Good day, ladies and gentlemen, and welcome to the Third Quarter 2016 Bio-Rad Laboratories, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Mr. Ron Hutton, Vice President and Treasurer. Mr. Hutton, you may begin.

Thank you, Andrea. Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans and expectations, our financial future performance and other matters. Because our actual results may differ materially from these plans 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. With that, I'd like to turn the call over to Christine Tsingos, Executive Vice President and Chief Financial Officer.

Thanks, Ron. Good afternoon, everyone, and thank you for joining us. Also on the call today are Norman Schwartz, John Goetz, Shannon Hall, President of our Life Science Group; and John Hertia, President of our Diagnostics Group. Today, we are pleased to report net sales for the third quarter of $508.7 million, an increase of 8.3% on a reported basis and versus the same period last year sales of $470 million. On a currency-neutral basis, sales increased an impressive 9.1% when compared to last year. During the quarter, we experienced good currency-neutral sales growth across many of our regions with North America, Asia Pacific and China, all up double digits. We also experienced good growth across many key Life Science and Diagnostic product areas, including strong sales of our Droplet Digital PCR instruments and consumables, process chromatography media, and products for diabetes monitoring and autoimmune testing. You may remember that in the third quarter of last year, our Life Science Group faced a significant slowdown, primarily related to system and productivity challenges associated with the go-live of our new SAP system in North America. At the time, we estimated that the system adoption issues negatively impacted sales by $5 million to $10 million in the third quarter of 2015. Even with this relatively easier to compare to last year and assuming the impact to be at the top of the range of $10 million, currency-neutral sales would have increased more than 6% in the third quarter of 2016. The reported gross margin for the quarter was essentially in line with expectations at 54.9% and compares to 54.2% last quarter and 56.1% in the year-ago period. This decline in margin versus last year is related to higher manufacturing and logistics costs, increased amortization of intangibles, and a shift in the product…

Thank you. Our first question comes from the line of Brandon Couillard with Jefferies.

Thanks. Good afternoon.

Hi, Brandon.

Perhaps, this is probably best for Shannon, but in terms of the Life Science's core revenue growth in the quarter, understanding that about three-quarters of that business is tied to global government and academic markets, which have been, let's say, less than robust for others so far this period, what do you think contributed to your outperformance in the period? Number two, to what extent, if at all, was some of the strength in the third quarter pulled forward from the fourth? And outside of Digital PCR, which is somewhat unique to Bio-Rad, can you sort of speak to demand trends or what you saw in the other parts of the business?

Okay. So starting backwards, I guess, we saw demand across the board for our product mix in the third quarter as all the product groups did really, really well, and that includes things like quantitative PCR, real-time PCR, cyclers, reagents. They all did really well. Western blotting and electrophoresis, which is a core technology for Bio-Rad, really, really strong. So, I would say, there's not just Droplet Digital that's doing well, but it's amongst a bunch of very successful products. You asked about the academic market. And I've observed that we're doing pretty well in the academic markets in North America and in Europe and had pretty strong performance there. And I know that's not the same as what everybody's seeing. And what was the third...?

And Brandon, your question about the revenue being pulled in from fourth quarter.

Yeah.

I don't think meaningfully. And what I will tell you is from the beginning of the year, we've worked with our commercial organization to really concentrate on trying to smooth out the sales cycle through the year so it's not as back end loaded, and they've worked on that all year. But I don't have any evidence that anything meaningfully got pulled in from Q4 into Q3.

No, no.

Shannon, on the Droplet Digital PCR demand, can you speak to any particular areas or specific applications as to where you're seeing the biggest uptake? And was there, by chance, a large contract that you booked in the quarter that we should view as kind of one-time in nature at all?

No, not for one-time. And this is a truly enabling technology and it can be applied in a lot of really interesting and exciting ways. I'd say, the leading application right now is in the liquid biopsy technology space. So, it's very, very attractive and it's doing things people really want to be doing.

And I think part of the growth, Brandon, was good growth for process media, which historically could be a pretty lumpy business, but I think what we've seen now that we're spec-ed in to so many drugs is that they're able to continually achieve pretty good growth every quarter. While any given customer may have an annual order or a lumpy order, there's enough overlapping that it's really starting to smooth out and be consistent growth.

Thanks. Christine, one for you. In terms of the full-year guidance, could you give us what you're kind of expecting in terms of the FX impact to both revenue and the operating income line?

Well, it's interesting, Brandon, because I think that it's been a bit of a headwind through the first nine months of the year, although it's becoming less and less of a headwind. I think the headwind in Q3 to the top line was about $4 million. And I can't predict what currencies are going to do over the next couple of months, but certainly if they stay where they are, we may experience for the first time a currency tailwind – for the first time in a long time, a currency tailwind in the fourth quarter. So, net-net, if we're currency-neutral up 5.2% year-to-date, and I'm hoping to stay above 4% – we're hoping to stay above 4% for the full year, then I think we'll see a little bit of a slowing of growth in the fourth quarter because of the tough to compare, but should help neutralize some of the headwinds that we've seen in the first nine months of the year.

Super. And then, maybe one for John Hertia. I noticed that you finally got the IH-1000 Blood Typing instrument approved in the U.S. Now, with that behind you, could you sort of share your go-to-market strategy for that instrument? Any feedback to speak to coming out of the AAB (sic) [AABB] Conference? And any chance you could you give us a sense of sort of what your near-term funnels look like in terms of potential placements maybe over the next year and general pricing strategy with the launch?

Well, we were pleased to finally get approval. The good news is it came at the very beginning of the AABB show in Orlando and there was a lot of customer excitement. It's important to remember it's just the first step in a series of steps. I mean, the good news for us is that North America is the largest blood bank market and we introduced infinity last December and got FDA approval. We have FDA approval now for the IH-1000. It's a longer sales cycle. So, it probably isn't going to be until maybe the second half of next year that it begins to have a significant sales impact, because of just the complexity of the instrumentation, the need to validate it as you go through the selling process. We had a lot of excited customers at the AABB. Following the IH-1000 North American gel, we have future plans to introduce manual instrumentation, the IH-500, so that we'll have the most complete line of the immunohematology systems in the market.

Thanks. I'll hop back in the queue. Appreciate it.

Thank you. Our next question comes from the line of David Westenberg with C.L. King. Your line is open. David Westenberg - C.L. King & Associates, Inc.: Hi, guys. Thanks for taking my questions. So, first off, we've seen the NGS sort of bellwether (20:42) take a couple – take a big hit two weeks ago, and it sent valuations sort of across the space down. Number one – related to that, two questions. Number one, are you seeing any decrease in demand with maybe the slowdown with bellwether's (20:53) business? And number two, if the valuations across the board in some of these NGS ancillary technologies are cheaper, would that make you more likely to maybe acquire one of those in the future?

So, you're talking about kind of the group that's doing the next-gen sequencing and that's where they've been getting a lot of their historic growth, and probably not a market we've played a lot in. Is that kind of where you're coming from, Dave? David Westenberg - C.L. King & Associates, Inc.: Exactly.

So, historically, it hasn't been a market that we've been very involved in, which sounds like it may be a good thing right now. But certainly, as we continue to sell – and Shannon, you can comment on this, too – the Droplet Digital PCR into the biopharma market and maybe working on certain things and using that technology, they continue to expand their research.

Yeah. I guess I was trying to grasp the specific question. David Westenberg - C.L. King & Associates, Inc.: So, number one, I mean, if you have less alumina placements, I mean I know they're a little bit more on the higher end, and I know your Droplet Digital PCR is probably more around the next-seq than the high-seq, where they're having the most struggles. But I guess what I'm asking is, if you're seeing a slowdown demand in next-generation sequencers, I mean how do you anticipate it hitting the Droplet Digital PCR instrument?

We haven't seen a slowdown. David Westenberg - C.L. King & Associates, Inc.: Okay.

So, it's just robust demand. I would say, people are still developing ideas about how to put this technology to work into interesting science. David Westenberg - C.L. King & Associates, Inc.: Got you. All right. And then, just in terms of the NIH, how do you anticipate a lot of that spending will come in the fourth quarter, this particular fourth quarter? Are you seeing any changes with NIH?

I mean, I think academically-funded research has been doing pretty well for us. And so, I'd expect to be really successful in the fourth quarter along the same lines, but it remains to be seen. David Westenberg - C.L. King & Associates, Inc.: Got you. And then lastly, just a clarification, was that $5 million in legal fees that you called out?

Yes. David Westenberg - C.L. King & Associates, Inc.: Thank you.

Thank you. Our next question comes from the line of Jeffrey Matthews with RAM Partners. Your line is open.

Hi. Thanks very much. Can you hear me?

We can hear you, Jeff. Hi.

Hi. Three things. One, you talked about Europe was weak. Is there any difference between Western economies and Eastern economies there? And then related to that, Russia seems to be getting better as an economy, and I wondered if you're seeing any signs of life there as far as tenders go.

Yeah. I know, a good question, Jeff. I think it's Western Europe that has been kind of the bigger challenge for us in recent years, where we're seeing a lot of pricing pressure from these tenders and lab consolidation, et cetera. As you point out, Eastern Europe, especially on the Diagnostics side and also on the Life Science side, saw some good growth in the third quarter, but it's Western Europe for Diagnostics where we continue to see a lab consolidation and pricing pressure.

Okay. Then you called out Asia Pacific. Does that mean Japan is doing better? And if I remember correctly, you haven't called that out for a while.

Yeah. No, Japan continues to be kind of a mixed market for us, and for the company was down year-over-year. But when we talk about Asia Pacific, we really are looking at kind of the Pacific Rim and from India through Southeast Asia, et cetera. China is a big enough market for us that it kind of stands on its own, and so we'll call that out. But Japan, we're seeing some tough growth – tough ability to get growth on the Diagnostic side; and for Life Science, it's been fairly flattish.

Okay. That makes sense. And then third, on the ERP, where are you in that? What will you be doing in 2017? And from what you've already done so far, Christine, is it making your life any easier in terms of rolling out the P&L, handling working capital, all that good stuff?

So, good questions, Jeff. So, to answer your question, in 2017, I think most important, we're hoping to go live with our third deployment, our major Western European, if you will, deployment of SAP in the springtime. And all eyes are focused on getting ready for that. And it's not just about designing the system, but really getting the organization ready to catch the ball and catch the new operating model, and a model that's going to have us operate as a single region in Europe, if you will. So, that work will continue at the beginning of 2017, and then we're hoping in the April-May timeframe to go live with the European deployment. And after that, based on prior deployments, I'm sure that it'll be all hands on deck, helping with the transition and people getting used to using the new system. It wouldn't surprise me to see a slowdown in productivity in the short term as we've seen here, just because it's new and it's different. But we're trying to take advantage of lessons learned. We've created a system where our power users that are here in North America are ready to go and sit side by side with the new users in Europe when we go live and get through the transition. Your question, has it made my life easier? I think in a lot of ways, yes, absolutely; although we transition from one thing to the next, and so we're not slowing down. But if I take a breath and really look at what we've been able to achieve in North America, we did move to a shared service center for transactional accounting, and that's helped with the efficiency. It's helped with the audit. It's helped with the analysis of the numbers. So, perhaps, more importantly, for the company, it's helping with working capital. And after, I'm hoping, we get through the transition of going live with the third deployment in Europe next year – and it will take them a good nine months, if not more, to really take advantage of the system. But I'm hoping to see those same benefits ripple through to that deployment, because once we're there, Jeff, we will have substantially all of our manufacturing around the world on SAP as well as 70% of our revenue. And from there, we really hope to move the needle.

Great. Thanks very much.

Thank you. And we have a follow-up question from the line of Brandon Couillard with Jefferies. Your line is open.

Thanks. While we're on the ERP topic, I don't know if Christine or perhaps John Goetz, this might be better for you. I mean, we've talked a lot about the cost opportunity at length, but could you discuss whether you see ERP as potentially enabling incremental revenue opportunities as well, either through better strategic pricing visibility or perhaps discounting control from the sales force?

Yes, certainly. This is John Goetz. I guess, the short answer is we are expecting gains in each one of those areas that you're outlining. It's really part of one of the reasons why we wanted to go with this system at single instance to begin with, which will give us this opportunity to look globally at our inventory, wherever it is, to optimize its location, and its quantities where we need it. Same thing then we intend to be able to do with our planning process to optimize how much we build, so that we're not overbuilding or under-building. And these are really huge improvements, we think, in how we operate the company, and we're expecting those to begin once we get through this third deployment. Frankly, at the moment, those opportunities that we're looking at are post E3 and all of our energy and focus is to get through E3 in one piece. And following on Christine's comment about our preparation for that, we're doing everything we possibly can to make sure that we don't have a negative impact on the business when we do flip that switch in April.

Thanks. And then one more, Christine, for you, back in terms of the third quarter. Any chance you could break down the bridge in the gross margin in the period, specifically, perhaps quantify the drag from the heavier instrument placements in the third quarter on the gross margin line?

Well, I can, Brandon. I think the year-over-year decline in margin is about 120 basis points. Isn't that right, about 1.2%? And the majority of that, I would say, relates to the shift towards instruments. And it's not just the margin being a little lower on the instruments and placing these in reagent rental and taking on the depreciation, but also in terms of the warranty costs and the logistics costs, those correspondingly go up as well. And those are the primary buckets that created the change. So, in some way, I can relate the majority of the differential year-over-year to the increase in instrument places and the corresponding costs.

Thanks. Last one for Norm. Any update in terms of how you're thinking about the current backlog or what's in the M&A pipeline, and your appetite to execute a deal over the next year through the ERP rollout, and whether you see any potential values floating around out there?

Yeah, absolutely. We've got a pretty good book of things that we're looking at evaluating. And certainly, I'm really hoping that it's something that will come to pass in the next three to six months.

Great. That's it for me. Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Christine Tsingos for any closing comments.

Okay. Great. Thanks, Andrea, and thank you, everyone, for taking the time to join us today. We truly appreciate your interest. Bye-bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.