Hello, everyone, and welcome to today's Bio-Rad Third Quarter 2024 Results Conference Call and Webcast. At this time to get started, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today’s session is being recorded. And I'll be standing by should you need any assistance. It is now my pleasure to turn the floor over to Head of Investor Relations, Edward Chung. Welcome, sir.

Good afternoon, everyone, and thank you for joining us. Today, we will review the third quarter 2024 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I'd like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review 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 CEO, Norman Schwartz.

Thanks, Ed. We certainly appreciate all of you joining us on the call today. To start, maybe the best way to begin is to say we had a solid quarter. Revenue exceeded our targets and margins were ahead of expectations, all driven by product mix, productivity gains, and good cost management. Looking at our markets, the third quarter reflected a continuation of the market trends we've experienced over the last year across our business segments. It was nice to see our clinical diagnostics business back to normal, delivering stronger-than-expected year-over-year growth in the quarter. Growth was broad-based across the portfolio in all regions, with an outsized contribution from our quality control portfolio in Asia Pacific, helping to drive performance. We're largely in line with expectations. Our Life Science group continues to experience a modest pace of recovery, reflecting ongoing soft demand in biotech and pharma and in China. We increasingly believe that the gradual pace of recovery likely continues into 2025 and may weigh on the uptake of Life Science instrumentation over the coming quarters. Similar to the prior quarter, our process chromatography materials posted a year-over-year decline related to ongoing destocking activities at several very large customers who previously overstocked due to the critical importance of our products for specific key therapeutics. Outside of these customers, we are starting to see a return to normalized ordering patterns and continue to anticipate a return to growth for our process media portfolio in 2025. Our Droplet Digital PCR franchise grew mid-single digits in the quarter and was bolstered by additional IP-related royalties. I would say despite the ongoing constrained funding environment for instruments, our ddPCR reagents and consumables continue to expand both quarter-over-quarter and year-over-year. Overall, we're seeing strong interest in our recently launched ddPCR assays targeted at the oncology and cell and gene therapy markets, and continue to maintain a strong win-loss ratio for our digital PCR platform in our current market segments. While we were pleased to see the positive trend for capital raises for biotech and biopharma markets continuing into the third quarter, I would note that customers remain cautious on the funding environment and conservative on capital deployment. Likewise, large pharma continues initiatives to reduce operating expenses in the form of corporate restructuring and R&D reprioritization. In the academic segment, we are seeing a slightly softer global funding environment after what I would call a long period of strong research support. In addition to the slightly lower-than-anticipated NIH budget for the year, key European markets remain mixed, with lower funding in Germany and the UK, offset by modest improvements in places like France and some other EU countries. The Asia Pacific region remains challenging, reflecting ongoing economic headwinds. Operationally, we continue to progress our corporate transformation, with efforts in supply chain and core process improvements continuing to support our stronger margins. Of note, during the quarter, we opened a new Asia distribution center in Singapore, which is a key component of our logistics network. This hub allows for efficiencies, enabling direct shipments to all Asia Pacific regions and generally simplifies our network while improving customer service levels. We also continue to expand applications both directly and through partnerships to advance our Droplet Digital PCR platform. We made an additional equity investment in OncoCyte focused on transplant rejection monitoring and launched the next in a series of Vericheck assays internally aimed at supporting the safe and effective production of cell and gene therapies. Related to the Continuum QXd-PCR platform in development, while we previously expected to launch in Q4, we've now decided to postpone its introduction. Once we have better visibility for introducing the platform, we'll provide you with an update on that. Additionally, we completed the acquisition of Sabre Bio, a novel platform utilizing our core Droplet technology that enables high throughput discovery of novel antibodies and T cell receptors. On balance, I would say our cost and productivity initiatives have paid dividends despite the challenging markets. As we look forward and think about eventual market normalization for our Life Science business, we believe that Bio-Rad will further benefit from that top line leverage. That about sums it up for me. I'd now like to turn it over to Jon. Jon?

Thanks Norman for the introduction and thank you to everyone who's joined the call today. It is a privilege to address you for the first time as the President and Chief Operating Officer of Bio-Rad, a company I have known for over 30 years in my career in the life science tools market. Additionally, as a customer over the last seven years while leading LabCorp's central lab business, my team enjoyed a strong relationship with Bio-Rad, working across both life science and diagnostic product groups. I've long considered Bio-Rad as a scientific leader, and I'm genuinely excited to join an organization with such a distinguished history and extensive portfolio across the enterprise. Having been on board for a short time, I’m thoroughly impressed by the dedication, innovation, and resilience that characterize our company. As we navigate the continuously evolving industry landscape, I'm confident that we are strategically positioned to achieve our goals and deliver sustained value to our stakeholders. My immediate focus is on profitable revenue growth, targeting growth rates at or above market. I also share Norman and Roop's renewed commitment to consistently meeting our financial targets. Our dedication to operational excellence is steadfast; we are concentrating on enhancing customer satisfaction and driving efficiency while fostering a culture of continuous improvement. As you've seen this year, this organization appreciates the opportunity to significantly improve our operating margin, and we are targeting continued margin expansion across our portfolio. About a year ago, Bio-Rad introduced a new leader of global supply chain and manufacturing, Sedat Evran. Having previously worked alongside Sedat at PerkinElmer, I have complete confidence in the team he has established to continue driving margin expansion and delivering the highest quality products to our global customers. Thank you personally for your continued support and trust in Bio-Rad. I look forward to engaging with you more as I settle into this role, and I will now pass it on to Roop to review the financial results.

Thank you, Jon, and good afternoon. I'd like to start with a review of the third quarter 2024 results. Net sales were $650 million, which represents a 2.8% increase on a reported basis versus $632 million in Q3 2023. On a currency-neutral basis, this represents a 3.4% year-over-year increase and was driven primarily by higher sales in our Clinical Diagnostics segment. Sales of the Life Science group were approximately $261 million compared to $263 million in Q3 of 2023, which is essentially flat on a reported and currency-neutral basis. Currency-neutral sales decreased in the Americas, offset by the increase in EMEA. As Norman alluded to earlier, additional IP-related royalties contributed to the Q3 Life Science revenue, as well as gross margin performance. Note that royalties can vary quarter-to-quarter; on a full-year basis, royalties generally represent less than 1% of our total revenue. Excluding process chromatography sales, which can fluctuate quarter-to-quarter, our Life Science group revenue increased 3.5% year-over-year and 3.9% on a currency-neutral basis. Core Life Science growth was driven by consumable sales that improved low single digits sequentially and mid-single digits year-over-year. Sales of the Clinical Diagnostics group were $389 million compared to $368 million in Q3 of 2023, which is an increase of 5.6% on a reported basis and 6.4% on a currency-neutral basis. Growth of the Clinical Diagnostics Group was primarily driven by increased demand for quality control products and a favorable comparison for our immunology products that were affected by supply constraints in the third quarter of 2023. The Growth of the Quality Control Portfolio also benefited from the timing of shipments and contributed to the stronger pull-through of consumables during the quarter. On a geographic basis, currency-neutral year-over-year revenue for the Diagnostics Group posted growth across all three regions. We are pleased with the growth rate for the Clinical Diagnostics Group in 2024. As we think about 2025, we do see some potential headwinds impacting this business, such as China and one of our partners exiting the donor screening business. Q3 reported GAAP gross margin was 54.8% compared to 53.1% in the third quarter of 2023. The increase in gross margin was primarily driven by improved productivity, lower logistics costs, and a mix of revenue. The higher royalties contributed 30 basis points. SG&A expenses were essentially flat between the third quarter of 2024 versus the year-ago period. For Q3 2024, SG&A spend was $200 million or 30.8% of sales compared to $201 million or 31.8% in Q3 of 2023. The decrease in dollars of SG&A expense was primarily due to a reduction in discretionary spending and moderated employee-related expenses, including variable compensation. Research and development expense in the third quarter was $91 million compared to $43.5 million in Q3 2023. The higher year-over-year R&D was attributed to the one-time acquired in-process R&D expense of approximately $30 million and a one-time decrease in the fair value of contingent consideration of approximately $15 million in Q3 2023. Q3 operating income was approximately $64 million or 9.9% of sales compared to $91 million or 14.4% of sales in Q3 2023. Lower operating income is driven by the one-time in-process R&D expense, which decreased operating income by approximately $30 million. This was partially offset by the revenue mix and continued proactive expense management initiatives. During the quarter, interest and other income resulted in net other income of about $18 million compared to about $20 million in the prior year. The effective tax rate for the third quarter of 2024 was 24.2% compared to 22.5% in the year-ago period. Tax rates reported in these periods were primarily affected by the accounting treatment of our equity securities and the geographical mix of earnings. The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares, resulted in a $793 million gain and drove the reported net income of $653 million or $23.34 diluted earnings per share, compared to net income of $106 million or diluted earnings per share of $3.64 in Q3 of 2023. Moving to the non-GAAP results. Non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income are detailed in the reconciliation table in our press release. Third quarter non-GAAP gross margin was 55.6% compared to 53.9% in Q3 of 2023, reflecting the revenue mix and ongoing focus on productivity and operating efficiencies. Non-GAAP SG&A in the third quarter of 2024 was 30.3% versus 31.7% in Q3 of 2023. Non-GAAP R&D as a percentage of sales in the third quarter of 2024 was 13.9% compared to 9.2% for Q3 of 2023, primarily due to the aforementioned one-time in-process R&D expense. Third quarter non-GAAP operating margin was 11.3% compared to 12.9% in 2023. The lower margin was driven by the one-time acquired in-process R&D expense, which reduced our Q3 non-GAAP operating margin by approximately $30 million or 450 basis points. This was partially offset by the gross margin improvement and cost management initiatives. The non-GAAP effective tax rate for the third quarter of 2024 was 28.8% compared to 23.9% for the same period in 2023. The higher rate in 2024 was driven by a geographical mix of earnings and the accounting treatment of the one-time in-process R&D expense. Finally, non-GAAP net income for the third quarter of 2024 was $56 million or $2.01 diluted earnings per share compared to $68 million or diluted earnings per share of $2.33 in Q3 2023. Moving on to the balance sheet. Total cash and short-term investments at the end of Q3 2024 were $1.62 billion, unchanged versus the end of Q2 2024. Inventory at the end of Q3 was $804 million, essentially flat compared to the prior quarter. Inventory, when adjusted for currency impact between Q2 and Q3 2024, would be down approximately 2%. For the third quarter of 2024, net cash generated from operating activities was approximately $164 million compared to $98 million for Q3 of 2023. Net capital expenditures for the third quarter of $24 million were approximately $40 million, and depreciation and amortization was $39 million. Third quarter 2024 free cash flow was approximately $123 million, which compares to $54 million in Q3 of 2023. For the full year 2024, we expect free cash flow to be approximately $300 million versus $218 million in 2023. As we look towards 2025, free cash flow will continue to be a key focus. Adjusted EBITDA for the third quarter of 2024 was $107 million or 16.4% of sales, which includes the one-time in-process R&D expense. During the third quarter, we repurchased approximately 330,000 shares of our stock for about $97 million at an average purchase price of about $293 per share. We continue to be opportunistic with our buybacks and still have approximately $577 million available for share repurchases under the current board-authorized program. Moving on to the full year 2024 non-GAAP guidance. We are maintaining our full year 2024 revenue guidance with currency-neutral year-over-year revenue expected to decline by 2.5% to 4% reflecting the slower gradual pace of biopharma end market recovery and growth for the Clinical Diagnostics group. We are increasing our full year non-GAAP gross margin range, which we now expect to be between 55% to 55.5% compared to 54.5% previously. The increase reflects a combination of revenue mix and the impact of cost improvements implemented. Similarly, we are increasing our full year non-GAAP operating margin to be between 12.75% and 13.25%, and our full year adjusted EBITDA margin is now expected to be between 18.5% and 19%, both including the Q3 in-process R&D expense which has an approximate 125 basis point impact. That concludes our prepared remarks. We will now open the line to take questions. Operator?

Gentlemen, thank you. We'll hear first today from Patrick Donnelly at Citi.

Hi, guys. Thank you for taking my questions.

Hi, Patrick.

Maybe to pick up right when you left off there on the margin. It was nice to see the gross margins in particular come through healthy there. Can you just talk about, I guess it sounds like mix and productivity initiatives, what you're seeing on the margins again? Obviously adjusted the guide a little bit there as well, and just talk about the expectations here as we work our way through the end of the year and the right jumping-off point for 2025? I know you've been there for a couple of quarters now. I'm sure a lot of time was spent analyzing the opportunities. I think our view and a lot of people's view, there's a lot of margin leverage there. So maybe just a high-level talk about that. And again, the right way to think about the end of the year and jumping off into next year?

Yes. Thanks, Patrick. I appreciate the question. I guess there are multiple facets to your question. The bottom line is from a gross margin standpoint, part of what we've talked about is that the improvements we're making are sustainable improvements. We've been moderating or modulating our mix, which is higher in consumables that carry stronger margins and lower box sales at this point. But we expect this to turn at some future point. The other piece of this is when you look at some of the royalties we received in Q3, they were a bit higher, and again that is something that fluctuates between quarters. There are several different pieces, but I think what's important is we have made sustainable improvements in terms of our cost structure within our factories and logistics environment. I think that does carry forward into the New Year. As we think about 2025 and, kind of where we are centering, that midpoint around 55% for the end of this year with the uptick in the margin range we've taken in the fourth quarter, is a reasonable jumping-off point for us. The question then becomes how much more room is there depending upon how 2025 looks and absorption, and these types of things. So hopefully that's helpful.

Yes. No, certainly is. And then maybe on the process chromatography side, obviously been a focus for a few quarters now. It sounds like maybe turning the corner a little bit. Some customers are still on the destocking side. Can you just, I guess, talk about where we are there? If there's a percentage of customers you look at that are still kind of working through the destocking versus some level of normalcy? It would be helpful just to dive into that a little bit.

Yes. So I guess we've seen sequential improvement. Of course, we've talked about our bioprocessing being a bit unique compared to the broader market, right? I think others are seeing some improvement. Ours is unique to where we play in the bioprocessing space, specifically in that polishing stage. With the amount of inventory that our customers broadly bought in the prior years, that destocking continues. Now, with all that said, we are seeing improvement from the second half of 2024 versus the first half of 2024. We do think that those customers continue to make progress in depleting their inventory and getting back to a more reasonable or normalized buying pattern. But that will take until 2025 because different customers are depleting at varying rates and potentially into early 2026. But we do think, and I believe we've stated in the call, that there is growth we expect in the process chromatography space for 2025 over 2024.

Yes, that's really helpful, Roop. Thank you. And then one last one for Norman, if I can. On the Sartorius stake, certainly getting elevated questions on that over the past couple of months. Has your view on that changed at all in terms of willingness to potentially monetize it versus holding it for the next few years? Again, it seems like it's rising in terms of investor topics. I just want to talk through that and your guys' commitment to it versus willingness to maybe look at some options. Thank you.

Yes. I don't think our view has really changed at all. It is still certainly a monetizable asset. Given our current cash position and the value of the Sartorius stake, it seems to be depressed in the market. We don't see a need to monetize at the moment, but it remains monetizable.

Our next question will come from Dan Leonard at UBS.

Thank you. I just wanted to make sure I captured properly all your framing thoughts for 2025. You gave a few call-outs on revenue: the equipment headwinds persisting in Life Sciences and in Diagnostics. I think you mentioned China and then Ortho exiting the donor screening business. Are those—is that a fair summary of the call-out? And is it possible to frame the magnitude of these headwinds versus what you would consider a trend line?

Hey Dan, it's Roop. Thanks for the question. In terms of the list of items, the general biopharma biotech market softness is one; and along with that, the last comment regarding process chromatography where we think there is some improvement expected in 2025. So maybe I'll just add those, and perhaps they were implied in your list there. As we think about other items at this point, I think that's a good list. We are still going through our planning cycle, and it's a bit early to provide a more concrete framing of 2025, but we want you to understand the dynamics we're considering as part of the plan and how 2025 might come together. Our aim is to drive top line growth and margin expansion as we move forward.

And Roop, you mentioned that free cash flow will be a focus in 2025. Is that a comment in relation to inventory days? And what is the plan there?

Yes. It absolutely relates to the inventory levels that we have and inventory churns, right? Or inversely, your days. It's not going to be a step function improvement, Dan, but we expect gradual improvement as we continue to focus our supply chain initiatives in that area. As top-line returns to growth, we can use that inventory to support our customers.

We'll hear from Brandon Couillard at Wells Fargo. Please go ahead.

Hi. Thanks. Good afternoon. Roop, the guide would seem to imply, at least at the low end, revenues kind of flat sequentially in the fourth quarter. Typically, you do see a seasonal bump. Is that just conservatism in terms of holding the range for the full year? And it sounded like there was at least some pull-forward in diagnostics into the third quarter. Are you able to quantify that in any way?

Yes. Great catch on the range. It really is conservatism, Brandon. We want to leave ourselves some room. If you think about the midpoint of what we've painted, it's reasonable. At the end of the day, the full-year guide we provided when we updated our outlook at the Q2 call stays intact. In terms of pull-forward, yes, you're correct, we did have a little bit of pull-forward from Q4 to Q3 as customers decided they wanted it sooner. In terms of quantification, it's in the low-single-digit millions. It's not that tremendous, but significant.

Okay. That's helpful. And then in digital PCR, I guess it's nice to see it growing year-over-year. Are you seeing any green shoots in the form of demand? If you backed out the royalties in the period, was it still up year-over-year? And just what is exactly going on with the QX continual launch? I think Norman mentioned the decision to postpone. Is there a problem with the system itself? Is that a strategic decision? Just kind of unpack what's behind that deferral. Thanks.

Brandon, maybe I'll start with your initial question, and then I'll actually turn it over to Jon, who can give some further perspective. I think on the ddPCR area, the pull-ahead was actually not in ddPCR, and what we are seeing is sequential improvement in Q3 over Q2. Again, it's gradual improvement. It's not overly significant. The second half is stronger than the first half. So we're seeing some progress, but the pace of improvement is moderated. We're hoping for stronger signals as we get into 2025 but we'll see. With that, Jon, I'll turn it over to you.

Yes, thanks. This is Jon DiVincenzo. As you can imagine, when I joined at the beginning of September, I conducted various reviews of the portfolio and joined Norman and Roop with reviews specifically and on the Continuum platform. We still believe in the platform very much at this point, but hearing from the team and a little bit of refinement, let's say, in the performance of the platform is leading us to be prudent. We’re still doing well in the marketplace, and we don't see a situation where we have to launch immediately. As a market leader, we want to ensure that we meet our high product standards. So it's more of a refinement, I would say, in the performance of the system.

Okay. Thank you.

Thanks, Brandon.

Thank you. Good afternoon. Wanted to ask about the comment you made about the China market for Diagnostics heading into 2025. You've had a few of your peers call out some DDP-related pressure in the quarter. I was curious if that's what you're referring to or just the latest on what you guys are seeing in the China market for Diagnostics.

Yes. Thanks, Jack, for the question. Yes, it's not DDP-related specifically, right? We actually, knock on wood, haven't seen much effect to this point from a DDP standpoint. Our comment about China is likely similar to many others. There are many different dynamics happening in China. I think from a macro standpoint, there are so many different aspects to it that we need to be mindful of how that's evolving and what that impact is for 2025 and really beyond. So I think it was more about pointing it out that it's still in flux from a broader market standpoint and therefore, it's something we are needing to consider and understand.

Great. And then I had a follow-up on process chromatography. I just was hoping you could check my math. I was backing into something like a 40% decline in the quarter based on the headwind you talked about for the segment. Does that sound about right? And can you just talk about what the guide assumes for the fourth quarter for that business like in terms of the headwind?

Yes. I mean really the headwind is not so much a headwind but just a rate at which customers are destocking and working their way through it. From – as we think about the overall kind of decline. You were saying on a year-over-year basis, right?

Yes.

Yes. I mean it's not as bad as the first step. It's obviously improved from a sequential standpoint, but you're looking at the high 20s in terms of a year-over-year decline.

Okay. Great. And then the last question is just the tax rate. I heard the factors you called out—mix and the R&D $30 million. What's a good normalized tax rate to use as we look out to 2025?

Yes. Again, I think it's a little early for me to give you specifics about 2025. We see how our own plan comes together in the geographic mix of income, but somewhere around 22% is probably not unreasonable at this point in time as a placeholder.

Perfect. Thank you.

Welcome.

We'll hear from Tycho Peterson at Jefferies.

Hey, thanks. I want to push a little bit more on this continuum or maybe discontinue, given the uncertain timelines here. Because normally you were saying in early September, you were reiterating the year-end timeline. I know you're saying it's fine-tuning. I mean why can't you put a time frame on it? Is it next year, or is it beyond that? And then can you also talk on pricing in digital PCR? We have picked that you've gotten a little bit more aggressive about discounting across the portfolio on digital PCR. I'm curious if you could talk on pricing?

Yeah. Let's start with Continuum. So I mean, Norman can quickly step in. Having been part of some of these conversations, Tycho, I think part of this is Jon coming in with his eyes and experience and really evaluating where we're at. At the end of the day, Bio-Rad is known for putting high-quality products out there, and that's obviously important. We didn't think it met our standards at this point in time. Therefore, we thought it was more prudent to delay the launch. In terms of pricing on ddPCR, yes, it's gotten to be a competitive marketplace. We recognize that. As a result, we want to be appropriately reactive to the market in terms of how it's moving. That's part of how we've approached it from a commercial standpoint.

Okay. Yes. Sorry, Tycho. It's just a matter of—you get to always get to that intersection of optimism versus precision, and we want to have a good product in the market.

And Tycho, I'll pick up your second question. From a ddPCR pricing standpoint, overall we—yeah, obviously it's gotten to be a competitive marketplace. We recognize that. As a result of that, we want to be appropriately reactive to the market regarding how it's moving. I think that's part of how we've approached it from a commercial standpoint.

Okay. Last one, just wondering if you can quantify the impact of the partner exiting the donor screening as we think about that going forward?

It's in the low double digits in terms of millions.

And that was our final question from the audience for today's conference. Gentlemen, I'll turn it back to you for any additional or closing remarks that you have.

Thank you for joining today's call. We'll be at the UBS Global Healthcare Conference in Palos Verdes next month and the Citi Global Healthcare Conference in Miami in early December. We hope to catch up with some of you in person in the coming months. As always, we appreciate your interest, and we look forward to connecting soon.

Ladies and gentlemen, this concludes today's Bio-Rad conference, and we thank you for your participation. You may now disconnect your lines.