Good afternoon, ladies and gentlemen. And welcome to the Bio-Rad Fourth Quarter and Full Year 2023 Earnings Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Edward Chung. Please go ahead.

Thanks, Jenny. Good afternoon, everyone, and thank you for joining us. Today, we will review the fourth quarter and full year 2023 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Andy Last, Executive Vice President and Chief Operating Officer; and Simon May, President of the Life Science Group. Before we begin our review, 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. 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 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. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I will now turn over the call to Andy Last, our Executive Vice President and Chief Operating Officer, to provide an update on Bio-Rad’s global operations.

Okay. Many thanks, Ed, and good afternoon to everybody. Thank you for joining us. The fourth quarter of 2023 performed largely as expected, reflecting a continuation of the macroeconomic trends started earlier this year in the biotech and biopharma segments, China and geopolitical challenges related to Russia. However, revenue picked up nicely compared to Q3 in both Life Science and Diagnostics, although, as expected, we saw little in the way of budget flush in the fourth quarter of this year for the Life Science business. During the quarter, we smoothed out the remaining operational challenges associated with our SAP Go Live in Q3 in Asia-Pacific, and we are now operating on a single global instance of SAP across all our operations. In Life Science, we experienced a double-digit core business decline compared to Q4 prior year, where we had challenging compares due to strong budget flush, backorder burn down and we benefited from the launch of the QX600 ddPCR platform. We were pleased with the growth of our Clinical Diagnostics business in Q4, especially in Asia-Pacific, where we prioritized placements to capture some strong growth trends, particularly in our diabetes testing franchise. We are now past our supply chain challenges and finished the quarter with a more normalized year-end backlog. Overall, our ddPCR franchise had a soft 2023, with sales flat when excluding COVID, as compared to the high growth we had previously been experiencing from our focus in biotech and biopharma. However, we remain very positive on maintaining our leading market share in the markets we serve and are looking forward to the impact of the QX Continuum launch as we expand our focus on the lower-end market later this year. In addition, we continue to prioritize investment on application and assay expansion for the platform overall, with further…

Okay. Thank you, Andy. So, first, I’d like to review the results of the fourth quarter and the full year. So net sales for the fourth quarter of 2023 were $681.2 million. It’s a 6.7% decline on a reported basis versus $730.3 million in Q4 of 2022 and a 7.7% decline on a currency-neutral basis. Similar to the prior quarter, the fourth quarter year-over-year revenue decline was primarily the result of ongoing weaknesses in the biotech and biopharma end markets, again, primarily impacting sales of our Life Science segment products. In addition, we continue to experience weak demand for Life Science products in China. I think both as a result of the macroeconomic environment, as well as to some extent, the local made-in-China initiatives. COVID-related sales in the prior year were $13.4 million and immaterial in the fourth quarter of 2023. Therefore, core revenue, which excludes COVID-related sales, decreased 6.0% currency-neutral. And then on a geographic basis, currency-neutral revenue decreased year-over-year in the Americas and Europe and was relatively flat in Asia. The sales of the Life Science Group in the fourth quarter of 2023 were $291.1 million, compared to $359.7 million in Q4 of 2022, which is a 19.1% decline on a reported basis and 19.9% on a currency-neutral basis. Excluding COVID-related sales, the Life Science year-over-year currency-neutral core revenue experienced a broad-based decline of approximately 17%. In addition to the challenging biotech, biopharma end markets and soft macroeconomic conditions in China during the quarter, ddPCR and qPCR sales faced difficult compares due to the backorder burn down and other factors Andy mentioned in the year-ago period. And when excluding process chromatography sales, the underlying Life Science business decreased 22.1% on a currency-neutral basis versus Q4 of 2022. And finally, the Life Science Group revenue excluding process chromatography and…

That concludes our prepared remarks. And we will now open the line to take your questions. Operator?

Yes. Thank you. [Operator Instructions] Your first question is from Patrick Donnelly from Citi. Please ask your question.

Great. Thanks for taking the questions, guys. Norman, I guess, this will be for you on the margins. Just in terms of the ramp throughout the year, can you just talk about the moving pieces? It sounds like the incentive comp is obviously going to hit pretty hard here in the first half. Is it a bit of a Singapore ramp picking up steam in the second half? Is it volume leverage? Maybe just talk about the cadence and the ramp of that margin story throughout the year here and just kind of how we should think about the pace?

Yeah. I think it really has the most to do with the sales volumes. We get a lot of leverage from the sales and I think we should see the margins ramp with sales.

Okay. Understood. And then just on the CFO search, maybe can you provide an update of where we stand, timing when that could happen? We’ve got a few questions on just a little bit of an update there would be helpful.

Yeah. We’re really making good progress and candidly we’re hoping to have a new CFO on Board by the next earnings call.

Okay. All right. Next few months. And then maybe one last one, just in terms of the outlook on China, just how you guys are thinking about that region both in the Life Science and Diagnostics. I know it’s two -- maybe two good -- two different stories there. So, yeah, just kind of let us know what you’re seeing there currently in each segment and the expectations for 2024 would be helpful?

Yeah. Yeah. I’d say, near-term, it’s -- it seems to be a kind of a tough market, not many signs of immediate recovery and a little bit of uncertainty I think as to when we will see that. I think that the good old days of double-digit growth in China are, I don’t see that in the foreseeable future. For a life science business, I think we’ve seen the impact of -- combined impact of the in China for China, anti-corruption, and in general, a kind of a tough funding environment affecting the business. For Diagnostics, I think, they -- we’re continuing to see steady growth, but we do continually also continue to kind of carefully monitor the situation with these value-based pricing tenders, wondering if that may spread to some of our platforms or some of our more specialty products from the kind of higher volume products that have seen that in the short-term.

Understood. Thank you, guys.

Thank you. Your next question is from Jack Meehan from Nephron Research. Please ask your question.

Thank you. Good afternoon. First question I wanted to ask about the Life Sciences business. Can you talk about -- so in the script you talked about how the PCR and ddPCR businesses kind of saw some backlog burn down? Could you talk about like how long you expect this to persist in 2024 and when that might start to turn the corner?

Yeah. This is Simon. I think we’re really largely through the backlog burn down compares as we head into 2024. I think the short answer is the slate’s pretty clean now. We’ve obviously got a bunch of other macro conditions impacting the business as we referred to in the script and the H1 versus H2 contrast. But as we’re sitting here today, we don’t see backlog burn down as an issue going forward.

Yeah. The call-out -- sorry just to add on Simon, the call-out was against the 2022 Q4 compares where Life Science had a meaningful contribution from backlog burn down.

Got it. Okay. And then I was curious how process chrom played out in the quarter versus your expectations. I know you talked about starting the year with lower backlog there. Were there some larger than expected shipments in the quarter?

It’s Simon again. I think at a macro level we saw the conditions that we’ve been talking about all year with destocking continue to persist, and again, as I think Andy called out in the script as we enter Q1 our order book remains softer than we’ve seen it in previous years. I guess the follow-on question there is about are we seeing any green shoots and there’s certainly a lot of tentatively encouraging data starting to emerge as we look at our customer base. I think we’re seeing that a number of our customers we’re really anticipating are going to be through the destocking impacts in 2024 and we’ll see something like a return to normality. But at the same time we’ve got some larger customers who all the indications are they’re not going to be through it and so I think that’s going to net out to be tentatively we’ll see some recovery in the second half but there’s still a fair amount of uncertainty around it.

Great. Okay. And then last one just was curious for any color on kind of below the line items within the guide for this year, just anything you would call out there. I think Sartorius announced their dividend for the year, just any color on that would be helpful.

Yeah. They did cut the dividend. We baked that into our guidance and it’s understandable given the kind of cash constraints that they have.

Okay. Thank you.

Thank you. Your next question is from Dan Leonard from UBS. Please ask your question.

Thank you very much. I had another question about phasing for 2024. You mentioned that the year will be more back-end loaded. Could you elaborate on that? How much more back-end loaded than typical?

Yeah. It’s a really good question. Normally it’s something like, kind of more like 49-51 when we think of a normal year and I think we’re going to see a much wider spread than that for 2024. I think it’s anybody’s guess exactly what it’s going to be, but I think, we’ll see a kind of a bigger delta between the first half and the second half.

Much wider than the 2-point spread typically?

Yeah.

Yes.

I think more closer towards 4 points or 5 points spread between first half and second half then.

Appreciate that. And can you share what are your growth assumptions for process chromatography, Droplet Digital PCR and comment on whether a couple of these new product launches you talked about the Continuum and the ddSEQ, whether they’ll be launched in time to contribute to the year?

Yes. Simon again. I think for process chromatography as I mentioned previously we’ve got these competing forces of accounts that are destocked and accounts that are still destocking, and I think the net of that is going to be negative, because the accounts that are destocking are our larger accounts. I think there’s still some ongoing uncertainty around that as we keep saying but the best read of the tea leaves that we’ve got right now is as mentioned. For Digital PCR we had a challenging Q4 for reasons that have been mentioned and that in the end made it a challenging year as well. As we look to 2024, I think we’re certainly seeing nice growth potential in Digital PCR. Again that’s predicated to some degree on recovery of the biopharma markets where we’ve been hit, we’ve got a very strong existing position there and also we’ve got some good new product launches coming out. So the way I think about it, it’s biopharma market recovery and it’s new product introductions. They’re both when not if events and so for the full year I think we’re looking at growth in Digital PCR.

That’s helpful. Thank you.

Thank you. Your next question is from Conor McNamara from RBC Capital Markets. Please ask your question.

Hey, guys. Thanks for taking the questions. Just on ddPCR, can you talk about the growth in the quarter or the negative growth on equipment versus consumables, obviously, you had a tough comp on equipment placements last year. But is there -- was there any consumable growth and how should we think about kind of the consumables a percentage of total ddPCR from here and where does it go?

Yeah. I think the short answer there is again primarily driven by biopharma headwinds. We saw challenges in both instruments and consumables, I’d say with approximately equal weighting. I think we’ve got a healthy mix now overall in terms of consumables and instruments, and again, as the markets recover we think we’re going to be the beneficiaries of that.

Okay. Great. And then on capital deployment, obviously, you’ve still got some room on buybacks. Is buyback still the priority or is there anything on M&A that you’ve seen the opportunities open up or should we just think primarily about buybacks for 2024?

Yeah. We certainly, as we mentioned, we’ve got still several $100 million authorized by the Board and we’ll continue to be opportunistic with share repurchases, but we still have a focus to kind of continue to look for kind of good complementary business opportunities to tuck-ins, things that are complementary to the business. Probably no change in our thinking around acquisitions, so it’s a kind of a two-pronged approach. Could be buybacks, could be some tuck-in acquisitions.

All right. Thanks for that.

Combination of both.

Thank you. There are no further questions at this time. I will now hand the call back to Edward Chung for the closing remarks.

Thank you for joining today’s call. We will be at the Citi Unplugged Life Sciences Access Day in New York at the end of February and hope to see some of you there. As always, we appreciate your interest and we look forward to connecting soon. Bye-bye.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.