Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year Bio-Rad Laboratories 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 be given at that time. I would now like to turn the call over to Mr. Ron Hutton, Vice President and Treasurer. Sir, you may begin.

Thank you, Victor. 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 future financial 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. Today, we will review the fourth quarter and full year financial results for 2017, as well as provide some insight into our thinking for 2018. With me today are Norman Schwartz, John Goetz, Annette Tumolo, President of our Life Science Group, and John Hertia, President of our Diagnostics Group. Let's start with a review of the quarterly results. Net sales for the fourth quarter of fiscal 2017 were $620.4 million, an increase of 8.6% when compared to the year-ago period sales of $571.5 million. On a currency neutral basis, quarterly sales growth was approximately 5.4%. This solid quarterly growth was driven by good demand for our Life Science products, including continued strong sales of our Droplet Digital PCR instruments and consumables, and cell biology products. We are also pleased to report sizable quarter-over-quarter growth in process media. Our Clinical Diagnostics Group also continued to post top line growth during the fourth quarter, particularly in sales of our blood typing, diabetes monitoring, and autoimmune testing products. On a geographic view, we experienced solid growth in all three of our major regions: the Americas, Europe, and Asia. The consolidated gross margin for the quarter was in line with expectations at 54.7% and compares to last year's gross margin of 55%. The slight decrease in margin versus the year-ago period reflects increases in warranty and service costs, largely associated with higher instrument placements. The gross margin in the fourth quarter also contains some atypical charges and benefits that are more one-time in nature. These unusual items included benefit of $10.8 million related to the successful conclusion of prior legal matters. This benefit was substantially offset by approximately $9 million of cost of goods expense taken in the fourth quarter that relates to…

Yes, ma'am. Our first question will come from the line of Tim Evans from Wells Fargo. You may begin.

Hi, Christine. Thank you for the comments. On your 2017 margin comments, if I take the chart that you have in the press release, the table that have all the kind of the one-timers, and I recalculate the margin, I'm coming up with 8.8%, and you were citing 7.5%. I just want to...

Yeah. I think...

...make sure that the – yeah. Go ahead.

Yeah. I think the difference is when I estimate, I really am looking at non-recurring as opposed to including non-cash. So I think the difference in the press release, you probably included the ongoing amortization of acquired intangible, and I did not, because that is more recurring in nature. But either way, I think we get to the same.

Right. Okay. That's understood. And I just wanted to make sure that that table in there is reflective of the way that you will be reporting your non-GAAP financials going forward.

Well, certainly, if you look at the categories that we list in the press release and you look at the categories on this chart, many of them would fit the definition of non-GAAP that we've identified.

Okay. And then lastly, 10% operating margin target in 2018 under GAAP, are you in a position to tell us what that would look like under non-GAAP?

Well, I think under non-GAAP, that this is going to be mostly items that we're probably not aware of yet that are more non-recurring in nature, the one item that's on the list that is more known is amortization, and you can see what the number is in Q4 and use that as a baseline. But other than that, these are not items that we could predict.

Okay. So you don't have anything, any non-recurring items baked into that number?

Into the 10% number?

Correct.

Only amortization.

Understood. Thank you very much.

You're welcome.

And our next question comes from the line of Dan Leonard from Deutsche Bank. You may begin.

Thank you. So one more question about the EBIT margin target 2018. Christine, you said that's currency-neutral. What currency is included in that 10% number? Is it December run rates, is it something different?

No. So, good question, Dan. When we talk about currency-neutral, we were actually looking at our plan as it would unfold in 2018, and then comparing that to the rate that 2017 unfolded, if you know what I mean. So there's kind of a Q1 way to two, three (00:30:21), it actually goes monthly. To make it a true currency-neutral, if we think about it using December 31 rate that it changed quite dramatically, then we would have the benefit of both higher growth and perhaps a little better margin expansion on a reported basis.

Okay. So the currency-neutral reflects more of an average 2017 rate when you're forecasting 2018?

Basically.

Yeah, okay. And then on the tax rate, the 26% to 27% target for 2018, is that now the normalized rate or is there still room to work that down over time as you bring up your tax planning in Europe?

Well, certainly, it is a new level for us. Majority of that benefit is coming from the European structure. We do have to make some benefit from U.S. tax reform. But remember that historically the majority of our profits have been outside the United States. Having said that and directly to your question, as the business grows over time, so should the benefit. And so, while we look to 26% to 27% in 2018, depending on business performance, that could improve in 2019, 2020 and beyond.

Okay. And then maybe just one final question on the operating business. If John Hertia is there, John, perhaps you can comment on what you're seeing in the North American Diagnostics market, whether you think that customers are still being hesitant due to oncoming Medicare cuts, and then finally if you can talk about the blood typing ramp. Thank you very much.

Sure. Blood typing, I'd say for both the fourth quarter and the year in the U.S. went very well. The introduction of the IH-1000 went very, very well. This year, we exceeded our placement plan, and we also announced at the Investors Day last November that we've picked up LabCorp as a large account for blood typing, the majority of that was implemented toward the end of last year, and then in the first quarter of – it will include implementations of systems over the first quarter of this year. So I'd say blood typing is going very well. We also had FDA approval for our main workstations (00:33:02) that we announced in January that gets us into both the smaller labs and will act as a backup system for the placement – backup systems for the placement of additional IH-1000, so another good stimulus. And that's just the second step of a four-part program, we started with the IH-1000, we have manual systems. We'll be introducing later this year the IH-124, the IH-24, and then into next year, the IH-500, which gets sort of complete the product portfolio. Harnessing (00:33:33) in the slowness in the U.S., some of that was related to, for us, significant declines in our infectious disease business, some of that was a one-time headwind due to a loss of a particularly large customer which won't be reoccurring in 2018. With respect to PAMA and reimbursement, I think it's still an uncertain picture, materials count for a percentage of laboratory operating costs. And so as our labs are being hit with reductions in reimbursement rates, a portion of that would be included in materials and we would be working with the laboratories on how to help mitigate that. But they'd also be looking for ways to improve their operating efficiency as they're looking to reduce overhead and the labor costs, and that opens up opportunities for us in automation of any of our assays. So, I'm still uncertain, but both positive and negative.

Appreciate all the color. Thank you.

And our next question comes from the line of David Westenberg from C.L. King. You may begin. David Westenberg - C.L. King & Associates, Inc.: Hi. Thank you for taking my question. So congrats to John on his retirement. So I just wanted to ask, what are you looking for in a new COO? Do you think you're going to be looking at an internal or an external candidate, and what specific kind of experience are you looking for here?

So obviously, this is a kind of a – what I think of is a kind of a heavy operational role, obviously somebody with a kind of good overall general management experience in a larger environment like the one we're in, we have and we'll look at both internal and external candidates and that process is ongoing. David Westenberg - C.L. King & Associates, Inc.: Great. Thank you. And just as a reminder, this one is probably a little bit more for Christine in terms of cadence. I know you're starting to lap the ERP. So, I think in Q1 you had some ordering, and then in Q2, you had made the ERP go-live. So can you just give us – I know you don't want to give quarter-by-quarter guidance, but just kind of a way to think about the growth rates in the first half of the year around ERP and just kind of give us a reminder of what exactly we'd be lapping here.

Yeah. No, good question. And you're right, we don't give quarterly guidance, but it is important to kind of know some of the unusual patterns of 2017. As you pointed out, the second quarter of 2017 was a very difficult quarter for us with the go-live in Europe. And so as such, as we look at the second quarter of 2018, it's probably a relatively easier compare than others. And perhaps in Q3, maybe some of the reverse of that is true because in 2017, we made up so much in Q3. In the first quarter, I think especially when we look at the compare, Diagnostics had a very big quarter in Q1 of 2017. So that's a bigger hill for them. And now we've just reported a very impressive fourth quarter of 2017. So I'm not sure what that means for Q4 of 2018, but that's a big one to beat. David Westenberg - C.L. King & Associates, Inc.: Got it. Now that's just very helpful. And then historically, you've been fairly disciplined buyers. And I think in the past, you said you used a DCF to evaluate acquisition targets. So with valuations currently where they're at, are you having any change in the way you're looking at acquisitions, and is there any change in terms of the importance of how near-term accretive these acquisitions that you're looking for will be?

No, I don't think there is any fundamental change in the way we think about acquisitions. I think that we look for kind of payback on these on kind of a cash-to-cash basis. And there continue to be opportunities that we're looking at, and we'll see what happens throughout the year.

Yeah. I think that's fair. I mean, you're right, the multiples are fairly high. There are certain assets we would love to acquire, but we remain pretty disciplined with our model as Norman says, and we run a discounted cash flow model and are very much looking at that cash-to-cash payback. And with that being said, some of the businesses out there carry high multiples deservedly so, and others don't, so we're going to keep looking at this on a deal-by-deal basis. David Westenberg - C.L. King & Associates, Inc.: All right. And thank you very much.

Our next question comes from the line of Brandon Couillard from Jefferies. You may begin.

Thanks. Good afternoon. Christine, a few for you, just starting with the fourth quarter of 2017, can you tell us how much the process media business grew year-over-year in terms of dollars? And then secondly, do you have a sense of, even if it's just ballpark, what the Diagnostics business would have done in terms of core growth in the fourth quarter if we strip out the infectious disease customer loss in the U.S.? And did I hear John correctly that that will not be a headwind at any point in 2018, that loss?

So, for Life Science and the process media business in the fourth quarter, that was up about $7 million year-over-year. Infectious disease across the board for Diagnostics, this is probably the fourth or fifth year in a row that that business has declined, and for the full year, it's 15-or-so-plus million dollars. And part of being able to accelerate growth next year is hopefully not seeing that same level of decline.

Okay. That's helpful. And then as far as the 2018 outlook goes, I mean, on a year-over-year basis, you're going from 7.5% to 10%, it's seemingly a big move, but relative to the second half of the year, where you did double digits on an adjusted basis LTM in the second half of the year, so can you help us sort of quantify the buckets of the expense savings that you expect between ERP, supply chain, GnuBIO, and so forth?

So, we certainly haven't quantified every bucket. We have talked about the GnuBIO savings of about $15 million a year, ERP savings of about $15 million a year, obviously improvement in the gross margins. I think one of the many benefits to move into non-GAAP reporting is that we'll be able to have all of this on the same page in terms of how we're looking at the base operations of the business. And what I mean by that goes back to that earlier question about – that Tim had and viewing the margins with or without purchase accounting as we've made adjustments in our little table over the years and called it out on our script, it really was focused on the atypical or unusual non-recurring things, and as we move to non-GAAP, then we would also include amortization in that. So I think that'll get us all in a level...

Okay.

...playing field. And then the other thing I missed is...

Okay.

...Brandon, is that on a reported basis, with the weakening of the dollar now compared to where it's been over the past year, that not only will on a reported basis accelerate our top line growth rate, but could also help with some margin expansion beyond the 10% target.

Okay. Thank you. Question for Annette, would love to get an update on the single-cell opportunity. I've always viewed that as very much incremental to the main ddPCR opportunity. I'm curious as to – perhaps you could give us a ballpark range of how much of that business is just single-cell today, and what inning you think we're in in terms of the liquid biopsy market developments at this stage. And then secondly, whether you do expect – so you're currently evaluating licensing opportunities which you've alluded to a little bit at the Analyst Day, how those conversations are kind of progressing.

Okay. Well, I think our experience entering the single-cell market this year really validated our view of customer interest in this very new emerging market. So it certainly is a new part of the droplet-based business that we're growing. Our business in Digital PCR is larger as you could imagine. But I think we're very encouraged by customer demand and interest in this area. So happy there, and we're going to grow that into a whole new area of business for our droplet partitioning technologies. We are making progress in liquid biopsy, we have released our first CE IVD platform and kit for monitoring blood cancers, PCR-ABL specifically, and we're getting a lot of interest outside the U.S., where we can sell those products and we're about to submit to the FDA for the U.S. base. So we're very encouraged in that area, it continues to grow, and we're investing more aggressively in that area. And I think the last question you asked for was about our licensing program, and we're working on a commercial use license program that we're hoping to roll out in first quarter or the early second quarter, and considering where we might have opportunities to license the significant intellectual property that we have in this area.

It's very helpful. One last one for John Goetz, couldn't let you sneak off the call without speaking here. Just curious, as far as your retirement goes, just you can help us understand so sort of why now, and to what extent the margin expansion plan blueprint, if you will, is somewhat institutionalized in the organization and also the independence of yourself?

Well, Brandon, I sat down and asked myself, how many good years do I still have left. And that's a pretty sobering question to ask. And there are personal priorities that start to change. I'm very much looking forward to spending time with my grandkids. I've done a lot of traveling for the company, and I kind of like my wife to be able to actually see one or two of these very interesting places I've been to. I also want to do a lot more in terms of volunteering. I'd like to kind of give back a little bit, so I got some good plans there. So I got a small vineyard at the back of my property. I'd like to try my hand at making some wine, and I'm a big college football fan. So I'd like to take in a couple of home games in Pullman, Washington, and aside from that, my wife Linda (00:46:44) has got quite a list of things for me to do. So, I'm certainly not going to be looking for anything to do. Why now? I think I feel really good about where the company is today in terms of its seriousness, planning towards improving its top and bottom lines. We've done some really good planning over the course of the last couple of years and it's kind of culminated this year with a very specific idea of cascading of goals from the top of the company throughout the whole organization. I feel really good about it, I feel very proud about it. And handing this off to the next guy or gal, I think we've really set the stage for success in my opinion. So for me, it's a pretty good time to take a step back, and a lot of my personal wealth is tied to Bio-Rad stock, so I'm going to be watching that pretty carefully as I read the newspapers and watch my cellphone stock quotes.

Very good. We wish you the best of luck. Closing the loop, last one, Christine, on the balance sheet, so it's been about eight months since the final module of the ERP system was deployed in Europe. I mean, should we start to begin to see this net working capital build begin to taper in the first quarter? And anything you can tell us in terms of range for operating cash flow expectations for 2018?

Sure. Yeah. So, certainly, as we move through the year, we're going to see improvement. Our experience in the past has been it's generally taken us at least a year for things to more normalize and then little bit longer than that to really start to reap the benefits, and we don't anniversary that one year since go-live until the second quarter. But a lot of this will be driven by continued top line growth in generation, as well as process improvement in stabilization. So I think it builds through the year.

Very good. Thank you.

And I'm showing no further questions at this time. And I'd like to turn the call back to Ms. Christine Tsingos for closing remarks.

Tsingos. Thank you, Victor. All right, everyone, thank you very much for taking the time to be with us today. As always, we appreciate your interest in Bio-Rad and look forward to seeing you soon. Bye-bye.

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