BIO earnings call transcript, November 4, 2026

Good afternoon, everyone, and thank you for joining us. Today, we will review the financial results for the third quarter. September 30, 2026, 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 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. 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 Biorad'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.

Good afternoon, everyone, and thank you for joining us. The third quarter represented another step forward. Our efforts to improve Biorad'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 a reported basis. On a 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% 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 attributed over... ...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...

...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 DDPCR. 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 DDPCR will remain a durable growth driver for Biorad for many years to come. These results demonstrate progress in our business. Turning to some of our key end markets... The 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 the 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 program. Fiscal year, roughly $6 billion below congressional appropriations. Consistent with this environment, our fourth quarter outlook does not assume a recovery in academic and government and 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 BIRAD 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 continues to create pricing pressure across China's in vitro diagnostics market. Based on our current assessment, the National Healthcare Security Administration, the National Healthcare Security Administration, and the National Healthcare Security Administration. We have estimated 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're 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 can 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. We expect these efforts together with a broader organizational improvement 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 KemiDot 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 KemiDot 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 Biorad, 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 Nuvia 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 GDPR instrument performance, and continued to improve our non-GAAP gross margin, and advanced important organizations. 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 Roop.

I'd like to start with a review of the third quarter 2026 results, then move to guidance. Overall, net sales for the third quarter of 2026 were approximately $656 million on a reported basis versus $253 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 increase. Life science sales in the third quarter of 2020. $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 is primarily driven by a lower process. Chromatography sales and ongoing challenges in the academic research market, partially offset by increased DPCR 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 DPCR portfolio posted 7% currency-neutral growth in the quarter. With instrument revenue growing more than 20% year-over-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 in quality systems and diabetes products. Regionally, growth came from Americas and Asia Pacific. Turning to 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 was 54.5% versus 53.5% 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 31.3% of 25. The increase in SG&A expense was primarily due to... higher restructuring costs. Third quarter non-GAAP SG&A expense was $214 million, or 32.6% of sales, versus $202 million.

Research and development expense for the third quarter of 2026 was $71 million, or 10.9% of sales, equal to the third quarter of the prior year. Third quarter non-GAAP R&D expense was $60 million, versus $202 million. to $70 million in the year-ago period. The decrease in R&D largely reflects focused management of R&D 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 for late to purchase intangible assets in the life science segment. The charge reflects the portfolio of decisions we are making to prioritize our return on investments. Q3 GAAP operating loss was approximately $50 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 from 12.5% in the second quarter of 26. Third quarter, 2026 non-GAAP net income, which excludes the impact of the change in equity value that Sartoria shares, was $72 million or $2.65 diluted earnings. per share versus $61 million or $2.26 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.

Thank you, file today.

All available. Moving on to our non-GAAP guidance for 26. We are reaffirming our guidance of full year 26. Currency neutral revenue growth between minus 3 and plus 0.5%. We expect full year growth to be approximately at the midpoint of this range. We expect live science segments, currency neutral revenue growth to be between minus 3 and minus 1. And the clinical diagnostic segments, currency neutral revenue growth to be between minus 3 and plus 1%. We expect a sequential revenue ramp from Q3 to Q4 of 5 to 6%. 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. We expect full year non-gap. Gross margin to be in the upper half of the guidance range of between 53 and 54%. We expect a sequential decline in the fourth quarter due to product mix shifting more toward instruments. We expect its sequential decline in process chromatography revenue and higher fuel prices, which are expected to continue into 27. In the fourth quarter, we expect SG&A to be flat to Q3 and a $3 million sequ... ...and a potential step-up in R&D to support continued innovation. We're also modeling approximately $40 million of depreciation and amortization in the quarter. We expect full-year non-GAAP 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.

Through nine months, we have generated $210 million, 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 tariff-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 customers. Finally, any tariff 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 buyer is capable of delivering operating margins above... 20%. And we're not satisfied with the GAAP 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... I'll now turn the call over to Norman.

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 customers. Our 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, you know, I'm certainly encouraged by the progress we're making.

Your first question comes from Dan Leonard with RBC Capital Markets. Please go ahead.

Your next question comes from Taito Peterson.

But Jeffries, please go ahead.

Thank you all for joining and you may now disconnect.