Good day, ladies and gentlemen, and welcome to the Q2 2018 Bio-Rad Laboratories Earnings Conference Call. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Vice President and Treasurer, Ron Hutton. You may begin.

Thank you, David. 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 our 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 our risk factors in our business. The company does not intend to update any forward -looking statements made during the call today. Our remarks today will also include references to non-GAAP net income and non-GAAP diluted income per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I'll 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. With me today are Norman Schwartz, our CEO; and John Hertia, President of our Clinical Diagnostics Group. On the call, we will review our results on a GAAP basis and then provide some commentary and insight to our results on a non-GAAP basis. Today, we are pleased to report net sales for the second quarter of 2018 were $575.9 million and growth of 14.1% versus the same period last year sale of $504.7 million. On a currency neutral basis, sales increased an impressive 11%. During the quarter, we experienced good demand across many of our key product lines resulting in double-digit growth in all three major geographies. When comparing to the second quarter of last year, remember that an estimated $16 million of revenue was disrupted in association with the go-live of our European deployment of SAP in April 2017. If we neutralize for last year's disruption as well as for a small amount of sales that were pulled forward into the second quarter of this year in conjunction with the recent completion of our system deployment in Western Europe, we estimate that currency neutral organic growth for the quarter was around 6.5%. Now, let's look a little closer at the segment performance. Life Science sales in the second quarter were $217.8 million, an increase of 21.4% on a reported basis when compared to last year and growth of nearly 19% on a currency neutral basis. Much of the growth in the second quarter was driven by continued strong demand for our cell biology, Digital PCR and food safety products. We also experienced another quarter of increased demand for our process media product lines. You may recall that 2017 was a tough year for growth in process media, making…

Our first question comes from Dan Leonard with Deutsche Bank. Your line is now open.

Thank you. So, first off on the revenue guidance, Christine and Norman, is it correct to infer that you're assuming no organic revenue growth in the second half of the year? And is there anything to flag outside of the comparisons?

So, I think it's correct to assume that there's much lower growth in the second half of the year on a currency neutral basis. I wouldn't say no, but certainly very, very different than what we've experienced in the first half of the year.

Okay. And Christine, could you offer your latest thinking on the impact of currency on your operating margin target for the year?

So, it's a good question. I mean, as we looked at our targets at the end of Q1, we saw that we still had a bit of a benefit. I think now, as we look to the second half the year, we're getting to a more neutralized currency impact on the operating margin. And you may recall, Dan, that in the Q1 call, when we took our 10% GAAP goal – operating margin GAAP goal and moved it to 11.5% on a non-GAAP basis, that was really incorporating some positive currency impact and some of that's gone away. And that's why we're now looking at 11% to 11.5%.

Okay. Thank you. And then my final question, I just want to make sure I better understand the variance in your gross margin in the quarter. So you flagged upside in placements of diagnostic instruments, but aren't those typically reagent rental and thus capitalized? So can you, I guess, better help me bridge the variance there and correct my understanding on the reagent rental math?

Sure. So, you're asking about kind of the downdraft in the second quarter that we just reported to margin?

Yes.

Yeah, so great question. And as I mentioned, it was a record number of placements for us in the quarter. Some are reagent rental, but there's also a sizable amount that are also sold. And you may recall that last year, our model in China for instruments changed and we no longer do the reagent rental program in China per some of the government regulations that they have there, and a high number of the placements this quarter were in China. And typically, as you're pricing these long-term contracts, the recovery of the gross margin is more on the reagent, the sustainable reagent flow not the instrument itself.

Well, and I guess I have a follow-up then on that comment. So if you had outsized instrument placements in China in diagnostics, do you think any of that was maybe pull forward as a result of customers placing orders in front of potential tariffs or do you think there's any relationship there at all?

Yeah. It's a great question and I had that same question for the person who runs our entire region there. And he does not believe that that's the case. That it is, in fact, the demand for the product itself and customer accounts that we've been working on for some time.

Okay. I'll hop back in the queue. Thank you.

Thank you. And our next question comes from Brandon Couillard with Jefferies. Your line is now open.

Thanks. Good afternoon. Christine, appreciate all the gross margin detail you shared with us between mix and inventory costs. Just curious when do you expect those inventory costs related to the ERP transition to actually go away, should those start to abate in the second half of the year, or will they be with us kind of into 2019 to some extent?

No, Brandon, I think quite a bit of it was just related to actions in this second quarter. And that's why I wanted to call it out. We didn't non-GAAP it out because it really is part of our ongoing business operations, but it was very outsized for the quarter itself. So, we wanted to kind of, quote, normalize that in. There may be a little bit more that continues in the third quarter, but I don't think it continues late in the year and certainly not into next year. Part of what we're doing is transitioning along our plan of a more optimized supply chain and we're moving more warehouses, for example, into our two main warehouses that we've established in Europe, and bringing that model along. And as such, sometimes you have inventory adjustments that go with that, and part of it relates to looking in more countries into our global ERP system.

Thanks. And then, with respect to the second half outlook on the gross and operating margin line, anything you can share with us in terms of your expectations for the cadence of gross and operating margins between the third and fourth quarter? I mean, the fourth quarter is typically one of your more profitable periods; it's a higher revenue seasonally. But anything you can share with us in terms of the pacing of the margin improvement between third and fourth quarter?

Yeah. I'm glad you asked that question, Brandon. From our visibility that we have right now, I think that we're looking for more of the improvement in the fourth quarter. When you think about the instruments that we've placed in the second quarter, and generally it takes 60 to 90 days to complete installation and customer acceptance and really start to see that reagent revenue flow, which could make for some challenge to continue on the gross margin in the third quarter. But we hope by the fourth quarter, that higher margin reagent revenue is starting to flow through the top line. So some improvement in Q3, but more of it in Q4.

Thanks. And then, maybe a question for Annette, if she is with us. Life Science's growth, I mean just exceptional even outside of ddPCR and chromatography. Outside of really cell biology and some of those newer growth areas, it looks like the legacy portfolio of relatively mature product lines is growing pretty nicely, high single, low double digits. Can you sort of walk through what some of the biggest drivers are of that growth resurgence and some of the product franchises where you think you may be picking up some share, doing a little bit better than the underlying market?

So, Annette is not with us, but I think you're absolutely right that even the classic lines, product lines seem to be pretty strong. And I think that part of that comes from strong regional performance around the entire world, and then various of those product lines seem to be doing pretty well.

Yeah. So, Brandon, one of the interesting ones for me to always look at is our more traditional thermal cycling, real-time PCR business. Even in the face of continued strong demand and growth for Digital PCR, our more traditional gene expression business is growing very, very well. And then, some of the western blotting and continuing in food. So, as you point out, really, kind of hitting on all cylinders.

Helpful. And then, one last one for you, Christine, nice to see the working capital start to taper off a little bit here in the second quarter. How should we think about that trending in the back half the year, I guess, in terms of inventories or AR on an absolute dollar basis from here?

So I would hope that we would see continued improvement. Obviously, first and foremost, it starts with the operating profits of the company. And so, having the top line growth and margin expansion, as we expect, will help drive that. At the same time, we'll continue to whittle away on those improvements. I don't know that'll be as dramatic as we've seen in the first half of the year, but I would hope that we will continue to grow the cash flow and reduce the working capital.

Very good. Thank you.

Thank you. Our next question in queue comes from David Westenberg with C.L. King. Your line is now open. David Westenberg - C.L. King & Associates, Inc.: Hi. Thanks for taking the questions and congrats on this absolutely terrific quarter. So, can you give us any update, and I apologize if there's a press release or some news flow that I missed, the latest update on the COO role?

Yeah. There hasn't been a press release. We've continued to look. The idea is to find, obviously, the right person for the role and that's a continuing process. David Westenberg - C.L. King & Associates, Inc.: Okay. And then just in terms of large orders, is there any necessarily – or is there any large customer concentration on the new orders or was it just a number of large orders across the board in either Diagnostics or – I know you called out Diagnostics, but for orders, but also Life Sciences?

I think just across the board, it's pretty broad in terms of the – where the orders are coming from. Obviously, the process chromatography was fairly strong in the quarter and that business tends to be concentrated in fewer larger customers. But otherwise, yeah, it's pretty broad.

And maybe, John, do you want to... David Westenberg - C.L. King & Associates, Inc.: Okay. And then, Europe has been a little bit challenging in the past. In terms of a European macro, is that improving, and then, any expectations in the back half of the year with ERP in Europe, any change in thinking kind of there, broadly?

I think broadly on the Life Science side, it seems to be pretty solid. I think we continue to struggle as most people do on the diagnostics side. We've got a lot of, still a lot of kind of consolidation, control the health care costs. So, I don't know, John, anything to add to that?

I think it's maybe a combination of three things. Some of it for Europe this year was just timing of some larger orders with channel partners. So it's been a general softness we're seeing across the IVD industry. And we're working through the introduction of new processes for D3. All of those are contributing. David Westenberg - C.L. King & Associates, Inc.: Great. Thanks. And then maybe just last one on the acquisition front. It's been a little while since you made a larger one. Is there any sort – type of maybe business that you're homing in on or anything close in terms of acquisitions here? Thank you.

So we continue to have opportunities both across Life Science and Diagnostics and we're continuing to pursue those things. David Westenberg - C.L. King & Associates, Inc.: Thank you very much, and congrats on a great quarter.

Thanks, Dave. Should we poll one more time?

And our next question in queue comes from Dan Leonard with Deutsche Bank. Your line is now open.

Thank you. Just one clarification, want to make doubly sure. So, Christine, the new organic growth guidance of 4% to 4.5%, that assumes the 11% organic growth in the quarter, right. You're not using that normalized 6.5% organic growth number in the new guide.

No. I mean, it does assume what was reported on a currency neutral basis.

And the bridge from the 11% to the 6.5%, it looks like about 3 points of that bridge was the comp and the shift in the base. And then, there was another point that you said there were some small pull forward into Q2. Is that about a point of growth?

It was actually about 1 point of growth. And that relates to – in early July, we hooked in the rest of Western Europe into our global ERP system, and our practice has been always in the past, we offer our customers with standing orders, the opportunity to bring those forward in advance of our go-live. And I think the small pull forward is in $5 million to $6 million range.

Okay. Thank you.

But that also then makes Q3 even tougher.

Of course. Thanks.

And I'm showing no further questions in queue at this time.

Okay, great. Well, everyone thank you so much for your time today. As always, we appreciate your continued interest in Bio-Rad, and we look forward to the next time we speak. Bye-bye.

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