Bio-Rad Third-Quarter 2026 Earnings Results Conference Call and Webcast - BIO-RAD LABORATORIES INC

ladies and gentlemen thank you for standing by my name is krista and i will be your operator today at this time i would like to welcome everyone to biorad's third quarter 2026 results conference call and webcast all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session i would now like to turn the conference over to ruben agueta biorads head of investor relations you may begin thank you operator good afternoon everyone and thank you for joining us today we will review the financial results for the third quarter ended september 30 2026 and provide an update on key business trends for buyrat with me on the call today are norman schwartz our chief executive officer john divincenzo president and chief operating officer and rup 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 filings with the SEC where we can 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-recurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAP measures to the comparable gap 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 devincenzo thanks reuben good afternoon everyone and thank you for joining us the third quarter represented another step forward in our efforts to improve biowrat's operating and financial performance total company revenue in the third quarter was approximately $656 million, an increase of 0.5% on a reported basis and 0.7% on currency neutral basis compared with the prior year. This marks our first quarter of currency neutral growth this year. Gross margin expanded to 54.5 percent on a non-GAAP basis. While the pace of revenue growth remains modest, we are encouraged by the progress across several areas of the business. Clinical diagnostics returned to growth, supported by quality systems and diabetes products. In life science, excluding process chromatography, revenue increased 2.5% year-over-year. This represents the third consecutive quarter of sequential improvement in the growth rate. It was driven by our genomics portfolio, including our droplet digital PCR business led by the QX700 portfolio. DDPCR instrument revenue increased more than 20% for the third consecutive quarter, supported by both conversions from traditional QPCR and competitive wins. We believe these wins are attributable to our expanded portfolio, market-leading assay library, and a simplified workflow. While consumable performance continues to improve, pull-through has not yet normalized, and that could continue into 2027. The pace of our placements over the past year gives us confidence that as those systems ramp to full utilization, pull through will normalize with them. Longer term, we remain very excited about the opportunity in GDPCR. There are numerous applications for our technology, ranging from biopharma R&D to clinical diagnostics to applied testing, and the penetration remains low. We are confident DDP-CR will remain a durable growth driver for Bio-Rad for many years to come. These results demonstrate progress in our business. Turning to some of our key end markets, conditions remain mixed, with encouraging developments in some areas and continued pressure in others. In biopharma, we are seeing signs of improving customer activity. While the recovery remains gradual, we view these trends as constructive for demand over the coming years. Within process chromatography, revenue has improved sequentially throughout 2026. While we expect a sequential decline in the fourth quarter, 2026 revenue should improve year-over-year. In the U.S., funding conditions in the academic and government markets remain challenging. NIH outlays declined approximately 15% in the third quarter compared with the prior year, and finished the federal fiscal year roughly $6 billion below congressional appropriations. Consistent with this environment, our fourth quarter outlook does not assume a recovery in academic and governmental end markets. In the United States, we're closely watching the Protecting Access to Medicare Act, or PAMA, which governs Medicare reimbursement rates for certain clinical laboratory tests. Preliminary rise rates were published in September and final rates expected in November. While BI-RAD is not directly reimbursed under these rates, changes in laboratory reimbursement can influence our customers' economics and purchasing decisions. We have not observed a meaningful change in customer purchasing behavior attributed to the proposed rates to date and expect any indirect impact on our business in 2027 to be limited. We will continue to evaluate the implications as the final rates become available. Within our APAC region, we saw a return to growth in China in the third quarter. This performance was largely driven by orders that shifted from the second quarter together with a favorable prior year comparison. The operating environment here remains challenging, with continued preferences for domestic suppliers and pricing pressure affecting the competitive landscape. The National Healthcare Security Administration's updated guidelines continue to create pricing pressure across China's in vitro diagnostics market. Based on our current assessment, we estimate a revenue impact in the middle single-digit millions of dollars in 2027. We are addressing this environment through commercial execution, portfolio management, and cost discipline, while maintaining a measured view of the near-term market outlook. Within EMEA, in the Middle East, our local teams continue to work closely with our customers and supply chain partners to maintain product availability. Logistics costs remain elevated, and our current planning assumptions contemplate continued disruption into 2027. We believe maintaining a realistic set of assumptions is important as we manage through these external challenges. Now turning to our operational priorities, we remain focused on three interconnected objectives, strengthening execution, improving our cost structure, and increasing the productivity across our enterprise. Within our global supply chain, we continue to advance initiatives focused on operational efficiency procurement inventory management and optimization of our manufacturing footprint these initiatives are important components of our efforts to improve gross margin and build a more efficient operating model another important enabler is artificial intelligence we are approaching ai with two practical objectives improving how we operate the company and enhancing the products we deliver to our customers as discussed on the q2 call we're applying ai to processes where we believe it can improve productivity decision making and execution our focus on applications that deliver measurable business value over time we expect these efforts together with the broader organizational improvements to continue and contribute to productivity the second opportunity incorporating ai into our products to improve their capabilities and the value they deliver to our customers and that brings me to innovation. We continue to make progress in strengthening our product development pipeline and improving the pace at which we bring new solutions to market. During the third quarter, we launched the Chemidot Pro imaging system, our new flagship platform for Western blot imaging. This launch is a tangible example of the benefits of our R&D portfolio prioritization initiated in late 2025. For example, by concentrating resources on selected development programs and improving execution, we were able to accelerate ChemiDot Pro launch by approximately two quarters. Its analytical algorithm was developed using AI trained on thousands of Western blot images with the objective of improving the consistency and reliability of image analysis and image interpretation. For customers, these capabilities are designed to enhance confidence in their results and support research productivity. For Bio-Rad, the launch expands our opportunity to serve both existing customers considering system upgrades and new customers seeking advanced imaging capabilities. We also expanded our Foresight Pro pre-packed chromatography column portfolio during the quarter to include our Renuvia resins. This extension broadens the formats available to customers and reflects closer collaboration amongst our product development, marketing, and field application teams. While individual product launches will contribute to growth over time, our broader objective is to establish a more consistent and predictable cadence of innovation across our portfolio. As part of our ongoing portfolio evaluation, we also recorded a non-cash impairment of certain intangible assets during the quarter. We are taking a disciplined approach to evaluating technologies and product programs, including making decisions about where continued investment offers the greatest potential return. Our objective is to improve the return on R&D investments to support revenue growth. So in closing, the third quarter provided encouraging evidence of progress. We returned to modest currency neutral revenue growth, delivered another quarter of strong DDP-CR instrument performance, and continued to improve our non-GAAP gross margin and advanced important organizational and innovation initiatives. Recognizing that our end markets remain uneven, our priorities remain clear. Consistent organic growth, improved profitability, and strengthening the execution capabilities of the company. There is more work ahead, but we are encouraged by the progress we are making and remain focused on delivering measurable, sustainable improvements in performance. With that, I will turn the call over to Rup. Thank you, John, and good afternoon. I'd like to start with a review of the third quarter of 2026 results, then move to guidance. Overall net sales for the third-quarter of 2027 were approximately $656 million on a reported basis versus $653 million in Q3 of 2025, a year-over-year increase of 0.5%. On a currency-neutral basis, this represents 0.7% year- over-year increases. Life science sales in the third quarter of 2026 were $255 million, a decrease of 2.8% compared to Q3 of 2025 on a reported basis, and a 2.4% decrease on a currency-neutral basis. This was primarily driven by lower process chromatography sales and ongoing challenges in the academic research market, partially offset by increased DDPCR instrument sales. Excluding process chromatography, life science currency neutral sales increased 2.5%. Currency neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia Pacific and Greater China. Our DDPCR portfolio posted 7% currency neutral growth in the quarter, with instrument revenue growing more than 20% year-over-year. year. Clinical diagnostic sales in the third quarter of 2026 were approximately $402 million compared to $391 million in Q3 of 2025, an increase of 2.7% on a reported basis and 2.8% on a currency neutral basis. Growth was driven by timing of orders and quality systems in diabetes products. Regionally, growth came from Americas and Asia Pacific. Turn into gross margin. Consolidated gross margin was 50.1% for the third quarter of 26 compared to 52.6% Q3 of 25. The year-over-year decline primarily reflects charges associated with our restructuring program. On a non-debt basis, third quarter gross margin is 54.5% versus 53.5 percent in the year-ago period and improved sequentially from 53.9% in the second quarter. SG&A expense for the Third quarter of 2026 was $257 million, or 39.2% of sales, compared to $207 million or 31.7% of sale in Q3 of 2025. The increase in SG&A expense was primarily due to higher restructuring costs. Third quarter non-GAAP SG&S expense was $214 million, or 32.6% of the sales, versus $202 million, or 31% of sales in the year-ago period. Research and development expense for the third quarter of 2026 was 71 million, or 10.9% of sale, equal to the third quarter of the prior year. Third quarter non-GAAP R&D expense was 60 million versus 70 million in the years-ago. The decrease in R&d largely reflects focused management of R&G programs and a prior year milestone payment that did not repeat. During the quarter, we also recorded a non-cash impairment of approximately $50 million related to purchased intangible assets in the life science segment. The charge reflects the portfolio decisions we are making to prioritize our return on investments. Q3 gap operating loss was approximately $15 million compared to operating income of approximately $65 million in Q3 of 2025. On a non-GAAP basis, third quarter operating margin was 12.8%, compared to 11.8% in Q3 of 2025, and this represents a sequential improvement from 12.5% in the second quarter of 26. Third quarter 2026 non-GAP net income, which excludes the impact of the change in equity value of the Sartoria shares, was $72 million, or $2.65 diluted earnings per share, versus 61 million or two dollars and 26 cents diluted earnings per share for q3 of 2025. for full details on the balance sheet cash flow tax and sartorius valuation please refer to our earnings presentation press release and 10q file today all available on our investor relations website moving on to our non-gap guidance for 26 we are reaffirming our guidance a full year 26 currency-neutral revenue growth between minus 3 and plus 0.5 percent. We expect full-year growth to be approximately at the midpoint of this range. We suspect life science segments currency- neutral revenue growth to be between minus three and minus one, and the clinical diagnostic segments currency neutral revenue growth be between, minus three, and plus one percent. We expect a sequential revenue ramp from Q3 to Q4 of five to six percent on a reported basis. in line with our typical seasonality included in this guide is continued softness in the academic and government markets and a favorable comparison for process chromatography we expect full year non-gap gross margin to be in the upper half of the guidance range of between 53 and 54 percent we expect a sequential decline in the fourth quarter due to product mix shifting more toward instruments the expected sequential decline and process chromotography revenue and higher fuel prices which are expected to continue into 27. in the fourth quarter we expect sgna to be flat to q3 and a three million dollar sequential step up in r d to support continued innovation we're also modeling approximately 40 million dollars of depreciation amortization in the quarter we expect full year non-gap operating margin to be in the upper half of the guidance range of between 10 and 12 percent we are reaffirming our 2026 full year free cash flow estimate being the range of approximately 290 to 340 million dollars through nine months we've generated 210 million dollars and the fourth quarter is seasonally our strongest our third quarter results do not include any benefit from tariff refunds In our year-end results, we expect to recognize any tariff refunds that we receive. As a reminder, we do not pass any tarif-related surcharges to our customers, instead absorbing them in our cost of goods sold. As a result, we will not need to pass any of the refunded amounts to our customer. Finally, any tariffs refunds will be recognized on a GAAP basis only and, as such, will be excluded from our non-GAAP results. We continue to firmly believe that Biarrant is capable of delivering operating margins above 20%. And we're not satisfied with the gap between our current performance and that potential. We are committed to delivering stronger profitability while investing in innovation and sustainable growth. And we look forward to sharing further updates as that work progresses. I'll now turn the call over to Norman. Thank you, Lou. Just maybe a few comments as we wrap up. On products, in 2024, as you may remember, we began refocusing our product development efforts on market segments where we're best positioned to compete. Innovation has always been fundamental to BioRad, and I think the products that John mentioned are good examples of that work to date. You know, in today's challenging markets, delivering differentiated products that meet customer needs, I think it's certainly more important than ever. So next, over the past 12 months, our board has been evaluating its composition and the mix of experience that will really best support Bio-Rad's future. We believe we would benefit from additional perspectives and broader operational experience in both life science tools and in diagnostics. And with that in mind, we have been actively evaluating candidates to expand our board. We would expect to be able to share updates with you in the near future on this project. and maybe finally with regard to Elliott management I guess I would say our dialogue continues to be active and productive and we believe we're broadly aligned on the objectives so you know as we move forward I you know I'm certainly encouraged by the progress we're making and and excited about what's ahead so maybe with that operator we'll open up the line for questions thank you we will now begin the question-and-answer session you would like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue and if you would to withdraw your question again press star one your first question comes from dan leonard with rbc capital markets please go ahead thank you very much and good afternoon hey dan to start off i'm just trying to get a better sense of where your head's at in framing 2027 i think there were i counted them three or four discreet you know lingering headwinds you you reminded that could drag into 2027 but i'm not really sure how to interpret um you know what you're thinking is for the appropriate starting point in aggregate on revenue um to clarify okay uh this is rupe hey again good to have you on the call so from a revenue standpoint i think one of the things we're trying to balance here is to give a perspective of the end markets that we're dealing with and how we're navigating through that with the understanding that ultimately as we continue to drive innovation and some of the portfolio management that we've been doing is to get back to uh growth and we think that 2027 and obviously it's a little bit early right now uh with this third quarter call we'll lay out 27's guidance at the year-end call but we'd be focused on driving towards positive growth rate in 27 and as part of that obviously driving further margin expansion uh in 27 um as as we move forward so hopefully that that helps you the the breadcrumbs that we put into the script to give you a sense of the end market dynamics we're dealing with is simply to help frame our understanding and what you're dealing, with our portfolio and our customer set. Okay so so the message is growth but not fully normalized given the the Breadcrums that you have to contend with. that's right okay and then just specifically on droplet digital you you've had a number of quarters in a row with really strong instrumentation growth uh what's your degree of conviction that that can continue as opposed to you know any caution that you're going to start cycling up against more challenging comparisons hey dan johnny vicenzo uh thanks for the question um you know as we model this out uh first of all we reflect on the last year that the new portfolio has been in the marketplace and uh it's very positive to see a number of new customers um we're expanding kind of the available market that we're serving and uh you know there's a lot of positivity there we're going to continue to have these wins can't project it's going to be 20 continue to hear as you say we come up against some more difficult comps but even in that challenging academic environment customers are still choosing to invest in the platform they may not be at full utilization of the platform yet but it'll be important part of their research moving forward so you know we continue to believe is going to be important part of our growth in the near to midterm thank you very much your next question comes from the line of Jack me in with Oprah on research please go ahead good afternoon guys yeah one to talk about the diagnostics business a little bit more you mentioned some of the expectations around the China region I was wondering if you just talked about how the region performed in quarter and like how you think the hsa updates are gonna how exactly is that impacting the business or ability to compete in the market so uh jack maybe i'll start out this is rupe um so first in terms of the dynamics you know we've had some china was was a little bit stronger for us in the quarter uh as a district quarter for the third quarter um largely driven by order timing uh around quality controls some process chromatography these sort of things which is obviously positive to see i think from an overall china dynamic um you know when you speak about the guidelines that have just come out we think overall that they're and we kind of said this in within the prepared remarks there's some um youknow single digit millions of impact into 27 we think obviously we're doing the final assessments those those guidelines are getting rolled out so there's there's a little bit yet to come potentially but overall we don't think it's overly material but there is some impact i think from an overall china uh the x perspective quality controls continues to be strong there and we continue to execute within the market overall great okay then on the life science side kind of x digital pcr x process current kind of the core remainder of the life science business i was wondering if you just talk about how you see demand trends across academic and pharma at the moment and building off that just uh whether you're seeing any indications of demand related to ai related to experiment Yeah, Jack. John DiBascenzo. Good questions there. So we, you know, although we have some optimism around academic, it still is not where, you normally would think the academic spending would go on a kind of a run rate basis and all the activity in the labs. We'll see what happens with the midterm election, if that is any positive kind of tailwind into 27 and 28. In biopharma, we see an improved environment. Initially, it was kind of the later stages of the large pharma and biotech customers, but it's moving over to a more discovery role. I think when it comes to AI, overall, we believe that's a positive for demand for our portfolio. We are very close to our customers, particularly customers that are deploying AI and transitioning from in silico modeling to the wet lab work and how do we assure that we're supporting that transition overall we just think it's going to be meaning more productive testing in the lab more utilization of reagents in our products and and are quite optimistic about the impact on the market for both academic as well as drug discovery Great. And one last question is just on capital deployment. It looks like the buyback was a little muted in the quarter. Can you just talk about how you think about allocating capital? And then I'd be remiss not to ask about just any latest thoughts on the source for this strategy monetizing. Thank you. Hey, Jack, you trailed off at the end there. Would you mind just kind of restating the tail end of yours i heard the capital allocation and the buyback piece was there an incremental piece you mentioned as well yes sorry the uh just latest thought from the sartoria stake and um ability to monetize that thank you got it so maybe i'll start with the startoria stake our point of view on on that hasn't changed it's a monetizable asset um you know and if there is a um potential scenario in which we think it would make sense to monetise it we would do so and and that's within our own rights to do so. So that's kind of our story. So same as before, no change in comments there. As it relates to capital allocation, obviously, you know, we talk about kind of three significant areas of capital allocation. One is investing back in the business from a CapEx standpoint. We continue to do that, especially around innovation and capability. The second is share repurchases, which we have done. But we've also indicated that we'd be opportunistic with those share repurchases, and therefore not necessarily systemic in every quarter. And with all that said, we still feel like we're undervalued, and from an intrinsic value standpoint, there's opportunity for value creation from a share price standpoint. But we will continue to look at it more opportunistically versus systemic, if you will. The final piece is M&A. And as we've stated very clearly, we're not seeking to do transformative deals. However, we are focused on finding deals of some scale and size. And, as we said in prior earnings calls, anywhere from $100 to $500 million of revenue, whether it's in the DX space or the life sciences tool space, would be interesting to us. But what's critical is it provides value differentiation for our customers, gives us the ability to drive top-line growth, as Stila has done, and allows us to expand margins and drive working capital efficiency. So we'll continue to have that kind of balanced capital allocation outlook, but any discreet, you know, lack of share repurchases in a quarter or not shouldn't be read in any direction other than we'll continue to balance these different areas quarter to quarter. Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Tycho Peterson with Jefferies. Please go ahead. Yeah, hi, thanks. This is Jack. I'm for Tycho. Can you give us an update on where you are against the $80 million to $90 million restructuring program and if the $30 million to 35 million net rely savings is still the right ballpark for 2027? Hey, Jack. This is Rup. I'll jump into that. We are executing on the restructuring plan that we announced in the Q2 call, so that is proceeding. The $30 to $35 million is still intact in terms of savings that we expect to see. And just as a reminder to you and the market, that really is into 2028, so the actions will take hold throughout the latter part of 26 and throughout 27. And as such, the full realization of that 30 to 35 will really be in full effect starting in 28. And then on diagnostics, you called out upside and quality control and diabetes. Can you just give us a refreshed sense of how big and material these businesses are and kind of the latest trends you're seeing and how sustainable you think they are. Thanks. Yeah, I mean, from a China standpoint, and Jack, I think you were referring to China specifically, or? Quality control and diabetes within diagnostics. Okay. So we haven't actually quantified those specific areas. With that said, we have said, and obviously Diagnostics is about 61% of our total revenue, roughly, at the enterprise level. Quality Controls is the largest franchise that we have within Diagnnostics. We're a market leader there, and we continue to see strength on a global basis across all regions. From a diabetes standpoint, we've seen strength as we've gone throughout 2026. We're very pleased with that, and that's broad-paced across various regions around the world, and we continue to focus on identifying those growth opportunities, both in QC, diabetes, but other parts of our diagnostics portfolio as well. Okay. Thank you. Thanks. There are no further questions at this time. I would like to turn the call back over to Ruben Argueta for any closing remarks. Thank you again for joining us today. Also, a quick reminder that we will be attending the UBS Global Healthcare Conference next week and hope to connect with many of you there. Goodbye. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Thank you.