Bio-Rad Laboratories, Inc.

as we maintained a tight focus on manufacturing costs, which was partially offset by higher material costs and lower absorption. Amortization related to prior acquisitions recorded in cost of goods sold was approximately $4 million in both periods. SG&A expenses for Q1 2024 were $215 million, or .2% of sales, compared to $226 million, or 33% in Q1 of 2023. The decrease in SG&A spend was driven by the positive impact of our previously discussed cost reduction initiatives, including lower employee related expenses and discretionary spend, as well as higher restructuring charges in the year ago period. Total amortization expense related to acquisitions recorded in SG&A for the quarter is approximately $1.1 million versus approximately $2 million in Q1 of 2023. Research and development expense in the first quarter was $66 million, or .9% of sales, compared to $75 million, or .1% of sales, in Q1 of 2023. The -over-year decrease was primarily due to decreased employee related expenses and lower restructuring costs. Q1 operating income was $45 million, or .3% of sales, compared to $62 million, or .1% of sales, in Q1 of 2023, primarily due to lower sales versus the year-ago period, which were partially offset by our expense management initiatives. Looking below the operating line, the change in fair market value of equity security holdings, which are substantially related to Bio-Ed's ownership of Sartorius AG shares, added $422 million of income to the reported results. During the quarter, interest in other income resulted in net other income of $24 million, compared to net other income of $40 million last year. The primary driver of the -over-year change is the lower Sartorius dividend, which declined to $18 million in Q1 of 2024 versus the quarter of 2023. The effective tax rate for the first quarter of 2024 was 21.8%, compared to .7% of the same period in 2023. The effective tax rate reported in these periods was primarily affected by the accounting treatment of our equity securities. First quarter reported net income was $384 million, or $13.45 diluted earnings per share, compared to net income of $69 million, or diluted earnings per share of $2.32 in Q1 of 2023. This change from last year is largely related to changes in the valuation of our Sartorius holdings. Moving on to the non-GAAP results. Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins, as well as other income. These items are detailed in the reconciliation table in the press release. Looking at the non-GAAP results for the first quarter, in cost of goods sold, we have excluded approximately $4 million of amortization of purchased intangibles and approximately $1 million of restructuring expense. These exclusions moved the non-GAAP gross margin to .2% for the first quarter of 2024, which is flat to Q1 of 2023. Non-GAAP SG&A dollar spend was slightly lower on a -over-year basis, but as a percentage of sales was higher due to lower revenue from Q1 of 2024. Specifically in the first quarter of 2024, SG&A as a percent was 34% versus .3% in Q1 of 2023. In SG&A on the non-GAAP basis, we have excluded amortization of intangibles of approximately $1 million, approximately $2 million for an in-vitro diagnostic registration fee in Europe for previously approved products, and approximately $4 million of restructuring related expenses. Non-GAAP R&D as a percentage of sales in the first quarter of 2024 was .5% versus .4% in Q1 of 2023. In R&D on a non-GAAP basis, we have excluded approximately $2 million of restructuring expenses and a small acquisition expense. The cumulative sum of these non-GAAP adjustments results in moving the quarterly operating margin from .3% on a GAAP basis to .7% on a non-GAAP basis. This non-GAAP operating margin compares to non-GAAP operating margin of .4% in Q1 of 2023. We've also excluded certain items below the operating line, which is primarily related to the increase in value of the Sartorius Equity Securities and loan receivable holdings of $422 million. The non-GAAP effective tax rate for the first quarter of 2024 was .3% compared to .9% for the same period in 2023. A higher rate in 2024 was driven by a geographical mix of earnings and change in valuation allowance related to our deferred tax assets. Finally, non-GAAP net income for the first quarter of 2024 was $65 million or $2.29 diluted earnings per share compared to $99 million or a diluted earnings per share of $3.34 in Q1 of 2023. Moving on to the balance sheet. Total cash and short-term investments at the end of Q1 2024 was ,000,000 at the end of 2023. The change in cash and short-term investments from the fourth quarter of 2023 was primarily due to the change in working capital. Inventory of $783 million was essentially flat compared to $781 million in the prior quarter. For the first quarter of 2024, net cash generated from operating activities was $70 million, which compares to $98 million in Q1 of 2023. Net capital expenditures for the first quarter of 2024 were $40 million and depreciation and amortization was $37 million. Adjusted EBITDA for the first quarter of 2024 was $109 million or .8% of sales and excluding the Sartorius Dividend was 14.8%. The adjusted EBITDA for the first quarter of 2023 was $149 million or .9% of sales and excluding the Sartorius Dividend was 16.8%. During the first quarter, we purchased 14,250 shares of our stock for a total cost of approximately $5 million or an average purchase price of approximately $330 per share. We continue to be opportunistic with our Buy Back program and still have approximately $275 million available for share repurchases under the current board authorized program. Moving on to the non-GAAP guidance. As referenced in Andy's commentary, we are seeing some encouraging signs in the life science and markets. However, we remain cautious on the magnitude and timing of the recovery for the life science group but are still anticipating improvement during the second half of the year. We continue to expect normalized growth for the clinical diagnostics group in 2024. Taken together, we are maintaining our full-year outlook with currency neutral revenue growth to be between 1 and .5% and non-GAAP operating margin projected to be between .5% and 14%. I'll now hand the call back to Norman to make a few concluding remarks.

Thanks, Drew. You know, just to close it out, I'd like to reiterate that, you know, in spite of all that's going on around us, our strategy and our focus for the future growth of the company is intact. In our clinical diagnostics business, you know, we have these leading market positions globally for our core platforms and we continue to invest in supporting the growth and building a position in, for example, our new molecular diagnostics segments through the development of PCR1, an acquisition we made some time ago, and leveraging our droplet digital PCR platform into high-value niches. In life science, we continue to maintain a focus on biopharma, especially for digital PCR, our process chromatography products and new products in development, say, particularly around cell biology. We do believe the long-term opportunity for sustained growth in this biopharma market segment is solid. And certainly we also continue to invest to enhance our leadership in digital PCR and other leading platform positions in the academic markets that we serve. Overall, between life science and diagnostics, we do believe we're well positioned to drive long-term growth as we move through this dynamic period.

All right. That concludes our prepared remarks and we will now open the line to take your questions. Operator?

Thank you, gentlemen. Ladies and gentlemen, at this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We go first this afternoon to Patrick Donnelly of Citi.

Hey, guys. Thanks for taking the questions. Let me start on the life science business. I came in a little bit light of what we were looking for. Can you talk about, if you like, process Chrome in an area you're calling out with a little bit of software, can you talk about what you saw in the quarter and then obviously maintaining the full year guide. Can you talk about the expectations for the life science business as we work our way through the year here and the growth expectations for the year at that segment?

Hi, Patrick. Sandy. So let me take that question. So first on process chromatography in the quarter, you know, I mean, a tough compare to 2023 for sure. I think the core life science business kind of really met expectations. So we did call out that I think for us, process chromatography is softer than we anticipated and that kind of drove the delta for us. As we look forward to the rest of the year, at this point in time, we're considering the process Chrome is going to be softer than originally anticipated. I just want to reiterate because it's a valid question. You know, we're not seeing that we're losing customers. We're maintaining share. In fact, we still believe we are winning share. As we call down the script. On life science, it's just a higher level of uncertainty, I think, is where we sit right now. And most of the, if not virtually all of the delta in life sciences instrument, the consumables and reagents are actually performing pretty consistently, sequentially and year over year. So it's the capital spend on equipment, which is the major delta for us right now.

Okay. So I guess when you think about maintaining a guide for the year overall, process Chrome softened a bit. Are there offsets that came in better than you expected that are now, you're thinking a little bit higher growth for the year? I'm just trying to figure out the balance here

and the visibility

into ideas.

Yeah. So I think the core life sciences, you know, with the caveats that I just mentioned, I think with, you know, is in line. There's some strength in clinical diagnostics that looks good to us right now, which kind of keeps us within our guide range overall.

Okay. And then maybe just on DDPCR, how did that perform in the quarter? How are you seeing the competitive landscape there? How did things trend and expectations for the year on that, as well, would be helpful?

Yeah. So interestingly, you know, relative to core life science, which was down mid teens, the digital PCR franchise was down single digit percentage and it was all concentrated in the instruments. The consumable reagent pull through was pretty good. You know, and as we look forward, we view the franchise recovering in line with market recovery as we go through the remaining quarters in the year. Competitively, we're not seeing any change to our win-loss ratio. And of course, you know, our major competition is calling out some improvement in their year over year performance. It's not lost on us, but we just want to reiterate that they're in a segment which we've not yet entered, which we'll be entering later this year.

Okay. Thanks, guys.

Okay.

Thank you. We go next now to Dan Leonard of UBS.

Great. This is Luan for Dan. Thank you for taking my questions. I think the first question, why don't you touch a little bit on the life sciences as well? Like, can you share a little bit more color in the older trends and maybe also the funnel activities? I think you mentioned like about funding improvement. Have you seen any increasing activities in your customers?

Yeah. So thank you for the question, Sandy, again. So I think where we sit right now, really encouraged by the influx of capital into biotech, biopharma, you know, that really is a prerequisite to second half growth. It's not showed up in our order books as yet. And, you know, and the funnel is, you know, we're starting to have more positive sentiment and conversations within that segment. But it's not showed up yet as, you know, hard and fast orders.

Got it. Appreciate it. So I guess I probably wanted to touch on a little bit on the guidance as well. So it does look that the second half, the ramp, it's a lot steeper, both in the very new and margin. And then also you just mentioned you haven't seen anything in the orders yet. So can you just maybe share a little bit in terms of the visibility and your confidence in maintaining the guide? And then also maybe how we should think about Q2 as well. Do you see improving signals in April? So could help you like to see the sequential improvement?

Yeah, I think I kind of answer that question as a carry on from my previous answer as it relates to Biotech Biopharma. And, you know, I do think that we need to we need to see the kind of encouraging signs turn into orders for the second half, which obviously will generate the ramp. Process chromatography we do view as being, you know, really a more challenging year overall due to the stocking. But we see some good growth in our clinical diagnostics business. And we envisage that continuing throughout the year. So I think really just a reconfirmation of the comments that we made in the script and my earlier answer.

Got it. Just final questions on the goals margin. It does come better than what we expected, given the lower volume. Can you share a little bit the drivers of that? And then what's your expectation for the full year?

Yeah, hi, this is Rup. I'll take this to start. First of all, it did come in a little bit stronger, which we were very happy about. And part of it was expected just based on the cost actions we've taken and these sort of things. But also what played a part is the mix. And so that helps support a little bit of a stronger gross margin there. I think as we think about the rest of the year and as Andy pointed out, you know, we feel good about the overall view for the full year on the gross margin. Based on mix and quarter to quarter movement, we may see a slight movement in that gross margin. But overall for the full year, we still feel very confident as it relates to how it fits in with our overall outlook for the year.

Got it. Thank you.

Thank you. We'll go next now to Jack Meehan with Nefron Research.

Thank you. Good afternoon. First question is for Norman. I was just wondering if you'd give a little bit more color on, you know, when we should expect updates in terms of the management hires for the new COO and also the plan for the new hint of diagnostics.

Yeah, I think we're getting pretty close on the diagnostics hire. I think we'll have something to announce pretty soon. And, you know, we've got a really good pool of candidates on the COO side. That'll probably take a little longer, but we're pretty encouraged.

Great. And then for Ruth, first, welcome to BioRad. And I had a couple of questions for you. The first is, could you just talk about, you know, like as you're new in the seat, how you went about sizing up the guidance for 2024? And second is, if you could just talk about the cadence you're expecting for margins, you know, starting from 9.7 to get to the full year target, like, you know, how you feel like that phases throughout the year and how you got confidence. Thanks.

Sure. So, first of all, thank you for the welcome. In terms of the process on the guidance, first of all, the company has an existing process, business review cadence that was already in existence. And so part of this was really for me to, you know, seamlessly integrate into the existing processes. You know, we start out with looking at revenue on a quarterly basis with our sales teams and walking through revenue drivers and market conditions and these sort of things. And then profiling that against what we were expecting and understanding how MIX might affect the next piece, which is the margins and these sort of things. There's also a number of cost actions that have been taken historically that we were looking at. And then we also monitoring the impact of those cost actions as well as, you know, kind of market dynamics around materials, pricing, logistics, trends, these sort of things and how that might affect the margin. So we then just kind of walk down through the different areas of the P&L. When we got to the OpEx, it really is more around a run rate, the effect of things like merit and how that plays through. So we walked through that analytically. And then getting down, obviously, to the operating income. So based on the different drivers and our expectations and feedback from our sales team on how the ramp might look, how then that might flow through the factory from an absorption standpoint, it gave us confidence on reiterating our guidance overall.

That also, just

to finish off the thought, I think, to your phasing conversation question, that also gave us perspective on how to think about the quarter to quarter trend through the year and if there's any kind of specific things that we need to call out or think about, you know, more specifically.

Thank you. We'll go next now to Connor McNamara at RBC Capital Markets.

Hey, guys. Thanks for the questions. And I know just one for you. You know, I appreciate the color on the management departures and how that, you know, the timing was, you know, a lot of it was personal related, but can you give us more color on how other non-managers are doing? How much of the management employee retention has been? Has there been any fallout from some of these departures?

No, there hasn't. I mean, you know, obviously in a company of our size and, you know, actually any size, you have a certain amount of turnover that's natural every year in the, you know, in the kind of the 5 to 10 percent range. But, no, these departures have not precipitated anything else.

Thanks for that. And then, you know, the color you gave on some of these DDPCR partnerships, those are great announcements, but can you just kind of talk about some of the revenue opportunity for BioRad and is that, you know, do you see additional equipment placements as a result of either this consumable pull through? What's kind of the expected ramp of any sales benefit for some of those announced partnerships?

Yeah, yeah. Thanks, Connor. Thanks, Andy. So, there's a slightly different profile for each of these announcements. Allegheny is much more focused on real clinical insight around, you know, minimal residual disease and how best to deploy our technology to, you know, be more effective in that area. So, that's really a value creation through insight learning, clinical, clinical information. The Oncocytes is more tangible in that, you know, this is to generate longer term systems placements and test sales for Oncocytes in particular and then we'll have some beneficial effect from that. But, you know, that's kind of a long term strategy. It will have no material impact in the very near term. So, and then Genoscopy, we are the platform they chose to develop on and, you know, as they succeed and with that platform moving forward, they'll create a consumable and reagent stream for us. And if there's an opportunity, which we believe there is, to take that solution beyond the US and into other markets, that creates bug test revenue and consumable reagent and system revenue opportunities. None of this is what I would call immediate near term impact, but it's really solid long term strategy.

Great. Thanks for that, Keller and Ian. I don't know if this is your last earnings call, but if so, best of luck in retirement and, Rupe, welcome to the team. Thanks, guys.

Just to be clear, it won't be Andy's last earnings call. We've made sure of that. Yes. Thank you, Connor.

Thank you. And just a reminder, ladies and gentlemen, star one, please, for any further questions today. And gentlemen, it appears we have no further questions this afternoon. Mr. Chung, I'd like to turn things back to you, sir, for any closing comments.

Thank you. Yeah, thank you for joining today's call. We will be at the RBC Capital Markets Global Healthcare Conference in New York next week, and we'll be back in New York in June for the Jefferies Healthcare Conference. So, as always, we appreciate your interest and we look forward to connecting soon. Thanks.

Thank you, Mr. Chung. Ladies and gentlemen, we'll conclude the Bio-Rad First Quarter earnings results call. Again, thanks so much for joining us, and we wish you all a great remainder of your day. Goodbye.