Bio-Rad Laboratories, Inc. (BIO) Q1 2025 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Biorad First Quarter 2025 Earnings Results conference call and webcast. All lines have in place on mute to prevent any background noise. 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 1. I would now like to turn the conference over to Edward Chong, Head of Investor Relations. He 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 Biorad. With me on the call today are Norman Schwartz, our Chief Executive Officer, John DiVincenzo, President and Chief Operating Officer, and Luke and Roop Lakaraju, 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. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings of 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 Chief Operating Officer, John DiVincenzo.

Hello, and thank you for joining today's call. Despite a challenging macro environment 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 margins. 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 business. We continue to prioritize bringing innovative products to our customers. 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 bari-check 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 partnerships. Recent compelling clinical trial data published in Clinical Cancer Research utilizing BioRad's DDP-CR technology demonstrated a strong correlation between circulating tumor DNA changes and treatment outcomes in lung cancer. This highlights the significant impact of our DDP-CR platform on clinical decision-making and patient outcomes. Our team also demonstrated exceptional execution in driving productivity improvements and effective cost management, building on our lean initiatives. We proactively evaluated and are implementing mitigation strategies for tariff impacts in response to escalating geopolitical and trade tensions. In diagnostics, we've continued to show solid demand, offsetting reimbursement reductions in China with nearly 3% growth from 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. Our acquisition of Stila technology remains 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 mutation detection. We're planning a webinar following the close of the STILLA transaction to outline our strategy and digital PCR with the addition of the STILLA and Continuum platforms. During the quarter, I visited several of our global teams across three continents including nine manufacturing sites and customer visits for both our life science and clinical diagnostic segments. These visits reinforced 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. My travels included a meeting with the leaders of the German Red Cross Blood Donation Service, where we were recently awarded a multi-year contract renewal for our immunohematology platform, a testament to the quality and reliability of our solution. At BioRad, 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. We thank you for your ongoing support, and I will now turn the call over to Roof 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 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 percent on a reported basis and three and a half percent 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 EMEA. 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. Excluding process chromatography sales, core life science group revenue decreased 7.5% year-over-year and 5.5% 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. On a geographic basis currency neutral sales decreased in Asia Pacific, partially offset by increased sales in EMEA and the Americas. Q1 reported gap 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. 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 offset 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 the to net other income of $24 million last year. 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. 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. 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. Moving on to the balance sheet, 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 $130,000,000 compared to $70,000,000 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 a generation of $96 million, which compares to $30 million in Q1 of 2024. 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 dollars per share. In April we purchased an additional 422,648 shares of our stock for a total cost of 99 million dollars 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 per share repurchases under the current board authorization. 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. 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. I'll start with the effect of the softer academic research funding as a result of the 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 markets. 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. 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%. The net effect of the market softness in our business group is approximately a 100 basis point headwind to operating margin. Finally, the impact of tariffs. 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 our 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-GAAP gross margin is projected to be between 53 and 54.5%. Note that we were able to offset the impact for 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. Additionally, we continue to be on track to achieve a key development milestone in Q3 2025 related to Sabre Bio, 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 and approximately 20 basis point impact on operating margin versus the prior 40 basis point effect. We estimate the non-GAAP full-year tax rate to be approximately 22 versus 23 percent previously due to the change in the equity value of Sertorius investment. 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. 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'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.

We're eager to share more about this opportunity and other critical aspects of our business at our investor day this fall i'll now turn the call over to norman for his remarks okay so i think as rupa has alluded to you know we continue to operate in a what i think of as in 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 headwinds and their impact on the growth of our business, I would say, especially 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. 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 BioRed has been resilient and has persevered through many cycles in our 70-plus year history. To the credit and determination of BioRed employees around the world, we continue to advance our corporate transformation and believe we'll come through this dynamic period even stronger than before. So, Ed, that's all I have. Turn it back to you.

That concludes our prepared remarks, and now we'll open the line to take your questions. Operator?

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 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. And our first question comes from the line of Patrick Donnelly with CD Group. Your line is open.

Hey, guys. Thank you for taking the questions. Ruth, probably one for you to start, not surprisingly, on tariffs. You know, 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 it's an 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 this.

Yeah, of course. Thanks, Patrick, for the question. Not surprising also in terms of leading off with tariffs, right? So there are a number of different factors. 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 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'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 preposition inventory, 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 vitality in region as well in support of the manufacturing. 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. 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. And then just the academic side, you know, obviously that's worsened here over the 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. What's the expectation now for academic, and again, And maybe just the cadence of what you saw as we worked our way through the quarter and into April on that segment would be helpful.

Yeah, maybe I could start and then have Norman and John jump in as well. You know, I think what we saw, and there's been some recent articles just on, you know, 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. It really is the instruments where we saw the softness more so. But 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 lack of clarity on what is the funding level, where the threshold is 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 consumable side. It's the instrument side that continues to be challenging, I think, for us at this point in time.

Okay. And maybe last one.

So, yeah. Go ahead.

Our next question comes from the line of Dan Leonard with UBS. Your line is open.

Thank you. 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 instrument sales on a sequential basis, Dan, it's probably down about 10% further decline. Consumables actually has 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 the answer or perspective you're seeking.

That's helpful. And then as a follow-up, I could use a little bit more help understanding exactly the tariff exposure. So a couple of specific questions. You know, 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, you know, who eats the tariff?

You know, how much are you offsetting with a surcharge versus absorbing the tariffs on your p l yeah so so um again we don't have any china manufacturing right so that that's first and foremost to understand so you can imagine that um the the revenue that's uh going into china is either coming from the u.s or singapore predominantly or there's a bit in europe as well and the biggest piece of the tariff impact that those pieces obviously coming from the U.S. into China, and especially on the diagnostic side of the house. And so that's where we're seeing the largest impact of the tariffs overall in terms of what we've articulated.

And then your assumption on you observe that tariff on your P&L?

Yeah, I mean, I think it's something we're evaluating. Obviously, we talked about surcharges 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. specifically.

Okay, thank you. We prepared to put in some price adjustments and surcharges.

On the diagnostic side, we have longer-term contracts which do have some ability to adjust but not exactly the same as in life sciences so um the team is kind of just preparing how could we compensate for the tariffs um if we can absorb it absorb it otherwise um applying that additional charges to customers okay thank you so just just one more thing to keep in mind that it's you know it's the tear surcharges are not a free ride um you know many of these customers have have limited budget so to the extent you have a chair of surcharge you might reduce the the amount of purchases that are made yeah i was wondering that as well norman uh thank you

next question comes from the line of brandon pullard with wells fargo your line is open hey thanks i want to follow up on that line of questioning so as it relates to products you're shipping to china and some of your peers have assumed that you know that revenue just goes away but 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 um as of right now yeah so so two pieces there Brandon uh in terms of the latter uh the surcharges are embedded uh or consideration of the surcharges are embedded within the guide uh in terms of the

former uh 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 uh where surcharges ought to be applied and how we ought to do that.

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 we've got a reasonable amount of mitigation of China tariffs for those products.

Okay, Rup, in terms of the guide, I mean, based on where you came in in the first quarter, it still seems to imply a big second half ramp, especially when you're looking at it on a two-year stacked comp basis. So can you just help us understand, like, to what degree do you think you'd be risked 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. 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 part of it's 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 marketplace.

And, Brandon, what 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. run rate business has continued to be um you know as modeled uh the run rate as you can imagine on the uh instrument side of things the sales cycle is a little longer although we maintain our win rate which is a positive um so we we believe that you know things will settle down here in the coming months if not couple quarters and uh the team is pretty optimistic on the current forecast um achievability okay last one norman you mentioned the balance sheet optionality

and availability of assets and valuations, which is helpful. Just update us on 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 are 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. You know, especially those larger things that 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 larger things. And, yeah, we've got plenty of capacity on our balance sheet and could certainly do something in the B range.

Thanks, Miranda.

Our next question comes from the line of Tycho Peterson with Jeff Rees. Your line is open.

Thanks for an add-on for Tycho. Maybe just to start out on a biopharma group, 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? and then in terms of consumables versus instruments within biopharma and maybe more specifically drop a digital pcr has your outlook changed at all for the year in terms of consumables and instruments um within that within that end market thanks yeah thanks matt uh glad to have me on uh so in terms of bioprocessing to start with um 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 um it really is and we didn't pull anything forward but customer demand drove it such that they wanted uh some uptake uh earlier in q1 than than what we they 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 uh and really that just as we've we've expected that the de-stocking 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, 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, etc. And so we're happy to see that. But where the softness, we pulled it back. It's specifically related to academia and biotech, if you will, and the instrumentation side of that.

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 one queue 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. It's kind of played out.

Okay, thanks. So maybe just one more, understand you still haven't closed the Stilla deal. You know, it remains on track for 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'm going to 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, exciting levels around that. Any more color to add around the Stilla acquisition?

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 application. 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 pretty 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 to the marketplace.

Great. Thank you.

Thanks, Pat.

Next question comes from the line of Connor McNamara with RBC Capital Markets. Your line is open.

Hey, guys. Thanks for taking the questions. Just first 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 tariffs 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 yeah so Connor 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 and it and we don't think it was terrifying and it wasn't terrifying so it wasn't a pre positioning of that revenue ahead of tariffs or anything like that okay thanks for that and then the team has basically confirmed their full year forecast uh as we submitted and that's pretty solid i think very solid

okay perfect and then if if my math is right it looks like you're taking about 40 million out of the life science uh guide which you know i think you've said that the federally funded um academic and government sales is four percent 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?

Yeah, I mean, it really is. So you're right. The federally funded slash NIH, as you said, it's, you know, as we 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 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, Connor, there was a four-, five-, six-week period of time there in February into March where there were almost no grant back in fact there. We won't see that probably until a number of quarters from now, and it may be a little more dramatic in the first quarter than we're going to see the rest of the year, but there's certainly softness and concern by our customers.

Yeah. I mean, hopefully that will – as we go through the year, that will moderate that – that cautiousness will moderate, you know. We still haven't seen Congress weigh in on the NIH going forward. So we'll have to see how that goes.

Got it. Okay. Thanks for that. And this last one for me, you said you risked your clinical diagnostics growth by 100 basis points. 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 taking a conservative tone on that. If you could give more color, I'd appreciate it.

Well, I mean, again, let's keep in mind, right, I think it's the macro from a DX standpoint. on activity levels is 1S, 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. VVP hasn't been anything to know for us. And so it really is just the macro dynamics and stuff.

And our last question comes from the line of Jack Nihon with Nephron Research. Your line is open.

Thank you. Good afternoon, everyone. Good afternoon. Wanted to start, just follow up on the tariff assumptions here. This 130-bit bot margin impact, so it's about $30 million to EBIT. First, I 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 so it really depends on which tariffs are in place so it's it's respective to the tariffs in play obviously there are certain tariffs that have paused right now some are in effect already so that's what's contemplated in terms of that guide what we also uh what we also determined is uh the surcharges as a net effect of that uh within that overall guide okay um and then you mentioned for the within the diagnostics business some of the a few times

you've mentioned uh part of it is related to the china region um can you just talk about how china diagnostics did overall for biorad in the first quarter um 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 agnostic business in China is actually the good news for us.

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 what we had expected in China. And as we went through the quarter, and I think that's the other aspect to keep in mind.

Got it. Okay. And then just the last one, thought the free cash flow update was a bright spot, kind of maintaining that forecast despite the lower op margin. Can you just talk about 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 we can do in region in terms of and timing of those. The other aspect is, you know, looking at supplier management as well as our DSO in terms of opportunities for improvement there. So 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 provided.

Okay. Thank you, Rup.

That concludes the question and answer session. I would like to turn the call back over to Edward Chung 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 Jefferies Global Healthcare Conference. As always we appreciate your interest and we look forward to connecting soon.

Ladies and gentlemen this concludes today's conference call. Thank you all for joining and you may now disconnect.