I'm Dan Leonard, the life science tools and diagnostics analyst at RBC, and we're thrilled to have with us from Bio-Rad, Roop Lakkaraju, CFO, and Ruben Argueta from Investor Relations. Thank you both for joining.
Thanks for having us, Dan. Appreciate it.
We've got some ground to cover and only 25 minutes to do it. I thought, Roop, to set the table, if you could just reflect back on your recently reported quarter. Well, what worked? What were the challenges?
We reported first quarter results at the end of April. Obviously, it's a dynamic environment, and markets are continue to evolve. I think for us, maybe I'll highlight a few different things. Number one, when I look at where our digital PCR instruments are, we had 24% year-over-year growth. We were very pleased with that. That's especially attributable to our QX700 series products, which are a result of the Stilla acquisition that we completed last year. You know, the Stilla acquisition, upon acquiring them, we looked at getting to accretiveness within 18-24 months. We're actually ahead of that schedule. Kinda reiterated that within 12 months we'll be accretive, so we're pleased with that.
When you look at some of the R&D improvements execution we've made, that's also reflected with our digital PCR platform. We were able to port 99% of our assays. We've got over 400,000 assays on digital PCR. Those were ported over ahead of time, so that just reinforces the value proposition of our QX700 platform, so that was very nice to see. Quality controls on the diagnostic side continue to be strong for us, we like that, and we think there's greater opportunity there in terms of growth over a longer-term period. We reiterated kind of see mid-single-digit growth there on quality controls, so that's, you know, something that's nice.
You know, from an end market standpoint, obviously, there's the Middle East conflict, that presented some challenges for us. Specifically in the Middle East, we've got blood typing products that we're in. We're really strong. Blood typing outside of the Middle East was actually strong for us in other parts of the world. APAC was especially strong. Free cash flow, $78 million, which we were pleased with again. That's a focus for us. About $48 million of share repurchases that we did. All things considered, you know, it's challenging end markets, but team navigated, you know, with positive areas, both on the tools side as well as diagnostics side.
Okay. That's a great start. I wanna dive into some of these details, but before we do, there was an article in The Wall Street Journal on Sunday that you have a new shareholder. I was wondering if you would care to comment?
Yeah. We value our engagement and feedback from our shareholders. It's very important to us. We take that very seriously. With that said, we don't talk about any specific conversations with our shareholders and, you know, kinda leave it at that.
Okay. Great. Well, with that out of the way, let's dive into some of the business trends. You mentioned the Middle East as a challenge, and I think investors were caught a bit off sides by your diagnostics exposure in the Middle East. Could you elaborate a bit on that and maybe use this as an opportunity to talk about your diagnostics exposure more broadly?
Yeah. It's a fair point. Obviously, Middle East is encompassed within our EMEIA region overall, which we report as a group. Middle East, over the past few years, has been a very strong area for us, especially in the diagnostics specific area. It's about 9% of our diagnostics revenue. Our team has really done a great job of positioning us with the tenders that happen in region. You know, if you think about it with 9% of diagnostics, the Middle East for us is somewhat similar to our China exposure, which is around mid-single digits, kind of as an enterprise. You know, it's an important growth area for us. It's unfortunate with what's happening in the Middle East and the conflict.
I think longer term, we believe, you know, post the conflict, that and hopefully it resolves itself soon, there's an opportunity for us to get back to growth in the Middle East.
Okay. Just in terms of business mix and how your diagnostics business might be different than every other diagnostics business that Wall Street looks at, I think it'd be interesting to talk about China. We hear a lot of different things on diagnostic trends in China. Everybody has a bit of a different business there. With Bio-Rad's business, what are you seeing in China? What do the opportunities look like?
Yeah. For China, you know, it's been relatively stable, I'll say, for us. You know, a couple of years ago, we had the reimbursement rate change associated with our A1C products there. We obviously took that rate reduction, lapped in 2025, Q4 of 2025. Outside of that, we haven't been affected by VBP, that's not an area that's affected us. Where we see strength, you know, China diagnostics is, it's split about 50/50 between tools and diagnostics for us. Really we've got a strong position in quality controls in China, that continues to show strength for us in China. We expect we'll continue to see that.
Okay. Before we pivot away from diagnostics, it sounds like your quality controls portfolio is one of the standout portfolios in your business overall from your prepared comments at the start talking about the quarter mid-single digit growth rate. Can you elaborate a bit further on what gets you excited about that franchise? What are the growth opportunities?
Yeah, I mean, quality controls is an important area. It's required. We've got market leadership in that area. We're actually putting more investment into that area. We see additional opportunities for growth, and that's kind of how we look at it. Really on a global scale, in terms of the quality controls. It's not any specific region, but we see the opportunity on a global basis.
Okay. That's a 100% consumables business, correct?
Yes, that's correct.
Got it. Presumably, the margin profile then is attractive.
It is attractive.
I especially like the margin profile of quality controls.
Okay.
Yeah.
All right. Well, let's pivot to the life sciences market. Can you walk us through the trends you're seeing by end market in life sciences?
Yeah, it's a great question because I think it's continuing to evolve. I think from a If I look at U.S. academic and gov, it's been soft. Obviously, I think there's been a lot of headlines around the NIH, you know, +1% from a budget standpoint. I think that's good. However, the ability to get that money into institutions' hands has been a bit challenging, and I think that's been created a little bit of that softness in terms of what we're seeing. Obviously, you know, 24% digital PCR instrument growth on a year-over-year basis. That was very strong. We like that.
What we've seen, though, is consumable pull-through, and this isn't just a U.S. phenomena, it's we're seeing this in Europe as well, slowing for us. You know, I think it really is lab activity slowing down, as people prioritize, you know, payroll and these sort of things. Obviously, there's work still being done, but not at the rate that we thought we would expect to see coming into the year, that's been a little bit of surprise. Europe softening was an evolving item for us, something we'll continue to monitor as well. You know, separate from that, our applied markets for digital PCR, think of that as food science, has been strong, stable, we like to see that.
You know, when you look at We've got certain franchises like Western blotting, critical area for new lab startups and you know, that's an instrument that goes into every such new lab. When you don't have new labs starting up, that creates a little bit of a headwind there as well. We're seeing some of that dynamic especially within the U.S.
Okay. What about biopharma?
Biopharma. You know, large pharma for us is stable. It played out the way we expected, that's obviously within our process chromatography area. As we think about the broader biopharma aside from large pharma, it's a little bit of a mixed bag. You know, when you look at earlier stage companies, there's still slowness there. There's softness there. As you go to later stage companies, they have seen funding getting into their hands, they're seeing some of that. Unfortunately, our portfolio skews a little bit more towards that earlier stage set of companies that are more in that development phase. We're seeing a little bit of softness there on a continued basis.
We do think as the year progresses, we expect that to improve slightly, but we're not expecting, you know, strong end market shifts or anything like that.
Okay. You mentioned the digital PCR business a couple of times. Can you talk a bit about the broader portfolio there and how your market segmentation strategy is working?
The team's done a really nice job in terms of really with the Stilla acquisition and broadening our portfolio and availability. We've got our historical platforms, the QX200, QX600, and QX ONE. One of the things with the Stilla acquisition, we were able to position them appropriately within the end marketplace, and one of the things we were doing previously is needing to discount the 200 and 600. No longer needing to do that because of the breadth of our portfolio. That's been nice to see.
You know, with the Stilla platform, and especially the entry-level product of the Stilla series, the QX700 series, what we've seen is qPCR conversion, which we kind of was part of our investment thesis for the acquisition. It's played out as expected, that was nice to see in terms of qPCR conversion as well as market share pickup in terms of new digital PCR. We think on a longer term basis, that's gonna continue to be a growth driver for us. When we think about the consumables pull-through, you know, obviously, I mentioned right now we're seeing a little bit of softness on that consumable pull-through.
We think over time, because of the instrument sales that we have, that ultimately the consumable pull-through will happen there, which will help kind of reinforce the value proposition.
Is qPCR conversion a good thing for Bio-Rad or a headwind for Bio-Rad?
Well, I mean, we've got historical qPCR platform, right?
Where we weren't playing in qPCR is kind of the higher end of qPCR. You start to see with these price points of high-end qPCR and entry-level digital PCR, that those price points are comparable, if you will. They're not exactly the same, but they're comparable. The value proposition starts to get reinforced in terms of instead of that high-end qPCR, maybe a digital PCR instrument can be applicable. We see an opportunity to continue to sell, and we do sell from a qPCR sampling our instruments. We obviously see digital PCR opportunities as well.
Okay. I think we have time to touch on process chromatography. Two quarters ago, you mentioned some specific idiosyncratic headwinds. That's well understood at this point. Is it possible to talk about how your process chromatography business is doing, excluding those couple of idiosyncratic headwinds?
It's actually, it's played out how we expected it coming into the year.
Okay.
Right? Considering those specific dynamics that you mentioned, outside of that, it's played out the way we think. Long term, it's still an important area and an opportunity for growth for us.
Okay. Final question on life sciences. You have a new strategy in China. Can you update us on the Bio-Rad China strategy?
Yeah. I think the, you know, what the specific item is we stood up in a very relatively short timeframe, with about 120 days, China manufacturing capability for certain of our tools SKUs. This is something that had been thought about for quite some time within Bio-Rad. For those of you that, you know, speak to Bio-Rad on a regular basis, I'm sure that's come up in conversation. We felt that it was important and an opportunity for us that we're missing out in terms of some of those tenders. Therefore standing this manufacturing capability up in China for China, we think is a growth opportunity to help support our China business on a long-term basis.
Bio-Rad has lots of SKUs.
Yes.
Which did you stand up locally in China? How do you even make that decision?
Yeah, I mean, without getting into specific SKUs, I guess we went through a specific kind of evaluation of where the opportunities are in the end market, where we have good positioning and a right to win, if you will, from our marketing perspective, and then that's where we focused in terms of the SKU capability.
Got it. All right. Well, Roop, as I mentioned, we resumed coverage of Bio-Rad very recently. We've been getting questions on the back-end loading nature of both street forecast for 2026.
Yeah
as well as guidance for the full year. Can you speak to that? What are some of the idiosyncratic factors within Bio-Rad which give you that second half waiting in 2026?
That's a great question. Obviously, Dan, appreciate picking up coverage on Bio-Rad. Always appreciate your support. You know, from a phasing standpoint, our historical phasing is about 48% of our revenue in the first half, 52% in the second half. When we look at the phasing right now, it's roughly 47% first half, 53% second half. Not dissimilar. Now, with that said, when you look at kind of our profile through the year, it's as expected, right? Q1 is traditionally the low point from a revenue standpoint. We see it step up reasonably kind of in that 5%-6%, which is what it's doing this year for Q2.
Q2, Q3 can be either relatively flat or a slight uptick in Q3, depending upon end market dynamics. Q4 usually steps up. That's exactly the profile we're seeing. When we look at the specific elements that are supporting that growth, obviously part of that is continued digital PCR growth that we expect to see. When we look at specific movements from Q1 to Q2 or into Q3 and Q4, it's very specific to, for example, lot releases and quality controls. They happen at certain times of the year. We talked about it extensively last year. Same dynamic was there. We have that same dynamic. When you look at, you know, how things are moving and growing in Q3 and then into Q4, that's specific to quality control assessments. Yeah.
We have certain blood typing opportunities, that we see, instrument opportunities, later in the year. The movements within the year are specific to either, certain opportunities that we see or lot releases associated with quality controls or the digital PCR done.
Is there anything, I mean, to that digital PCR dynamic, is there any assumption around a budget flush in Q4 that your guidance is predicated on? That budget flush topic is always of interest to investors.
No, it doesn't, it's not predicated on a budget flush.
Okay. All right. Well, Norman doesn't have prepared remarks on every quarterly earnings call. He did on your Q1 earnings call. He talked about an ambition to get to mid-teens EBIT margins in the near term. Can you elaborate on that and how do you get there from your current ten-ish % level?
Yeah. I think, you know, and I appreciate your comment that, you know, not every quarter Norman, has prepared comments. I think when we feel like that there's, things that ought to be reiterated or reinforced, it is important for him to provide those comments. You know, as it relates to that mid-teens.
Mm-hmm. Mm-hmm.
op margin, you know, we've got opportunity from margin expansion. That is a focus for us, as part of the relatively new leadership, let's call it, right? At the end of the day, we wanna drive to market growth rates. You know, we can debate, I'm sure, what market growth rates are today. As part of that, margin expansion, we have margin expansion opportunities. We've got free cash flow improvement opportunities as well. We've talked extensively about that. We have actions underway in each of those areas. I think what Norman wanted to reinforce is, from his perspective, op margin expansion is of importance to him and to all of us, right?
I think there's a perspective of just the dual class share, you know, governance framework and everything that is that truly an important aspect? I think it was to reinforce really, hey, it is, and the actions we're doing are to drive towards that in the near term, and then longer term, see how we can grow beyond that. In terms of drivers, I think there's numerous drivers. Obviously, it'd be nice for the end markets to improve. Even without that, we have margin expansion opportunities from our perspective. When you look at pricing discipline, we've improved that over the course of the last couple of years in the time I've been here and John's been here and other folks within the new leadership team.
We're gonna continue to reinforce that, and especially where we've got market leadership opportunities. As we think about within the COGS area, there's opportunities within You know, when you look at our capacity, and absorption levels, there's some opportunities there to try and right-size some things, and really rationalize our footprint appropriately. We've done that to some extent historically. We'll continue to look at that as an opportunity. We look at procurement, buying power as an opportunity. We've made improvements in logistics and both rate and lane improvements, and we'll continue to look at those. Then, of course, there's OpEx rationalization and productivity improvements that we're looking at and have implemented and will continue to implement as we move forward.
As an example, last year, in February of 2025, you know, we did a fairly large restructuring to right-size some of our operating costs. We'll continue to look at these things in terms of driving that operating margin expansion near term and long term.
Is it possible to quantify how much of the bridge from a 10% today to a 15% near term, how much of that would be top line independent compared to top line dependent?
I think there is a level of independence there in terms of actions that we can take to drive that expansion. Part of that top line is also the mix of the top line. You know, life science tools tends to be good margin for us as it relates to diagnostics, and so that mix of revenue helps. Obviously, I mentioned earlier, our QX700 series products, you know, are a good it's a good set of instruments from a margin standpoint. So that mix of revenue also contributes to that support.
Good. Like you mentioned, we could debate the market growth rate.
Yes, we can.
Okay. Well, what about, you know, levers on the balance sheet that might not show up necessarily in operating margin? We talk sometimes about inventory turns.
Yeah.
Can you walk through your thinking on that?
Yeah. You know, inventory is obviously important, to support, you know, the types of products we have. Some of them are a quick turn. They need to get in customer hands within a very short time period 'cause they're temperature controlled, these sort of things. When we look at inventory as a whole, you know, quality controls is one area which, because of its business model, requires additional inventory, and these sort of things. We wanna be mindful of that and protect that franchise from that standpoint. When you look at the rest of our inventory opportunities, we see that in terms of working capital efficiencies that we can drive there. Our supply chain teams are actively working on that.
Another area that we're looking at is days payable outstanding with vendor terms, right? When you look at where that is, there's opportunity for improvement, and especially as it relates to where our DSO is. We've made improvements in the AR collections and these sort of things over the last couple of years, and the quality of our AR, the aging has improved. All of this contributes towards that working capital, efficiency standpoint, and cash conversion efficacy. The other part of it is, you know, we're continuing to rationalize our CapEx and really, you know, that's come down when you look at it from a prior few years versus where we were in 2025, while doing specific investments that we thought we needed to do.
We'll continue to look at CapEx, rationalization as well and really invest where it's needed and ensure we're getting the return for those investments.
A big chunk of your CapEx is reagent rental in the diagnostics business.
Yeah
correct?
It is. You know, it's not a majority or anything like that.
It's a reasonable percentage, it's nowhere near, you know, 50%.
Okay.
Yeah.
How do you measure return on R&D? The R&D as a % of revenue is an area on the P&L that sticks out.
Yeah. We've talked openly about the R&D investments we've made over the years, and that R&D kind of product vitality index hasn't been where we want to see it. We've made improvements in terms of our R&D execution efficacy, I think. In general, our operational efficacy, execution efficacy, if you will, right? From an R&D standpoint, we go through and we're rationalizing and really evaluating what's the return, what's when do we expect to see revenue from the investments we're making on this to really drive the vitality improvement. We're investing in areas that we think offer us an opportunity from a growth perspective. Hence, you know, when you look at some of the R&D movements, to porting the assays onto the Stilla platform, right? That's ahead of schedule.
Well, that's purposeful, right? We put the resources behind that versus saying that's something by the end of the year we might be able to do, right? We're looking at these opportunities. We're investing further in quality controls 'cause, again, market leadership, there's an opportunity for more. We're really looking at this in a structured way to drive R&D returns at a far higher level of returns than what we've had historically.
Got it. Well, Roop Lakkaraju, I was told to keep on schedule. We've got 30 seconds left. We'll leave it there. Thank you so much for your time.
Thanks, Dan. Appreciate it.