025 was driven by our geographical mix of earnings. Finally, non-GAAP net income for the first quarter of 2025 was $71 million, or $2.54, diluted earnings per share.
Ruth: The lower rate in 2025 was driven by our geographical mix of earnings.
Ruth: Finally, non-GAAP net income for the first quarter 2025 was $71 million or $2 54.
Ruth: Diluted earnings per share.
Roop Lakkaraju: Moving on to the balance. Total cash and short-term investments at the end of Q1 were $1,660,000,000 compared to $1,665,000,000 at the end of Q4 2024. Inventory at the end of Q1 was $790,000,000, up from $760,000,000 in the prior quarter. For the first quarter of 2025, net cash generated from operating activities was $130 million compared to $70 million for Q1 of 2024. Net capital expenditures for the first quarter of 2025 were $34 million and depreciation amortization for the first quarter was $38 million. Regarding free cash flow for the first quarter of 2025, we were pleased with the generation of $96 million, which compares to $30 million in Q1 of 2024.
Ruth: Moving onto the balance sheet.
Ruth: Total cash and short term investments at the end of Q1 were $1 $660 million compared to $1 $665 million at the end of Q4 2020 for inventory at the end of Q1 was $790 million up from $760 million in the prior quarter.
Ruth: For the first quarter of 2025 net cash generated from operating activities was $130 million compared to $70 million for Q1 of 2024.
Ruth: Net capital expenditures for the first quarter of 2025 or.
Ruth: $34 million in depreciation and amortization for the first quarter was $38 million.
Ruth: Regarding free cash flow for the first quarter of 2025, we were pleased with the generation of $96 million, which compares to $30 million in Q1 of 2024, we continue to target full year cash flow free cash flow of approximately $310 million to $330 million for 2025.
Roop Lakkaraju: We continue to target full-year free cash flow of approximately $310 to $330 million for 2025. During the first quarter, we purchased 399,295 shares of our stock for a total cost of $101 million, or an average purchase price of approximately $253 per share. In April, we purchased an additional 422,648 shares of our stock for a total cost of $99 million, or an average purchase price of approximately $234 per share. We will continue to be opportunistic with our buyback program and still have $377 million available for share repurchases under the current board authorized program.
Ruth: During the first quarter.
Ruth: Purchased 399295 shares of our stock for a total cost of $101 million or an average purchase price of approximately $253 per share in April we purchased an additional 422648 shares of our stock for a total cost of $99 million.
Ruth: Or an average purchase price of approximately $2 $234 per share.
Ruth: We will continue to be opportunistic with our buyback program and still have $377 million available for share repurchases under the current board authorized program.
Ruth: Moving on to the non-GAAP guidance for 2025, we are updating our 2025 full year guide to reflect the Q1 results the evolving state of the academic and biotech research funding and the impact of recent changes in the macro economy, including tariffs.
Roop Lakkaraju: Moving on to the non-GAAP guidance for 2025. We are updating our 2025 full-year guide to reflect the Q1 results, evolving state of the academic and biotech research funding, and the impact of recent changes in the macroeconomy, including tariffs. We recognize that the recent macro changes are causing uncertainty and remain fluid. However, in the interest of full transparency, we're providing our best estimates of the impact of the known changes as of today. Overall, we now expect total currency neutral revenue to be in the range of approximately a 1% decline to 1.5% growth or approximately 225 basis points lower than our previous guide.
Ruth: We recognize that the recent macro changes are causing uncertainty and remain fluid. However in the interest of full transparency, we are providing our best estimates of the impact of the known changes as of today. Overall, we now expect total currency neutral revenue to be in the range of approximately a 1% decline to one five.
Ruth: 5% growth or approximately 225 basis points lower than our previous guidance.
Roop Lakkaraju: I'll start with the effect of the softer academic research funding as a result of changes in U.S. policy. We now expect these life science purchases to be more muted in 2025, in particular, demand for instruments as customers evaluate the impact of potential changes to government funding. We are also seeing reduced demand from biotech customers, particularly among small and mid-sized development stage companies that have become more conservative with equipment spending due to the increased volatility in the capital market. As such, we now expect our life science business to be in the range of flat to down 3% for the full year versus a growth of approximately 1.5% to 3.5% previously.
Ruth: I'll start with the effect of the softer academic research funding as a result of the changes in U S policy.
Ruth: We now expect these life science purchases to be more muted in 2025 in particular demand for instruments as customers evaluate the impact of potential changes to government funding we.
Ruth: We are also seeing reduced demand from biotech customers, particularly among small and mid sized development stage companies that have become more conservative with equipment spending due to the increased volatility in the capital markets.
Ruth: As such we now expect our life science business to be in the range of flat to down 3% for the full year versus a growth of approximately one 5% to three 5% previously.
Ruth: Next we are de risking our diagnostics growth outlook by approximately 100 basis points to reflect a softer macroeconomic environment, particularly in China and now anticipate full year growth of approximately eight 5% to two 5% to.
Roop Lakkaraju: Next, we are de-risking our diagnostics growth outlook by approximately 100 basis points to reflect a softer macroeconomic environment, particularly in China, and now anticipate full-year growth of approximately 0.5 to 2.5 percent. The net effect of the market softness in our business group is approximately a hundred basis point headwind to operating margin.
Ruth: The net effect of the market softness in our business group is approximately 100 basis point headwind to operating margin.
Roop Lakkaraju: Finally, the impact of terror. Our updated guidance considers tariffs that are in effect globally as of today and assumes no change in the current U.S. policy. The net impact of the tariffs is 130 basis point headwind to operating margin, primarily due to U.S. manufactured products that are imported into China. Included in this updated view are actions we are taking to partially mitigate the effects of the tariffs, such as surcharges, pre-positioning inventory in certain countries, further regionalizing supply chains, and identifying additional in-region manufacturing opportunities. Factoring in the above, the updated full year non-gap gross margin is projected to be between 53 and 54.5%.
Ruth: Finally, the impact of tariffs.
Ruth: Our updated guidance considers tariffs that are in effect globally as of today and assumes no change in the current U S policy. The net impact of the tariffs is 130 basis point headwind to operating margin, primarily due to a U S manufactured products that are imported into China <unk>.
Ruth: Included in this updated view of our actions we are taking to partially mitigate the effects of the tariffs tariffs such as surcharges pre positioning inventory in certain countries further regionalized supply chains and identifying additional in region manufacturing opportunities.
Ruth: Factoring in the above the updated full year non-GAAP gross margin is projected to be between 53 and 54, 5%.
Roop Lakkaraju: Note that we were able to offset the impact from market softness through our actions and the difference relative to our prior full-year gross margin outlook of 55 to 55.5% is entirely due to the impact of tariffs. Full-year non-GAAP operating margin is projected to be between 10% and 12%. Included in this range are the above considerations that I just spoke of.
Ruth: Note that we were able to offset the impact from market softness through our actions and the difference relative to our prior full year gross margin outlook of $55 to 55, 5% is entirely due to the impact of tariffs.
Ruth: Full year non-GAAP operating margin is projected to be between 10% and 12% included in this range are the above considerations that I just spoke up. Additionally, we continue to be on track to achieve our key development milestones in Q3 2025 related to sabre buyout, which as discussed previously would result in a onetime in process R&D charge.
Roop Lakkaraju: Additionally, we continue to be on track to achieve a key development milestone in Q3 2025 related to SaberBio, which, as discussed previously, would result in a one-time in-process R&D charge of $10 million. As a result of the recent weakening U.S. dollar, we expect less of a headwind to our revenue and operating income than our prior guidance. We now expect approximately a 100-basis-point headwind to 2025 revenue, an approximate 20-basis-point impact on operating margin versus the prior 40-basis-point effect.
Ruth: $10 million.
Ruth: As a result of the recent weakening U S. Dollar, we expect less of a headwind to our revenue and operating income than our prior guidance. We now expect approximately a 100 basis point headwind to 2025 revenue and approximate 20 basis point impact on operating margin versus the prior 40 basis point effect.
Ruth: We estimate the non-GAAP full year tax rate to be approximately 22 versus 23% previously due to the change in the equity value of Sartorius investment.
Roop Lakkaraju: We estimate the non-GAAP full-year tax rate to be approximately 22% versus 23% previously due to the change in the equity value of Sertorius Investments.
Ruth: With our updated outlook for 2025, we recognize that there are many moving pieces and the situation is evolving rapidly. There is a wide range of scenarios that could ultimately play out.
Roop Lakkaraju: With our updated outlook for 2025, we recognize that there are many moving pieces and the situation is evolving rapidly. There's a wide range of scenarios that could ultimately play out. That said, we're trying to be prudent and transparent in providing the key headwinds that we are currently seeing in the market. Where possible, we are focused on mitigating the impacts from proposed tariffs and global trade disruptions to deliver results for shareholders.
Ruth: That said, we're trying to be prudent and transparent in providing the key headwinds that we are currently seeing in the marketplace, where possible. We are focused on mitigating the impacts from proposed tariffs and global trade disruptions to deliver results for shareholders as you've seen in the past year management approach to guidance is to be realistic in setting expectations.
Roop Lakkaraju: As you've seen in the past year, management's approach to guidance is to be realistic in setting expectations. While we are adjusting our 2025 outlook, this does not shift our focus from the significant opportunities we see in enhancing business performance. driving consistent top line growth remains central to our strategy, and a key enabler of substantial margin expansion. We are confident that our ability to improve operational efficiency and strategically optimize our footprint will allow us to capture hundreds of basis points in margin expansion over the coming years.
Ruth: <unk>.
Ruth: While we are adjusting our 2025 outlook. This does not shift our focus from the significant opportunities we see in enhancing business performance driving consistent topline growth remains central to our strategy and a key enabler of substantial margin expansion.
Ruth: We are confident that our ability to improve operational efficiency and strategically optimize our footprint will allow us to capture hundreds of basis points of margin expansion over the coming years.
Roop Lakkaraju: We're eager to share more about this opportunity and other critical aspects of our business at our Investor Day this fall.
Ruth: We're eager to share more about this opportunity and other critical aspects of our business at our Investor Day. This fall.
Norman Schwartz: I'll now turn the call over to Norman for his remarks. Okay, so... I think as Roop has alluded to, you know, we continue to operate in what I think of as a very dynamic environment. And I would say that in all my years in this business, I've never experienced such a prolonged period of. macroeconomic headwind. and their impact on the growth of our business, I would say, especially for for life science. However, We are still in the golden age of biology and I continue to see a long runway ahead for life science research and for diagnostics, the two principal markets that we serve.
Norman Schwartz: I'll now turn the call over to Norman for his remarks.
Norman Schwartz: Okay. So.
Speaker Change: I think as <unk> alluded to.
Norman Schwartz: We continue to operate in.
Norman Schwartz: What I think I would say in a very dynamic environment.
Norman Schwartz: And I would say that in all my years in this business I have never experienced such a prolonged period of.
Norman Schwartz: Macroeconomic headwinds and.
Norman Schwartz: And their impact on the growth of our business I would say, especially for for life science.
Norman Schwartz: However.
Norman Schwartz: We are still in the Golden age of biology, and I continue to see a long runway ahead for for life Science research and diagnostics. The two principal markets that we serve.
Norman Schwartz: We remain committed to our customers, the attractive markets that we serve. and certainly the contributions we can make, which position Bio Rad for consistent, profitable growth. Second, I would say that with our strong balance sheet, we have tremendous optionality. We continue to invest in our business and remain active in evaluating. Inorganic Opportunities. Opportunities that potentially offer values to customers immediately. With the increased volatility in the equity market in the past few months, we are seeing more opportunities as valuations for assets have moderated relative to where they have been in recent years. And finally, I guess I would note that Bio Rad has been resilient.
Norman Schwartz: We remain committed to our customers the attractive markets that we serve.
Norman Schwartz: And certainly the contributions we can make which positioned by our AD for consistent profitable growth.
Norman Schwartz: Second I would say that with our strong balance sheet.
Norman Schwartz: We have tremendous optionality.
Norman Schwartz: We continue to invest in our business, we remain active in evaluating.
Norman Schwartz: Inorganic opportunities.
Norman Schwartz: Opportunities that potentially offer values to customers immediately.
Norman Schwartz: With the increased volatility in the equity market in the past few months.
Norman Schwartz: We are seeing more opportunities as valuations for assets have moderated.
Norman Schwartz: Primitive to where they have been in recent years.
Norman Schwartz: And finally, I guess I would note that <unk> has been resilient.
Norman Schwartz: and has persevered through many cycles in our 70-plus year history.
Norman Schwartz: And has persevered through many cycles, and our 70 plus year history.
Norman Schwartz: To the credit and determination of Bio Rad employees around the world, we continue to advance our corporate transformation and believe we'll come through this dynamic period even stronger than before.
Speaker Change: To the credit and determination of Bayreuth employees around the world.
Norman Schwartz: Continue to advance our corporate transformation and.
Norman Schwartz: Believe will come through this dynamic period, even stronger than before.
Norman Schwartz: So add that that's all I have to turn it back to you and that concludes our prepared remarks and now we'll open the line to take your questions.
Norman Schwartz: So Ed, that's all I have.
Edward Chong: Turn it back to you. That concludes our prepared remarks.
Edward Chong: And now we'll open the line to take your questions.
Operator: Operator? Thank you.
Norman Schwartz: Greater.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.
Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue.
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Patrick Donnelly: And our first question comes from the line of Patrick Donnelly with Citigroup. Your line is open. Hey, guys, thank you for taking the questions.
Speaker Change: And our first question comes from the line of Patrick Donnelly with Citigroup. Your line is open.
Patrick Donnelly: Hey, guys. Thank you for taking the questions.
Roop Lakkaraju: Roop, probably one for you to start, not surprisingly, on tariffs. You know, sounds like you guys are layering in some impact into the guide. Can you just talk about maybe the gross impact, what mitigation efforts you guys are doing? It sounds like potential surcharges, I'm sure some acceleration on the cost side. And what's the ability to contain this impact into 2025? Does some of it linger? Maybe just walk us through what you're seeing, what the mitigation efforts are, and how to think about them. Yeah, of course. Thanks, Patrick, for the question. Not surprising also in terms of leading up with tariffs, right?
Patrick Donnelly: Probably one for you to start not surprisingly on tariffs.
Patrick Donnelly: It sounds like you guys are layering in some impact into the guide can you just talk about maybe the gross impact what mitigation efforts you guys are doing it sounds like potential surcharges I'm sure some acceleration on the cost side and what's the ability to contain this impact into 2025 some of it linger, maybe just walk us through what Youre seeing.
Patrick Donnelly: What the mitigation efforts are and how to think about this.
Yes of course, thanks, Patrick for the question.
Patrick Donnelly: Not surprising also in terms of leading off with tariffs right.
Roop Lakkaraju: So there are a number of different factors.
Patrick Donnelly: So there are a number of factors, let let's step back first of all maybe just to understand where the tariff impacts are coming from I think theres a few different aspects one is.
Roop Lakkaraju: Let's step back, first of all, maybe just to understand where the tariff impacts are coming from. I think there's a few different aspects. One is, you know, our global footprint is a positive for us. However, we don't have China manufacturing. So that's one consideration here. Where the tariffs are most significantly impacting us is obviously U.S. products being shipped into China, but also Europe products that are being shipped into the U.S., and so we're very mindful of that. And then there's, of course, supplier considerations. As we think about these different tariff pieces, we are taking actions in terms of potential surcharges, as I've mentioned in my prepared remarks, but we also have been seeking to do preposition inventory, and that's been another aspect of it.
Patrick Donnelly: Our global footprint is a positive for us. However, we don't have China manufacturing footprint today. So that's one consideration here, where the tariffs are most significantly impacting us is obviously U S products being shipped into China, but also Europe products that are being shipped into the U S. And so we're very mindful of that and then there is of course.
Patrick Donnelly: <unk> considerations as we think about these different tariff pieces we.
Patrick Donnelly: We are taking actions in terms of potential surcharges as I've mentioned in my prepared remarks, but we also have been seeking to preposition inventory.
Patrick Donnelly: And that's been another aspect of it the other pieces of this are longer term right in terms of looking at in region manufacturing opportunities. But also then how do we drive further supply chain.
Roop Lakkaraju: The other pieces of this are longer term, right, in terms of looking at in-region manufacturing opportunities, but also then how do we drive further supply chain vitality in-region as well in support of the manufacturing. And so all of these, but those last two that I just mentioned are longer term in nature, and especially for our diagnostics part of the business, which, as you think about the regulatory considerations, it's a multi-year journey. And so as we think about the gross margin and operating margin effect here, the gross margin, as I mentioned, movement from the original guide is effectively all tariff-related.
Patrick Donnelly: Vitality in region as well in support of the manufacturing and so all of these but those was last two that I just mentioned are longer term in nature, and especially for our diagnostics part of the business, which as you think about the regulatory considerations, it's a multiyear journey and so as we think about.
Patrick Donnelly: The gross margin and operating margin effect here.
Patrick Donnelly: The gross margin as I mentioned movement from the original guide is effectively all tariff related we were able to mitigate the operational softness we're seeing sorry market softness we are seeing.
Roop Lakkaraju: We were able to mitigate the operational softness we're seeing, or I'm sorry, market softness we're seeing. And so when you think about that, it's how can we look at, within 2025, any further actions we can take. And we'll seek to limit it to 2025, however, I think it's still a fluid environment, and so it's hard to say what 26 might hold at this point in time. Okay, that's helpful.
Patrick Donnelly: And so when you think about that it's how can we look at within 2025 any further actions, we can take and we will seek the limited to 2025. However, I think it's still a fluid environment and so it's hard to say what 26 might hold at this point in time.
Speaker Change: Okay. That's helpful and then just the academic side.
Roop Lakkaraju: And then just the academic side, you know, obviously, that's worsened here over the past, you know, past couple months. What have you guys seen as we work our way through March and April? Obviously, the NIH proposal came out with that 40% cut.
Speaker Change: Obviously, that's worrisome here over the past past couple of months what have you guys seen hey, guys. We work our way through March and April obviously, the IH proposal came out at 40% cut what's the expectation now for academic and again, maybe just the cadence of what you saw as we worked our way through the quarter and into April on that segment would be.
Roop Lakkaraju: What's the expectation now for academic and again, maybe just the cadence of what you saw as we worked our way through the quarter and into April on that segment would be would be helpful. Yeah, maybe I can start and then have Norman and John jump in as well. I think what we saw, and there's been some recent articles just on level of funding decrease that's occurred. There was something that came out more recently in the last day or two, talked about a 28% reduction in overall funding. I think through the first quarter, we were able to hold, and especially because the consumables were maintained to be fairly strong.
Speaker Change: Would be helpful.
Speaker Change: Yes, maybe maybe I can start and then have Norway and John jump in as well.
Speaker Change: I think what we saw it and there's been some recent article is just on level of funding decrease that's occurred there was something that came out more recently in the last day or two talked about a 28% reduction in overall funding.
Speaker Change: I think through the first quarter, we were able to hold and especially because of consumables.
Speaker Change: Were maintained to be fairly strong it really is the instruments, where we saw the softness more so.
Roop Lakkaraju: It really is the instruments where we saw the softness more so. But it worsened as we had gone through Q1.
Speaker Change: But it it worsened as we had gone through Q1 and as we think about where we are in Q2 and moving forward I think the continued.
Roop Lakkaraju: And as we think about where we are in Q2 and moving forward, I think the continued lack of clarity on what is the funding level, where's the thresholds going to be maintained, what level of funding is going to be provided, that's creating some additional challenges for people from an activity standpoint. We're still seeing consumables activity, or activity, and especially on the consumables side. It's the instrument side that continues to be challenging, I think for us at this point. Okay, and maybe last.
Speaker Change: Lack of clarity on what is the funding level Where's the.
Speaker Change: Threshold is going to be maintained what level of funding is going to be provided that's creating some some additional challenges for people from.
Speaker Change: And activity standpoint, we're still seeing consumables activity, our activity and especially on the consumable side. It's the instrument side that continues to be challenging.
Speaker Change: I think for us at this point in time.
Speaker Change: Okay.
Speaker Change: And maybe lastly, so yes.
Roop Lakkaraju: So, yeah, go ahead.
Speaker Change: Yes.
Speaker Change: Go ahead.
Daniel Leonard: Our next question comes from the line of Daniel Leonard with UBS. Your line is open. Thank you.
Speaker Change: Our next question comes from the line of Dan Leonard with UBS. Your line is open.
Speaker Change: Thank you maybe just riff off that last question there.
Roop Lakkaraju: Maybe just to riff off that last question there, how wide is the gap at this point in growth between consumables and equipment? I would say it's been a bit of a deterioration. If I just look at it sequentially in terms of the instruments... Sales on a sequential basis, Dan. It's probably down about 10% further decline. Consumables actually have held up fairly well from a sequential standpoint in Q1 versus Q4. Maybe just a tad down, but still very strong overall. Hopefully that gives you a sense of where we are. They answer your perspective. That's helpful.
Speaker Change: How wide is the gap at this point in growth between consumables and equipment.
Speaker Change: I would say, it's been a bit of a deterioration if I just look at it sequentially in terms of the instruments.
Speaker Change: Sales on a sequential basis, Dan, it's probably down about 10% further decline consumables actually had held up fairly well from a sequential standpoint in Q1 versus Q4, maybe just tad down but still very strong overall hopefully that gives you.
Speaker Change: The answer or perspective, you are seeking.
Speaker Change: That's helpful and then as a follow up.
Roop Lakkaraju: And then as a follow-up I could use a little bit more help understanding exactly the tariff exposure.
Speaker Change: I could use a little bit more help understanding exactly the tariff exposure. So a couple of specific questions.
Roop Lakkaraju: So a couple of specific questions. What proportion of your revenue in China is sourced from the U.S.? What percentage of your revenue in the U.S. is sourced from the U.S.? And that's insulated from Europe or China tariffs. And what assumption are you making regarding who eats the tariff? How much are you offsetting with a surcharge versus absorbing the tariffs on your P&L?
Speaker Change: What proportion of your revenue in China is sourced from the U S. What percentage of your revenue in the U S is sourced from the U S and this insulated from Europe or China tariffs.
Speaker Change: What assumption are you, making regarding who.
Speaker Change: Who eats the tariffs how much are you off setting with a surcharge versus absorbing the tariffs on your P&L.
Speaker Change: Yes, so so.
Roop Lakkaraju: Yeah, so so again, we don't have any China manufacturing, right. So that's first and foremost to understand. So you can imagine that the revenue that's going into China is either coming from the US or Singapore predominantly. or there's a bit in Europe as well. And the biggest piece of the tariff impact is those pieces obviously coming from the U.S. into China, and especially on the diagnostic side of it. And so that's where we're seeing the largest impact of the tariffs overall in terms of what we've argued.
Speaker Change: Again, we don't have any China manufacturing right. So thats first and foremost to understand so you can imagine that.
Speaker Change: The revenue.
Speaker Change: Going into China is either coming from the U S or Singapore predominantly or there is a bit in Europe, as well and the biggest piece of the tariff impact as those pieces, obviously coming from the U S into China and especially.
Speaker Change: On the diagnostics side of the house and so that's where we're seeing the largest impact of.
Speaker Change: Of the tariffs overall in terms of what we've articulated.
Roop Lakkaraju: And then your assumption on, do you absorb that tariff on your P&L? Yeah, I mean, I think it's something we're evaluating. Obviously, we talked about surcharges that that we're putting in place. And we're working through that and have deployed that already. But as we think about how things are evolving, I think we're also mindful of how the situation is evolving on a geographic basis. especially China with the U.S. We've prepared to put in some price adjustments and surcharges. Of course, on the diagnostic side, we have a longer-term contract. If we can absorb it, we absorb it.
Speaker Change: And then your assumption on.
Speaker Change: Observe that tariff on your P&L.
Speaker Change: Yes, I mean, I think it's something we are evaluate obviously, we talked about surcharges that were putting in place.
Speaker Change: And we're working through that and have deployed that already but as we think about how things are evolving I think we're also mindful of.
Speaker Change: How the situation is evolving on a geographic basis, especially China with the U S. Specifically okay.
Speaker Change: Okay. Thank you we are prepared to put in some price adjustments and surcharges.
Speaker Change: Nearly effective immediately.
Speaker Change: Of course on the diagnostics side, we have longer term contracts, which do have some ability to adjust but not exactly the same as in life Sciences.
Speaker Change: The team is kind of just preparing how could we compensate for the tariffs.
Speaker Change: If we can absorb it absorb it otherwise.
Speaker Change: Buying that as additional charges to customers.
Roop Lakkaraju: Okay. Thank you.
Speaker Change: Okay. Thank you. So just one more thing to keep in mind that it's.
Roop Lakkaraju: So just one more thing to keep in mind, that it's, you know, the tariff surcharges are not a free ride.
Speaker Change: Okay.
Speaker Change: The tariff surcharges are not a free ride.
Norman Schwartz: You know, many of these customers have limited budgets, so to the extent you have a tariff surcharge, you might reduce the amount of purchases that are made. Yeah, I was wondering that as well, Norman. Thank you.
Speaker Change: Many of these.
Speaker Change: <unk> have limited budgets so.
Speaker Change: To the extent you have a tariff surcharge you might reduce the.
Speaker Change: The amount of purchases that are made.
Speaker Change: Yes, I was wondering that as well Norman thank you.
Speaker Change: Yes.
Brandon Couillard: Next question comes from the line of Brandon Couillard with Wells Fargo. Your line is open. Hey, thanks. I want to follow up on that line of questioning. So as it relates to how much you're shipping to China, and some of your peers have assumed that, you know, that revenue just goes away, when it's not, it's not feasible for customers to buy the product. So have you assumed demand destruction? And are the surcharges on terms of like top line embedded in the guidance as of right now? Yeah, so two pieces there, Brandon. In terms of the latter, the surcharges are embedded, or consideration of the surcharges are embedded within the guide.
Speaker Change: Next question comes from the line of Brandon Couillard with Wells Fargo. Your line is open.
Brandon Couillard: Hey, Thanks, I want to follow up on that line of questioning so as it relates to.
Speaker Change: Product, you're shipping to China, and some of your peers have assumed that.
Speaker Change: That revenue just goes away and Scott is that feasible for customers to buy the product or have you assumed demand destruction and are the surcharges on terms of like topline embedded in the guidance.
Speaker Change: As of right now.
Speaker Change: So two pieces there Brandon in terms of the ladder the surcharges are embedded.
Speaker Change: Consideration of the surcharges that are embedded within the guide.
Roop Lakkaraju: In terms of the former, we are looking at it from a, so we're not looking at, we're trying, we are looking at it from the standpoint of preserving customer continuity and market share. And therefore, we are seeing it as strategic in terms of, if we, considering the tariff situation, how fluid it is, where surcharges ought to be applied and how we ought. But again, as I think Roop alluded to earlier, I mean, products going into China actually come from not just the Americas, but from Europe and from Asia. specifically Singapore. So, so we've got that.
Speaker Change: In terms of the former.
Speaker Change: We are looking at it from a so we're not looking at where we are looking at it from the standpoint of preserving customer continuity and market share and therefore, we are seeing it as strategic in terms of if we are considering the tariff situation.
Speaker Change: <unk> how fluid it is.
Speaker Change: Where surcharges ought to be applied and how we ought to do that.
Speaker Change: But again issued yesterday.
Roop alluded to earlier.
Speaker Change: <unk> products going into China actually come from.
Speaker Change: Not just the Americas, but.
Speaker Change: From Europe and from Asia.
Speaker Change: Specifically, Singapore, so so we've got that we've got.
Roop Lakkaraju: We've got A reasonable amount of mitigation of China tariff. for those products.
Speaker Change: A reasonable amount of mitigation.
Speaker Change: China tariffs.
Speaker Change: Sure.
Speaker Change: For those products.
Speaker Change: Okay.
Roop Lakkaraju: Okay, um, Roop, in terms of the guide, I mean, based on where you came in the first quarter, it still seems to imply a big second half ramp, especially when you're looking at it on a on a two year stacked comp basis. So you just help us understand like, to what degree do you think you de-risk the top line outlook enough for the back half? Boy, I mean, that is the question, isn't it, Brandon? I mean, we've tried to take a conservative view of the demand profile and how we see that softness. The ramp from Q1 to Q2 and Q2, Q3 are relatively flat.
Speaker Change: In terms of the guide.
Speaker Change: Based on where you came in in the first quarter. It still seems to imply a big second half ramp, especially when youre looking at it on a two year stacked comps.
Speaker Change: So can you just help us understand to what degree do you think it de risks the topline outlook enough.
Speaker Change: So the back half.
Speaker Change: Boy.
Speaker Change: Is the question isn't that Brandon I mean, we've tried to take a conservative view.
Speaker Change: The demand profile.
Speaker Change: How we see that softness.
Speaker Change: The ramp from Q1 to Q2 and Q2 Q3 are relatively flat.
Roop Lakkaraju: There's a little bit of an uptick. It's Q4, but we've also, and there's some specific nuances to, let's say, QSD, or is it part of its seasonality, part of it's some quality systems revenue that we see uptick. Process chrome continues relatively consistent through the year. So we've tried to de-risk it in terms of these moving pieces. I think we've, as we've tried to be over the course of last year or so, be reasonable in terms of our point of view. while really taking a prudent approach on what we're seeing in the market. And Brandon, all we have done is, you know, we've worked obviously very closely with the commercial teams here, looking at number of proposals, win rate, sales cycle, and then the run rate business.
Speaker Change: There is a little bit of uptick in Q4, but we've also and there are some specific nuances to.
Speaker Change: Let's face it <unk> or is it part of it's seasonality part of it.
Speaker Change: Some quality systems.
Speaker Change: Revenue that we see uptick process chrome continues relatively consistent through the year. So we've tried to derisk. It in terms of these moving pieces.
Speaker Change: I think we've.
Speaker Change: As we've tried to be over the course of the last year or so be reasonable in terms of our point of view.
Speaker Change: While while really taking a prudent approach on what we're seeing in the marketplace.
Speaker Change: And yes it does.
Speaker Change: Where it's obviously very closely with the commercial team's here looking at number of proposals win rate sales cycle and then the run rate business run rate business has continued to be.
Roop Lakkaraju: Run rate business has continued to be, you know, has modeled the run rate, as you can imagine on the The sales cycle is a little longer, although we maintain our win rate, which is a positive. So we believe that things will settle down here.
Speaker Change: As modeled.
The run rate as you can imagine on the instrument side of things the sales cycles are longer although we've maintained our win rate which is a positive.
Speaker Change: So we believe that things will settle down here in the coming months, if not quarters and.
Roop Lakkaraju: months of knuckle quarters and Current Forecast Okay, last one.
Speaker Change: The team is pretty optimistic on the current forecast.
Speaker Change: Capability.
Speaker Change: Yes.
Speaker Change: Okay last one Norman you mentioned the balance sheet Optionality.
Norman Schwartz: Norman, you mentioned the balance sheet optionality and availability of assets and valuations, which is helpful.
Speaker Change: Availability of assets valuations interest.
Norman Schwartz: Update us on your your priority or your preference for capital allocation right now. You're buying back a lot of stock, which is great. I mean, would you consider a larger deal, perhaps right now that's maybe north of a billion dollars? Or are you primarily still focused on bolt-ons? Just where your preferences? Yeah, yeah, I think, you know, especially given some of the given some of the what I think of as attractive inorganic opportunities that are that are bubbling up. I think there is a there is a real appetite for doing something meaningful. You know, obviously, the right deal is important for us.
Speaker Change: Full.
Speaker Change: Update us on your your priority of your preference for capital allocation right. Now you are buying back a lot of stock.
Speaker Change: Which is great.
Speaker Change: Would you consider a larger deal perhaps right now thats, maybe north of the $1 billion or are you primarily still focused on bolt ons, where your preferences.
Speaker Change: Yes, I think.
Speaker Change: Especially given some of the.
Speaker Change: Given some of the.
Speaker Change: I think of us.
Speaker Change: <unk> inorganic opportunities that are that are bubbling up.
Speaker Change: I think there is that there is a real appetite for doing something meaningful.
Speaker Change: Yes.
Speaker Change: Obviously, the right deal is important for us.
Norman Schwartz: You know, especially those larger things can provide scale. We can leverage our kind of global commercial operations. Yeah, lots of things we could do there. But I think we are focused a little bit on on larger things.
Speaker Change: Especially those largest haynes can provide scale.
Speaker Change: We can leverage our kind of global.
Speaker Change: Global commercial operations.
Speaker Change: <unk>.
Speaker Change: Yes lots of things, we could do there, but I think we are focused a little bit on on larger things and yes, we've got plenty of.
Tycho Peterson: And yeah, we've got plenty of Unknown Speaker, Jeff Bezos, Unknown Speaker, Unknown Speaker, Unknown Speaker, Unknown Our next question comes from the line of Tycho Peterson with Jeffries. Your line is open. Hey, thanks. This is Matt on for Tycho. Maybe just to start out on BioPharma, Roop, I think you talked about kind of softer trends on smaller and mid-size, obviously, Process Chrome, up mid-teens, and 1Q is good to see, I guess. On Process Chrome, you know, is there any kind of initial early-year stocking? You know, you have easy comps there. Why wouldn't that trend kind of continue relative to the high single-digit guide?
Speaker Change: And our capacity.
Speaker Change: And on our balance sheet.
Speaker Change: And certainly do something in the in the <unk> range.
Speaker Change: Thank you.
Brendan: Thanks Brendan.
Speaker Change: Our next question comes from the line of Tycho Peterson with Jefferies. Your line is open.
Speaker Change: Hey, Thanks. This is Matt on for Tycho, maybe just to start on Biopharma group I think you talked about kind of softer trends on smaller and mid size, obviously process chrome up mid teens in <unk> good to see I guess on process chrome.
Speaker Change: Is there any kind of initial early year stocking you have easy comps there why wouldn't that trend.
Speaker Change: Continue relative to the high single digit guide and then in terms of consumables versus instruments within Biopharma and maybe more specifically.
Roop Lakkaraju: And then in terms of consumables versus instruments within BioPharma, and maybe more specifically, you know, Droplet Digital PCR, has your outlook changed at all for the year in terms of consumables and instruments within that end market? Thanks. Yeah, thanks, Matt. Glad to have you on. So in terms of bioprocessing to start with, you know, process Chrome was was a positive for us, we it was nice to see to your question of why shouldn't that continue? It really is. And we didn't pull anything forward, but customer demand drove it such that they wanted some uptake earlier in Q1 than what we they would have otherwise wanted a little later for their own from their own manufacturing production standpoint.
Speaker Change: With digital PCR has your outlook changed at all for the year in terms of consumables and instruments.
Speaker Change: Within that within that end market.
Speaker Change: Yes, Thanks, Matt.
Speaker Change: Hi, everyone.
Speaker Change: In terms of bio processing to start with.
Speaker Change: <unk>.
Speaker Change: Process Chrome was was a positive for us it was nice to say to your question of why shouldn't that continue.
Speaker Change: It really is and we didn't pull anything forward, but customer demand drove it such that they wanted some uptake earlier in Q1 than what we would have otherwise wanted a little later for their own from their own manufacturing production standpoint, we still see it as a high single digit growth for the year.
Roop Lakkaraju: We still see it as a high single digit growth for the year. And really, just as we've we've expected that the D stocking has continued to decrease and it's normalizing as we would expect. So nothing unusual there. And so it's very much a positive there. In terms of your question on consumables and instrumentation, the real softness is really around instrumentation, and that's the biggest challenge for us. Consumables has held fairly nicely, even considering kind of the macro around academia, NIH, et cetera. And so we're happy to see that. But where the softness, we pulled it back.
Speaker Change: And really just as we've expected that Destocking has continued to decrease and it's normalizing as we would expect so nothing unusual there and it's very much a positive there for us in terms of your question on consumables and instrumentation.
Speaker Change: The real softness is really around instrumentation and thats the biggest challenge for US consumables has held.
Speaker Change: Fairly nicely.
Speaker Change: Even considering kind of the macro around academia, NIH et cetera and.
Speaker Change: And so we're happy to see that but where where the softness we've pulled it back is specifically related to academia and biotech if you will.
Roop Lakkaraju: It's specifically related to academia and biotech, if you will, and the instrumentation side of it. Okay, thanks. And then just one to clarify, I think you had baked in prior $15 million for the year on the reimbursement dynamics in China. I guess just to clarify, did those kind of play out as expected in 1Q in any way you can kind of quantify what the reimbursement headwind was to your China business here in the first quarter? Yeah, I think you said it well. It played out just as we expected, nothing different, nothing incremental. And just in terms of that number that you quoted just now, the $15 million, you just think of that as, you know, One quarter value of that is kind of played out.
Speaker Change: And the instrumentation side of that.
Speaker Change: Okay. Thanks, and then just wanted to clarify I think you had baked in prior $15 million for the year on the reimbursement dynamics in China, I guess just to clarify did those kind of play out as expected in <unk> in any way you can kind of quantify what the the reimbursement headwind was to your your China visit.
Speaker Change: Here in one quarter in the first quarter.
Speaker Change: Yes, I think you said it well.
Speaker Change: Laid out just as we expected nothing different.
Speaker Change: It's an incremental and just in terms of that number that you quoted just now the $15 million. If you just think of that as well.
Speaker Change: One quarter value of that is kind of played out effectively.
Speaker Change: Okay. Thanks, and maybe just one more understand you still haven't closed the deal you may read.
Roop Lakkaraju: Okay, thanks. Maybe just one more. Understand you still haven't closed the STILA deal. You may remain on track for the third quarter, but just any kind of color update in terms of conversations you've had with customers, you know, now that it's been some time since you've announced it. I think you'll give a strategy update here in a few months, but just any feedback or color from your customers since you've kind of announced the deal. Maybe, you know, excitement levels around that. Any more color to add around the STILA acquisition? Thank you. Yeah, I think, first of all, within our teams, you know, I mentioned that I kind of travel the globe during the quarter, and each of our teams are very excited about the platform and what we can do with our content on that platform, even into the food applied applications.
Speaker Change: <unk> is on track for the third quarter, but just any kind of color or update in terms of conversations you've had with customers now that it's been some time since you've announced it.
Speaker Change: Do you have a strategy update here in a few months, but just any feedback or color from you.
Speaker Change: Your customers since you've kind of announced the deal maybe.
Speaker Change: Heightened levels around that any more color to add around the still acquisition. Thank you, yes, I think first of all within our teams and I mentioned that I kind of.
Speaker Change: Travel the globe during the quarter and each of our teams are very excited about the platform and what we can do with our content on that platform.
Speaker Change: Even into the food applicator pilot applications. So.
Roop Lakkaraju: So we remain very excited about it. You know, we haven't been jumping the gun and engaging customers necessarily on certain things, but where it has come kind of across in certain areas, there's very positive feedback. I mean, I was very surprised that the brand awareness that's out there on the platform in various geographies around the globe. So we're bullish. You know, we still have a little ways to go here before we close the deal and can really kind of engage with customers. But overall, there's a lot of excitement. And it's, you know, I think that the exciting thing is the ease of use and the workflow of that platform is very, very exciting too.
Speaker Change: We remain very excited about it.
Speaker Change: Yes, we haven't been jumping the gun and engaging customers necessarily on certain things, but where it has come kind of across in certain areas. There is very positive feedback I was really surprised that the brand awareness that's out there on the platform in various geographies around the globe. So we're bullish.
Speaker Change: We still have a little ways to go here before we close the deal and can really kind of engage with customers but.
Speaker Change: Overall, there is a lot of excitement.
Speaker Change: And it's.
Speaker Change: I think that the exciting thing is the ease of use and the workflow of that platform is very very exciting too.
Speaker Change: The marketplace.
Speaker Change: Great. Thank you.
Speaker Change: Yes, Matt.
Speaker Change: Next question comes from the line of Conor Mcnamara with RBC capital markets. Your line is open.
Conor Mcnamara: Next question comes from the line of Conor McNamara with RBC Capital Markets. Your line is open. Hey, guys, thanks for taking the questions. Just first on the on the life science business. Can you talk about the dynamics there first on the pull forward on Process Chrome? You know, with any of that ahead of Terrace? Or, you know, what can you comment on the strength of that and kind of your the cadence of that through that through the year? Maybe we'll start there.
Conor Mcnamara: Hey, guys. Thanks for taking the questions.
Conor Mcnamara: First one on the life Science business can you talk about the dynamics there first on the pull forward.
Conor Mcnamara: Unprocessed chrome.
Conor Mcnamara: Was any of that ahead of tariffs.
Conor Mcnamara: What can you comment on the strength of that and kind of the cadence of that through that through the year, maybe we'll start there.
Roop Lakkaraju: Yeah, so Conor, I want to clarify, it wasn't necessarily a pull forward by us. It's something that was customer demand driven, right in terms of it. And we don't think it was tariff related. And it wasn't tariff related. So it wasn't a pre positioning of that revenue ahead of tariffs or anything like Okay, thanks for that. And then the team has basically confirmed their full year forecast as This is a very solid forecast. Okay, perfect. And then if my math is right, it looks like you're taking about $40 million out of the life science. Guide, which you know, I think you've said that the federally funded academic and government sales is 4% of your sales So is that 40 million all coming out of that and kind of are you making the assumption that'll be down 40% year over Year, or is there anything else baked into the life science cut?
Conor Mcnamara: Yes, so cotter I want to clarify it wasn't necessarily a pull forward by us it's something that was customer demand driven right in terms of it and we don't think it was tariff related it wasn't tariff so it wasn't a pre positioning.
Conor Mcnamara: That revenue ahead of tariffs or anything like that.
Speaker Change: Okay. Thanks for that and then the team is basically confirm their full year forecast as we submitted and that's pretty solid as a very solid forecast.
Speaker Change: Okay, Perfect and then if my math is right it looks like you've taken about $40 million out of the life science.
Speaker Change: Guide, which.
Speaker Change: I think you've said that the federally funded academic and government sales was 4% of your sales.
Speaker Change: Is that $40 million, all coming out of that and kind of are you, making any assumptions that will be down 40% year over year or is there anything else baked into the life science cut yes.
Roop Lakkaraju: Yeah, I mean it's it really is so you're right the federally funded slash NIH You said you said it's you know as we said before 4% remember academia broadly is a larger percentage of our overall revenue Somewhere in that let's call it 20 ish percent. So that's the other piece of that That comes into play right overall and and the other piece is as a function of that geographically China continuing to be soft from a macro and just You know, in the first quarter, as you've probably seen, Conor, there was a four, five, six week period of time there in February into March where there were almost no grants approved.
Speaker Change: Yes.
Speaker Change: It really is so you are right. The federally funded slash NIH you said as you said, it's as we said before 4% remember academia broadly as a larger percentage of our overall revenue somewhere in that let's call. It twentyish percent. So.
Speaker Change: That's the other piece of that.
Speaker Change: That comes into play right overall.
Speaker Change: And the other piece is as a <unk>.
Speaker Change: Function of that geographically, China continuing to be soft.
Speaker Change: From a macro and Jess situation standpoint.
Speaker Change: In the first quarter.
Speaker Change: As you've probably seen counter there were 456 week period of time, there in February and March where there were almost no grants approved or renewed so it was pretty dramatic impact there, we won't see that probably until a number of quarters from now.
Roop Lakkaraju: So it was pretty dramatic impact there. We won't see that probably until a number of quarters from now. And it may be a little more dramatic. but it's really soft. Yeah, I mean, hopefully that that will, as we go through the year that will, that will moderate that, that that that that cautiousness will moderate, you know, we still haven't seen Congress weigh in on the NIH going forward. So So we'll have to see how that goes. Got it. Okay, thanks for that. And this last one for me, you said you de-risk your clinical diagnostics growth by 100 basis points.
Speaker Change: And it may be a little more dramatic in the first quarter, then we're going to see the rest of the year, but theres certainly softness in concerned by our customers.
Speaker Change: Yes, I mean, hopefully that that will as we go through the year that that.
Speaker Change: That will moderate that.
Speaker Change: Yes.
Okay.
Speaker Change: Debt.
Speaker Change: Cautiousness will moderate.
Speaker Change: We still haven't seen Congress weigh in on the <unk>.
Speaker Change: <unk> going forward so.
Speaker Change: So we will have to see how that goes.
Brandon Couillard: Got it okay. Thanks for that and then just last one for me you said you've de risked your clinical diagnostics growth by 100 basis points does that is that just conservatism.
Roop Lakkaraju: Is that just conservatism on weaker demand ahead of, you know, because of what's going on in the macro environment? Or is there anything that you saw within the quarter, you know, exiting the quarter that would imply that that 100 basis points cut is what you're actually seeing? It just sounded like you're just picking a conservative tone on that. If you could give more color, I'd appreciate it. Well, I mean, again, let's keep in mind, I think it's the macro from a DX standpoint on activity levels is one aspect of it. China is another aspect of it.
Speaker Change: <unk> demand ahead of <unk> because of what's going on in the macro environment or is there anything that you saw within the quarter.
Brandon Couillard: Sitting in the quarter that would.
Brandon Couillard: Imply that that 100 basis point cut is what youre actually seeing it just sounded like youre, just taking a conservative tone on that if you could give more color I appreciate it.
Brandon Couillard: I mean again, let's keep in mind I think it's the macro from a Dx standpoint.
Speaker Change: Activity levels.
Speaker Change: As one aspect of it China is another aspect of it and China, maybe the more significant aspect of it right.
Roop Lakkaraju: And China may be the more significant aspect of it, right? And so those are the pieces and just You know, knock on wood, we haven't seen any further reimbursement rate changes or anything like that. VBP hasn't been... So really it's just a macro dynamic.
Speaker Change: And so those those are the pieces and just.
Speaker Change: Knock on wood, we haven't seen any further reimbursement rate changes or anything like that GBP hasnt been anything to note for us.
Speaker Change: And so it really is just the macro dynamics and softness.
Jack Meehan: And our last question comes from the line of Jack Meehan with Nephron Research.
Jack Meehan: And our last question comes from the line of Jack Meehan with Nephron Research. Your line is open.
Jack Meehan: Your line is open. Thank you.
Jack Meehan: Thank you good afternoon, everyone.
Jack Meehan: Good afternoon, everyone. Unknown Speaker Thank you. Wanted to start just follow up on the tariff assumptions here, this 130 BIPBOP margin impact. So it's about 30 million to EBIT. First, just want to confirm, is this a three quarter impact you're assuming for the reciprocal tariffs? And are you assuming any revenue impact or is it really just like the increased cost on exports for those products? Yeah, so it really depends on which tariffs are in play. So it's respective to the tariffs in play. Obviously, there are certain tariffs that have paused right now. Some are in effect already.
Jack Meehan: Okay.
Jack Meehan: Wanted to start just a follow up on the tariff assumptions here.
Jack Meehan: 30, Bip op margin impact so it's about $30 million to EBIT.
Jack Meehan: First just wanted to confirm is this a three quarter impact you're assuming for the rest of the proposed tariff.
Jack Meehan: And are you assuming any revenue impact or is it really just like the increased cost on exports for those products.
Jack Meehan: So so it really depends on which tariffs are in place so its respective to the tariffs and play obviously there are certain tariffs that have a pause right now some are in effect already so that's what's contemplated in terms of that guide what we also.
Roop Lakkaraju: So that's what's contemplated in terms of that guide. What we also determined is the surcharges as a net effect of that within that overall guide.
Jack Meehan: What we also determined as the.
Jack Meehan: Surcharges is a net effect of that.
Jack Meehan: Within that overall guide.
Roop Lakkaraju: Okay. And then you mentioned for the within the diagnostics business, some of the few times you've mentioned, part of it is related to the China region. Can you just talk about how China diagnostics did overall for Bio Rad in the first quarter? And do you think the increased tariff rates like is that like what you're referring to in terms of the macro or is it something broader there? Well, a good portion of our diagnostic... China is actually the quality systems, which, you know, we're trying to understand clearly whether that's going to be excluded from tariffs or not.
Jack Meehan: Okay.
Jack Meehan: And then.
Speaker Change: You mentioned that within the diagnostics business some of them a few times you've mentioned.
Jack Meehan: Part of it is related to the China region.
Jack Meehan: Can you just talk about how China diagnostics did overall for bio Rad and the first quarter.
Jack Meehan: And do you think could be increased.
Jack Meehan: Like is that what you're referring to in terms of the macro or is it something broader there.
Jack Meehan: Well a good portion of our.
Jack Meehan: Diagnostic business in China is actually the quality system switch.
Jack Meehan: Trying to understand clearly, whether that's going to be.
Jack Meehan: Excluded from tariffs or not so it looks like Thats a good news for us.
Roop Lakkaraju: So it looks like that's Yeah, I mean, if you think about China overall, for us, Jack, it wasn't, it was, you know, kind of mid single digits, let's call it mid to high single digits kind of effect, negative effect from from what we had expected in China. And overall, I would say it got tougher as we went through the quarter. And I think that's the other aspect.
Jack Meehan: I don't know the exact numbers with us.
Jack Meehan: Yes, I mean, if you think about China overall for us Jack.
Jack Meehan: It was kind of mid single digits, let's call. It mid to high single digits kind of effect negative effect from from what we had expected in China.
Jack Meehan: And overall I would say it got tougher as we went through the quarter.
Jack Meehan: And I think that's the other aspect to keep in mind.
Jack Meehan: Got it. Okay.
Jack Meehan: Got it okay.
Roop Lakkaraju: And then just the last one, thought the free cash flow update was a bright spot, kind of maintaining that forecast despite, you know, the lower op margin. Can you just talk about, like, some of the levers you're pulling? Is it working capital? Just what else you're looking at to deliver on free cash flow? Yeah, it really is the working capital. I mean, we continue to focus on inventory and inventory management, obviously, with the forecast changes, we're running that through the system, looking at what else do in region in terms of in timing of those. The other aspect is, you know, looking at supplier management as well as our DSO.
Jack Meehan: And then just the last one but the free cash flow update was a bright spot kind of maintaining that forecast despite.
Jack Meehan: The lower op margin can you just talk about like some of the.
Jack Meehan: Levers you're pulling is it working capital just what else Youre looking at.
Jack Meehan: Deliver on free cash flow.
Jack Meehan: It really is the working capital I mean, we continue to focus on inventory and inventory management, obviously with the forecast changes were running that through the system and looking at what else. We can do in region in terms of and timing of those the other aspect is looking at <unk>.
Jack Meehan: Supplier management as well as our DSO in terms of opportunities for improvement there. So we have specific initiatives on all of those fronts.
Roop Lakkaraju: We have specific initiatives on all of those fronts wherein it gives us confidence to still stand behind the free cash flow range that we provide. Okay, thank you, Roop.
Jack Meehan: We're in it gives us confidence to.
Jack Meehan: Still stand behind the free cash flow range that we provided.
Speaker Change: Okay. Thank you Rick.
Jack Meehan: Yes.
Edward Chong: That concludes the question and answer session.
That concludes the question and answer session I would like to turn the call back over to Edward <unk> for closing remarks.
Edward Chong: I would like to turn the call back over to Edward Xiong for closing remarks. Thank you for joining today's call. We'll be participating at the RBC Global Healthcare Conference in New York later this month, and we'll also be back out in New York in early June for the Jeffries Global Healthcare Conference. As always, we appreciate your interest, and we look forward to connecting soon.
Speaker Change: Thank you for joining today's call will be participating at the RBC Global Healthcare Conference in New York later this month and will also be back out in New York in early June for the Jefferies Global Healthcare conference as always we appreciate your interest and we look forward to connecting soon.
Operator: Bye-bye.
Jack Meehan: Bye bye.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining and you may now disconnect.
Jack Meehan: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining and you may now disconnect.
Jack Meehan: [music].
Jack Meehan: Okay.
Jack Meehan: [music].
Jack Meehan: Okay.