The operator welcomes participants to the Bio-Rad Third Quarter 2023 Financial Results Conference Call and introduces the speakers. The speakers caution that they will be making forward-looking statements and encourage listeners to review their SEC filings for risk factors. They also mention that they will be discussing non-GAAP financial measures and provide a reconciliation to GAAP results.

In the second paragraph, Andy Last, the Executive Vice President and Chief Operating Officer of Bio-Rad, discusses the company's performance in the third quarter. He mentions that the quarter fell below expectations due to challenges in the biopharma segment and economic constraints in China. However, he remains optimistic about a strong year-over-year growth in the fourth quarter. Last also mentions that the company successfully controlled costs and experienced supply constraints in the clinical business. Sales in the Life Sciences segment were weaker than expected, particularly in China. However, academic and government sales in the Americas were strong. Sales of ddPCR were flat due to reduced demand from biopharma customers, but the company remains positive about the platform's long-term growth. Several noteworthy announcements involving ddPCR were made during the quarter, including the selection of the QX ONE platform for SMA testing in Hong Kong.

In the U.S., Geneoscopy reported high sensitivity for detecting colorectal cancer using QXDx ddPCR platform and Verily won a major contract for wastewater testing from the CDC using QX600 platform. China continued to be a challenge for the Life Sciences business in Q3, and the economic constraints have now affected the Clinical Diagnostics business as well. Despite this, the clinical business saw growth in demand in the U.S. and Europe, particularly for immunohematology and diabetes franchises. The company remains confident in its strategy and platforms for long-term growth, and has completed a major operational improvement with the implementation of a single global instance of SAP. However, the biopharma and small biotech company turndown and ongoing constraints in China and Russia are expected to impact overall growth for the Life Sciences business in the final quarter of the year.

The company remains positive about the growth of its Clinical Diagnostics business, but acknowledges that there may be some constraints in the Chinese market and ongoing trade restrictions in Russia. In the third quarter, the company's net sales decreased by 7.1%, primarily due to weakness in the biopharma end markets and lower demand in China. COVID-related sales were minimal compared to the previous year. Excluding these sales, the company's core revenue decreased by 5.5% on a currency-neutral basis. The Life Science Group saw a decline of 17.1% in sales, mainly driven by lower sales of qPCR, process chromatography, and western blotting products. However, ddPCR sales remained relatively stable. Excluding process chromatography, the underlying Life Science business saw a 16.7% decrease in sales compared to the third quarter of 2022.

In the third quarter of 2023, the Life Science Group revenue decreased by 11.6% on a currency-neutral basis, with decreases in Asia and Europe but some growth in the Americas. The Clinical Diagnostics Group saw a 1.7% increase in sales, driven by blood typing, diabetes, and quality control products. The gross margin declined due to product mix, lower manufacturing volumes, and higher costs, but was partially offset by improved logistics costs. Operating expenses were reduced due to cost-cutting initiatives and a contingent consideration benefit from a previous acquisition. SG&A expenses were also lower, including a contingent consideration benefit and lower employee expenses.

In the third quarter, the total amortization expense related to acquisitions recorded in SG&A was $1.6 million, lower than the previous year. R&D expenses were significantly lower due to a contingent consideration benefit and reduced project and employee-related expenses. Operating income was $90.9 million, with a change in fair market value of equity security holdings adding $36.4 million to the reported results. Net other income was $9.7 million, compared to a net other expense of $13 million in the previous year. The effective tax rate was 22.5%, primarily affected by an unrealized gain in equity securities. Net income for the quarter was $106.3 million, a significant increase from the previous year. On a non-GAAP basis, certain atypical and unique items were excluded from the results.

The paragraph discusses the adjustments made to the company's financial results for the third quarter of 2023, including the exclusion of certain expenses and the impact on gross margin, SG&A, and R&D. It also mentions non-operating items that were excluded and the non-GAAP effective tax rate. The company estimates the full year non-GAAP tax rate to be between 22% and 23%.

In the third quarter of 2023, the company's non-GAAP net income was $68.1 million, a decrease from the previous quarter. The company also purchased shares of their stock and has remaining funds for future buybacks. Cash and short-term investments increased, mainly due to changes in working capital. Net cash generated from operating activities also increased. Adjusted EBITDA was $112.7 million, and net capital expenditures were $44 million. The company has revised their 2023 financial outlook, expecting a decline in revenue and estimating growth excluding COVID-related sales to be between 0 and 50 basis points.

The paragraph discusses the revised core revenue guide for the company, with a projected decline of 400 to 450 basis points. This decrease is attributed to various factors, including a shortfall in third quarter revenue, weakness in biopharma and Clinical Diagnostics sales, and reduced demand in process chromatography and China. The Life Science Group is expected to see a currency-neutral revenue decline of 12% in 2023, but excluding COVID-related and process chromatography sales, the decline is projected to be between 2% and 3%. The Diagnostics group is also experiencing a lower core revenue growth of 4.5% compared to the previous projection of 5.5%. Non-GAAP gross margin and operating margin are also expected to decrease, and the call is turned over to Norman, who is recognized for his contributions to the company's transformation.

The speaker expresses appreciation for the contributions of a team member and announces the search for a successor. They acknowledge the challenges faced this year due to the pandemic, inflation, and other factors, but express confidence in the company's ability to navigate them. The speaker also mentions that the company's long-term strategy and vision remain unchanged. The floor is then opened for questions, and the first question is about the significant decrease in guidance for the Life Sciences sector compared to the beginning of the year. The speaker is asked about the reasons for this and whether it is due to market dynamics or potential share losses.

The company experienced a strong trajectory at the end of 2022, with no significant effects seen in the bioprocessing sector. However, the deferred orders and the collapse of Silicon Valley Bank had a significant impact on the company's trajectory in 2023. The spending profile of smaller biotech companies was also affected, particularly for their Droplet Digital PCR platform. This trend has continued, and it is difficult to determine the true inflection point. The company's win-loss ratios across their portfolio have remained consistent, with high interest in their products.

The company believes that the current challenges they are facing are temporary and not indicative of any major shifts in their competitive position in the life sciences industry. They are expecting a strong fourth quarter, but acknowledge that there are variables that could impact their revenue, such as the situation in China and potential budget cuts from academia. They are not expecting a budget flush in the fourth quarter and are sticking to their realistic approach when it comes to forecasting and guidance.

The smaller biotechnology companies are not expected to see an improvement in funding by the end of the year. The fourth quarter is traditionally a strong seasonality quarter, but that is not the case this year. Andy, who has worked closely with Ilan for the past four years, is sad to see him leave. However, the focus is on executing the strategy framework to increase operating performance. The company is expecting a significant increase in margins in the fourth quarter, and the path to get there is discussed.

The company has adjusted their financial projections to account for changes in their product mix and operating expenses. They are focused on keeping their operating costs low and anticipate a decent flow-through in the fourth quarter. The slowdown in the Chinese market is due to government policies, including anticorruption measures and volume-based pricing, as well as a struggling economy and soft capital markets. This has affected both the Life Science and Diagnostics sides of the business, and there is no indication that the situation will improve in the fourth quarter.

The company has experienced a backlog in their Clinical business, but they expect to be caught up by the end of the year. On the diagnostics side, they are navigating the impact of volume-based pricing and dealing with supply chain challenges. The PCR market has been slow due to a slowdown in early biotechs and project deferrals.

The paragraph discusses the challenges that the company has faced during the COVID-19 pandemic and in the Chinese market. The CEO mentions that there is a surplus of systems in the market due to the pandemic, which has made it difficult for the company to generate revenue. However, the company's qPCR platform has received positive feedback from customers. The CFO adds that there is still strong demand for the company's products, but some customers are deferring purchases due to financial constraints. The decline in revenue was seen throughout the quarter, but it accelerated towards the end. The CEO also mentions the possibility of further challenges in the future.

The speaker discusses the debate among investors about the potential risks in the funding environment for customers and how it may affect the company's fourth quarter guide. They also mention the impact of the pandemic on biopharma programs and the need to be cautious about calling an end to it. The speaker then addresses a question about the increase in SG&A expenses and explains that it is a minor step-up and that there will be more initiatives kicking in during the fourth quarter.

During the third quarter, there was not a significant impact on the process chromatography business. However, there was a decline in revenue for the year, with a projected 13% decrease. This implies a large increase in the fourth quarter, but the math may be slightly off. The supply chain challenges in the clinical side of the business affected revenues in the third quarter, but the company is catching up and expects to recuperate those delayed revenues in the fourth quarter.

In the paragraph, the speaker talks about the strong Q4 and the good line of sight they have. The plant in Singapore is doing well and they are expecting a pull-through effect. The Q3 was softer due to the overall result. The speaker also mentions that the 2025 targets are on hold and they will have more insight in the next earnings call. In response to a question about 2024 guidance, the speaker says that they need more visibility and will have a better idea in the next earnings call. They also mention that some headwinds may persist in 2024, such as the impact of the macroeconomic environment and the recovery of China.

The funding environment and inflationary environment will continue to have an impact on smaller biotechnology companies. There are also geopolitical factors to consider, such as the upcoming election year and the recession in Germany. However, the company's organic initiatives, products, and end markets are not disappearing. Regarding ddPCR, although there is increased competition, the company still feels good about its position in the market.

In Q3, the company had notable wins that will position them well for the future. The biopharma industry has been impacted by deferred projects and layoffs, resulting in a tight budget environment. However, the company's QX600 platform has been well-received and they believe they will be in a strong position when the biopharma market recovers. The pricing environment is still inflationary and the company will continue to take modest price increases to offset inflationary pressures.

The speaker believes that they received a small increase in pricing for the quarter, but it may be the minimum amount. They also mention a mix impact and potential changes to their acquisition strategy due to recent stock dislocation. They plan to focus more on operational transformation and navigating the market in the coming months. The call has concluded.

This summary was generated with AI and may contain some inaccuracies.