Bio-Rad Laboratories, Inc. (NYSE:BIO) Q1 2024 Earnings Call Transcript

Bio-Rad Laboratories, Inc. (NYSE:BIO) Q1 2024 Earnings Call Transcript May 7, 2024

Bio-Rad Laboratories, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon everyone, and welcome to today’s Bio-Rad First Quarter 2024 Earnings Results Conference Call. At this time, all lines are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. [Operator Instructions] And now at this time, I’ll turn things over to Mister Edward Chung, head of investor relations. Please go ahead, Mister Chung.

Edward Chung: Thanks, Jenny. Good afternoon, everyone, and thank you for joining us. Today, we will review the first quarter 2024 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Andy Last, Executive Vice President and Chief Operating Officer; and Simon May, President of the Life Science Group. Before we begin our review, I would like to caution everyone that we will be making forward-looking statements about management’s goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties.

Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I’ll now turn the call over to our CEO, Norman Schwartz.

Norman Schwartz: Thanks Ed. First, what I want to do is officially welcome and introduce Roop Lakkaraju, our new CFO. He comes to us with a wealth of financial and operational experience, which will certainly be valuable as we move forward. Roop has now been on-board about four weeks and already contributing. In fact, Roop will walk you through our financial results for the first quarter in a few minutes, but I just want to say a few words. We have received questions about management turnover and succession in the last six months. I thought it would be useful to say a few words. So, in short, as I think about it, each of these discrete departures is really centered around personal decisions either related to other opportunities or, or retirement.

From my perspective, it’s all part of a normal progression for these individuals and for the company. And of course, with all of these individuals, I just want to take a minute to recognize and thank them for their contributions. So as we move forward, we are making good progress filling some of these open positions. Some positions are being filled with external candidates like Roop, which gives the company an opportunity to bring in fresh outside experience and perspective. And others are being filled with internal candidates like Jim Berry, who we’ve recently announced as our new Head of Life Science. Jim brings a deep understanding of the company, along with significant expertise in a variety of areas. So as I think about it today, with Roop on board, the finance team is fully staffed and we’re close to an announcement on the new head of diagnostics.

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Q&A Session

In addition, we have good initial candidate pool for the COO position. I do feel these changes as opportunities to bring fresh insights and ideas to the table as we continue our transformational journey. So with that, maybe I’ll turn the call over to Andy to provide an update on Bio Rad’s global operations. Andy?

Andy Last: Okay, thank you Norman good afternoon everybody. Thank you for joining us. The first quarter of 2024 reflected a continuation of the same macroeconomic and market trends we had experienced in 2023 in the biotech and bio-pharma segments, as well as China and Russia. As a result, our life science group was in line with expectations and presented a soft quarter sales with a year over year decline, which also reflected a tough comparison from Q1 of ’23. In contrast, we were pleased with our clinical diagnostics group, which showed growth across all regions and provided a solid offsetting balance for overall bio-ad sales. Our life science business experienced double digit declines both across our core and bioprocessing product families.

As previously communicated, our process chromatography sales, which have quarter-to-quarter lumpiness, were down significantly against a tough compare in Q1 2023. This reflects the general destocking trend across the industry and for us is the result of a few large customers still working through excess inventory. While we have seen indications of some customers starting to forecast purchase improvements, overall we are expecting a further decline for process chromatography sales this year. However, we have converted some early customers from competing resins to our platform during the first quarter and have not lost any customers. As such, we remain positive on the long term growth potential for this business. Overall, our core life science business, excluding process chromatography resins, declined in the mid teens in all regions, which was in line with expectations notably, declines were concentrated in instrument sales, whereas consumable and reagent sales were essentially flat both sequentially and year over year.

We are also looking forward to new product launches this year, more particularly the new ChemiDoc go platform and our new single cell sample prep solution in Q2 and of course the QX continuum later in the year, all of which are contemplated on our outlook for the year. Our droplet digital PCR franchise was soft in Q1, again with a tough Q1 2023 compare, but the decline was single digit compared to our overall core life science sales during the quarter. We continued to make progress on our strategy and we announced two deals in support of driving penetration of the platform into advanced clinical diagnostic use. The first, with Allegheny Health Network, is focused on generating clinical evidence across a range of cancer types using Bio Rad’s droplet digital PCR technology for tumour informed minimal residual disease monitoring of patients with solid tumour cancer following treatment.

The second agreement is a collaboration with oncocytes to commercialize their advanced transplant monitoring assays, deploying Bio-Rads Qx 600 droplet digital PCR system to provide a highly sensitive solution that could provide a more attractive alternative for laboratories that currently rely on centralized next generation sequencing test providers. During Q1, we also released a new multiplex mutation detection assay providing a comprehensive status readout of mutations in ESR one, which is a key gene in breast cancer. We are very excited by the initial response we have seen for this assay. We are also pleased to see a key partner genoscopy announcing FDA approval of colosense, their new non invasive RNA based colorectal cancer screening test that runs on our digital PCR platform.

Moving on to our clinical diagnostics business, we were very pleased with the broad based performance of our products in Q1 as we saw solid mid single digit growth compared to a softer Q1 2023 with particular strength in EMEA and Asia Pacific. Strong sales and quality controls, immunohematology and diabetes were of note and instrument supply for our clinical platform is now stabilized as we benefit from our new manufacturing facility in Singapore, which is fully operational. Reflecting on the first quarter’s macroeconomic and market conditions, they broadly matched our expectations. We were pleased to see the positive trend for capital raises flowing into the biotech and biopharma markets, which is a prerequisite for second half growth, although we have not yet seen any signs of the funding making its way into orders and expect this to be a second half of the year.

Impact China remains soft for the life science business although the Chinese government stimulus announcement was encouraging for the longer term recovery of the market. We also continue to navigate the sanctions imposed on Russia, where we maintain supply of some critical clinical diagnostic products. In the US, finalization of the NIH budget was delayed until late March and at a slightly lower level than anticipated and in the key European markets, government funding was more of a mixed bag, with Germany down and generally flat in the UK and France. With this backdrop in mind, we remain cautious on the magnitude and timing of the recovery in life science markets, but are still anticipating improvements in the second half. We continue to expect normalized growth for our clinical diagnostics business in 2024.

With that, I’ll say thank you and I’ll now pass you to Roop to review the financial results

Roop Lakkaraju: Thank you Andy. I’d now like to review the results for the first quarter net sales for the first quarter of 2024 $611 million, which is a 9.8% decline on a reported basis versus $677 million in Q1 of 2023 on a currency neutral basis. The year over year revenue decline was 9.6%. As Andy mentioned, the year over year decline was primarily the result of ongoing weakness in key life science end markets, somewhat offset by steady growth of the clinical diagnostics group. Sales of the life Science group in the first quarter of 2024 were $242 million compared to $324 million in Q1 of 2023, which is a decrease of 25.3% on a reported basis and a decline of 25.2% on a currency neutral basis. The year over year decline impacted most product and geographic areas, excluding process chromatography sales, which can fluctuate quarter-to-quarter.