The operator welcomes everyone to the Bio-Rad Second Quarter 2024 Earnings Results Conference Call and Webcast. The call will be recorded and participants will have the opportunity to ask questions later. Edward Chung, Head of Investor Relations, introduces the CEO, COO, and CFO. Forward-looking statements will be made and non-GAAP financials will be referenced. Investors should review the reconciliation of these measures to GAAP results.

The CEO, Norman Schwartz, begins by thanking listeners for joining the call and gives an overview of the company's performance in the last quarter. He mentions that revenue was in line with expectations and margins were ahead of expectations due to product mix, productivity gains, and cost management. However, he notes that there are still constraints in biotech and biopharma spending globally. As a result, the company has revised its financial outlook for the year. The new leadership team is also making progress, with a new CFO and heads of life science and clinical diagnostics. The company is also focusing on supply chain and process improvements to further increase margins. In terms of capital deployment, the company has successfully bought back $100 million in Bio-Rad stock during Q2 and an additional $96 million in July.

The company has authorized an additional $500 million for opportunistic repurchases and remains focused on future growth. They have leading market positions in clinical diagnostics and are investing in new molecular diagnostics segments. In Life Science, they are maintaining a focus on biopharma and investing in digital PCR and other positions in the academic market. The second quarter showed steady growth in clinical diagnostics, with solid performance in all regions. The company is anticipating continued growth in the second half of the year.

The Life Science Group sales declined in the second quarter due to low demand in biotech and biopharma, as well as a decline in process chromatography sales. However, excluding process chromatography, the core life science business showed mid-single digit growth in both biopharma and academic markets. The decline in process chromatography sales was due to a decrease in orders from large customers who had heavily stocked up in previous years. The company expects a return to growth in 2025 and remains confident in the long-term outlook. The core Life Science business, excluding process chromatography, stabilized and instrument sales were the main contributor to the decline. The company launched two new life science platforms and saw softness in their Droplet Digital PCR franchise due to a tough prior year comparison.

Despite a decline in revenue for ddPCR, there has been growth in reagents and consumables sales. The company is seeing strong interest in their newly launched ddPCR assay kits and maintains a strong market position. They plan to introduce a new platform in the next few years. Capital raises for biotech and biopharma markets have been positive, but this has not yet translated into improved orders. The Chinese market remains soft, but there is hope for improvement in the future. The global funding environment for academic research is also showing some softening.

The second quarter of 2024 saw a slight decrease in the NIH budget and mixed funding in key European markets. The research funding environment in China remains challenging, while Japan and Korea also have constrained funding. The company remains cautious about the recovery of life science markets and expects steady growth in clinical diagnostics. The net sales for the quarter were $638 million, a 6.3% decline from the previous year, primarily due to weakness in life science markets. The Life Science Group saw a decrease in sales of 16.5% on a reported basis and 15.9% on a currency-neutral basis, affecting most product and geographic areas.

In the second quarter of '24, the core Life Science Group revenue decreased by 11.6% on a currency-neutral basis, excluding process chromatography sales. The Clinical Diagnostics Group saw an increase in sales of 2.1% on a reported basis and 3.2% on a currency-neutral basis, driven by demand for quality controls and blood typing products. Gross margin increased to 55.6%, primarily due to cost control initiatives, product mix, and lower logistics costs. SG&A expenses decreased to $195 million, and research and development expenses decreased to $59 million. Operating income increased to $101 million, primarily due to expense management and product mix. Net other income was $8 million.

The effective tax rate for the second quarter of '24 was consistent with the previous year, but the change in fair market value of equity securities resulted in a reported net loss. Non-GAAP financial measures, which exclude certain items, showed an improvement in gross margin and operating margin due to expense management initiatives. The non-GAAP effective tax rate was slightly higher due to a geographical mix of earnings. Non-GAAP net income for the quarter was $89 million, compared to $89 million in the previous year.

In the second quarter of 2024, the company's total cash and short-term investments decreased slightly compared to the previous quarter, while inventory increased due to strategic purchases. Net cash generated from operating activities remained consistent with the same period in the previous year, and the company also repurchased shares of stock and announced a $500 million increase to their share repurchase program. The company has seen improved funding for the biotech market, but has tempered their outlook for the Life Science Group in the second half of the year. They still expect growth for the Clinical Diagnostics Group in 2024.

The company has updated its revenue and gross margin outlook for 2024, with a projected decline in revenue due to lower demand for process chromatography and slower biopharma recovery. The Life Sciences Group is expected to see a decline in sales, while the Diagnostics Group is expected to have modest growth. Non-GAAP gross margins are projected to be higher than previously forecasted, but lower than the first half of the year due to lower revenue. The non-GAAP operating margin is also expected to be lower, reflecting a decrease in cost leverage in the second half of the year.

The company expects a lower full-year adjusted EBITDA margin compared to previous guidance due to the acquisition of technology assets and a one-time in-process R&D charge. However, they saw a strong performance in the second quarter, driven by a favorable mix and cost-saving initiatives. They anticipate continued improvements in gross margin, but the timing and magnitude of these initiatives may vary.

The company expects their current revenue and margin trend to continue into the second half of the year, but they anticipate more under absorption in their factories. They have been conservative in their margin outlook for the second half, but have taken up the overall range for the year. The op margins have been affected by lower sales, but the company has been proactive in cost management. The decline in Life Science is due to stocking issues with process chrome, and the company is not expecting a recovery this year. They are looking for visibility and improvement in different geographies to believe in a recovery.

Andy Last responds to a question about the concentration of customers in the company's revenue and mentions a mixed bag of positives and negatives. He explains that while there have been improvements in projects, they are not significant contributors to revenue in the first year. He also mentions a pullback in guidance for process chromatography due to destocking by a few large customers. Roop Lakkaraju adds that the destocking is occurring in various geos. In terms of digital PCR, there have been no major changes in competition or demand.

The company believes they have accurately portrayed the current operating environment in their guidance, with the exception of potential improvement in DD PCR and normalized growth in Clinical Diagnostics. The main headwind is in their Life Science Group due to destocking, but they are confident in their position with customers and their market-leading therapeutics.

The company is being conservative in their predictions for the future due to mix and under-absorption being difficult to predict. The China market is also uncertain. The company's single cell product has a strong value proposition and they expect solid long-term growth in the market. They believe their product has the best workflow among competitors.

Tycho Peterson asks about the performance of the Life Sciences segment, which is down 4% for the year. Andy Last attributes this to a mix of factors including a slower recovery in qPCR instrumentation and a tough comparison to last year's Q2 results. Tycho also asks about the company's capital deployment strategy, specifically why they are not doing a larger buyback given their low price-to-earnings ratio compared to peers who are buying back billions of dollars at higher multiples.

Roop Lakkaraju explains that the recent $500 million addition to the repo is just an incremental authorization and is a reasonable percentage of their cash. He also mentions that they have closed $200 million in the Q2 period and through the blackout period, indicating that they believe the company is undervalued. When asked about prioritizing the repo over M&A, Lakkaraju says that they are mindful of both opportunities and will consider timing and valuations for potential M&A deals. Regarding the launch of the continuum for digital PCR, Andy Last says there are no significant risks and they are still targeting a Q4 launch.

The speaker, Norman Schwartz, discusses the ongoing search for a new COO and mentions that potential CEO potential is still a critical factor in the selection process. He also mentions the company's stake in Sartorius and the potential for monetization. In response to a question about cash flow, Roop provides some basic benchmarking data and discusses the possibility of drawing down inventory to generate cash.

Roop Lakkaraju, the speaker, agrees with the previous point made about the company's bloated inventory. He explains that this was done purposefully to ensure a steady supply, but they are now focused on reducing it. The company is implementing initiatives to improve inventory management and expects inventory turns to improve, leading to stronger cash flow. The speaker and his team will be attending a conference in September and appreciate the audience's interest. The call has now concluded.

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