Earnings Call Transcript - BIO Q4 FY2025

Operator

Good day, everyone, and welcome to the BIO-RAD fourth quarter and full year 2025 results conference call. At this time, I would like to hand things over to Mr. Edward Chung. Please go ahead, sir.

Edward Chung, Head of Investor Relations

Good afternoon, everyone. Thank you for joining us. Today, we will review the fourth quarter and full year 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 DiVincenzo, President and Chief Operating Officer, and Roop Lakaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, 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 filing for 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. In addition to excluding certain atypical and non-reoccurring items, our non-GAAP financial measures exclude changes in the equity value of our state in Sartorius AG in order to provide investors with a better understanding of BIRAD's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference. With that, I will now turn the call over to our Chief Operating Officer, John DiVincenzo.

Jon DiVincenzo, COO

Thanks, Ed. Good afternoon, everyone, and thank you for joining us. In 2025, we delivered results within our revised guidance for both revenue and operating margin. however gross margin did not meet our expectations or frankly what bioret is capable of delivering throughout 2025 we made tangible progress in lowering our cost base through restructuring and tighter expense discipline while navigating global trade uncertainty and tariff headwinds in the fourth quarter gross margin was pressured by higher than anticipated supply chain costs These pressures are execution-related rather than structural. We have initiated actions to strengthen operational rigor, improve forecasting and planning, and drive greater consistency across manufacturing, procurement, and logistics. Turning to our segments, diagnostics returned to growth in the quarter. Performance was driven by successful fulfillment of large customer orders in our quality control portfolio that were planned for the fourth quarter, as well as the annualization of the diabetes testing reimbursement change in China. While we're not currently seeing portfolio-specific reimbursement or BBP headwinds in China, we remain appropriately cautious and continue to closely monitor policy developments. In life science, we are particularly encouraged by the traction from our execution on the still acquisition and the launch of the QX700 Droplet Digital PCR family and products. Customer response has been strong, and we saw meaningful acceleration in QX700 instrument sales during the fourth quarter. We're entering 2026 with an expanding order funnel for our DDPCR instruments, despite overall softness in our end markets. Importantly, adoption has been driven by both QPCR conversions and competitive wins. These data points reinforce our belief that QX700 is enabling BioRAD to expand its serve market and gain share in the entry level digital PCR segment. More broadly, the early success of QX700 strengthens our conviction that digital PCR will remain a core growth pillar for BioRAD over the long term. With the broadest digital PCR instrument portfolio, the most comprehensive assay menu, and more than 12,000 peer-reviewed publications, we believe Biorite is well-positioned to sustain leadership in this market. Turning to our end markets, cautious spending persisted throughout the fourth quarter continues to weigh on instrument demand in academia and government. While the recent passage of the NIH budget may support improved sentiment over time, believe academic institutions remain focused on maintaining staffing levels and sustaining ongoing research rather than purchasing capital equipment within biopharma funding conditions improved during the second half of 2025 though funding is skewed towards later stage biotech companies we are anticipating a modest recovery of our core life science portfolio from the biopharma end market in 2026. Our process chromatography business delivered over 20% growth in 2025. Our current niche position in the polishing step of bioprocessing contributes to revenue concentration from a select number of commercial therapeutics and vaccines. This can show up as lumpiness from quarter to quarter. As our portfolio broadens over time, we'd expect to see less volatility, more comparable to the broader bioprocessing peer group. Biorad remains focused on disciplined innovation. It is core to our long-term growth strategy. In 2026, we plan to advance several product launches, including an IVD version of the QX600, additional high-value DDP-CR assays across oncology, and incorporate artificial intelligence into our future platforms our sharpened focus on r d accelerates the innovation engine for biorad prioritizing areas that reinforce our high value segments and support our portfolio optimization in closing we are executing actions to improve operational performance expand margins and focus investments in our most attractive growth platforms we are confident these actions will translate into improved financial results over time And with that, I'll turn the call over to Roop, who will take you through our financial results in more detail.

Roop Lakkaraju, CFO

Thank you, John, and good afternoon. I'd like to start with a review of the fourth quarter and full year 2025 results. Net sales for the fourth quarter of 2025 were approximately $693 million, which represents a 3.9% increase on a reported basis versus $668 million in Q4 of 2024. On a currency neutral basis, this represents a 1.7% year-over-year increase and was driven by our clinical diagnostics segment. Sales of the life science segment in the fourth quarter of 2025 were $268 million compared to $275 million in Q4 of 2024, a 2.6% decrease on a reported basis and a 4% decrease on a currency neutral basis, driven by the constrained academic research and biotech funding environment. Currency-neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia-Pacific. Our DDPCR portfolio posted mid-single-digit year-over-year growth in Q4, driven by the success of our QX700 platform, which met our revenue expectations. The still acquisition will be accreted by mid-2026, 6 to 12 months earlier than our initial view. Our process chromatography business, as expected, experienced quarter-over-quarter and year-over-year declines through the timing of customers' orders. Excluding process chromatography sales, core life science segment revenue increased 0.7% year-over-year and decreased 0.7% on a currency-neutral basis. While overall core life science consumables revenue grew mid-single-digit in Q4, we note that consumables in the Americas were flat year-over-year, reflecting the protracted U.S. government shutdown. Sales of the clinical diagnostic segment in the fourth quarter of 2025 were approximately $425 million, compared to $393 million in Q4 of 2024, an increase of 8.4% on a reported basis and 5.6% on a currency neutral basis. The increase was primarily driven by higher sales of quality control and blood typing products. On a geographic basis, currency neutral sales increased in all three regions. Q4 reported GAAP gross margin was 49.8% as compared to 51.2% in the fourth quarter of 2024. On a non-GAAP basis, fourth quarter gross margin was 52.5% versus 53.9% in the year-ago period. Note that the Q4 2025 non-GAAP gross margin excluded $13 million in one-time inventory and other write-offs associated with product portfolio rationalization on top of restructuring and amortization of purchase intangible charges. Specifically, due to the extended U.S. government shutdown, which shifted sales to later in the quarter, we effectively had to do 90 days of work in 30 days to support our customers. As a result, we incurred higher expenses for expedited freight and service costs, including overtime, resulting from compressed timelines for instrument delivery and installation. Moreover, we saw slower than expected progress on our procurement initiatives that were backloaded in our forecast. SG&A expense for the fourth quarter of 2025 was $221 million, or 31.9 percent, of sales, compared to $204 million, or 30.6 percent, in Q4 of 2024. Fourth quarter non-GAAP SG&A spend was $215 million versus $200 million in the year-ago period. The year-over-year increase and SG&A expense was primarily due to higher employee related costs. Research and development expense in the fourth quarter of 2025 was 70 million or 10.1 percent of sales compared to 80 million or 11.9 percent of sales in Q4 of 24. Fourth quarter non-GAAP R&D spend was 66 million versus 68 million in the year ago period. Q4 operating loss was approximately 119 million compared to operating income of approximately $58 million in Q4 of 24. In Q4 of 25, our gap operating loss included in aggregate $173 million impairment charges for purchased intangibles and other items. These charges resulted from our decision to discontinue and reprioritize certain R&D programs as part of our ongoing portfolio rationalization. On a non-gap basis, fourth quarter operating margin was 12 percent compared to 13.8 percent in Q4 of 24, reflecting the impact from the lower gross margin. The change in fair market value of equity security holdings and loan receivable primarily related to the ownership of Sertorius AG shares contributed 800 million dollars to our reported net income of 720 million or 26 dollars 65 cents per diluted share. Non-GAAP net That income, which excludes the impact of the change in equity value of the Sertoria shares, was $68 million, or $2.51, diluted earnings per share for the fourth quarter of 2025, versus $81 million, or $2.90, diluted earnings per share for Q4 of 2024. Now for the full year results. Net sales for the full year of 2025 were $2.583 million, which represents a 0.7% increase a reported basis versus $2,567,000,000 in 2024. On a currency neutral basis, sales were essentially flat compared to the same period in 2024. Sales of the life science segment for 2025 were approximately $1,021,000,000 compared to $1,028,000,000 in 2024, which is a decline of 0.7% on a reported basis and 1.3% on a currency neutral basis. Currency neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia-Pacific. Sales of the clinical diagnostic segment for 2025 were $1,562,000,000 compared to $1,538,000,000 in 2024, which represents a 1.6% increase on a reported basis and 0.8% growth on a currency neutral basis. Growth of clinical diagnostics was primarily driven by higher quality control and blood typing product sales, partially offset by lower reimbursement rates for diabetes testing in China. On a geographic basis, currency-neutral sales increased in the Americas and EMEA, partially offset by decreased sales in Asia Pacific. Overall, full-year non-GAAP gross margin was 53.3 percent compared to 55 percent in 2024. Year-over-year margin decline was driven mainly by reduced fixed manufacturing absorption and higher material costs. Full-year non-GAAP SG&A expense was $809 million, or 31.5% of sales, compared to $799 million, or 31.1% in 2024. The increase in dollars of SG&A expense was primarily due to higher employee-related costs. Full-year non-GAAP R&D was $257 million, or 9.9% of sales, versus $282 million, or 11% in 2024. The lower year-over-year R&D was primarily due to in-process R&D charges associated with an acquisition in 2024, which resulted in a $30 million IP R&D expense in 2024 and an $8 million charge in 2025. Full-year non-GAAP operating margin was 12.1% compared to 12.9% in 2024, which primarily reflects the impact of the gross margin headwinds. Non-GAAP net income was $271 million, or $9.92 diluted earnings per share for full year, 25, versus $291 million, or $10.31 diluted earnings per share for 2024. Moving on to the balance sheet, total cash and short-term investments at the end of Q425 $1,541,000,000 compared to $1,665,000,000 at the end of 2024. Inventory at the end of Q4 was $741,000,000 down from $760,000,000 at the end of 2024. Moving on to cash flow. For the fourth quarter of 2025, net cash generated from operating activities was $165,000,000 compared to $124,000,000 for Q4 of 24. For the full year of 25, net cash generated from operations improved to 532 million versus 455 million in 2024 and was driven by the focused efforts in improving working capital efficiency. Net capital expenditures for the fourth quarter of 25 were approximately 46 million and full year net capital expenditures were 158 million. Depreciation and amortization for the fourth quarter was $36 million and $141 million for the full year. Free cash flow for the fourth quarter was $119 million, which compares to $81 million in Q4 of 2024. For the full year of 2025, free cash flow improved to approximately $375 million versus $290 million for 2024, and represents a free cash flow to non-GAAP and income conversion ratio of 138% for 2025. During 2025, we retired 1.2 million shares for our buyback program at a total cost of approximately $296 billion. We did not repurchase any shares during the fourth quarter. Since Q1 2024, we have spent $494 million to repurchase 1.9 million shares at an average price per share of approximately $261, which represents a 6.6% reduction in our share count. Moving on to our non-GAAP guidance for 26. We are guiding currency neutral revenue growth for the full year to be between 0.5 and 1.5 percent. Q1 is expected to be down low single digit on a year-over-year basis and then sequentially improving each quarter. The life science segment year-over-year currency neutral revenue growth is expected to be between 0 and 0.5 percent. We are anticipating growth of nearly 4 percent for a core life science business excluding process chromatography with the dd pcr business expected to grow mid single digit process chromatography is projected to decline approximately mid-teens and reflects recent changes to government regulations on certain therapeutics usage and vaccines as well as our customers improved production efficiencies Long-term, we expect process chromatography to be a mid-single-digit growth area for us. For the diagnostics segment, we estimate currency-neutral revenue growth to be between 1% and 2%. We project mid-single-digit growth for a quality controls business, while the remaining diagnostics portfolio, X Quality Controls, is expected to be in the low single-digit growth range. Full-year non-GAAP gross margin is projected to be between 54 and 54 and a half percent. On a quarterly basis, we expect Q1 2026's gross margin to step up a net 100 basis points from Q4 of 2025 as the elevated freight and service costs from Q4 do not recur, partially offset by the impact of lower revenues in the first quarter. Subsequent to Q1, we are targeting sequential improvement that reflects expected productivity and efficiency benefits from our operational initiatives. Full-year non-GAAP operating margin is projected to be between 12 and 12.5%. This reflects the improvements to gross margin partially offset by approximately a 50 basis point impact from the reduced process chromatography sales. Our 2025 restructuring was effectively completed and the savings are reflected in our 2026 outlook. We estimate the non-GAAP full-year tax rate to be approximately 23%. We anticipate full-year free cash flow of approximately $375 million to $395 million for 2026. Regarding share repurchases, we will continue to be opportunistic and have approximately $285 million available for additional buybacks under the current board authorized program finally we are deferring our investor day to a later time we continue to make progress on our business transformation including an assessment of our product portfolios to reinvigorate our top line growth rate and to define and improve cost structure but more remains to be done with that i'll turn the call over to norman okay thanks ru

Norman Schwartz, CEO

So, I just thought I'd take a few minutes to close today's call with a few thoughts. Maybe to start out, you know, I think as we enter 2026, you know, we are seeing early signs of stabilization across several of our core markets with NIH and related funding set and study improvements in biopharma funding. Also, on the diagnostic side, there's a return to growth, and in particular, we are seeing stronger demand for our quality control reagents. So, if we take all that together, I think we believe these early trends set an encouraging tone for 2026. We do remain highly focused on driving long-term value and already seeing the impact of an intentional performance-related approach. Kind of against the dynamic backdrop of last year, you know, BioRad delivered results that reflect both the challenges of the environment, but also, I think, the resilience of our business. The team, I think, successfully mitigated much of the impact on our supply chain from what we saw as shifting trade policies and tariffs, and we delivered as a result really strong free cash flow of $375 million for the year, as Rube mentioned. So kind of building on our strong foundation, you know, we're continuing to invest in innovation across our portfolio, you know, not only DDPCR and quality controls, but other products areas, all in an effort to maximize overall growth opportunities. And I would say supported by a strong balance sheet, you know, we're also looking for additional assets to help accelerate the top line and certainly margin expansion. Just as one example, I think our success with the Stila acquisition, this concept of measured scale, it's an example of our renewed focus here. All, I guess, top of mind is driving continuous revenue growth and margin expansion. through improved, sustainable operating performance and cost structure management. I think by committing to these kind of strategic priorities, Bio-Rad can and will achieve enduring success, deliver value to stakeholders, and maintain a strong competitive position in the marketplace. I think you should see continued actions from this team around the operational rigor simplification and prioritization that that we've initiated you know we are moving quickly but I would say we're also moving thoughtfully to ensure that these changes at the end of the day are durable so that concludes our prepared remarks uh operator we're now open to take questions thank you sir and everyone if you

Operator

would like to ask a question please press star one on your telephone keypad once again if you have a question that is star one we'll go first to jack mehan from nephron thank you and everyone

Jack Meehan, Analyst — Nephron

i wanted to start by asking about the dv pcr business so if my math is right always uh gotta be careful with that but looks like this was the strongest quarterly growth in at least a couple years so i was wondering if you could unpack the still a contribution versus the legacy portfolio and why is mid single digits kind of the right race continue in the next year yeah hey jack it's

Jon DiVincenzo, COO

John. Appreciate the call. You know, first of all, we have a large install base, which means the ongoing reagents assay business is the largest part of our portfolio. So we certainly saw very strong success in the sales of QX700 platform right on target where we're hoping for in the fourth quarter and planning for it was also indicative of the fact that we're able to convert some QPCR applications to DPCR and continue to move along kind of our legacy QX 200 and 600. I'd say it was dominated by the QX 700 there are three instruments in that platform we had we moved kind of what we were historically seeing revenues about 80 something percent coming from assays 20% from instruments during the last soft quarters to last year it actually moved up to about I guess two-thirds assays and about a third kind of instruments that can kind of show you that the growth there and because that works is exactly why we're guiding towards mid single digit because we think that overall you know the consumables will continue to march along at kind of maybe uh mid single digit growth which dominates the overall growth of that platform with some you know optimism that maybe we can um move up those numbers as the year progresses and as the kind of marketplace stabilizes got it that makes sense and then john on process chrome

Jack Meehan, Analyst — Nephron

i forgot if it was john or you mentioned there were some recent changes in terms of the guidelines around the vaccine and production efficiencies embedded in the process from

Jon DiVincenzo, COO

forecast.

Jack Meehan, Analyst — Nephron

Can you just elaborate on what that is and the impact?

Jon DiVincenzo, COO

Yeah. I mean, we can't share, obviously, the customer that we're supporting, but there's a family of vaccines, which the expectation of who is going to be vaccinated by certain geographies has changed. And as our customers' demand changed, they also obviously demand the manufacturing strategy that they have has changed as well. So we were notified towards the very end of last year as we were getting ready for a 2026 plan that they were changing some of their strategies due to that shortfall and demand. And that's what the impact is on our business.

Jack Meehan, Analyst — Nephron

And then maybe the last one for – I was trying to do like a bridge from 2025 to 2026 on top margin. So, you ended here at 12.1%. You have the in-process R&D should go away. That was 30 bps. I think you called out the fourth quarter GM issue. I was thinking that could be like 40 bps for the full year. So, it just feels like the EBIT range you provided of 12 to 12.5% seems pretty conservative. Maybe there's some headwinds from Process Chrome in there. But what else am I missing? Can you just help us with that?

Roop Lakkaraju, CFO

yeah Jack I think you you you netted it out pretty well I think we're trying to be very realistic the process Chrome impact is 50 basis points to the op margin and so as we said that some of the Q4 costs that we incurred we don't expect to recur and and we are seeing improved operational improvements as we go through there's some mixed improvements but that process Chrome is 50 basis points which is a headwind that you know break it down just a bit in terms of that range but with that said as we talked about and John mentioned as we think about the DDPCR platforms especially the QX 700 opportunities for further growth there that gives us you know possible margin enhancement because those are strong margin products okay thank you guys thanks Jack

Operator

your next question comes from the line of Dan Leonard with UBS please go ahead

Dan Leonard, Analyst — UBS

Thank you very much. I wanted to circle back on the process chromatography comments. I appreciate that there are near-term issues there, but that long-term forecast of mid-single digit growth, what would drive that view? Is there a mixed issue there, or why wouldn't you otherwise think that that product line for you could be faster growing long-term?

Roop Lakkaraju, CFO

Yeah, Dan, hey, appreciate the question. And I think there's a couple of different things here. one, with the changing conditions that we saw occur late in the fourth quarter from government regulations and some of the efficiencies that our customers are driving, I think, one, we're trying to be conservative about it. The second part of it, and we've talked about this before, when we look at the growth in our customers in the clinical phases, we do have strength there, and it's a growing pipeline of potential customers that can move to that commercial range and so we kind of are looking at it with all of these conditions concurrently operating if you will and trying to set it towards a mid single digit longer term I think there's the potential depending upon how some of these customers move through clinical to commercial that it could be a higher growth rate but at this time I think as we think about all the different moving pieces we were trying to be

Dan Leonard, Analyst — UBS

set at reasonable growth right there. Understood. But, Rup, is it fair to assume that maybe your portfolio in aggregate is over-indexed to vaccines compared to the average of the bioprocess industry, and that's part of the pressure here in the mid-term framing?

Jon DiVincenzo, COO

I think that's fair to say, although the projects which are still in clinical trials, I think has a normal balance, but our commercial product, yeah, I think that's a fair statement,

Dan Leonard, Analyst — UBS

dam. Okay. And then just a quick follow-up. Is it possible to frame when thinking about the outlook, growth outlook here, you know, what's the organic forecast in comparison to what the acquisition contribution would be before STILA is annualized at mid-year?

Roop Lakkaraju, CFO

Yeah. I mean, if you think about, you know, as we said in the fourth quarter, STILA would be mid-single-digit millions of revenue in the fourth quarter, and that was achieved. And outside of that, we had some negative growth rate in some of the other platforms. So, when you think about ex-STILA overall, you're looking at, you know, just slightly under 1% negative on LSG, but that's driven by the process chromatography impact

Operator

to that, if you will. Okay. Thank you very much. Thanks, Dan. Your next question comes from the line of Tycho Peterson with Jeffries. Please go ahead. Hey, thanks. I wanted to touch on clinical

Tycho Peterson, Analyst — Jeffries

diagnostics. You know, guide of one to two percent, this was a two to three percent growth business pre-COVID. I'm just curious why, you know, it's not doing better, you know, especially as China headwinds are abating potentially. So, maybe just talk a little bit about, you know, why the growth is muted relative to where you were pre-COVID?

Jon DiVincenzo, COO

Thanks. This is John. Yeah, I think it's a mix of the portfolio overall. We see leading the way with our quality controls, largest part of our diagnostic business doing well. Others, we have some platforms where the markets aren't as strong overall, and some of that relies on China. So I think it's a mix of our product mix and geographies.

Tycho Peterson, Analyst — Jeffries

Okay. I'm going to ask the process Chrome question a third way because it is a big swing, and I think we're all going to get a lot of questions on this tomorrow. But, you know, kind of the guide for this year obviously assumes no recovery, no, you know, recapture that business. But when you talk about mid-single-digit longer term, how do we think about when you could get back there? Is that a 27 story or further out?

Roop Lakkaraju, CFO

I think it's a possibility to get back to low single-digit growth rate in 27, and then it's maybe a year or two out from there, Tyco, to get towards that mid. But with that said, I mean, it could accelerate faster depending upon how folks are moving through the clinical phases and how that might evolve, right? So there's a number of moving pieces there, but 27 is probably low single, if we were to think about it that way, flat to low single. I think what we seek is beyond that to try and drive back towards that mid-single digits.

Tycho Peterson, Analyst — Jeffries

Okay. And then last one, how should we interpret the lack of a buyback this quarter? I know you did $300 million almost for the year, but you do have a billion and a half of cash imbalance sheet. Are you signaling anything here? I mean, you have talked about potentially doing M&A, so I'm just curious if there's anything to read there.

Roop Lakkaraju, CFO

No, I don't think there's anything to read. I think we try and look at things opportunistically, Tycho. So we are actively looking at assets, as Norman said, and we've said previously, but I wouldn't have that be a leading indicator of any particular thing happening.

Operator

Okay.

Tycho Peterson, Analyst — Jeffries

Thank you.

Roop Lakkaraju, CFO

Thanks.

Operator

And that concludes our question and answer session, and that also concludes our call today. Thank you all for joining, and you may now disconnect.